OUR 2017 ANNUAL REPORT
Freedom to choose.
Spoilt for choice.
Mercury’s mission is energy freedom. This means
freedom for our customers, our communities, our
people and our country to make choices that lead to
greater enjoyment of energy now and better use of
energy to support a sustainable future.
Energy freedom is based on Mercury being curious
and original; we commit to things, own them and deliver
what we say we will; and we share and connect with
everyone who interacts with our company.
It is through this approach that Mercury creates and
delivers value.
This report outlines the value we create for our
customers and for New Zealand; for our people and
our communities; and for our nearly 90,000 owners.
This year our customers used Free Power Days to clean up
their houses, wash their dogs, dry their clothes, charge
their electric vehicles (EVs) and to have fun socialising
with friends and family. 119,000 customers also enjoyed
Airpoints Dollars™ to travel to wonderful places.
These are just a few examples of how we offer our
customers more choices every day. We give them choices
around how they use power, how they pay, how they get
around town, or what to do with the savings and rewards
they earn from making the most of their energy.
It’s these choices that we hope make our customers’ lives
that little bit better and exactly why we believe energy is
so wonderful.
04 >> OUR MISSION, PURPOSE & STRATEGY
06 >> OUR BUSINESS MODEL
08 >> AT A GLANCE
10 >> CHAIR & CHIEF EXECUTIVE UPDATES
20 >> WHAT MATTERS MOST
24 >> GROWING CUSTOMER LOYALTY
30 >> HIGH PERFORMANCE TEAMS
40 >> ENHANCED NATURAL RESOURCES
50 >> STRONGER TOGETHER
58 >> LEADING ECONOMIC PERFORMANCE
64 >> OUR TEAM
66 >> REPORTING ON WHAT MATTERS MOST
67 >> OUR STAKEHOLDERS
70 >> GLOBAL REPORTING INITIATIVE INDEX
CUSTOMERS
CHOOSE
TO ENJOY THEIR
REWARDS.
Turning a light on to read a good book, powering up a smartphone,
researching a recipe online, doing some DIY in your garage, warming your
child’s room – these are examples of things many people enjoy every day.
Most hardly notice what powers many of the things they do. And that’s okay.
We are here to make that easy. We want to help bring that to life too.
We want to reward customers for the choices they make, and one
expression of that is partnering with Air New Zealand. This year more than
119,000 of our customers enjoyed Airpoints Dollars™ from Mercury to do
some wonderful things.
I would love some Airpoints
so I can go back to Hawaii
What did you do with
your Airpoints™?
My son and two grandkids
live in Spain ... Can’t see how
we could ever manage to get
there unless we had some help
- like - AIRPOINTS!
Next holiday we are going
to see our two besties over on the GC
A trip to Queenstown to see
our Grandees. So far away missing
them growing up so fast.
I would love to take my
boys on holiday
Great being able to earn
Airpoints on your power bill
VISIT OUR WEBSITE FOR MORE DETAILS
ON AIRPOINTS™ AND TO SIGN-UP
We have family scattered
around the world and New Zealand
so Airpoints would be of a great help
Just had our first trip ever overseas
(Gold Coast) as a family kids loved
it was 22 years in the making
I will be travelling to Melbourne
then to New York next year so the
Airpoints would be very helpful
I am off to Sydney to
spend Xmas with my
two daughters and my
grandchildren ...
sooooo excited !!!!
My daughter is heading down to Dunedin early
next year to go to Otago Uni and I would so love
to head down with her as it's going to be hard
saying goodbye to my first born...
Plus .... I would really like to see what her
housemates are like and what area
she’s living in and do all the important checks
annoying mums do to make
sure their babies are safe
I would love to go to my
Granddaughter’s graduation
ceremony in America next year
Love a chance to take
my new wee girl to visit
family down in the South Island
I’ll be travelling with my usual travel buddies
and will either be Australia...or down south
to do the Queenstown half marathon followed
by xmas shopping in Christchurch next yr...
and before that will be our usual girls xmas
shopping trip...undecided to where at this stage...lol
I am TOTALLY excited to be
able to earn Airpoints! I need
a holiday
Going to the UK with my
husband and some of our
family for my mother’s
90th birthday can’t wait
We have a daughter who has recently
moved to Aussie. Missing her.
I’ll be traveling with my trusty
backpack, sunglasses and walking
shoes off to the most amazing place
on earth... India...
Super excited for next trip
to Queenstown with a little
help from Mercury
04 // 05
Our Mission: Energy Freedom.
The world we all live in is made better by having the freedom to choose.
Mercury seeks to be chosen by our customers, our people, our owners, our
partners and our communities for offering them energy freedom: where
interactions with us deliver value not constraints, and opportunities not issues.
REALISING
OUR PURPOSE >>
EXECUTING
OUR STRATEGY >>
TO INSPIRE NEW ZEALANDERS
TO ENJOY ENERGY IN MORE
WONDERFUL WAYS
DELIVERING CUSTOMER
ADVOCACY
LEVERAGING CORE STRENGTHS
DELIVERING SUSTAINABLE
GROWTH
BUILDING ON
OUR FOUNDATION >>
WELLBEING
OF OUR PEOPLE AND
CUSTOMERS
OUR TEAM AND STAKEHOLDERS>> BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE LIVING
OUR ATTITUDE >>
ACHIEVING
OUR GOAL >>
TO BE NEW ZEALAND’S
LEADING ENERGY BRAND
COMMIT
& OWN IT
SHARE &
CONNECT
CURIOUS
& ORIGINAL
BUILDING ON
OUR FOUNDATION >>
KAITIAKITANGA
THE CUSTODIANSHIP OF
NATURAL RESOURCES
COMMERCIAL
COMMERCIALLY ASTUTE
DECISIONS
06 // 07
Our business
model.
How Mercury sustains and
grows value
Mercury has a very long-term focus to deliver value for
all of our customers, people, owners, partners and
communities. The foundations of our business are the
wellbeing of our people and customers; deep respect
for kaitiakitanga, the custodianship of natural
resources; and making commercially-astute decisions.
This business model sets out the system of key inputs,
business activities, outputs and outcomes that
contribute to Mercury creating value.
We have categorised our inputs, outputs and outcomes
across the things that matter most to our stakeholders
and our business:
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL
RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC
PERFORMANCE
More detail on our What Matters Most can be found in
pages 20-63 of this report.
We focus on the most
important things...
INPUTS
DEBT & EQUITY INVESTMENT/
FREE CASH FLOWS
DYNAMIC MARKET AND INDUSTRY
VALUE ADDING LOCAL AND
GLOBAL SUPPLIERS
FIT-FOR-PURPOSE POLICY
AND REGULATIONS
LONG-STANDING COMMUNITY
AND IWI PARTNERSHIPS
ALIGNED COMMERCIAL PARTNERS
CUSTOMERS
CLEAR BRAND PROMISES
EFFECTIVE MANAGEMENT
AND LEADERSHIP
SKILLED PEOPLE WITH
DIVERSE THINKING
TECHNOLOGY
METERS
POWER STATIONS
GEOTHERMAL RESERVOIRS
HYDRO INFLOWS
OUR TEAM AND STAKEHOLDERS>> BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE ...and execute our
strategy to...
...deliver our
mission and purpose.
VALUE CREATION
OUTPUTS & OUTCOMES
O U R FOUNDATIONS
C O MMERCIAL
H O W WE DO IT
P E O P L E LEADERSHIP C
W H AT WE DO
CUSTOMER SERVICE
Sale of products and
services with a focus
on inspiring, rewarding
and making it easy for
our customers.
A
P
I
T
A
L
M
A
N
A
G
E
M
E
N
T
AGEM E N T
N
A
Y M
T
E
F
A
S
D
N
A
H
T
L
A
E
H
W
E
L
L
B
E
I
N
G
RELIABLE GENERATION
Generation of electricity
at the right times to
maximise value and
sustain natural
resources.
P
O
ADVANCED METERING
Provision of Advanced
Metering Infrastructure
and data services to
the electricity sector.
T
N
E
M
A
G
N
KITA
KAITIA
N S HIP M ANAGE
R
T
F
O
LIO MANAGEMENT
T I O
A
L
R E
SUSTAINABLE AND GROWING
RETURNS TO OUR OWNERS
INNOVATION TO GROW SERVICE FOR
CUSTOMERS AND VALUE FROM ASSETS
LOYAL CUSTOMERS
COMMERCIAL PARTNERSHIPS
PRODUCING ECONOMIC AND SOCIAL
COMMUNITY CONTRIBUTIONS
SUPPORTED BY KEY STAKEHOLDERS
FOR OPERATING IN A
VALUE-ENHANCING WAY
A PLACE TO WORK THAT KEEPS
OUR PEOPLE ENGAGED, SAFE
AND WELL AND THAT RETAINS,
DEVELOPS AND ATTRACTS TALENT
ASSET GUARDIANSHIP AND
INVESTMENT TO SUPPORT
NEW ZEALAND’S CURRENT
AND FUTURE ENERGY NEEDS
GROWING NEW ZEALAND’S
RENEWABLE ENERGY ADVANTAGE
NATURAL RESOURCES MANAGED WITH
EXPERTISE AND CARE FOR THE LONG
TERM BENEFIT OF NEW ZEALANDERS
08 // 09
At a glance.
Mercury is an electricity retailer and generator that provides energy services to homes,
businesses and industrial customers throughout New Zealand.
We have a long heritage in renewable energy in New Zealand serving homes and businesses
under the Mercury brand and other specialty brands, including the leading prepay service
GLOBUG. We also have proven capability and technical expertise in smart metering services,
solar and off-grid solutions.
Our electricity generation is from renewable sources. Hydro and geothermal power stations
operated by Mercury generate renewable electricity sufficient for 850,000 New Zealand
homes. To achieve energy freedom for New Zealand through the electrification of transport,
we encourage the adoption of electric vehicles (EVs) and electric bikes (e.bikes) and
partnering on non-home charging infrastructure and data.
Our goal is to be the leading energy brand in New Zealand, by delivering value, innovation
and wonderful experiences.
16
PARTNERSHIPS
> MERCURY
GENERATION VOLUME (GWh)
7,533
PHYSICAL SALES VOLUME1 (GWh) 5,764
FY2017
YOY
CHANGE
10.1%
3.1%
MARKET CAPITALISATION ($bn)
(AS AT 30 JUNE 2017)
NET DEBT ($bn)
(AS AT 30 JUNE 2017)
> INDUSTRY
FY2017 MARKET SHARE
4.57
1.04
19%
14%14%
GENERATION
SALES
392K
CUSTOMERS
> 2 geothermal joint ventures
> 4 formal iwi partnerships
> 10 community & commercial
partnerships
CUSTOMERS
345,653 residential
41,167 commercial
2,073 industrial
2,819 spot
1 Based on NZEM purchases.
OUR TEAM AND STAKEHOLDERS>> BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE
54%
OF OUR FLEET
ARE EVs
AUCKLAND
KAWERAU
KARAPIRO
ARAPUNI
WAIPAPA
MARAETAI
I AND II
ATIAMURI
WHAKAMARU
OHAKURI
MOKAI+
NGATAMARIKI
NGA AWA
PURUA+
ROTOKAWA
ARATIATIA
LAKE TAUPO
R&D Centre
Hydro stations
Geothermal stations
+ Not 100% owned by Mercury.
870
EMPLOYEES
361
FEMALE
509
MALE
14
POWER
STATIONS
403K
SMART METERS
2,181 solar customers
243 customers on
EV package
in Auckland
in Hamilton
in Taupo
in Rotorua
601
92
18
59
100 in rest of New Zealand
Services include:
> Providing electricity
consumption data
> Maintaining &
servicing assets
> Installing
infrastructure
4,724
2,809
GWh of hydro
generation
GWh of
geothermal
generation
10 // 11
BUSINESS FUNDAMENTALS
WHAT MATTERS MOST
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
Chair and
Chief Executive
updates.
‘ OUR AIM IS FOR
MERCURY TO EARN,
IN EVERYTHING WE
DO, THE LONG-TERM
TRUST AND SUPPORT
OF OUR CUSTOMERS,
OUR PEOPLE, OUR
OWNERS AND OUR
COMMUNITIES.’
>> JOAN WITHERS
CHAIR
>> CHAIR AND CHIEF EXECUTIVE UPDATES ‘ THIS YEAR WE PAID
CLOSE ATTENTION
TO THE THINGS
THAT OUR EXISTING,
LOYAL CUSTOMERS
SAID THEY WANTED:
REWARDING THEM,
INSPIRING THEM
AND MAKING THEIR
INTERACTIONS
WITH US EASIER.’
>> FRASER WHINERAY
CHIEF EXECUTIVE
12 // 13
CHAIR’S UPDATE
Focused delivery.
This has been a milestone year for Mercury,
with the business strongly establishing itself
under one brand with clarity of focus on our
strategic drivers: delivering customer
advocacy, leveraging our core strengths and
delivering sustainable growth. Our aim is for
Mercury to earn, in everything we do, the
long-term trust and support of our customers,
our people, our owners and our communities.
Your Board is pleased to report encouraging
momentum in a number of key areas, with
record customer satisfaction, record employee
engagement and record financial performance,
all of which are detailed in this report.
OUR PERFORMANCE
Mercury achieved a 6.1% lift in operating
earnings (EBITDAF) to $523 million for
FY2017 ($493 million in FY2016), largely
reflecting strong inflows across the Waikato
catchment in the second half of the financial
year. Hydro generation of 4,724 GWh for the
financial year was 858 GWh up on FY2016.
Mercury’s result was supported also by strong
portfolio and plant management, growth in
our retail business through our focus on
customer loyalty and a solid contribution
from our Metrix smart metering business.
Underscoring the year’s performance, Total
Shareholder Returns, or returns via dividends
paid and share price appreciation, within
FY2017 was 16.4%. The Board is also pleased
to be returning a total of $270 million to our
nearly 90,000 owners, including the Crown,
from cash flows generated through the year.
Details of our final ordinary dividend and
a special dividend are outlined later in this
update.
PEOPLE, LEADERSHIP
AND GOVERNANCE
Our people are at the heart of what we do,
and our commitment to their wellbeing is
fundamental to the sustainability of our
business.
While not related to our reporting
requirements, on behalf of the Board I wish to
acknowledge the death of Rachael De Jong
from a tragic incident in the Aratiatia Rapids
in February this year. My heartfelt condolences
to Rachael’s family for their loss.
Incidents involving injury to Mercury
employees this year were mostly of low
severity, but we are still dissatisfied with this
outcome. There was one serious injury that
related to a stair fall in one of our offices.
Fortunately the IT contractor involved in that
incident has made a full recovery. Our goal
continues to be Zero Harm.
We have seen a steady increase (39%) in the
reporting of meaningful near-miss events
from across all parts of Mercury. This is a very
positive sign as it signals both collective
ownership and collective awareness of what
constitutes a hazard.
The Board is delighted with the performance
of the Executive Team during the financial
year in review. Under Fraser’s leadership as
Chief Executive, we have assembled a
talented, high-performing executive group
which operates in a collegial manner and
whose conduct, demeanour and integrity
reflect the standards and provide the example
we strive for as an organisation. The recent
Employee Engagement Survey reinforced the
fact that our Executive Team is highly
engaged, has a common purpose and
strongly believes in and is committed to the
Company’s direction.
Our people are at the heart of what
we do, and our commitment to
their wellbeing is fundamental to
the sustainability of our business.
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS>> CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE We will continue to focus on
earning your support through
our strategy of delivering
customer advocacy, leveraging
our core strengths and
delivering sustainable growth.
Fraser’s influence on issues that matter to
New Zealand has extended well beyond our
own organisation. Over the past two years, he
has driven much of the momentum on raising
awareness of the benefits EVs can provide to
the country, both in economic and
environmental terms.
He recently headed a mission to Switzerland
with many leading New Zealand business-
people and as a board we have received
tremendous feedback about his role and
participation.
The relationship between the Chair and Chief
Executive is critical. I enjoy working with Fraser
immensely; he is always receptive to the
feedback the Board provides and I am
energised by the passion and commitment he
demonstrates in the role.
Mercury’s Board and Executive have been
stable throughout the year, with the only
change being the departure of director
Mike Allen in November 2016 after seven
years’ service.
Dr Allen’s expertise in geothermal
development contributed strongly towards the
Company’s geothermal investment
programme. Your Board is working carefully
towards appointing a replacement director. I
am strongly focused on ensuring that your
Board continues to be well balanced with the
skills, experience and diversity to guide
Mercury over the long term in a dynamic and
highly competitive environment.
We continue to scrutinise the need for
relevant skills in our regular assessment of our
skills matrix and we secure independent
facilitation of our Board performance reviews.
A recent investor survey showed that the
performance and composition of your Board
is highly regarded.
Mercury continues to support the
development of governance capability in
New Zealand through the Institute of
Directors’ Future Directors Programme.
We welcomed Nicky Ashton, a brand and
marketing expert, as a Future Director on an
18-month term which will conclude on
31 December 2017.
Your Board is committed to maintaining the
highest standards of business behaviour and
accountability. Along with Mercury’s Executive
Team, we are also committed to developing
our reporting so that it provides clarity on how
Mercury creates value, our ultra long-term
sustainability and prosperity.
Our approach to embedding sustainability in
everything we do is reflected in the
foundations of our business: wellbeing (of our
people and customers), kaitiakitanga
(custodianship of our environment), and
commercial (making commercially-astute
decisions).
This has also guided the development of this
report so that it brings forward material
sustainability topics – What Matters Most.
From discussions with owners both here and
around the world we appreciate the drive
towards understanding how organisations
sustainably grow value over the long term.
In this report we have incorporated principles
from the Integrated Reporting
Framework and have reported against Global
Reporting Initiative (GRI) standards. Mercury
will look to build on our integrated thinking
and reporting.
This includes reporting on how we incorporate
sustainability into our strategy, governance
and operations, and how we manage
sustainability risks and opportunities.
Building on this approach, Mercury is an early
adopter in aligning our reporting against the
NZX Corporate Governance Best Practice
Code 2017. We also support the initiatives
driven by individual and collective investors
and shareholder representative groups, such
as the New Zealand Shareholders Association,
to improve transparency in remuneration
disclosures and on opportunities such as
diversity. We believe that having high
standards of corporate governance is critical
for New Zealand’s prosperity.
RETURNING VALUE
As mentioned, your Board is pleased to be
returning a total of $270 million to our nearly
90,000 owners, including the Crown, for the
full year.
The final ordinary dividend is 8.8 cents per
share, fully-imputed. This brings the full-year
fully-imputed ordinary dividend to 14.6 cents
per share, up from 14.3 cents per share in
FY2016. This is consistent with Mercury’s
policy to make ordinary distributions with a
pay-out ratio of 70% to 85% of Free Cash
Flow on average through time. This return to
shareholders is also on guidance and
represents the ninth consecutive year of
ordinary dividend growth.
As well as the fully-imputed ordinary dividend,
Mercury has announced a special dividend,
also fully-imputed, of 5.0 cents per share as a
means of returning cash to shareholders that
is surplus to the Company’s requirements.
14 // 15
Your Board is pleased to be
returning $270 million in total
to our approximately 90,000
owners, including the Crown,
for the full year.
As we have previously stated, Mercury seeks to
utilise its balance sheet and Free Cash Flow to
fund value enhancing initiatives, however no
such opportunities requiring additional capital
were executed in FY2017. This special dividend
distributes excess Free Cash Flow plus
proceeds from carbon credit sales within
FY2017.
Mercury’s final and special dividends will be
paid to shareholders on 29 September 2017.
Our capital management initiatives support
Mercury’s investment-grade credit rating
(BBB+), which was reaffirmed by S&P Global
Ratings in December 2016.
We have issued guidance for the FY2018 year
based on a return to average hydro inflows
into the Waikato catchment, though elevated
by 150 GWh based on performance during
the first month of the financial year.
With a moderate level of earnings variability
from year to year due to hydrological
conditions, Mercury adopted a single
‘point-estimate’ for EBITDAF guidance from
FY2017. EBITDAF guidance updates are
provided at least twice-yearly: at Mercury’s
Annual Shareholders’ Meeting (ASM) and as
part of our Interim Results. Quarterly
Operational Updates include mid-point
estimates for forecast full-year hydro
generation.
EBITDAF guidance for FY2018 is $500 million,
subject to any material events, significant
one-off expenses or other unforeseeable
circumstances including hydrological
conditions. Ordinary dividend guidance has
been issued at 15.0 cents per share, an
increase of more than 2% on FY2017.
Stay-in-business capital expenditure guidance
is $115 million, above our normalised level of
$80 million due to planned hydro, geothermal
and technology investments in FY2018.
CONNECTING
To assist with Mercury’s customer focus, your
Board all spent time at the Company’s
contact centre and even made customer calls
during the year. These were wonderful
experiences. I was assisted by Customer
Service Representative Jahmeel Nowell, and
was very impressed by the dedication he, and
other members of the team around him,
showed towards the customer experience.
It was encouraging to the Board to observe
the care shown by all our people for the
customers they interact with each day.
To assist with delivering close connections
also with our owners, we maintain our
commitment to providing an update on our
business performance and strategic priorities,
as well as to sharing with you more of our
customer-led innovations, at our ASM in
Auckland. This year’s meeting will be held on
7 November. I look forward to welcoming you
there. If you are not able to attend, you can
follow proceedings on a live webcast, and you
can also cast a proxy vote on any resolutions
by post or online.
LOOKING FORWARD
Given the momentum developed by Mercury
this year, strong execution across the
business, and the customer-led innovation
that we outline in this report, the Company is
well positioned to continue generating
consistent and growing returns for our owners,
along with value for our partners, our
customers, our people and our communities.
We will continue to focus on earning your
support through our strategy of delivering
customer advocacy, leveraging our core
strengths and delivering sustainable growth.
I would like to thank all of our people, the
Executive Team and my fellow directors. Your
professional efforts and advocacy for Mercury
throughout the year have helped to bring to
life our new Mercury brand and to inspire
New Zealanders to enjoy energy in more
wonderful ways.
>> JOAN WITHERS, CHAIR
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS>> CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE CHIEF EXECUTIVE’S UPDATE
Earning the opportunity
to be chosen.
At Mercury, we respect that freedom to choose sits with our customers,
people, owners and communities. We have worked hard throughout
the year to distinguish ourselves by the choices that we offer.
Strategic use of data is an
important enabler for Mercury.
We have commercialised more
initiatives based on smart meter
data than any other energy
retailer in New Zealand.
I am proud of what the dedicated people at
Mercury have achieved this financial year, and
what this momentum means for the years
that will follow. The customer focus within our
business has delivered real change and this
report outlines several of our successful
innovations. These include data-driven digital
solutions, our leadership and partnership
approach to EV uptake, and our provision of
solar and battery options fit for New Zealand
conditions.
We have also executed well across the
business, and that is critical to earn the trust
of our owners.
Our geothermal drilling campaign resulted in
four new wells and one well repair at the
Kawerau and Rotokawa fields in a programme
that involved 170,000 working hours and
spanned 30 separate organisations. The
campaign was completed safely, ahead of
time, and $7.5 million under target.
We delivered important IT and digital
enhancements designed to improve our
capacity to meet customer needs efficiently
and effectively. Our IT team completed a
migration of the majority of our business
applications to the cloud. System upgrades of
our core asset management system (Maximo)
and our SAP customer service and billing
system, and their transfer to the cloud, are
expected to be completed in the first half of
FY2018.
Customer satisfaction, influenced strongly by
our focus on loyalty, reached its highest-ever
level during the year. Our employee
engagement score, which reflects many
aspects of our business though includes our
considerable focus on wellbeing and
management training, is at the highest level
in Mercury’s history.
Our FY2017 financial outcomes are also the
strongest in Mercury’s history.
These customer, employee and financial
measures confirm the success of our rebrand,
undertaken to align our approach externally
and internally, and our focus on rewarding
customer loyalty.
FINANCIAL PERFORMANCE
Mercury’s net profit after tax increased
$24 million to $184 million. Underlying
earnings after tax increased by $24 million, or
16%, to $176 million, reflecting improved
operating earnings and flat operating costs.
Operating costs of $214 million were flat in
FY2017 when compared with FY2016. This
reflects Mercury’s continued focus on
controlling costs, improved procurement
strategies, our exit from international
geothermal development and the mothballing
of Mercury’s thermal generation site at
Southdown. Operating expenditure has
progressively been focused towards customer
innovation over the past two years.
Stay-in-business capital expenditure, which
represents the capital expenditure incurred by
the Company to maintain our assets in good
working order, was $114 million. This was
above our normalised level of $80 million
per annum, reflecting phasing of ongoing
hydro refurbishment projects at Aratiatia and
Whakamaru, and Mercury’s geothermal
drilling programme. Capital expenditure was
$10 million below original FY2017 guidance of
$125 million, due to the performance of the
geothermal drilling campaign.
16 // 17
BUSINESS FUNDAMENTALS
WHAT MATTERS MOST
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
OUR CUSTOMERS
To be New Zealand’s leading energy brand, we
need to earn the opportunity to be chosen by
New Zealanders to meet their energy needs.
This year we paid close attention to the things
that our existing, loyal customers said they
wanted: rewarding them, inspiring them and
making their interactions with us easier.
Mercury’s Free Power Days, which allowed
customers to boost their enjoyment of
electricity at no cost on certain days,
resonated strongly. One customer reported
using a Free Power Day to wash, dry and
pamper their dog, hence our cover image.
Another customer dried out his model plane
that had crashed into a lake. Mercury’s Free
Power Day platform is entirely digital, and all
up more than 157,000 Free Power Days were
enjoyed throughout the year, the equivalent of
up to 430 years of free power.
Mercury’s innovation approach is to be
alongside our customers as technology moves
from what is possible to what is commercially
probable in New Zealand’s small market, with
a unique and world-leading structure.
Customers enjoyed wonderful experiences on
e.bikes, whether saving on commuting times
or parking costs or simply having fun cycling
through beautiful parts of our country like the
Waikato River Trails.
We paid close attention to the
things that our existing, loyal
customers said they wanted:
rewarding them, inspiring
them and making their
interactions with us easier.
Innovations led by the needs and expectations
of our customers also saw customers receive
new monthly statements with clearer,
easier-to-understand and more useful
information.
Mercury delivered a mobile phone app
solution to GLOBUG customers having to
transition from their previous in-home
displays. Our team’s broad thinking resulted in
a programme to re-purpose redundant stock
in collaboration with NIWA and community
groups in order to minimise waste to landfill.
Overall, in FY2017 Mercury, excluding Bosco
and GLOBUG, gained 19,000 residential
customers through our focus on loyalty and
retention.
Recognising customers’ desire for choice, we
increased our solar energy options, along with
battery storage capability, via Mercury Solar,
launched in November 2016. Auckland’s
demand for solar installations, however, was
lower than anticipated in FY2017. Reflecting
that, Mercury’s installations were below our
expectations.
As we have said previously, solar will likely
remain a niche in New Zealand due to a
highly competitive renewable electricity
market, factors such as our climate and
geography, and winter peaking electricity
demand.
We will continue to develop our research and
development facility, based in Penrose,
Auckland, to understand how advances in
global technology in areas such as solar
energy and battery storage can deliver better
customer outcomes tailored for New Zealand
conditions.
Strategic use of data is an important enabler
for Mercury. We have commercialised more
initiatives based on smart meter data than
any other energy retailer in New Zealand.
Smart meter use contributes strongly to
customer-led product development as well as
helping customers towards more efficient use
of energy in their homes.
Our metering division, Metrix, is the second-
largest smart meter data and services provider
in the country. For FY2017 Metrix contributed
$49 million in revenue with over 400,000
meters owned at 30 June 2017 and more
under management. Metrix is expected to
complete a systems upgrade in FY2018 that
will offer certified half-hour data for an
expanded number of energy retail customers.
OUR PEOPLE
As well as being chosen by customers,
Mercury must be chosen as a great place to
work.
This year our people achieved excellent
outcomes by bringing our new brand to life
and promoting our attitudes of commitment,
sharing and connecting, and being curious
and original. Our success in this area is
reflected in our 2017 Employee Engagement
Survey, where 81% of employees identified
themselves as engaged (up from 79%).
Another humbling insight from the survey was
that those who identified themselves as Maori
showed the highest levels of engagement at
91%. Mercury benefits from the diverse views
and experiences of all our people as they
reflect the communities in which we operate.
Having a great place to work also contributes
to high-performing teams. Excitement is
growing in relation to consolidating Mercury’s
four Auckland office locations into one new
location in Newmarket, scheduled for FY2019.
Planning is progressing well to ensure the new
premises offer workspace choices and an
environment that complements and enhances
our customer-led brand.
We broadened our diversity objectives in 2016
from gender to also cover age, ethnicity,
inclusion and flexibility. Progress is
encouraging. The proportion of women across
our total workforce increased to 41% from
38% in 2016, and across our leadership group
to 30% from 25% in 2016. We will continue to
focus on building diverse and inclusive teams
to deliver business success.
>> CHAIR AND CHIEF EXECUTIVE UPDATES This year our people achieved
excellent outcomes by
bringing our new brand to life.
Keeping our people well is another
commitment we make. From the range of
benefits they can choose from, one in six of
our people had an annual health check
subsidised by Mercury; 275 took up the
opportunity for a free influenza vaccination;
and 17 employees used some or all of the two
weeks’ paid leave available to partners
supporting a primary caregiver with the arrival
of a new child. Pleasingly, our Employee
Engagement Survey identified that 95% of
our people agree or strongly agree that
Mercury is committed to the health and safety
of our people.
Our people also faced some unique
challenges this year.
On 6 February 2017, there was a tragic
incident at the Aratiatia Rapids, the natural
spillway on the Waikato River below Mercury’s
Aratiatia Dam. A young woman, Rachael
De Jong, who was at the rapids with her
friends, lost her life. An extensive internal
review tested safety measures at the rapids
and they were confirmed as functional and fit
for purpose before tourism observation spills
from the dam were reinstated. To further raise
awareness of the importance of safety at the
rapids, a joint statement with safety guidelines
was distributed in conjunction with other
stakeholders including the Department of
Conservation, Waikato Regional Council, Water
Safety New Zealand, and the Taupo District
Council. Our deepest sympathies are with the
De Jong family.
On behalf of Mercury, I would also like to
acknowledge the passing during the year of
three employees who, in different but very
important ways, contributed greatly towards
who we are as a company: Cathy Tarrant, John
Foote and Peter Hutchen. Our thoughts are
with their families and they are fondly
remembered.
OUR RENEWABLE NORTH ISLAND
GENERATION
It is a significant commercial advantage to
Mercury that our generation of electricity from
our renewable hydro and geothermal stations
is based relatively close to large areas of
energy consumption in the North Island.
Our nine Waikato River hydro stations meet
around 10% of New Zealand’s current
electricity needs and benefit from inflows
(rain) that typically correlate with consumers’
winter peak demand. When temperatures
drop in New Zealand homes, Mercury’s hydro
inflows typically help provide renewable
warmth.
Low South Island lake levels this winter
impacted on electricity output from
competitors managing South Island hydro
stations, with consequential impacts on spot
prices for electricity. New Zealand’s security of
supply was assisted by 96th percentile annual
inflows into our North Island system.
Mercury’s maintenance and enhancement
programme meant we were able to play our
part to help consumers by generating strongly
through this period. On 4 July 2017, we
achieved a key milestone: running all of our
39 turbines in the Waikato Hydro System to
achieve a record peak generation of
1,063 MW.
Our people who manage the hydro stations
also play a key role in water management
throughout the Taupo and Waikato River
catchments.
We take great pride in how our people
assisted the flood manager, Waikato Regional
Council, to mitigate flooding in low-lying areas
from the heavy rains from consecutive
cyclones Debbie, Cook and Donna in the
second half of FY2017.
18 // 19
BUSINESS FUNDAMENTALS
WHAT MATTERS MOST
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
This year we continued our programme to
improve the operational efficiency and
long-term reliability of our hydro stations. The
rehabilitation of the first of four units at our
Whakamaru station was successfully
completed and is performing better than
planned. The full upgrade, scheduled for
completion in 2020, will increase capacity by
24 MW to 124 MW, the energy equivalent of
approximately 16,000 EVs.
Solid progress has also been made in
preparing Aratiatia hydro station for its
upgrade which is scheduled to commence on
site in October 2017, with completion expected
mid-2020.
Mercury’s geothermal stations provide steady
baseload electricity, equivalent to 7% of
national demand. To ensure the sustained
performance of our geothermal production,
this year we successfully completed a
substantial geothermal drilling programme,
mentioned earlier.
In addition and as mentioned in previous
reports, Mercury is primed for domestic
growth when commercial conditions are right,
with consented high-quality wind farm sites at
Turitea and Puketoi available to add to our
renewable electricity fleet.
OUR PARTNERSHIPS
Collaboration based on mutual understanding
and delivering shared value guides Mercury’s
approach to partnerships. We seek to learn
from and respect the past, and believe that
this provides a hard-to-replicate model that
distinguishes us from our competitors.
Mercury is primed for domestic
growth when commercial
conditions are right, with
consented high-quality wind farm
sites at Turitea and Puketoi
available to add to our renewable
electricity fleet.
Kaitiakitanga (guardianship) and kotahitanga
(working together for today and tomorrow) are
constructs we embrace in our commercial
partnerships. They influence the decisions we
make as we manage and grow our renewable
electricity generation resources for the benefit
of all New Zealanders, including our nearly
90,000 New Zealand owners.
Our partnerships with the Tauhara North No.2
Trust and the Tuaropaki Trust have not only
added to New Zealand’s geothermal electricity
generation but have also created
opportunities for Maori to grow economic
wealth from their whenua (land). We are
inspired by their mahi (work).
Our relationships with iwi in the Waikato River
catchments are hugely valued by us, and have
been built over many years based on respect
and trust. We support programmes that are
mutually mana-enhancing and of benefit over
the ultra long term. As an example, Mercury
worked with Ngāti Koroki Kahukura to install a
solar energy system at Pohara Marae in the
Waikato.
OUR PROGRAMME OF WORK
Major activities planned through the 2018
financial year that support our mission of
energy freedom include:
•
•
• growing our customer-led digital offerings
and capability by completing an upgrade
of our customer systems to a fully-
supported cloud-based environment
extending our high-performance team
framework
evolving our health and safety approach
beyond occupational health and safety to
include wellness and process safety
refurbishing and the returning to service
of two new hydro units at Aratiatia and
Whakamaru, and the drilling of a new
geothermal well at Ngatamariki
completing and embedding Metrix’s new
operating platform
•
•
• delivering our Maximo asset management
system upgrade.
OUR SUSTAINABILITY AND OUTLOOK
Acting with ultra-long-term sustainability in
mind is the way we do things at Mercury. This
is embedded into the way we manage the
natural resources we rely on for electricity
generation and how we maintain our assets
and the relationships we form with our key
stakeholders. In all our decisions, we consider
the way we impact on, and are impacted by,
key sustainability opportunities, along with the
valuable role we can play towards
safeguarding New Zealand’s sustainability.
Climate change and its impacts are a
significant global and national challenge and
we actively seek to influence better outcomes
for all New Zealanders. We do this by focusing
on making a positive contribution ourselves,
and also by seeking to influence others to
move New Zealand towards a low-carbon
economy.
There is an important role for us to play given
Mercury’s renewable electricity generation and
a great opportunity for New Zealand to take in
seeking to electrify our transport sector.
Mercury operates in an unsubsidised
electricity market in New Zealand that is more
than 80% renewable and the opportunity
exists here to extend this natural advantage.
The Government’s target of 90% renewable
electricity generation by 2025 is unnecessary,
given the pipeline of competitive renewable
electricity projects. The real issue is the use of
non-renewable sources for our wider energy
requirements. Almost 60% of our overall
energy usage still involves fossil fuel, much of
which is imported.
This dependence on fossil fuel impacts
negatively on New Zealanders through our
balance of trade, it keeps consumers
vulnerable to overseas oil supply and oil price
shocks, and it is a constraint to New Zealand’s
efforts to reduce carbon emissions. To break
free from this dependence, rather than a
renewable electricity target, New Zealand
needs a renewable energy target focused on
reducing fossil fuel use.
>> CHAIR AND CHIEF EXECUTIVE UPDATES The customer-led focus on
execution and innovation has
supported a strong financial
performance that underpins
Mercury’s wider contribution
to customers and the
country.
Electrification of transport and the utilisation
of renewable sources of energy, such as
geothermal, for heat in industrial processes,
are two of the biggest areas of opportunity if
we are to reduce New Zealand’s dependence
on non-renewable sources of energy
significantly. This drives Mercury’s own efforts
to support the uptake of EVs in New Zealand.
Continuing to influence positive change, we
are confident we will have met our target of
70% EVs in our total fleet within the first half
of FY2018. This will be well within the
timeframe of the commitment stated at our
ASM in November 2014, and represents the
conversion of every car possible.
We are entering an exciting period for
consumers with more choice than ever about
how they want to engage with their energy
services. Enabling competitive markets has
been the cornerstone of Mercury’s policy
approach and this has delivered for
consumers. We want to see the benefits that
the market has delivered continue which is
why we see an opportunity now to get the
regulatory settings right around emerging
technology and the pricing of distribution.
Pricing reform of distribution networks is
needed to ensure pricing structures are
simplified and made more equitable. Prices
must also send the right signals to retailers to
support their customers’ investment decisions
for new technologies like solar, batteries and
EVs.
Mercury welcomes the Government’s recently
announced review of the regulated low
fixed-charge tariff (LFCT) as we believe the
LFCT is an ineffective approach that does not
benefit the majority of those households
originally targeted by the tariff.
Getting the settings right in these areas is
important to ensure a fair outcome for all
consumers, particularly the most vulnerable,
over the long term.
Access to water as well as the quality of it, is a
very important opportunity for our country to
get right. Mercury is committed to being an
active participant in helping to secure the
sustainability and improvement of New
Zealand’s freshwater resources. We seek to do
this by understanding, managing and
minimising any impacts our operations have
on water, together with looking at the ways we
can continue to innovate and improve the
efficiencies of our water utilisation. We believe
there is a very clear distinction between
non-consumptive use of water, such as our
use of gravity for hydro generation and
consumptive uses which remove water from
the environmental system.
Overall, we continue to be encouraged by the
constructive approach to policy development
across the political spectrum.
FINAL WORDS
On behalf of Mercury’s Executive Team, I am
very pleased with what has been achieved
throughout this financial year and excited by
the opportunities which lie ahead. The
customer-led focus on execution and
innovation has supported a strong financial
performance that underpins Mercury’s wider
contribution to customers and the country.
We acknowledge the choices that our
customers, our owners, our people and our
partners have all made and thank you for
being part of our story.
Together we are Mercury.
Energy Made Wonderful.
Nga mihi nui ki a koutou katoa.
>> FRASER WHINERAY, CHIEF EXECUTIVE
20 // 21
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
What
matters
most.
In 2016 Mercury established five key pillars representing the things that
matter most to our stakeholders and our company. These are the material
considerations relevant to how Mercury sustains and grows long-term value.
In this report, we have further developed the information provided on each
of these pillars. We have incorporated more stakeholder feedback, provided
clarity on why these areas matter most, and have outlined what Mercury has
done or plans to do to create long-term value in these areas.
You can read more about how these material considerations relate to our
stakeholders and how we engaged our stakeholders in the creation of this
report on pages 66-69.
We will continue to evolve our reporting to include further goals and targets
in these key areas.
How it all fits together.
The United Nations Sustainable Development
Goals (SDGs), establish a global vision to end
poverty, hunger, inequality and protect natural
resources. The SDGs act as a target for
businesses, governments and society to make
the right choices now to improve life for future
generations. At Mercury, the work we’ve done
contributes to a number of key SDGs. In this
table we have aligned our What Matters Most
pillars with the three SDGs we contribute to
the most:
7
8
11
KEY SDGS
AFFORDABLE AND
CLEAN ENERGY
DECENT WORK AND
ECONOMIC GROWTH
SUSTAINABLE CITIES
AND COMMUNITIES
OUR WHAT
MATTERS MOST
ENHANCED NATURAL
RESOURCES
HIGH PERFORMANCE
TEAMS
GROWING CUSTOMER
LOYALTY
STRONGER TOGETHER
LEADING ECONOMIC
PERFORMANCE
ENHANCED NATURAL
RESOURCES
STRONGER TOGETHER
HIGH PERFORMANCE
TEAMS
STRONGER TOGETHER
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOST GROWING
CUSTOMER
LOYALTY
LEADING
ECONOMIC
PERFORMANCE
HIGH
PERFORMANCE
TEAMS
STRONGER
TOGETHER
ENHANCED
NATURAL
RESOURCES
GROWING CUSTOMER
LOYALTY
Mercury’s purpose is to
inspire New Zealanders to
enjoy energy in more
wonderful ways. We do this
through an approach that
rewards loyalty, uses
customer-led technology and
makes our services seamless
and easy for people. We are
grateful to our customers for
choosing us and in response
we focus on what they tell us
matters most to them –
fairness and helping to
maintain security of their
supply. Customer satisfaction
is a core benchmark for our
business: it is a component
measure for the Company
KPIs (and therefore executive
remuneration) to enhance
customer centricity.
HIGH PERFORMANCE
TEAMS
The best way to create value
in our business and deliver
the best experience possible
to our customers is to ensure
we have high performing
teams. We aim to make
Mercury a great and safe
place to work, where our
employees feel engaged and
motivated to live up to their
full potential, and also that of
the teams they are part of.
We value diversity, particularly
in contributing to innovative
thinking, and have a culture
where people feel they can
contribute and succeed. The
safety and wellbeing of our
people and everyone we work
with is a component measure
of executive remuneration.
We have a complementary
focus on employee
development, great people
management and a high
performance culture, which
supports recognition of and
reward for excellence.
ENHANCED NATURAL
RESOURCES
Mercury harnesses energy
from natural resources. We
have a long-term focus that
recognises the interests of
other stakeholders, including
future generations of New
Zealanders. Our renewable
generation contributes
towards New Zealand’s
renewable energy advantage
that delivers value to
customers and contributes to
meeting New Zealand’s
climate change goals. In
order to protect the natural
environment, on which
Mercury relies to deliver
energy to our customers,
resource consent compliance
is a key focus. We place a
high priority on collaboration
with local government and
the local communities in
which we operate. This is to
ensure ongoing natural
resource availability and
protection and enhancement
of environmental outcomes,
including the health and
wellbeing of the Waikato River
and its catchment.
STRONGER
TOGETHER
Deep and enduring
partnerships are a vital
foundation for our business
and broader economic
outcomes. Kaitiakitanga
(guardianship) is embedded
in our operations and in the
relationships we have with our
commercial, iwi and
community partners. Our
long-standing partnerships
with Maori landowners have
been essential to our
geothermal development
programme and operations
that rely on ongoing access to
natural resources. Our
commercial partnerships
have focused on green
growth opportunities for
New Zealand such as EV
uptake. We are proud to have
long-standing commitments
which support local
communities. These allow us
to bring our purpose to life
and ensure that our value
creation extends beyond the
Company’s direct economic
performance.
LEADING ECONOMIC
PERFORMANCE
The financial results reflected
in this report are the product
of a focused ultra long-term
business approach, centred
on delivering value to our
owners. We apply strong
financial disciplines and
robust risk management in
operating our business and
pursuing future growth. We
take pride in the Company’s
strong and resilient economic
performance. Mercury aims
to deliver sustainable and
growing cash flows that
support progressive dividends
to our owners, and grow in
value over time. Through our
partnerships and by working
with communities we also
provide broader economic,
societal and environmental
benefits.
CUSTOMERS
CHOOSE
FREE POWER.
To remind customers of the fun they can have with their energy, to thank
them for choosing Mercury, and to help them wash their dogs or host a
dinner party, we offer the opportunity to choose a Free Power Day.
It’s a day where a customer can really make the most of wonderful energy.
157,000 Free Power Days.
Super Sandra makes the
most of her Free Power Day.
>>
WE’RE CONSTANTLY AMAZED BY THE INCREDIBLE THINGS
PEOPLE DO WITH THEIR FREE POWER DAYS.
Sandra from New Plymouth is no exception. She caught up on washing,
whipped up a yummy-sounding leek and potato soup, and even got a pork
roast going. Sandra then went on to bake an impressive 10 recipes to treat
her family of four. There was even time to spend “watching a little TV”.
“I think it’s a great thing to do… thanks for my Free Power Day.” Sandra, it’s
our pleasure!
VISIT OUR FACEBOOK PAGE TO READ
MORE STORIES OR SHARE YOUR OWN.
24 // 25
GROWING CUSTOMER LOYALTY
Inspiring
New Zealanders
to enjoy energy
in more
wonderful ways.
Mercury’s purpose is to inspire New Zealanders
to enjoy energy in more wonderful ways. That’s
why we launched our new single brand in July
2016 with wonderful examples of what energy
can do for our customers.
Our customers were at the heart of this change.
They even helped choose our bee logo. They told
us they want choices which reward them and
that we should be easy to work with so we
designed our customer strategy around this. We
focus on giving our customers the right choices
and that’s led to our highest-ever levels of
customer satisfaction and the lowest customer
switching rate amongst similar-sized retailers.
Mercury will keep asking and listening to our
customers so we can offer choices that make
energy wonderful.
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOST> GROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE Delivering Customer
Advocacy
Focusing on inspiring, rewarding and making it
easy for our customers helps everyone at Mercury
to become a customer champion.
3,000
E.BIKE RIDES
FACILITATED BY
MERCURY
Inspiring.
We aim to inspire our customers to use
Mercury’s renewable energy in wonderful new
ways. That could be e.biking to work, driving
an EV along New Zealand’s Electric
Highway™, or harnessing and storing the
energy of the sun.
E.bikes
E.bikes are the perfect example of ‘energy
made wonderful’. They give our customers the
choice to beat traffic congestion and parking
costs without breaking a sweat. E.bikes have
even helped customers recovering from health
challenges to get back into cycling.
We took our big yellow trailer of e.bikes
around the country and gave more than
3,000 New Zealanders the chance to go for a
ride. Many customers were inspired to buy
their own e.bike. To help, we offered customers
a discount of up to $500 with certain cycle
retailers.
Over the past year, e.bike sales in New Zealand
have doubled; this proves that Kiwis are
definitely ready to electrify their transport.
Mercury Solar
Inspiring our customers includes offering
them the freedom to choose to generate and
store their own wonderful, renewable energy.
Mercury Solar is this country’s only solar
‘one-stop shop’: installer, electricity retailer,
and renewable energy generator.
We’ve invested in the Mercury Research and
Development Centre to trial a range of solar
and electricity storage solutions specifically for
New Zealand conditions. We’ve partnered with
global technology leaders Trina Solar for solar
panels, and SolaX for a leading German-
designed solar battery storage system.
Mercury Solar customers are given an online
tool that tracks the performance of their solar
system, and we offer a great ‘buy-back’ rate of
12 cents per kWh for any surplus energy fed
back into the grid.
Demand for solar has been slower than
anticipated across the whole market. For
customers who do choose to move to solar,
we’re ready with the scale, technology and
experience to deliver the best on- or off-grid
solar experience.
26 // 27
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
> GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
Rewarding.
We reward our customers for choosing
Mercury. To thank them for their loyalty, we
help them fly with Airpoints Dollars™; we offer
them certainty with fixed-price contracts, and
we periodically offer Free Power Days.
In FY2017 we gained 16,000 customers (the
number of customers who joined us, less the
number of customers who left). Most of this
gain is because customers choose to stay with
us. Our focus on rewarding customer loyalty
has resulted in the lowest rate of ‘trader
switching’ (where a customer changes retailer
without changing house) being lower than the
rest of the NZ market combined.
HOW WE’RE TRACKING:
Churn
2015
20%
2016
22%
2017
18%
16,000
NET GAIN IN CUSTOMERS
IN FY2017
5.7%
‘TRADER SWITCH’ RATE, MATERIALLY
LOWER THAN THE REST OF THE NZ
MARKET COMBINED
Airpoints Dollars™
Our energy helps our customers fly.
We partnered with iconic Kiwi brand Air
New Zealand to offer Mercury customers
Airpoints Dollars™ – one of the country's
largest and most popular loyalty programmes.
More than 119,000 Mercury customers have
already signed up to earn Airpoints Dollars™
just for paying for their power. Many
thousands have chosen one of our offers to
earn points even faster by signing up to a
fixed-price contract with an increased multiple
of points earned.
119,000
MERCURY CUSTOMERS
JOINED AIRPOINTS™
13,000
MERCURY CUSTOMERS
EARNING TRIPLE
AIRPOINTS DOLLARS™
157,000
FREE POWER
DAYS CLAIMED.
Free Power Days
Our customers have enjoyed more than
157,000 Free Power Days this year. All
together, this adds up to more than 430 years
of free power!
Our customers love Free Power Days, and they
give us great feedback, whether they chose to
use the day for a laundry blitz, a party, or to
bake for the whole school. On 25 May 2017
we partnered with TVNZ to help celebrate the
25th birthday of a Kiwi TV icon, Shortland
Street. With competitions, special content, a
virtual reality and e.bike roadshow and a Free
Power Day for customers who opted in.
Fixed-price contracts
Our fixed-price contracts are the most
successful retail innovation in terms of uptake
in the New Zealand electricity market. More
than 117,000 (34%) of our residential
customers and 26,000 (63%) of our
commercial customers have chosen to move
to fixed-term, fixed-price contracts. A
fixed-price contract gives our customers
long-term certainty and stability around their
electricity costs. It protects them from cost
increases for the power they use as well as
from transmission and local lines company
charges outside our control.
117,000
RESIDENTIAL CUSTOMERS
ON FIXED-PRICE CONTRACTS
26,000
COMMERCIAL CUSTOMERS
ON FIXED-PRICE CONTRACTS
>> WHAT MATTERS MOST Making it easy.
We make it easy for our customers to be
with Mercury.
We provide clear information by post, email and
online. Customers can quickly read their
statement, access account information, monitor
their usage, and get support from our website
or through our contact centre.
Our focus on making it easy means our
customers are more satisfied than ever. Our
surveying shows 64% of our customers rated us
8, 9, or 10 out of 10 and we know that highly
satisfied customers are more likely to choose to
stay with Mercury.
There is always room to improve and we
continue to work on new customer experiences
that will make being a Mercury customer better.
CUSTOMER SATISFACTION SCORE
64% RESIDENTIAL
Rating as 'highly satisfied'
89% COMMERCIAL AND INDUSTRIAL
80% METRIX
HOW WE’RE TRACKING:
Residential
and small
commercial
satisfaction
2015
57%
2016
60%
2017
64%
Making it easy to talk to us
Our award-winning contact centre team
responded to more than 610,000 calls and
emails in FY2017. Our team is ready to
support customers by phone, email or online
chat. The choice is theirs.
610,000
INBOUND CALLS AND EMAILS HANDLED
BY OUR CONTACT CENTRE
Our Sales teams won several prestigious
awards this year, including the top customer
relationship management award for outbound
business, and awards for inbound sales and
favourite outbound representative. Judges
looked for a sales team focused on adding
value to the customer and creating a positive
customer experience.
Making it easy to understand
To make our statements easier to understand
and more useful for our customers, we asked
customers what they really wanted via
in-depth research and focus groups. Guided
by them, we simplified the layout and put the
information that customers want to know
upfront.
We also made it easier for new customers to
find the information and services they need
by sending emails that include tips to control
energy usage, information about our rewards,
and support to help them understand their
first statement after they have joined us.
GEM, our energy usage monitor, gives our
customers choice around how they manage
their electricity usage and improve their
energy efficiency. They can track their
consumption, set goals, receive alerts and
compare their usage to similar households.
Every year, we check on the energy usage of
those residential customers who are not on
fixed-term plans. If our customer could be
better off switching from a low-user to
standard-user plan (or vice versa) we let them
know and automatically change them over.
This has saved our customers a lot of money.
180,000+
CUSTOMERS RECEIVE GEM EMAILS
EACH MONTH
28 // 29
Keeping our customers
safe and connected.
Energy can help our customers do wonderful new things
and electricity is also a service that they rely on every day.
Customers look to Mercury to keep them connected and
trust us to keep the information we hold safe and secure.
28,000
GLOBUG customers
We take a balanced approach to pricing
The price at which we sell electricity is
important to our long-term sustainable
success. We weigh up a range of factors,
including competitive forces, business costs
and inflation, industry trends, and the
potential impact on our customers of any
pricing changes. Overall we seek to price in a
way that helps us provide customers with
value, freedom and choice.
We advocate for sensible pricing
We advocate in a number of industry forums
for pricing and decisions that won’t have a
negative impact on our customers, their ability
to access energy or on our commercial
interests. This includes supporting approaches
that enable customers to sustainably adopt
new technology, such as solar panels, without
causing price increases or complexity for
other customers.
GLOBUG
Mercury offers a prepay electricity service
called GLOBUG that provides customers the
choice to pay for electricity as they go, just like
a prepay mobile phone account.
GLOBUG enables customers to match
electricity payments to their income cycle.
There are also no penalties or late-payment
fees with GLOBUG, which helps GLOBUG
customers avoid debt. More information is
available via our website www.globug.co.nz
This year the GLOBUG in-home displays (IHD)
were removed from service because of the
retirement of Spark’s pager network. Mercury
invested in enhancing online tools for
customers who were still using the devices.
We also offered a mobile phone package to
make sure GLOBUG services continued to be
accessible to all existing customers.
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOST> GROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE Disconnections
Disconnection is a poor outcome for everyone.
If a customer is unable to pay their bill, we
empower our credit team to explore different
payment options with them (like GLOBUG),
talk to Work and Income on their behalf or
recommend a budget advisor.
As a result our quarterly disconnection rate of
0.07% is lower than most of our competitors.
0.07%
LOWER DISCONNECTION RATE
THAN MOST COMPETITORS
HOW WE’RE TRACKING:
Dis-
connections
2015
0.06%
2016
0.1%
2017
0.07%
Reliable supply
Our customers expect reliable access to
electricity. We carry out a continuous
programme of maintenance and upgrades
at all our generation sites to ensure long-term
reliable and consistent electricity supply to the
national grid.
Most outages are issues with electricity
distribution (lines) which is outside our
control. However, we work closely with our
registered vulnerable and/or medically-
dependent customers to make sure they know
what to do if there is an outage.
During outages caused by the Kaikoura
earthquakes in November 2016 and the
Edgecumbe flooding in April 2017 we
contacted all of our affected vulnerable and/
or medically-dependent customers to check
on their safety and to see that their
contingency plans were working effectively.
Customer privacy
The security and privacy of customer
information is extremely important to Mercury.
During FY2017 we strengthened ID checking
for new customers together with credit
checks.
All Mercury employees took part in online
customer data policy training during FY2017,
and our frontline staff received extra training
on customer account security.
We regularly assess our resilience to cyber
threats, and test that our frontline security
measures are working as they should. A
programme of continuous improvement and
investment helps to address this constantly
evolving threat.
“Loving GLOBUG so far, it's an
easy cost effective way to keep
control of our power usage.
The new app is fabulous, we
check it out as a family each
week to see how well we are
doing at conserving our power.”
30 // 31
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
GROWING CUSTOMER LOYALTY
> HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
HIGH PERFORMANCE TEAMS
Trusted, valued, safe.
At Mercury, we value and support the endeavour of all our people. Beyond those
directly employed by our company, we also value the contributions and support
of contractors, suppliers and partners.
We acknowledge that everyone who works in our business has chosen Mercury
for a combination of reasons. Understanding and growing our employment
proposition is essential for the sustainable performance of Mercury. We are
motivated to make our work environment wonderful for all of our people.
We’re also committed to ensuring our people have opportunities
to grow and develop in their roles, and we strive for a safe, healthy
and inclusive environment in which to apply their capabilities
and experience in predominantly team situations.
With this focus, we’re pleased to be growing our culture
of positive employee engagement.
HOW WE’RE TRACKING:
Engagement
2015
79%
2016
79%
2017
81%
Living our attitude...
Our purpose is to inspire New Zealanders to
enjoy energy in more wonderful ways. To
achieve this, we need empowered people
working very well together: Mercury people
who can anticipate change, adapt to it and
execute flawlessly. That’s why we make
substantial investments for people and, more
importantly, teams to grow and thrive.
It was only one year ago that we reshaped
ourselves under the single Mercury brand.
We’ve come a long way organisationally in
that brief time. For our people, we have
brought to life our Mercury ‘attitude’: our ways
of working designed to underpin how we do
things here.
We support our people to ‘Commit and Own
it’ – this is about executing well and doing
what we say.
We support our people to ‘Share and
Connect’ – to build strong relationships
across our company, with our customers and
also more widely, so that we understand and
can influence positive outcomes.
And we support our people to be ‘Curious and
Original’ – so we see all of the possibilities
that are open to us.
Building on our attitude, we introduced the
Mercury Code this year, replacing our previous
code of ethics and code of conduct. This is
another step to ensure that our people know
what ‘doing the right thing’ means at Mercury.
HOW WE’RE TRACKING:
Turnover
2015
9.4%
2016
10.2%
2017
11.7%
By knowing ourselves better, we can work with
others better. We are looking at how we can
further extend these approaches into our
supply chain. At Mercury, we believe we can
enhance our positive influence in New
Zealand by ensuring the businesses we work
with share our values.
>> WHAT MATTERS MOST 80%
OF EMPLOYEES CONFIRM THAT MERCURY
ENSURES THEY ARE ADEQUATELY TRAINED FOR
THE WORK THEY DO, COMPARED WITH 2016 NZ
ALL ORGANISATIONS BENCHMARK OF 72%.
(2017 Employee Engagement Survey)
… and ready for anything
With change being part of our world, we’ve
invested in our people’s leadership capability
through a new training programme and change
toolkit. As a result, our leaders are helping their
teams adapt quickly in ways that find value with
change. We’ve also benefited from
improvements in the way our teams work
together. This was reflected in our 2017
Employee Engagement Survey with 81% of our
people agreeing that co-operation is
encouraged between teams, up from 77%
in 2016.
89%
OF EMPLOYEES CONFIRM THAT MERCURY HAS
A CLEAR VISION OF WHERE IT’S GOING AND
HOW IT’S GOING TO GET THERE, COMPARED
WITH 2016 NZ ALL ORGANISATIONS
BENCHMARK OF 75%.
(2017 Employee Engagement Survey)
… with a customer focus
Understanding customers and better
anticipating their needs helps drive customer
loyalty. As part of ‘sharing and connecting’, we
helped our people to connect with our
customers through ‘Employee Customer Calls’.
With this initiative, 85% of our people have
each called a customer to thank them for
choosing Mercury, to hear about their
experiences with us, and to remind our
customers about their opportunity for a Free
Power Day.
We continue to build our customer connection
with employees. Our Board members have
also made customer calls. And we think that’s
great, just as our customers did.
2016
61%
2017
70%
2016
77%
2017
81%
70% OF EMPLOYEES CONFIRM THAT CUSTOMER
FEEDBACK IS USED TO IMPROVE PROCESSES,
UP FROM 61% IN 2016.
(2017 Employee Engagement Survey)
81% OF EMPLOYEES RECOMMEND
MERCURY’S PRODUCTS AND SERVICES,
UP FROM 77% IN 2016.
(2017 Employee Engagement Survey)
32 // 33
Employee development.
Growing leaders
Capable, respectful and high performing
leaders align, focus and drive teams and
therefore the business, helping our people do
their best work together.
We have developed a leadership model that
equips our leaders with the tools they need to
oversee high performing teams. Our success
in this area is reflected in our 2017 Employee
Engagement Survey, where 91% of employees
agreed or strongly agreed that the person they
reported to treats people with respect.
We established the StepUP Management
Fundamentals Training Programme in 2016 to
help every people leader use a common
language with management basics, thereby
lifting performance. It has also supported our
people leaders’ career development and
helped them identify any work challenges
their employees may have.
Our Velocity development programme aims to
create a longer-dated senior leadership
pipeline. Established in 2015, the
programme’s emphasis has changed each
year, and the results are apparent in our
engagement results.
Coaching and mentoring for success
In the highly competitive environment within
which we operate, an engaged and committed
workforce is critical to our ongoing success.
We support our people in a variety of ways to
help them build the right capability
and access the necessary tools to do their
jobs well.
Building customer-minded, digital-savvy
technical specialists is a key focus for Mercury.
In 2017 we implemented a rotation
programme for IT graduates through the
contact centre for up to six months. During
their rotation, graduates undertake personality
profiling, mentoring and access to learning
resources and coaching. As a result, a path for
our people is created to strengthen technical
capability in this area.
To contribute to our strategy of delivering
customer advocacy, we also support talent
towards targeted professional qualifications.
This year, 39 Mercury contact centre
representatives graduated with a New Zealand
Certificate in Contact Centres (69 credits at
Level 3). This nationally recognised
qualification is run in-house. Mercury is one of
only three New Zealand contact centres to
have its in-house training certified.
6.2 YEARS
THE AVERAGE LENGTH OF TENURE
OF MERCURY EMPLOYEES IS 6.2
YEARS, COMPARED WITH THE
MEDIAN JOB TENURE ACROSS ALL
INDUSTRIES OF 4.0 YEARS.
(June 2016 quarter, Statistics NZ)
203
NEW HIRES SINCE JUNE 2016
11.7% TURNOVER
96%
OF OUR PEOPLE LEADERS,
INCLUDING THE EXECUTIVE TEAM,
COMPLETED STEPUP IN FY2017.
425
MERCURY PEOPLE COMPLETED AT
LEAST ONE OF OUR 43 EMPLOYEE
DEVELOPMENT TRAINING EVENTS IN
FY2017.
646
MERCURY PEOPLE COMPLETED
COMPLIANCE E-LEARNING
MODULES IN FY2017.
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY > HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE In 2015, while completing my Mechanical
Engineering degree, I started a summer
internship with Mercury’s Hydro/Wholesale
team in Hamilton. The team helped me learn
more about hydro operations from an
engineering perspective and I gained a real
appreciation of how complex power stations
can be. At the completion of my degree,
Tuaropaki Trust, who together with Mercury
own the Mokai Geothermal Power Station,
awarded me a scholarship to study at
University of California, Berkeley, USA. The
further I went in my studies, the more
fascinated I became with energy markets and I
realised that this was where I wanted to take
my career. I set my sights on becoming a Spot
Trader, and with awesome support, guidance,
development and hard work over the past
couple of years, I’ve achieved that goal.
The choice to progress my career with
Mercury was an easy one. What was
important to me was working for a company
with a strong focus on generating energy
from renewable sources and an equally
strong commitment to the people who make
that happen. A big highlight for me as a Spot
Trader has been continuing to learn from
such a diverse range of people, with
backgrounds in Geology, Mathematics,
Physics and Mechanical Engineering.
The choice to
progress my career
with Mercury
was an easy one.
>> NUKU JONES
34 // 35
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
GROWING CUSTOMER LOYALTY
> HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
Diversity and inclusion.
Strength in diversity
Having a team of individuals with different
backgrounds, views, experience and capability
working together leads to better decision-
making and therefore better business
performance. We are committed to retaining
and attracting people with a broad range of
skills and experiences, who are passionate
about our customers and respectful and
representative of the communities within
which we operate.
Our approach to inclusion focuses on
removing any barriers to succeeding in our
business.
Measurable objectives to achieve gender
diversity were established in 2014 and
updated in 2016 to include focus on age,
ethnicity, inclusion and flexibility. Progress is
encouraging and diversity will continue to be
an area of focus for Mercury, now and in the
future.
Human rights
We meet, and endeavour to exceed all of our
compliance requirements, including those
relating to human rights such as freedom of
association, collective bargaining, and child
labour. We consider this on an ongoing basis,
including building our understanding of how
our suppliers meet these standards too.
All our employees are paid above the Living
Wage (this excludes six apprentices).
Our commitment to diversity and inclusion
starts with our Diversity and Inclusion Policy.
Our policy is available in the corporate
governance section of our website.
Our talent development programme, Velocity,
has seen an increase in the number of female
participants each year and we achieved 40%
female participation in the 2017 cohort. This
year we provided unconscious bias training for
all leaders to increase their understanding of
their own biases and how that affects
decision-making.
Periodically we look across all Mercury pay
bands to ensure we are paying fairly for
similar-sized roles, regardless of gender.
If any issue is identified from these
reviews, we address it.
Mercury embraces flexibility in the
work environment to boost employee
wellbeing. ‘MyDays’, for example
- a programme unique to Mercury
- gives each of our permanent
employees five non-consecutive
days of leave every year for
personal or family reasons on
top of their normal leave
allocation.
We are continuing to build on
initiatives that assist in
balancing individual and
organisational needs.
41%
AS AT 30 JUNE 2017, THE PROPORTION OF
WOMEN ACROSS OUR TOTAL WORKFORCE
HAS INCREASED FROM 38% IN 2016 TO
41% AND ALSO ACROSS OUR LEADERSHIP
GROUP, FROM 25% IN 2016 TO 30%.
THE FULL TABLE OF MEASURABLE
OBJECTIVES IS AVAILABLE IN THE
CORPORATE GOVERNANCE SECTION ON
P.40 OF OUR 2017 FINANCIAL REPORT.
>> WHAT MATTERS MOST 80%
OF EMPLOYEES CONFIRM THAT
THEY ARE TREATED FAIRLY,
REGARDLESS OF AGE, ETHNICITY,
GENDER OR PHYSICAL
CAPABILITIES, COMPARED WITH
2016 NZ ALL ORGANISATIONS
BENCHMARK OF 77%.
(2017 Employee Engagement Survey)
77%
OF EMPLOYEES CONFIRM THAT
MERCURY ENCOURAGES IDEAS
AND SUGGESTIONS ON HOW TO
IMPROVE THE WAY THINGS ARE
DONE AS COMPARED WITH
2016 NZ ALL ORGANISATIONS
BENCHMARK 71%.
(2017 Employee Engagement Survey)
41
OUR AVERAGE AGE ACROSS OUR
WORKFORCE IS 41, WHICH IS
CONSISTENT WITH THE NATIONAL
MEDIAN AGE OF THE LABOUR
FORCE IN THE NZ NATIONAL
LABOUR FORCE PROJECTIONS.
87%
OF EMPLOYEES CONFIRM THAT
THEY HAVE THE FREEDOM AND
FLEXIBILITY TO DO THEIR JOB
EFFECTIVELY, COMPARED WITH
2016 NZ ALL ORGANISATIONS
BENCHMARK OF 84%.
(2017 Employee Engagement Survey)
36 // 37
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
GROWING CUSTOMER LOYALTY
> HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
Wellbeing.
Safe and well
At Mercury, we take a holistic but also sound
approach to safety and wellbeing. This ranges
from supporting our employees and
contractors’ day-to-day wellbeing, to the
measures we put in place to minimise risk
and protect our people and the communities
within which we operate. A safe work
environment is the starting point of our
commitment to our people. We ask everyone,
at all levels, to commit to it and own it.
Our Board provides strong safety governance,
conducting ongoing due diligence and
monitoring our performance and behaviours
to help deliver on our commitment of getting
everyone home safe every day. Our business
units are supported by dedicated health and
safety experts and we have well established
safety committees across the business. Each
committee is associated with one or more
worksites and contains a member of the
health and safety team, management
representation and a selection of employees
from the worksites relevant to that committee.
Management, including the executive team,
undertake regular site visits, lead safety
conversations with employees and contractors,
and monitor the Company’s safety
performance.
In March 2017 we surveyed our generation
employees and key contractors to assess the
effectiveness of our health and safety culture.
Pleasingly the survey revealed that we were
exceeding industry benchmarks. That’s a
credit to the work being done, but we know we
can always do better.
We have established an enterprise-wide
Process Safety programme to enhance our
ability to address low-probability but high-
consequence risks proactively. The
programme integrates critical equipment,
systems and processes such that they all
>> WHAT MATTERS MOST 87%
OF EMPLOYEES CONFIRM
THAT MERCURY CARES
ABOUT THE WELLBEING OF
ITS PEOPLE, COMPARED WITH
2016 NZ ALL ORGANISATIONS
BENCHMARK OF 78%.
(2017 Employee
Engagement Survey)
95%
CONFIRM THAT MERCURY IS
COMMITTED TO THE HEALTH
AND SAFETY OF ITS PEOPLE,
COMPARED WITH 2016 NZ
ALL ORGANISATIONS
BENCHMARK OF 84%.
(2017 Employee
Engagement Survey)
99%
OF EMPLOYEES AGREE OR
STRONGLY AGREE THAT THE
SUPPORT THEY RECEIVE
FROM THEIR MANAGER
HELPS AND ENCOURAGES
THEM TO DO A GREAT JOB
IN A SAFE MANNER.
(H&S Climate Survey 2017)
2205
EMPLOYEES AND
CONTRACTORS COMPLETED
AT LEAST ONE OF OUR 930
HEALTH & SAFETY TRAINING
EVENTS RUN IN FY2017.
3.91
AVERAGE NUMBER OF DAYS
FOR ABSENTEEISM FOR
FY2017, UP FROM 3.21 IN
FY2016.
INFORMATION ON OUR
WORK WITH STAYLIVE AND
THE BUSINESS LEADERS
HEALTH AND SAFETY FORUM
CAN BE FOUND ON PAGE 55
OF THIS REPORT
Safety:
it’s everything.
We believe that no safety risk is too
small to report and we’re proud of the
high level of reporting we see from all
our employees and contractors. We
have seen a steady increase in reporting
of meaningful near-miss events from
across all parts of Mercury. This is in
part due to the SynergiLife app that
enables our people to report incidents
easily, in real-time.
Our people undergo extensive health
and safety training. This is delivered,
co-ordinated and managed with the
support of our learning management
system, ChargeUP. This system provides
our people with health and safety
training, information and automated
reminders to help them keep on top of
training and competency requirements
for their respective roles.
We drive safety with our
contractors
We acknowledge our duty of care to
contractors and other people on our
worksites as well. To manage this, we
have a set of detailed minimum
requirements that we expect all of our
contractors to meet. In practice, when
we engage a contractor for a project, we
work closely with them to create
site-specific safety plans and then we
monitor their work against those plans.
We offer a number of initiatives that
support our people’s wellbeing.
Details of these can be found in the
careers section of our website.
SERIOUS INJURY INCIDENTS
TARGET
RESULT
0
ZERO HARM
1
SERIOUS
INCIDENT
operate effectively and that preventative
maintenance is carried out in line with
requirements.
We constantly monitor our health and safety
performance across the business through
assessments, training, auditing and incidents/
near-miss reporting.
Our key lag safety measures are the Total
Recordable Injury Frequency Rate (TRIFR) and
the Lost Time Injury Frequency Rate (LTIFR).
Our results for this financial year were 1.05
TRIFR and 0.35 LTIFR. The incidents that we
have experienced this year have mostly been
low severity injuries, with one serious injury
that related to a stair fall in one of our offices
by a contractor. Fortunately the person has
now recovered. Our goal continues to be
Zero Harm and we remain committed to
achieving this.
HOW WE’RE TRACKING:
TRIFR
2015
1.25
2016
0.74
2017
1.05
LTIFR
2015
0.48
2016
0.28
2017
0.35
CUSTOMERS
CHOOSE
A SUSTAINABLE
FUTURE.
New Zealand’s natural resources are precious.
Mercury understands that the decisions we make today can impact
tomorrow. That's why we take action with a view to long-term
sustainability of our business, and help customers with choices based on
sustainable solutions.
Mercury champions the electrification of transport through our
celebration of e.bikes and EVs because it presents a wonderful
opportunity for New Zealand. It leverages the fact that our electricity
generation is dominated by renewable sources: hydro and geothermal,
with growth opportunities for solar and wind generation.
We encourage customers to make this choice with beneficial EV charging
rates, and by committing to the electrification of our own vehicle fleet.
This brings more EVs into the country. We pioneered the concept of an
Electric Highway™ of charging stations so EV drivers aren’t constrained by
range. This was part of bringing to New Zealanders the internationally
recognised PlugShare app so that EV owners can know they are never far
from a charging station irrespective of who owns it.
EVs and e.bikes.
UP TO $500 OFF AN E-BIKE.
VISIT OUR WEBSITE
VISIT WWW.ELECTRICHIGHWAY.CO.NZ
FOR NZ’S BEST SOURCE OF CHARGING
STATION INFORMATION
40 // 41
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
>> WHAT MATTERS MOST
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
> ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
ENHANCED NATURAL RESOURCES
Respected and protected.
The source of a customer’s energy is an important choice.
Mercury generates about 17% of New Zealand’s electricity, all of it from renewable
sources. It’s this clean and sustainable, home-grown electricity that reduces
New Zealand’s carbon footprint, giving Kiwis the choice to be part of a better tomorrow.
Through nine hydro and five geothermal stations, we generate enough renewable
electricity for 850,000 homes, helping to make better environments for families to live,
learn and grow in.
The raw energy of New Zealand’s natural resources is at the heart of our renewable
generation. Custodianship of these raw energy sources is a part of who we are.
HOW WE’RE TRACKING:
% renewable
generation
2015
93%
2016
98%
2017
100%
Care with natural resources.
Kaitiakitanga (guardianship)
– a driving force
New Zealand’s natural resources are precious.
At Mercury we understand that sustaining
these natural resources for the future isn’t a
choice – it’s an obligation we take very
seriously. The continued availability of natural
resources is vital to our operations, our
renewable generation, the sustainability of our
company, the choices for our customers and
the good of our country.
The concept of kaitiakitanga is one of
Mercury’s foundations and drives our
approach to working with local iwi, regulators
and other responsible users of natural
resources in New Zealand.
Custodians of the Waikato Hydro System
We think water is wonderful. On average, 60%
of the electricity we produce is generated by
the force of water passing through our 39
hydro turbines, delivering approximately 10%
of New Zealand’s overall electricity.
Mercury’s Waikato Hydro System along the
Waikato River is vital for the hydrological
stability of the catchment and is integral to
the country’s electricity supply.
Water applied to hydro generation is available
to the natural ecosystem and other users
including municipal water supplies,
commercial use, farming, irrigation, ecological
requirements, cooling for downstream thermal
generation and recreational activities.
Beyond meeting the 121 conditions of our
hydro consents, we undertake a wide range of
activities, which go well beyond environmental
and stakeholder expectations. This includes
hydrological analyses, geomorphological
studies and ecological monitoring. In FY2017
(reporting for the year previous), Mercury
again achieved a high level of compliance
with the Waikato Regional Council hydro
consents that we hold.
HOW WE’RE TRACKING:
Resource
consent
compliance
(reviewed one
year in arrears)
2015
FULL
2016
FULL
2017
HIGH
We’re committed to understanding, managing
and minimising any impacts our operations
have on water, along with looking at the ways
we can continue to innovate and improve the
efficiency of hydro generation.
Each year, we engage with independent
experts to fully understand the impacts of our
operations and review the effectiveness of our
monitoring programmes. This year we
extended our review of ecological impacts to
include parts of the river downstream from
the Karapiro Dam with a view to increasing
our knowledge beyond the boundaries of the
Waikato Hydro System.
Water management – essential to the
Waikato community
As a long-term operator in the Waikato
catchment, our operations play a role in
protecting local communities during seasonal
and extreme weather events.
During high flow or flood events, Mercury
works closely with the flood management
team at Waikato Regional Council to influence
the flow of water through the system, and
help minimise the impacts of flooding.
During dry spells or drought events, we
manage the release of water from Lake Taupo
to meet the minimum flow requirements
downstream from the Karapiro Dam. This
provides a reliable flow of water to Hamilton
City and downstream users. Our stewardship
of this vital resource also supports fisheries,
wetlands and numerous recreational activities
such as fishing, boating and international
rowing.
10%
OUR HYDRO GENERATION MEETS
10% OF NEW ZEALAND’S OVERALL
ELECTRICITY NEEDS
>> 35 years is the term of our Waikato
River resource consents granted in
2006
>> 18 environmental audits carried
out at our operating sites in the
past year
>> 5-yearly bed degradation surveys
to understand the potential
impacts of sediment retention in
the dams on the bed of the
Waikato River from Karapiro to
Ngaruawahia
>> 5-yearly bank erosion surveys to
understand the potential impacts
of our hydro operations on bank
stability from Taupo to
Ngaruawahia
>> Annual Taupo foreshore survey to
help understand lake processes
affecting the Lake Taupo foreshore
>> Development of an ecological
monitoring programme
downstream from Karapiro to
understand the potential impacts
of our operations beyond the
bounds of the hydro system
Surveys and programmes
continue to indicate
that there are no
environmental impacts
beyond those anticipated
at the time of consenting.
42 // 43
Water management
when it matters.
With the wettest April on
record for the Waikato
catchment resulting from three
subtropical cyclones in a
month, Mercury worked
alongside the Waikato Regional
Council to minimise the
impact. We played a key role
managing the record inflows by
making room for the additional
water in the Waikato River
before each event.
A collaborative work effort mobilised key
resources throughout our organisation. Hydro
controllers influenced river flows and levels in
real-time, regional teams inspected and
maintained spillways and diversion tunnels,
and community relations teams supported
stakeholders impacted by the increasing flows
and river levels. Our customer team also
contacted medically-dependent customers
throughout New Zealand to support their
wellbeing during disruptions to supply caused
by localised network outages.
Throughout these three consecutive weather
events, Mercury managed the Waikato Hydro
System within our consented operating limits.
>> FY2017 is the Waikato catchment’s
5th wettest year in 100 years
>> 6 billion cubic metres of water
released from Lake Taupo
throughout FY2017
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS > ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE Water quality.
Our rivers and lakes hold a
special place in the hearts of
all New Zealanders, especially
mana whenua. They are
precious natural resources
that need to be protected.
Mercury actively contributes
to water policy and reforms.
Freshwater is vital to our natural ecosystems,
the economy, our country’s drinking water,
and a wide range of recreational activities
including fishing, swimming and boating.
Mercury’s primary commercial interest is to
harness the energy in the flow of the Waikato
River for hydro generation. However, our
interest extends into strong involvement in
the growing discussion concerning the future
of freshwater quality and allocation, and
contributing our long-term view to benefit
the health and wellbeing of the catchment.
We recognise the challenges of water
management, water allocation and water
quality. These issues have short-term and
long-term impacts for everyone in the Waikato
catchment and the wider New Zealand
economy.
Mercury actively contributes to water policy
and reforms at both a regional and national
level, and regularly participates in discussions
with Government and local authorities on
freshwater management. This includes:
• Restoration and rehabilitation projects in
partnership with the Waikato River
Authority
• Waikato River Authority’s Waikato River
Restoration Strategy
• Waikato Regional Council’s Healthy
Rivers/Wai Ora: Plan Change
• Waikato Regional Council’s ‘Let’s
Talk Water’ initiative
• Ministry for the Environment’s
consultations on water policy reform
(including the National Policy Statement
for Freshwater Management and the
Resource Management Act)
• The Land and Water Forum
44 // 45
226
ECOLOGICAL ENHANCEMENT PROJECTS
FUNDED THROUGH WCEET
$4.5M
WCEET FUNDS GRANTED OVER LIFE OF
THE TRUST
One of the clear lessons from
our Trust’s activities is that the
success of projects to enhance
the biodiversity of our
catchment’s ecosystems is highly
dependent on active community
participation.
The resilience of our human and
ecosystems communities are
tightly linked, and WCEET has
been pleased to support many
projects that have promoted
participation and development
in our human communities.
>> GWYNETH VERKERK, CHAIR, WCEET
Waikato Catchment Ecological
Enhancement Trust (WCEET)
Mercury is a founding member of WCEET, which
was established in 2003 to support the
sustainable management of the Waikato
catchment.
WCEET works to protect wetland values,
encourage the growth of native plants and
animals, expand the sports fishery and game
bird population, and to mitigate any effects on
the environment arising from the operation of
the Waikato Hydro System.
With grants of approximately $4.5 million on
226 projects to date, Mercury contributes
around $400,000 per year to the funding and
management of ecological enhancement
projects throughout the area.
In the past year alone, the Trust funded about
500 hectares of pest control, over 200
hectares of wetland protection, restoration,
and enhancement, and more than 120
hectares of additional biodiversity
enhancement through fencing and planting
of natives.
We are currently having a fresh look at ways to
best measure and report on project deliveries
and their effectiveness in achieving WCEET’s
objectives.
Learn more about WCEET at www.wceet.org.nz
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS > ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE New Zealand produces more
than 80% of its electricity
from renewable sources, and
Mercury is proud to play a
role in the country’s
renewable energy advantage.
HOW WE’RE TRACKING:
carbon
emissions
(‘000 tonnes
CO2e)
2015
647
2016
428
2017
359
Effects of climate change
Climate change could be a risk for Mercury
due to the impacts that extreme weather
conditions can have on our assets, our hydro
generation capability and on the electricity
market conditions. However, we are highly
experienced and well equipped in water
management within the Waikato catchment.
We use the latest predictions to look at
potential impacts on the catchment and have
robust risk management plans in place to
deal with the impacts of extreme weather
events. However, managing risks is based on
probability because not all scenarios can be
predicted or managed when engaging with
natural resources.
In most countries the response to climate
change centres around the transition to
low-carbon, renewable electricity. New Zealand
already produces more than 80% of its
electricity from renewable sources, and
Mercury is proud to play a leading role in the
country’s renewable energy advantage. All of
the electricity we generate comes from
renewable natural resources.
We actively participate in national discussions
on climate change including amendments to
the New Zealand Emissions Trading Scheme.
While geothermal generation is a renewable
energy source, it is not emissions free. During
the generation process a certain amount of
greenhouse gas is released from the
geothermal fluid. To manage this, we closely
monitor and report on the amount of
greenhouse gas released from our geothermal
power stations as required by the Emissions
Trading Scheme. We also have long-term
forestry contracts to provide carbon credits to
offset these emissions. Most of these carbon
contracts were established through
New Zealand’s first carbon contract tender, led
by Mercury.
The adoption of plug-in EVs in New Zealand is
the single-largest green growth opportunity
for our country, helping to secure our nation’s
energy freedom.
The Mercury and Air New Zealand-led
initiative seeing 30 of New Zealand’s leading
businesses committing to a minimum of
30% EVs in their fleets by 2019 is one of the
largest voluntary sustainability initiatives in
this country’s business history. This has the
potential to take around three million
kilograms of carbon emissions out of the
environment every year.
46 // 47
Security of supply.
Mercury’s ability to generate electricity reliably
is vital to our business and is directly
connected to our economic performance.
Active management of our assets over the
long term is fundamental to this.
Across our organisation we apply an
integrated approach to asset management
involving tailored risk management
frameworks to optimise reinvestment. This
results in a dynamic plan that responds to
asset and market conditions to maintain
reliable and efficient generation from our
renewable assets.
We routinely commission independent expert
reviews focusing on how we manage our
assets. This year our reviews considered
safety-critical equipment and critical major
spare equipment. Our commitment to
industry-leading practice and innovation sees
our infrastructure teams regularly participate
in local and global industry forums.
Reliable hydro generation
A programme of major maintenance and
reinvestment projects across our vital hydro
assets is well underway with a number of
upgrades commenced or completed this year.
The successful rehabilitation of the first of
four units at the 60-year-old Whakamaru
Hydro Station has now been completed. The
station upgrade, scheduled for completion in
2020, involves an intensive programme of
work where all of the turbines, generators and
governors will be replaced. This will increase
the station’s capacity by 24 MW to 124 MW.
Similar preparations are well advanced for an
upgrade of the Aratiatia Station, with on-site
activity scheduled to start in October 2017.
The rehabilitation programme includes the
replacement of all three generators, governors
and one turbine, along with an extensive
refurbishment of the station. Completion is
expected mid-2020.
HYDRO
STATION
FY2017 AVAILABILITY (%)
ARATIATIA
ARAPUNI
ATIAMURI
KARAPIRO
MARAETAI I&II
OHAKURI
WHAKAMARU
WAIPAPA
95
93
95
86
73
97
82
94
>> NZ WINTER ENERGY MARGIN
)
D
N
A
M
E
D
D
E
T
C
E
P
X
E
F
O
S
S
E
C
X
E
N
I
%
I
(
N
G
R
A
M
Y
G
R
E
N
E
Z
N
20
15
10
5
0
MARGIN
HYDRO ADJUSTMENT
MARGIN – REQUIRED NEW SUPPLY
MARGIN – HUNTLY RANKINE UNITS (500MW)
Security Standard
Security Standard
The NZ Winter Energy Margin is an
assessment produced by Transpower that
estimates the level of new generation required
to reliably meet expected winter demand. It
does this through combining the expected
winter energy contribution of existing and
committed generation plant across the entire
electricity industry and comparing it to
projected winter demand (with an allowance
for security). Mercury recognises that we have
a part to play in keeping New Zealand’s
electricity supply secure and stable and we
contribute through our efforts to maintain
reliable and efficient generation assets.
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
CALENDAR YEAR
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS > ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE
Managing our geothermal assets for
long-term sustainability
Our geothermal wells can be up to
3,000 metres deep. Proactive well
maintenance throughout their lifecycle is
important to optimise long term geothermal
cash flows.
This year we completed a major geothermal
drilling programme, resulting in four new wells
and one repair at Kawerau and Rotokawa.
Innovative repair work at Rotokawa involved
the insertion of an alloy sleeve into a damaged
zone in one of the wells. This extended the
operating life of the geothermal well.
The successful drilling campaign spanning
170,000 working hours involved 30 separate
organisations including Joint Venture partners,
operational field teams and WorkSafe safety
regulators, along with landowner and farmer
representatives and councils.
Geothermal
innovation.
At our geothermal station in Kawerau, we are
investigating the potential to create a
marketable specialty silica product from the
used geothermal fluid reinjected back into
the reservoir.
With the help of Geo40 Limited, a
New Zealand-based industrial technology
company, Mercury has undertaken pilot scale
trials as we consider the development of a
commercial-scale silica extraction plant to
remove excess silica from the geothermal
fluid after it has generated power and before
it is injected back into the reservoir.
This is an exciting example of how we can
continue to optimise our existing skills and
resources to investigate new products. The
potential benefits of this partnership are
two-fold: the production of a valuable
specialty silica product for the global
manufacturing industry and improved
long-term reservoir management.
GEOTHERMAL
STATION
FY2017 AVAILABILITY (%)
KAWERAU
MOKAI
NGA AWA PURUA
ROTOKAWA
NGATAMARIKI
93
96
99
97
96
Geothermal:
Excellence built on sustainability
Mercury owns or operates five geothermal
power stations that deliver approximately 7%
of New Zealand’s overall electricity needs,
representing about 40% of our total
production.
Building and operating geothermal power
stations involves years of investigation and
monitoring, together with a significant
investment of capital and expertise. Mercury
is proud of the state-of-the-art geothermal
stations we have built in New Zealand and
we’re committed to sustaining and enhancing
them, with our commercial partners, over the
long term.
We take a conservative and dynamic approach
to sustainable reservoir management. Most
geothermal fluids used in Mercury’s
geothermal power stations are re-injected to
maintain pressures and support the
sustainability of the reservoirs. We extensively
monitor the geothermal systems including
assessing natural geothermal features, such
as springs, hot pools and the unique
geothermal vegetation that these
environments support.
7
CONTINUOUS PRESSURE
MONITORING WELLS USED TO
TRACK RESERVOIR PRESSURE
34
PRODUCTION WELLS AND 22
INJECTION WELLS SUPPORTED OUR
GEOTHERMAL GENERATION IN THE
PAST YEAR
LARGEST
SINGLE-SHAFT GEOTHERMAL TURBINE
IN THE WORLD AT NGA AWA PURUA
1100
CONDITIONS OF CONSENT MANAGED
ACROSS THE GEOTHERMAL FIELDS WE
OWN OR OPERATE
CUSTOMERS
CHOOSE
TO GIVE.
We are humbled by the many choices made by our customers every day.
This includes their choices to give. Mercury customers support our
partnership with the Starship Foundation. We’ve stood side by side with
Starship for 18 years and this year $1m was collected to help children and
their families.
Raising $10m for Starship.
Great outcomes.
Customer crowd funding this year has gone towards:
>> THE OUTPATIENTS DEPARTMENT COMPLETE REFURBISHMENT
for the 73,000 young patients who visit the department each year.
>> AN ADVANCED NURSE CALL SYSTEM
for the Outpatients Department which will allow for better communication
and responsiveness.
>> BRAND NEW CEILING LIGHTS
for the Orthopaedics, Surgery and Urology and General Paediatric wards.
>> AN EXCITING REVAMP OF THE PLAYROOM
on the General Paediatrics ward.
CLICK HERE TO DONATE
TO STARSHIP NOW
ARTWORK FROM THE KARI
CENTRE UPGRADE; FUNDED
BY MERCURY CUSTOMERS
50 // 51
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
>> WHAT MATTERS MOST
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
> STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
OUR TEAM AND
STAKEHOLDERS
STRONGER TOGETHER
Choosing long-term
relationships.
Mercury is a great team, with over 800 of us choosing to work together
for our customers. But what further sets us apart are the people and
organisations with whom we work. We share goals and values with a range
of communities and groups. By making the choice to work collaboratively
we achieve better outcomes for everyone involved. These relationships
help us to grow and are core to our long-term sustainability and success.
Maori partnerships.
Mercury has formed close and
constructive relationships with specific
iwi in the Waikato and Bay of Plenty. We
maintain a deep respect for the close
links that iwi have with natural resources.
Partnerships we have developed give us
a unique perspective with the focus on
long-term, sustainable solutions that
consider the needs of everyone involved.
We work closely with iwi and recognise
the connections that they have with
water, including the tupuna awa
relationship held by many Waikato River
iwi. We acknowledge and respect Te Ture
Whaimana o Te Awa o Waikato – the
vision and strategy for the River.
A large part of our growth in geothermal
generation over the past 10 years has
been in partnership with Maori
landowners; the Tauhara North No. 2
Trust at Rotokawa and the Tuaropaki
Trust at Mokai. Our approach to these
partnerships is strongly guided by the
principles of kaitiakitanga (guardianship)
and kotahitanga (working together).
Rather than simply seeking to secure
land access and purchase fuel from
landowners, we have worked to align and
share the benefits of our combined
expertise through equity arrangements.
Mercury has mutually beneficial
partnership agreements with Waikato
Tainui, Raukawa, Ngati Tahu-Ngati
Whaoa and Ngati Tuwharetoa. Each of
these relationships is particular to the iwi
involved and is based on shared visions
of what the organisations can achieve
together. As part of our involvement, we
support environmental enhancement
projects, leadership training, cultural
development, educational initiatives and
social enterprises.
Projects this year included support for
Kia Haere Tuu, a Waikato Tainui initiative
to encourage its rangitahi to secure
driving licences – a key enabler to future
employment opportunities. Mercury has
also supported cultural and
environmental initiatives with Ngati Tahu-
Ngati Whaoa; delivery of wananga and
kapa haka with Tuwharetoa; and the
ongoing delivery of excellence in the Te
Reo programmes with Raukawa.
Lessons learned from the years of
collaboration and partnership with iwi are
embedded in Mercury’s business culture,
making us more innovative, inclusive and
customer-centric.
52 // 53
Ironman
New Zealand.
Mercury has sponsored the iconic
Kiwi multi-sport event that is the
Kellogg’s Nutri-Grain Ironman
New Zealand since 2005.
Each year, more than 2,000 people
from the Taupo community and
beyond join the Mercury Volunteer
Crew to support athletes as they
compete in one of sport’s most
gruelling endurance challenges.
Sponsorships.
Our choice of sponsorships reflects our
support for growing strong communities.
Mercury takes a long-term approach to such
sponsorships, with our key relationships each
more than a decade old. We choose partners
that reflect Mercury’s commitment to our
country, the areas where we generate
electricity, and the communities where our
customers and our people live.
Rowing New Zealand
Our 20-year relationship with Rowing
New Zealand makes sure that New Zealand’s
top rowers have the world’s best training
ground: Lake Karapiro. During our partnership
New Zealand’s elite rowing athletes have
brought home an awe-inspiring 44 World
Championship and Olympic gold medals,
including two at the 2016 Rio Olympics to
Mahé Drysdale and the Men’s Pair, Eric Murray
and Hamish Bond.
WE GIVE AWAY $100,000
EACH YEAR THROUGH
THE EMPLOYEE
COMMUNITY FUND,
WITH EMPLOYEES
ENCOURAGED TO APPLY
FOR UP TO $1,200 TO GO
TOWARDS A GROUP OR
PROJECT THEY FEEL
CONNECTED TO.
Employee Community Fund
Our employees are all part of their own
unique communities. To help these
communities to thrive, Mercury
contributes $100,000 each year
through our Employee Community
Fund. Through this fund, our people can
apply for up to $1,200 to go towards a
group or project they feel connected to.
The 90 donations during the year have
added some Mercury ‘wonderful’ to
dozens of schools, sports clubs, and
other groups important to our people.
Coastguard Lake Taupo
The Waikato Hydro System begins at
New Zealand’s largest lake, Lake Taupo.
We are the major sponsor of Coastguard
Lake Taupo. This 24/7 rescue service uses
two specially-equipped boats to attend
emergencies on Lake Taupo and the upper
reaches of the Waikato River. In 2016,
Coastguard Lake Taupo volunteers logged
more than 62,000 hours.
Waikato River Trails
The Waikato River Trails is a free walking and
cycling track that opens up 105 km of
beautiful native bush, historic landmarks, and
wetlands along the Waikato River. We have
worked with the Waikato River Trails Trust since
2004 to build the trails, and teams from our
local offices help with volunteer work,
including planting, along the trails.
In 2016, 42,000 walkers and cyclists enjoyed
the Trails, providing much-needed support for
local accommodation, bike hire businesses,
and cafés.
To share the Trails with our customers, we
offer a half-price deal on e.bike hire – a
wonderful way to experience the Trails.
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES > STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE $10 million
to Starship.
Mercury and Mercury customers have helped
the Starship Foundation provide better
hospital care for young New Zealanders for
18 years.
Each month, over 25,000 customers choose
to donate to Starship through their monthly
electricity account. This is one of the longest-
running ‘crowd funding’ initiatives in the
country and gives our customers a wonderful
way to help others.
In addition, Mercury contributes a direct
donation and pays for administration costs,
so every dollar donated by our customers
goes straight to Starship. Together we donated
$1 million this year, bringing the total amount
donated to $10 million since 1999.
Our combined contributions helped with the
refurbishment of the Outpatients Department
(completed earlier this year), and provision of
over 180 dedicated fold-down beds for
parents and caregivers. We have also funded
the refurbishment of Starship’s Kari Centre, a
community-based mental health clinic for
young people and their families.
For further information on Starship and the
great things our customers are contributing to
visit our website www.mercury.co.nz/starship
HOW WE’RE TRACKING:
$ donated by
customers and
Mercury to
Starship
(cumulative
total)
2015
$8m
2016
$9m
2017
$10m
Over 25,000 customers choose
to donate to Starship through
their monthly electricity account.
KNITTED BY THE WONDERFUL
MEMBERS OF THE MERCURY
KNITTING CLUB
54 // 55
COMMUNITY RELATIONS
Direct community engagement helps Mercury
to better understand our customers’ needs
and to provide solutions and assistance where
we can.
Mercury’s Community Relations teams work
with a range of community groups,
particularly in lower socio-economic areas, to
help our customers struggling with high living
costs. Our managers regularly attend
community meetings to better understand
the concerns of these communities, and offer
support and advice where needed.
This year we provided direct funding for many
community events and projects including
Christmas grocery boxes delivered to
households in need.
When the Manurewa Marae opened its doors
to Auckland’s homeless last winter, Mercury
covered the Marae’s electricity charges. We
are exploring opportunities to work with
schools and other community groups on
projects that deliver energy efficiency and
solar capability too.
When Manurewa Marae opened
its doors to Auckland’s homeless
last winter, we covered the
Marae’s electricity costs for
13 weeks.
I WOULD LOVE SOME
AIRPOINTS...
COMMERCIAL
PARTNERSHIPS
Airpoints Dollars™
Our participation in the Airpoints™ rewards
programme means over 119,000 Mercury
customers now earn Airpoints Dollars™
through the energy they enjoy each day. The
Airpoints™ partnership brings our customers
into a community that includes iconic Kiwi
brands Air New Zealand, New World and
Mitre 10.
When our customers earn Airpoints Dollars™
it strengthens the partnership between us. It
is one of the ways that we reward their loyalty,
thank them for being with Mercury and help
them make energy wonderful.
Counties Power
Our Advanced Metering Infrastructure (AMI)
division, Metrix, entered into a 15-year
arrangement with Counties Power with mutual
commercial and economic benefits.
Metrix benefits by leveraging existing
infrastructure and customer arrangements to
provide data services to our customers trading
on the Counties Power network.
This year Metrix provided additional smart
services to Counties Power that means it can
receive alert notifications within seconds and
quickly help customers during periods of
intermittent supply or outages.
Electric vehicles
Mercury wants to encourage our customers,
and other New Zealanders, to choose EVs
because we view it as New Zealand’s largest
green growth opportunity.
The reasons to choose electric are clear: you
can fill up with home-grown fuel for the
equivalent of 30 cents per litre and charge
from home simply using a standard 3-pin
plug. Concerned around supply? There’s
enough consented renewable energy in
New Zealand to transition every car, and more.
Also it’s good for the country, as it reduces our
dependence on imported fossil fuels.
To do our bit, we introduced EVs into our
own fleet six years ago and now 54% are EVs.
We’ll have 70% of our vehicles electric by
2018, which will meet the commitment
stated at our Annual Shareholders’ Meeting
in November 2014.
We know that ‘range anxiety’ (worry that your
EV might run out of charge mid-journey) is a
key perceived barrier to EV uptake. To address
this, Mercury partnered with global technology
leader PlugShare, EECA and Contact Energy
to support the Electric Highway™, a national
network of EV charging points that drivers can
easily identify through the PlugShare mobile
phone app.
In conjunction with Air New Zealand, we also
engaged with business leaders from more
than 30 companies to together pledge the
conversion of at least 30% of their company
vehicle fleets to be plug-in EVs by 2019.
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES > STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE CHAIR AND CHIEF EXECUTIVE UPDATES 119,000
CUSTOMERS NOW
EARN AIRPOINTS
DOLLARS™
...SO I CAN GO
TO HAWAII!
EDUCATION INITIATIVES
Mercury is proud to support advances in
learning and technology that can lead to
economic benefits for our country.
We contribute to geothermal research in
New Zealand through our partnerships with
research organisations, specific research
programmes and by direct support of
students. In 2016, three Mercury-supported
students completed their PhDs in geothermal
research, while four PhD students and one
MSc student are currently receiving support
from Mercury to undertake and complete their
research. We also fund the University of
Auckland Chair of Geothermal Reservoir
Engineering.
Cityhop car-sharing platform
Our partnership with car-sharing platform
Cityhop means that Aucklanders can
experience driving an EV without having to
buy one. Mercury has added a Nissan Leaf EV
to Cityhop’s Auckland fleet, which makes it
available to more than 2,000 customers using
the cars-by-the-hour service.
INDUSTRY COLLABORATION
At Mercury, health and safety is an important
priority. We join with our competitors in the
electricity sector through StayLive, an industry
safety group that promotes and shares safety
initiatives. We’re also active members of the
Business Leaders’ Health and Safety Forum,
which contributes to better understanding the
safety risks facing businesses.
Mercury was a founding member of the
Electricity Retailers Association of
New Zealand (ERANZ). Through ERANZ, we
collaborate with other energy retailers to
explore issues that are important to our
customers. One of the main focus areas over
the past year has been looking at ways to
support the use of energy technologies for the
benefit of customers.
Creating a sustainable energy future for
New Zealand by leveraging our significant
advantage in renewable electricity production
is at the forefront of Mercury’s collaboration
with other like-minded energy leaders such as
the Business New Zealand Energy Council and
the World Energy Council.
OUR
CUSTOMERS
CHOOSE
AOTEAROA
NEW ZEALAND.
Mercury’s passion for customers, our communities and our country is
embedded in our strategy. This passion influences the decisions we make,
such as our focus on long-term value creation.
Mercury’s generation comes from renewable sources – hydro and
geothermal. This helps New Zealand to be in the unique position where over
80% of its energy comes from renewables. But we believe our country can
be doing even better.
Solar is an emerging source of energy, being chosen by customers wanting
to reduce their reliance on grid electricity supply. Mercury Solar helps
customers with that choice.
GO SOLAR. GET A QUOTE ONLINE
OR PHONE 0800 676 527.
58 // 59
LEADING ECONOMIC PERFORMANCE
Generating value now
and in the long term.
Mercury is here for the ultra long term. We choose to take a future-focused view when
we invest in communities, relationships, our assets, our people and natural resources.
By taking this approach, we create long-term value for our owners, including
sustainable dividend growth.
Economic Performance.
Providing sustainable returns
Every owner makes a choice about where to
place their capital. Therefore, maximising
long-term value for our owners’ investments
is fundamentally important to our business.
This requires clear direction and an efficient
allocation of our resources.
Building value is dependent on us
understanding our customers and rewarding
loyalty; recruiting and developing great
people; and partnering well, both
commercially and in our communities.
Mercury aims to provide a progressive lift in
dividends through a combination of growth in
our core business and specific investment in
relevant opportunities.
9 YEARS
OF ORDINARY DIVIDEND GROWTH
Building our business from within
Mercury is ready for growth in New Zealand’s
retail and commercial electricity demand to
continue to earn appropriate returns for our
owners over the long term.
A material plank of Mercury’s growth is the
ability to develop new geothermal and wind
powered generation. This expansion relies on
an increase in wholesale electricity prices,
which is driven by a number of factors,
including an increase in national demand for
electricity. For the last three years demand has
remained largely unchanged. Strong
population growth has lifted electricity
demand across many sectors but this has
been largely offset by a medium term trend of
industrial demand reduction and better
energy efficiency.
FY2017 wholesale electricity prices remained
benign due to higher than average national
storage and inflows. Retail competition
remains intense, tempering retail energy
price growth.
Our economic
performance is material
to our stakeholders.
In 2017 we invested $94m
in staff salaries, benefits
and training and
$2m in community
support
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER > LEADING ECONOMIC PERFORMANCE Relevant opportunities
Mercury continually looks to grow value
through investment in related or adjacent
sectors.
We are developing the solar energy market in
New Zealand through our partnership with
Trina Solar, regarded as a global leader in
photovoltaic solar technology. The Mercury
R&D Centre tests the installation and
performance of world-leading solar, battery
storage, and other energy technologies for
New Zealand customers.
Our advanced metering infrastructure
business, Metrix, has installed more than
400,000 meters nationwide (about 24% of
the currently installed advanced metering
market) and is New Zealand’s second largest
smart metering company, providing
automated reads to all electricity retailers.
Due to an ongoing focus on loyalty, Mercury
grew its customer base, with lower than
average customer churn figures (17.8%) and
64% of Mercury customers rating themselves
as ‘highly satisfied’. These measures confirm
the success of our continual focus on
rewarding customer loyalty and inspiring our
customers to enjoy energy in more wonderful
ways.
Immigration and economic growth point to
demand increasing in future years. Mercury is
well positioned to build new generation. We
have several options, including what we
believe is the best wind farm opportunity in
New Zealand. Our ability to build further
power stations will ultimately secure the
Company’s ability to capture increased share
in the retail and commercial sectors.
The eventual closure of the Tiwai Point
Aluminium Smelter, although in our view
unlikely in the short term, remains a risk to
the industry. When this happens, Mercury
believes it is relatively best placed out of all
the large electricity generators in
New Zealand, due to our station locations and
fuel mix. While wholesale electricity prices
would be expected to drop for a period of
time, we believe our 39% share in the
Auckland retail market, proximate North Island
generation locations and balanced approach
to risk management will differentiate us from
our peers.
60 // 61
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
> LEADING ECONOMIC PERFORMANCE
Financial commentary.
Energy margin1
Mercury’s energy margin of $698 million was
$38 million higher than last year, supported
by record hydro generation of 4,724 GWh (up
22% on FY2016 levels) since Mercury was
formed in 1999. Strong inflows into the
Waikato catchment reverses the trend of
recent years of wet conditions in South Island
and dry in North Island.
The ratio of electricity purchase costs to
average generation prices (LWAP/GWAP, where
a lower ratio is favourable), remained similar to
the same period last year at 1.05. This reflects
a trend of lower and less volatile wholesale
prices. The average energy price to customers
was down marginally (-1.1%) to $113.51/MWh
relative to the same period last year. This
reflects additional commercial and industrial
sales contracted throughout the year at lower
prices, and the timing and impact of customer
loyalty product offerings such as Free Power
Days and Airpoints Dollars™.
Our continued focus on growing customer
loyalty has resulted in materially lower churn
relative to our major peers, increased
customer satisfaction (64% rating as highly
satisfied), and an increase in market share
and fixed price sales to customers (including
contracts for difference) of 500GWh.
$698M
ENERGY MARGIN
(UP $38 MILLION FROM 2016)
1 Energy Margin is a non-GAAP measure and is defined
as sales less lines charges, energy costs and other
direct costs of sales, including metering (see Note 4 of
the Audited Financial Statements). Energy Margin
provides a measure that, unlike total revenue, accounts
for the variability of the wholesale spot market on our
generation revenue and the broadly offsetting impact of
wholesale prices on the purchase cost of our customers’
electricity.
Operating costs
Operating costs represent the company’s
indirect costs of sales, including salaries and
wages, maintenance costs, and all other
corporate overheads. Operating costs were flat
in FY2017 versus FY2016 at $214 million. This
reflects our ongoing focus on controlling costs
and improved procurement. The combined
savings have enabled us to absorb within our
operating costs the circa $4 million cost of
repairing a well on the Rotokawa geothermal
field along with the additional costs of new
business activities like solar.
$214M
OPERATING COSTS
Other income
Other income includes revenue earned by our
metering business, Metrix, the sale of surplus
carbon units, operation and maintenance
services provided to third parties and revenue
from our solar business.
The company’s revenue from Metrix increased
during the year as smart meter deployment
and services continued to grow.
The 2015 mothballing of our gas-fired
Southdown power station substantially
reduced our future carbon obligations under
the NZ Emissions Trading Scheme. This
provided Mercury with the opportunity to
divest some surplus carbon credits. This sale
generated cash proceeds of $26 million due
to significantly higher carbon pricing, and a
gain on sale of $5 million recognised in other
income.
Mercury is fully able to meet our carbon
emission obligations for the foreseeable future
from existing carbon credit inventories and
existing long term agreements with NZ
forestry owners.
$5M
GAIN FROM SALE OF SURPLUS
CARBON CREDITS
(PROCEEDS OF $26M)
>> FIGURE 1: ENERGY MARGIN
800
700
600
500
M
$
400
300
200
100
0
2013
2014
2015
2016
2017
FINANCIAL YEAR
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOST OPERATING EARNINGS (EBITDAF)
INITIAL
GUIDANCE
RESULT
$490M $523M
Profit for the year
Profit for the year represents the profit for the
company after taking into account EBITDAF,
depreciation and amortisation, the change in
the fair value of financial instruments,
impairments, earnings of associates and joint
ventures, net interest costs, and the
company’s tax expense. Profit for the year
increased by $24 million to $184 million due
to the company’s improved operating
earnings performance, partially offset by
higher depreciation and taxation expenses.
$184M
PROFIT FOR THE YEAR
Operating earnings (EBITDAF2)
EBITDAF for the year was up $30 million or
6% versus FY2016, primarily due to the
movements in Energy Margin from higher
hydro generation output. Despite benign
wholesale market prices, slightly lower
customer yields, and lower usage per
household due to a warm winter in 2016, we
have continued to execute our core business
plan. This discipline, plus a range of non-price
attributes such as our successful re-branding,
focus on growing customer loyalty and our
strong regional partnerships, is reflected in
this strong result.
2 EBITDAF is reported in the income statement of the
Audited Financial Statements and is a measure that
allows comparison across the sector. EBITDAF is defined
as earnings before net interest expense, income tax,
depreciation, amortisation, change in fair value of
financial instruments, impairments, and equity
accounted earnings.
$520M
FINAL GUIDANCE
$523M
RESULT
OPERATING EARNINGS (EBITDAF)
>> FIGURE 2: OPERATING COSTS
>> FIGURE 3: OPERATING EARNINGS (EBITDAF)
M
$
350
300
250
200
150
100
50
0
ONE-OFF COSTS
OPERATING COSTS
2013
2014
2015
2016
2017
FINANCIAL YEAR
600
500
400
M
$
300
200
100
0
2013
2014
2015
2016
2017
FINANCIAL YEAR
62 // 63
Underlying earnings after tax3
Underlying Earnings after tax increased by
$24 million or 16% to $176 million, reflecting
the company’s increase in EBITDAF
performance. Impairments for the year
primarily related to the final cost of exiting
geothermal development in Chile and is
discussed further in Note 4 of the Audited
Financial Statements.
3 Underlying earnings after tax is reported in Note 3 of the
Audited Financial Statements and is a non-GAAP
measure representing net profit for the year adjusted for
one-off and/or infrequently occurring events exceeding
$10 million of net profit before tax, impairments, and
any changes in the fair value of derivative financial
instruments. In contrast to net profit, the exclusion of
these items enables a comparison of the company’s
underlying performance between financial years. The
company has reported Underlying Earnings on this basis
for the last six years.
Net cash flows from operating activities
Net cash provided by operating activities
represents the cash flows from the sale of
electricity and metering services, along with
the direct and indirect costs associated with
their sale and the cash costs of interest and
taxes. This increased by $92 million to
$372 million, up 33% on FY2016, as a result
of increased hydro electricity generation and
a $37 million decrease in cash taxes. The
decrease in cash taxes was a result of the
company electing to prepay tax in the prior
year to maintain a positive imputation credit
account, reducing FY2017 provisional tax
obligations. In addition, the company received
a refund in FY2017 for overpaid tax from
prior years.
$176M
UNDERLYING EARNINGS AFTER TAX
$372M
NET CASH FLOW FROM
OPERATING ACTIVITIES
>> FIGURE 4: UNDERLYING EARNINGS AFTER TAX
200
150
M
$
100
50
0
2013
2014
2015
2016
2017
FINANCIAL YEAR
Balance sheet
Total assets of the company decreased by
$88 million, due mainly to a fall in the mark
to market value of the company’s financial
derivative asset values and the write down of
the company’s investment in joint ventures.
The company also revalued its geothermal
generation assets up by $52 million and
invested $116m in capital expenditure, offset
by depreciation and amortisation of $189m.
Stay-in-business capital expenditure (SIB
capex) represents the capital expenditure
incurred by the company to maintain its
assets in good working order and was elevated
relative to the company’s normalised SIB
capex level of $80 million per annum. SIB
capex in FY2017 was $114 million, reflecting
phasing in the ongoing major hydro
refurbishment projects at Aratiatia and
Whakamaru. The first refurbished turbine at
Whakamaru hydro station returned to service
in late 2017, increasing the unit capacity from
25MW to 31MW and conversion efficiency by
5% (7GWh p.a.). Our geothermal drilling
programme, comprising four new wells across
Rotokawa and Kawerau was also completed
during the year, significantly under budget,
with the new wells having considerably more
productivity than expected on average.
Mercury continues to invest in its technology
systems across the business, including the
ability to deliver certified half hourly data at
Metrix, improvements to core customer,
financial and project management systems
and the movement to cloud based data
centres, all of these projects will be completed
in FY2018.
$114M
STAY IN BUSINESS CAPEX
OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES>> WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER > LEADING ECONOMIC PERFORMANCE >> FIGURE 5: CAPITAL EXPENDITURE
300
250
200
M
$
150
100
50
0
NEW INVESTMENT
STAY-IN-BUSINESS
2013
2014
2015
2016
2017
FINANCIAL YEAR
SPECIAL
FINAL
INTERIM
>> FIGURE 6: DIVIDENDS
E
R
A
H
S
/
S
T
N
E
C
25
20
15
10
5
0
2013
2014
2015
2016
2017
FINANCIAL YEAR
Capital structure and dividends
Mercury’s dividend policy gives due
consideration to the company’s working
capital requirements, medium term
investment programme, a sustainable capital
structure and recognises a targeted long-term
credit rating of BBB+ assigned by S&P. The
company’s balance sheet remains strong at
current gearing levels and is cognisant of the
Government’s legislated minimum
shareholding in the company. Management
continue to explore value enhancing
opportunities which may require additional
borrowings to fund growth.
The company’s relatively high average interest
rate of 8.7% on net debt of $1,038 million
reflects interest rate hedges put in place in
2008, prior to the global financial crisis and
the subsequent decreases in interest rates,
ahead of the company’s significant
geothermal development programme. These
hedges mainly mature at the end of the 2018
financial year. From that time the estimated
net cash flow benefit, at current rates, is
approximately $20 million per annum.
In line with Mercury’s dividend policy, targeting
a pay-out ratio of 70% to 85% of Free Cash
Flow on average over time, a fully imputed
8.8 cents per share final dividend has been
declared. This took the full year ordinary
dividend to 14.6 cents per share, also fully
imputed, in line with guidance and
representing a 2.1% increase on the 2016
level. The company has also announced a
5.0 cents per share fully imputed special
dividend. Dividends will be paid on
29 September 2017.
BBB+
OUR S&P CREDIT RATING
14.6 CENTS
FULL YEAR ORDINARY DIVIDEND
5.0 CENTS
SPECIAL DIVIDEND
64 // 65
Your Directors.
PLEASE SEE
OUR WEBSITE
FOR FULL
BIOGRAPHIES.
>> JOAN WITHERS
CHAIR
>> JAMES MILLER
DIRECTOR
>> MIKE TAITOKO
DIRECTOR
>> PRUE FLACKS
DIRECTOR
>> PATRICK STRANGE
DIRECTOR
>> ANDY LARK
DIRECTOR
>> KEITH SMITH
DIRECTOR
>> NICKY ASHTON
FUTURE DIRECTOR
>> OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE Our Executive Team.
PLEASE SEE
OUR WEBSITE
FOR FULL
BIOGRAPHIES.
>> FRASER WHINERAY
CHIEF EXECUTIVE
>> MATTHEW OLDE
METRIX CHIEF EXECUTIVE
>> TONY NAGEL
GENERAL MANAGER CORPORATE AFFAIRS
>> JULIA JACK
CHIEF MARKETING OFFICER
>> WILLIAM MEEK
CHIEF FINANCIAL OFFICER
>> KEVIN ANGLAND
GENERAL MANAGER DIGITAL SERVICES
>> PHIL GIBSON
GENERAL MANAGER HYDRO & WHOLESALE
>> MARLENE STRAWSON
GENERAL MANAGER PEOPLE & SAFETY
>> NICK CLARKE
GENERAL MANAGER GEOTHERMAL
66 // 67
Reporting on what
matters most.
The foundations of our business are wellbeing
(our people), kaitiakitanga (respect for and
guardianship of our assets and natural
resources to ensure a sustainable future) and
commercial (delivering value).
In this report, we have chosen to cover aspects
that are material to our business across each
of these foundations. We have sought to
provide a balanced and transparent view of
how we have performed this year and our
plans for the future. To inform our view of the
matters material to how Mercury creates value
– our What Matters Most, as set out on
page 20 of this report – we have considered
a broad sustainability context incorporating:
• mega trends impacting our customers,
company and the country, such as: the
Sustainable Development Goals; the Paris
Climate Agreement; digitisation; new
technology; increasing data use; and
ageing population
our business plan and strategy for the
short, medium and long term
key risks, risk trends and opportunities
stakeholder input and feedback gathered
throughout the year.
•
•
•
This report has been prepared in accordance
with the Global Reporting Initiative (GRI)
Standards: Core option, including having
reference to the GRI Standard reporting
principles. We have also incorporated
elements of the International Integrated
Reporting Framework consistent with
how we are developing integrated thinking.
As part of our process for determining
matters material to how Mercury creates
value, we produced this materiality matrix.
All of the matters in this matrix are important
to Mercury and our stakeholders. The matters
in the top right hand corner are those that
were highest ranked and are the material
topics we have reported against for GRI
Standards. Other matters in this matrix are
also included in this report or on our website.
Reporting boundaries were determined
based on how aspects material to the
business impacted upon, and were
impacted by stakeholders, within the
company, outside the company, and
both inside and outside the company.
Stakeholder engagement
One of the elements of our success at
Mercury is our ability to build and maintain
relationships with key stakeholders across the
business. Past and future plans have been
developed with input from these stakeholders,
and we aim to meet their expectations and
needs proactively as they intersect with our
own mission, purpose, strategy and goal.
We have introduced more stakeholder input
into our report this year in order to reflect
this approach.
The first step we took was to identify
our key stakeholders. We then looked at
our interactions across those groups and
designed an approach for input into this
report that was appropriate for each of our
groups. We will take what we have learnt
through engagement this year and continue
to evolve our engagement. The following
pages outline our key stakeholders, their role
in relation to Mercury, how we engage with
them, and what’s most important to them.
S
R
E
D
L
O
H
E
K
A
T
S
O
T
E
C
N
A
T
R
O
P
M
I
Fairness
Security of supply
Economic performance*
Natural resource
availability
Brand
Climate change
Employee development
Community relations
Customer experience
Safety
Customer privacy
Water quality and allocation
Energy efficiency
Supply chain
Inclusive and fair workplace
Environmental compliance
and mitigation
Human rights
Biodiversity
Innovation / R&D
Water consumption
Waste
HIGHEST RANKED MATERIAL MATTERS
IMPORTANT ISSUES COVERED IN THIS REPORT OR ON OUR WEBSITE
* Including dividends
IMPORTANCE TO MERCURY
>> OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE
Our stakeholders.
CUSTOMERS
EMPLOYEES
PARTNERSHIPS
Role
Sustain our business, provide the foundation
for continued growth, and future product
development.
Role
Our 870 people drive our company. Through
their skills, knowledge, diversity and efforts
Mercury thrives and prospers.
How do we engage with them?
Understanding customers needs, expectations
and what they care about helps us to have in
place the products and services that earn
their business. Our customer relationships are
valued, and often longstanding. We strive for
effective and responsive customer
engagement, proactively seeking feedback
and input through a number of avenues
including: our contact centre (via calls, email,
letters, direct mail); our website and My
Account portal; social media; customer
surveys and market research; and our
community partnerships, sponsorships
and events.
How do we engage with them?
Employee engagement, and ensuring different
perspectives and viewpoints are heard, is
crucial to our success. Our employees are
from various different cultural and ethnic
backgrounds, reflecting New Zealand’s own
diversity and providing our company with
wonderful perspectives on how to drive our
strategy. In 2017, we focused on sharing and
connecting through annual and check-in
surveys, specific events such as Company
Days, our PowerUp induction programme,
leadership forums and a change supporters’
network. For this report we sought specific
feedback through a survey completed by our
change supporters’ network.
Role
Seek and deliver opportunities through which
we can develop mutually beneficial ventures
aligned with our mission, purpose, strategy
and goal.
How do we engage with them?
Mercury builds positive, mutually beneficial,
longstanding relationships with the
communities in which we operate. Some of
the ways we engage with our partners is
through commercial joint ventures, customer
reward partnerships, and by dedicating time
and effort into understanding each other’s
business.
What is important to them
about Mercury?
> Fairness
> Customer experience
> Brand
> Security of supply
What is important to them
about Mercury?
> Employee Development
> Safety
> Inclusive and fair workplace
> Economic performance
What is important to them
about Mercury?
> Economic performance
> Employee development
> Natural resource availability
68 // 69
BUSINESS FUNDAMENTALS
CHAIR AND
CHIEF EXECUTIVE
UPDATES
WHAT MATTERS MOST
GROWING CUSTOMER LOYALTY
HIGH PERFORMANCE TEAMS
ENHANCED NATURAL RESOURCES
STRONGER TOGETHER
LEADING ECONOMIC PERFORMANCE
Our stakeholders (cont.)
SHAREHOLDERS
& INVESTORS
IWI
GOVERNMENT
& REGULATORS
Role
Approximately 90,000 investors and
shareholders provide the stability and financial
capital for our company to grow and to
continue to create value.
Role
Provide us with the platform through which to
establish long-term, mutually beneficial
partnerships and plans.
How do we engage with them?
Our shareholders and investors are the
backbone of our company. We engage
through material market updates, annual and
half-year reports, earnings and dividends
announcements and quarterly operating
reports, adhering to the principles of
continuous disclosure. Our executive team
and Board also deliver an Annual
Shareholders Meeting (ASM), provide briefings
and hold institutional investor meetings.
How do we engage with them?
Lake Taupo and the Waikato River, and areas
where our geothermal operations are located
are of cultural and historical significance for
iwi. To ensure that we respect, value, protect
and sustain these areas, proactive
engagement occurs with iwi through business
review meetings, contract negotiations,
engagement for proposed new work and
completing live work, industry conferences
and supplier briefings.
Role
Set the regulatory frameworks that determine
our operating environment and provide the
framework within which we can develop our
business.
How do we engage with them?
We work collaboratively at different levels of
government and other governing entities to
develop solutions, identify opportunities and
overcome challenges. Engagement takes
place through formal scheduled meetings,
responses to submissions, ministerial
briefings, and participation in energy industry
events and regulatory/political forums. We
host site visits and also engage through the
development of external reports that we
commission or contribute to. For this report
we also sought specific, informal feedback
from representatives of key regulators.
What is important to them
about Mercury?
> Economic performance
> Natural resource availability
> Customer experience
> Brand
> Climate change
What is important to them
about Mercury?
> Natural resource availability
> Community relations
> Water quality and allocation
> Biodiversity
What is important to them
about Mercury?
> Security of supply
> Fairness
> Climate change
> Energy efficiency
>> OUR TEAM AND STAKEHOLDERS COMMUNITY
SUPPLIERS
INDUSTRY
PARTICIPANTS
Role
Deliver products and services that allow us to
enhance our business and operations.
Role
Provide an opportunity to share, exchange
and grow the industry to its highest potential.
Role
Provide us with support to operate and the
context in which to better understand the
social and environmental issues we face
within our communities.
How do we engage with them?
Key team members actively participate in a
variety of community forums. We also sponsor
events within the communities in which we
operate, and respond to community river flow
and lake level requests. Through our role in
the Waikato Catchment Ecological
Enhancement Trust (WCEET), we engage on
improvements to the natural and social
environments which the business depends
upon.
How do we engage with them?
Suppliers are continuously engaged in
completing various projects or fulfilling
ongoing customer and other business
commitments. We also use business review
meetings, contract negotiations, supplier
briefings and proactive engagement with
industry conferences to work collaboratively
with, gain insight into, and develop new
standards with suppliers. For this report we
also sought feedback through discussions
with a range of key suppliers.
How do we engage with them?
Mercury works collaboratively with the energy
industry to provide and support new
opportunities for growth as well as to overcome
challenges. We work with various industry
participants through one-on-one meetings and
active participation in industry groups such as
StayLive, the Business Leaders Health and
Safety forum, ERANZ Policy Committee,
Business Energy Council Working Group,
Sustainable Business Council, and Business
NZ. We also regularly attend and contribute to
industry events and conferences (e.g.
Downstream), as well as attending stakeholder
events organised by sector participants. We do
this in order to keep up to date with industry
issues, assist with solutions, and to contribute
to future progress and innovation.
What is important to them
about Mercury?
> Economic performance
> Security of supply
> Fairness
> Climate change
> Innovation and R&D
What is important to them
about Mercury?
> Fairness
> Water quality and allocation
> Environmental compliance and mitigation
> Climate change
What is important to them
about Mercury?
> Economic performance
> Supply chain
> Safety
70 // 71
GRI INDEX STANDARDS CORE REPORTING
GRI standard
GENERAL DISCLOSURES
GRI 102 General disclosures 2017
Organisational profile
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
102-11
102-12
102-13
Strategy
102-14
Ethics and Integrity
102-16
Governance
102-18
Stakeholder engagement
102-40
102-41
102-42
102-43
102-44
Reporting practice
102-45
102-46
102-47
102-48
Description
Report section and Page number(s)
Comments
Newmarket, Auckland
Name of the organisation
Activities, brands, products, and services
Location of Headquarters
Location of operations
Ownership and legal form
Markets served
Scale of organisation
Information on employees
Supply chain
Significant changes to the organisation and its
supply chain
Precautionary principle
External initiatives
Membership of associations
Our Business model, page 6
At a glance, pages 8-9
Newmarket, Auckland
At a glance, pages 8-9
Company disclosures, pages 49-51
At a glance, pages 8-9
At a glance, pages 8-9
At a glance, pages 8-9
At a glance, pages 8-9, High performance
teams, page 30
Chair and Chief Executive Updates,
pages 12-19
Corporate Governance Statement 2017 web
version, page 10
Enhanced natural resources, pages 40-47
Stronger together, pages 50-55
Stronger together, pages 50-55
Statement from senior decision maker
Chair and Chief Executive Updates,
pages 12-19
Values, principles, standards, and norms of
behaviour
Corporate Governance Statement, Financial
report, pages 35-41
Governance structure
List of stakeholder groups
Collective bargaining agreements
Identifying and selecting stakeholders
Approach to stakeholder engagement
Key topics and concerns raised
Entities included in the consolidated financial
statement
Defining report content and topic boundaries
List of material topics
Restatements of information
Corporate Governance Statement, Financial
report, pages 35-41
Reporting on what matters most, pages
66-69
1.49% of employees covered under collective
bargaining
Reporting on what matters most, pages
66-69
Reporting on what matters most, pages
66-69
Reporting on what matters most, pages
66-69
Leading economic performance, pages
58-65
Reporting on what matters most, pages
66-69
What matters most, pages 20-21
Reporting on what matters most, pages
66-69
No restatements
>> OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE GRI standard
102-49
Description
Changes in reporting
Report section and Page number(s)
Chair and Chief Executive Updates, pages 12-
19
Comments
102-50
102-51
102-52
102-53
102-54
102-55
102-56
Reporting period
Date of most recent report
Reporting cycle
Contact point for questioning regarding the report Tim Thompson, Head of Treasury and
Reporting on what matters most, pages
66-69
Cover
Cover
Cover
Claims of reporting in accordance with the GRI
standards
GRI Content Index
External assurance
Investor Relations
Reporting on what matters most, pages
66-69
GRI Index, pages 70-71
No external assurance for this report
SPECIFIC STANDARD DISCLOSURES
Description
Report section and Page number(s)
Boundaries
201-1
Direct economic value generated and distributed Leading economic performance, pages
Material Topics
GRI 200 Economic standard series
GRI 103
Management approach 2017
GRI 201 Economic Performance
GRI 201
Economic performance 2017
GRI 300 Environmental standard series
GRI 103
GRI 303 Water
303-1
Management approach 2017
Water withdrawal by source
Leading economic performance, pages
58-65
Leading economic performance, pages
58-65
58-65
Enhanced natural resources, pages 40-47
Within the organisation
Within and outside the
organisation
303-2
GRI 305 Emissions
305-1
GRI 307 Environmental compliance
307-1
GRI 400 Social standards series
GRI 103
Water sources significantly affected by
withdrawal of water
Enhanced natural resources, pages 40-47
Enhanced natural resources, pages 40-47
Outside the
organisation
Outside the
organisation
Direct (Scope 1) GHG emissions
Enhanced natural resources, page 45
Within and outside the
organisation
Non-compliance with environmental laws and
regulations
Enhanced natural resources, page 41
Outside the
organisation
Management approach 2017
High performance teams, pages 30-37
72 // 73
Material Topics
GRI 401 Employment
401-1
401-2
401-3
GRI 403 Occupational health and safety
GRI 403-1
GRI 403-2
GRI 404 Training and education
404-2
Description
Report section and Page number(s)
Boundaries
New employee hires and employee turnover
Benefits provided to full-time employees that
are not provided to temporary or part-time
employees
Parental leave
Workers representation in formal joint
management-worker health and safety
committees
Types of injury or rates of injury, occupational
diseases, lost days, and absenteeism, and
number of work-related fatalities
High performance teams page 32
High performance teams, page 34 / CE
Update page 17
Within the organisation
Within the organisation
CE Update, page 17
Within the organisation
High performance teams, page 36
Within the organisation
High performance teams page 37
Within the organisation
Programs for upgrading employee skills and
transition assistance programs
High performance teams, page 32
Within the organisation
GRI 405 Diversity and equal opportunity
405-1
Diversity of governance bodies and employees
High performance teams, page 34 /
Corporate Governance Statement Financial
and Report page 40
Within the organisation
Sector Specific: Utilities
GRI 103
EU 10
GRI 103
EU 18
GRI 103
EU27
GRI 103
EU 30
Management approach 2017
Planned capacity against projected electricity
demand over the long term
Management approach 2017
Percentage of contractor and subcontractor
employees that have undergone relevant health
and safety training
Management approach 2017
Number of residential disconnections for
non-payment
Management approach 2017
Average plant availability by energy source and
by regulation regime
Enhanced natural resources, pages 40-47
Enhanced natural resources, page 46
Within the organisation
High performance teams, pages 30-37
High performance teams, page 37
Within and outside the
organisation
Growing customer loyalty, pages 24-29
Growing customer loyalty, page 29
Outside of the
organisation
Enhanced natural resources, pages 40-47
Enhanced natural resources, page 46 & 47 Within the organisation
>> OUR TEAM AND STAKEHOLDERS BUSINESS FUNDAMENTALS CHAIR AND CHIEF EXECUTIVE UPDATES WHAT MATTERS MOSTGROWING CUSTOMER LOYALTY HIGH PERFORMANCE TEAMS ENHANCED NATURAL RESOURCES STRONGER TOGETHER LEADING ECONOMIC PERFORMANCE Switch to
Mercury now
and choose
your bonus.
Fix your rates for 2 years and
choose between 200 Airpoints™
Dollars or a $200 bill credit.
Call 0800 456 534 or visit
mercury.co.nz/join to find
out more.
Offer ends 29th September 2017.
Terms apply. See mercury.co.nz/join for full offer details, terms and conditions.
MAKE
THE
SWITCH.
WE’RE ALL ABOUT OFFERING WONDERFUL CHOICES.
For this report, you have the choice of enjoying Mercury stories from the past
year and getting an understanding of the things that matter most to us.
This is our ‘freedom to choose’ section that will give you a sense of who we are
and how we bring to life our mission of energy freedom.
Or you have the choice of reviewing our numbers. This is our ‘wonderful choice’ section
that quantifies Mercury’s performance against what we’ve achieved in the past.
We invite you to have a look at both: front to back, or back to front.
The freedom is in your hands.
Speaking of switching, have you thought about getting yourself moving
with electricity? More than 4,000 New Zealanders are now driving EVs.
They’re enjoying a cheaper, cleaner way to get around and benefiting the
country while they’re at it. We think that’s a wonderful choice.
To charge away from home, access New Zealand’s
Electric Highway™ using the Plugshare app.
OUR 2017 FINANCIAL REPORT
Wonderful choice.
Mercury NZ Limited
ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
INDEPENDENT AUDITOR’S REPORT
01 >> REPORT CARD
02 >> FINANCIAL TRACK RECORD
03 >>
06 >> FINANCIAL STATEMENTS
35 >> GOVERNANCE AT MERCURY
41 >> REMUNERATION REPORT
47 >> DISCLOSURES
55 >> GLOSSARY
56 >> DIRECTORY
STATEMENT FROM THE DIRECTORS
The Directors are pleased to present Mercury NZ Limited’s annual report and
financial statements for the year ended 30 June 2017.
The Auditor-General is required to be the company’s auditor, and has appointed
Simon O’Connor of Ernst & Young to undertake the audit on his behalf.
The Directors are not aware of any circumstances since the end of the year that
have significantly or may significantly affect the operations of the Group.
This annual report is dated 22 August 2017 and is signed on behalf of the
Board by:
Joan Withers, Chair
Keith Smith, Director
REPORT CARD.
>> FINANCIALS
$523M
EBITDAF UP $30M, REFLECTING RECORD
GENERATION FROM STRONG NORTH ISLAND
INFLOWS THROUGH THE YEAR.
$184M
NET PROFIT $24M HIGHER DUE TO IMPROVED
EBITDAF, WITH HIGHER FAIR VALUE GAINS
AND LOWER IMPAIRMENTS OFFSET BY HIGHER
DEPRECIATION AND TAX COSTS.
$258M
FREE CASH-FLOW UP 17% FROM HIGHER CASH
RECEIPTS AND PREPAYMENT OF TAX IN FY2016
OFFSET BY HIGHER STAY-IN-BUSINESS CAPEX.
14.6CPS
ORDINARY DIVIDEND UP 2% PLUS AN
ADDITIONAL 5CPS IMPUTED SPECIAL DIVIDEND.
>> GROWING CUSTOMER LOYALTY
64%
5.7%
OF MERCURY CUSTOMERS RATING AS
‘HIGHLY SATISFIED’.
TRADER SWITCH CHURN. LOWER THAN THE REST
OF NEW ZEALAND MARKET COMBINED.
>> HIGH PERFORMANCE TEAMS
ONE
HIGH SEVERITY INCIDENT.
>> ENHANCED NATURAL RESOURCES
90%
OF MERCURY EMPLOYEES AGREE WITH THE
STATEMENT, “I KNOW HOW MY WORK CONTRIBUTES
TO THE SUCCESS OF THIS ORGANISATION”.
226
WCEET PROJECTS.
>> STRONGER TOGETHER
42K
WALKERS AND BIKERS ENJOYED THE
WAIKATO RIVER TRAILS.
HIGH
COMPLIANCE
WAIKATO REGIONAL COUNCIL COMPLIANCE
ASSESSMENT OF WAIKATO HYDRO SYSTEM
ACROSS 121 CONSENT CONDITIONS*.
$10M
DONATED TO STARSHIP HOSPITAL BY OUR
CUSTOMERS AND US SINCE 1999.
*Assessed in FY2017 for the FY2016 year
02 // 03
FINANCIAL TRACK RECORD
Financial Performance Trends
For the year ended 30 June ($ million)
Income statement
Energy margin
EBITDAF
Net profit for the year
Balance sheet
Total shareholders’ equity
Total assets
Total liabilities
Cash flow
Operating cash flow
Investing cash flow
Financing cash flow
Capital expenditure
Total capital expenditure
Growth capital expenditure
Stay-in-business capital expenditure
Other financial measures
Underlying earnings after tax
Free cash flow
Ordinary and special declared dividends
Ordinary dividends per share (cents)
Special dividends per share (cents)
Basic and diluted earnings per share (cents)
Net debt
Gearing (net debt/net debt+equity, %)
Debt/EBITDAF (x)1
Operational measures
Total recordable injury frequency rate (TRIFR)2
Sales to customers (FPVV, GWh)
Electricity customers (‘000)
Electricity generation (GWh)
1 Adjusted for S&P treatment of subordinated debt issued in FY2015.
2 Per 200,000 hours; includes onsite employees and contractors.
2017
2016
2015
2014
2013
698
523
184
3,308
5,997
2,689
372
(90)
(298)
116
2
114
176
258
270
14.6
5.0
13.37
1,038
23.9
1.8
1.05
4,606
392
7,533
660
493
160
3,315
6,085
2,770
280
(37)
(228)
72
13
59
152
221
252
14.3
4.0
11.6
1,068
24.4
2.0
0.74
4,397
376
6,842
650
482
47
3,337
6,058
2,721
309
(103)
(195)
110
31
79
145
230
296
14.0
7.5
3.4
1,082
24.5
2.0
1.25
4,486
382
6,563
690
504
212
3,219
5,689
2,470
317
(99)
(213)
93
33
60
185
257
186
13.5
–
15.3
1,031
24.3
2.1
0.84
4,844
382
6,295
677
390
115
3,183
5,802
2,619
286
(84)
(230)
252
183
69
180
217
168
12.0
–
8.2
1,028
24.4
2.7
1.52
5,252
388
6,462
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF MERCURY NZ LIMITED
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
The Auditor-General is the auditor of Mercury NZ Limited (‘the entity’) and its subsidiaries and other controlled entities (collectively referred to as ‘the
Group’). The Auditor-General has appointed me, Simon O’Connor, using the staff and resources of Ernst & Young, to carry out the audit of the financial
statements of the Group on his behalf.
Opinion
We have audited the financial statements of the Group on pages 6 to 34 of the Financial Report, that comprise the consolidated balance sheet as at
30 June 2017, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity
and consolidated cash flow statement for the year then ended on that date, and notes to the financial statements that include accounting policies and
other explanatory information.
In our opinion, the financial statements of the Group comply with generally accepted accounting practice in New Zealand and present fairly, in all
material respects, its financial position as at 30 June 2017, and its financial performance and cash flows for the year then ended in accordance with
New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain
our independence.
Basis for Opinion
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing
(New Zealand). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the Auditor-General’s Standards, which incorporates Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
In addition to the audit we have carried out assignments including a review of the Group’s financial statements for the six months ended 31 December
2016, remuneration benchmarking services and tax compliance services in the United States, which are compatible with our independence
requirements. These services have not impaired our independence as auditor of the Group.
Partners and staff may deal with the Group on normal terms within the ordinary course of trading activities of the Group. Other than the audit and
these assignments and trading activities, we have no relationship with, or interests in, the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
04 // 05
How our audit addressed key audit matters
Key audit matter
Valuation of Generation Assets
Generation assets were revalued at 30 June 2017 as set out in note 8 of
the financial statements to $5,241 million.
The Group engage an independent external party to estimate the fair
value of generation assets using a discounted cash flow model. The
significant inputs used to calculate the fair value of the generation
assets are the wholesale electricity price path, generation volumes, and
the discount rate. The wholesale electricity price path is estimated by the
Group’s valuation specialist as described in note 8 of the financial
statements and also considers Mercury NZ Limited’s own internal five
year forecast electricity price path. The model used to estimate the
wholesale electricity price path is complex and includes a number of
significant assumptions. The estimate of the wholesale electricity price
path is the most significant input in estimating the fair values
determined for the generation assets.
How we addressed the key audit matter
Our audit procedures included assessing the key inputs to the model
used to estimate the fair value of the generation assets. Our procedures
which included the use of our valuation specialists were primarily
focused on evaluating the process undertaken by the Group’s valuation
specialist and Mercury NZ Limited in forecasting the wholesale electricity
price path and assessing whether the forecast was consistent with
internal and external data.
We assessed the professional competence, independence and objectivity
of the Group’s valuation specialist in the modelling of the electricity price
path and valuation of the generation assets. We also compared
budgeted performance information from prior periods to historical data
to assess the accuracy of the forecasting process.
Valuation of Electricity Derivative, Currency and Interest Rate Derivative Financial Instruments
The Group’s activities expose it to electricity market price, currency and
interest rate risk which are managed using derivative financial
instruments. At 30 June 2017 derivative assets total $129 million and
derivative liabilities were $186 million as set out in note 15 of the
financial statements.
The valuations of the interest rate derivatives, foreign exchange
derivatives, and certain electricity price derivatives which are prepared by
Mercury NZ Limited are based primarily on observable inputs and are
measured using standard valuation techniques. Certain other electricity
price derivatives are also valued using inputs for which inputs are not
readily available in active primary or secondary markets and require
more complex valuation models involving the wholesale electricity price
path forecast by Mercury NZ Limited. The wholesale electricity price path
forecast requires significant judgement.
Our audit procedures included agreeing underlying data to the contract
terms on a sample basis, evaluating the appropriateness of the valuation
methodologies and assessing key assumptions and inputs and
recalculating the fair value of a sample of electricity derivatives. We also
performed procedures on the wholesale electricity price path as
explained above under the section entitled ‘Valuation of Generation
Assets’.
Information other than in the Financial Statements and Auditor’s report
The Board of Directors are responsible on behalf of the entity for the Annual Report and the Financial Report, which includes information other than
the financial statements and auditor’s report.
Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Statements
The Board of Directors are responsible on behalf of the entity for the preparation and fair presentation of the financial statements for the Group that
comply with generally accepted accounting practice in New Zealand and New Zealand Equivalents to International Financial Reporting Standards and
International Financial Reporting Standards.
The Board of Directors’ responsibilities arise from the Financial Markets Conduct Act 2013.
The Board of Directors is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial
statements, whether in printed or electronic form. In preparing the financial statements, the Board of Directors are responsible on behalf of the entity for
assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion.
Our responsibility arises from section 15 of the Public Audit Act 2001. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional
scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
• Conclude on the appropriateness of the use of the going concern basis of accounting by the Directors and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an
opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
• We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements. Also, we did not evaluate the security
and controls over the electronic publication of the financial statements.
• We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our audit.
• We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated
in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
•
•
>> SIMON O’CONNOR
ERNST & YOUNG
ON BEHALF OF THE AUDITOR-GENERAL
AUCKLAND, NEW ZEALAND
22 AUGUST 2017
06 // 07
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2017
Total revenue
Total expenses
EBITDAF1
Depreciation and amortisation
Change in the fair value of financial instruments
Impairments
Earnings of associates and joint ventures
Net interest expense
Profit before tax
Tax expense
Profit for the year attributable to owners of the parent
Basic and diluted earnings per share (cents)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Movement in asset revaluation reserve
Share of movements in associates’ and joint ventures’ reserves
Tax effect
Items that may be reclassified subsequently to profit or loss
Movement in cash flow hedge reserve
Movement in other reserves
Tax effect
Other comprehensive income for the year, net of taxation
Total comprehensive income for the year attributable to owners of the parent
Note
4
4
8, 9
15
4
10
4
6
Note
10
15
2017
$M
1,597
(1,074)
523
(189)
31
(18)
6
(95)
258
(74)
184
2016
$M
1,564
(1,071)
493
(182)
20
(19)
3
(97)
218
(58)
160
13.37
11.63
2017
$M
184
55
(14)
(15)
36
11
(11)
62
246
2016
$M
160
106
6
(30)
(54)
2
16
46
206
1 EBITDAF: Earnings before net interest expense, income tax, depreciation and amortisation, change in the fair value of financial instruments, impairments and equity accounted earnings of
associates and joint ventures
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2017
SHAREHOLDERS’ EQUITY
Issued capital
Treasury shares
Reserves
Total shareholders’ equity
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Derivative financial instruments
Taxation receivable
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment and advances to associates
Investment in joint ventures
Advances
Derivative financial instruments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables and accruals
Provisions
Borrowings
Derivative financial instruments
Taxation payable
Total current liabilities
Non-current liabilities
Payables and accruals
Provisions
Derivative financial instruments
Borrowings
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
For and on behalf of the Board of Directors who authorised the issue of the Financial Statements on 22 August 2017.
Joan Withers, Chair
22 August 2017
Keith Smith, Director
22 August 2017
Note
5
2017
$M
2016
$M
378
(51)
2,981
3,308
378
(52)
2,989
3,315
11
7
15
6
8
9
10
10
10
15
11
12
13
15
6
11
12
15
13
6
30
240
39
18
–
327
5,422
53
76
–
8
111
5,670
5,997
202
1
83
49
23
358
4
53
139
1,024
1,111
2,331
2,689
3,308
46
198
45
21
3
313
5,440
68
77
15
10
162
5,772
6,085
156
3
130
21
–
310
2
51
267
1,047
1,093
2,460
2,770
3,315
The accompanying notes form an integral part of these financial statements. 08 // 09
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
Balance as at 1 July 2015
Movement in asset revaluation reserve, net of taxation
Movement in cash flow hedge reserve, net of taxation
Movements in other reserves
Share of movements in associates’ and joint ventures’ reserves
Release of asset revaluation reserve, net of taxation
Other comprehensive income
Net profit for the year
Total comprehensive income for the year
Dividend
Balance as at 30 June 2016
Balance as at 1 July 2016
Movement in asset revaluation reserve, net of taxation
Movement in cash flow hedge reserve, net of taxation
Movements in other reserves
Share of movements in associates’ and joint ventures’ reserves
Release of asset revaluation reserve, net of taxation
Other comprehensive income
Net profit for the year
Total comprehensive income for the year
Dividend
Balance as at 30 June 2017
Issued
capital
$M
Retained
earnings
$M
Asset
revaluation
reserve
$M
Cash flow
hedge
reserve
$M
Other
reserves
$M
378
–
–
–
–
–
–
–
–
–
378
378
–
–
–
–
–
–
–
–
–
378
321
–
–
–
–
–
–
160
160
(228)
253
253
–
–
–
–
–
–
184
184
(253)
184
2,738
79
–
–
7
(3)
83
–
83
–
2,821
2,821
38
–
–
(12)
2
28
–
28
–
2,849
(37)
–
(38)
–
(1)
–
(39)
–
(39)
–
(76)
(76)
–
25
–
(2)
–
23
–
23
–
(53)
(63)
–
–
2
–
–
2
–
2
–
(61)
(61)
–
–
11
–
–
11
–
11
–
(50)
Total
equity
$M
3,337
79
(38)
2
6
(3)
46
160
206
(228)
3,315
3,315
38
25
11
(14)
2
62
184
246
(253)
3,308
The accompanying notes form an integral part of these financial statements. CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Taxes paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Acquisition of intangibles
Disposal of property, plant and equipment
Disposal of intangibles
Disposal of land and associated real property
Distributions received from and advances repaid to associates and joint ventures
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans
Repayment of loans
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents held
Net foreign exchange movements
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash balance comprises:
Cash balance at the end of the year
2017
$M
2016
$M
1,539
(1,022)
2
(95)
(52)
372
(103)
(20)
–
26
–
7
(90)
75
(120)
(253)
(298)
(16)
–
46
30
30
1,515
(1,051)
3
(98)
(89)
280
(78)
(12)
11
–
36
6
(37)
–
–
(228)
(228)
15
(1)
32
46
46
The accompanying notes form an integral part of these financial statements. 10 // 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 1. ACCOUNTING POLICIES
(1) Reporting entity
On 29 July 2016, Mighty River Power Limited changed its name to Mercury NZ Limited (“Company”). The Company is incorporated in
New Zealand, registered under the Companies Act 1993, an FMC reporting entity under the Financial Markets Conduct Act 2013, and is listed
on the NZSX and ASX.
The consolidated financial statements (“Group financial statements”) are for Mercury NZ Limited Group (“the Group”). The Group financial
statements comprise the Company and its subsidiaries, including its investments in associates and interests in joint arrangements.
The majority shareholder of Mercury NZ Limited is Her Majesty the Queen in Right of New Zealand (“the Government”), providing it with
significant potential influence over the Group. The liabilities of the Group are not guaranteed in any way by the Government or by any other
shareholder.
(2) Basis of preparation
The Group financial statements have been prepared in accordance with the Financial Reporting Act 2013, the Companies Act 1993 and
in accordance with New Zealand Generally Accepted Accounting Practice (“NZ GAAP”). They comply with New Zealand equivalents to
International Financial Reporting Standards (“NZ IFRS”) as appropriate for profit-oriented entities. These financial statements also comply
with International Financial Reporting Standards (“IFRS”).
The Group financial statements are prepared on the basis of historical cost, with the exception of financial instruments and generation assets
which are measured at fair value.
The Group financial statements have been prepared so that all components are stated exclusive of GST, with the exception of receivables and
payables that include GST invoiced.
Functional and presentation currency
These financial statements are presented in New Zealand Dollars ($) which is the Group’s functional currency, apart from Mighty Geothermal
Power Limited and its direct subsidiaries as their functional currency is the United States Dollar. Unless otherwise stated, financial information
has been rounded to the nearest million dollars ($M).
The assets and liabilities of entities whose functional currency is not the New Zealand Dollar, are translated at the exchange rates ruling at
balance date. Revenue and expense items are translated at the spot rate at the transaction date or a rate approximating that rate. Exchange
differences are taken to the foreign currency translation reserve.
Estimates and judgements
The preparation of financial statements requires judgements and estimates that impact the application of policies and the reported amounts
of assets and liabilities, income and expenses. Actual results may differ from these estimates.
The areas of significant estimates and judgements are as follows:
•
•
•
•
•
Impairment of non-financial assets (refer note 4)
Generation plant and equipment (refer note 8)
Retail revenue accruals (refer note 11)
Restoration and environmental rehabilitation (refer note 12)
Valuation of financial instruments (refer note 14 and note 15).
Accounting policies and standards
No changes to accounting policies have been made during the year and policies have been consistently applied to all years presented.
Certain comparatives have been restated where needed to conform to current year classification and presentation.
Implementation of new accounting standards
The International Accounting Standards Board (IASB) has issued four new International Financial Reporting Standards (“IFRS”, collectively, the
“new standards”). The new standards relate to Financial Instruments (NZ IFRS 9), Revenue from Contracts with Customers (NZ IFRS 15),
Leases (NZ IFRS 16) and Insurance Contracts (NZ IFRS 17). Mercury intends to elect to first time adopt NZ IFRS 9, 15 and 16 for the reporting
period ending 30 June 2019. NZ IFRS 17, if applicable, will be adopted for the reporting period ended 30 June 2022. A summary of the new
standards and their future impacts on Mercury are given below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 NZ IFRS 9 Financial instruments
NZ IFRS 9 Financial instruments supersedes NZ IAS 39 – Financial Instruments: Recognition and Measurement and is effective for periods
beginning on or after 1 January 2018.
NZ IFRS 9 addresses the classification, measurement and recognition of financial assets and liabilities through a simplified mixed
measurement model and establishes three primary measurement categories for financial assets, being (i) amortised cost (ii) fair value
through other comprehensive income and (iii) fair value through profit or loss. The basis of classification depends on the entity’s business
model and the contractual cash flow characteristics of the financial asset. A new expected credit losses model replaces the incurred loss
impairment model used in NZ IAS 39. NZ IFRS 9 also expands the eligibility for hedge accounting by focusing on the economic relationship
between hedged items and hedging instruments.
This treatment may result in the increased ability for Mercury to hedge account for financial arrangements. Adopting this approach will result
in greater fair value movements recognised through the cash flow hedge reserve as opposed to the income statement. To a lesser extent, more
foreign exchange contract movements will be also recognised through other comprehensive income.
Mercury intends to adopt NZ IFRS 9 for the year ended 30 June 2019 (the effective date) and it is not expected to have a material impact
on the financial statements.
NZ IFRS 15 Revenue from Contracts with Customers
NZ IFRS 15 Revenue from Contracts with Customers supersedes the existing revenue standards.
The core principle of NZ IFRS 15 is that an entity must recognise revenue at an amount that reflects the consideration it expects to be entitled
for transferring goods or services to a customer. This is achieved through the core principles of the standard, including identification of
performance obligations in a contract, and allocation of a contract’s transaction price to each of those performance obligations as they are
satisfied. NZ IFRS 15 also specifies the accounting treatment for costs incurred to obtain and fulfil contracts with customers. Specific
presentation and disclosure requirements are also provided, which are more detailed than under current standards.
Mercury intends to adopt NZ IFRS 15 for the year ended 30 June 2019 (the effective date). While the impact on the financial statements is not
expected to be material, the treatment of a number of items will be affected. Generally, revenue received by Mercury will continue to be
recognised over time, as consideration due equates to contract performance completed to date. As a practical expedient, Mercury will apply
NZ IFRS 15 to portfolios of customer contracts (e.g. end-user sales), as these contracts have similar characteristics, and the effects on
financial statements do not differ materially from applying current standards to individual contracts.
Certain items will require differential treatment from that which is applicable under current standards. The main items impacted are:
• Acquisition and retention credits allocated to customers will be recognised against revenue. This is a departure from current treatment
of recognising through expenses.
Incremental costs of acquiring contracts with customers (e.g. commissions) will be capitalised and amortised over an appropriate period.
•
• Disclosure requirements will increase. Revenue items will be disaggregated, contract balances disclosed and contract performance
obligations described via the notes to the financial statements.
While the timing of revenue recognition is similar to current standards, the Group will generally recognise a greater amount of contract costs
within revenue as opposed to its current practice of recognising within expenses.
NZ IFRS 16 Leases
NZ IFRS 16 Leases supersedes NZ IAS 17 Leases and prescribes how Mercury will recognise, measure, present and disclose leases.
NZ IFRS 16 will bring most leases on-balance sheet with the aim of providing more transparency around the impact of leases on the Group.
The standard provides a single lease accounting model, requiring the recognition of assets and liabilities for all leases unless the lease term
is 12 months or less or the underlying asset has a low value.
The presentation of Mercury’s financial statement will be significantly impacted by NZ IFRS 16. Operating leases with a term of greater than
one year (as shown in note 18) will be recognised on the balance sheet as right-of-use assets and lease liabilities. An additional interest
expense relating to the lease liability will be recognised over the lease term, and the right-of-use asset will be depreciated via the income
statement.
At the date of adoption, the Group will have leases relating mainly to building accommodation, with terms of up to 13 years. The Group is also
party to long term arrangements that NZ IFRS 16 deems to contain a lease. Such agreements include the long term rights to access natural
resources for electricity generation.
Mercury intends to adopt NZ IFRS 16 for the year ended 30 June 2019 (early adoption), and the impact on the financial statements is
expected to be material.
12 // 13
NOTE 2. SEGMENT REPORTING
Identification of reportable segments
The operating segments are identified by management based on the nature of the products and services provided. Discrete financial
information about each of these operating businesses is reported to the Chief Executive, being the chief operating decision-maker, on at
least a monthly basis, who assesses the performance of the operating segments on a measure of EBITDAF. Segment EBITDAF represents
profit earned by each segment exclusive of any allocation of central administration costs, share of earnings of associates, change in fair
value of financial instruments, depreciation, amortisation, impairments, finance costs and tax expense. Operating segments are aggregated
into reportable segments only if they share similar economic characteristics.
Types of products and services
Energy Markets
The energy markets segment encompasses activity associated with the electricity production, electricity trading, and sale of energy and related
services and products to customers, and generation development activities.
Other Segments
Other operating segments that are not considered to be reporting segments are grouped together as “Other Segments”. Activities include
metering, sales of solar equipment, and international geothermal development and operations.
Unallocated
Represents corporate support services and related elimination adjustments.
Inter-segment
Transactions between segments are carried out on normal commercial terms and represent charges by Other Segments to Energy Markets.
Segment results
June 2017
Total segment revenue
Direct costs
Other operating expenses
Segment EBITDAF
June 2016
Total segment revenue
Direct costs
Other operating expenses
Segment EBITDAF
Energy
Markets
$M
Other
Segments
$M
Unallocated
$M
Inter-
segment
$M
1,571
(881)
(133)
557
52
(6)
(19)
27
1
–
(62)
(61)
(27)
27
–
–
Energy
Markets
$M
Other
Segments
$M
Unallocated
$M
Inter-
segment
$M
1,541
(881)
(144)
516
51
(6)
(22)
23
2
–
(48)
(46)
(30)
30
–
–
Total
$M
1,597
(860)
(214)
523
Total
$M
1,564
(857)
(214)
493
During the reporting period, the group centralised a number of shared operating activities, resulting in a transfer of other operating expenses
from Energy Markets and Other Segments to Unallocated. Other activities historically undertaken by Other Segments and recharged to Energy
Markets are now conducted directly by Energy Markets. This is reflected by the movement in Inter-segment financials.
The Group has also adjusted historic other operating expenses of Other Segments to be reflected in direct costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 NOTE 3. NON STATUTORY MEASURE – UNDERLYING EARNINGS
Underlying earnings is presented to enable stakeholders to make an assessment and comparison of earnings after removing one-off and/or
infrequently occurring events (exceeding $10 million of net profit before tax), impairments and any changes in the fair value of derivative
financial instruments or any equity accounted share of changes in the fair value of derivative financial instruments.
Profit for the year
Change in the fair value of financial instruments
Equity accounted share of the change in the fair value of financial instruments of associate entities
Income attributable to land and associated real property sold or held-for-sale
Impairments
Adjustments before tax expense
Tax expense
Adjustments after tax expense
Underlying earnings after tax
Tax has been applied on all taxable adjustments at 28%.
NOTE 4. OTHER INCOME STATEMENT DISCLOSURES
Sales
Other revenue
Total revenue
Energy costs
Line charges
Other direct cost of sales, excluding third party metering
Direct costs of other revenue
Third party metering
Employee compensation and benefits
Maintenance expenses
Other expenses
Total expenses
Interest expense
Interest income
Net interest expense
2017
$M
184
(31)
(4)
–
18
(17)
9
(8)
176
2017
$M
1,552
45
1,597
(358)
(440)
(32)
(6)
(24)
(83)
(48)
(83)
(1,074)
(97)
2
(95)
2016
$M
160
(20)
–
(13)
19
(14)
6
(8)
152
2016
$M
1,511
53
1,564
(384)
(419)
(25)
(6)
(23)
(83)
(45)
(86)
(1,071)
(100)
3
(97)
Audit fees
Fees payable to EY for the audit and review of the financial statements were $580,000 (2016: $596,000). Non audit services in relation to NZ
remuneration benchmarking services were $26,000 (2016: $11,000). EY (US) also provided US tax compliance services in the amount of
$198,000 (2016: $305,000).
Impairments
Impairments of $18 million for the year ended 30 June 2017 included additional charges from the Group’s exit from its geothermal
development interests in Chile. Having completed all site restoration works the Group sold all its in-country entities at the end of FY2017,
recognising an additional $10m impairment in relation to its final in-country obligations, including the release of the group’s foreign exchange
losses previously recorded in the foreign currency translation reserve.
14 // 15
NOTE 5. SHARE CAPITAL AND DISTRIBUTION
The share capital of the Company is represented by 1,400,012,517 ordinary shares (2016: 1,400,012,517) issued and fully paid. The weighted
average number of shares on issue during the year, on both a basic and diluted basis, was 1,376,302,303 (2016: 1,376,076,400). These shares
do not have a par value, have equal voting rights and share equally in dividends and any surplus on winding up.
Treasury shares
Balance at the beginning of the year
Balance at the end of the year
Dividends declared and paid
Final dividend for 2015
Special dividend paid September 2015
Interim dividend for 2016
Final dividend for 2016
Special dividend paid September 2016
Interim dividend for 2017
2017
Number of
shares (M)
2017
$M
2016
Number of
shares (M)
24
24
52
51
Cents per
share
8.40
2.50
5.70
8.60
4.00
5.80
24
24
2017
$M
–
–
–
118
55
80
253
2016
$M
52
52
2016
$M
116
34
78
–
–
–
228
No imputation credits are available at 30 June 2017 (2016: $2.1 million) as the imputation credit account has a deficit of $24 million. The imputation
credit account is required to have a surplus balance at 31 March each year.
NOTE 6. TAXATION
Income Tax
(i) Tax expense
Profit before tax
Prima facie tax expense at 28% on the profit before tax
Increase/(decrease) in tax expense due to:
• share of associates’ and joint ventures’ tax paid earnings
• capital gain
• non-deductible impairments
• other differences
• recognition of deferred tax on powerhouse assets
Tax expense attributable to profit from ordinary activities
Represented by:
Current tax expense
Deferred tax recognised in the income statement
The tax expense charged to the income statement includes both the current year’s provision and the income tax effect of:
•
• deductible temporary differences to the extent that it is probable that they will be utilised.
taxable temporary differences, except those arising from initial recognition of goodwill; and
2017
$M
258
(72)
2
1
(4)
(1)
–
(74)
(80)
6
2016
$M
218
(61)
1
4
(5)
1
2
(58)
(67)
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 Deferred Tax
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax and accounting bases of the
Group’s assets and liabilities. A deferred tax asset is only recognised to the extent that there will be future taxable profit to utilise the
temporary difference.
Property, plant and equipment is held on capital account for income tax purposes. Where assets are revalued, with no similar adjustment to
the tax base, a taxable temporary difference is created that is recognised in deferred tax. The deferred tax liability on these revaluations is
unlikely to crystallise in the foreseeable future under existing income tax legislation.
(i) Recognised deferred tax assets and liabilities
Property, plant and equipment
Financial instruments
Employee benefits and provisions
Other
(ii) Movement in deferred tax
Balance as at 1 July 2015
Charged/(credited) to the income statement
Charged/(credited) to other comprehensive income
Other movements
Balance as at 30 June 2016
Balance as at 1 July 2016
Charged/(credited) to the income statement
Charged/(credited) to other comprehensive income
Other movements
Balance as at 30 June 2017
Assets
2017
$M
Assets
2016
$M
Liabilities
2017
$M
Liabilities
2016
$M
–
29
2
14
45
–
51
2
12
65
(1,156)
–
–
–
(1,156)
(1,158)
–
–
–
(1,158)
Net
2017
$M
(1,156)
29
2
14
(1,111)
Property,
plant and
equipment
$M
Financial
instruments
$M
Employee
entitlements
$M
Other
$M
(1,136)
13
(38)
3
(1,158)
(1,158)
17
(15)
–
(1,156)
42
(5)
16
(2)
51
51
(10)
(11)
(1)
29
2
–
–
–
2
2
–
–
–
2
–
1
8
3
12
12
(1)
–
3
14
Net
2016
$M
(1,158)
51
2
12
(1,093)
Total
$M
(1,092)
9
(14)
4
(1,093)
(1,093)
6
(26)
2
(1,111)
Tax deductions for building depreciation were disallowed by the Inland Revenue from 1 July 2011. Since then, the Group has maintained the
view that both hydro-electric and geothermal powerhouse assets are plant and not buildings and therefore should not be captured by this
change. Inland Revenue has accepted the Group’s view in respect of hydro-electric powerhouse assets, but not in respect of geothermal
powerhouse assets.
During the year, the Group filed proceedings with the High Court to challenge the Inland Revenue’s position in relation to geothermal
powerhouse assets. In the event the Group is unsuccessful, this could result in an additional deferred tax liability (and tax expense) of up to
$6 million at that time.
NOTE 7. INVENTORIES
Cost is determined on a weighted average basis and includes expenditure incurred in acquiring inventories and bringing them to their final
condition and location. Consumable stores of $28 million (2016: $31 million) are held to service and repair operating plant. Meter stock of
$11 million (2016: $14 million) is held in inventory until it is deployed into the field at which time it is transferred into property, plant and equipment.
16 // 17
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Year ended 30 June 2016
Opening net book value
Additions, including transfers from capital work in progress
Disposals
Transfer from held-for-sale
Net revaluation movement
Impairments
Depreciation charge for the year
Closing net book value
Balance at 30 June 2016
Cost or valuation
Accumulated depreciation
Net book value
Year ended 30 June 2017
Opening net book value
Additions, including transfers from capital work in progress
Net revaluation movement
Impairments
Depreciation charge for the year
Closing net book value
Balance at 30 June 2017
Cost or valuation
Accumulated depreciation
Net book value
Generation
assets at
fair value
$M
Meters
at cost
$M
Other
assets
at cost
$M
Capital work
in progress
at cost
$M
5,244
30
–
3
137
(1)
(144)
5,269
5,269
–
5,269
5,269
78
52
(4)
(154)
5,241
5,241
–
5,241
65
7
–
–
–
–
(12)
60
167
(107)
60
60
5
–
–
(12)
53
172
(119)
53
53
21
–
–
–
(18)
(11)
45
132
(87)
45
45
4
–
–
(10)
39
131
(92)
39
54
13
(1)
–
–
–
–
66
66
–
66
66
23
–
–
–
89
89
–
89
Total
$M
5,416
71
(1)
3
137
(19)
(167)
5,440
5,634
(194)
5,440
5,440
110
52
(4)
(176)
5,422
5,633
(211)
5,422
Assets carrying values
The cost of property, plant and equipment purchased comprises the consideration given to acquire the assets plus other directly attributable
costs incurred in bringing the assets to the location and condition necessary for their intended use.
The cost of property, plant and equipment constructed by the Group, including capital work in progress, includes the cost of all materials used
in construction, associated direct labour and an appropriate proportion of variable and fixed overheads. Financing costs attributable to a
project are capitalised at the Group’s specific project finance interest rate, where these meet certain time and monetary materiality limits.
Costs of testing whether the assets are functioning properly, after deducting the net proceeds from power generation, are also capitalised.
Costs cease to be capitalised as soon as an asset is ready for productive use.
Costs incurred in obtaining resource consents are capitalised and recognised as a non-current asset where it is probable they will give rise to
future economic benefits. These costs are depreciated over the life of the consent on a straight-line basis.
Generation plant and equipment is measured at fair value less accumulated depreciation. Any surplus on revaluation of an individual item of
property, plant and equipment is transferred directly to the asset revaluation reserve unless it offsets a previous decrease in value recognised
in the income statement, in which case it is recognised in the income statement. A deficit on revaluation of an individual item of property,
plant and equipment is recognised in the income statement in the period it arises where it exceeds any surplus previously transferred to the
asset revaluation reserve. Any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the
asset and the net amount is restated to the revalued amount of the asset. Additions to property, plant and equipment stated at valuation
subsequent to the most recent valuation are recorded at cost. All other items of property, plant and equipment are recorded at cost less
depreciation and impairments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 Assets carried at fair value
All generation assets shown at valuation (except Resource Management Act consents) were revalued using a net present value methodology
by PricewaterhouseCoopers, an independent valuer, as at 30 June 2017. This resulted in an increase to the carrying value of the Group's
geothermal generation assets of $52 million in the current year. This is in addition to the $139 million revaluation increase recognised across
the Group's hydro and geothermal generation assets in 2016. As a consequence of the revaluation, accumulated depreciation on these
geothermal assets has been reset to nil.
The key assumptions that are used in the valuation include the forecast of the future wholesale electricity price path, volumes, projected
operational and capital expenditure, capacity and life assumptions and discount rate. In all cases there is an element of judgement required
as they make use of unobservable inputs including wholesale electricity prices of between $70/MWh and $104/MWh (2016: $66/MWh and
$102/MWh), average operational expenditure of $158 million p.a. (2016: $149 million p.a.), net average production volumes of 6,567/GWh p.a.
(2016: 6,560/GWh p.a.) and a post-tax discount rate of between 7.5% and 7.9% (2016: 7.4% and 7.9%). The valuation also assumed the
on-going operation of New Zealand Aluminium Smelters Limited at Tiwai Point and that the current regulatory environment (including the
cost of fuel) is maintained. The discounted cash flow valuation approach assumes 100% control and consequently a control premium should
be applied if using an equity valuation technique to derive comparative asset values.
The following table outlines the valuation impact of changes to assumptions, keeping all other valuation inputs constant, that the valuation
is most sensitive to.
Future wholesale electricity price path
Discount rate
Operational expenditure
Sensitivity
Valuation impact
2017
$M
2016
$M
+/– 10% $781 / ($790) $786 / ($790)
($521) / $624
+/– 0.5% ($502) / $599
($237) / $238
+/– 10% ($231) / $231
The carrying amount of revalued generation assets, had they been recognised at cost, would have been $1,978 million (2016: $1,974 million).
Depreciation
Depreciation is provided on a straight-line basis on all property, plant and equipment other than freehold land, capital work in progress and
exploration and evaluation assets, so as to write down the assets to their estimated residual value over their expected useful lives.
The annual depreciation rates are as follows:
Office fixture and fittings, including fitout
Generation assets:
• Hydro and thermal generation
• Other generation
Meters
Computer hardware and tangible software
Other plant and equipment
Vehicles
2017
2016
2–50%
2–50%
1–33%
2–33%
3–33%
5–50%
2–50%
5–33%
1–33%
2–33%
3–33%
5–50%
2–50%
5–33%
18 // 19
NOTE 9. INTANGIBLE ASSETS
Year ended 30 June 2016
Opening net book value
Additions
Amortisation for the year
Closing net book amount
Balance at 30 June 2016
Cost
Accumulated amortisation
Net book value
Year ended 30 June 2017
Opening net book value
Additions
Disposals
Impaired assets
Amortisation for the year
Closing net book amount
Balance at 30 June 2017
Cost
Accumulated amortisation
Net book value
Intangible
software
$M
Rights
$M
Emissions
units
$M
25
5
(13)
17
128
(111)
17
17
12
–
–
(12)
17
140
(123)
17
23
1
(1)
23
34
(11)
23
23
1
–
(1)
(1)
22
34
(12)
22
22
6
–
28
28
–
28
28
7
(21)
–
–
14
14
–
14
Total
$M
70
12
(14)
68
190
(122)
68
68
20
(21)
(1)
(13)
53
188
(135)
53
Software
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use. These costs are amortised
over their remaining estimated useful lives of between 2 to 15 years (2016: between 2 to 15 years). As these assets are deemed to have a finite
life, impairment testing will only be performed when there is an indication that the intangible asset may be impaired.
Rights
Rights, of which land access rights are the most significant, acquired to further the Group’s generation development programme are stated at
cost less accumulated amortisation and any accumulated impairment losses. Rights, which have a finite life, are amortised over the life of the
rights, which range from 3 to 25 years (2016: 3 to 25 years). Testing for impairment will only arise when there is an indication that the asset
may be impaired.
Emissions units and emissions obligations
Emissions units that have been allocated by the Government under the Projects to Reduce Emissions scheme are recorded at nominal value
(nil value). Purchased emissions units are recorded at cost (purchase price). Emissions units, whether allocated or purchased, are recorded as
intangible assets. Emissions units are not revalued subsequent to initial recognition.
Emissions units that are surrendered to creditors in compensation for their emissions obligations are recognised as an expense in the income
statement and a reduction to intangible assets in the balance sheet, based on the weighted average cost of the units surrendered.
Emissions obligations are recognised as a current liability as the obligation is incurred. Up to the level of units held, the liability is recorded at
the carrying value of those units intended to settle the liability. Forward contracts for the purchase of emissions units are recognised when the
contracts are settled.
During the period the Group sold down 1.4 million carbon emission units, recognising a gain on disposal of $5 million and cash proceeds
of $26 million, reflected through cash flows from investing activities. The sale reflected the Group’s substantially-reduced carbon emission
obligations following the retirement of the Southdown station.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 NOTE 10. INVESTMENT AND ADVANCES TO ASSOCIATES AND JOINT ARRANGEMENTS
(JOINT VENTURES AND JOINT OPERATIONS)
The Group financial statements include the following:
Name of entity
TPC Holdings Limited
Rotokawa
Nga Awa Purua
Energy Source LLC
Hudson Ranch I Holdings LLC
Principal activity
Type
Investment holding
Steamfield operation
Electricity generation
Investment holding
Electricity generation
Associate
Joint operation
Joint operation
Joint venture
Joint venture
Interest held
2017
25.00%
64.80%
65.00%
20.86%
75.00%
Balance at the beginning of the year
Share of earnings
Share of movement in other comprehensive income
Distributions received during the year
Impaired advance to joint venture
Balance at the end of the year
Associates
2017
$M
77
6
(2)
(5)
–
76
2016
$M
73
3
6
(5)
–
77
2016
Country
25.00% New Zealand
64.80% New Zealand
65.00% New Zealand
20.86% United States
75.00% United States
Joint ventures
2017
$M
15
–
(12)
(2)
(1)
–
2016
$M
15
–
–
–
–
15
At the end of the year the Group had an outstanding advance to its Rotokawa joint venture partner in the amount of $8 million
(2016: $10 million). For terms and conditions of this related party receivable refer to note 17.
Due to the nature of the contractual arrangements that surround the joint venture entities, which allows for a reduction in the Group’s
economic interest once prescribed preferred returns have been achieved, the share of movements in earnings and reserves has been
calculated based on the Hypothetical Liquidation at Book Value method. This method more closely aligns the recognition of earnings
through time with the expected contractually agreed economic outcomes compared to the recognition of earnings based on a strict
percentage of ownership.
In compliance with the equity method under NZ IAS 28 – Investments in Associates and Joint Ventures, the Group has yet to recognise
its share of losses relating to Energy Source LLC amounting to US$3 million (2016: US$3 million).
20 // 21
NOTE 11. RECEIVABLES, PAYABLES AND ACCRUALS
Receivables
Trade receivables and accruals
Allowance for impairment loss
Net trade receivables and accruals
Prepayments
2017
$M
233
(2)
231
9
240
2016
$M
190
(2)
188
10
198
Revenue accruals for unread gas and electricity meters at balance date involves an estimate of consumption for each unread meter, based on
the customer’s past consumption history.
Trade receivables are non-interest bearing and are generally on 30 day terms. For terms and conditions of related party receivables refer to
note 17.
The Group recognises an allowance for impairment loss when there is objective evidence that the Group will not be able to collect amounts
due according to the original terms of the receivable. An allowance charge of $3 million (2016: $5 million) was recognised during the year.
Receivables of $3 million (2016: $5 million) which were deemed uncollectable were written off.
Receivables past due but not considered impaired:
Less than one month past due
Greater than one month past due
Payables and accruals
Trade payables and accruals
Employee entitlements
Sundry creditors
Trade payables are non-interest bearing and are normally settled on 30 to 60 day terms.
2017
$M
2016
$M
7
2
9
2017
$M
194
7
5
206
5
2
7
2016
$M
149
6
3
158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 NOTE 12. PROVISIONS
Balance at the beginning of the year
Provisions made during the year
Provisions used during the year
Discounting movement
Provisions transferred from held-for-sale liabilities
Balance at the end of the year
Current
Non-current
Provisions have been recognised for the abandonment and subsequent restoration of areas from which geothermal resources have been
utilised. The provision is calculated based on the present value of Management’s best estimate of the expenditure required, and the likely
timing of settlement. Changes in these estimates made during the year are reported as an increase in provisions and a reduction in
revaluation reserves. The increase in provision resulting from the passage of time (the discount effect) is recognised as an interest expense.
NOTE 13. BORROWINGS
Commercial paper programme
Wholesale bonds
Wholesale bonds
Wholesale bonds
Wholesale bonds
USPP – US$125m
Wholesale / credit wrapper
USPP – US$30m
Wholesale bonds
USPP – US$45m
Capital bonds
Deferred financing costs
Fair value adjustments
Carrying value of loans
Current
Non-current
Borrowing
currency
denomination
NZD
NZD
NZD
NZD
NZD
USD
NZD
USD
NZD
USD
NZD
Maturity
< 3 months
Oct–2016
Oct–2016
Mar–2019
Feb–2020
Dec–2020
Sep–2021
Dec–2022
Mar–2023
Dec–2025
Jul–2044
Coupon
Floating
7.55%
Floating
5.03%
8.21%
4.25%
Floating
4.35%
5.79%
4.60%
6.90%
2017
$M
75
–
–
76
31
164
301
39
25
58
305
(6)
39
1,107
83
1,024
1,107
2017
$M
2016
$M
54
1
(4)
3
–
54
1
53
54
14
54
(19)
2
3
54
3
51
54
2016
$M
–
71
51
76
31
164
301
39
25
58
305
(7)
63
1,177
130
1,047
1,177
22 // 23
NOTE 13. BORROWINGS (CONTINUED)
The Group has entered into a Master Trust Deed and Supplementary Trust Deeds for all its NZD denominated Senior Fixed and Floating
Rate Bonds with the New Zealand Guardian Trust Group Limited, acting as trustee for the holders. The Group has agreed, subject to certain
exceptions, not to create or permit to exist a security interest over or affecting its assets to secure indebtedness, and to maintain certain
financial covenants. There has been no breach of the terms of these deeds.
The Group has entered into a negative pledge deed in favour of its bank financiers in which the Group has agreed, subject to certain
exceptions, not to create or permit to exist a security interest over or affecting its assets to secure its indebtedness, and to maintain certain
financial ratios in relation to the Group. These undertakings and covenants also apply to the US Private Placement terms and conditions.
There has been no breach of the terms of this deed or the terms and conditions of the US Private Placement.
The Group has $350 million of committed and unsecured bank loan facilities, of which $200 million expires in August 2018, $50 million
expires in September 2019 and a rolling bank loan of $100 million currently expiring in December 2018.
The Group has a $200 million Commercial Paper programme which is fully backed by committed and undrawn bank facilities. Notes issued
under the programme are short-term money market instruments, unsecured and unsubordinated and targeted at professional investors.
The programme is rated A2 by Standard & Poor‘s.
NOTE 14. FINANCIAL RISK MANAGEMENT
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to proactively manage these
risks with the aim of protecting shareholder wealth. Exposure to price, credit, foreign exchange, liquidity and interest rate risks arise in the
normal course of the Group’s business. The Group’s principal financial instruments comprise cash and cash equivalents, trade receivables and
accruals (not prepayments), advances, payables and accruals, borrowings and derivative financial instruments.
(A) MARKET RISK
Price risk – energy contracts
The Group enters into energy contracts that establish a fixed price at which future specified quantities of electricity are purchased and sold.
The energy contracts are periodically settled with any difference between the contract price and the spot market price settled between the
parties. At balance date, the principal value of energy contracts, including both buy and sell contracts, with remaining terms of up to 14 years
(2016: 15 years), were $1,674 million (2016: $1,975 million).
Foreign exchange risk
The Group is exposed to foreign exchange risk as a result of transactions denominated in a currency other than the Group’s functional
currency. The currencies giving rise to this risk are primarily US Dollar, Japanese Yen and Euro.
Foreign exchange risk arises from future commercial transactions (including the purchase of capital equipment and maintenance services),
recognised assets and liabilities (including borrowings) and net investments in foreign operations. It is the Group’s policy to enter into forward
exchange contracts to hedge its committed expenditure programme. At balance date the principal or contract amounts of foreign currency
forward exchange contracts were $42 million (2016: $53 million).
Interest rate risk
The Group has exposure to interest rate risk to the extent that it borrows for fixed terms at floating interest rates. The Group manages its cost
of borrowing by limiting the ratio of fixed to floating rate cover held. The Group uses interest rate swaps and interest rate options to manage
this exposure. At balance date, the contract principal amount of interest rate swaps outstanding (including forward starts) was $2,976 million
(2016: $3,051 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 Sensitivity analysis
The following summarises the potential impact of increases or decreases in the relevant market risk exposures of the Group on post tax profit
and on other components of equity. The analysis does not take into account dynamic market response over time, which could be material.
Price risk
Sensitivity analysis is based on an assessment of the reasonably possible movements in forward price.
Group
Electricity forward price increased by 10%
Electricity forward price decreased by 10%
Impact on post tax profit
Impact on equity
2017
$M
2016
$M
(6)
6
(4)
4
2017
$M
(34)
33
2016
$M
(36)
36
Foreign exchange risk
Sensitivity analysis is based on the impact of the New Zealand Dollar weakening or strengthening against the most significant currencies for
which the Group has foreign exchange exposure, allowing for reasonably possible movements in foreign exchange rates over a one year period
based on the average actual movements experienced over the prior 10 years.
New Zealand Dollar – United States Dollar
Currency strengthens by 10%
Currency weakens by 10%
New Zealand Dollar – Euro
Currency strengthens by 10%
Currency weakens by 10%
Impact on post tax profit
Impact on equity
2017
$M
2016
$M
2017
$M
2016
$M
–
–
–
–
–
–
–
–
–
–
(2)
2
(1)
1
(2)
3
Interest rate risk
Sensitivity analysis is based on an assessment of the reasonably possible movement in the 10 year swap rate over a one year period based on
actual movements over the last 10 years. The movement in post tax profits are due to higher/lower interest costs from variable rate debt and
cash balances combined with the result of fair value changes in interest rate swaps and options that are valid economic hedges but which do
not qualify for hedge accounting under NZ IAS 39. The movements in other components of equity result from fair value changes in interest
rate swaps and options that have qualified for hedge accounting.
Interest rates higher by 100 bps
Interest rates lower by 100 bps
Impact on post tax profit
Impact on equity
2017
$M
(2)
2
2016
$M
2
(2)
2017
$M
19
(20)
2016
$M
19
(21)
24 // 25
NOTE 14. FINANCIAL RISK MANAGEMENT (CONTINUED)
(B) CREDIT RISK
The Group manages its exposure to credit risk under policies approved by the Board of Directors. The Group performs credit assessments on
all electricity customers and normally requires a bond from commercial customers who have yet to establish a suitable credit history.
Customer bonds are held in a separate bank account.
It is the Group’s policy to only enter into derivative transactions with banks that it has signed an ISDA master agreement with, and which have
a minimum long-term Standard & Poor’s (or Moody’s equivalent) credit rating of A– or higher.
With respect to energy contracts, the Group has potential credit risk exposure to the counterparty dependent on the current market price
relative to contracted price until maturity.
In the event of a failure by a retailer to settle its obligations to the Energy Clearing House, following the exhaustion of its prudential security, a
proportionate share of the shortfall will be assumed by all generator class market participants. The Group consequently will be impacted in the
event that this occurs.
The carrying amounts of financial assets recognised in the balance sheet best represent the Group’s maximum exposure to credit risk at the
reporting date without taking account of any collateral held by way of customer bonds.
(C) LIQUIDITY RISK
The Group manages its exposure to liquidity risk under policies approved by the Board of Directors. Policies require that prescribed headroom
is available in undrawn and committed facilities to cover unanticipated needs and that a limited amount of facilities mature over the
immediate 12 month forward-looking period. The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of various funding sources.
Non-derivative financial liabilities
The following liquidity risk disclosures reflect all contractually fixed payoffs, repayments and interest from recognised non-derivative financial
liabilities. The timing of cash flows for non-derivative financial liabilities is based on the contractual terms of the underlying contract. It should
be noted that the amounts presented are contractual undiscounted cash flows, consequently the totals will not reconcile with the amounts
recognised in the balance sheet.
While the tables below give the impression of a liquidity shortfall, the analysis does not take into account expected future operating cash flows
or committed and undrawn debt facilities that will provide additional liquidity support.
June 2017
Liquid financial assets
Cash and cash equivalents
Receivables
Financial liabilities
Payables and accruals
Loans
Net inflow/(outflow)
Less than
6 months
$M
6 to 12
months
$M
1 to 5
years
$M
Later than
5 years
$M
30
240
270
(202)
(99)
(301)
(31)
–
–
–
–
(24)
(24)
(24)
–
–
–
(4)
(976)
(980)
(980)
–
–
–
–
(134)
(134)
(134)
Total
$M
30
240
270
(206)
(1,233)
(1,439)
(1,169)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017
Less than
6 months
$M
6 to 12
months
$M
1 to 5
years
$M
Later than
5 years
$M
June 2016
Liquid financial assets
Cash and cash equivalents
Receivables
Financial liabilities
Payables and accruals
Loans
Net inflow/(outflow)
46
198
244
(156)
(148)
(304)
(60)
–
–
–
–
(24)
(24)
(24)
–
–
–
(2)
(710)
(712)
(712)
Total
$M
46
198
244
–
–
–
–
(442)
(442)
(158)
(1,324)
(1,482)
(442)
(1,238)
Derivative financial liabilities
The table below details the liquidity risk arising from derivative liabilities held by the Group at balance date. Net settled derivatives include
interest rate derivatives and electricity price derivatives. Gross settled derivatives relate to foreign exchange derivatives that are used to hedge
future purchase commitments. Foreign exchange derivatives may be rolled on an instalment basis until the underlying transaction occurs.
While the maturity of these derivatives are short-term the underlying expenditure is forecast to occur over different time periods. The table
also summarise the payments that are expected to be made in relation to derivative liabilities. The Group also expects to receive funds relating
to derivative asset settlements. The expectation of cash receipts in relation to derivative assets should also be considered when assessing the
ability of the Group to meet its obligations.
June 2017
Derivative liabilities – net settled
Derivative liabilities – gross settled
Inflows
Outflows
Net maturity
June 2016
Derivative liabilities – net settled
Derivative liabilities – gross settled
Inflows
Outflows
Net maturity
Less than
6 months
$M
6 to 12
months
$M
1 to 5
years
$M
Later than
5 years
$M
(54)
41
(42)
(55)
(31)
–
–
(31)
(62)
–
–
(62)
(25)
–
–
(25)
Less than
6 months
$M
6 to 12
months
$M
1 to 5
years
$M
Later than
5 years
$M
Total
$M
(172)
41
(42)
(173)
Total
$M
(37)
(29)
(130)
(127)
(323)
49
(53)
(41)
–
–
(29)
–
–
(130)
–
–
(127)
49
(53)
(327)
26 // 27
NOTE 14. FINANCIAL RISK MANAGEMENT (CONTINUED)
(D) FAIR VALUE ESTIMATION
Fair values
The carrying amount of financial assets and liabilities recorded in the financial statements approximates their fair values except for: (i) the
Fixed Rate Bonds, the Floating Rate Bonds and the US Private Placement, the fair values for which have been calculated at $140 million
(2016: $216 million), $287 million (2016: $339 million) and $289 million (2016: $306 million) respectively; and (ii) the Capital Bonds, the fair
value for which has been calculated at $317 million (2016: $321 million). Fair values are based on quoted market prices and inputs for each
bond issue.
Valuation techniques
The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise:
•
•
Level 1 – the fair value is calculated using quoted prices in active markets;
Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices); and
Level 3 – the fair value is estimated using inputs that are not based on observable market data.
•
As at 30 June 2017 all of the Group’s financial instruments carried at fair value were categorised as level 2, except for electricity price
derivatives. Electricity price derivative assets of $8 million were categorised as level 1 (2016: $8 million) and $63 million were categorised as
level 3 (2016: $77 million). Electricity price derivative liabilities of $6 million were categorised as level 1 (2016: $2 million) and $55 million were
categorised as level 3 (2016: $89 million).
Financial instruments that are measured using a valuation technique with only observable market inputs, or unobservable inputs that are not
significant to the overall valuation, include interest rate derivatives and foreign exchange derivatives not traded on a recognised exchange.
Financial instruments that use a valuation technique which includes non-market observable data include non-exchange traded electricity
contracts which are valued using a discounted cash flow methodology using a combination of ASX market prices for the first three years,
combined with Management’s internal view of forward prices for the remainder of the contract’s term. Management’s internal view of forward
prices incorporates a minimum price of $70/MWh and a maximum price of $104/MWh (2016: minimum price of $66/MWh and a maximum
price of $102/MWh) over the period in question (in real terms) and is determined by a demand supply based fundamental model which takes
account of current hydrological conditions, future inflows, an assessment of thermal fuel costs, anticipated demand and supply conditions
and future committed generation capacity.
Where the fair value of a derivative is calculated as the present value of the estimated future cash flows of the instrument there are two key
inputs being used: the forward price curve and the discount rate. Where the derivative is an option, then the volatility of the forward price is
another key input. The selection of inputs requires significant judgement, and therefore there is a range of reasonably possible assumptions in
respect of these inputs that could be used in estimating the fair values of these derivatives. Maximum use is made of observable market data
when selecting inputs and developing assumptions for the valuation technique.
Level 3 sensitivity analysis
The following summarises the potential impact of increases or decreases in price risk exposures of the Group on post tax profit. Sensitivity
analysis is based on an assessment of the reasonably possible movements in forward price.
Group
Electricity forward price increased by 10%
Electricity forward price decreased by 10%
Impact on post tax profit
2017
$M
2016
$M
1
(1)
(2)
2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 Reconciliation of level 3 fair value movements
Opening balance
New contracts
Matured contracts
Gains and losses
Through the income statement
Through other comprehensive income
Closing balance
2017
$M
(12)
–
(1)
(4)
24
7
2016
$M
–
2
(1)
(3)
(10)
(12)
Level 3 fair value movements recognised within the income statement of the Group are recognised within ‘change in the fair value of financial
instruments’.
Deferred ‘inception’ gains/(losses)
There is a presumption that when derivative contracts are entered into on an arm’s length basis, fair value at inception would be zero. The
contract price of non exchange traded electricity derivative contracts are agreed on a bilateral basis, the pricing for which may differ from the
prevailing derived market price curve for a variety of reasons. In these circumstances an inception adjustment is made to bring the initial fair
value of the contract to zero at inception. This inception adjustment is amortised over the life of the contract by adjusting the future price path
used to determine the fair value of the derivatives by a constant amount to return the initial fair value to zero.
The table below details the movements in inception value gains/(losses) included in the fair value of derivative financial assets and liabilities
as at 30 June.
Electricity price derivatives
Opening deferred inception gains
Deferred inception gains on new hedges
Deferred inception (losses)/gains realised during the year
Closing inception gains
2017
$M
(14)
3
(5)
(16)
2016
$M
15
(21)
(8)
(14)
28 // 29
NOTE 14. FINANCIAL RISK MANAGEMENT (CONTINUED)
(E) CAPITAL RISK MANAGEMENT
Management seeks to maintain a sustainable financial structure for the Group having regard to the risks from predicted short and medium-
term economic, market and hydrological conditions along with estimated financial performance. Capital is managed to provide sufficient
funds to undertake required asset reinvestment as well as to finance new generation development projects and other growth opportunities to
increase shareholder value at a rate similar to comparable private sector companies.
In order to maintain or adjust the capital structure, changes may be made to the amount paid as dividends to shareholders, capital may be
returned or injected or assets sold to reduce borrowings.
Consistent with other companies in the industry, the Group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt
divided by total capital. Net debt is calculated as total borrowings (both current and non-current) less cash and cash equivalents. Total capital
is calculated as shareholders’ equity plus net debt. The gearing ratio is calculated below:
Borrowings at carrying value
Fair value adjustments US Private Placement
Less cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
2017
$M
1,107
(39)
(30)
1,038
3,308
4,346
2016
$M
1,177
(63)
(46)
1,068
3,315
4,383
23.9%
24.4%
Under the negative pledge deed in favour of its bank financiers the Group must, in addition to not exceeding its maximum gearing ratio,
exceed minimum interest cover ratios and a minimum shareholder equity threshold.
The Group seeks to maintain a debt to EBITDAF ratio of less than 3.0 times to maintain credit metrics sufficient to support its credit rating on
an on-going basis. For the purpose of calculating this ratio and consistent with the rating agency treatment, the calculation of debt is deemed
to be all senior debt and 50% of subordinated debt. For the year ended 30 June 2017, the Group had a debt to EBITDAF ratio of 1.8 times
(2016: 2.0 times).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of derivative financial instruments together with the designation of their hedging relationship are summarised below, based on
maturity date:
CURRENT ASSETS
Interest rate derivative
Electricity price derivative
CURRENT LIABILITIES
Interest rate derivative
Electricity price derivative
Foreign exchange derivative
Cross currency interest rate derivative
NON-CURRENT ASSETS
Interest rate derivative
Electricity price derivative
Cross currency interest rate derivative
NON-CURRENT LIABILITIES
Interest rate derivative
Cross currency interest rate derivative – margin
Electricity price derivative
2017
$M
2016
$M
8
10
18
29
18
1
1
49
27
61
23
111
90
5
44
139
9
12
21
9
8
4
–
21
43
74
45
162
179
5
83
267
The majority of interest rate derivatives, short-term low value foreign exchange derivatives, and short-term low value exchange traded energy
contracts, while economic hedges, are not designated as hedges under NZ IAS 39 but are treated as at fair value through profit and loss.
All other interest rate derivatives (predominantly forward starting derivatives), foreign exchange and electricity prices derivatives (except those
described below) are designated as cash flow hedges under NZ IAS 39.
Cross currency interest rate swaps, which are used to manage the combined interest and foreign currency risk on borrowings issued in foreign
currency, have been split into two components for the purpose of hedge designation. The hedge of the benchmark interest rate is designated
as a fair value hedge and the hedge of the issuance margin is designated as a cash flow hedge.
30 // 31
NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Electricity contracts not designated as hedges for accounting purposes
The Group has an electricity hedge contract with the Tuaropaki Power Company. The contract settles against a moving hedge index rather than
wholesale electricity prices.
Basis swaps: The Group has entered into a number of contracts to hedge wholesale electricity price risk between North and South Island
generically called basis swaps. The most significant is a contract with Meridian Energy which has a remaining life of 8 years.
The Group has entered into a contract-for-difference with Meridian Energy that is contingent on the continued operation of New Zealand
Aluminium Smelters Limited at Tiwai Point. The contract matures in 2030.
The changes in fair values of derivative financial instruments recognised in the income statement and other comprehensive income are
summarised below:
Income statement
Other comprehensive income
Cross currency interest rate derivatives
Borrowings – fair value change
Interest rate derivatives
Cross currency interest rate derivatives – margin
Electricity price derivatives
Foreign exchange rate derivatives
Ineffectiveness of cash flow hedges recognised in the income statement
Total change in fair value of financial instruments
Movement in cash flow hedge reserve
Opening balance
The effective portion of cash flow hedges recognised in the reserve
Amortisation of fair values1
The amount transferred to balance sheet
Equity accounted share of associates’ movement in other comprehensive income
Tax effect of movements
Closing balance
1 Amounts reclassified to the income statement recognised in amortisation
2017
$M
(23)
24
1
38
–
(9)
–
1
31
2016
$M
2017
$M
–
–
–
24
–
(4)
–
–
20
–
–
–
13
1
23
(1)
–
36
2017
$M
(76)
36
(1)
1
(2)
(11)
(53)
2016
$M
–
–
–
(39)
(1)
(10)
(4)
–
(54)
2016
$M
(37)
(54)
(1)
1
(1)
16
(76)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 NOTE 16. RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year
Items classified as investing or financing activities
• Net interest accrual
Adjustments for:
Depreciation and amortisation
Net loss on sale of property, plant and equipment
Net gain on disposal of emission units
Change in the fair value of financial instruments
Impaired assets
Income attributable to land and associated real property held-for-sale
Movement in effect of discounting on long-term provisions
Share of earnings of associate and joint venture companies
Other non-cash items
Net cash provided by operating activities before change in assets and liabilities
Change in assets and liabilities during the year:
• Increase in trade receivables and prepayments
• Decrease/(increase) in consumable inventories
• Increase/(decrease) in trade payables and accruals
• Increase/(decrease) in provision for tax
• Decrease in deferred tax
Net cash inflow from operating activities
2017
$M
184
2016
$M
160
1
–
189
2
(5)
(31)
18
–
2
(6)
(1)
353
(42)
3
40
26
(8)
372
182
2
–
(20)
19
(13)
2
(3)
1
330
(9)
(9)
(3)
(18)
(11)
280
32 // 33
NOTE 17. RELATED PARTY TRANSACTIONS
Majority shareholder
The majority shareholder of Mercury NZ Limited is the Government. All transactions with the Government and other entities wholly or partly
owned by the Government are on normal commercial terms. Transactions cover a variety of services including trading energy, postal, travel
and tax.
Transactions with related parties
Mercury NZ Limited has investments in subsidiaries, associates and joint arrangements, all of which are considered related parties.
As these are consolidated financial statements, transactions between related parties within the Group have been eliminated. Consequently,
only those transactions between entities which have some owners external to the Group have been reported below:
Associates
Management fees and service agreements received
Energy contract settlements (paid) received
Joint operations
Management fees and service agreements received
Energy contract settlements paid
Interest income
Payments for inventory
Transaction value
2017
$M
2016
$M
12
(1)
15
(9)
1
(1)
12
2
17
(7)
1
–
Energy contracts, management and other services are made on normal commercial terms.
An advance to TPC Holdings Limited of $4 million (2016: $4 million) is interest free and repayable on demand subject to certain conditions
being met.
The long-term advance to our Rotokawa Joint Venture partner carries a floating interest rate. Repayments under the advance are linked to the
level of receipts under the geothermal energy supply agreement. There is no fixed repayment date, the agreement will terminate on full
payment of the outstanding balance.
The advance to Energy Source LLC of $1 million (2016: $1 million) has been fully impaired as at 30 June 2017.
No other related party debts have been written off, forgiven, or any impairment charge booked.
Key management personnel compensation (paid and payable) comprised:
Directors’ fees
Benefits for the Chief Executive and Senior Management:
Salary and other short-term benefits
Termination benefits
Share-based payments
Transaction value
2017
$000
2016
$000
885
871
6,175
–
430
7,490
5,302
259
324
6,756
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017
Other transactions with key management personnel
Key management personnel are those people with responsibility and authority for planning, directing and controlling the activities of the entity.
Key management personnel for the Group are considered to be the Directors and Senior Management.
Directors and employees of the Group deal with Mercury NZ Limited as electricity consumers on normal terms and conditions, with staff
discounts for employees, within the ordinary course of trading activities. A number of key management personnel also provide directorship
services to other third party entities. A number of these entities transacted with the Group, in all circumstances on normal commercial terms
during the reporting period.
A number of key management personnel provide directorship services to direct subsidiaries and other third party entities as part of their
employment without receiving any additional remuneration. Again, a number of these entities transacted with the Group, in all circumstances
on normal commercial terms in the reporting period.
The Group purchases directors and officers insurance for the benefit of key management personnel in relation to the services they provide to
the Group.
NOTE 18. COMMITMENTS AND CONTINGENCIES
Commitments
Within one year
One to five years
Later than five years
Capital
Operating lease
Other operating
commitments
2017
$M
46
54
28
128
2016
$M
39
72
36
147
2017
$M
6
31
73
110
2016
$M
6
27
80
113
2017
$M
7
9
64
80
2016
$M
6
12
74
92
Capital commitments include both commitments to purchase property, plant and equipment as well as intangible commitments. Intangible
commitments include commitments to purchase emissions units. In the event the New Zealand emissions trading scheme (NZ ETS) is
terminated, the forward purchase agreements for the acquisition of emissions units which cover a 12 year period, will also terminate.
Operating leases are of a rental nature and are on normal commercial terms and conditions. The majority of the lease commitments are for
building accommodation, the leases for which have remaining terms of between 1 and 14 years and include an allowance for either annual,
biennial or triennial reviews. The remainder of the operating leases relate to vehicles, plant and equipment.
Contingencies
The Group holds land and has interests in fresh water and geothermal resources that are subject to claims that have been brought against
the Government. On 29 August 2014, the Supreme Court gave its decision in Paki v Attorney-General and dismissed the claimants’ action
seeking a declaration that the Government holds those parts of the bed of the Waikato River which adjoin former Pouakani land on trust for
the Pouakani people on the basis it was incorrectly advanced. The Supreme Court decision has left open the possibility of further litigation
in respect of ownership of that land currently held by the Group. The Group has received advice that it may proceed with a high degree of
confidence that future decisions on the matter will not impair the Group’s ability to operate its hydro assets. A separate claim by the
New Zealand Maori Council relating to fresh water and geothermal resources was lodged in 2012 with the Waitangi Tribunal. The Tribunal
concluded that Maori have residual (but as yet undefined) proprietary rights in fresh water and geothermal resources and it will be for the
Government to determine how any such rights and interests may best be addressed. The impact of this claim on the Group’s operations is
unknown at this time.
From time to time the Group will issue letters of credit and guarantees to various suppliers in the normal course of business. However, there
is no expectation that any outflow of resource relating to these letters of credit or guarantees will be required as a consequence.
The Group has no other material contingent assets or liabilities.
34 // 35
NOTE 19. SHARE-BASED PAYMENTS
Long-term incentive plan
The Group operates an equity-settled share based long-term incentive (LTI) plan for senior executives. The plan is designed to enhance the
alignment between shareholders and those executives most able to influence the performance of the Group. Under the plan the senior
executives purchase shares at market value funded by an interest free loan from the Group, with the shares held on trust by the Trustee of the
LTI plan until the end of the vesting period. Vesting of shares is dependent on continued employment through the vesting period and the
Group's relative total shareholder return. If the shares vest, executives are entitled to a cash amount which, after deduction for tax, is equal to
the initial loan balance for the shares which have vested. That cash amount must be applied towards repayment of their loan balance and the
corresponding shares are released by the trustee to the individual. The vesting periods for the plan are June 2017, June 2018 and June 2019.
Under the plan, a relative total shareholder return measure is used. Performance is measured against a combination of: i) other electricity
generators who were listed on the NZSX; and (ii) all NZX50 companies, both as at the start of the vesting period.
The LTI plan represents the grant of in-substance nil-price options to executives. During the year the Group expensed $430,375 in relation to
equity-settled share based payment transactions (2016: $324,251).
Movements in the number of share options are as follows:
Balance at the beginning of the year
Options granted
Options expired
Options exercised
Balance at the end of the year
2017
2016
493,912
286,118
(24,468)
(86,752)
668,810
567,363
243,980
(76,074)
(241,357)
493,912
182,957 options were exercisable at the end of the year (2016: 111,220) with the remaining options under the plan having a weighted average
life of 1.6 years (2016: 1.5 years).
NOTE 20. SUBSEQUENT EVENTS
The Board of Directors has approved a fully imputed final dividend of 8.8 cents per share to be paid on 29 September 2017. The Board of
Directors has also approved a fully imputed special dividend of 5.0 cents per share to be paid on 29 September 2017.
There are no other material events subsequent to balance date that would affect the fair presentation of these financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2017 GOVERNANCE AT MERCURY
At Mercury we are focused on the long term. This drives the way we do
business, our investment decisions, services to customers, development
of people and our partnerships with stakeholders.
The objective of our Corporate Governance framework is to give our
owners the confidence to choose Mercury. It sets out how our Board is
accountable to our owners for Mercury’s actions and performance, along
with the delegation of responsibilities to the Chief Executive and the
Executive Management Team (“EMT”). Through this framework we
create the objectives and direction for the business, identify and
manage our risks, strengthen our business culture and assess and
continuously improve our performance.
Shareholders
MERCURY BOARD
Risk Assurance and
Audit Committee
Human Resources
Committee
Nominations
Committee
Chief Executive
Executive Management Team
MERCURY PEOPLE
We are committed to maintaining the highest standards of corporate
governance, business behaviour and accountability and we regularly
review Mercury’s governance framework against national and
international guidelines. Accordingly, the Board adopts corporate
governance policies and practices reflecting contemporary standards in
New Zealand and Australia, incorporating corporate governance
recommendations issued by NZX Limited (“NZX”) and ASX Limited
(“ASX”).
Mercury’s corporate governance practices comply with the NZX
Corporate Governance Best Practice Code, the ASX Corporate
Governance Principles and Recommendations (third edition) (“ASX
Principles”) and the Financial Markets Authority Corporate Governance
Principles and Guidelines. As at 30 June 2017, we also largely comply
with the recently published NZX Corporate Governance Best Practice
Code 2017 (the only two exceptions relate to Recommendations 3.3
(Remuneration Committee) and 3.6 (Takeover Offer Protocol) and are
explained in this section and in our Corporate Governance Statement).
We have also reviewed guidelines from the New Zealand Corporate
Governance Forum, the IFC Global Corporate Governance Forum, and
the OECD and consider that our practices and procedures substantially
reflect these guidelines.
In this section, we give an overview of our engagement with investors,
our Board, how we manage risks, our commitment to act ethically and
responsibly and our approach to diversity and inclusion. Our full
Corporate Governance Statement is available in the corporate
governance section of our website at www.mercury.co.nz.
Engaging with Investors
To ensure our owners and stakeholders have the right information to
make good choices based on informed assessments of Mercury’s value,
we are committed to communicating effectively and providing
comprehensive relevant information.
Mercury runs a programme to build understanding and appropriate
measurement of Mercury’s performance among investors and research
analysts. The programme is founded on:
• being responsive;
• providing clear, accurate and timely disclosures;
• providing appropriate access to management and directors; and
• providing meaningful insight into the Company and industry.
Mercury believes effective engagement with investors will benefit both
Mercury and investors. As a result of investor feedback, Mercury’s
continued aim is to provide clearer communication of our strategic
direction, including articulating Mercury’s strategic priorities and how
these leverage Mercury’s competitive advantages.
In FY2017 Mercury has continued a number of initiatives to improve
communication with investors and other stakeholders:
• Website: The Investors section of our website contains a
comprehensive set of investor-related information and data.
Shareholders can direct questions and comments through the
website or contact the Head of Treasury and Investor Relations.
• Annual Shareholders’ Meeting: All shareholders are invited to attend
our ASM which is held at a time and location which aim to
maximise in person participation. We also webcast the meeting to
allow participation by those unable to attend the meeting in person.
• Annual and interim reports: Our periodic reporting provides an
excellent opportunity to communicate to our investors.
• Regular information disclosures: We continue to disclose important
information fully and transparently on the NZX and ASX
announcement platforms.
• Analyst and investor briefings and road shows: We held a number
of these in FY2017, including international road shows in December
2016 and May 2017. These roadshows are an effective way of
communicating with institutional investors. We also hold a capital
markets day every two years. The next one is scheduled for FY2018.
• Electronic communications: We encourage shareholders to provide
email addresses to enable them to receive shareholder materials
electronically. Communicating electronically is faster and more
cost-effective. Almost 75% of our shareholders have told us they
prefer to communicate in this way. We understand that this does not
suit everybody and so hard copy reports are provided on request to
shareholders who have not opted to receive documents
electronically.
We engaged with investors at a number of levels in FY2017. Highlights
included introducing investors to our new brand at the ASM and via our
new look annual report, and we undertook an expanded series of
international and domestic investor meetings which included
a governance road show by directors.
36 // 37
GOVERNANCE AT MERCURY
(CONTINUED)
Board Characteristics
R
e
t
a
il,
m
a
r
k
e
ti
n
D
i
g
i
t
i
s
a
t
i
o
n
/
T
e
c
h
n
o
l
o
g
y
Governance experience
g
a
n
d
b
r
a
n
d
e
x
p
e
ri
e
n
c
e
Large company leadership experience
e ri e
mittee
e r a ti o
a l e
x
c
p
n
n
e
p
S
L
L
I
K
S
u
d
c t ri c it y i n
E l e
s t r y o
Finance/Accounting/Audit Com
experience
e
c
n
e
i
r
e
p
x
e
d
n
a
e
g
d
e
l
w
o
n
k
y
r
o
t
a
l
u
g
e
R
Mercury’s Board
Composition
The Board currently comprises seven directors: Joan Withers (the Chair),
Prue Flacks, Andy Lark, James Miller, Keith Smith, Patrick Strange and
Mike Taitoko. Each of the directors is non-executive and independent.
Details of each director are available on the Leadership section of
Mercury’s website.
The Board supports the Institute of Directors’ Future Directors
Programme which offers candidates valuable experience sitting at the
board table of a New Zealand company for 12 or more months. The
programme is designed to increase the pipeline of board-ready younger
directors through giving them exposure to real-life governance in action
along with valuable mentorship. Our second and current future director,
Nicky Ashton, was selected in June 2016 and her tenure will come to an
end on 31 December 2017. Nicky participates in discussions in all Board
meetings but does not participate in decision making.
The Board is structured to ensure that, as a collective group, it has the
skills, experience, knowledge, diversity and perspective to fulfil its
purpose and responsibilities. The responsibilities of the Board are set out
in Mercury’s Board Charter, which is reviewed by the Board as required
and at least every two years, and is available in the corporate
governance section of our website.
The Board has three standing Committees: the Risk Assurance and
Audit Committee (“RAAC”), the Human Resources Committee and the
Nominations Committee. Each Committee focuses on specific areas of
governance and together they strengthen the Board’s oversight of
Mercury. The Board does not have a separate Remuneration Committee.
The functions that would ordinarily be allocated to the Remuneration
s
r
a
e
3 y
-
0
100%
75%
50%
25%
T
E
N
U
R
E
3- 6 ye ars
6+ years
Female
DIV
G
ERSITY
E
N
DER
0%
Male
I
n
e
n
n
o
t
r
v
a
e
p
r
t
i
o
e
n
n
e
a
n
u
r
i
d
a
g
l
i
s
r
o
m
w
t
h
,
25%
B
u
s
i
n
e
50%
s
s
s
t
r
a
t
e
g
y
e
x
p
e
r
i
e
n
c
e
75%
100%
We are committed to
the highest standards
of corporate governance,
business behaviour
and accountability.
Committee are shared between the Human Resources Committee in
respect of the Chief Executive and the EMT, and the Nominations
Committee in respect of the directors. The current members of the
Committees are as follows:
Committee
Members
Risk Assurance and Audit
Committee
Human Resources
Committee
Keith Smith (Chair), James Miller and Patrick
Strange. Joan Withers is also a member by virtue
of her position as Board Chair
Prue Flacks (Chair), Andy Lark and Mike Taitoko.
Joan Withers is also a member by virtue of her
position as Board Chair.
Nominations Committee
Joan Withers (Chair), Prue Flacks and James Miller.
Each Committee operates in accordance with a written Charter approved
by the Board and reviewed as required and at least every two years. The
Committee Charters are available in the corporate governance section of
our website. Mercury assesses on a regular basis whether additional
committees are required. As at the date of this statement, Mercury
considers that no other committees are required.
Skills and Reviewing Performance
The Nominations Committee has developed a Board skills matrix setting
out the mix of skills and diversity of the Board. The skills matrix is used
to evaluate whether the collective skills and experience of the directors
meet Mercury’s requirements both currently and into the future. If the
Board determines that new or additional skills are required, training is
completed or a formal recruitment process is undertaken.
>> LOREM IPSUM
The table below highlights those core skills highly correlated to executing the Company’s strategy.
Joan
Withers
Andy
Lark
James
Miller
Mike
Taitoko
Patrick
Strange
Prue
Flacks
Keith
Smith
Skill Attribute
Delivering Customer Advocacy
Digitisation/Technology
A detailed understanding of ICT and disruptive
technologies and their potential impact to
provide our customers with choice and freedom
Retail, marketing and brand experience
Senior experience in retail, marketing and brand
development as we seek to positively
differentiate our offering
Leveraging Core Strengths
Governance experience
Commitment to the highest standards of
governance and an ability to assess the
effectiveness of senior management
Large company leadership experience
Sustainable success in business at a senior
executive level
Electricity industry operational experience
Senior executive experience within the electricity
industry together with a deep understanding of
operational excellence
Finance/Accounting/Audit Committee
experience
Senior executive or board experience in financial
accounting and reporting, corporate finance and
internal financial controls
Regulatory knowledge and experience
An understanding of the evolving regulatory
environment in which we operate and the role
that plays in ensuring sustainable custodianship
of our assets and providing benefit to our
customers
Delivering Sustainable Growth
Business strategy experience
A track record of developing and implementing
a successful and sustainable strategy
Innovation and growth, entrepreneurialism
A track record of demonstrated
entrepreneurialism and/or demonstrated
understanding and commitment to innovation
and a clear record of achieving organisational
growth
Primary Skills
Secondary Skills
38 // 39
GOVERNANCE AT MERCURY (CONTINUED)
The Board, through the Nominations Committee, strives to ensure that
Mercury has the right mix of skills and experience it requires for Mercury
to achieve its strategic aims in a prudent and responsible manner. The
Board recognises that while it is important to have the right mix of skills,
the Board is also focused on ensuring that it continues to have the right
culture that takes advantage of, and benefits from, the diversity of skills,
backgrounds and experiences represented on the Board. The Board
fosters a culture of collaborative and open discussion where each
director as a high-performing individual is expected to make a valuable
contribution and to provide an alternative perspective, even where the
topic is outside that director’s attributed skills and experience. By
applying this philosophy, the Board as a collective unit exceeds the
individual contributions of its members.
Evaluations are regularly conducted to review the performance of the
Board and each director, and the effectiveness of Board processes and
committees. This is undertaken using a variety of techniques including
external consultants, questionnaires and Board discussion. The last full
Board performance review, with the assistance of an external facilitator,
was completed in November 2016. The Board also completed a
comprehensive analysis of the skills and tenure of the Board around
mid-2017.
Takeover Offer Protocols
Mercury has not established protocols that set out the procedure to be
followed if there is a takeover offer for Mercury and has not adopted any
alternative governance practices in lieu of those protocols. Mercury has
made this decision because, due to the restrictions on Mercury’s
ownership under the Public Finance Act 1989, no person other than the
Crown may have a relevant interest in more than 10% of Mercury’s
shares. As such, it is not practically possible for a takeover offer to be
made in respect of Mercury for so long as the Public Finance Act 1989
includes these restrictions.
Managing Risk and Assurance
Risk management is an integral part of Mercury’s business. Mercury has
in place an overarching Risk Management Policy (available in the
corporate governance section of Mercury’s website) supported by a suite
of risk management policies appropriate for its business which together
form our Risk Management framework.
The purpose of the Risk Management Policy is to embed a
comprehensive, holistic, Group-wide capability in risk management
which provides a consistent method of identifying, assessing,
controlling, monitoring and reporting existing and potential risks to
Mercury’s business and to the achievement of its plans. The Policy sets
out the risk management objectives and requirements of Mercury within
which management is expected to operate. The Policy is reviewed
annually by the RAAC and approved by the Board.
The Risk Management framework supports a comprehensive approach
to risk, encompassing financial, strategic, environmental, operational,
regulatory, reputational, social and governance risks. The framework
involves actively identifying and managing risk and taking measures to
reduce the likelihood of risk, contain potential hazards and take
mitigating action to reduce impacts in line with risk tolerances. This
approach is consistent with the precautionary principle.
Mercury has a Risk Assurance Officer who has the independence to
determine the effectiveness of risk management, assurance and internal
audit. The Risk Assurance Officer has a dual reporting line to the Chief
Financial Officer and the RAAC Chair. The RAAC tasks the Risk
Assurance Officer to ensure healthy and robust debate and interaction
between management, risk assurance and audit providers.
Mercury operates a Risk Management Committee, comprised of
representatives from the EMT and chaired by the Chief Executive. Its
mandate is to promote risk awareness and appropriate risk
management to all employees, and to monitor and review risk activities
as circumstances and our strategic and operational objectives change.
The Committee meets at least four times each year.
Mercury must accept some risks in order to achieve its strategic
objectives and to deliver shareholder value. These are embodied in
Mercury’s Risk Appetite Statements which are set and regularly reviewed
by the Board and are set out in more detail in Mercury’s Corporate
Governance Statement, available in the corporate governance section of
our website.
The RAAC is responsible for overseeing, reviewing and providing advice to
the Board on Mercury’s risk management policies and processes. The Risk
Assurance Officer reports regularly to the RAAC on the effectiveness of
Mercury’s management of material business risks. In addition, the RAAC
annually reviews the Risk Management framework. The last review of the
Risk Management framework took place in FY2017.
The Auditor–General is the external auditor of Mercury and each of its
subsidiaries (together, the “Group”), under the Public Audit Act 2001.
The Auditor–General has appointed Simon O’Connor of Ernst & Young
to carry out the FY2017 audit on his behalf. The NZX Main Board Listing
Rules require rotation of the lead audit partner at least every five years.
The next rotation is for the FY2019 audit. The provision of external audit
services is guided by the Audit Independence Policy which is available
on our website. The external auditor attends all RAAC meetings and
consistent with the Stakeholder Communications Policy, attends the
Annual Shareholders’ Meeting and is available to shareholders to answer
questions relevant to the audit.
Acting Ethically and Responsibly
At Mercury, doing what’s right is something all our people strive to
achieve. So our people know what the ‘right thing to do’ is, we have put
in place the Mercury Code which, along with our Mercury Attitudes,
Corporate Responsibility Policy and governance framework, set out the
standards of business culture and behaviour required to deliver our
strategy and achieve our Purpose of inspiring New Zealanders to enjoy
energy in more wonderful ways.
Attitudes
A Mercury employee is expected to apply three simple and powerful
attitudes. These shape our decisions, our actions and our interactions
with each other. Our Mercury attitudes align with our direction to achieve
our Purpose:
• Commit and Own it;
• Share and Connect; and
• Be Curious and Original.
>> LOREM IPSUM The Mercury Code and our Policy Framework
In April 2017, the Board adopted the Mercury Code (replacing our Code
of Ethics) which underpins everything we do. It requires all Mercury
people, including directors and employees, to act honestly and in
accordance with the highest standards of integrity and fairness at all
times, and to strive to foster those standards within Mercury. The
Mercury Code is available in the corporate governance section of our
website. The Mercury Code and associated policy framework underpin
our ethical and behavioural standards. They support our promises to
each other and define our commitment to our customers, our people
and communities and our investors.
Many of the key areas addressed in our policy framework are covered in
detail elsewhere in this report. This signals the importance of these
behaviours to our business. The following table shows where to find a
discussion on our initiatives relating to our customers and our people
and communities in this annual report and how these areas are dealt
with in our policy framework.
Customer
Area of focus
Energy
Freedom
Keeping our
customers safe
and connected
People and communities
Where to find out
more
Area of focus
Page 4
Pages 28-29
Stronger
Together
Diversity and
Inclusion
Where to find out
more
Pages 50-55
Pages 34-35,
The Mercury
Code, our
Diversity and
Inclusion Policy,
and our
Corporate
Responsibility
Policy
Pages 36-37
Enhanced
Natural
Resources
Pages 40-47
Wellbeing,
including
Health and
Safety
In addition, the following areas are of fundamental importance to
Mercury to ensure good governance and responsible business practices
are followed:
Our Governance and Responsible Business Practices
• Conflicts: Conflicts of interest must be avoided. Mercury people are
encouraged to discuss possible conflicts with their manager.
Mercury takes practical, preventative action wherever possible, for
example by substituting project managers in circumstances of
possible conflict with contractors and suppliers. All potential
conflicts of interest are declared prior to appointment and at each
Board meeting, including in relation to specific agenda items if
applicable.
• Bribery: The acceptance of bribes, including gifts or personal
benefits of material value which could reasonably be perceived as
influencing decisions, is prohibited under the Mercury Code. Under
Mercury’s Delegations Policy, donations to political parties are
prohibited.
• Use of Mercury Assets: The Mercury Code places restrictions on the
use of corporate information, assets and property. All persons
covered by the Code are encouraged to report any breach or
suspected breach of the Code.
• Whistleblowing: We provide a framework for the protection of
employees wishing to disclose serious wrongdoing. This is described
in Mercury’s Employee Rights under the Protected Disclosures Act
2000 statement, which was recently reinforced to employees in
August 2017. The framework is overseen by the RAAC.
Trading In Company Securities: Mercury’s Trading in Company
Securities Policy sets out the rules and restrictions relating to trading
in Mercury securities, including the prohibition on insider trading.
•
• Market Disclosures: Our Market Disclosure Policy ensures we
maintain a fully informed market through communication with the
markets, investors and stakeholders and by giving them equal and
timely access to material information.
• Corporate Responsibility: Our Corporate Responsibility Policy sets
out the core principles and values that promote ethical and
responsible decision making.
Diversity and Inclusion
Having a team of individuals with different backgrounds, views,
experience and capability working together leads to better business
performance. The value we place on diversity and inclusion is explained
in detail at page 34 of this report. Our commitment to diversity and
inclusion starts with our Diversity and Inclusion Policy and framework.
Our Policy is available in the corporate governance section of our
website.
Mercury’s progressive approach to diversity focuses on gender, age,
ethnicity, inclusion and flexibility. Activity is aligned to the following
principles:
•
•
increasing the diversity of our workforce at senior levels
creating a flexible and inclusive work environment that values
difference and enhances business outcomes
• harnessing diversity of thought and capitalising on individual
•
•
differences
leadership behaviours that reflect our belief in the value of diversity
and inclusion
retaining and attracting a talented workforce through increasing the
diversity of the candidate pool and maintaining a recruitment
strategy that is attractive to all candidates.
As noted on page 34, our progress against diversity and inclusion goals
is measured against measurable objectives set by the Board. These
measurable objectives are made up of a mixture of targets and
benchmarks. Generally, targets exist where we believe that achieving
diversity in that area is aided by us working towards a specific measure.
In other areas we use benchmarks where comparison against those
identified data points will help inform our view of how our work towards
diversity in that area is progressing.
40 // 41
GOVERNANCE AT MERCURY (CONTINUED)
Our performance against measurable objectives set by the Board for FY2017 is set out below:
Area of focus
Gender
Age
Ethnicity
Objective
Target
Improve representation of
women at senior leadership
levels
Employees
Leaders
EMT
Board
Actual
2020
38%
Employees
33%
Leaders
33%
EMT
33%
Board
2017
37%
28%
28%
33%
2017
41%
30%
22%
29%
Work towards an age profile for
our team that is suitable for our
business taking into account
the population that we work in
Benchmark against the national median
age of the labour force in the
New Zealand National Labour Force
Projections.
Our average age across the workforce is 41,
which is consistent with the national median
age of the labour force in the New Zealand
National Labour Force Projections
Work towards aligning the
ethnicity of our team with the
population and communities
that we work in
Benchmark against National Statistics
(Census data) that show the ethnicity of
the population and communities that
we work in
Ensure that our leadership
reflects the diversity of our
teams
Targeting ethnicity distribution of our
Leader population equal to the ethnicity
distribution of the total company
Inclusion
Flexibility
Ensure that our team are
supported to do their best work
and they engage fully as part of
our team
Targeting better performance than the
Average Large Organisation score for
this question of 72%
Facilitate flexible workplace
arrangements to enable
employees to balance
responsibilities appropriately
Targeting better performance than the
Average Large Organisation score for
this question of 80%
* Mercury 2017 Ethinicity data based on responses to Mercury’s 2017 Employee Engagement Survey.
At the balance date, the proportion of women on the EMT (including the Chief Executive) was 22%, or two out of nine (as at 30 June 2016 this was
22% or two out of nine). The proportion of women on the Board at balance date was 29% or two out of seven, including the Chair (as at 30 June 2016
this was 25% or two out of eight).
Based on the above, the Board believes that for this reporting period Mercury has made good progress towards achieving its diversity and
inclusiveness objectives and against its Diversity Policy generally.
Ethnicity
NZ European (352)
Maori (34)
Pacific (64)
Asian (122)
Other European (57)
Other (69)
Not selected
Ethnicity
NZ European (352)
Maori (34)
Pacific (64)
Asian (122)
Other European (57)
Other (69)
Not selected
Mercury
2017
Ethnicity*
NZ
Population
2013 Census
44%
4%
8%
16%
7%
9%
12%
Mercury
2017
Ethnicity*
44%
4%
8%
16%
7%
9%
12%
69%
13%
7%
9%
n/a
2%
n/a
Mercury
People
Leaders by
Ethnicity
62%
3%
3%
8%
11%
6%
7%
In response to our 2017 Employee Engagement
Survey, 80% of employees confirm that they are
treated fairly, regardless of age, ethnicity, gender
or physical capabilities, compared to 2016 All
NZ Organisations Benchmark of 77% and NZ
Average Large Organisation Benchmark of 72%
In response to our 2017 Employee Engagement
Survey, 87% of employees confirm that they
have the freedom and flexibility to do their job
effectively, compared to 2016 All NZ
Organisations Benchmark of 84% and NZ
Average Large Organisation Benchmark of 80%
>> LOREM IPSUM DIRECTOR AND EXECUTIVE EMPLOYEE REMUNERATION
Mercury’s Board is committed to a remuneration framework that
promotes a high performance culture and aligns executive reward to the
achievement of strategies and objectives to create sustainable value for
shareholders.
A proportion (80% for the Chief Executive, 50% for other EMT
members) of the STI is related to a shared set of KPIs based on
business priorities for the next 12 months, with the objective of aligning
the EMT’s focus to the company’s priorities.
The shared KPIs in FY2017 covered the areas of finance, customer,
health and safety and people with respective weightings applied across
areas as outlined below. The financial KPI is normalised for positive and
negative annual variations in hydrology as these are beyond
managements’ control. The criteria are selected to closely align with
Mercury’s strategic objectives, purpose and goal and in FY2018 the
weightings are being adjusted as shown, to capture the importance of
community ‘licence to operate’ in the long term performance of
Mercury.
Target area
FY2017 Weighting % FY2018 Weighting %
Financial: EBITDAF1
People
Customer
Wellbeing
Long-term Platform
30
20
30
20
N/A
30
20
20
20
10
Note 1: EBITDAF is normalised for positive and negative annual variations in Waikato
hydro generation.
There are three performance levels within each target area, ‘threshold’,
‘on-plan’ and ‘stretch’, with 100% of the amount allocated to that target
area being payable when the on-plan level is achieved. The stretch
performance levels allow employees to be rewarded for exceptional
performance. The maximum amount of a STI payment for an EMT
member is 178% of the STI on-plan amount for that EMT member.
The balance of the STI is related to individual (in the case of the Chief
Executive) or business unit and individual (in the case of other EMT
members) performance measures.
In the event all five performance thresholds are not met, no STI payment
will be made.
Long term performance incentives
Long term incentives (LTIs) are at-risk payments designed to align the
reward of certain executives with the enhancement of shareholder value
over a multi-year period.
An LTI plan commenced on 1 July 2014 under which grants are made
annually with performance measured over a three year period. The value
of each grant is set at the date of the grant. The plan’s performance is
measured based on Mercury’s total shareholder return (TSR) relative to
the performance of the NZX 50. This plan has now closed with final
vesting occurring in July 2017.
The Board is assisted by the Human Resources Committee (HRC). The
role and membership of the HRC is set out in the Corporate Governance
section.
The HRC ensures rewards for executives are strongly aligned to the
performance of the company. The Board is committed to demonstrating
transparency in its remuneration policy and practice.
Overall remuneration philosophy
Mercury’s remuneration approach aims to attract, retain and motivate
high calibre employees at all levels of the organisation. It is based on a
practical set of guiding principles that provide for consistency, fairness
and transparency. This strategy promotes behaviours and values that
drive performance, a strong customer focus and growth in sustainable
shareholder value.
Executive remuneration
Mercury’s remuneration policy for the Executive Management Team
(EMT) provides the opportunity for them to receive, where performance
merits, a total remuneration package in the upper quartile for equivalent
market-matched roles.
The HRC reviews the annual performance appraisal outcomes for all
members of the EMT and approves the outcomes for all EMT members
other than the Chief Executive. The Chief Executive’s remuneration is
approved by the Board on the recommendation of the HRC. The review
takes into account external benchmarking to ensure competitiveness
with comparable market peers, along with consideration of an
individual’s performance, skills, expertise and experience. External
benchmarking is commissioned by the HRC from an expert
independent party and the provider is required to declare independence
of any management influence in the collation of the information
provided.
Total remuneration is made up of three components: fixed
remuneration, short-term performance incentives and long-term
performance incentives. Short and long-term performance incentives
are deemed ‘at-risk’ because the outcome is determined by
performance against a combination of pre-determined financial and
non-financial objectives.
Fixed remuneration
Fixed remuneration consists of base salary and benefits. Mercury’s
policy is to pay fixed remuneration with reference to the fixed pay
market median.
Short term performance incentives
Short term incentives (STIs) are at-risk payments designed to motivate
and reward for performance typically in that financial year.
The target value of an STI payment is set annually, usually as a
percentage of the executive’s base salary. For FY2017 the relevant target
percentage for the Chief Executive was 50% and for all the other
executives it was 25% to 35%.
42 // 43
DIRECTOR AND EXECUTIVE EMPLOYEE REMUNERATION (CONTINUED)
An updated LTI plan commenced on 1 July 2015 with an additional
performance hurdle introduced to ensure a more appropriate long term
performance comparison.
Each grant under the updated LTI plan is divided into two tranches
having different performance hurdles:
• 50% of the grant is based on Mercury’s TSR relative to the NZX 50
and is subject to a gate that Mercury’s TSR over that period must be
at least positive;
• 50% of the grant is based on Mercury’s TSR relative to the
performance of an industry peer group (comprising Meridian Energy,
Genesis Energy, Contact Energy and Trustpower). There is no positive
TSR performance gate on this tranche but Mercury’s TSR must be
at the 50th percentile of the comparator group for any award to be
made on this component of the LTI plan.
For the FY2017 grant commencing 1 July 2016 the value represents
between 25% – 35% of an executive’s base salary.
LTI payments are made in shares rather than cash. The maximum
number of shares which an executive may receive for each grant is
determined by dividing the value of the grant less tax by the market
value of one Mercury share as at the date of the grant.
The Board retains discretion over the final outcome, to allow appropriate
adjustments where unanticipated circumstances may impact
performance, positively or negatively, over a three year period.
>> LOREM IPSUM Chief Executive remuneration
Chief Executive remuneration (FY2017)
FY2017
Salary $
Benefits1 $
Subtotal $
Pay for performance $
Total
remuneration $
Chief Executive
*1,058,779
50,455
1,109,234
STI
575,960
LTI
195,998
Subtotal
771,958
1,881,192
*Actual salary paid includes holiday pay paid as per NZ legislation. The base salary was $1,028,500.
Chief Executive remuneration (FY2016)
FY2016
Salary $
Benefits1 $
Subtotal $
Pay for performance $
Total
remuneration $
Chief Executive
*999,445
60,302
1,059,747
STI
332,486
LTI
109,201
Subtotal
441,687
1,501,434
*Actual salary paid includes holiday pay paid as per NZ legislation. The base salary was $935,000.
Five year summary – Chief Executive remuneration
Total remuneration
paid2 $
Percentage STI against
maximum %5
Percentage vested LTI
against maximum %
Span of LTI
performance period
Chief Executive –
Fraser Whineray
Chief Executive –
Doug Heffernan
FY2017
FY2016
FY2015
FY2015
FY2014
FY2013
1,881,192
1,501,434
1,427,932
1,985,791
1,302,7543
1,439,2434
63
57
47
87
N/A3
75
98
78
100
100
N/A3
N/A
2014 - 2017
2013 – 2016
2013 – 2015
2011 – 20143
2011 – 20143
N/A
Explanation of above items
Note 1: Benefits include KiwiSaver, insurance and carpark.
Note 2: Total remuneration paid including Salary, Benefits, STI and LTI payments.
Note 3: LTI and STI payments for FY2014 are included in the FY2015 year as schemes ended 31 August 2014.
Note 4: No LTI was payable for FY2013.
Note 5: Maximum STI is 178% of ‘on-plan’ performance pay.
Breakdown of Chief Executive pay for performance (FY2017)
Description
Performance measures
STI1
LTI1
Set at 50% of base salary. Based on a
combination of key financial and
non-financial performance measures.
80% based on the four Company Shared KPIs
(see table earlier for weightings).
20% based on individual measures.
Conditional awards of shares under the
historical long-term incentive scheme.
100% weighting relative TSR performance against NZX 50
(fixed at date of grant) with 50% vesting at 50th percentile
and 100% at 75th percentile; pro rata vesting in between.
Note 1: The above STI and LTI payments for FY2017 were paid in FY2018.
Percentage
achieved %
110
120
98
44 // 45
DIRECTOR AND EXECUTIVE EMPLOYEE REMUNERATION (CONTINUED)
Four year summary – TSR Performance (company vs peer)
MERCURY
PEER
NZX 50
%
R
S
T
40
35
30
25
20
15
10
5
0
30 June 2014
30 June 2015
30 June 2016
30 June 2017
KiwiSaver
The Chief Executive is a member of KiwiSaver. As a member of this scheme, the Chief Executive is eligible to contribute and receive a
matching company contribution of 3% of gross taxable earnings (including short and long-term incentives). For FY2017 the
Company’s contribution was $45,014.
FY2018 Chief Executive remuneration structure
The Board has elected, in the interests of transparency, to disclose in advance the structure and package that will apply for FY2018.
FY2018
Base Salary $
Benefits1 $
Subtotal $
Pay for performance “on-plan” $
Total
remuneration $
Chief Executive
Note 1: Benefits include KiwiSaver, insurance and carpark.
Note 2: This LTI is granted in FY2018 and if hurdles are met, paid in shares in 2020. The LTI tranche which has the potential to vest in FY2018 is $200,000 and dates from
1,091,280
1,987,360
1,054,212
37,068
STI
527,106
LTI granted2
368,974
Subtotal
896,080
FY2016-FY2018.
Chief Executive remuneration performance pay for FY2018
LONG TERM INCENTIVES
GRANTED (2020 VESTING)
ANNUAL VARIABLE
BASE SALARY & BENEFITS
2,500
2,000
0
0
0
$
1,500
1,000
500
0
Fixed
On-plan
Maximum
Chief Financial Officer remuneration
In the interests of providing greater transparency of executive remuneration, the Board has elected to provide details regarding total
remuneration paid to the Chief Financial Officer.
In FY2017, the Chief Financial Officer received remuneration totalling $829,959. This amount included $186,708 STI payment and
$109,201 LTI payment for FY2016 paid in FY2017, with the remaining $534,050 being a combination of fixed remuneration and
benefits (including a 3% superannuation allowance paid in lieu of KiwiSaver).
>> LOREM IPSUM
Employee remuneration
The Group paid remuneration in excess of $100,000 including benefits
to 353 employees (not including directors) during the FY2017 year in
the following bands:
Remuneration Band
$100,001 – $110,000
$110,001 – $120,000
$120,001 – $130,000
$130,001 – $140,000
$140,001 – $150,000
$150,001 – $160,000
$160,001 – $170,000
$170,001 – $180,000
$180,001 – $190,000
$190,001 – $200,000
$200,001 – $210,000
$210,001 – $220,000
$230,001 – $240,000
$240,001 – $250,000
$250,001 – $260,000
$260,001 – $270,000
$270,001 - $280,000
$280,001 – $290,000
$300,001 – $310,000
$310,001 – $320,000
$340,001 - $350,000
$420,001 - $430,000
$470,001 – $480,000
$490,001 - $500,000
$540,001 - $550,000
$630,001 - $640,000
$820,001 - $830,000
$1,550,001 - $1,560,000
Currently
employed
No longer
employed
60
50
44
45
36
17
13
9
11
6
6
5
3
3
3
4
1
1
2
2
1
1
1
1
2
1
1
1
330
3
4
3
1
2
2
2
1
1
1
2
1
23
Total
63
54
47
46
38
17
15
11
11
7
7
5
3
4
3
6
2
1
2
2
1
1
1
1
2
1
1
1
353
Note: The remuneration bands above include 11 employees who received
redundancy payments in FY2017.
The total remuneration ratio for FY2017 between Employee (median)
and Chief Executive was 1:22. The ratio of Employee (median)
remuneration and Chief Executive base salary was 1:15. Note: These
ratios are based on actual remuneration paid in FY2017.
46 // 47
DIRECTOR AND EXECUTIVE EMPLOYEE REMUNERATION (CONTINUED)
Directors’ remuneration
The directors’ remuneration is paid in the form of directors’ fees. Additional fees are paid to the Chair and in respect of work carried out by directors on
various Board committees to reflect the additional time involved and responsibilities of these positions.
The total pool of fees able to be paid to directors is subject to shareholder approval and currently stands at $991,000. At the 2015 Annual
Shareholders’ Meeting, shareholders approved an increase of $139,750 to the pool (from $851,250) to be implemented over 2 years. The second
increase was effective from 5 November 2016, which has taken the total pool to $991,000. Mercury meets directors’ reasonable travel and other costs
associated with Mercury business. The following people held office as directors during the year to 30 June 2017 and received the following
remuneration during the period. The number of meetings and attendance rate by director during the year to 30 June 2017 was as follows:
Director
No. of meetings
Board
10
Joan Withers (Chair)
Michael Allen3
Prue Flacks
Andy Lark
James Miller
Keith Smith
Patrick Strange
Mike Taitoko
Total
Fees $
176,6672
(Chair)
38,833
96,000
96,000
96,000
96,000
96,000
96,000
$791,500
Attendance
Rate %
Fees $
100
100
100
90
100
10,000
26,000
(Chair)
10,000
100
100
100
99 $46,000
Risk Assurance & Audit
Committee
Human Resources
Committee
Nominations Committee
4
Attendance
Rate %
4
Attendance
Rate %
Fees $
3
Attendance
Rate %
Fees $
Total1
21
Fees $
Attendance
Rate %
(Chair)
100
176,667
42,167
3,334
20,000
(Chair)
8,000
100
0
100
75
100
100
100
100
4,000
4,000
8,000
100 $39,334
100
88 $8,000
100
80
100
86
100
100
100
100
97
100
100
120,000
104,000
110,000
122,000
106,000
104,000
100 $884,834
Note 1: Disclosure Committee is not reported on as these occur as adhoc and on an as required basis.
Note 2: Joan Withers’ fees cover attendance at all Committee meetings.
Note 3: Michael Allen retired 3 November 2016. Michael’s attendance rates are based on attendance at meetings during his directorship only.
Note 4: Future Director Nicky Ashton was paid $20,000 in FY2017.
>> LOREM IPSUM DIRECTORS’ DISCLOSURES
Interests Register
Disclosure of Directors’ Interests
Section 140(1) of the New Zealand Companies Act 1993 requires a director of a company to disclose certain interests. Under subsection (2) a director
can make disclosure by giving a general notice in writing to the Company of a position held by a director in another named company or entity. The
following are particulars included in the Company’s Interests Register as at 30 June 2017:
Joan Withers
The Warehouse Group Limited1
Television New Zealand Limited2
The Treasury Advisory Board2
ANZ Bank New Zealand Limited
The Louise Perkins Foundation (Sweet Louise)
The Tindall Foundation2
Pure Advantage
Economic Development Challenge Group
On Being Bold Limited
(formerly Biz4Girls Limited)1
Chair
Chair
Director
Director
Trustee
Trustee
Trustee
Member
Director
Prue Flacks
Director
Bank of New Zealand Limited
BBull Family Trust Limited2
Director
Director
Planboe Limited
Chorus Limited
Director
Holds Capital Bonds worth $40,000 issued by the Company
James Miller
NZX Limited
ACC
Auckland International Airport Limited
St Cuthbert’s College Trust Board
Mike Taitoko
Waiora Consulting Limited
Takiwa Health Limited
Waiora Pacific Limited
Cognition Education Limited
Committee for Auckland Limited
Bioresource Processing Alliance
Auckland Tourism Events and Economic
Development Limited (ATEED)1
Maratini Holdings Limited1
Canvasland Holdings Limited1
Chair/Shareholder
Director
Director/Shareholder
Trustee
Director/Shareholder
Director
Director/Shareholder
Director
Director
Director
Director
Director/Shareholder
Director
Keith Smith
Healthcare Holdings Ltd and subsidiaries and
associates
Enterprise Motor Group Ltd and subsidiaries
Mobile Surgical Services Limited and
subsidiaries
Goodman (NZ) Limited and subsidiaries
The Warehouse Group Limited and subsidiaries
H J Asmuss & Co Limited
Community Financial Services Limited
Chair
Chair
Chair
Chair
Deputy Chair
Chair
Director
Electronic Navigation Limited and subsidiaries
K One W One Limited and subsidiaries
Westland Dairy Cooperative Limited
Harpers Gold Limited and subsidiaries
James Raymond Holdings Limited (private
family investment company)
Gwendoline Holdings Limited (private family
investment company)
Cornwall Park Trust Board
Sir John Logan Campbell Residuary Estate
The Selwyn Trust
Advisory board of The New Zealand Tax Trading
Company
Anderson & O’Leary Limited
The Warehouse Financial Services Limited
Tree Scape Limited1
Director
Director
Director
Director/Shareholder
Director/Shareholder
Director/Shareholder
Trustee
Trustee
Trustee
Member
Chair
Director
Director
Patrick Strange
Chorus Limited
Ausgrid2
Endeavour Energy2
Essential Energy, NSW
NZX Limited
New Zealand Clearing and Depository
Corporation Limited3
Auckland International Airport Limited
Waitahoata Farms Limited
Holds 8,600 seven year Fixed Rate Bonds issued by the Company
Chair
Director
Director
Director
Director
Director
Director
Director
Andy Lark
No 8 Ventures Management Limited2
SLI Systems Limited
Fronde2
Group Lark
Xero Limited2
Simple
Director
Director
Director
Chair
Chief Business Officer
Director and Interim Chair
1 Entries added by notices given by the directors during the year ended 30 June 2017
2 Entries removed by notices given by the directors during the year ended 30 June 2017
3 Though outside the period, Patrick Strange resigned as a director of New Zealand Clearing
and Depository Corporation Limited on 7 August 2017
48 // 49
DIRECTORS’ DISCLOSURES (CONTINUED)
Directors’ and Officers’ Indemnities
Indemnities have been given to and insurance has been effected for, directors and senior managers of the Group to cover acts
or omissions of those persons in carrying out their duties and responsibilities as directors and senior managers.
Disclosure of Directors’ Interests in Share Transactions
Directors disclosed, pursuant to section 148 of the New Zealand Companies Act 1993, the following acquisitions and disposals of
relevant interests in Shares during the period to 30 June 2017:
Consideration
AUD 9,735
NZD 7,084
Shares in which a
relevant interest was
acquired/(disposed)
3,300
2,200
Name of director
Date of acquisition/
disposal of relevant
interest
Nature of
relevant interest
Andy Lark
Mike Taitoko
27 April 2017
11 May 2017
On market purchase of shares
On market purchase of shares
Disclosure of Directors’ Interests in Shares
Directors disclosed the following relevant interests in the
Shares as at 30 June 2017:
Director
Joan Withers
Prue Flacks
James Miller
Mike Taitoko
Keith Smith
Patrick Strange
Andy Lark
Number of Shares in which
a relevant interest is held
39,900
23,474
40,320
2,200
27,868
14,160
3,300
>> LOREM IPSUM SHAREHOLDER INFORMATION
Twenty largest registered shareholders as at 30 June 2017
Name
Her Majesty The Queen In Right Of New Zealand
New Zealand Central Securities Depository Limited
Mercury NZ Limited
HSBC Custody Nominees (Australia) Limited
Custodial Services Limited
FNZ Custodians Limited
JBWere (NZ) Nominees Limited
Forsyth Barr Custodians Limited
Citicorp Nominees Pty Limited
New Zealand Depository Nominee Limited
Custodial Services Limited
JP Morgan Nominees Australia Limited
Custodial Services Limited
Investment Custodial Services Limited
Custodial Services Limited
Richard Wallace Shapero and Sandy Shapero
National Nominees Limited
Custodial Services Limited
Custodial Services Limited
Guangsen Wu
Total
Number of
shares
% of shares1
716,140,528
312,747,785
22,656,390
17,521,722
8,745,940
7,440,527
7,146,768
4,260,751
3,863,287
3,803,272
3,770,508
3,547,710
3,296,241
2,988,849
2,652,895
2,015,000
1,763,852
1,129,666
894,774
796,000
1,127,182,465
51.15
22.33
1.61
1.25
0.62
0.53
0.51
0.30
0.27
0.27
0.26
0.25
0.23
0.21
0.18
0.14
0.12
0.08
0.06
0.05
80.51
1. Percentage calculated on the basis of Mercury having 1,400,012,517 ordinary shares on issue as at 30 June 2017, which included 22,656,390 ordinary shares held as
treasury shares.
New Zealand Central Securities Depository Limited (NZCSD) provides a custodian depository service that allows electronic trading
of securities to its members and does not have a beneficial interest in these shares. As at 30 June 2017, the 10 largest
shareholdings in the Company held through NZCSD were:
Shareholder
HSBC Nominees (New Zealand) Limited
HSBC Nominees (New Zealand) Limited A/C State Street
Citibank Nominees (New Zealand) Limited
JPMorgan Chase Bank NA NZ Branch-Segregated Clients Acct
Accident Compensation Corporation
HSBC Nominees - New Zealand Superannuation Fund Nominees Limited
National Nominees New Zealand Limited
BNP Paribas Nominees (NZ) Limited
BNP Paribas Nominees (NZ) Limited
Guardian Nominees No 2 A/C Westpac W/S Enhanced Cash Trust
Number of
shares
% of NZCSD
holding
% of total
Mercury shares1
110,629,504
55,961,683
43,340,710
31,476,538
21,045,510
14,708,958
7,648,639
5,216,750
4,265,368
3,385,143
35.37
17.89
13.86
10.06
6.73
4.70
2.45
1.67
1.36
1.08
7.90
4.00
3.10
2.25
1.50
1.05
0.55
0.37
0.30
0.24
1. Percentage calculated on the basis of Mercury having 1,400,012,517 ordinary shares on issue as at 30 June 2017, which included 22,656,390 ordinary shares held as
treasury shares.
Substantial product holders of the Company as at 30 June 2017
Her Majesty The Queen In Right Of New Zealand
Mondrian Investment Partners Limited
Class of
securities
Number of
Securities in
Substantial
Holding
Total Number of
Securities in
Class
Ordinary shares
Ordinary shares
730,427,6761
1,400,012,5172
69,638,989 1,400,012,5172
1 This comprises (a) 716,140,528 shares held by the Crown on its own account; (b) 14,219,148 shares forming part of the New Zealand Superannuation Fund in which
the Crown has a beneficial interest; and (c) 68,000 shares held by Public Trust on trust for the Crown and certain iwi.
2 As at 30 June 2017, Mercury had 1,377,356,127 ordinary shares on issue, plus 22,656,390 ordinary shares held as treasury shares.
50 // 51
SHAREHOLDER INFORMATION (CONTINUED)
Distribution of shareholders and holdings as at 30 June 2017
Size of holding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total
Distribution of bondholders and holdings as at 30 June 2017
Size of holding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and above
Total
Number of
shareholders
31,789
44,230
7,375
3,765
98
87,257
Number of
capital
bondholders
0
373
823
2,439
177
3,812
%
36.43
50.69
8.45
4.31
0.11
100.00
Number of
shares
Holding
quantity %
22,306,008
103,121,437
54,088,764
75,707,623
1,144,788,685
1,400,012,517
1.59
7.37
3.86
5.41
81.77
100.00
Number of
capital bonds
%
Holding
quantity %
0.00
9.78
21.59
63.98
4.64
0
1,859,000
7,869,000
87,058,000
203,214,000
100.00 300,000,000
0.00
0.62
2.62
29.02
67.74
100.00
>> LOREM IPSUM COMPANY DISCLOSURES
Stock Exchange Listings
Mercury NZ Limited is listed on both the New Zealand and Australian
stock exchanges.
In New Zealand, the Company is listed with a “non-standard” (NS)
designation. This is due to particular provisions of the Constitution,
including the requirements regulating ownership and transfer of
Ordinary Shares.
ASX approved a change in the Mercury NZ Limited’s ASX admission
category from an ASX Listing to an ASX Foreign Exempt Listing,
effective from the commencement of trading on 19 February 2016.
The Company continues to have a full listing on the NZX Main Board,
and the Company’s shares are still listed on the ASX. The Company is
primarily regulated by the NZX, complies with the NZX Listing Rules,
and is exempt from complying with most of the ASX Listing Rules
(based on the principle of substituted compliance).
Mercury NZ Limited
The following persons held office as directors of Mercury NZ Limited as
at the end of the 2016/2017 financial year, being 30 June 2017: Joan
Withers, Prue Flacks, James Miller, Mike Taitoko, Keith Smith, Patrick
Strange and Andy Lark. Mike Allen resigned as a director on
3 November 2016.
Subsidiary Companies
The following persons held office as directors of subsidiaries of Mercury
NZ Limited during FY2017:
Company name
Bosco Connect Limited
Glo-Bug Limited
Kawerau Geothermal Limited
Mercury Energy Limited
Metrix Limited
Mighty Geothermal Power International Limited
Mighty Geothermal Power Limited
Mercury ESPP Limited
(formerly Mighty River Power ESPP Limited)
Mercury Geothermal Limited
(formerly Mighty River Power Geothermal Limited)
Directors
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
William Meek
Tony Nagel
Marlene Strawson
Fraser Whineray
William Meek
Tony Nagel
Mercury LTI Limited
(formerly Mighty River Power LTI Limited)
Mighty River Power Limited
(formerly Ngatamariki MRP Limited)
Blockchain Energy Limited
(formerly Rotokawa MRP Limited)
MRP FinCo-Chile Limited1
MRP FinCo-Peru Limited1
MRP Holdings-Chile Limited1
MRP Holdings-Peru Limited1
MRP NRI-Chile Holdings Limited2
MRP NRI-Peru Holdings Limited2
MRP NRI-Germany Holdings Limited2
MRP Holdings-Germany Limited1
MRP FinCo-Germany Limited1
Mercury Solar Limited
What Power Crisis (2016) Limited
Ngatamariki Geothermal Limited
Rotokawa Generation Limited
Rotokawa Geothermal Limited
Rotokawa Joint Venture Limited (50%)
Special General Partner Limited
1 Company dissolved during FY17
2 Company in voluntary liquidation at 30 June 2017
3 Directors who have been appointed during FY17
4 Directors who have resigned during FY17
Mike Allen4
Karen Clayton4
Prue Flacks
Mike Taitoko3
Howard Thomas3
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Samuel Moore
Carol Brougham
Samuel Moore
Carol Brougham
Samuel Moore
John Carbone
Nikolai de Giorgio
Samuel Moore
Carol Brougham
Samuel Moore
John Carbone
Nikolai de Giorgio
Samuel Moore
John Carbone
Nikolai de Giorgio
Samuel Moore
John Carbone
Nikolai de Giorgio
Samuel Moore
Carol Brougham
Samuel Moore
Carol Brougham
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
Fraser Whineray
William Meek
Tony Nagel
William Meek
Nicholas Clarke
Michael Stevens3
Fraser Whineray
William Meek
Tony Nagel
Michael Stevens3
Aroha Campbell
Kevin Mcloughlin
William Meek
Nicholas Clarke
Mark Thompson
Michael Stevens3
Fraser Whineray
William Meek
Tony Nagel
52 // 53
OTHER DISCLOSURES
Waivers from the New Zealand and Australian Stock
Exchanges
ASX
ASX has granted waivers in respect of the ASX Listing Rules to allow the
Constitution to contain provisions reflecting the ownership restrictions
imposed by the Public Finance Act and to allow the Crown to cancel the
sale of shares to applicants who acquire shares under the General Offer
and are not New Zealand Applicants.
The majority of the waivers that ASX previously granted to the Company
are no longer relevant following the change to the Company’s admission
category to an ASX Foreign Exempt Listing. The waivers from ASX
Listing Rules 8.10 and 8.11 continue to apply. These waivers permit the
Constitution to contain provisions:
•
•
allowing the Crown and the Company to enforce the 10% limit; and
enabling the Company to prevent shareholders who acquired shares
under the General Offer and are not New Zealand applicants from
transferring those shares and to enable the Company to sell those
shares.
Information about Mercury NZ Limited Ordinary Shares
This statement sets out information about the rights, privileges,
conditions and limitations, including restrictions on transfer, that attach
to shares in the Company.
Rights and privileges
Under the Constitution and the Companies Act 1993 (“Companies Act”),
each share gives the holder a right to:
•
•
•
attend and vote at a meeting of shareholders, including the right to
cast one vote per share on a poll on any resolution, such as a
resolution to:
– appoint or remove a director;
– adopt, revoke or alter the Constitution;
– approve a major transaction (as that term is defined in the
Companies Act);
– approve the amalgamation of the Company under section 221
of the Companies Act; or
– place the Company in liquidation;
receive an equal share in any distribution, including dividends, if any,
authorised by the Board and declared and paid by the Company in
respect of that share;
receive an equal share with other shareholders in the distribution of
surplus assets in any liquidation of the Company;
• be sent certain information, including notices of meeting and
•
Company reports sent to shareholders generally; and
exercise the other rights conferred upon a shareholder by the
Companies Act and the Constitution.
Restrictions on ownership and transfer
The Public Finance Act 1989 (“Public Finance Act”) includes restrictions
on the ownership of certain types of securities issued by the Company
and consequences for breaching those restrictions. The Constitution
incorporates these restrictions and mechanisms for monitoring and
enforcing them.
A summary of the restrictions on the ownership of shares under the
Public Finance Act and the Constitution is set out below. If the Company
issues any other class of shares, or other securities which confer voting
rights, in the future, the restrictions summarised below would also apply
to those other classes of shares or voting securities.
51% Holding
The Crown must hold at least 51% of the shares on issue.
The Company must not issue, acquire or redeem any shares if such
issue, acquisition or redemption would result in the Crown falling below
this 51% holding.
10% Limit
No person (other than the Crown) may have a ‘relevant interest’ in more
than 10% of the shares on issue (“10% Limit”).
The Company must not issue, acquire or redeem any shares if it has
actual knowledge that such issue, acquisition or redemption will result in
any person other than the Crown exceeding the 10% Limit.
Ascertaining whether a breach has occurred
If a holder of shares breaches the 10% Limit or knows or believes that a
person who has a relevant interest in shares held by that holder may
have a relevant interest in shares in breach of the 10% Limit, the holder
must notify the Company of the breach or potential breach.
The Company may require a holder of shares to provide it with a
statutory declaration if the Board knows or believes that a person is, or is
likely to be, in breach of the 10% Limit. That statutory declaration is
required to include, where applicable, details of all persons who have a
relevant interest in any shares held by that holder.
Determining whether a breach has occurred
The Company has the power to determine whether a breach of the 10%
Limit has occurred and, if so, to enforce the 10% Limit. In broad terms,
if:
•
•
the Company considers that a person may be in breach of the 10%
Limit; or
a holder of shares fails to lodge a statutory declaration when
required to do so or lodges a declaration that has not been
completed to the reasonable satisfaction of the Company,
then the Company is required to determine whether or not the 10%
Limit has been breached and, if so, whether or not that breach was
inadvertent. The Company must give the affected shareholder the
opportunity to make representations to the Company before it makes
a determination on these matters.
Effect of exceeding the 10% Limit
A person who is in breach of the 10% Limit must:
•
comply with any notice received from the Company requiring them
to dispose of shares or their relevant interest in shares, or take any
other steps that are specified in the notice, for the purpose of
remedying the breach; and
>> LOREM IPSUM •
ensure that they are no longer in breach within 60 days after the
date on which they became aware, or ought to have been aware, of
the breach. If the breach is not remedied within that timeframe, the
Company may arrange for the sale of the relevant number of shares
on behalf of the relevant holder. In those circumstances, the
Company will pay the net proceeds of sale, after the deduction of
any other costs incurred by the Company in connection with the sale
(including brokerage and the costs of investigating the breach of
the 10% Limit), to the relevant holder as soon as practicable after
the sale has been completed.
If a relevant interest is held in any shares in breach of the 10% Limit
then, for so long as that breach continues:
• no votes may be cast in respect of any of the shares in which a
•
relevant interest is held in excess of the 10% Limit; and
the registered holder(s) of shares in which a relevant interest is held
in breach of the 10% Limit will not be entitled to receive, in respect
of the shares in which a relevant interest is held in excess of the
10% Limit, any dividend or other distribution authorised by the Board
in respect of the shares.
However, if the Board determines that a breach of the 10% Limit was not
inadvertent, or that it does not have sufficient information to determine
that the breach was not inadvertent, the registered holder may not
exercise the votes attached to, and will not be entitled to receive any
dividends or other distributions in respect of, any of its shares.
An exercise of a voting right attached to a share held in breach of the
10% Limit must be disregarded in counting the votes concerned.
However, a resolution passed at a meeting is not invalid where votes
exercised in breach of the voting restriction were counted by the
Company in good faith and without knowledge of the breach.
The Board may refuse to register a transfer of shares if it knows or
believes that the transfer will result in a breach of the 10% Limit or
where the transferee has failed to lodge a statutory declaration
requested from it by the Board within the prescribed timeframe.
Crown directions
The Crown has the power to direct the Board to exercise certain of the
powers conferred on it under the Constitution (for example, where the
Crown suspects that the 10% Limit has been breached but the Board
has not taken steps to investigate the suspected breach).
Trustee corporations and nominee companies
Trustee corporations and nominee companies (that hold securities on
behalf of a large number of separate underlying beneficial holders) are
exempt from the 10% Limit provided that certain conditions are
satisfied.
Share Cancellation
In certain circumstances, shares could be cancelled by the Company
through a reduction of capital, share buy back or other form of capital
reconstruction approved by the Board and, where applicable, the
shareholders.
Sale of less than a Minimum Holding
The Company may at any time give notice to a shareholder holding less
than a Minimum Holding of shares (as that term is defined in the NZX
Main Board Listing Rules) that if, at the end of 3 months after the date
the notice is given, shares then registered in the name of the holder are
less than a Minimum Holding the Company may sell those shares
through the NZX Main Board or in some other manner approved by NZX
Limited, and the holder is deemed to have authorised the Company to
act on behalf of the holder and to sign all necessary documents relating
to the sale.
For the purposes of the sale and of Rule 5.12 of the ASX Settlement
Operating Rules, where the Company has given a notice that complies
with Rule 5.12.2 of the ASX Settlement Operating Rules, the Company
may, after the end of the time specified in the notice, initiate a Holding
Adjustment to move the relevant shares from that CHESS Holding to an
Issuer Sponsored Holding (as those terms are defined in the ASX
Settlement Operating Rules) or to take any other action the Company
considers necessary or desirable to effect the sale.
The proceeds of the sale of any shares sold for being less than a
Minimum Holding will be applied as follows:
• first, in payment of any reasonable sale expenses.
•
second, in satisfaction of any unpaid calls or any other amounts
owing to the Company in respect of the shares.
the residue, if any, must be paid to the person who was the holder
immediately before the sale or his or her executors, administrators
or assigns.
•
Cancellation of sale of shares
The Crown may cancel the sale of shares to an applicant under the offer
of shares by the Crown (the Offer) in the Mighty River Power Share Offer
Investment Statement and Prospectus if the applicant misrepresented
its entitlement to be allocated shares under the Offer as a ‘New Zealand
Applicant’ (as that term is defined in the Share Offer Investment
Statement and Prospectus). If the Crown cancels a sale of shares on
those grounds:
•
•
the Company must sell shares held by that applicant, up to the
number of shares sold to it under the Offer, irrespective of whether
or not those shares were acquired by the applicant under the Offer
(unless the applicant had previously sold, transferred or disposed of
all of its shares to a person who was not an associated person of the
applicant); and
the applicant will receive from the sale the lesser of:
– the sale price for the shares less the costs incurred by the Crown
and the Company; and
– the aggregate price paid for the shares less those costs,
with any excess amount being payable to the Crown.
If an applicant who misrepresented their entitlement to shares has sold,
transferred or otherwise disposed of shares to an associated person,
then the power of sale will extend to shares held by that associated
person, up to the number of shares transferred, sold or otherwise
disposed of to the associated person by the relevant applicant.
Donations
Donations of $126,090 were made by the Group during the year ended
30 June 2017 ($100,637 during the year ended 30 June 2016).
54 // 55
OTHER DISCLOSURES (CONTINUED)
Other Disclosures
Mercury NZ Limited is incorporated in New Zealand and is not subject to
Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Australia).
Mercury will not acquire any classified assets in circumstances in which
the ASX Listing Rules would require the issue of restricted securities,
without the written consent of ASX.
On 22 August 2017 the Board declared a fully imputed final dividend of
8.8 cents per share and a fully imputed special dividend of 5 cents per
share to be paid on 29 September 2017 to all shareholders who are on
the Company’s share register at 5.00pm on the record date of
14 September 2017. The dividends will be imputed at a corporate tax
rate of 28% which amounts to an imputation credit of 3.42 cents per
share for the final dividend and 1.94 cents per share for the special
dividend. The Company will also pay a supplementary dividend of
1.55 cents per share relating to the final dividend and 0.88 cents per
share relating to the special dividend to non-resident shareholders. The
Company will receive from the New Zealand Inland Revenue Department
a tax credit equivalent to supplementary dividends.
These dividends together with the interim dividend of $79.8 million
(5.8 cents per share) paid to shareholders on 3 April 2017 brings total
declared dividends to $269.8 million (or 19.6 cents per share).
As at the date of this annual report, the Company has a Standard &
Poor’s BBB+ rating with a stable outlook. The Company benefits from
a one notch uplift due to the Crown’s majority ownership.
The Company’s Net Tangible Assets per Share (excluding treasury stock)
as at 30 June 2017 was $2.37, compared with $2.36 at 30 June 2016.
>> LOREM IPSUM SHAREHOLDER INFORMATION
Shareholder enquiries
Changes in address, dividend payment details and
investment portfolios can be viewed and updated online:
www.investorcentre.com/nz. You will need your CSN and FIN
numbers to access this service.
Enquiries may be addressed to the Share Registrar
(see Directory for contact details).
Investor information
Our website at www.mercury.co.nz is an excellent source of
information about what’s happening within the company.
Our Investor Centre allows you to view all regular investor
communications, information on our latest operating and
financial results, dividend payments, news and share price history.
Electronic shareholder communication
It is quick and easy to make the change to receiving your reports
electronically. This can be done either:
• Online at www.investorcentre.com/nz by using your CSN
and FIN numbers (when you log in for the first time). Select
‘View Portfolio’ and log in. Then select ‘Update My Details’
and select ‘Communication Options’; or
• By contacting Computershare Investor Services Limited by
email, fax or post.
GLOSSARY
Free Cash Flow
Is net cash flow from operating activities less
normalised stay-inbusiness capital
expenditure
Smart meters
Generation-
weighted Average
Price (GWAP)
Generation Weighted Average Price of
electricity generated and sold to the wholesale
electricity market
Spot market/
wholesale market
GWh
Gigawatt hour. One gigawatt hour is equal to
one million kilowatt hours
Load-weighted
Average Price
(LWAP)
Load Weighted Average Price of electricity
purchased from the wholesale electricity
market
Lost-time Injury
Frequency Rate
(LTIFR)
A measure of the number of injuries resulting
in lost time per 200,000 hours worked,
including employees and on-site contractors
MWh
Megawatt hour. One megawatt hour is equal
to 1,000 kilowatt hours. A megawatt hour is
the metering standard unit for the wholesale
market
Advanced electricity meters that are a
replacement for analogue meters, and send
electronic meter readings to your energy
retailer automatically
The buying and selling of wholesale electricity
is done via a ‘pool’, where electricity generators
offer electricity to the market and retailers bid
to buy the electricity. This market is called the
spot or physical wholesale market
Total Recordable
Injury Frequency
Rate (TRIFR)
A record of the number of reported medical
treatment, restricted work, lost time and
serious harm injuries per 200,000 hours,
including employees and on-site contractors
56
DIRECTORY
Board of Directors
Joan Withers, Chair
Prue Flacks
Andy Lark
James Miller
Keith Smith
Patrick Strange
Mike Taitoko
Executive Team
Fraser Whineray,
Chief Executive
Kevin Angland,
General Manager Digital Services
Nick Clarke,
General Manager Geothermal
Phil Gibson,
General Manager Hydro & Wholesale
Julia Jack,
Chief Marketing Officer
William Meek,
Chief Financial Officer
Tony Nagel,
General Manager Corporate Affairs
Matt Olde,
Metrix Chief Executive
Marlene Strawson,
General Manager People & Safety
Company Secretary
Howard Thomas
Investor Relations & Sustainability Enquiries
Tim Thompson
Head of Treasury & Investor Relations
Mercury NZ Limited
P O Box 90399
Auckland 1142
New Zealand
Phone: +64 27 517 3470
Email: investor@mercury.co.nz
Registered Office in New Zealand
Level 3, 109 Carlton Gore Road, Auckland 1023
Registered Office in Australia
c/– TMF Corporate Services
(Aust) Pty Limited
Level 16, 201 Elizabeth Street
Sydney NSW 2000
Phone: +61 2 8988 5800
Legal Advisors
Chapman Tripp
Level 35, ANZ Centre
23-29 Albert Street, Auckland 1010
PO Box 2206, Auckland
Phone: +64 9 357 9000
Bankers
ANZ Bank
ASB Bank
Bank of Tokyo-Mitsubishi UFJ
Bank of New Zealand
Westpac
Credit Rating (reaffirmed December 2016)
Long term: BBB+
Outlook: Stable
Share Register – New Zealand
Computershare Investor Services Ltd
Level 2, 159 Hurstmere Road, Takapuna,
Auckland 0622
Private Bag 92 119
Auckland 1142
New Zealand
Phone: +64 9 488 8777
Fax: +64 9 488 8787
Email: enquiry@computershare.co.nz
Web: www.investorcentre.com/nz
Share Register – Australia
Computershare Investor Services Pty Ltd
Yarra Falls, 452 Johnston Street, Abbotsford, VIC 3067
GPO Box 3329
Melbourne, VIC 3001
Australia
Phone: 1 800 501 366 (within Australia)
Phone: +61 3 9415 4083 (outside Australia)
Fax: +61 3 9473 2500
Email: enquiry@computershare.co.nz
>> LOREM IPSUM MAKE
THE
SWITCH.
WE’RE ALL ABOUT OFFERING WONDERFUL CHOICES.
For this report, you have the choice of enjoying Mercury stories from the past
year and getting an understanding of the things that matter most to us.
This is our ‘freedom to choose’ section that will give you a sense of who we are
and how we bring to life our mission of energy freedom.
Or you have the choice of reviewing our numbers. This is our ‘wonderful choice’ section
that quantifies Mercury’s performance against what we’ve achieved in the past.
We invite you to have a look at both: front to back, or back to front.
The freedom is in your hands.
Speaking of switching, have you thought about getting yourself moving
with electricity? More than 4,000 New Zealanders are now driving EVs.
They’re enjoying a cheaper, cleaner way to get around and benefiting the
country while they’re at it. We think that’s a wonderful choice.
This is how most EVs are charged at home.
Continue reading text version or see original annual report in PDF
format above