Mercury Nz Ltd. · NZX:MCY
Mercury Nz — Non-Deal Roadshow (November 2016)
39 slides from Mercury Nz's roadshow presentation, Nov 22, 2016
Slide 1: News Release: Investor Roadshow Presentation – November 2016
STOCK EXCHANGE LISTINGS: NEW ZEALAND (MCY) / AUSTRALIA (MCY) For personal use only NEWS RELEASE Investor Roadshow Presentation – November 2016 22 November 2016 Mercury will be giving presentations at a series of international investor meetings during November 2016. The presentation materials are att
Slide 2: Investor Roadshow
Mercury For personal use only Investor Roadshow FRASER WHINERAY WILLIAM MEEK Chief Executive Chief Financial Officer 22 November 2016
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: Country, Industry & Mercury
For personal use only 3 COUNTRY, INDUSTRY & MERCURY
Slide 5: New Zealand Economic Overview
NEW ZEALAND ECONOMIC OVERVIEW For personal use only Key Facts > Stable political environment Credit Rating: AA/stable > National government since 2008 and in 3rd term Population: 4.7 million > Robust GDP growth achieved over recent years (currently Currency: New Zealand Dollar (NZD) 3.6%1), with bel
Slide 6: New Zealand's Competitive Advantage in Electricity
NEW ZEALAND’S COMPETITIVE ADVANTAGE IN ELECTRICITY For personal use only RENEWABILITY NZ 3rd highest level of renewable electricity generation in OECD COMPETITIVENESS RELIABILITY ‘Among the most NZ ranks 3rd lowest out of competitive markets 25 large energy-consuming in the world’ countries for ener
Slide 7: The Industry We Operate In
THE INDUSTRY WE OPERATE IN For personal use only RETAILERS AND 1. GENERATORS CONSUMERS > Generate electricity and > 22 retailers buy from sell to wholesale market wholesale market and on- > 5 major generators sell to nearly 2 million producing about 95% of consumers NZ‟s electricity > Retail prices
Slide 8: Unsubsidised Renewable Electricity Market
UNSUBSIDISED RENEWABLE ELECTRICITY MARKET NEW ZEALAND’S GENERATION MIX 2015 OECD RENEWABLE ELECTRICITY For personal use only Hydro Wind Coal Gas Waste Heat/Biogas, Oil and Wood Geothermal 50,000 100 45,000 90 40,000 80 35,000 70 30,000 60 25,000 % GWh 50 20,000 40 15,000 30 10,000 20 5,000 10 0 0 19
Slide 9: Competitive Retail Market
For personal use only 8 INDUSTRY COMPETITIVE RETAIL MARKET US$ per kWh 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 Norway United States Korea Mexico Switzerland Finland Sweden Luxembourg New Zealand France United Kingdom Estonia Netherlands Austria Belgium Chile Japan Slovenia Czech Republic Irelan
Slide 10: Regulatory
REGULATORY Market For personal use only > Government and opposition parties constructively engaged in policy discussions > Consultation continues on changes to the methodology for recovering the cost of transmission (Transmission Pricing Methodology - TPM) with implementation likely beyond 2019 > Ad
Slide 11: Integrated Electricity Generator & Retailer: Mercury
INTEGRATED ELECTRICITY GENERATOR & RETAILER For personal use only 10 MERCURY
Slide 12: Our Purpose, Goal and Strategy
OUR PURPOSE OUR GOAL Inspiring New Zealanders to enjoy energy in more To be New Zealand’s leading energy brand For personal use only wonderful ways Inspiring New Zealanders OUR STRATEGY We want to inspire New Zealanders by delivering value, Mercury will create long term value for our owners by: inno
Slide 13: Mercury's Competitive Advantage
MERCURY’S COMPETITIVE ADVANTAGE For personal use only 100% renewable generation with two Rain-fed North Island hydro catchment low-cost complementary fuel sources with inflows correlated with winter peak in base-load geothermal and peaking demand (unlike South Island) hydro North Island generation i
Slide 14: Market Dynamics
For personal use only 13 MARKET DYNAMICS
Slide 15: New Zealand Electricity Supply
NEW ZEALAND ELECTRICITY SUPPLY > Rationalisation of thermal capacity within FY2016 NZ ENERGY MARGIN For personal use only has resulted in supply and demand being better balanced 30% Margin - Likely Generation Development > Mercury closed 140MW Southdown power station in Margin - 2 Huntly Rankine Uni
Slide 16: New Zealand Electricity Demand
NEW ZEALAND ELECTRICITY DEMAND > High net migration and GDP per capita growth more than offsetting reductions in per household consumption For personal use only resulting from efficiency gains > Highest demand on record for FY2016 and increases over the past two financial years relative to pcp > Dem
Slide 17: New Zealand Aluminium Smelter (NZAS)
NEW ZEALAND ALUMINIUM SMELTER (NZAS) > 13% of New Zealand national demand For personal use only > Financial contract between NZAS and Meridian for 572MW through to 31 Dec 2030 AUCKLAND • > Annual right to terminate contract with 12 months notice from 1 Jan 2017 Mercury generation assets > Right to r
Slide 18: Interpreting Market Dynamics
INTERPRETING MARKET DYNAMICS For personal use only DYNAMIC: DEMAND GROWTH AND THERMAL RATIONALISATION FUNDAMENTALS: SUPPLY AND DEMAND BETTER BALANCED EXPECTED MARKET RESPONSE OBSERVED MARKET RESPONSE Increased wholesale price volatility Annual futures pricing flat Futures price increase Cust
Slide 19: Wholesale Electricity Prices
WHOLESALE ELECTRICITY PRICES > Wholesale spot prices and electricity futures prices not currently reflecting changes in supply and demand For personal use only > Benign wholesale prices due to generally above average inflows into South Island catchments and short-term management of thermal fuel posi
Slide 20: Customer
CUSTOMER > Retail energy prices flat, reflecting strong competition For personal use only > MBIE „Residential sales-based electricity cost‟ flat (+0.3%) for the four years to 31 March 20161 > Churn remains high relative to international benchmarks > Major centres (such as Auckland) observing slightl
Slide 21: Business Overview
For personal use only 20 BUSINESS OVERVIEW
Slide 22: Health & Safety
HEALTH & SAFETY > Zero harm is our well-being goal TOTAL RECORDABLE INJURY FREQUENCY RATE For personal use only > FY2016 demonstrates continued improvement in (TRIFR) (per 200,000 hours; includes onsite employees and contractors) achieving our goal > no high severity incidents involving employees, c
Slide 23: Customer
CUSTOMER > Rewarding loyalty leading to increased customer CUSTOMERS HIGHLY SATISFIED12 For personal use only Rolling 3 months Mercury satisfaction and reduced churn Largest 4 Brands (excl. Mercury) > Free Power Day – a loyalty product which helps customers 70% appreciate the value of electricity >
Slide 24: Electricity Generation
ELECTRICITY GENERATION > 100% renewable generation with two complementary low- ANNUAL GENERATION1 Hydro For personal use only 5,000 Geothermal cost fuel sources Long-term hydro average > High up-front build cost, low operating cost 4,000 GWh > Central North Island close to major load centres and not
Slide 25: Portfolio Management
PORTFOLIO MANAGEMENT > Average net long (generation) position reflecting integrated portfolio and closure of Southdown For personal use only > Portfolio management is subject to robust risk management framework > Movement in net position year-on-year due to hydrology, plant availability and value of
Slide 26: Metrix
METRIX > Metrix 2nd largest NZ meter data and services provider with 436k meters owned or under management1 For personal use only > Market consolidated and initial meter upgrade largely complete or contracted > Smart meter deployment has enabled customer-led product development > Broadly utilised by
Slide 27: Financial Overview
For personal use only 26 FINANCIAL OVERVIEW
Slide 28: Financial Track Record
FINANCIAL TRACK RECORD For personal use only ENERGY MARGIN EBITDAF 700 700 600 600 500 500 400 400 $m $m 300 300 200 200 100 100 0 0 FY2012 FY2013 FY2014 FY2015 FY2016 FY2012 FY2013 FY2014 FY2015 FY2016 UNDERLYING EARNINGS FREE CASH FLOW 700 700 600 600 500 500 400 400 $m $m 300 300 200 200 100 100
Slide 29: Dividends
DIVIDENDS > Mercury‟s dividend policy is to make distributions with For personal use only DIVIDEND Interim Final Specials Ordinary guidance a pay-out ratio of 70% to 85% of Free Cash Flow on average through time1 25 > FY2017 ordinary dividend guidance is an increase of 2% to 14.6cps, the sixth year
Slide 30: Capital Expenditure
CAPITAL EXPENDITURE > Stay-in-business capital expenditure expect to be circa $80m per annum over the medium term For personal use only > FY2017 guidance of $125m for stay-in-business and for minimal growth capital expenditure > Stay-in-business includes the drilling of four wells as part of a co-or
Slide 31: Operating Expenses
OPERATING EXPENSES > FY2017 operating costs guided to be comparable with FY2016 levels For personal use only > Operating expenditure below 2010 levels, despite 2 new geothermal stations added OPERATING EXPENDITURE One-off costs 350 Operating expenditure 300 69 250 $m 200 150 259 245 100 216 217 217
Slide 32: Funding Profile
FUNDING PROFILE DEBT MATURITIES AS AT 31 OCTOBER For personal use only Domestic Wholesale Bonds US Private Placement Capital Bond Drawn Bank Facilities Undrawn Bank Facilities 350 300 250 $m 200 150 100 50 - 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2045 Financial Year > The average deb
Slide 33: Capital Structure
CAPITAL STRUCTURE > bbb stand alone rating is key reference point for dividend policy and a sustainable capital structure For personal use only > S&P re-affirmed Mercury‟s credit rating of BBB+/stable on 23 December 2015 > One-notch upgrade given majority Crown ownership > Key ratio for stand alone
Slide 34: Appendix
For personal use only 33 APPENDIX
Slide 35: Ownership
OWNERSHIP For personal use only MERCURY SHARE REGISTER1 > Listed on NZX and ASX in May 2013 > Currently more than 90,000 shareholders (widest held New Zealand register) 4%2% > Government majority ownership > Public Finance Act and Company‟s constitution require at least 19% Government 51% Crown owne
Slide 36: Waikato Hydro System
WAIKATO HYDRO SYSTEM > A cascade river system with nine power stations along the Waikato River (New Zealand‟s longest river) For personal use only > Supports average annual generation of 4,000GWh - since 1999 ranged from 3,300GWh to 4,800GWh > Maximum storage capacity of 580GWh in Lake Taupo (New Ze
Slide 37: Inflow Distributions
INFLOW DISTRIBUTIONS > Positive correlation of North Island hydro inflows and sales For personal use only AVERAGE SOUTH ISLAND INFLOWS VS. DEMAND AVERAGE NORTH ISLAND INFLOWS VS. DEMAND Average Inflows in SI (LHS) Average Market Demand (RHS) Average Inflows in NI (LHS) Average Market Demand (RHS) 80
Slide 38: Reference Material
REFERENCE MATERIAL Mercury Investor Centre www.mercury.co.nz/Investor-Centre For personal use only INDUSTRY REFERENCES Electricity Authority website www.ea.govt.nz System Operator website www.systemoperator.co.nz Wholesale electricity spot prices www.em6live.co.nz Electricity futures prices www.asx.
Slide 39: For personal use only
For personal use only