More annual reports from Mercury General:
2023 ReportENERGY FREEDOM.
2019 ANNUAL REPORT // MERCURY NZ LIMITED
ENERGY FREEDOM.2019 ANNUAL REPORT // MERCURY NZ LIMITED2 // 3
OUR MISSION:
ENERGY
FREEDOM.
Energy Freedom for all New Zealanders is our
mission. It’s about New Zealand being stronger
economically and more sustainable through
better use of homegrown, renewable energy.
Tilt Renewables’ Tararua Wind Farm
OUR ANNUAL REPORT 20194 // 5
OUR MISSION
HOW WE DID THIS YEAR
HOW WE CREATE VALUE
CHAIR'S UPDATE
CHIEF EXECUTIVE'S UPDATE
WHAT MATTERS MOST
- OUR FIVE PILLARS
- OUR STRATEGIC GOALS
OUR STORIES
- CUSTOMER
- PARTNERSHIPS
- KAITIAKITANGA + OUR CARBON PROFILE
- PEOPLE
- COMMERCIAL
OUR FINANCIALS
- FINANCIAL COMMENTARY
- FINANCIAL TRACK RECORD
- INDEPENDENT AUDITOR’S REPORT
- FINANCIAL STATEMENTS
YOUR DIRECTORS
YOUR EXECUTIVE TEAM
INTEGRATED REPORTING
SUSTAINABILITY INDICES
02
04
06 WHO WE ARE
08
10
16
22
24
26
28
30
34
38
46
50
54
56
60
61
64
94
95
96
98
102 GOVERNANCE AT MERCURY
110
116
124
125 DIRECTORY
- REMUNERATION REPORT
- DISCLOSURES
INFORMATION FOR SHAREHOLDERS
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 2019.
The Auditor-General is required to be the company’s auditor, and has
appointed Lloyd Bunyan 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 affected or may significantly
affect the operations of the company. This Annual Report is dated
20 August 2019 and is signed on behalf of the Board by:
JOAN WITHERS // CHAIR
KEITH SMITH // DIRECTOR
HOW WE DID
THIS YEAR.
$505Mp
OPERATING EARNINGS (EBITDAF)
REFLECTING LOWER HYDRO
GENERATION AND LOWER METRIX
EARNINGS DUE TO SALE
FY2018 $566M
$357Mo
RECORD PROFIT (NPAT)
REFLECTING GAIN ON SALE OF METRIX
AND LOWER INTEREST COSTS
FY2018 $234M
$199M
OPERATING EXPENDITURE
FLAT FOR THE 6TH STRAIGHT YEAR
ON A LIKE-FOR-LIKE BASIS
15.5CPSo
TOTAL FULLY-IMPUTED
ORDINARY DIVIDEND
FY2018 15.1 CPS
64%
7.4%
MERCURY CUSTOMERS
RATING AS ‘HIGHLY SATISFIED’:
12 MONTH ROLLING AVERAGE
FY2018 62%
MERCURY BRAND CUSTOMERS
SWITCHING RETAILER WITHOUT
MOVING HOUSE
FY2018 6.4%
ZERO
HIGH SEVERITY
HEALTH AND SAFETY
INCIDENTS
$272M
PROCEEDS FROM THE
SALE OF METRIX
6,902GWh
TOTAL GENERATION
FY2018 7,704GWh
$256M
TURITEA WIND FARM
INVESTMENT COMMITMENT
OUR ANNUAL REPORT 20196 // 7
WHO
WE ARE.
OUR PURPOSE IS TO
INSPIRE NEW ZEALANDERS
TO ENJOY ENERGY IN MORE
WONDERFUL WAYS.
KARĀPIRO
AUCKLAND
KAWERAU
ARAPUNI
WAIPĀPA
MARAETAI
I AND II
WHAKAMARU
ĀTIAMURI
ŌHAKURI
NGĀTAMARIKI
MŌKAI+
TURITEA
ARATIATIA
ROTOKAWA
NGĀ AWA
PŪRUA+
LAKE TAUPŌ
HYDRO STATIONS
GEOTHERMAL STATIONS
SOLAR
WIND FARM
R&D CENTRE
+ Not 100% owned by Mercury.
(under construction)
373K
CUSTOMERS
325,565 residential
44,527 commercial
2,182 industrial
561 spot
16
PARTNERSHIPS
2 geothermal joint ventures
4 formal iwi partnerships*
10 community and
commercial partnerships
88
EVs IN OUR FLEET
74% of our fleet is electric
3,615 solar customers
825 customers on EV package
775
PERMANENT
EMPLOYEES
315 females
460 males
482 in Auckland
107 in Hamilton
25 in Taupō
60 in Rotorua
101 in rest of New Zealand
44%
DECREASE
in the carbon intensity
of our electricity generated
since FY2015
2019
MARKET SHARE
14% physical sales
17% generation
14
POWER STATIONS*
4,006GWh of hydro generation
2,896GWh of geothermal
generation
* Two are partnerships with Māori land trusts
OUR ANNUAL REPORT 20198 // 9
HOW WE CREATE VALUE.
INPUTS
VALUE
CREATION
OUTCOMES
CUSTOMER
Those who choose us.
PARTNERSHIPS
Relationships with individuals,
groups, institutions and
businesses important to us.
KAITIAKITANGA
The natural resources and assets we
need to run our business.
PEOPLE
A motivated, capable and
inclusive workforce.
COMMERCIAL
The capital we have, the investments
made in our business and the
dynamic market we operate in.
ENERGY
FREEDOM
+ PORTFOLIO
MANAGEMENT +
HIGH
PERFORMANCE
TEAMS
+
INNOVATION AND
THOUGHT LEADERSHIP
FOR NEW ZEALAND
+ RELATIONSHIP
MANAGEMENT
+ HEALTH AND SAFETY
MANAGEMENT
+ CAPITAL
MANAGEMENT
CUSTOMER
Highly satisfied and loyal customers.
PARTNERSHIPS
Key relationships built on mutual
understanding and support,
leading to both social and
economic benefits.
KAITIAKITANGA
Natural resources available through
sustainable management.
Assets fit for now and the future to
support New Zealand's energy needs.
PEOPLE
A place to work where our people
are engaged, safe and well and have
the capability to meet our current
and future needs.
COMMERCIAL
Sustainable and growing returns to
our owners.
OUR ANNUAL REPORT 201910 // 11
Chair’s Update.
STRONG
MOMENTUM.
JOAN WITHERS // CHAIR
It is my pleasure to report to you, our owners,
on Mercury’s results for the financial year ended
30 June 2019 (FY2019).
This is my final Annual Report as Chair.
As signalled at our 2016 Annual Shareholders'
Meeting, and again last year, I have chosen to
step down from the Board after a decade in this
role. It has been an honour to serve you, and to
represent Mercury’s interests over this time.
As this report outlines, and as reflected in
our returns to shareholders, Mercury is in a
strong position. Our underlying performance,
our achievements in managing unfavourable
hydrology during the financial year and the
bold and carefully considered moves we have
executed are all indicators that the company is
in good heart and positioned well for growth in
a dynamic market.
THIS IS MY FINAL ANNUAL
REPORT AS CHAIR… IT HAS
BEEN AN HONOUR TO SERVE
YOU, AND TO REPRESENT
MERCURY’S INTERESTS.
OUR ANNUAL REPORT 201912 // 13
CHAIR’S UPDATE
OUR FY2019 DIVIDEND OF 15.5 CENTS
PER SHARE MAKES THIS THE 11TH YEAR
OF ORDINARY DIVIDEND GROWTH.
Total shareholder returns (TSR) of 42.5% included
significant share price appreciation, which valued the
company at $6.3 billion at financial year end, compared
with $4.6 billion at the same time last year.
Our FY2019 dividend of 15.5 cents per share (cps),
fully imputed, makes this the 11th year of ordinary
dividend growth.
The momentum we are enjoying, assisted by the market’s
bias to sustainable yield, is supported by the clarity of our
strategy and Mercury’s track record of executing well on
what we say we will do. That position informs guidance for
a continuation of the trend through FY2020, and beyond.
What Mercury commits to and what we execute on
is guided by what we agree, as a Board and executive
leadership, is most important to the balanced interests
of all our stakeholders.
This integrated perspective is outlined within this report.
Fundamental to the Board’s assessment of priorities is
understanding risk and opportunity and determining
how best we can add value across the pillars of our
business: customer, partnerships, kaitiakitanga, people
and commercial.
Management and your Board have agreed three-year
targets across the pillars of our business. These are linked
to key performance indicators to measure our success
and progress. They connect to our overarching mission
and purpose and they will guide Mercury towards our
10-year goals.
This structure is outlined on pages 26-27 of this report.
Your Board regularly considers whether our composition
is fit for purpose and as Chair, my responsibility has been
to ensure that the skills and experience that sit around the
table are brought to bear in exercising our responsibilities.
Our ongoing focus has been to ensure we have true
diversity of thought around the Board table. We include our
Board skill matrix and state our goals in that area in this
report’s Governance section on pages 104-106.
In relation to individual director remuneration, again there
will be no recommendation for any increases taken to our
Annual Shareholders’ Meeting this year, as we have been
informed by the Government, as 51% shareholder, that
Shareholding Ministers would not support any increases
during this term of Parliament.
Succession planning has been an ongoing focus during
my tenure so I am delighted with the confirmation that
Prue Flacks will replace me as Chair at this year’s Annual
Shareholders’ Meeting. Prue has been on the Mercury
Board since 2010 and has been an outstanding contributor.
She chaired the Due Diligence Committee at the time of
our Initial Public Offering (IPO) in 2013 and has in recent
years chaired the People and Performance Committee.
Her previous professional experience as a leading
commercial lawyer has been invaluable to the company.
With the support of existing Board members, who all have
significant governance experience, I am confident that the
future of Mercury is in good hands.
We have our regular independently-facilitated Board
performance review underway currently and will receive
the results of that early in the new financial year.
OUR RETURNS:
FINAL ORDINARY DIVIDEND
9.3 CENTS PER SHARE,
FULLY IMPUTED
FULL YEAR ORDINARY
DIVIDEND 15.5 CENTS PER
SHARE (FY2018 15.1 CPS)
FINAL DIVIDEND TO BE PAID
30 SEPTEMBER 2019
42.5%
TOTAL SHAREHOLDER
RETURN (TSR)
ACROSS FY2019
$211M
TOTAL ORDINARY
DIVIDENDS
DECLARED TO
SHAREHOLDERS
…I AM CONFIDENT
THE FUTURE OF
MERCURY IS IN
GOOD HANDS.
OUR ANNUAL REPORT 2019
14 // 15
CHAIR’S UPDATE
MERCURY’S STRATEGY
OF PURSUING GROWTH
OPPORTUNITIES IS IMPORTANT
FOR SECURING OUR ULTRA-
LONG-TERM SUCCESS AND
ALSO FOR NEW ZEALAND.
My leaving the Board also provides an opportunity to
introduce new skills and ideas, which I believe is imperative
for a company’s sustainability and success. We expect
to announce the appointment of a new director early
in FY2020.
In terms of capital management, we concluded a
successful placement for $300 million of subordinated
capital bonds, allocated to New Zealand retail and
institutional investors. The interest rate was struck at 3.60%
per annum, with bonds issued on 11 July 2019. This has
enabled Mercury to redeem our existing subordinated
capital bonds.
The Board considers carefully the capital structure of
the company and works hard to balance appropriately
our requirements for 'stay-in-business' and maintenance
capital, investing in value-enhancing growth opportunities
and ensuring surplus capital is returned to
shareholders effectively.
Our capital management initiatives support Mercury’s
investment-grade credit rating (BBB+), which was
reaffirmed by Standard & Poor's (S&P) Global Ratings in
GUIDANCE:
FORECAST FY2020
GENERATION 6,620GWh
FY2020 ORDINARY DIVIDEND
15.8 CENTS PER SHARE
(INCREASE OF 2%)
FY2020 STAY-IN-BUSINESS
CAPITAL EXPENDITURE
$105 MILLION
^ Based on catchment inflows and generation at 20 August 2019
December 2018. Mercury’s strategy of pursuing growth
opportunities is important for securing our ultra-long-term
success and also for New Zealand.
As a board, we understand there is an alternative option
to focus predominantly on yield but we believe, on behalf
of our owners, that the appropriate strategy for Mercury
at this time is to be an active part of New Zealand’s need
for increased renewable energy output and continue to
reinvest in plant and systems across our entire business.
This will support a growing economy overall, while helping
to meet the imperative of reducing carbon emissions and
supporting New Zealand’s energy security.
A considered approach to growth through renewable
energy generation will also strengthen Mercury’s ability
to enhance the value of your capital into the future.
With that focus, it has been a big year again for Mercury.
Through the period, we advanced our relationship with
Tilt Renewables Ltd (NZX:TLT), and Fraser Whineray has
been appointed a director of Tilt Renewables’ board.
That followed our purchase of a 19.99% shareholding
in Tilt Renewables announced in May 2018.
During FY2019, Mercury partnered with Tilt Renewables’
majority owner, Infratil Ltd (NZX:IFT) for an offer to take
over the remaining shares in Tilt Renewables. While
acceptances fell short of allowing a full takeover, we have
benefited from strength in Tilt Renewables’ share price
and our share of its own renewable energy growth path.
The value of our stake at 30 June 2019 was 18% above our
total investment.
Mercury concluded the sale of the Metrix smart-metering
business at the beginning of March 2019 for a cash
consideration of $272 million. After previously exploring
smart-metering opportunities in Australia, the decision to
sell Metrix released capital and resources for other growth
opportunities and helped simplify the company's business.
Mercury confirmed a $75 million investment in securing
and enhancing the operating future of the Karāpiro hydro
station. This is part of our multi-year programme of work
demonstrating guardianship of New Zealand’s Waikato
hydro system.
CURIOUS ABOUT
WIND ENERGY?
Please visit www.mercury.co.nz/wind
Your Board also approved the decision to construct our first
wind farm, at Turitea near Palmerston North, with a cost
estimate of $256 million. The decision to proceed at Turitea
was more than a decade in the making.
The resource consents for Turitea were granted in 2011 and
we have involved landowners and other stakeholders in
regular meetings since then. Our objective is to build strong
and enduring relationships as we deploy resources to create
a new renewable generation asset to add to our existing
portfolio of geothermal, solar and hydro.
We tell some of the Turitea story through the partnership
lens later in this report (pp 34-37).
Reflecting once more that this is my last Annual Report
Update as Chair, I acknowledge the wonderful support and
contribution of all my Board colleagues throughout
my tenure.
To you, our owners, I have appreciated your support as well.
I look forward to connecting with those who can make it in
person to our Annual Shareholders’ Meeting which will be
held on 27 September. This year it will be held at Eden Park,
in Auckland.
I sincerely thank Mercury’s Chief Executive Fraser Whineray.
The relationship between a Chair and Chief Executive
is a critical one and I am personally delighted that I am
leaving the company in great hands at both executive and
governance level. It has been a privilege to work with Fraser
and his executive and leadership group, and I thank all of
Mercury’s dedicated people for executing so well on
our strategy.
Finally, I gratefully acknowledge the customers, partners
and other stakeholders who continue as strong advocates
for Mercury, as I will be, into the future.
YOUR BOARD ALSO APPROVED THE DECISION
TO CONSTRUCT OUR FIRST WIND FARM, AT
TURITEA NEAR PALMERSTON NORTH, WITH A
COST ESTIMATE OF $256 MILLION. THE DECISION
TO PROCEED AT TURITEA WAS MORE THAN A
DECADE IN THE MAKING.
JOAN WITHERS // CHAIR
OUR ANNUAL REPORT 2019
16 // 17
PERFORMANCE
ACROSS OUR CORE
BUSINESS PROVIDES
THE FOUNDATION
FOR US TO PURSUE
GROWTH.
Chief Executive’s Update.
WORKING
FOR
GROWTH.
FRASER WHINERAY // CHIEF EXECUTIVE
In last year’s Annual Report I noted “It rained
– a lot.” In contrast, this year the Waikato
catchment received extremely low (second
percentile) inflows from September 2018 to
late May 2019. This sustained dry sequence
coincided with a serious strain on the country’s
thermal generation, record annual spot prices,
and very poor liquidity in New Zealand’s over-
the-counter and electricity futures markets.
Despite these challenging conditions, Mercury
delivered a strong performance. In these
circumstances, this year was even more
satisfying than our record result for FY2018.
Performance across our core business provides
the foundation for us to pursue growth.
Long-term sustainable growth is essential
to support our now 11-year track record of
increasing ordinary dividends to our owners,
and to provide enduring opportunities for our
people, customers and partners.
OUR ANNUAL REPORT 201918 // 19
CHIEF EXECUTIVE’S UPDATE
210,000
ELECTRIC
CARS CAN BE
POWERED BY
THE ENERGY
PRODUCED AT
OUR TURITEA
WIND FARM.
POWER FOR CHANGE
Consumers have power in their hands. The choice,
technology and service available to meet their stationary
and mobile energy needs continues to expand. That the
consumer will benefit from this competition is a given, and
we welcome the challenge to continuously improve our
performance against our goal of becoming New Zealand’s
leading energy brand.
Mercury anticipates long-term demand growth as
renewable electricity’s value is increasingly unlocked
through technology in applications such as transport, and
as consumers embrace cheaper, locally produced and low-
carbon products.
We will continue to explore inspiring ways to encourage the
transition to electrified transport for the long-term benefit
of the country as well as our owners.
FY2020. This has already improved the experience of
customers’ online engagement through My Account.
Our IT infrastructure will allow new product configurations
and price options to be chosen online by customers, giving
them an easier, more streamlined experience and reducing
the time to serve and set up new business.
WORKING BETTER TOGETHER
Building High Performance Teams continues to be a
focus. This financial year, our people in Auckland moved
from three separate premises into one office location in
Newmarket. This investment means that Mercury remains
competitive for retaining, developing and attracting people,
and having them work together in High Performance
Teams. We have also reworked our office space at the
Maraetai hydro power station, to facilitate greater teamwork,
with very pleasing results.
Our Mercury Drive 'EV-by-subscription' initiative and
our e.bike and e.scooter promotions are examples of
contributing to this momentum.
A new and detailed employee survey this year has provided
a new employee engagement baseline of 66%. We will
report against this measure in future years.
Our customers continue to have a strong affinity with
our brand. Sixty-four percent reflect high levels of
satisfaction (62% FY2018). For FY2020, our attention
will continue to be on inspiring, rewarding and making
things easy for our customers: growing deeper customer
relationships that deliver long-term value, rather than
chasing growth in customer numbers at any cost,
particularly given wholesale market dynamics.
A major investment in IT infrastructure, SAP Commerce
Cloud, was implemented this year to make it easier for our
customers to interact with us digitally. The roll-out of this
platform across our customer base will continue through
MERCURY’S INTERACTIVE
BRAND SHOWCASE AT OUR
OFFICES IN NEWMARKET,
AUCKLAND, HIGHLIGHTS
‘ENERGY MADE WONDERFUL’.
OPEN TO THE PUBLIC, YOU’RE
WELCOME TO COME CHECK IT
OUT IF YOU’RE IN AUCKLAND.
250,324KM
DRIVEN BY MERCURY
DRIVE CUSTOMERS
5,000 RIDES
ON MERCURY E.BIKES
...MERCURY IS THE ONLY
NEW ZEALAND ENERGY
COMPANY WITH THE
'AWESOME FOURSOME' OF
RENEWABLE ENERGY…
HYDRO
GEOTHERMAL
SOLAR
WIND
GENERATION
Making the most of the challenging hand dealt by
Waikato catchment inflows and elevated spot pricing
required a very strong performance from our generation
and wholesale markets teams in FY2019. Mercury’s people
optimised for the weather and market conditions, and our
teams in geothermal (the only renewable energy source
that is not weather dependent) worked well to maintain
high geothermal availability of 98% under these
dynamic conditions.
In the decade to 2015, renewable geothermal generation
growth from New Zealand’s electricity sector, including
Mercury, underpinned what is perhaps the country’s
greatest green-economic transition of the century
to date. Renewable geothermal electricity generation is
now the second largest contributor to New Zealand’s total
electricity generation.
For Mercury directly, and through our valued long-term
partnerships with Māori land trusts, our renewable
geothermal output continues to be a source of wonderful
energy. Our geothermal output was 2,896GWh in FY2019
compared with 2,757GWh in FY2018.
Mercury’s ongoing maintenance and efficiency programme
across geothermal stations (more than $200 million
over the next five years), alongside the huge, long-run
reinvestment programme for the Waikato hydro system, is
a direct illustration of how we apply our understanding of
kaitiakitanga over assets that are essential for New Zealand
and New Zealanders.
FANS OF WIND
This year we committed to the construction of
a new wind farm at Turitea, east of Palmerston North.
This significant investment, together with our shareholding
in Tilt Renewables, means Mercury is the only
New Zealand energy company with the 'awesome
foursome' of renewable energy in our portfolio (wind,
geothermal, solar and hydro).
The Turitea investment has been very patiently pursued
since Mercury won the rights from Palmerston North City
Council in 2005, followed by consenting in 2011. Again,
long timeframes and substantial investment of capital and
highly skilled people are required to develop, maintain and
ultimately execute wind development.
The potential for new wind generation to be the major
contributor to growth of New Zealand’s renewable energy
assets has been highlighted by the International Energy
Agency, the Productivity Commission and the Interim
Climate Change Committee.
We are well positioned to grow our wind portfolio through
the multiple wind consents we hold in the Manawatu, as
well as through our shareholding in Tilt Renewables, which
has signalled its own wind energy development and re-
powering activity in New Zealand.
OUR ANNUAL REPORT 201920 // 21
CHIEF EXECUTIVE’S UPDATE
The New Zealand Productivity Commission's report, 'Low
Emissions Economy' 1, reviewed scenarios that forecast
New Zealand's electricity demand increasing from the
current 40TWh to 60TWh per annum by 2050. That's an
expansion equivalent to over 40 Turitea (northern zone)
wind farms over 30 years. Furthermore, thermal plant
that does not provide specific capacity peaking or energy
firming capability will struggle to find a business case
for refurbishment and likely retire within this timeframe,
requiring additional renewable development in its place.2
OUR RENEWABLE
ADVANTAGE AS A NATION
The way New Zealanders talk about our renewable
advantage has changed. There is much wider
understanding that our country's electricity system is
world-leading on the three essential measures of reliability,
sustainability and affordability.
This is important because if we are to continue to make
investments like Turitea, estimated at $256 million, with
payback periods spanning more than eight election cycles,
our investors, which include all New Zealanders, need to
have confidence that the rules supporting that investment
will have a high degree of predictability. As long as politics
continues to be strongly influenced by polling, which cannot
fully capture long-term infrastructure considerations, this
represents a risk.
To offset this risk, a strong retail performance is essential.
It is why the benefits of electric vehicles (EVs), such as fuel
at the equivalent of 30 cents per litre, must be promoted
at every opportunity. It is why national energy freedom
from high-carbon, high-price fuel imports must be
advanced. And it is why governments need to avoid the
political temptation to respond to narrow agendas that
have dangerously weakened functioning and progressive
electricity markets in Australia and the United Kingdom.
This industry has plenty to do to improve, including
avoiding narrow and/or short-term agendas itself. Shared
areas for focus are: efficiency and productivity; safety and
sustainability; and understanding and meeting customer
needs. It needs to get on with these things and constantly
demonstrate and communicate that progression.
1.
2.
New Zealand Productivity Commission (2018).
Low-emissions economy: Final report.
Available from www.productivity.govt.nz/low-emissions
Accelerated Electrification p.51, Interim Climate Change
Committee (2019) www.iccc.mfe.govt.nz
FY2020 ACTIVITIES:
ADVANCE CONSTRUCTION OF THE
TURITEA WIND FARM
CUSTOMER FOCUS ON VALUE AS WE
MANAGE OUR POSITIONS IN ELEVATED
AND VOLATILE WHOLESALE MARKETS
COMPLETE THE HYDRO
REFURBISHMENTS AT WHAKAMARU
AND ARATIATIA AND ADVANCE THE
KARĀPIRO REFURBISHMENT
COMPLETE DETAILED WORKFORCE
PLANNING AS WE MOVE FURTHER
INTO THE DIGITAL AGE
ACKNOWLEDGING OUR CHAIR
As has been announced, this Annual Report is the last
with Joan Withers as Chair of our Board after a decade
in the role. On behalf of our people and our partners,
I acknowledge Joan’s very significant contribution to all
that Mercury is today.
With Joan as Chair, Mercury has advanced our growth
in renewable energy. Joan presided over the listing of
Mighty River Power on the New Zealand and Australian
Stock Exchanges in 2013 and was a great support through
the consolidation of the Mighty River Power and Mercury
Energy brands under the refreshed Mercury banner in 2016.
The establishment of our strong platform and clear
strategy for growth is part of the legacy Joan will leave us.
Joan will hand over the Chair’s responsibilities to Prue
Flacks at the conclusion of our Annual Shareholders’
Meeting on 27 September. I look forward to working
with Prue to further advance Mercury on our mission.
LAST SHOUT-OUT
On behalf of Mercury’s executive, I acknowledge the mahi
nui (strong work) of our people, the pono (loyalty) of our
customers, and the mana of our owners and our partners.
We will continue to work in your collective interests to
deliver long-term sustainable value. I thank you again for
being part of our story.
Together we are Mercury.
Energy made Wonderful.
Ngā mihi nui ki a koutou katoa.
FRASER WHINERAY // CHIEF EXECUTIVE
QUARTER-
BY-QUARTER
ACTIVITIES.
Q1
Q2
Q3
Q4
• Mercury Drive (EV subscription service) pilot launched –
and heavily over-subscribed
• New Zealand’s first grid-scale battery storage facility
launched at our R&D Centre
• 5 gold stars from Canstar Blue, plus top spot in their
natural gas customer satisfaction rating
• Sale of Metrix smart-metering business for
$272m announced
• Kawerau station celebrated 10 years of generating
renewable geothermal energy – and smashed their
records for production in October
• Gifted solar panels and an energy storage battery to
Ngāi Tahu Tourism's National Kiwi Hatchery Aotearoa
• $75m reinvestment in Karāpiro power station announced
(completion FY2024)
• Construction of $256m Turitea wind farm announced
(completion FY2021)
• Auckland teams move into a single location at
33 Broadway, Newmarket
• Rated by the Carbon Disclosure Project among NZ’s top
10 companies for reducing our environmental impact
• Partnered with the University of Auckland’s Faculty of
Engineering to support them in increasing first-year
female undergraduate enrolments to at least
33% by 2020
• Awarded Employer of the Year, Newmarket Business
Awards 2019
• Innovations to our online platform to make it easier for
customers to join us and stay with us on moving house
• Congratulated 11 more Mercury graduates of the NZQA-
accredited New Zealand Certificate in Contact Centres
• Partnered with the Electricity Retailers’ Association of
New Zealand on the EnergyMate initiative, a free in-home
energy coaching service to help families at highest risk of
energy hardship
• Offer of $300m subordinated capital bonds
OUR ANNUAL REPORT 2019
22 // 23
OUR ANNUAL REPORT 2019
WHAT
MATTERS
MOST.
OUR ANNUAL REPORT 201924 // 25
WHAT MATTERS MOST
OUR FIVE PILLARS.
CUSTOMER
COMMERCIAL
PARTNERSHIPS
PEOPLE
KAITIAKITANGA
Since 2015 we've been building the understanding across Mercury of how we create long-term
value. Integrated thinking enables better decision-making throughout our business and aligns
effort to improve our performance.
OVER THE PAST FOUR YEARS, WE HAVE...
2016
2017
Identified the key drivers of material
value creation (our pillars).
Incorporated more input from our
stakeholders into our view of what
matters most.
2019
2018
Taken the next step in our integrated
thinking by creating a plan that aligns our
operational activity with our strategic intent.
Aligned how we measure the success
of Mercury and company-wide
planning with our pillars.
KEY FEATURES OF
OUR PLAN ARE:
Our plan maps the creation of value over the
short, medium and long term across each
of our pillars.
Long-term success – we have set out what
our view of success is for each of our pillars
in 2030, reflecting and communicating our
strategic intent.
Mid-term goals – we have created three-year
goals to the end of FY2022. These are the
way-points that will help us assess how
we are tracking towards achieving our
long-term success.
These strategic goals enable a co-ordinated
and integrated programme of activity
that acknowledges and is influenced by
the expectations of our key stakeholders.
It provides a common framework for
planning across the business.
OUR ANNUAL REPORT 201926 // 27
WHAT MATTERS MOST
OUR STRATEGIC GOALS.
CUSTOMER
PARTNERSHIPS
KAITIAKITANGA
PEOPLE
COMMERCIAL
LONG-TERM SUCCESS
BY 2030 WE WILL BE:
New Zealand’s leading energy brand.
MID-TERM GOALS
WE’RE ON TRACK
BY FY2022 IF:
We are inspiring, rewarding and
making it easy for customers in
our target segments.
Recognised as a leader within
our industry, with our industry
recognised as a positive contributor
to New Zealand, and with Mercury’s
access to fuel enduring and
enhanced.
There is bipartisan national, regional
and community support for positive
contributions from the renewable
electricity industry.
Existing relationships are maintained
and strengthened, and new
relationships are created, consistent
with our purpose and strategy.
Recognised as a leader in the
ultra-long-term management of
both physical and natural assets.
A Zero Harm organisation that
has enabled our people to adapt
to the changing nature of work
to deliver the highest levels of
performance and productivity.
Leading our sector in terms
of financial performance and
shareholder returns, earning at
least our cost of capital.
We understand and are managing
the long-term sustainability of the
natural resources and assets that
we rely on.
We deliver EBITDAF growth and
maintain an appropriate average
for stay-in-business CAPEX
investment, while operating within
agreed risk parameters.
We have enabled our people to
understand and respond to the
changing nature of work in order
to deliver the highest levels of
productivity and performance and are
viewed as an attractive place to work.
We are a Zero Harm organisation that
continues to focus on the physical
and mental wellbeing of all the people
who are important to our business.
OUR FOCUS AREAS:
Brand
Loyalty
Experience
Industry & Research
Iwi
Government
Natural Resources
Climate Change
Assets
High Performance Teams
Safety & Wellbeing
Capability & Development
Operational Excellence
Generation Development
Sustainable Growth
OUR ANNUAL REPORT 201928 // 29
OUR
STORIES.
Tilt Renewables’ Tararua Wind Farm
OUR ANNUAL REPORT 201930 // 31
01. CUSTOMER
CONVERTING
HUMAN
ENERGY INTO
WONDERFUL
ENERGY.
Bex Rose knows wonderful. In 2017, the Deputy
Principal of Brookby School was awarded the
title of Auckland's favourite teacher. Bex was
nominated by her pupil Miles Wilson, who doesn’t
like skipping school anymore because he’d miss
her too much.
The love is reciprocated with Bex saying: “The kids,
first and foremost, inspire me. They just bring light
to your life and keep you young and on your feet.”
As well as being a teacher, Bex has been a Mercury
customer for 15 years. During this time, she’s gone
from being a student, to young professional, to a
home-owner, wife and mother.
I’M ALREADY QUITE
ACTIVE, SO IT’S NICE TO
EARN REWARDS AND GET
A COUPLE OF DOLLARS
HERE AND THERE FOR THE
POWER BILL.
MERCURY
ON THE GO.
The freedom to manage your energy
is in your hands.
Download the Mercury Go app to
view your account balance, pay your
account, earn rewards, and enter
step challenges to keep active.
To download the app, visit the App
Store or Google Play.
OUR ANNUAL REPORT 201932 // 33
OUR PILLAR STORIES // CUSTOMER
64%
CUSTOMERS
'HIGHLY SATISFIED'
MERCURY BRAND CUSTOMERS
SWITCHING RETAILER WITHOUT
MOVING HOUSE
7.4%
2019
6.4%
2018
4.4%
2017
Bex has always been active and she’s always been open
to trying new things. It’s not surprising then that Bex was
one of the first to download and use our new mobile app,
Mercury Go.
Through the app, customers can track their daily usage and
pay their account. They can also earn rewards (including
Mercury Dollars) by completing fun challenges. Customers
can then use their Mercury Dollars to get money off their
bill or redeem them for Airpoints Dollars™.
There are currently three ways customers can earn Mercury
Dollars or win prizes through the app: by loading a profile
pic, completing step challenges, and getting friends to join
Mercury. And there’ll be more ways to earn coming soon.
“The app is great for seeing how much your next bill will be,
and for viewing your balance,” Bex said.
“And having the rewards is definitely an incentive to keep
active. I like the short, sharp bursts: a two-day challenge is
manageable for a lot of people to get that done and then
getting the incentive at the end makes it cool.
I LOVE THE
FREE POWER
DAYS; THEY'RE
AWESOME.
“I’m already quite active, so it’s nice to earn rewards and
get a couple of dollars here and there for the power bill.
I run a boot camp for mums after school and I’ve been
encouraging them to download the app. It’s been great for
them because the challenges and rewards have motivated
them to move more, which is neat.”
Bex’s favourite rewards are the Free Power Days customers
can earn.
“I love the Free Power Days; they’re awesome. I use the dryer
on those days, which I don’t normally use. We do all the
sheets and all the things I’ve been putting off.”
The app has been downloaded by 57,000 customers since
its launch in August last year.
Almost 160,000 challenges have been accepted and
over 85,000 have been completed. We have given away
$157,000 in prizes, including Free Power Days, e.bikes,
e.scooters, a trip for two to Europe, and over $117,000
Mercury Dollars.
86,533
FREE POWER DAYS
ENJOYED BY CUSTOMERS
1.2M
NUMBER OF APP
LAUNCHES
15,226
NUMBER OF MERCURY
DOLLARS REDEEMED FOR
AIRPOINTS DOLLARSTM
Head of Brand and Marketing Ben Harvey-Lovell says the
app was another way to bring Energy Freedom, and Energy
made Wonderful, to life for our customers.
“We wanted to make it easy for customers to manage
their account through the app, but we also wanted to
inspire them to interact with us more often through the
challenges.
“Our goal is to be the leading energy brand in New Zealand,
and to achieve that goal we need to design experiences
that customers love.
"The app is a way for us to get customers thinking about
Mercury when they’re doing fun things like exercise.
“Hearing about the joy the Rose family get from the app
and their Free Power Days is Energy Freedom in action, and
it’s why we do what we do,” says Ben.
OUR ANNUAL REPORT 201934 // 35
02. PARTNERSHIPS
A WONDERFUL
ALLIANCE.
Andrew Day’s grandfather started farming
sheep and beef in the Tararua Ranges above
Palmerston North in 1929. Today, Andrew farms
this hill country and the rolling farmland further
to the east, in partnership with his parents.
“It’s quite exposed country,” Andrew says. “It’s
renowned for its wind but also for a reasonably
awful, wet climate.”
The Day family met Mercury more than 10 years
ago. After extensive initial negotiations to agree
access to his farm for wind turbines at Turitea,
as well as part of the transmission line for the
proposed Puketoi wind project, communication
between the family and Mercury was mostly
maintained through a regular annual function.
PALMERSTON
NORTH
LINTON
SUBSTATION
NORTHERN
TURBINE
ZONE
33 turbines
r
committed
TURITEA
WIND FARM
TURITEA WIND FARM,
PALMERSTON NORTH
PAHIATUA
SOUTHERN
TURBINE ZONE
27 turbines
consented
10 KM
National Grid
Committed 220kV
Transmission
Consented future
220kV Transmission
Turbine Zone
PUKETOI WIND FARM
53 turbines consented
FIND OUT MORE
ABOUT OUR
WIND FARM BUILD.
Please visit mercury.co.nz/windupdates
OUR ANNUAL REPORT 201936 // 37
OUR PILLAR STORIES // PARTNERSHIPS
WE'RE A COMPANY, BUT
WE TRY TO PRESENT A
CONSISTENT, HUMAN FACE.
Andrew’s contact with Mercury has mostly been through
Property Manager Duncan Annandale. Duncan has been
responsible for building Mercury’s relationships with the
landowners for eight years. Over time, since the original
agreements were secured, it became clear that patience
would be necessary.
“Because of flat demand in the electricity market we had
to wait until the economics were right to build. There were
years of communicating with the landowners and updating
them on the status of the market so that they understood
why no activity was taking place,” says Duncan.
“The annual catch-ups with this group, and now continuing
with people associated with the future project at Puketoi,
are also times for us to find out about their lives and
families and what’s going on with them.
“As the years pass, it’s interesting to see the
intergenerational theme coming through as people retire
or younger family members take a more active role in their
farms and businesses. Family is important for these long-
term relationships.
“Now that we’ve made the decision to start building the
Turitea wind farm, my role extends to managing the next
stages of the contracts with the landowners, as well as
ensuring that their voices are heard as part of the design,
development and building phases.”
Duncan’s work with the landowners on the wind farm and
transmission sites has built trusted relationships over time.
“We’re a company, but we try to present a consistent, human
face,” he says.
125M
HIGH FROM BASE
TO ROTOR TIP
470GWh
GENERATION PER YEAR
Tilt Renewables’ Tararua Wind Farm
Andrew confirms this: “I’ve had a reasonably long
relationship with Duncan, and what I value is that he’s
also had farming experience himself so he’s reasonably
conscious of how we operate and has an understanding
of our farming operation that I wouldn’t have typically
expected to find in an energy company.”
OF COURSE THERE’S
PERSONAL BENEFIT
TO OUR BUSINESS.
BUT MORE BROADLY,
AS A COUNTRY WE’VE
GOT TO GET OUT OF
CARBON INTENSIVE
ENERGY SOURCES.
For Duncan, what he likes best about the job is providing an
opportunity to add value to rural properties.
“A rural property that happens to have hills or ranges which
catch wind at the top becomes a site where you can put
turbines, and the landowner can profit from that on top
of their ongoing farming operation. It diversifies the farm
income and that’s what I enjoy seeing happen.”
New Zealand’s electricity supply is already more than 80%
renewable. The initial phase of the Turitea wind farm is just
one of the consented projects being built as the demand
for renewable electricity grows (including through the
accelerated electrification of transport and retirement of
thermal generation) and the country moves towards a
lower-carbon economy.
Andrew sees clear benefits from the wind farm beyond
his family farm. “Of course there’s personal benefit to our
business. But more broadly, as a country we’ve got to get
out of carbon intensive energy sources. Wind power, being
virtually carbon free, is something that we’ve got to push on
with around New Zealand.”
Mercury is intent on advancing renewable energy
generation through wind power as part of our strategy for
growth and our mission of Energy Freedom.
BUILDING
RELATIONSHIPS
IN THE
COMMUNITY.
We’ve been talking with people in communities around
Turitea and Puketoi in the Manawatu for a long time.
Mercury’s wind strategy goes back over 15 years (since 2004).
During this time, we have worked with Councils in the region,
contributing to their public planning processes to ensure
that consent pathways are supportive of renewable
energy policies.
Consents to build the Turitea wind farm were granted in
2011. One consent condition is to have a Community Liaison
Group, to share information around the construction and
operation of the wind farm and receive feedback.
PROVIDING RELEVANT
INFORMATION IN A
PROFESSIONAL WAY, SETTING
OUT WHAT IS ABOUT TO HAPPEN
AND INVITING FEEDBACK
AND DISCUSSION BUILDS
RELATIONSHIPS OF RESPECT
AND ACCOUNTABILITY.
Margaret Kouvelis, former Mayor of Manawatu District
Council, is the Independent Chair of the Community Liaison
Group. She says:
“So far, I have been impressed with the quality of the
information and the people presenting it, the willingness
of the company to be hospitable, available and open to
residents and the efforts at communicating the content
and timing of these meetings in order to minimise the
impact on the communities most affected.”
Through this group, Mercury connects with a range of
people in the community. We’ll be engaging further with
local iwi, looking for opportunities to work in partnership
there too. We’ve already been exploring how we can build
their capacity to support project outcomes. And Mercury
will continue to work closely with Councils to encourage
renewable electricity generation growth that is good for
New Zealand’s energy freedom and that also contributes
significantly to regional development.
OUR ANNUAL REPORT 201938 // 39
03. KAITIAKITANGA
SOLAR GIVES
KIWI A BRIGHTER
FUTURE.
In June, a farmer found an injured kiwi, dazed
and confused on the side of a rural road near
Whakatāne. The kiwi had been hit by a car.
His first bit of luck was being taken by the
farmer to a local vet. Once the extent of his
injuries was identified, his second bit of good
fortune was being transferred to Ngāi Tahu
Tourism’s National Kiwi Hatchery Aotearoa in
Rotorua where a dedicated kiwi hospital had
just opened. He was its first patient.
Kiwi are a unique part of New Zealand’s
biodiversity and an important taonga
(treasure). Once abundant, there are now
only around 68,000 of our beloved national
birds left. Today their status is often used as a
barometer of how our environment is coping
with the challenges being thrown at it.
WE WANT TO INSPIRE
NEW ZEALANDERS TO
ENJOY ENERGY IN MORE
WONDERFUL WAYS – AND
WHAT’S MORE WONDERFUL
THAN ENSURING THE
SURVIVAL OF OUR BELOVED
NATIONAL ICON?
WATCH AND LEARN
ABOUT HOW MERCURY
HELPS NGĀI TAHU
TOURISM’S NATIONAL
KIWI HATCHERY.
Please visit www.mercury.co.nz/kiwihatchery
OUR ANNUAL REPORT 201940 // 41
OUR PILLAR STORIES // KAITIAKITANGA
THE NEW HOSPITAL IS A
'FANTASTIC ADDITION' AND
WILL HAVE A DIRECT IMPACT
ON KIWI POPULATIONS.
Ninety-five percent of kiwi chicks born in the wild die before they
reach breeding age (three years old), according to the Department
of Conservation. This is due to non-native predators such as stoats
and the impact of humans.
Our five kiwi species range from recovering to critically endangered
and they need our help to survive. That’s why individuals,
community groups, iwi and conservation agencies are working
hard to ensure the birds are given a chance to survive and thrive in
their natural habitat.
The National Kiwi Hatchery is a leader in this work, which includes
kiwi husbandry, egg incubation systems, hatching techniques and
chick rearing. As the hatchery is a Mercury customer, our Head
of Mass Market Segments, Mohammed (Mo) Abbas, visited the
facilities. While there, he noticed there wasn’t a back-up electricity
supply to incubators. Mo knew it was important to keep the
precious eggs warm in the event of any power outage, and that
there was expertise we could share.
Working with the hatchery, Mercury developed a solar electricity
supply package coupled with a Tesla battery. The solution reduces
running costs for the hatchery while ensuring security of electricity
supply. This proved its value this year when power had to be
disconnected for maintenance and the incubators ran off battery
power for 15 hours.
“We want to inspire New Zealanders to enjoy energy in more
wonderful ways – and what’s more wonderful than ensuring
the survival of our beloved national icon?” Mo says.
“It’s everyone’s responsibility to fight for kiwi. Caring for them,
breeding them and raising them is an incredibly specialised job
and one we’re in awe of. By supporting the hatchery, Mercury can
help reverse some alarming statistics facing kiwi.”
1923
CHICKS HATCHED SINCE THE
OPENING OF THE NATIONAL
KIWI HATCHERY
145
CHICKS WERE RELEASED
INTO THE WILD IN FY2019
15HRS
OF BACK-UP POWER
FROM SOLAR/BATTERY
INSTALLATION
Every week, 20 kiwi die from factors such as cars, stoats and
dogs. By collecting eggs from the wild and hatching them at
the hatchery, the chicks have a 65% chance of reaching the
1kg milestone, the weight kiwi need to be to defend themselves
against most predators.
This year, Mercury donated a stand-alone building to the
hatchery for a new kiwi hospital. It is fitted with nine heated
areas to treat sick and injured kiwi, as well as to house health
chicks brought in from the wild.
Kiwi Husbandry Manager Emma Bean said the new hospital
was a “fantastic addition” and would have a direct impact on
kiwi populations.
That’s where our injured kiwi from Whakatāne ended up.
He was brought to the hatchery bruised, grazed and with
patches of feather loss. Luckily, an x-ray showed no bones
had been broken.
He was treated with anti-inflammatory medication and
precautionary antibiotics for five days, and hand-fed twice a
day “because he didn’t think much of the cooking,” Emma
says. He was released back into the forest after two weeks;
slightly heavier and with a new name, Komanawa, a reference
to a natural spring near where he was found.
The 2018/19 breeding season was successful for the hatchery
and our partnership, with 145 chicks being released into the
wild, up eight chicks on the previous year.
“That might not seem like a big difference, but literally every
bird we can reintroduce to the wild counts,” Emma says.
“They say it takes a village to raise a child – well it’s the same
for kiwi. There’s an awful lot of hard work and love that goes
into saving kiwi. It’s a huge project but amazing to be part of.”
Mercury feels the same.
KOMANAWA THE KIWI
Komanawa was the first kiwi to be treated in
the National Kiwi Hatchery's new kiwi hospital.
After two weeks of treatment, Komanawa
was released back into the wild.
WEIGHT ON ARRIVAL: 1392G
WEIGHT AT RELEASE: 1457G
OUR ANNUAL REPORT 201942 // 43
OUR PILLAR STORIES // KAITIAKITANGA
OUR ANNUAL REPORT 2019
THE 2018/19 BREEDING SEASON
HAS BEEN SUCCESSFUL FOR THE
HATCHERY AND OUR PARTNERSHIP,
WITH 145 CHICKS BEING RELEASED
INTO THE WILD, UP EIGHT CHICKS
ON THE PREVIOUS YEAR.
44 // 45
OUR PILLAR STORIES // KAITIAKITANGA
OUR CARBON
PROFILE.
An important kaitiakitanga role that we acknowledge
is our need to help the country reduce its greenhouse
gas (GHG) emissions and for us to take responsibility
for our own. Mercury is carbon positive, with our
carbon units exceeding the level of our emissions
(including those of our residential gas customers).
This was achieved through active participation in the
New Zealand Emissions Trading Scheme, the careful
measurement of our GHG emissions and long-term
partnerships with forest owners.
• This year, an increase in our geothermal generation
resulted in a 6% increase in fugitive GHG emissions.
These occur naturally in the geothermal fluid and must
be removed prior to generating electricity.
• The gross emissions intensity of the electricity we
generate is 39kg CO2e/MWh. This is 60% lower than
the New Zealand grid average and a 44% decrease
since FY2015.
• As we build more wind generation the intensity of
emissions for our overall generated electricity may
further reduce.
Our carbon position FY2015 to FY2019
'
)
s
0
0
0
/
e
2
O
C
s
e
n
n
o
T
(
s
n
o
i
s
s
i
m
E
2,500
2,000
1,500
1,000
500
-
FY15
FY16
FY17
FY18
FY19
Scope 1
Scope 2
Scope 3
Net carbon position
Direct emissions -
predominantly fugitive
emissions from
geothermal facilities
Indirect emissions -
from purchased
electricity used
in offices
Other indirect emissions -
99% downstream from
gas sales to dual fuel
customers
The number of carbon units
we hold, after surrendering
units relating to our
operations and activities
CARBON POSITIVE
The forestry units we hold represent absorbtion of
more carbon than we contribute to the environment.
Mercury has maintained a robust programme investing
in forestry units for the past nine years. This results in
us holding more carbon units than we require to offset
emissions we produce through our operations and activities.
Our total GHG footprint has decreased by 36% between
FY2015 and FY2019, influenced by the mothballing of
Mercury's Auckland thermal (gas) generation facility at
Southdown.
Emissions from our vehicle fleet have reduced since 2016
as a result of converting over 70% of our fleet to electric
vehicles (EVs) or plug-in hybrid vehicles (PHEVs).
Emissions associated with the electricity we purchase for
offices and other buildings account for less than 1% of our
total GHG footprint.
Mercury surrenders emissions units for all the energy
we provide, including the gas consumed by our dual-
fuel customers. We will continue to explore emissions
associated with our supply chain, using our supplier guiding
principles to engage in partnerships that can realise further
emission reductions.
MANAGING CLIMATE CHANGE RISK
AND OPPORTUNITIES.
Assessment of potential impacts of climate change on our
business is an ongoing focus.
Physical risks:
Using various climate change scenarios (from <1.5°C
to >3.0°C) across different time scales, we consider the
potential impacts on generation operations and generation
assets. This includes the impacts of changing rainfall
patterns and intensities as well as increasing average
temperatures. The results of ongoing modelling facilitate
the development of our climate change management plan
which will highlight requirements and further options for
mitigation and/or adaptation.
Regulatory risks:
There are potential financial and operational implications
and opportunities of New Zealand’s transition to a low-
carbon economy. Regulation such as the Zero Carbon Bill,
renewable energy targets, and a revised Emissions Trading
Scheme all have implications for Mercury. We remain
actively involved in assessing carbon prices, emissions
trading mechanisms and the implications of revised
regulations around carbon units.
Further information on our management of climate-related
risks can be found in the Corporate Governance Statement
on Mercury's website.
For an energy generator and retailer, with a mission of
Energy Freedom, climate change presents opportunities
to achieve additional commercial outcomes and promote
sustainable, low-emission lifestyles. Opportunities relevant
to Mercury include increased renewable energy generation
and the promotion, development and expansion of low-
emission goods and services.
20152016201720182019Emissions intensity tonnes CO2e/GWhGeneration (GWh)Generation (GWh)Emissions Intensity0102030405060708058006000620064006600680070007200740076007800OUR ANNUAL REPORT 2019
46 // 47
04. PEOPLE
BUILDING
BLOCKS FOR
SUCCESS.
2019 saw the long-anticipated move of 560
Mercury team members from three offices
across Auckland to one.
While the shift to 33 Broadway in Newmarket
looked like a building project on the surface,
the focus was not bricks and mortar; it was our
people and our customers.
83%
OF OUR PEOPLE SAY THAT
OUR PHYSICAL WORKSPACE
IS ENJOYABLE TO WORK IN
84%
OF OUR PEOPLE SAY
THEIR TEAM DELIVERS
HIGH QUALITY RESULTS
BEING TOGETHER IN THE ONE
LOCATION ENABLES US TO CREATE
A BETTER CUSTOMER EXPERIENCE,
BECAUSE WE CAN COLLABORATE
MORE EFFECTIVELY AS HIGH
PERFORMANCE TEAMS DELIVERING
THE LEVEL OF SERVICE OUR
CUSTOMERS DESERVE.
MEET HUIA
Huia is one of Mercury’s wonderful
telesales representatives.
Huia returned to Mercury from
parental leave in late 2017. You
could say it was a different world
for her back then.
OUR ANNUAL REPORT 201948 // 49
OUR PILLAR STORIES // PEOPLE
THE NEW TECHNOLOGY
AND MORE SOURCES OF
KNOWLEDGE AVAILABLE GIVE
US THE CAPABILITY TO SOLVE
QUERIES MORE QUICKLY…
86%
OF OUR PEOPLE SAY THAT WE
ASK FOR HELP WHEN WE NEED IT
AND LEARN FROM EACH OTHER
80%
OF OUR PEOPLE AGREE THAT
PEOPLE FROM ALL BACKGROUNDS
HAVE EQUAL OPPORTUNITIES TO
SUCCEED AT MERCURY
MEET HUIA COCKER
Telesales Representative Huia Cocker returned to Mercury
from parental leave in late 2017 – it was a different world for
her back then.
"When I returned to full-time work at Mercury, I was in a
small office near Mercury’s Greenlane site in Auckland," says
Huia. "While it was exciting to hear of the upcoming move
to Newmarket, as a working mum living out in Pukekohe my
mind went to the complexities of managing the change of
location, while still adjusting to life as a working parent."
Fortunately for Huia, our people and our customers were at
the core of the decision-making. The vision of the four-year
project was to give our Auckland teams the freedom to do
their best work together.
Newmarket was chosen because of its place as both a
transport hub (well served by rail and bus) and a social hub.
This vision also meant rolling out new streamlined technology
and introducing the High Performance Teams way of working
prior to the move – enabling people to collaborate and work
more effectively together. And it guided the interior design
decisions made with architects Warren and Mahoney, with
our customer teams at the centre of the building and an
openness that promoted flexibility, wellbeing, safety and
collaboration.
"I have loved the change," says Huia. "We were well prepared
for the move, which made such a difference to me for my
first time working in ‘the big smoke’. I haven’t looked back.
Being together in the one location enables us to create a
better customer experience, because we can collaborate
more effectively as High Performance Teams delivering the
level of service our customers deserve. The new technology
and more sources of knowledge available give us the
capability to solve queries more quickly, and from there,
better customer outcomes flow.
"In addition, Mercury’s inclusive culture has meant I haven’t
felt like a ‘fish out of water’; in fact, the people I now have
the opportunity to interact with every day are the number
one reason I love working at 33 Broadway so much.
I feel more engaged in the business and I can sense
the opportunities," says Huia.
Mercury's Workforce Strategy Manager Sarah Holt was
involved in the project from the start and is extremely
happy with the final product. "The building’s connectivity
gives us a competitive advantage," says Sarah. "It has
wonderful visual connectivity, with the atrium and
bridges at its heart, which enable chance meetings and
collaboration. The design also offers different spaces for
working. It's an equitable setting that supports the freedom
to choose a work space suitable for the task people need
to complete that day. Seamlessly integrated software tools
also enhance our ability to collaborate with each other and
deliver to our customers."
WELLBEING
Wellbeing is at the heart of our focus on
creating inclusive work environments where
our people can be themselves and do their
best work together.
78%
OF OUR PEOPLE CONFIRM
THAT MERCURY IS VISIBLY
AND ACTIVELY INVOLVED
IN THE WELLBEING OF
ITS PEOPLE
81%
OF OUR PEOPLE
SAY THEY FEEL SAFE
AND SUPPORTED IN
THEIR TEAM
EMPLOYEE SAFETY
TOTAL RECORDABLE INJURY
FREQUENCY RATE
1.05
2017
0.87
2018
0.72
2019
OUR ANNUAL REPORT 201950 // 51
05. COMMERCIAL
‘WONDERFUL’
FLOWING WELL
INTO THE FUTURE.
KARĀPIRO REINVESTMENT
On the Waikato River just south of Cambridge it’s a
frosty morning that will turn into another sparkling
blue day. In the powerhouse below the Karāpiro
dam David Derecourt (Regional Manager Hydro
North) has been working with the huge machines
that harness energy and create electricity for all of
his working life.
THIS HYDRO STATION HAS BEEN
RUNNING SINCE 1948, AND THIS
NEW INVESTMENT IS GIVING
HER ANOTHER 80 YEARS OF
CONTINUED SERVICE.
WATCH LAKE
KARĀPIRO'S DAILY
WATER LEVEL AND
OUTFLOW ONLINE.
Please visit www.mercury.co.nz/lakelevels
OUR ANNUAL REPORT 201952 // 53
OUR PILLAR STORIES // COMMERCIAL
I WILL BE PROUD TO SAY THAT THE PROJECT
WAS A SUCCESS, WE HAD A FANTASTIC TEAM
WORKING ON IT, IT WAS DELIVERED WELL,
NOBODY WAS HURT AND WE SHOULD BE
GOOD TO GO FOR THE NEXT 80 YEARS.
The next six years are going to see $75 million reinvested
in this infrastructure, to build on its 71-year legacy and
secure its future. The refurbishment of the power station
machinery will make it more efficient and allow up to
17% more generation from the river’s flow. This will help
Mercury respond to market demand, providing power to the
lightbulbs and EVs of New Zealand homes and businesses.
And David is proud to be part of the project. “I would like
to think that everyone involved will be more than happy
to stand up with a sense of pride, and tell their family and
their mates at the sports club that ‘I was involved with that’,”
he says.
“I will be proud to say that this project was a success, we
had a fantastic team working on it, it was delivered well,
nobody was hurt and we should be good to go for the next
80 years.”
Long-term, multi-generation thinking goes with the
territory. “This hydro station has been running since 1948,
and this new investment is giving her another 80 years of
continued service,” David explains. “These machines had a
mid-life refurb in the 1980s but indications are they are in
their twilight years now.”
At the time of this previous investment in the 1980s, the
teenage David was approximately 50km downstream,
attending Ngāruawāhia High School. “I was born in
Ngāruawāhia and the awa (river) was a big part of my life,”
he says. “In 1991, I fronted up as a fresh-faced electrical
apprentice in the Arapuni Area (Karāpiro, Arapuni and
Waipāpa hydro power stations).”
$75M
INVESTMENT IN CORE
IMPROVEMENTS
AND MAINTENANCE
OF THIS KEY
GENERATION
INFRASTRUCTURE
71YEARS
SINCE THE POWER
STATION WAS
COMMISSIONED
8YEARS’ WORK
2 YEARS’ PLANNING AND
5 YEARS’ ON-TOOLS WORK
2024
SCHEDULED FINISHING
DATE OF PROJECT
WHAT’S THE OUTCOME OF
THIS PROJECT?
15% increase in peak capacity at the
station from this project – generating
more electricity from the water flow.
Future-proofing the station with plant
replacement and upgrades.
OTHER CURRENT MAJOR
INFRASTRUCTURE INVESTMENT IN
THE WAIKATO HYDRO SYSTEM
Whakamaru: 4 to 5-year on-site project finishing
mid 2020. Outcome: capacity gain from 25MW to
31MW for each of the 4 units; increase in efficiency
and in asset reliability. Total cost ~$76m.
Aratiatia: 3 to 4-year on-site project finishing
mid 2020. Outcome: optimising station
performance for the available river flow and
increase in asset reliability. Total cost ~$49m.
AND THE FULL PROGRAMME
OF WORK?
39 units and ancillary equipment being
refurbished across the Waikato Hydro
System’s nine hydro power stations during
this decades-long programme of work,
which started in 2011.
Fast-forward nearly 30 years and David’s team looks after
the day-to-day running of the plant, with a huge number of
others behind them who “keep these generators running
and keep more of the ‘wonderful’ flowing”.
The Waikato River is New Zealand’s most important and
diverse water catchment. Mercury delivers around 10% of
New Zealand’s electricity from the fall of the water in this
river (an average of ~4,020GWh each year). And out of that,
Karāpiro station generates about 12% (511GWh annually* –
equivalent to the power used by 73,000 homes or 230,000
EVs*). Hydro electricity doesn’t really use water – water
passes through our power stations but remains in the
river, unaltered for other users and environmental benefits.
Only the gravity is used.
David’s favourite part of the job? “Knowing that I’ve been
entrusted to look after 70 to 80-year-old bits of kit,
enabling the people in the teams to support and maintain
that, and being involved in refreshing the future of those
assets to give them another 80 years. I’m giving back to
the ‘old girl’ that gave me my first job. If it wasn’t for these
power stations I wouldn’t be where I am today.”
The project will overhaul and in some cases replace the
turbines, generators and governor systems. In concurrent
work to future-proof the station, other items are also being
addressed due to either age-related issues (by-pass valves
and associated works) or legacy performance challenges
(hydro intake gates and operating mechanisms, stoplogs).
“We’re lifting the lid on every part of the station, with some
significant parts being replaced,” says David. “It’s going to
make life at the station interesting for the next six years.
Apart from some big trucks delivering some huge kit, this
project shouldn’t impact on local people at all, and the
additional people on site will create new opportunities for
value creation in the communities nearby.”
David is motivated by a view well beyond his time so far on
the river.
“I want to hand back these assets – the power station and
the awa – to those who walk in my footsteps, to receive it in
a better condition than I received it. These fantastic assets
have a long history and will forever have a long history.
They’ll be around long after I’ve gone – in 200 years plus,
they’ll still be around.”
* Output based on average since 2000. Average home = 7000kWh per year; average EV = 2200kWh per year.
OUR ANNUAL REPORT 201954 // 55
OUR FINANCIALS
LET’S GET
INTO THE
NUMBERS.
OUR ANNUAL REPORT 2019
56 // 57
FINANCIALS
$505M
OPERATING EARNINGS
(EBITDAF)
$357M
RECORD PROFIT
(UP $123 MILLION)
15.5CPSo
PER SHARE FULL YEAR
ORDINARY DIVIDEND
FINANCIAL
COMMENTARY.
Mercury produced a strong financial result during FY2019
under unusual weather and market conditions.
The financial year started with wet weather across the
Waikato catchment, but turned acutely dry from September
2018. Annual hydro generation was 4,006GWh, in line
with the company’s long-term average, albeit with around
200GWh reduction in Lake Taupō’s level over the year.
Annual geothermal generation set a record at 2,896GWh,
coinciding with record-high annual spot prices caused
by gas supply and thermal generation constraints from
October 2018. These generation constraints pushed
the generation-weighted average price earned above
$138/MWh for the year.
Mercury’s focus on customer value and loyalty resulted in
reduced acquisition activity, as elevated spot prices meant
retail margins were negative for all customer segments over
the year. The average price received for sales to residential
and small commercial customers was up two percent year-
on-year.
Mercury sold our smart-metering business, Metrix, in
February 2019 for $272 million, which has resulted in a
gain on sale of $177 million. The company committed
$256 million in March 2019 to build our first wind farm at
Turitea near Palmerston North, with commissioning from
Q2 FY2021.
6TH YEAR
IN A ROW OPERATING
COSTS HELD FLAT
OPERATING COSTS
The company continued our disciplined
approach to efficient and focussed activity.
Costs, normalised for the adoption of IFRS 15
and 16 and the sale of Metrix, remained flat for
the sixth year in a row.
Operating costs represent the company’s indirect
costs of sales, including salaries and wages,
maintenance costs and all other overheads.
Energy Margin
Operating Costs
Operating Earnings (EBITDAF)
M
$
740
720
700
680
660
640
620
600
220
215
210
M
$
205
200
195
190
M
$
580
560
540
520
500
480
460
440
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Financial Year
Financial Year
Financial Year
ENERGY MARGIN
OTHER INCOME
Mercury’s energy margin of $667 million versus
$730 million in the prior year was achieved
with 800GWh, or 10%, less generation. Hydro
generation, while in line with the company’s
long-run average, was highest in the first quarter
of the year, prior to the sustained increase in spot
prices from October.
Other net income of $37 million was down for
the year due to the sale of the company’s smart-
metering business, Metrix, on 28 February, with
only eight months of revenues reported. Other
income also includes proceeds from property
sales, insurance and dividends received from our
investment in Tilt Renewables.
OPERATING EARNINGS
(EBITDAF)
The company’s $505 million of EBITDAF fell on
the prior year’s record of $566 million, which
benefited from over 800GWh more generation
and a full year of Metrix ownership.
The company’s continued focus on customer
value and rewarding loyalty resulted in reduced
acquisition activity as retail margins contracted
with spot and futures energy costs lifting.
This continues to be reflected in our focus on
meeting our customer promises and providing
better customer-led digital experiences.
Note: Financial results for the periods ended 30 June 2017 and earlier have not been restated for new IFRS standards.
OUR ANNUAL REPORT 201958 // 59
FINANCIALS
PROFIT FOR THE YEAR
The company’s record net profit after tax of
$357 million was up $123 million on the prior
year’s record. Mercury benefited from lower
interest costs as our historical out-of-the-money
hedges matured, and from the gain on sale of
our smart-metering business, Metrix. As with the
prior year, there were no impairments recorded.
11TH
CONSECUTIVE
YEAR OF ORDINARY
DIVIDEND GROWTH
Dividends
Capital Expenditure
Underlying Earnings After Tax
e
r
a
h
s
r
e
p
s
t
n
e
C
25
20
15
10
5
0
M
$
140
120
100
80
60
40
20
0
M
$
200
150
100
50
0
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Financial Year
Financial Year
Financial Year
Interim
Final
Special
Buyback
Stay-in-business
New investment
$161M
UNDERLYING EARNINGS
AFTER TAX
CAPITAL STRUCTURE
AND DIVIDENDS
UNDERLYING EARNINGS
AFTER TAX
Underlying earnings is provided to enable our
stakeholders to make an assessment and
comparison of earnings after removing one-off
and/or infrequently occurring events (exceeding
$10 million of profit before tax), impairments
and any changes in the fair value of derivative
financial instruments.
Underlying earnings after tax decreased by
$37 million to $161 million, reflecting the
company’s stronger EBITDAF performance in
FY2018 which was underpinned by the highest
North Island hydro inflows and total generation
in the company’s history.
The company’s gearing level of 1.9x remains
in line with the strong end of Mercury’s target
range of 2.0x to 3.0x debt/EBITDAF ratio for our
S&P credit rating of BBB+, which was reaffirmed
in December 2018.
Mercury currently holds 39 million shares as
treasury stock and has available debt headroom
within our current facilities of $300 million
and cash and cash equivalents of $94 million.
This continues to provide balance sheet flexibility
for growth.
In line with our dividend policy, targeting a
pay-out ratio of 70% to 85% of Free Cash Flow
on average over time, a fully imputed 9.3 cents
per share final dividend has been declared. This
brings the full-year ordinary dividend to 15.5
cents per share, up from 15.1 cents per share in
FY2018, and marks our 11th consecutive year of
ordinary dividend growth. The final dividend will
be paid on 30 September 2019.
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
costs associated with their sale and the cash
costs of interest and taxes.
BALANCE SHEET
Total assets of the company increased by
$378 million in the financial year, largely due to
a $250 million upwards revaluation of Mercury’s
generation assets due to a lower cost of capital.
It is emphasised that this asset valuation is
completely unrelated to decisions on customer
pricing. Net debt at the end of the year fell to
$1,096 million compared to $1,264 million in
FY2018, primarily due to the sale of Metrix for
$272 million.
The market’s view of thermal generation
availability looking forward has reduced, with
electricity futures prices in FY2020 and FY2021
lifting accordingly to over $105/MWh. Mercury
is well positioned to take advantage of higher
forward prices and committed to build its
first wind farm at Turitea. This represents an
investment of $256 million in 33 V-112 Vestas
turbines at the wind farm, with $23 million
advanced by the end of FY2019.
The company invested $115 million in capital
expenditure (CAPEX), comprising stay-in-
business (SIB) CAPEX of $89 million and
$26 million of growth capex spent mostly
on initial payments in relation to Turitea.
The company continued to invest in major hydro
refurbishment projects at our Aratiatia and
Whakamaru hydro stations and commenced the
refurbishment works at our Karāpiro station.
Mercury continues to invest in our core SAP
customer and financial system. The year
featured the implementation of the SAP
Commerce cloud-based customer relationship
management system and significant upgrades
to the web experience for customers joining
Mercury or moving house.
$89M
OF STAY-IN-BUSINESS CAPEX
$256M
COMMITTED TO BUILDING THE
COMPANY’S FIRST WIND FARM
$272M
PROCEEDS FROM THE SALE
OF THE COMPANY'S SMART-
METERING BUSINESS, METRIX
OUR ANNUAL REPORT 2019
60 // 61
FINANCIALS
FINANCIAL
TRACK RECORD.
INDEPENDENT AUDITOR’S
REPORT.
FINANCIAL PERFORMANCE TRENDS
TO THE SHAREHOLDERS OF MERCURY NZ LIMITED
For the year ended 30 June1 ($ million)
2019
2018
2017
2016
2015
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
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)2
Operational measures
Total recordable injury frequency rate (TRIFR)3
Sales to customers (FPVV, GWh)
Electricity customers (‘000)
Electricity generation (GWh)
667
505
357
3,537
6,484
2,947
326
98
(335)
115
26
89
161
237
211
15.5
–
26.23
1,096
23.7
1.9
0.72
4,500
373
6,902
730
566
234
3,305
6,106
2,801
376
(260)
(141)
118
6
112
198
264
207
15.1
–
17.00
1,264
27.7
1.9
0.87
4,477
388
7,704
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
Financial results for the periods ended 30 June 2017 and earlier have not been restated for new IFRS standards.
1.
2. Adjusted for S&P treatment of subordinated debt issued in FY2015.
3. Per 200,000 hours; includes on-site employees and contractors.
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, Lloyd Bunyan, using the staff and resources of Ernst & Young, to carry out the audit of the consolidated financial
statements of the Group on his behalf.
United States, which are compatible with independence requirements.
These services have not impaired our independence as auditor of
the Group.
Partners and employees of our firm may deal with the Group on normal
terms within the ordinary course of trading activities of the business 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 consolidated financial
statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
We have fulfilled the responsibilities described in the Auditor’s
responsibilities for the audit of the financial statements section of the
audit report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to
our assessment of the risks of material misstatement of the financial
statements. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit
opinion on the accompanying consolidated financial statements.
OPINION
We have audited the financial statements of the Group, on pages
64 to 93 of the Financial Report, that comprise the consolidated
balance sheet as at 30 June 2019, the consolidated income statement,
consolidated statement of comprehensive income, consolidated
statement of changes in equity and the consolidated cash flow
statement for the year then ended on that date, and notes to the
consolidated financial statements that include accounting policies and
other explanatory information.
In our opinion, the consolidated financial statements of the Group
present fairly, in all material respects, the consolidated financial
position of the Group as at 30 June 2019, and its consolidated 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 Professional and Ethical
Standards and the International Standards on Auditing (New Zealand)
issued by the New Zealand Auditing and Assurance Standards Board.
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 Auditing Standards, which incorporate 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 and assurance services, we have carried out
assignments including a review of the Group’s consolidated financial
statements for the six months ended 31 December 2018, remuneration
advisory services and tax advisory and compliance services in the
OUR ANNUAL REPORT 201962 // 63
FINANCIALS
VALUATION OF GENERATION ASSETS
Why significant
How our audit addressed the key audit matter
Generation assets were revalued to $5,347 million at 30 June 2019 as set
out in note 8 of the consolidated financial statements. This is significant
because the generation assets represent approximately 82% of the
Group’s total assets.
The Group engages an independent external party to estimate the fair
value of generation assets using a discounted cash flow model. The most
significant inputs used to calculate the fair value of the generation assets
include the wholesale electricity price path, generation volumes, and the
discount rate.
The wholesale electricity price path is estimated by the Group’s
independent valuation specialist as described in note 8 of the
consolidated financial statements. The model used to estimate the
wholesale electricity price path is complex and includes a number of
significant assumptions (comprising internal and external data).
In obtaining sufficient appropriate audit evidence we:
• met with the independent valuation specialist to understand the
valuation methods adopted and assessed the significant inputs to
the model used to estimate the fair value of the generation assets.
• compared forecast generation volumes to historical
generation volumes.
• involved our own valuation specialists to:
• consider the process over the determination of the wholesale
electricity price path by the Group’s independent valuation
specialist and the extent to which they considered internal
and external data relevant to the wholesale electricity price
path forecast; and
• assess the appropriateness of the discount rate.
• assessed the professional competence, independence and objectivity
of the Group’s independent valuation specialist.
• assessed the adequacy of the related financial statement disclosures
as described in note 8.
VALUATION OF NON- STANDARD ELECTRICITY PRICE DERIVATIVE FINANCIAL INSTRUMENTS
Why significant
The Group’s activities expose it to certain risks which are managed
using derivative financial instruments. At 30 June 2019, the fair value
of derivative assets total $179 million and derivative liabilities total $253
million as set out in note 15 of the consolidated financial statements.
These balances include certain electricity price derivatives for which
the valuation inputs are not readily observable in active primary or
secondary markets and require the use of more complex valuation
assumptions including the Group’s internal wholesale electricity price
path forecast. We refer to these derivatives as Non-Standard Derivatives
which are included within the amounts disclosed in note 15 of the
consolidated financial statements.
How our audit addressed the key audit matter
In obtaining sufficient appropriate audit evidence we:
• involved our valuation specialists and challenged the significant
inputs to the model used to estimate the fair value of the Non-
Standard derivatives. Our valuation specialists:
• evaluated the appropriateness of the valuation
methodologies; and
• compared the Group’s internal wholesale electricity price path
to other price path estimates obtained in performing our
Generation Asset procedures detailed above.
• agreed underlying data to the contract terms on a sample basis.
• assessed key assumptions and inputs.
• assessed the adequacy of the related financial statement disclosures
as described in note 15.
INFORMATION OTHER THAN IN THE FINANCIAL
STATEMENTS AND AUDITOR’S REPORT
The Board of Directors is responsible on behalf of the entity for the Annual
Report and the Financial Report, which includes information other than
the consolidated financial statements and auditor’s report.
Our opinion on the consolidated financial statements does not cover
the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements,
our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the
consolidated 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 directors are responsible on behalf of the entity for the preparation
and fair presentation of the consolidated financial statements for
the Group that comply with New Zealand Equivalents to International
Financial Reporting Standards and International Financial
Reporting Standards.
The director responsibilities arise from the Financial Markets Conduct
Act 2013.
• Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated 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 consolidated 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.
LLOYD BUNYAN // ERNST & YOUNG
ON BEHALF OF THE AUDITOR-GENERAL
AUCKLAND, NEW ZEALAND
20 AUGUST 2019
The directors are also responsible for such internal control as
they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due
to fraud or error, and for the publication of the financial statements,
whether in printed or electronic form.
In preparing the consolidated financial statements, the 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 responsibilities arise from 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
consolidated 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.
OUR ANNUAL REPORT 201964 // 65
FINANCIALS
FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2019
Total revenue
Total expenses
EBITDAF1
Depreciation and amortisation
Change in the fair value of financial instruments
Gain on sale
Earnings of associates and joint arrangements
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 2019
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Movement in asset revaluation reserve
Movement in cash flow hedge reserve transferred to balance sheet
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
2019 $M
2018 $M
4
4
8, 9
15
4
10
4
6
15
10
15
2,000
(1,495)
505
(204)
26
177
1
(75)
430
(73)
357
26.23
1,798
(1,232)
566
(201)
49
–
2
(91)
325
(91)
234
17.00
2019 $M
2018 $M
357
234
244
(1)
(9)
(66)
(118)
1
32
83
440
55
5
14
(17)
33
(64)
(9)
17
251
CONSOLIDATED BALANCE SHEET
For the year ended 30 June 2019
SHAREHOLDERS’ EQUITY
Issued capital
Treasury shares
Reserves
Total shareholders’ equity
ASSETS
Current assets
Cash and cash equivalents
Receivables
Contract assets
Inventories
Derivative financial instruments
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Investment and advances to associates
Advances to joint operations
Derivative financial instruments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables and accruals
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
Note
2019 $M
2018 $M
5
11
7
15
8
9
10
10
10
15
11
13
15
6
11
12
15
13
6
378
(101)
3,260
3,537
94
256
3
23
50
426
5,528
85
234
76
6
129
6,058
6,484
216
541
45
19
821
9
59
208
692
1,158
2,126
2,947
3,537
378
(101)
3,028
3,305
5
226
3
35
31
300
5,370
101
130
88
7
110
5,806
6,106
198
350
24
17
589
6
51
73
951
1,131
2,212
2,801
3,305
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
For and on behalf of the Board of Directors, who authorised the issue of the Financial Statements on 20 August 2019.
The accompanying notes form an integral part of these financial statements.
JOAN WITHERS // CHAIR
20 August 2019
KEITH SMITH // DIRECTOR
20 August 2019
The accompanying notes form an integral part of these financial statements.
OUR ANNUAL REPORT 2019
66 // 67
FINANCIALS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
BALANCE AS AT 1 JULY 2017
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
Acquisition in treasury shares
Other comprehensive income
Net profit for the year
Total comprehensive income for the year
Dividend
Balance as at 30 June 2018
BALANCE AS AT 1 JULY 2018
Movement in asset revaluation reserve, net of taxation
Movement in cash flow hedge reserve, net of taxation
Movements in other reserves
Recycling of fair value losses in available for sale reserves
Share of movements in associates and joint ventures’ reserves
Other comprehensive income
Net profit for the year
Total comprehensive income for the year
Dividend
Balance as at 30 June 2019
Issued
capital
$M
Retained
earnings
$M
Asset
revaluation
reserve
$M
Cash flow
hedge
reserve
$M
Other
reserves
$M
378
–
–
–
–
–
–
–
–
–
378
378
–
–
–
–
–
–
–
–
–
378
203
–
–
–
–
–
–
234
234
(273)
164
164
–
–
2
(15)
–
(13)
357
344
(208)
300
2,849
40
–
–
12
–
52
–
52
–
2,901
2,901
176
–
–
–
–
176
–
176
–
3,077
(53)
–
27
–
2
–
29
–
29
–
(24)
(24)
–
(85)
–
–
(9)
(94)
–
(94)
–
(118)
(50)
–
–
(14)
–
(50)
(64)
–
(64)
–
(114)
(114)
–
–
(1)
15
–
14
–
14
–
(100)
Total
equity
$M
3,327
40
27
(14)
14
(50)
17
234
251
(273)
3,305
3,305
176
(85)
1
–
(9)
83
357
440
(208)
3,537
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 June 2019
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
Acquisition of investment
Disposal of land and associated real property
Distributions received from and advances repaid to associates and joint ventures
Proceeds from the sale of metering business
Net cash received/(used) in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury shares
Proceeds from loans
Repayment of loans
Receipt/(payment) of lease incentives/(liabilities)
Dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents held
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
2019 $M
2018 $M
1,952
(1,478)
1
(70)
(79)
326
(93)
(29)
(55)
–
5
270
98
–
30
(166)
9
(208)
(335)
89
5
94
94
1,800
(1,232)
2
(92)
(102)
376
(94)
(33)
(144)
5
6
–
(260)
(50)
262
(75)
(5)
(273)
(141)
(25)
30
5
5
The accompanying notes form an integral part of these financial statements.
The accompanying notes form an integral part of these financial statements.
OUR ANNUAL REPORT 201968 // 69
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 1. ACCOUNTING POLICIES
(1) REPORTING ENTITY
Mercury NZ Limited (“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 NZX Main
Board and with foreign exempt listed status on the 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 Markets Conduct Act 2013 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:
• 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
The Group has adopted new international financial reporting standards
relating to Financial Instruments (NZ IFRS 9), Revenue from Contracts
with Customers (NZ IFRS 15), and Leases (NZ IFRS 16) for the reporting
period ended 30 June 2019.
The adoption of IFRS 9 has not resulted in a material change to the
Group’s derivative financial instruments. For the impairment of financial
assets, a lifetime expected credit loss has been recognised in the income
statement on trade receivables, with a corresponding adjustment to
provisions on the balance sheet.
The adoption of IFRS 15 results in a change to the Group’s policy relating
to the treatment of credits given to customers and incremental costs (like
commissions) of acquiring or retaining customers. The Group previously
recognised both customer credits and incremental costs of acquisition
or retention as expenses when incurred. The change of policy results
in customer incentives being recognised directly against revenue when
incurred. Incremental costs are recognised on the balance sheet as
customer contract assets, and amortised on a straight-line basis over the
period, which is consistent with the transfer of the benefit to the customer,
assumed to be two years.
The adoption of IFRS 16 results in all leases being recognised on the
balance sheet. Lease payments are now recorded as a repayment of the
lease obligation and interest expense instead of as an operating expense
in the income statement. Lease assets are depreciated on a straight-
line basis over the current lease term. The Group has recognised lease
assets and lease liabilities at the present value of future lease payments
for existing lease terms and all lease renewal options that are reasonably
certain to be exercised. The weighted average incremental borrowing rate
applied to lease liabilities recognised in the statement of financial position
on transition at 1 July 2018 was 6.6%.
IFRS 15 and IFRS 16 have been applied retrospectively. The effect of these
changes in accounting policies are shown in the following table.
During the period a $19 million overstatement of a fair value adjustment
in relation to the US Private Placement borrowings was identified. This
overstatement occurred in 2011 when it was originally booked to the
income statement and has therefore necessitated a prior period change in
2018, through an increase in opening retained earnings and a reduction to
non-current borrowings as included in the following table.
CONSOLIDATED INCOME STATEMENT
Total revenue
Total expenses
EBITDAF
Depreciation and amortisation
Change in the fair value of financial instruments
Earnings of associates and joint arrangements
Net interest expense
Profit before tax
Tax expense
Profit for the year attributable to owners of the parent
CONSOLIDATED BALANCE SHEET
Contract assets
Lease assets (Property, plant and equipment)
Lease liabilities (Borrowings)
Fair value adjustments (Borrowings)
Non-current financial instruments
Deferred tax liability
Retained earnings
Cash flow hedge reserve
NOTE 2. SEGMENT REPORTING
Audited
year ended
30 June
2018 $M
Adjustments
$M
Restated
audited
year ended
30 June
2018 $M
1,803
(1,242)
561
(197)
49
2
(90)
325
(91)
234
–
–
–
(51)
(73)
(1,131)
(145)
24
(5)
10
5
(4)
–
–
(1)
–
–
3
12
(15)
19
–
–
(19)
–
1,798
(1,232)
566
(201)
49
2
(91)
325
(91)
234
3
12
(15)
(32)
(73)
(1,131)
(164)
24
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 operations.
OUR ANNUAL REPORT 2019
70 // 71
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 2. SEGMENT REPORTING (CONTINUED)
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 2019
Total segment revenue
Direct costs
Other operating expenses
Segment EBITDAF
June 2018
Total segment revenue
Direct costs
Other operating expenses
Segment EBITDAF
Energy
Markets
$M
Other
Segments
$M
Unallocated
$M
Inter–
segment
$M
1,975
(1,306)
(127)
542
37
(6)
(13)
18
4
–
(59)
(55)
(16)
16
–
–
Energy
Markets
$M
Other
Segments
$M
Unallocated
$M
Inter–
segment
$M
1,768
(1,046)
(130)
592
53
(6)
(17)
30
2
–
(58)
(56)
(25)
25
–
–
Total
$M
2,000
(1,296)
(199)
505
Total
$M
1,798
(1,027)
(205)
566
The operating results for Metrix for the period up to 1 March 2019 is shown in “Other Segments” above.
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
Impairments/Gain on sale in metering business
Adjustments before tax expense
Tax expense
Adjustments after tax expense
Underlying earnings after tax
Tax has been applied on all taxable adjustments at 28%.
2019 $M
2018 $M
357
(26)
–
(177)
(203)
7
(196)
161
234
(49)
(1)
–
(50)
14
(36)
198
NOTE 4. OTHER INCOME STATEMENT DISCLOSURES
Sales – electricity generation
Sales to customers and derivatives
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
Lease interest expense
Interest income
Net interest expense
RECONCILIATION OF INCOME TO SEGMENT REPORTING
2019 $M
2018 $M
944
1,013
43
2,000
(802)
(422)
(33)
(6)
(33)
(86)
(42)
(71)
(1,495)
(74)
(2)
1
(75)
655
1,096
47
1,798
(527)
(437)
(32)
(6)
(25)
(87)
(51)
(67)
(1,232)
(93)
–
2
(91)
June 2019
Energy Markets
Other Segments
Unallocated
Inter-segment
Total revenue
June 2018
Energy Markets
Other Segments
Unallocated
Inter-segment
Total revenue
Sales - Electricity
generation
$M
944
-
-
-
944
Sales to customers
and derivatives
$M
1,013
-
-
-
1,013
Sales - Electricity
generation
$M
655
-
-
-
655
Sales to customers
and derivatives
$M
1,096
-
-
-
1,096
Other revenue
$M
18
37
4
(16)
43
Other revenue
$M
17
53
2
(25)
47
Total segment
revenue
$M
1,975
37
4
(16)
2,000
Total segment
revenue
$M
1,768
53
2
(25)
1,798
On 1 March 2019, the Company sold its smart-metering business, Metrix, to intelliHUB Group for a cash consideration of $272 million, resulting in a gain on
sale of $177 million. The Metrix contribution to 2019 EBITDAF was $20 million, and the annualised reduction to EBITDAF from the sale is $28 million.
Audit fees
Fees payable to EY, who are appointed by the Auditor-General, for the audit and review of the financial statements were $605,000 (2018: $590,000).
Non-audit services in relation to payroll advisory services were $33,000 (2018: $71,000). EY (US) also provided US tax compliance services in the amount of
$264,000 (2018: $247,000).
OUR ANNUAL REPORT 201972 // 73
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 5. SHARE CAPITAL AND DISTRIBUTION
The share capital of the Company is represented by 1,400,012,517 ordinary shares (2018: 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 1,360,894,041 (2018: 1,374,982,137). These shares do not have a par value, have
equal voting rights, and share equally in dividends and any surplus on winding up.
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.
Treasury shares
Balance at the beginning of the year
Acquisition of treasury shares
Balance at the end of the year
Dividends declared and paid
Final dividend for 2017
Special dividend paid September 2017
Interim dividend for 2018
Final dividend for 2018
Interim dividend for 2019
2019 Number
of shares (M)
2019 $M
2018 Number
of shares (M)
2018 $M
39
–
39
101
–
101
24
15
39
51
50
101
Cents per share
2019 $M
2018 $M
8.8
5.0
6.0
9.1
6.2
–
–
–
124
84
208
121
69
83
–
–
273
No imputation credits are available at 30 June 2019 (2018: $nil) as the imputation credit account has a deficit of $25 million (2018: 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
• other differences
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:
• taxable temporary differences, except those arising from initial recognition of goodwill; and
• deductible temporary differences to the extent that it is probable that they will be utilised.
2019 $M
2018 $M
430
(120)
–
51
(4)
(73)
(81)
8
325
(91)
1
–
(1)
(91)
(97)
6
(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 2017
Charged/(credited) to the income statement
Charged/(credited) to other comprehensive income
Balance as at 30 June 2018
Balance as at 1 July 2018
Charged/(credited) to the income statement
Charged/(credited) to other comprehensive income
Balance as at 30 June 2019
Assets
2019 $M
Assets
2018 $M
Liabilities
2019 $M
Liabilities
2018 $M
Net
2019 $M
Net
2018 $M
–
23
2
2
27
–
5
2
17
24
(1,185)
–
–
–
(1,185)
(1,155)
–
–
–
(1,155)
Property, plant
and equipment
$M
Financial
instruments
$M
Employee
entitlements
$M
(1,155)
17
(17)
(1,155)
(1,155)
26
(56)
(1,185)
29
(15)
(9)
5
5
(14)
32
23
2
–
–
2
2
–
–
2
(1,185)
23
2
2
(1,158)
Other
$M
13
4
–
17
17
(5)
(10)
2
(1,155)
5
2
17
(1,131)
Total
$M
(1,111)
6
(26)
(1,131)
(1,131)
7
(34)
(1,158)
Tax deductions for building depreciation were disallowed by the Inland Revenue from 1 July 2011. 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 accepted the Group’s
view in respect of hydro-electric powerhouse assets, but not in respect of geothermal powerhouse assets.
In July 2019, the High Court issued its decision, in favour of Inland Revenue, that geothermal powerhouse assets were buildings for tax purposes. The Group
has decided not to appeal this decision. This has resulted in a one-off increase to tax expense of $6 million, an additional deferred tax liability of $3 million,
and an increase in provision for income tax of $3 million.
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 $23 million (2018: $26 million) are held to service and repair operating plant. Meter stock of $nil (2018: $9 million) is held in
inventory until it is deployed into the field, at which time it is transferred into property, plant and equipment.
OUR ANNUAL REPORT 2019
74 // 75
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED 30 JUNE 2018
Opening net book value
Additions
Transfers
Net revaluation movement
Depreciation charge for the year
Closing net book value
Balance at 30 June 2018
Cost or valuation
Accumulated depreciation
Net book value
YEAR ENDED 30 JUNE 2019
Opening net book value
Additions
Transfers
Disposals
Net revaluation movement
Depreciation charge for the year
Closing net book value
Balance at 30 June 2019
Cost or valuation
Accumulated depreciation
Net book value
Generation assets at
fair value $M
Meters at cost
$M
Other assets
at cost $M
Right-of-use
assets
Capital work in
progress at cost $M
Total $M
5,241
52
25
55
(158)
5,215
5,352
(137)
5,215
5,215
16
30
(1)
250
(163)
5,347
5,347
–
5,347
53
6
–
–
(11)
48
178
(130)
48
48
3
–
(45)
–
(6)
–
23
(23)
–
39
5
3
–
(10)
37
137
(100)
37
37
25
–
(2)
–
(8)
52
125
(73)
52
16
–
–
–
(4)
12
30
(18)
12
12
42
–
(1)
–
(4)
49
59
(10)
49
55
31
(28)
–
–
58
58
–
58
58
53
(30)
(1)
–
–
80
80
–
80
5,404
94
–
55
(183)
5,370
5,755
(385)
5,370
5,370
139
–
(50)
250
(181)
5,528
5,634
(106)
5,528
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.
Right-of-use assets comprise property and motor vehicles and represents the Group’s right to use those underlying assets as a lessee under
lease agreements.
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 2019. This resulted in an increase to the carrying value of the Group’s hydro and geothermal
generation assets of $151 million and $99 million respectively in the current year. This is in addition to the $55 million revaluation increase recognised across
the Group’s geothermal generation assets in 2018. As a consequence of the revaluation, accumulated depreciation on these hydro and 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 $75/MWh and $106/MWh (2018: $63/MWh and $105/MWh), average operational
expenditure of $158 million p.a. (2018: $160 million p.a.), net average production volumes of 6,703GWh p.a. (2018: 6,620GWh p.a.) and a post-tax discount
rate of between 7.2% and 7.6% (2018: 7.5% and 7.9%). The valuation also assumed the ongoing operation of New Zealand Aluminium Smelters Limited at
Tiwai Point, no material changes to the wholesale market regulatory regime, hydro and geothermal fuel supply being sustained over the modelled horizon
and no material changes to generation consent conditions. 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
2019 $M
2018 $M
+/- 10%
+/- 0.5%
+/- 10%
$833 / ($837)
($531) / $641
($235) / $235
$783 / ($790)
($496) / $592
($231) / $230
The carrying amount of revalued generation assets, had they been recognised at cost, would have been $1,937 million (2018: $1,977 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 fit-out
Generation assets:
• Hydro and thermal generation
• Other generation
Computer hardware and tangible software
Other plant and equipment
Vehicles
2019
2-50%
1-33%
2-33%
5-50%
2-50%
5-33%
2018
2-50%
1-33%
2-33%
5-50%
2-50%
5-33%
OUR ANNUAL REPORT 201976 // 77
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 9. INTANGIBLE ASSETS
YEAR ENDED 30 JUNE 2018
Opening net book value
Additions
Transfers
Surrendered units
Amortisation for the year
Closing net book amount
BALANCE AT 30 JUNE 2018
Cost
Accumulated amortisation
Net book value
YEAR ENDED 30 JUNE 2019
Opening net book value
Additions
Transfers
Disposals
Amortisation for the year
Closing net book amount
BALANCE AT 30 JUNE 2019
Cost
Accumulated amortisation
Net book value
Intangible
software
$M
Emissions
units
$M
Work in
progress
$M
Rights
$M
17
20
34
–
(16)
55
194
(139)
55
55
13
10
(20)
(22)
36
149
(113)
36
22
–
–
–
(2)
20
34
(14)
20
20
1
–
–
(1)
20
34
(14)
20
14
7
–
(5)
–
16
16
–
16
16
7
–
–
–
23
23
–
23
34
10
(34)
–
–
10
10
–
10
10
8
(10)
(2)
–
6
6
–
6
Total
$M
87
37
–
(5)
(18)
101
254
(153)
101
101
29
–
(22)
(23)
85
212
(127)
85
Software
Acquired computer software licences 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 and 15 years (2018:
between 2 and 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 (2018: 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.
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
Principal activity
Type
TPC Holdings Limited
Rotokawa
Ngā Awa Purūa
EnergySource LLC
EnergySource Minerals LLC
Hudson Ranch I Holdings LLC
Investment holding
Steamfield operation
Electricity generation
Investment holding
Mineral extraction
Electricity generation
Associate
Joint operation
Joint operation
Joint venture
Joint venture
Joint venture
Balance at the beginning of the year
Share of earnings
Share of movement in other comprehensive income
Distributions received during the year
Balance at the end of the year
Interest held
2019
25.00%
64.80%
65.00%
20.86%
20.84%
75.00%
2018
25.00%
64.80%
65.00%
20.86%
20.84%
75.00%
Country
New Zealand
New Zealand
New Zealand
United States
United States
United States
Associates
Joint ventures
2019 $M
2018 $M
2019 $M
2018 $M
88
1
(9)
(4)
76
76
2
14
(4)
88
–
–
–
–
–
–
–
–
–
–
At the end of the year the Group had outstanding advances to its Rotokawa joint venture partner in the amount of $6 million (2018: $7 million) and its
associate TPC Holdings Limited of $4 million (2018: $4 million). For terms and conditions of these related party receivables refer to note 17.
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 EnergySource LLC amounting to US$3 million (2018: US$3 million).
At the end of the year the Group had 19.97% (2018: 19.99%) shareholding in Tilt Renewables Limited, a listed company on the NZSX and ASX, and this is
recognised as an investment at fair value through the income statement, with a market value of $2.49 per share or $234 million as at 30 June 2019 (2018:
$2.07 per share or $130 million). During the year, the Group contributed $55 million of equity funding to participate in a capital raise by Tilt Renewables
Limited to fund the Dundonnell windfarm project in Victoria, Australia.
NOTE 11. RECEIVABLES, PAYABLES AND ACCRUALS
RECEIVABLES
Trade receivables and accruals
Allowance for impairment loss
Net trade receivables and accruals
Prepayments
2019 $M
2018 $M
248
(1)
247
9
256
219
(2)
217
9
226
Customers are typically invoiced on a monthly basis. Revenue from large commercial and industrial customers is billed on a calendar month basis, while for
mass market customers billing occurs on a rolling cycle each month and over the year. 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. Generation revenue is derived mostly
from generation sales to the New Zealand wholesale market at the prevailing spot price at the grid injection point. Revenue is invoiced by the Wholesale
Market Clearing Manager on a calendar month basis reflecting actual metered generation at the stations.
OUR ANNUAL REPORT 201978 // 79
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 11. RECEIVABLES, PAYABLES AND ACCRUALS (CONTINUED)
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 $2 million (2018: $3 million) was recognised during the year. Receivables of $3 million (2018: $3
million) which were deemed uncollectable were written off.
Expected credit loss
The Company applies the NZ IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade
receivables.
To measure the expected credit losses, trade receivables have been grouped based on days past due. The expected loss rates are based on the payment
profiles of sales over a 12-month period before 30 June 2019 and the corresponding historical credit losses during the period, adjusted for any significant
known amounts that are not receivable.
On that basis the following table details the loss allowance at 30 June 2019:
Expected loss rate
Gross carrying amount – trade receivable
Loss allowance
Movements in the allowance for impairment loss were as follows:
Balance at the beginning of the year
Charge for the year
Amounts written off
Balance at the end of the year
Payables and accruals
Trade payables and accruals
Employee entitlements
Sundry creditors
More than 30
days past due
More than 60
days past due
More than 90
days past due
%
$M
$M
4
6
–
27
1
–
59
1
1
Total
8
1
2019 $M
2018 $M
2
2
(3)
1
2
3
(3)
2
2019 $M
2018 $M
187
7
31
225
179
8
17
204
Trade payables are non-interest bearing and are normally settled on 30 to 60-day terms.
CONTRACT ASSETS
Contract assets
Opening balance
Additions
Amortised to revenue
Amortised to operating expenses
Closing balance
2019 $M
2018 $M
3
3
–
(3)
3
4
3
(1)
(3)
3
Of the total contract assets balance, $2 million is expected to be amortised within one year of the reporting period and the remainder between one and three
years of the reporting period end.
NOTE 12. PROVISIONS
Balance at the beginning of the year
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Discounting movement
Balance at the end of the year
Current
Non-current
2019 $M
2018 $M
51
6
–
–
2
59
–
59
59
54
1
(2)
(3)
1
51
–
51
51
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.
OUR ANNUAL REPORT 2019
80 // 81
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 13. BORROWINGS
Bank facilities
Commercial paper programme
Wholesale bonds
Capital bonds
Wholesale bonds
USPP – US$125m
Wholesale/credit wrapper
USPP – US$30m
Wholesale bonds
USPP – US$45m
Lease liabilities
Deferred financing costs
Fair value adjustments
Carrying value of loans
Current
Non-current
Borrowing currency
denomination
Maturity
Coupon
2019 $M
2018 $M
NZD
NZD
NZD
NZD
NZD
USD
NZD
USD
NZD
USD
Various
Floating
< 3 months Floating
Mar–2019
Jul–2019
Feb–2020
Dec–2020
Sep–2021
Dec–2022
Mar–2023
Dec–2025
5.03%
6.90%
8.21%
4.25%
Floating
4.35%
5.79%
4.60%
–
199
–
305
31
163
300
39
26
59
69
(1)
43
1,233
541
692
1,233
91
170
76
305
31
163
300
39
25
59
15
(5)
32
1,301
350
951
1,301
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 (USPP) terms and conditions. There has been no breach of the terms of this deed
or the terms and conditions of the USPP.
The Group has $500 million of committed and unsecured bank loan facilities as at 30 June 2019 (30 June 2018: $650 million). The Company executed
$100 million of new facilities, cancelled $150 million of facilities, and $100 million of facilities matured during the reporting period. Of the loan facilities of
$500 million, $100 million expires in June 2021, $100 million expires in August 2022, $100 million expires in October 2022, and a rolling bank loan of $200
million currently expires in December 2020.
The Company 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 S&P.
On 11 July 2019 the Company fully redeemed its $300 million of subordinated capital bonds, and reissued a further $300 million of subordinated capital
bonds at a rate of 3.6%. Refer to note 20 for further details.
The Group has entered into various lease contracts for the right to use land and buildings, motor vehicles and office equipment and is also deemed to be a
lessee of transmission equipment. During the year, the Group commenced a 12-year lease for its new Auckland office.
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 12 years (2018: 13 years), were $1,506 million (2018:
$1,520 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, Euro and Yuan.
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 $102
million (2018: $21 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 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 $2,095 million (2018: $2,466 million).
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
2019 $M
2018 $M
2019 $M
2018 $M
(12)
12
(8)
8
(33)
33
(26)
21
OUR ANNUAL REPORT 2019
82 // 83
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 14. FINANCIAL RISK MANAGEMENT (CONTINUED)
(C) LIQUIDITY RISK
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 – Euro
Currency strengthens by 10%
Currency weakens by 10%
New Zealand Dollar – USD
Currency strengthens by 10%
Currency weakens by 10%
New Zealand Dollar – Yuan
Currency strengthens by 10%
Currency weakens by 10%
Impact on post-tax profit
Impact on equity
2019 $M
2018 $M
2019 $M
2018 $M
–
–
–
–
–
–
–
–
–
–
–
–
(3)
3
(2)
2
(2)
2
(1)
1
–
–
–
–
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 past 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 IFRS 9. 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
(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 with which it has entered into an ISDA master agreement, and which have a
minimum long-term S&P (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.
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 pay-offs, 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 2019
Liquid financial assets
Cash and cash equivalents
Receivables
Financial liabilities
Payables and accruals
Loans
Lease liabilities
JUNE 2018
Liquid financial assets
Cash and cash equivalents
Receivables
Financial liabilities
Payables and accruals
Loans
Lease liabilities
Net inflow/(outflow)
Less than
6 months
$M
6 to 12
months
$M
1 to 5
years
$M
Later than
5 years
$M
94
256
350
(216)
(219)
(4)
(439)
(89)
–
–
–
–
(46)
(4)
(50)
(50)
–
–
–
(9)
(601)
(31)
(641)
(641)
–
–
–
–
(743)
(52)
(795)
(795)
Less than 6
months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
5
226
231
(198)
(285)
(4)
(487)
(256)
–
–
–
–
(98)
(4)
(102)
(102)
–
–
–
(6)
(668)
(29)
(703)
(703)
–
–
–
–
(770)
(60)
(830)
(830)
Total
$M
94
256
350
(225)
(1,609)
(91)
(1,925)
(1,575)
Total
$M
5
226
231
(204)
(1,821)
(97)
(2,122)
(1,891)
Impact on post-tax profit
Impact on equity
2019 $M
2018 $M
2019 $M
2018 $M
Net inflow/(outflow)
(4)
4
(6)
6
13
(16)
20
(21)
OUR ANNUAL REPORT 201984 // 85
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 14. FINANCIAL RISK MANAGEMENT (CONTINUED)
(D) FAIR VALUE ESTIMATION
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 summarises 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 2019
Derivative liabilities – net settled
Derivative liabilities – gross settled
• Inflows
• Outflows
Net maturity
JUNE 2018
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
(64)
104
(102)
(62)
(51)
–
–
(51)
(119)
–
–
(119)
(16)
–
–
(16)
Less than
6 months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
(27)
19
(19)
(27)
(12)
1
(1)
(12)
(52)
–
–
(52)
(15)
–
–
(15)
Total
$M
(250)
104
(102)
(248)
Total
$M
(106)
20
(20)
(106)
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 $60 million (2018: $138 million), $296 million (2018:
$293 million) and $312 million (2018: $301 million) respectively; and (ii) the Capital Bonds, the fair value for which has been calculated at $305 million (2018:
$313 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 2019 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 $44 million were categorised as level 1 (2018: $21 million) and $79 million were categorised as level 3 (2018: $63 million).
Electricity price derivative liabilities of $17 million were categorised as level 1 (2018: $1 million) and $138 million were categorised as level 3 (2018: $9 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
$69/MWh and a maximum price of $114/MWh (2018: minimum price of $63/MWh and a maximum price of $105/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.
OUR ANNUAL REPORT 201986 // 87
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 14. FINANCIAL RISK MANAGEMENT (CONTINUED)
(E) CAPITAL RISK MANAGEMENT
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%
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
Impact on post-tax profit
2019 $M
2018 $M
(6)
6
(1)
1
2019 $M
2018 $M
54
(28)
1
(8)
(78)
(59)
7
2
8
(7)
44
54
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 / (losses)
Deferred inception gains (losses) on new hedges
Deferred inception losses realised during the year
Closing balance
2019 $M
2018 $M
(15)
3
–
(12)
(8)
(5)
(2)
(15)
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
2019 $M
2018 $M
1,233
(43)
(94)
1,096
3,537
4,633
1,301
(32)
(5)
1,264
3,305
4,569
23.7%
27.7%
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, on average through time, to maintain credit metrics sufficient to support
its credit rating on an ongoing 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 less cash and cash equivalents. For the year ended 30 June 2019, the Group had a debt to
EBITDAF ratio of 1.9 times (2018: 1.9 times).
OUR ANNUAL REPORT 201988 // 89
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
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:
2019 $M
2018 $M
CURRENT ASSETS
Interest rate derivative
Electricity price derivative
Foreign exchange derivative
Cross-currency interest rate derivative
CURRENT LIABILITIES
Interest rate derivative
Electricity price 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
6
41
2
1
50
4
40
1
45
2
82
45
129
91
2
115
208
11
19
–
1
31
18
5
1
24
11
64
35
110
65
7
5
77
The majority of 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 IFRS 9 but are treated as at fair value through profit and loss. All other interest rate derivatives (predominantly forward-
starting derivatives), interest rate derivatives and electricity prices derivatives (except those described below) are designated as cash flow hedges under NZ
IFRS 9.
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.
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 Island and South Island generically
called basis swaps. The most significant is a contract with Meridian Energy which has a remaining life of six years.
The changes in fair values of derivative financial instruments recognised in the income statement and other comprehensive income are summarised below:
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
Income statement
Other comprehensive
income
2019 $M
2018 $M
2019 $M
2018 $M
10
(11)
(1)
3
(1)
(26)
–
–
(25)
12
(12)
–
40
–
12
–
(3)
49
–
–
–
(30)
1
(92)
3
–
(118)
–
–
–
(18)
2
49
–
–
33
In addition to the fair value loss on derivative financial instruments, the Group also recognised a fair value gain on its investment in Tilt Renewables Limited of
$51 million.
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
2019 $M
2018 $M
(24)
(118)
1
(1)
(9)
33
(118)
(53)
33
(1)
5
2
(10)
(24)
OUR ANNUAL REPORT 2019
90 // 91
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
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
Carbon costs
Dividend income received from the investment in Tilt Renewables
Net (gain)/loss on sale of property, plant and equipment
Change in the fair value of financial instruments
Gain on sale
Movement in effect of discounting on long-term provisions
Share of earnings of associates and joint ventures
Other non-cash items
Net cash provided by operating activities before change in assets and liabilities
Change in assets and liabilities during the year:
• Decrease/(increase) in trade receivables and prepayments
• (Increase)/decrease in consumable inventories
• (Decrease)/increase in trade payables and accruals
• (Decrease)/increase in provision for tax
• Decrease in deferred tax
Net cash inflow from operating activities
2019 $M
2018 $M
357
234
5
1
204
–
(1)
1
(26)
(177)
4
1
(1)
367
(26)
4
(9)
(2)
(8)
326
197
4
(1)
(2)
(49)
–
(3)
(2)
(1)
378
12
(1)
(1)
(6)
(6)
376
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 received/(paid)
Joint operations
• Management fees and service agreements received
• Energy contract settlements received/(paid)
• Interest income
Transaction value
2019 $M
2018 $M
16
14
12
32
1
14
6
11
2
1
Energy contracts, management and other services are made on normal commercial terms.
An advance to TPC Holdings Limited of $4 million (2018: $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.
No 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
Share-based payments
Transaction value
2019
$000
2018
$000
990
960
6,519
532
8,041
6,275
553
7,788
The year-on-year increase in directors’ fees is due to the appointment of an additional director in September 2017 to bring the Board to its full complement.
OUR ANNUAL REPORT 201992 // 93
FINANCIALS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
NOTE 17. RELATED PARTY TRANSACTIONS (CONTINUED)
NOTE 19. SHARE-BASED PAYMENTS
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
Other operating
commitments
2019 $M
2018 $M
2019 $M
2018 $M
198
129
14
341
40
42
24
106
7
31
173
211
7
17
63
87
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 existing forward
purchase agreements for the acquisition of emissions units, which cover the nine-year period from the end of the reporting period, will also terminate
Operating lease commitments disclosed at the end of the previous reporting period are substantially the same as the lease liabilities disclosed as at 30 June
2018 after adjusting for the effect of discounting.
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 Pouākani land on trust for the Pouākani 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.
The Group holds land at Maraetai, Waikato, that is subject to a remedies hearing brought against the Government in the Waitangi Tribunal pursuant to
the Treaty of Waitangi Act 1975. The remedies hearing relates to an application seeking binding recommendations for the resumption of land at Pouākani,
including the Group’s land at Maraetai. The Group has received advice that the Tribunal’s decision on the matter is unlikely to 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.
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 2019, June 2020 and June 2021. Under the plan, a relative total shareholder return measure is used. Performance is measured
against a combination of: (i) other electricity generators who are 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 $531,516 in relation to equity-settled,
share-based payment transactions (2018: $552,990).
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
2019
2018
745,971
277,001
(199,735)
-
823,237
668,810
260,118
(3,660)
(179,297)
745,971
A total of 286,118 options were exercisable at the end of the year (2018: 199,735) with the remaining options under the plan having a weighted average life of
1.5 years (2018: 1.5 years).
NOTE 20. SUBSEQUENT EVENTS
On 11 July 2019 the Company redeemed the existing $300 million MCY010 bonds and issued $300 million of new unsecured, subordinated bonds
(MCY020). The MCY020 bonds are due to mature in July 2049, unless redeemed earlier, and have a fixed interest rate of 3.6% through to the first reset date,
11 July 2024.
On 17 July 2019 the Board of Tilt Renewables Limited resolved to appoint Mercury's Chief Executive Fraser Whineray to its Board as a non-independent
director, effective from 19 July 2019. The Group is therefore deemed to have significant influence, but not control, over Tilt Renewables Limited from 19 July
2019 and as such it will be deemed an associate of the Group and qualify for equity accounting from that date.
The Board of Directors has approved a fully imputed final dividend of 9.3 cents per share to be paid on 30 September 2019.
There are no other material events subsequent to balance date that would affect the fair presentation of these financial statements.
OUR ANNUAL REPORT 2019
94 // 95
OUR TEAM
YOUR DIRECTORS.
PLEASE SEE OUR
WEBSITE FOR FULL
BIOGRAPHIES.
Please visit mercury.co.nz/leadership
YOUR EXECUTIVE TEAM.
JOAN WITHERS // CHAIR
PRUE FLACKS // DIRECTOR
ANDY LARK // DIRECTOR
FRASER WHINERAY //
CHIEF EXECUTIVE
KEVIN ANGLAND //
GENERAL MANAGER DIGITAL SERVICES
NICK CLARKE // GENERAL MANAGER
GEOTHERMAL & SAFETY
SCOTT ST JOHN // DIRECTOR
KEITH SMITH // DIRECTOR
JAMES MILLER // DIRECTOR
WILLIAM MEEK //
CHIEF FINANCIAL OFFICER
JULIA JACK //
CHIEF MARKETING OFFICER
PHIL GIBSON // GENERAL MANAGER
HYDRO & WHOLESALE
PATRICK STRANGE // DIRECTOR
MIKE TAITOKO // DIRECTOR
ANNA LISSAMAN // FUTURE DIRECTOR
TONY NAGEL // GENERAL MANAGER
CORPORATE AFFAIRS
MATTHEW OLDE //
GENERAL MANAGER
MARLENE STRAWSON // GENERAL MANAGER
PEOPLE & PERFORMANCE
OUR ANNUAL REPORT 201996 // 97
INTEGRATED REPORTING.
In this report and across our disclosures, we continue to refine our approach to provide transparent and
easily understood information.
To ensure our disclosures meet the expectations of stakeholders, we use the principles of the
International Integrated Reporting Framework
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