Mercury Nz Ltd. · NZX:MCY
Mercury Nz — Non-Deal Roadshow (November 2017)
33 slides from Mercury Nz's roadshow presentation, Nov 15, 2017
Slide 1: Mercury Investor Roadshow Presentations news release
For personal use only STOCK EXCHANGE LISTINGS: NEW ZEALAND (MCY) / AUSTRALIA (MCY) NEWS RELEASE Mercury Investor Roadshow Presentations 15 November 2017 - Mercury will be giving presentations at a series of international investor meetings during November 2017. The presentation materials are attached
Slide 2: Investor Roadshow
Mercury For personal use only Investor Roadshow FRASER WHINERAY WILLIAM MEEK TIM THOMPSON Chief Executive Chief Financial Officer Head of Treasury & Investor Relations 15 November 2017
Slide 3: 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 4: Mercury at a Glance
MERCURY AT A GLANCE For personal use only Market Capitalisation of 100% RENEWABLE GENERATOR, Dual listing on the NZX and ASX RETAILER AND METERING PROVIDER $4.5b1 ~7,000GWh generation per annum from MCY.NZ / MCY.AX flexible hydro and baseload geothermal 2nd largest NZ gentailer Minimum 51% legislate
Slide 5: New Zealand's Competitive Advantage in Electricity
NEW ZEALAND’S COMPETITIVE ADVANTAGE IN ELECTRICITY > Electricity markets globally seek to balance Reliability, Pricing and Renewability – the ‘Electricity Trilemma’ For personal use only > New Zealand has achieved a ‘Trifecta’: RELIABILITY NZ ranks 3rd lowest out of 25 large energy-consuming countri
Slide 6: Australia's 'Electricity Trilemma'
AUSTRALIA’S ‘ELECTRICITY TRILEMMA’ Reliability NEW ZEALAND’S GENERATION MIX For personal use only 50 Hydro Geothermal Wind Coal Gas Other Solar > Coal plant retirements and growing intermittent 40 generation have reduced system stability 30 > Significant outages and unplanned load-shedding including
Slide 7: Regulatory Stability
REGULATORY STABILITY Celebrating 20 years of the market delivering reliability, renewability and choice for customers For personal use only > Electricity sector fully deregulated in the early 1990s with introduction of competitive wholesale and retail markets > Generation investment entirely market-
Slide 8: Long-Term Industry Trends
LONG-TERM INDUSTRY TRENDS SECTOR EARNINGS DEMAND For personal use only Demand Max. Generation Capacity (RHS) 2.5 10.0 CAGR: 3.3% 2.0 40 EBITDAF ($b) CAGR: 0% 1.5 TWh GW 9.5 1.0 20 0.5 0.0 0 9.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Financ
Slide 9: Strong Underlying Drivers for Electricity Demand
STRONG UNDERLYING DRIVERS FOR ELECTRICITY DEMAND > System Operator (Transpower) forecasting demand ANNUAL ELECTRICITY DEMAND Annual Growth Rate (RHS) For personal use only 44,000 4% growth of ~1% Consumption (LHS) 42,000 3% > Normalised demand* down 0.9% in FY2017 led by 40,000 2% reduced industrial
Slide 10: New Zealand Aluminium Smelter (NZAS)
NEW ZEALAND ALUMINIUM SMELTER (NZAS) > NZAS represents 13% of New Zealand ALUMINIUM PRICE For personal use only annual electricity demand1 3 month futures > Indications are that NZAS unlikely to be 4,500 AUCKLAND • closed in the near term Mercury generation assets > Aluminium futures currently tradi
Slide 11: Re-Balanced Electricity Supply
RE-BALANCED ELECTRICITY SUPPLY > Supply and demand balance has tightened after a period of over-supply, as illustrated by the 2016 – 2018 NZ hydro risk For personal use only curves increasing in magnitude from the 2012 - 2015 curves > More balanced supply and demand has increased price sensitivity t
Slide 12: Mercury
For personal use only 11 MERCURY
Slide 13: Mercury's Competitive Advantage
MERCURY’S COMPETITIVE ADVANTAGE For personal use only 100% renewable generation with two low- Rain-fed North Island hydro catchment with cost complementary fuel sources in base- inflows correlated with winter peak demand load geothermal and peaking hydro (unlike South Island) North Island generation
Slide 14: 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 15: Success in a Competitive Retail Market
SUCCESS IN A COMPETITIVE RETAIL MARKET > In a highly competitive retail market, Mercury is focused on promoting and rewarding customer loyalty For personal use only > Mercury premise churn rate significantly below market > Customer satisfaction1 based on Mercury’s survey increased through FY2017 fro
Slide 16: Focus on Customer Loyalty
FOCUS ON CUSTOMER LOYALTY The number of customers enjoying unique Mercury rewards For personal use only continues to grow: > 147,000 Airpoints™ customers (42% of Mercury brand) > 143,000 on Fixed-Term pricing (40% of Mercury brand) > 157,000 Free Power Days in FY2017 > $10m donated to Starship Child
Slide 17: Mercury's Financial Track Record
MERCURY’S FINANCIAL TRACK RECORD EBITDAF Interim dividend Final dividend OPEX Operating Expenditure One-off costs DISTRIBUTIONS For personal use only CAGR: ~5% Special dividend Share buyback 600 600 600 500 500 9 years of ordinary dividend growth 400 400 Flat from FY2014 400 $m $m 300 $m 300 200 200
Slide 18: Continuous Focus on Capital Management
CONTINUOUS FOCUS ON CAPITAL MANAGEMENT For personal use only FREE CASH FLOW (FCF) Net Cash Flow from Operating Activities less normalised stay-in-business capital expenditure BALANCE SHEET ORDINARY DIVIDENDS INVESTMENT IN GROWTH SPECIAL DISTRIBUTIONS Dividend Policy is to make Key ratio for stand al
Slide 19: Levers for Growth
LEVERS FOR GROWTH Better 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 geother
Slide 20: Emerging Technology in Context
EMERGING TECHNOLOGY IN CONTEXT Solar SOLAR PV INSTALLATIONS For personal use only Solar Installations 12mth Rolling Installations (RHS) > Will be a niche feature of the NZ electricity market 500 5,000 Monthly Solar PV > 1m solar panels is equivalent to ~1% of national demand 400 4,000 Installations
Slide 21: Thesis: Country, Industry & Company
THESIS: COUNTRY, INDUSTRY & COMPANY Stable regulatory framework For personal use only > Underpinned by strong industry performance on Reliability, Renewability and Pricing (the electricity ‘trifecta’) > New Labour-led coalition government supportive of renewables 100% renewable generation > Location
Slide 22: Appendix
For personal use only 21 APPENDIX
Slide 23: New Zealand Economic Overview
NEW ZEALAND ECONOMIC OVERVIEW Key Facts > Stable political environment For personal use only Credit Rating: AA/stable > Mixed Member Proportional (MMP) system Population: 4.7 million1 > Two main parties – National (centre-right) and Labour (centre-left) GDP: NZ$270 billion (or US$190 billion)2 > Lab
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: Unsubsidised Electricity Market and >80% Renewable
UNSUBSIDISED ELECTRICITY MARKET AND >80% RENEWABLE > “With its unique resource base, New Zealand is a success story for the development of renewable energy, notably For personal use only hydro and geothermal, without government subsidies” – International Energy Agency (IEA)1 > Geothermal or wind are
Slide 26: Highly Competitive Retail Market Delivering Customer Choice
HIGHLY COMPETITIVE RETAIL MARKET DELIVERING CUSTOMER CHOICE > One of only 4 highly competitive retail markets – Accenture 2015 OECD RESIDENTIAL ELECTRICITY PRICES1 For personal use only > Energy portion of end-user pricing determined by competition 0.45 0.40 Lower tercile residential electricity pri
Slide 27: Complementary Generation Sources
COMPLEMENTARY GENERATION SOURCES > 100% renewable generation with two complementary FY2017 NET POSITION BREAKDOWN For personal use only low-cost fuel sources > High up-front build cost, low operating cost > Central North Island close to major load centres and not 9,000 CFD Sell 2 dependent on inter-
Slide 28: Mercury's Permanent Generation Advantage
MERCURY’S PERMANENT GENERATION 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 ISL
Slide 29: MCY.NZ / MCY.AX
MCY.NZ / MCY.AX Key Facts MERCURY SHARE PRICE AND TURNOVER Turnover For personal use only Shares on Issue: 1,377.6m MCY.NZ $3.75 $60 Market Capitalisation: $4.53b1 Enterprise Value: $5.8b1 $3.50 $50 NZX ranking (by Market Capitalisation): 11th $3.25 $40 Turnover ($m) Avg. Daily NZX Volume (prior 12m
Slide 30: Ownership
OWNERSHIP > Listed on NZX and ASX in May 2013 For personal use only MERCURY SHARE REGISTER1 > 85,000 shareholders (widest-held New Zealand register) > Government majority ownership 5% 2% > Public Finance Act and Company’s constitution require at least 51% Crown ownership 19% Government > No other pe
Slide 31: 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 32: Reference Material
REFERENCE MATERIAL MERCURY REFERENCES For personal use only Mercury Investor Centre www.mercury.co.nz/Investor-Centre Governance Presentation – December 2016 https://www.mercury.co.nz/Investors/Results-Reports/Presentations.aspx FY2017 Interim Results Presentation – February 2017 FY2017 Results Pres
Slide 33: 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