Financial Results for the year ended 30 June 2018
FRASER WHINERAY Chief Executive
21 August 2018
WILLIAM MEEK Chief Financial Officer
DISCLAIMER The information in this presentation has been prepared by Mercury NZ Limited with due care and attention. However, neither the company nor any of its directors, employees, shareholders nor any other person shall have any liability whatsoever to any person for any loss (including, without limitation, that arising from any fault or negligence) arising from this presentation or any information supplied in connection with it. This presentation may contain projections or forward-looking statements regarding a variety of items. Such projections or forwardlooking statements are based on current expectations, estimates and assumptions and are subject to a number of risks, uncertainties and assumptions. There is no assurance that results contemplated in any projections and forward-looking statements in this presentation will be realised. Actual results may differ materially from those projected in this presentation. No person is under any obligation to update this presentation at any time after its release to you or to provide you with further information about Mercury NZ Limited. Forward-looking statements are subject to any material adverse events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions. A number of non-GAAP financial measures are used in this presentation, which are outlined in the appendix of the presentation. You should not consider any of these in isolation from, or as a substitute for, the information provided in the audited consolidated financial statements for the year ended 30 June 2018, which are available at www.mercury.co.nz. The information in this presentation is of a general nature and does not constitute financial product advice, investment advice or any recommendation. Nothing in this presentation constitutes legal, financial, tax or other advice.
2 DISCLAIMER
3 OUR MISSION
MERCURY’S COMPETITIVE ADVANTAGE 100% renewable generation > Two low-cost complementary fuel sources in base-load geothermal and peaking hydro
High performance teams > Dynamic company culture built on the understanding that our people set us apart
Superior asset location > North Island generation located near major load centres; rain-fed hydro catchment inflows aligned with winter peak demand
Track record of customer engagement > Brand capital built through customer-led innovation and rewarding loyalty
Substantial peaking capacity > The Waikato hydro system is the largest group of peaking stations in the North Island
Long-term commercial partnerships > With Maori landowners and other key stakeholders
4 MERCURY
5 FY2018 HIGHLIGHTS
FY2018 HIGHLIGHTS
$561m RECORD EARNINGS Achieved as the value of favourable hydrological conditions was realised by strong execution across the business
BRAND IDENTITY Multi-award-winning campaigns building brand capital to differentiate Mercury in intensely competitive retail market
9.1cps FINAL DIVIDEND Fully-imputed total ordinary dividend of 15.1cps; an increase of 3.4% versus FY2017
Customer-led technology
Stay-in-business capital expenditure of
DEVELOPMENT
$112m
Through completion of Metrix meter data project, SAP upgrade and customer technology platform upgrades
Included delivery of ICT projects and ongoing hydro refurbishment leading to material efficiency and capacity gains
COMPETITION
GROWTH
Retail market conditions highly competitive with market churn at record levels during the year
Acquisition of 19.99% stake in Tilt Renewables achieving exposure to Australian renewables transition; part of decade-long wind strategy
$50m SHARE BUYBACK
7,704GWh RECORD GENERATION As Mercury capitalised on opportunities provided by hydro inflows and maintained high geothermal availability
6 FY2018 HIGHLIGHTS
An efficient distribution of capital to shareholders while retaining balance sheet strength
FINANCIAL PERFORMANCE 800
698
734 FY2017
700 600
523
561
FY2018
$m
500 400
300
214 214
184
200
234
258 259 176 198
100
150
201 207 114 112
69
2
50
0 Energy Margin
Operating Expenditure
EBITDAF
NPAT
Underlying Earnings
Free Cash Flow New Investment Stay-In-Business Capital Expenditure
Declared Ordinary Dividend
Other Distributions
> EBITDAF, NPAT and Underlying Earnings up reflecting record total generation of 7,704GWh achieved as the value of favourable hydro inflows was captured by continued strong execution across the business > Free Cash Flow only up $1m due to timing of tax payments to impute prior year dividends (tax paid up $50m vs FY2017) > Stay-in-business capex was elevated reflecting ongoing hydro refurbishment and technology investment > $50m buyback of 15.6m shares as an efficient distribution of capital while retaining balance sheet strength > Total ordinary dividend of 15.1cps, the 10th year of ordinary dividend growth; above guidance reflecting share buyback
7 FINANCIAL PERFORMANCE
STRATEGIC DRIVERS & FY2018 OUTCOMES DELIVERING CUSTOMER ADVOCACY > Relative churn advantage
6.4% Mercury brand trader churn2 FY2017: 4.4% Market: 8.1%
19.8% Total churn2 FY2017: 17.7% Market: 21.0%
> Mercury brand trader churn1 significantly lower than market at 6.4%2 > Trader churn for all Mercury brands increased to be comparable to market at 8.0%2 versus 8.1% reflecting heightened market competition
> Customer-led technology investment > SAP technology platform upgrades enabling increased functionality and flexibility to meet customer needs and also improved efficiency and processes > Metrix data project delivering certified half-hourly meter reads to retailers
> Sustained brand momentum > Award-winning campaigns building strong and distinctive brand assets with associations with E-mobility and EVs in particular > Brand recognition steadily increasing (from 43% to 63%)4 since relaunch > Fulfilment of our customer promises to Reward, Inspire and Make It Easy > ~90,000 customers redeemed a Free Power Day in FY2018 > Over 155,000 customers registered to receive Airpoints™5 > Over 93,000 customers engaging with our Good Energy Monitor each week6 1
Switching where a customer changes retailer without moving house From EA data; 12-monthly rolling trader churn / total churn as at 30 June 2018 3 Based on Mercury’s monthly survey of residential customers, 3-monthly rolling average to 30 June 2018 / 2017 for Mercury brand only 4 Based on Mercury commissioned TRA brand survey 5 As at 30 June 2018 6 Weekly average over 12 months to 30 June 2018 2
8 FY2018 OUTCOMES
63% Customer satisfaction3 FY2017: 64%
1.06 0.87 FY2018 TRIFR1 FY2017: 1.05
LWAP/GWAP2 FY2017: 1.05
94% Geothermal availability3 FY2017: 96% Market4: ~97%
STRATEGIC DRIVERS & FY2018 OUTCOMES LEVERAGING CORE STRENGTHS > Goal of zero-harm > No high-severity incidents; TRIFR1 at 0.87 (down from 1.05 in FY2017)
> High-levels of employee engagement maintained > High levels of employee engagement in 2017 saw Mercury being recognised at the IBM 2017 Best Workplaces Awards and the 2018 New Zealand HR Awards > Employee engagement increased in 2018 to 81.5%5 from 81.0%5
> Enterprise-wide project execution > Completed major maintenance outages at four geothermal stations > Metrix half-hourly reconciled data re-platform brought online > Ongoing hydro refurbishment with the rehabilitation of the 1st of three units at Aratiatia Station and the 2nd of four units at Whakamaru Station leading to material increases in hydro efficiency and capacity > Southdown grid-scale battery storage being commissioned
> Competitive advantages deliver record earnings > Favourable hydrological conditions and strong execution across the business enabled record generation of 7,704GWh leading to FY2018 EBITDAF of $561m 1
9 FY2018 OUTCOMES
Total Recordable Injury Frequency Rate per 200,000 hours; includes onsite employees and contractors 2 Average price of purchases (LWAP) over average price of generation (GWAP) 3 Percentage of time plant able to generate after accounting for outages 4 Derived from Planned Outage Co-ordination Process New Zealand geothermal outage data (excluding Mercury operated plant) 5 As measured by the 2018 / 2017 IBM Employee Engagement Survey Engagement Index
15.1cps
STRATEGIC DRIVERS & FY2018 OUTCOMES
19.99% Tilt acquisition
DELIVERING SUSTAINABLE GROWTH > Managing cost
Total Ordinary Dividend FY2017: 14.6cps
> Opex flat versus FY2017 at $214m for fifth year running
> Investing in growth > Acquired a 19.99% stake in Tilt Renewables as a strong platform for gaining exposure to Australia’s accelerating renewables transition > Joint takeover offer with Infratil underway to advance Mercury’s meaningful interest in Tilt’s operational performance and growth opportunities
> Returns to shareholders > Efficient distribution of capital to shareholders through share buyback of 15.6m shares for $50m (circa 3.6cps) while retaining balance sheet strength > FY2018 total ordinary dividend up 3.4% to 15.1cps, above original guidance > FY2019 EBITDAF guidance is $515m1 on 4,200GWh of hydro generation, subject to any material events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions > FY2019 ordinary dividend guidance up 2.6% to 15.5cps, which will be the 11th consecutive year of ordinary dividend growth
1
10 FY2018 OUTCOMES
Includes impact of IFRS changes, see slide 32 in Appendix for further details
$50m Share Buyback of 15.6m shares
11 MARKET DYNAMICS
FUTURES PRICES CURRENTLY UNRESPONSIVE TO PRICE VOLATILITY FUNDAMENTALS: SUPPLY AND DEMAND BETTER BALANCED
ANTICIPATED MARKET OUTCOMES > Demand growth > Increased wholesale price volatility > Futures price increase > Commercial and Industrial (C&I) upwards price pressure > Retail churn reduction > Upward pressure on retail price
12 MARKET DYNAMICS
✓ ✓ ? ? ? ?
} }
C&I market demonstrating higher tolerance for wholesale price risk Pressure on retail margins expected if wholesale price and volatility remains elevated
UNDERLYING FACTORS DRIVE STEADY DEMAND GROWTH > Demand higher, led by increases in the urban and dairy sectors > Up 0.8% in FY2018 (1HY2018 1.4% & 2HY2018 0.1%), 1.3% after normalising for temperature (1HY2018 2.1% & 2HY2018 0.6%) > Industrial demand decline remains a trend – reflecting ageing plant and relative global competitiveness > Increased focus on renewable energy may partially offset this trend as the industrial and transport sectors’ green shoots shift energy use away from fossil fuels
> Tiwai Point 4th potline restart expected to contribute ~0.5% demand growth in FY2019 (+1% annualised) FY2018 NORMALISED DEMAND GROWTH BY SECTOR
DEMAND
FY2014
FY2015
FY2017
FY2018
FY2016
16,000
Sector
GWh
Sector %
Total %
Urban1
+355
2.2%
0.9%
12,000
Rural1
+48
0.7%
0.1%
10,000
Dairy processing
+87
1.4%
0.2%
Irrigation
+23
2.0%
0.1%
4,000
Industrial
-20
(0.2%)
(0.1%)
2,000
Other
+36
5.1%
0.1%
Total
+529
13 MARKET DYNAMICS
1.3%
GWh
14,000
8,000 6,000
0 Urban*
Rural*
Dairy
Tiwai
Industrial (excluding Tiwai)
Source: Transpower SCADA data, Mercury 1 Normalised for temperature
Irrigation
FY2018 WHOLESALE PRICES REFLECT VARIABLE NATIONAL HYDROLOGY > Mercury benefitted from monthly price variation caused by swings in dry/wet conditions > Above average North Island (NI) inflows coincided with periods of low South Island (SI) storage in FY2018 > Large SI hydro catchments and associated hydrology is a primary driver of wholesale prices
> Higher prices and increased volatility show effect of recent supply/demand rebalancing
OTA Wholesale Price ($/MWh)
$300
~45% of annual national generation 83% of total hydro energy storage 72% of annual national inflows
$250
Jan 1999 to Jun 2016
$300
FY2017 FY2018
$200 $150 $100 $50 $0 -1500
-1000
-500
0
NI MONTHLY HYDRO STORAGE AND PRICE
OTA Wholesale Price ($/MWh)
SI MONTHLY HYDRO STORAGE AND PRICE
500
Delta to SI Storage Average (GWh)
1000
1500
$250
Jan 1999 to Jun 2016
~15% of annual national generation 17% of total hydro energy storage 28% of annual national inflows
FY2017 FY2018
Mercury benefits from high prices and high volumes
$200 $150 $100 $50 $0 -400
-200
0
200
Delta to NI Storage Average (GWh) Graphs Source: NZX Hydro, Pricing Manager (NZX), Mercury
14 MARKET DYNAMICS
400
MERCURY’S HYDRO ADVANTAGE LIFTS GENERATION VALUE > Value of low correlation of Mercury’s hydro catchment to SI hydrology shown by higher EBITDAF 3/Generation ratio > Also highlighted by Mercury’s consistently higher hydro generation GWAP/TWAP 1 ratio > Long-term hydro generation GWAP/TWAP ratio is 1.10 versus 0.96 for major SI hydro generators2 EBITDAF3 / TOTAL GENERATION
MCY
90
GNE
CEN
HYDRO GWAP / TWAP RATIO
MEL
1.3
MCY MCY Long-Term Ratio SI SI Long-Term Ratio
80 1.2
70
$ / MWh
60
1.1
50 1.0
40 30
0.9
20 0.8
10 0
Financial Year Source: Company Reporting, WITS, Mercury
15 MARKET DYNAMICS
Financial Year Source: WITS, Pricing Manager (NZX), Mercury 1 Generation-Weighted Average Price / Time-Weighted Average Price 2 Based on 10 years to 30 Jun 2018 3 Analyst consensus figures used for GNE and MEL FY2018 EBITDAF, all other figures from company reports
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
0.7
FUTURES MARKET UNRESPONSIVE TO PRICE VOLATILITY > Short-term futures prices sensitive to hydrological conditions > Medium-term futures prices still range-bound (~$73-$83/MWh Otahuhu) despite increased wholesale price volatility > Negative futures prices margin relative to wholesale prices in FY2018 HISTORICAL ASX FUTURES PRICES
Otahuhu
OTAHUHU FUTURES AND SPOT PRICES
ASX Futures
(Rolling 2 year average price starting 3 quarters ahead)
Benmore
(Monthly average 2 year price starting 3 quarters ahead)
Spot (Monthly average)
$140
$95
$120
$90
$/MWh
$80 $75
$80 $60
Graphs Source: ASX, Pricing Manager (NZX)
16 MARKET DYNAMICS
Apr-19
Oct-18
Apr-18
Oct-17
Apr-17
Oct-16
Apr-16
Oct-15
Apr-15
Oct-14
Apr-14
Oct-13
Jul-18
Jan-18
Jul-17
Jan-17
Jul-16
Jan-16
Jul-15
Jan-15
Jul-14
$0
Jan-14
$65
Jul-13
$20
Jan-13
$70
Apr-13
$40
Jul-12
$/MWh
$100
Futures pricing flat
$85
RETAIL MARKET HIGHLY COMPETITIVE > Intense retail competition in 2H FY2018 contributed to Mercury customer numbers decreasing by 4,000 in FY2018 > Customer satisfaction1 based on Mercury’s survey remained stable going from 64% in FY2017 to 63% Mercury Group Mercury Brand Prior 12mth Mercury Switches Net Switches
10,000 8,000 6,000 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 30% 20% 10% 0%
NATIONAL CHURN RATE
All Retailers
(12mth rolling)
Mercury Mercury Brand
25%
}
Annual Churn
20%
10%
} Jul-18
Apr-18
Jan-18
Oct-17
Jul-17
Apr-17
Jan-17
Oct-16
Jul-16
Jul-18
Apr-18
Jan-18
Oct-17
Jul-17
Apr-17
Jan-17
Oct-16
0%
17 MARKET DYNAMICS
All switches
15%
5%
Jul-16
Switches Withdrawn2
Switches
NATIONAL SWITCHING
Source: Electricity Authority, EMI – Market share trends and switching breakdown 1 Based on Mercury’s monthly survey of residential customers, 3-monthly rolling average to 30 June for Mercury brand only 2 Switches which were initiated but not completed (inclusive of saves) 3 A trader switch is where a customer changes retailer without changing house
Trader switches3
MERCURY BRAND MAINTAINS CHURN ADVANTAGE > Mercury brand has kept a material churn advantage compared to the rest of the market > Mercury group churn has increased to near-market levels as smaller brands have experienced elevated churn due to the nature of their customer base NATIONAL TRADER CHURN
Market GNE TPW Ex-Tauranga 1 MCY Group Other
(12mth rolling) 12%
CEN MEL TPW MCY Brand
AUCKLAND2 TRADER CHURN
Market GNE TPW MCY Group
(12mth rolling) 18%
CEN MEL Other MCY Brand
Annual Churn
9%
6%
12% 9% 6% 3%
18 MARKET DYNAMICS
Graphs source: Electricity Authority, EMI – Switching breakdown 1 Tauranga (Powerco) 2 Auckland (Vector)
Jul-18
Apr-18
Jan-18
Oct-17
Jul-17
Apr-17
Jan-17
Oct-16
Jul-16
Jul-18
Apr-18
Jan-18
Oct-17
Jul-17
Apr-17
Jan-17
0%
Oct-16
3%
Jul-16
Annual Churn
15%
POLICY FOCUS OF NEW GOVERNMENT Electricity Price Review > Announced as part of coalition government agreement following September 2017 general election > Focus on incremental changes designed to improve customer access, affordability and energy literacy > Issues paper expected September 2018 followed by a submission process and workshops with stakeholders and consumers
Climate Change > Legislation this year likely as some cross Party support exists for tightening NZ’s emissions reductions target, improving the Emissions Trading Scheme and establishing an independent Climate Commission similar to the United Kingdom model > Interim Climate Change Committee investigating options, costs and practicality of transitioning to a low emissions energy future > Electrification across the economy key to a low carbon economy with scope to transform the transport and industrial heat sectors, opportunity to establish economy-wide low emissions energy target and remove barriers to further investment in renewable electricity generation
Thermal Fuel Discouraged > New Zealand signatory to a November 2017 agreement to phase coal out of power generation by 2030 > Government announced that no new off-shore oil and gas drilling permits will be issued (April 2018)
Transmission Pricing Methodology > Electricity Authority remains committed to a beneficiaries pay approach to transmission pricing; next update December 2018
19 MARKET DYNAMICS
MERCURY’S LONG-TERM WIND JOURNEY Mercury must participate in wind to materially take part in renewable generation development in the medium-term > More than decade long journey leads to optimal development options > Large-scale development delayed by low demand growth environment over the past decade
> Acquisition of stake in Tilt Renewables is an extension of our long-term growth strategy > Robust portfolio of operating wind farms in both Australia and New Zealand; best Australian pipeline > Aligned with our signalled strategy for economic growth > Allowing meaningful participation in Australia’s accelerating transition to renewable energy sources
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Investments Projects
Tilt 0
Up to 10-12 core prospects across NI & SI
Reduced to 2-3 by 2013
2 (consented)
Turitea
Consenting processes
Milestones
2018
Puketoi PNCC selects MCY as developer for Turitea
20 MARKET DYNAMICS
Turitea landowner agreements signed
Puketoi landowner agreements signed
Turitea consents final
Puketoi consents final
21 FINANCIAL SUMMARY
FY2018 FINANCIAL HIGHLIGHTS
$561m
$234m
2.0x
EBITDAF, up $38m, reflecting favourable hydro inflows and continued strong company-wide performance
NPAT, up $50m, reflecting higher earnings, fair value gains and reduction in impairments offset by higher tax expense
Debt/EBITDAF, consistent with BBB+ credit rating and headroom for growth; impacted by record earnings (2.3x after normalising earnings for hydro variance)
$259m
$50m
15.1cps
Free Cash Flow, reflecting strong cashflows from low cost 100% renewable generation and tax prepayments for dividend imputation
Share buyback as an efficient means of returning capital while retaining balance sheet strength
Fully-imputed full-year ordinary dividend declared, above original guidance due to share buyback
22 FINANCIAL SUMMARY
CONTINUOUS FOCUS ON CAPITAL MANAGEMENT Operating Cash Flow
Stay-in-business capital expenditure Capital returns to shareholders
Investment in growth
Free Cash Flow
Ordinary dividend
23 FINANCIAL SUMMARY
Repayment of debt
STABLE CAPITAL STRUCTURE > BBB+ rating is key reference point for dividend policy and an efficient and sustainable capital structure > S&P re-affirmed Mercury’s credit rating of BBB+/stable on 11 December 2017 > One-notch upgrade given majority Crown ownership
> Capital management continuously reviewed > Targeting gearing at low end of Debt / EBITDAF between 2.2x and 3.0x (within key ratio for stand-alone S&P credit rating BBB) to provide debt headroom due to Government minimum equity ownership requirement > Gearing range reflects flexibility afforded by Treasury stock retained from share buyback > Debt / EBITDAF 2.0x at 30 June 20181 (2.3x after EBITDAF normalisation for above-average hydro generation)
30 June 2018
30 June 2017
30 June 2016
30 June 2015
30 June 2014
1,249
1,038
1,068
1,082
1,031
27.5
23.9
24.4
24.5
24.3
1
1
1
1
2.1
Net debt ($m) Gearing ratio (%) Debt/EBITDAF (x)
Capital management priority
2.0
1.8
2.0
Capital returns Growth 1
24 FINANCIAL SUMMARY
2.0
Adjusted for S&P treatment of Mercury’s Capital Bond
FY2019 GUIDANCE SUMMARY > FY2019 EBITDAF guidance is $515m on 4,200GWh of hydro generation, subject to hydrological volatility, wholesale market conditions and any material adverse events, significant one-off expenses or other unforeseeable circumstances > FY2019 ordinary dividend guidance is up 2.6% to 15.5cps > FY2019 operating expenditure is forecast to be flat versus FY2018 > FY2019 stay-in-business capital expenditure guidance is $95m > FY2019 Free Cash Flow will be positively affected by the roll-off of historical interest rate hedges (circa $20m net annual cash flow benefit); partially offset by increased debt
25 FINANCIAL SUMMARY
FY2019 GUIDANCE – UNDERLYING EARNINGS GROWTH > FY2019 EBITDAF guidance assumes: > 4,200GWh of hydro generation (747GWh less than FY2018, 200GWh above average) > Operating expenditure flat relative to FY2018 > Growth from technology investment to improve customer profitability, cost transparency and trading performance INDICATIVE GUIDANCE BRIDGE
Increase
Decrease
580 550 62 520
$m
~15 490
~15
~15
562
460
515
500 430 400 FY2018 Actual
Hydro and Other Adjustments (4,150GWh)
FY2018 Original Guidance
Hydro Normalisation (4,000GWh)
Hydro Adjustment (4,200GWh) 1
26 FINANCIAL SUMMARY
Other 1
FY2019 Guidance
Includes impact of IFRS changes, see slide 32 in Appendix for further details
A DECADE OF ORDINARY DIVIDEND GROWTH > FY2018 fully imputed ordinary final dividend of 9.1cps which will be the 10 th consecutive year of ordinary dividend growth > FY2019 ordinary dividend guidance is an increase of 2.6% to 15.5cps reflecting the reduced number of shares on issue following the completion of the share buyback DECLARED DISTRIBUTIONS
Interim dividend
Final dividend
Special dividend
Share buyback
Ordinary dividend guidance
25
Cents per share
20
15
10
5
0 2008
2009
2010
2011
2012
2013
2014
Financial Year
27 FINANCIAL SUMMARY
2015
2016
2017
2018
2019F
INVESTING IN LONG-TERM CAPABILITY > Stay-in-business capital expenditure will be elevated in FY2019 primarily due to Auckland office consolidation for two thirds of employees ($16m for office move) > Consistent with medium-term guidance plus cost of new building development
> Planned stay-in-business capital expenditure in FY2019 also includes: > Continued investment in long-lived asset capability as Waikato hydro system refurbishment continues at Aratiatia, Whakamaru and Karapiro stations – resulting in material efficiency and capacity gains > Continued technology investment to realise functionality of new systems CAPITAL INVESTMENT
New investment
400
Stay-in-business
350
Stay-in-business capital expenditure for the period FY2013 through FY2018 averages ~$80m
300
$m
250 200
288
100 50
150
183
150
33
2
31
74
69
60
79
2012
2013
2014
2015
13 59
114
112
95
2017
2018
2019F
0
28 FINANCIAL SUMMARY
2016 Financial Year
Q&A 29 Q&A
EBITDAF BRIDGE (FY2018 vs. FY2017) > Energy margin up $36m > Record generation with 171GWh more generation from renewable sources > Energy Cost increased with higher wholesale price > Contribution from CFD sales was $40m, up $6m on FY2017
> Operating expenditure flat year-on-year > Other revenue up $2m due to increases in revenue from metering and services provided to third parties Improvement Reduction
Energy Margin up $36m
750 700
$m
650
217
192
600
5
6
2 0
550 500 450
561
523
400 EBITDAF FY2017
Generation
Energy Cost
1
CFDs
Customer Sales
1
30 APPENDIX
Other Revenue
2
Operating Expenditure
EBITDAF FY2018
Energy cost excludes gas generation purchases and volume impacts of end user sales, which are included within generation and customer sales respectively 2 Other revenue includes the direct costs related to metering services and the purchase of solar equipment
DIVERSIFIED FUNDING PROFILE DEBT MATURITIES AS AT 30 JUNE 2018 400 350
Domestic Wholesale Bonds
US Private Placement
Drawn Bank Facilities1
Capital Bond
Undrawn Bank Facilities
300
$m
250 200 150 100
50 2019
2020
2021
2022
2023
2024
2025
2026
2027
2045
Financial Year
> Committed bank loan facilities were $650m as at 30 June > The average debt maturity profile for committed facilities was 7.2 years as at 30 June 2018 > Interest costs have been elevated due to interest rate hedges put in place in 2008 during the company’s domestic geothermal investment programme. These hedges are rolling off with a circa $20m net annual cash flow benefit in FY2019.2 1 2
31 APPENDIX
Drawn bank facilities includes issued commercial paper Assuming similar debt levels to FY2018
NEW IFRS STANDARDS > Mercury will adopt IFRS 9 (Financial Instruments), IFRS 15 (Revenue From Contracts With Customers) and IFRS 16 (Leases) from FY20191 > Under IFRS 152, credits awarded to customers in the form of upfront discounts will be recognised immediately against revenue (previously recognised in expenses) and commissions directly attributable to obtaining new customers will be capitalised to the balance sheet and amortised back to expenses over a two year period > IFRS 16 reclassification of operating lease payments will reduce expenses (increasing EBITDAF) but increase depreciation and interest with no material impact on net profit > IFRS 9 will have minimal impact on fair value movements through the income statement IMPACT ON GUIDANCE
IFRS 15
IFRS 16
EBITDAF (Old standards)
Total 510
Revenue
-4
-4
Other expenses
3
6
9
EBITDAF (New standards)
-1
6
515
1
32 APPENDIX
Comparative financial statements for FY2018 will be restated under new IFRS for the FY2019 Interim and Annual Reports 2 IFRS 15 will be reflected in Operating Statistics from Q1 FY2019; Electricity Sales VWAP will be negatively impacted
FOR FURTHER INFORMATION >> TIM THOMPSON | HEAD OF TREASURY & INVESTOR RELATIONS T. 0275 173 470 E. INVESTOR@MERCURY.CO.NZ