Mercury Nz Ltd. · NZX:MCY
Mercury Nz — Non-Deal Roadshow (November 2018)
29 slides from Mercury Nz's roadshow presentation, Nov 19, 2018
Slide 1: Investor Roadshow
Mercury For personal use only Investor Roadshow WILLIAM MEEK TIM THOMPSON Chief Financial Officer Head of Treasury & Investor Relations November 2018
Slide 2: Disclaimer
DISCLAIMER This presentation has been prepared by Mercury NZ Limited and its group of companies (“Company”) for informational purposes. This disclaimer For personal use only applies to this document and the verbal or written comments of any person presenting it. Information in this presentation has
Slide 3: Country, Industry & Company
COUNTRY, INDUSTRY & COMPANY For personal use only Stable regulatory framework 100% renewable generation > Underpinned by strong industry performance > Low variable cost generation delivering strong on Reliability, Renewability and Pricing (the and stable cash flows electricity ‘trifecta’) > Location
Slide 4: Mercury at a Glance
6,800GWh MERCURY AT A GLANCE ANNUAL GENERATION For personal use only 60% 40% Vertically integrated 100% renewable HYDRO GEOTHERMAL generator and retailer 19.99% 343K SHAREHOLDING NORTH ISLAND IN TILT CUSTOMERS Key Information1 Ticker Codes: MCY.NZ / MCY.AX NO. 2 METER DATA & Market Capitalisation: N
Slide 5: Mercury's Competitive Advantage
MERCURY’S COMPETITIVE ADVANTAGE For personal use only 100% renewable generation High performance teams > Two low-cost complementary fuel sources > Dynamic company culture built on the in base-load geothermal and peaking understanding that our people set hydro us apart Superior asset location Track r
Slide 6: Mercury's Financial Track Record
MERCURY’S FINANCIAL TRACK RECORD EBITDAF DISTRIBUTIONS For personal use only OPEX Operating expenditure One-off costs Interim dividend Final dividend 600 CAGR: ~3% 600 600 Special dividend Share buyback 400 400 400 10 years of ordinary dividend growth Flat from FY2014 $m $m $m 200 200 200 0 0 0 2009
Slide 7: New Zealand's Competitive Advantage in Electricity
NEW ZEALAND’S COMPETITIVE ADVANTAGE IN ELECTRICITY > All electricity markets seek to balance Reliability, Pricing and Renewability – the ‘Electricity Trilemma’ For personal use only > New Zealand has achieved the electricity ‘Trifecta’: > Opportunity exists in New Zealand to broaden this advantage t
Slide 8: International Energy Agency
INTERNATIONAL ENERGY AGENCY For personal use only It is a world leading example of a well-functioning energy market, which continues to work effectively.” 1 The country is endowed with a diverse range of energy sources, notably renewables. Among IEA member countries, New Zealand has the highest pene
Slide 9: Contrast to Australia's 'Electricity Trilemma'
CONTRAST TO AUSTRALIA’S ‘ELECTRICITY TRILEMMA’ NEW ZEALAND’S GENERATION MIX For personal use only Reliability 50 Hydro Geothermal Wind Coal Gas Other Solar > Coal plant retirements and growing intermittent generation 40 have reduced system stability 30 TWh > “With increasing growth in variable renew
Slide 10: Stable Regulatory Framework
STABLE REGULATORY FRAMEWORK For personal use only Celebrating 20 years of the market delivering reliability, renewability and choice for customers > Electricity sector fully deregulated in the 1990s with introduction of competitive wholesale and retail markets > Generation investment entirely market
Slide 11: Long-Term Industry Trends
LONG-TERM INDUSTRY TRENDS SECTOR EARNINGS DEMAND For personal use only Series1 Series2 3 50 10.0 CAGR: 3.3% EBITDAF ($b) 40 2 9.5 30 TWh GW 20 1 9.0 10 0 0 8.5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Financial Year Financial Year RESID
Slide 12: Emerging Technology in New Zealand Context
EMERGING TECHNOLOGY IN NEW ZEALAND CONTEXT Solar SOLAR PV INSTALLATIONS For personal use only Solar Installations 12mth Rolling Installations (RHS) > Still a niche in the NZ electricity market 500 5,000 Monthly Solar PV > 1m solar panels is equivalent to ~1% of national demand 400 4,000 Installation
Slide 13: Underlying Drivers for Future Demand Growth
UNDERLYING DRIVERS FOR FUTURE DEMAND GROWTH > Electricity demand has been flat for a decade ANNUAL ELECTRICITY DEMAND Annual Growth Rate (RHS) For personal use only 42 Consumption (LHS) 4 > Signs of demand growth are re-emerging 3 > Urban, rural and dairy segments continue to grow 40 2 TWh 1 > NZ Al
Slide 14: Dynamic Wholesale Market
DYNAMIC WHOLESALE MARKET > Wholesale spot prices reflect near term supply and demand conditions including hydrology For personal use only > Futures pricing tends to Long Run Marginal Cost (LRMC) of new generation in a growing market ELECTRICITY PRICES Wholesale Price Futures Price1 $320 Above averag
Slide 15: Mercury
For personal use only 15 MERCURY
Slide 16: Levers for Growth
LEVERS FOR GROWTH Tighter supply and demand For personal use only > Upward pressure on end-user pricing due to supply and demand balance tightening Investment in core business > Wind options Turitea (216MW) & Puketoi (300MW) remain ready for multi-stage development at the right time > Current geothe
Slide 17: Mercury's Hydro Advantage
MERCURY’S HYDRO ADVANTAGE > Positive correlation of North Island hydro inflows and sales For personal use only > Inflows into Mercury’s North Island hydro catchment peak in winter to match peak winter demand > Complemented by non-weather-dependent baseload geothermal AVERAGE SOUTH ISLAND INFLOWS VS
Slide 18: Mercury's Hydro Advantage
MERCURY’S HYDRO ADVANTAGE > Large South Island (SI) hydro catchments and associated hydrology drives wholesale prices For personal use only > High South Island hydro storage will result in low wholesale prices (and vice versa) > Mercury’s North Island (NI) hydro catchment has low correlation to whol
Slide 19: Focus on Loyalty in a Highly Competitive Retail Market
FOCUS ON LOYALTY IN A HIGHLY COMPETITIVE RETAIL MARKET > In a highly competitive retail market, Mercury is focused on promoting and rewarding customer loyalty For personal use only > Mercury Brand churn rate significantly below market > Churn rate of other brands reflects behaviour of targeted custo
Slide 20: Focus on Customer Loyalty
FOCUS ON CUSTOMER LOYALTY For personal use only The number of customers enjoying unique Mercury rewards continues to grow: > 155,000 Airpoints™ customers (45% of Mercury brand)1 > 123,000 on Fixed-Term contracts (36% of Mercury brand)1 > GEM, our usage monitor, is one of our most popular services wi
Slide 21: Stable Capital Structure
STABLE CAPITAL STRUCTURE > BBB+ rating is key reference point for dividend policy and an efficient and sustainable capital structure For personal use only > S&P re-affirmed Mercury’s credit rating of BBB+/stable on 11 December 2017 > One-notch upgrade given majority Crown ownership > Capital structu
Slide 22: Appendix
For personal use only Karapiro Hydro Power Station 22 APPENDIX
Slide 23: New Zealand Overview
NEW ZEALAND OVERVIEW Key Facts For personal use only Credit Rating: AA/stable Population: 4.9 million1 GDP: NZ$289 billion (or US$188 billion)2 Official Cash Rate (OCR): 1.75% 10yr Interest Rate: 2.8%1 > Stable political environment > Mixed Member Proportional (MMP) system > Two main parties – Natio
Slide 24: New Zealand Electricity Market Structure Since 1998
NEW ZEALAND ELECTRICITY MARKET STRUCTURE SINCE 1998 For personal use only 1 RETAILERS AND WE OPERATE 1 WE OPERATE 4 4 GENERATORS CONSUMERS HERE HERE > Wholesale prices > Retail prices determined determined by competition by competition > Generate electricity and (unregulated) sell to wholesale marke
Slide 25: Mercury's Complementary Generation Sources
MERCURY’S COMPLEMENTARY GENERATION SOURCES > 100% renewable generation with two complementary FY2018 NET POSITION BREAKDOWN For personal use only low-cost fuel sources > High up-front build cost, low operating cost 8,000 > Central North Island close to major load centres and not Net CFD Sales 2 7,00
Slide 26: Ownership
OWNERSHIP > Listed on NZX and ASX in May 2013 MERCURY SHARE REGISTER1 For personal use only > ~85,000 shareholders (widest-held New Zealand register) 3% 8% > Government majority ownership > Public Finance Act and Company’s constitution require at Government 14% least 51% Crown ownership New Zealand
Slide 27: Supplementary Dividend to Non-Residents
SUPPLEMENTARY DIVIDEND TO NON-RESIDENTS > Reduces or eliminates the economic impact of Non-Resident Withholding Taxes For personal use only > For illustrative purposes see below worked example for a corporate investor. This should not be interpreted as tax advice NZ investor Foreign investor No Supp
Slide 28: Reference Material
REFERENCE MATERIAL MERCURY REFERENCES For personal use only Mercury Investor Centre www.mercury.co.nz/Investor-Centre Governance Presentation – December 2017 http://issuu.com/mercurynz/docs/governance_roadshow_presentation_de?e=25554184/56318686 FY2018 Results Presentation – August 2018 https://issu
Slide 29: For Further Information
For personal use only FOR FURTHER INFORMATION > TIM THOMPSON | HEAD OF TREASURY & INVESTOR RELATIONS T. +64 275 173 470 E. INVESTOR@MERCURY.CO.NZ