Mercury Nz Ltd. · NZX:MCY
Mercury Nz — Investor Day (November 2019)
69 slides from Mercury Nz's investor day presentation, Nov 12, 2019
Slide 1: News release: Mercury Investor Day 2019
STOCK EXCHANGE LISTINGS: NEW ZEALAND (MCY) / AUSTRALIA (MCY) For personal use only NEWS RELEASE Mercury Investor Day 2019 12 November 2019 – Mercury is hosting its Investor Day 2019 in Auckland today, which includes presentations from the Executive Management Team and other senior managers of the co
Slide 2: Mercury Investor Day November 2019
~ MERCURY _ INVESTOR DAY N © = \O For personal u (ee) November 2019 Mercury :
Slide 3: Disclaimer
DISCLAIMER This presentation has been prepared by Mercury NZ Limited and its group of companies (“Company”) for informational purposes. This disclaimer applies to this document and the verbal or written comments of any person presenting it. Information in this presentation has been prepared by the C
Slide 4: Agenda
AGENDA 12:30pm —- 1:15pm Welcome 1:15pm - 2:00pm Commercial 2:30pm — 5:30pm Customer / People Kaitiakitanga / Partnerships OUR PEOPLE aX... DENNIS RADICH BEN HARVEY-LOVELL Generation Development Head of Brand & Marketing Manager Lal » iS SARAH HOLT NICK WILSON Workforce Strategy Regulatory & Governm
Slide 5: For personal use only
Mercury Li = O O — Li = Ajuo asn jeuosied 10)
Slide 6: What success looks like: our five pillars
WHAT SUCCESS LOOKS LIKE OUR FIVE PILLARS CUSTOMER COMMERCIAL PARTNERSHIPS PEOPLE KAITIAKITANGA BY 2030 WE WILL BE... CUSTOMER New Zealand's leading energy brand Recognised as a leader within our industry, with our industry recognised as a positive contributor to New Zealand; and Mercury's access to
Slide 7: Commercial
For personal use only COMMERCIAL. WILLIAM MEEK DENNIS RADICH Chief Financial Officer Generation Development Manager November 2019 Mercur ye
Slide 8: What success looks like: Commercial
WHAT SUCCESS LOOKS LIKE OUR FIVE PILLARS BY 2030 WE WILL BE... Leading our sector in terms of financial performance and shareholder returns, earning at least our cost of capital cusrower WE'RE ON TRACK BY FY2022 IF... We deliver EBITDAF growth and maintain an appropriate average for stay-in- busines
Slide 9: Financial track record
FINANCIAL TRACK RECORD EBITDAF CAPEX m= Stay-In-Business mm Growth 600 510 450 400 500 350 400 300 Ee = 250 300 % 200 200 150 100 1 |00 50 0 ie) sees es 8 8 $5 S SB 825 28 £8 § 5 §$ 8 8 oO Cc [= oF oO oO SfeepegeEesereges a DEBT / EBITDAF DISTRIBUTIONS j= Interim dividend Final dividend 4.0x 350 = S
Slide 10: Earnings and dividend growth through operational excellence
For personal use only t) We will deliver earnings and dividend growth through operational excellence, portfolio optimisation & generation development.
Slide 11: Focus on operational excellence
FOCUS ON OPERATIONAL EXCELLENCE > Opportunities exist to deliver greater productivity, efficiency and portfolio value at Mercury improving energy margin and lowering operating and capital costs. Key themes: > Value optimisation: Customer Lifetime Value (CLV) and profitability models informing busine
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For personal use only > > > > > > > ✓ ✓ ✓ ✓ ✓
Slide 13: No clear catalyst for wholesale price reversion in the near term
NO CLEAR CATALYST FOR WHOLESALE PRICE REVERSION IN THE NEAR TERM HYDRO STORAGE VS. SPOT ELECTRICITY PRICE oy we 36 3 $I 3 ro e@ FY2018 e@ FY2019 © FY2020 From Jan-99 Otahuhu Spot Price ($/MWh) a a oO a Lo a 00 -1000 NEW SUPPLY (GWh) 4,000 3,000 2,000 1,000 FY2020 -500 +1% Demand mmm Geo Net New Supp
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For personal use only > > > > > > > > > > >
Slide 15: Portfolio optimisation for current market conditions
PORTFOLIO OPTIMISATION FOR CURRENT MARKET CONDITIONS FY2019 NET POSITION BREAKDOWN 8,000 7,000 6,000 5,000 < 2 4,000 Oo 3,000 2,000 1,000 o4 Long = Geothermal (Consolidated) mi Mass Market ™ Network Losses 1 As at 30 September 2019 14 Short Hydro m Commercial & Industrial Net Other CfDs > Mercury is
Slide 16: Commercial & industrial pricing re-rating
COMMERCIAL & INDUSTRIAL PRICING RE-RATING FY2019 8,000 7,000 6,000 5,000 GWh 4,000 3,000 2,000 1,000 o4 = Geothermal (Consolidated) Hydro = Mass Market NET POSITION BREAKDOWN Long Short ™ Network Losses Net Other CfDs 15 | Contracts include land rights for geothermal access m= Commercial & Industria
Slide 17: The opportunity in wind
THE OPPORTUNITY IN WIND KAIMAI (proposed) 07m propos '] WAIPIPI PUKETOI (consented) heom a TURITEA TARARUA 1 & 2 TARARUA 3 TURITEA No. of turbines 3. No. of turbines 31 No. of turbines Turbine capacity 0 Turbine capacity 3,0MW Turbine capacity Annual GWh (wind farm) 245GWh Annual GWh (wind farm) 3 A
Slide 18: Turitea consented turbines map
For personal use only PALMERSTON NORTH PAHIATUA 53 turbines consented 17 10KM
Slide 19: Wind complementary to existing generation assets
WIND COMPLEMENTARY TO EXISTING GENERATION ASSETS > Additional value realised through flexible generation fleet > Waikato hydro capacity rich / energy poor > Flexibility of hydro assets can internally firm the variability of Turitea production WAIKATO GENERATION 1,100 1,000 900 800 Excess capacity 70
Slide 20: FY2022 drivers of growth
FY2022 DRIVERS OF GROWTH > Foundations in place to leverage market conditions for growth > Sustainable earnings growth expected to translate to growth in distributions to shareholders Indicative FY2022 EBITDAF Scenarios $80/MWh $100/MWh Turitea! (840GWh per annum) $55m $70m coma Nil ~ $8m per year o
Slide 21: Customer
For personal use only CUSTOMER. KEVIN ANGLAND GM Retail & Digital November 2019 JULIA JACK Chief Marketing Officer MOHAMMED ABBAS Head of Mass Market Sales BEN HARVEY-LOVELL Head of Brand and Marketing Mercury
Slide 22: What success looks like: Customer
WHAT SUCCESS LOOKS LIKE OUR FIVE PILLARS BY 2030 WE WILL BE... rey New Zealand's leading energy brand customer WE'RE ON TRACK BY FY2022 IF... We are inspiring, rewarding and making it easy for customers in our target segments Gen ypren Peet Ss WHICH WE WILL MEASURE THROUGH... v Brand strength Y Chur
Slide 23: Inspiring New Zealanders with our e-transport story
INSPIRING NEW ZEALANDERS WITH OUR E-TRANSPORT STORY ENERGY MAKES OUR ‘WORLD MORE WONDERFUL. re, AMAZING. IT. CAN _ MAKE OUR HILLY LAND FLAT. 22
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Slide 25: Our brand has strengthened against competitors
OUR BRAND HAS STRENGTHENED AGAINST OUR COMPETITORS AND COMPARED TO THE WIDER MARKET > We have the second strongest brand in the electricity sector despite having the third largest customer base > We are reducing the gap to New Zealand's leading energy brand BRAND STRENGTH - ENERGY CATEGORY COMPETITO
Slide 26: Leading in loyalty and experience
For personal use only 25 We are leading in loyalty and experience because we inspire, reward and make it easy for our customers every day.
Slide 27: Inspire, reward, make it easy
INSPIRE SEE AN EVIETV AD DONATE TO STARSHIP EXPERIENCE EVIE VR RIDE AN E.BIKE AT SEE ANOTHER ‘SEE AN EVIE BILLBOARD ON THEIR BILL ‘AT BIG BOYS TOYS BIG BOYS TOYS TOO EVIETV AD REWARD © ae ENTER MERCURY GO ‘COMPLETE STEP CHALLENGE - RECEIVE LITTLE BIT OF ENTER NEXT MERCURY GET A FREE POWER STEP CHALL
Slide 28: Our customers are more loyal and satisfied
OUR CUSTOMERS ARE MORE LOYAL AND SATISFIED > Mercury has enjoyed industry leading churn performance. This position has only recently come under stress because of high levels of competition and strategic decisions such as shedding Farm Source volume > Customer Satisfaction and NPS have reached record
Slide 29: Mercury Go: our newest loyalty initiative
MERCURY GO OUR NEWEST LOYALTY INITIATIVE INSPIRES, REWARDS AND MAKES IT EASY FOR OUR CUSTOMERS ALL IN ONE APP. 28 ACCOUNT 107984407 » 7 BELMONT TCE, MILFORD, AUCKLAND 0620 Scheduled Credit Card payment on 01 Nov RUME MT RH MARA S67 OCTOBER 2019 Ls Transactions >
Slide 30: Focus on loyalty drives value for existing customers
FOCUS ON LOYALTY DRIVES VALUE FOR EXISTING CUSTOMERS, NOT ICP VOLUME ELECTRICITY MARKET SHARE Genesis — Contact ——Mercury —eridian 600 —Trustpower Other 500 4 400 |~..->?]}])})>)7)}]]]___ a S %S 300 4 ° ——_ § [ 8 3 200 | 100 4 ) baa) = = 2 2 32 < & 5 2 2 s e 3 8 3 &§ 5 8 = & 5 && 3S & B Source: Elec
Slide 31: Strategy delivers long-term value from data-driven decisions
OUR STRATEGY DELIVERS LONG-TERM VALUE FROM DATA-DRIVEN DECISIONS > Established Customer Lifetime Value Model resulting in better view of key value drivers > Every customer has a unique set of value drivers, differentiation is key > Mercury is focused on optimising value within the existing customer
Slide 32: Platform journey delivering capability
For personal use only w = Our three year platform journey is delivering the capability we need to successfully execute this strategy.
Slide 33: Digital platform delivers capability to execute strategy
DIGITAL PLATFORM DELIVERS CAPABILITY TO EXECUTE STRATEGY £0 2/0 @ CONTACT MOBILE DESKTOP/ DIGITAL ROBOTICS CENTRE TABLET | ASSISTANT (RPA) INTELLIGENT AUTOMATION BUSINESS SECURITY INFORMATION ADVANCED PROCESSES MICROSERVICES ANALYTICS INFRASTRUCTURE ASSET MANAGEMENT CORE FINANCE & of IN THE CLOUD &
Slide 34: Core capabilities built for sustainable delivery
WE HAVE BUILT CORE CAPABILITIES TO ENSURE SUSTAINABLE DELIVERY eTtOnMnanee > Performance management tool to consolidate infrastructure initiatives and ensure transparency The Brain > Test-and learn experimentation framework for Jot campaigns > Weekly cadence with progress demonstrations Mindset & be
Slide 35: People
For personal use only PEOPLE. MARLENE STRAWSON GM People & Performance November 2019 KATH HARTLEY Head of Organisational Development SARAH HOLT Workforce Strategy Manager Mercury
Slide 36: What success looks like: People
WHAT SUCCESS LOOKS LIKE OUR FIVE PILLARS BY 2030 WE WILL BE... A Zero Harm organisation that has enabled our people to adapt to the 08 changing nature of work to deliver the highest levels of performance and productivity customer WE'RE ON TRACK BY FY2022 IF... We have enabled our people to understan
Slide 37: Enabling our people to do their best work
For personal use only w oN We are enabling our people to do their best work as they are our true long-term competitive advantage.
Slide 38: Creating a step change
CREATING A STEP CHANGE 37 INCREASED PERFORMANCE & CAPACITY & = CADENCE & & & PRODUCTIVITY PERFORMANCE INVESTMENT TEAMS Systems & processes Formal & informal Tools & technology Work spaces EMPLOYER BRAND aes & MANAGEMENT SUCCESSION QUALITY LEADERSHIP & MANAGEMENT. ALIGNMENT TO OUR EMBEDDING DIRECTION
Slide 39: High performance teams sustain exceptional performance
HIGH PERFORMANCE TEAMS SUSTAIN EXCEPTIONAL PERFORMANCE TEAM TEAM COMPOSITION TEAM DYNAMICS ENVIRONMENT ALIGNED TEAM FIT FUTURE PROOF LEADING & TEAM TEAM FLEXIBLE WORK PURPOSE THE TEAM MANAGING MEMBERSHIP WELLBEING ENVIRONMENT We confirm the We confirm the We share learning Wemanage team We are all W
Slide 40: HPT is helping our people to succeed
HPT IS HELPING OUR PEOPLE TO SUCCEED > Internal high performance team (HPT) coaches trained and working with cross-functional teams > Significant improvement in team behaviours: IMPROVED HPT BEHAVIOURS (from Nov 2018 to May 2019) Agreement on purpose and priorities Work more efficiently and effectiv
Slide 41: Helping our people grow & develop
HELPING OUR PEOPLE GROW & DEVELOP > Reporting to lift people leaders’ performance > Development programmes that strengthen diverse leadership > Flexible ways for our people to learn, upskill and reskill > 2,664 employees and contractors completed on-line learning > 405 employees completed at least o
Slide 42: Total recordable injury frequency rate
TOTAL RECORDABLE INJURY FREQUENCY RATE 1.2 For personal use only 1.05 > 1 0.87 per 200,000 hours > 0.8 0.72 0.6 0.4 > 0.2 > 0 FY2017 FY2018 FY2019 > > 90% 86% 81% > > > > >
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Slide 45: Kaitiakitanga
For personal use only KAITIAKITANGA. PHIL GIBSON NICK CLARKE GRAEME HILL GM Hydro / Wholesale GM Geothermal & Infrastructure Asset Safety Manager November 2019 ‘WU KHOO Geothermal Technical Resources Manager Mercury
Slide 46: What success looks like: Kaitiakitanga
WHAT SUCCESS LOOKS LIKE OUR FIVE PILLARS CUSTOMER COMMERCIAL PARTNERSHIPS PEOPLE KAITIAKITANGA, BY 2030 WE WILL BE... physical and natural resources eg Recognised as a leader in the ultra-long-term management of both WE'RE ON TRACK BY FY2022 IF... We understand and are managing the long-term sustain
Slide 47: Managing for long-term sustainability of resources and assets
For personal use only 46 We manage for the long-term sustainability of the natural resources and assets that we rely on. oP
Slide 48: Complementary portfolio of assets - the awesome foursome
COMPLEMENTARY PORTFOLIO OF ASSETS - THE AWESOME FOURSOME 10x HYDRO ASSETS: 1,109MW! - ~4,020GWh p.a 4X GEOTHERMAL ASSETS: 311MW' - ~2,600GWh p.a. Kawerau 103MW Rotokawa 38MW (2008) (1997) Taupo Gates Aratiatia (1941) (1964) (1961) Pe Nga Awa Purua* 135MW Ngatamariki 82MW 84MW Whakamaru TISMW Maraeta
Slide 49: A complementary portfolio of assets
A COMPLEMENTARY PORTFOLIO OF ASSETS Location Operating role Capacity factor MARKETA Strengths Variables © HYDROSTATIONS J} GEOTHERMALSTATIONS = SOLAR = -_ WINDFARM) Q_- R&D CENTRE + Not 100% owned by Mercury (under construction) Maintenance cycles 48 Hydro Central North Island Peaking, firming, freq
Slide 50: Portfolio of generation assets
PORTFOLIO OF GENERATION ASSETS > Our generating assets are diverse in terms of age, technologies, lifecycle, operation and maintenance requirements. Different asset risks require adaptive asset management ASSET AGE PROFILE! MAJOR REFURBISHMENT ACTIVITY! (Since commissioning or replacement) Hydro m G
Slide 51: Asset management - a continuous approach & core strength
ASSET MANAGEMENT - A CONTINUOUS APPROACH & CORE STRENGTH Governance Planning Review Delivery Portfolio Strategy Asset Integrity Framework Asset Management Policy | Strategic Asset Management Plan Asset Group Tactics / Strategies Fuel / Reservoir Plan (routine & non-routine work) | | Condition & Risk
Slide 52: Asset management - Karapiro unit 1 turbine lifecycle
ASSET MANAGEMENT - A CONTINUOUS APPROACH & CORE STRENGTH Governance Planning Review Delivery Portfolio Strategy Asset Integrity Framework Asset Management Policy | Strategic Asset Management Plan Asset Group Tactics Fuel / Reservoir Plan / Strategies (routine & non-routine work) | | Condition & Risk
Slide 53: Hydro reinvestment planning
HYDRO REINVESTMENT PLANNING — LONG TERM & STRATEGIC APPROACH Aratiatia (3 units) Ohakuri (4 units) Atiamuri (4 units) Whakamaru (4 units) Maraetai 1 (5 units) Maraetai 2 (5 units) Waipapa (3 units) Arapuni (8 units) Karapiro (3 units) 52 FYl2 FYI7 FY18 FYI9 FY20 Lead in FY21 FY22 Lead in FY23 FY24 F
Slide 54: Hydro reinvestment delivering value beyond rehabilitation
HYDRO REINVESTMENT DELIVERING VALUE BEYOND REHABILITATION i Generation Station Age Capacity Wesedb Scope Cost Whakamaru . All turbines, (4 units) 63 + 6MW per unit fo ogGWh pa. generators, ST6M" 4x 3IMW Underway governors Aratiatia unit sized for low All generators (3 units) 55 flows, 28MW ~15GWh pa
Slide 55: Effective management systems for below ground assets
EFFECTIVE MANAGEMENT SYSTEMS FOR BELOW GROUND ASSETS Reservoir & Well Monitoring In-Service Assets 2019 Kawerau Ngatamariki sepia Rotokawa Production Wells 8 5 8 5 Reservoir Modelling Injection Wells 7 5 5 3 Monitoring Wells 7 26 18 Reservoir Well Assets Management Plan Management System Drilling (k
Slide 56: Well conditions are understood and managed
WELL CONDITIONS ARE UNDERSTOOD AND MANAGED @ Production >The Well Asset Management System is a condition based WELL CONDITION MONITORING © Injection approach to manage asset performance and safety e bd e ee e - . Ce Co > Consistent with Code of Practice for Deep Geothermal Wells; 8 e° oe ° externall
Slide 57: Fuel supply is secured through long term plan
FUEL SUPPLY IS SECURED THROUGH LONG TERM PLAN Actual and > Sophisticated reservoir modelling tools are used to oneal _ 2014-2018 2019-2023 2024-2030 tthe drill 6 Nigaalea wrt” walls to @raifiaall pected w vp (5 years) (5 years) Tsar) support the drilling of “make up" wells to optimise riling fuel su
Slide 58: Asset management enables incremental geo improvements
ASSET MANAGEMENT ENABLES INCREMENTAL GEO IMPROVEMENTS GEOTHERMAL GENERATION" —12 Mth Rolling Avg > Effective asset management framework (reservoir health and 250 plant assets condition) enables Mercury to deliver incremental generation 240 > Kawerau - delivered additional 17MW opportunity from the o
Slide 59: SIB capex reflects hydro re-investment and geo drilling
SIB CAPEX REFLECTS HYDRO RE-INVESTMENT AND GEO DRILLING ACTIVITIES > Group Stay In Business CAPEX $90m over last 5 years > Varies year-on-year due to geothermal drilling, hydro re-investment activities and corporate expense (primarily ICT) STAY IN BUSINESS CAPEX $120m $100m $80m $60m $40m $20m $Om 5
Slide 60: Partnerships
For personal use only PARTNERSHIPS. TONY NAGEL NICK WILSON GM Corporate Affairs Regulatory & Government Affairs Manager November 2019 Mercur ye
Slide 61: What success looks like: Partnerships
WHAT SUCCESS LOOKS LIKE OUR FIVE PILLARS BY 2030 WE WILL BE... Recognised as a leader within our industry, with our industry recognised as a B positive contributor to New Zealand; and Mercury's access to fuel and energy storage enduring and enhanced Gusieran WE'RE ON TRACK BY FY2022 IF... There is b
Slide 62: Renewable electricity key enabler of low carbon economy
For personal use only 61 Renewable electricity is a key enabler in transitioning to a low carbon economy. 48)
Slide 63: New Zealand's competitive advantage in electricity
NEW ZEALAND'S COMPETITIVE ADVANTAGE IN ELECTRICITY It is a world leading example of a well- “ New Zealand is the only Asia-Pacific country in the functioning energy market, which continues to overall top ten and has been there consistently since work effectively.” 2000, demonstrating longstanding so
Slide 64: New Zealand's renewable resources are world-class
NEW ZEALAND'S RENEWABLE RESOURCES ARE WORLD-CLASS Without any direct subsidies or public support, their share in electricity and heat supply has grown in recent years, as a result of cost-competitive geothermal and hydro and very good conditions for wind 63 power. This performance is a world-class s
Slide 65: Decarbonisation enabled by decreasing technology costs
DECARBONISATION ENABLED BY DECREASING TECHNOLOGY COSTS The simple truth is that the oil industry has never before faced the kind of threat that renewable electricity and EVs pose to its business model.” WEIGHTED AVERAGE INSTALLED COST ELECTRIC VEHICLE BATTERY PACK PRICES? —— Onshore Wind 8,000 1400
Slide 66: Transport electrification is the opportunity for New Zealand
TRANSPORT ELECTRIFICATION IS THE OPPORTUNITY FOR NEW ZEALAND “ The ICCC... recommends that the Government prioritises MBIE SCENARIOS - NEW GENERATION 2050 the accelerated electrification of transport and process Wind mGeothermal um Hydro mGas = Demand Response = Other heat over pursuing 100% renewab
Slide 67: Stable regulatory environment critical for investment
STABLE REGULATORY ENVIRONMENT CRITICAL FOR INVESTMENT Clean energy investment falls back to 2016 levels amid policy uncertainty The recent record investment in renewable energy is showing signs of slowing dramatically, the Clean Energy Council warns ‘Chaotic’ energy policies threaten vital investmen
Slide 68: Addressing vulnerability through partnerships and innovation
ADDRESSING VULNERABILITY THROUGH PARTNERSHIPS AND INNOVATION > Mercury launched pre-pay product GLOBUG in 2010 > Innovative and unique platform providing payment flexibility to avoid unsustainable debt > Base rates aligned with post-pay but significant savings possible by avoiding other standard cos
Slide 69: 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