Mercury’s performance strong in testing year
Results announcement
Results for announcement to the market
Name of issuer Mercury NZ Limited (MCY)
Reporting Period 12 months to 30 June 2020
Previous Reporting Period 12 months to 30 June 2019
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$1,768,000 -11.6%
Total Revenue $1,768,000 -11.6%
Net profit/(loss) from
continuing operations
$207,000 -42.0%
Total net profit/(loss) $207,000 -42.0%
Final Dividend
Amount per Quoted Equity
Security
$0.09400000
Imputed amount per Quoted
Equity Security
$0.03655556
Record Date 15 September 2020
Dividend Payment Date 30 September 2020
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$2.69 $2.54
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Refer to accompanying audited financial statements.
Authority for this announcement
Name of person
authorised
to make this announcement
Howard Thomas, Company Secretary
Contact person for this
announcement
Howard Thomas, Company Secretary
Contact phone number +64 9 308 8200
Contact email address Howard.Thomas@Mercury.co.nz
Date of release through MAP
18/08/2020
Audited financial statements accompany this announcement.
---
`
The Mercury Building, 33 Broadway, Newmarket 1023
PHONE:
+ 64 9 308 8200
mercury.co.nz
PO Box 90399, Auckland 1142
New Zealand
FAX:
+ 64 9 308 8209
Mercury’s performance strong in testing year
FY2020 Financial Results Summary
FY2020 FY2019
Change %
EBITDAF
1
($M) 494 506
↓ 2
NET PROFIT AFTER TAX ($M) 207 357
↓ 42
UNDERLYING EARNINGS AFTER TAX ($M) 164 161
↑ 2
STAY-IN-BUSINESS CAPITAL EXPENDITURE ($M) 114 89
↑ 28
ELECTRICITY GENERATION (GWh) 6,327 6,703
↓ 6
FINAL FULLY IMPUTED ORDINARY DIVIDEND (CENTS PER SHARE)
- TO BE PAID ON 30 SEPTEMBER
TOTAL ORDINARY DIVIDEND (CENTS PER SHARE), FULLY IMPUTED
9.4
15.8
9.3
15.5
↑2
18 August 2020 – Mercury’s overall performance was strong in a testing 2020 financial year affected by
drought across the Waikato catchment which impacted hydro generation from September, and the
disruption caused by the COVID-19 pandemic.
Minimal rainfall in the final quarter of the financial year continued a sequence of record low hydrological conditions.
Lake Taupō hydro storage ended the year almost 100GWh below its long-term mean at the end of June. Hydro
generation for the year of 3,712GWh (4,006GWh FY2019) was approximately 300GWh down against Mercury’s
long-term average. Careful management of Lake Taupō’s storage levels, and prudent hedging, helped lessen the
financial impact of the extremely low inflows.
Geothermal production of 2,615GWh was only modestly down on last year’s record generation (2,697GWh
FY2019), despite scheduled maintenance activity completed through the year.
Operating earnings, (EBITDAF) of $494 million were down $12 million on the prior year – a strong result given the
2020 financial year was the first full year without earnings from the Metrix smart metering business which was sold
in FY2019.
Capital expenditure (CAPEX) of $279 million ($115 million FY2019) represented a high level of activity across
generation assets and investments into information communication technology (ICT) initiatives – all part of ensuring
the platforms for sustaining and growing performance are strong. This included stay-in-business CAPEX of $114
million ($89 million FY2019). Mercury completed multi-year refurbishments at Whakamaru and Aratiatia hydro
stations as well as a three-well geothermal drilling programme at Kawerau and Rotokawa steamfields.
Mercury also advanced construction of the Turitea wind farm, committing $184 million in total to 30 June 2020.
Contractor delivery delays across design and construction, as well as some impacts from the COVID-19 related
lockdown from late March, have set back the construction timetable. Completion of the 33 northern turbines is
STOCK EXCHANGE LISTINGS: NZX (MCY) / ASX (MCY)
NEWS RELEASE
| Page 2 of 3
expected in the final quarter of FY2021, and the 27 southern turbines in the second quarter of FY2022. Project
times remain subject to contractor performance and further COVID-19 restrictions.
Our investment in Tilt Renewables has enabled us, as intended, to participate in renewable energy growth
opportunities in Australia as well as Tilt’s growth in New Zealand.
Operating costs, when normalised for the sale of Metrix and IFRS changes, remained broadly flat for a seventh
year in a row, reflecting Mercury’s disciplined and focussed approach to its core activities.
Net profit after tax (NPAT) of $207 million was down on the prior year’s record ($357 million FY2019) which
benefitted by $177 million from the sale of Metrix. Normalising for this gain on sale, NPAT was up $27 million,
primarily due to lower interest and tax charges more than offsetting the impacts of lower hydrology.
OPERATIONAL HIGHLIGHTS
• Effective management of record low hydro inflows.
• Active portfolio management capturing opportunities in a dynamic wholesale and retail market.
• Announcement of Mercury’s commitment to complete all 60 turbines consented at the Turitea wind farm.
o Advancing construction while adapting to challenges posed by the pandemic lockdown.
• Management of planned geothermal maintenance shuts and well drilling programme.
• Efficient change of a number of customer processes and product offers in response to Electricity Price
Review recommendations.
o Focus on minimising disruption for customers.
• Launch of a new brand campaign, Kiss Oil Goodbye, aimed at being more direct in promoting e.transport
as an alternative to fossil fuel use in the New Zealand economy.
• Investment in data science and analytics capability to better inform our customer strategy.
COVID-19
As well as these operational highlights, Mercury was not alone in having to respond to impacts from the COVID-19
pandemic. This included support for Mercury’s people, customers, partners and suppliers, all done with a focus on
long-term outcomes. Mercury managed a smooth transition to working from home for most of our people during the
Level 4 lockdown; faster payments were arranged for suppliers dependent on cashflow; communications were
stepped up, and more choices offered to help customers; and essential workers were committed and diligent in
their work to keep the lights on for New Zealanders by generating renewable electricity from our hydro and
geothermal assets.
LEADERSHIP
Mercury Chair Prue Flacks noted change that included Joan Withers’ retirement at the company’s September
Annual Shareholders’ Meeting, and Vince Hawksworth, previously Trustpower’s Chief Executive, joining Mercury in
late March, in the midst of the COVID-19 lockdown, to replace Fraser Whineray.
“Vince’s skills and deep experience in the industry have ensured a smooth transition and strong leadership through
this testing period,” Ms Flacks said.
DIVIDEND
Ms Flacks announced the Board had approved a fully imputed final dividend of 9.4 cents per share (CPS), taking
total ordinary dividends for FY2020 to 15.8 CPS, an increase of 2% on FY2019. The dividend will be paid on 30
September 2020. This is Mercury’s 12th consecutive year of ordinary dividend growth.
OUTLOOK
Mr Hawksworth said that the impacts of the COVID-19 pandemic on the economy and on customers will continue
to be felt for some time, requiring careful consideration by Mercury of its decisions, and how it can support positive
outcomes.
| Page 3 of 3
He noted that the announced closure of the Tiwai Point aluminium smelter, and decisions around timing of the
closure, will lead to increased volatility in wholesale electricity markets, and that transmission pricing implications,
and consideration of investments in pumped storage signalled by the Government, will also have market and
investment implications for Mercury and others.
“Within this, we are looking closely at the things we can control,” Hawksworth said.
“We have instigated a programme to enhance our own operational excellence, and we will be investing carefully in
our people, our assets and in digital solutions for our customers.
“Underpinning these activities, we are confident that we have a strong platform, powered by committed people, to
continue to deliver incremental growth and opportunities in accordance with our strategy,” he said.
GUIDANCE
Mercury’s FY2021 EBITDAF guidance has been set at $515 million, subject to any material events, significant one-
off expenses or other unforeseeable circumstances including hydrological conditions. Guidance at the time of this
report assumes 3,900GWh of hydro production. FY2021 SIB capex guidance is $80 million.
FY2021 ordinary dividend guidance is 17.0 CPS, fully imputed, representing a 7.6% increase on FY2020 and the
13th consecutive year of ordinary dividend increases.
ENDS
Howard Thomas
General Counsel and Company Secretary
Mercury NZ Limited
For investor relations queries, please contact:
William Meek
Chief Financial Officer
0275 173 470
For media queries, please contact:
Craig Dowling
Head of Communications
0272 105 337
ABOUT MERCURY NZ LIMITED
Mercury’s mission is energy freedom. Our purpose is to inspire New Zealanders to enjoy energy in more wonderful
ways and our goal is to be New Zealand’s leading energy brand. We focus on our customers, our people, our
partners and our country; maintain a long-term view of sustainability; and promote wonderful choices. Mercury is
energy made wonderful. Visit us at: www.mercury.co.nz
1
Earnings before net interest expense, tax expense, depreciation, amortisation, change in the fair value of financial instruments, gain on sale
and impairments.
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2020 ANNUAL REPORT // MERCURY NZ LIMITED
ENERGY FREEDOM
FOR A CHANGING WORLD.
2
MERCURY ANNUAL REPORT 2020
MENU
ABOUT THIS REPORT
04 WHO WE ARE
05 OUR DIRECTION
06 OUR BUSINESS MODEL
09 CHAIR & CHIEF EXECUTIVE
UPDATE
1. ENERGY FREEDOM TODAY.2. OUR WORLD OF ENERGY FREEDOM.
14 THE WORLD AROUND US
18 ENGAGING WITH OUR STAKEHOLDERS
20 THE RISKS WE FACE
21 PULLING IT ALL TOGETHER
22 CREATING VALUE IN FY20
ABOUT THIS
REPORT.
MENU.
Mercury is committed to providing transparent disclosures in
easily understood, comparable and engaging ways so that we
meet the expectations of our many stakeholders.
This report follows the Integrated Reporting <IR> framework.
We describe Our Business Model, including inputs, outputs
and the outcomes of our strategic approach across five pillars,
taking a long-term view of value creation. We also include a
specific Global Reporting Initiative (GRI) Standards index and
our climate change section follows the Task Force on Climate-
related Financial Disclosures (TCFD).
We have grouped our reporting into five sections to help you
find areas of particular interest, but note that they are all part
of who we are, what we do and why.
Across all this, we seek to report openly and honestly on our
performance in a way that shows the integrated approach
we take.
If you have any comments about this report, including things
we could do better, please email annualreport@mercury.co.nz
STATEMENT FROM THE DIRECTORS
The directors are pleased to present Mercury NZ Limited’s
integrated Annual Report and Financial Statements for the
year ended 30 June 2020. The Auditor-General is required
to be Mercury’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 Mercury. This Annual Report is dated
18 August 2020 and is signed on behalf of the Board by:
3. LIVING ENERGY FREEDOM.
OUR PILLAR STORIES
43 FINANCIAL COMMENTARY
45 FINANCIAL TRACK RECORD
46 INDEPENDENT AUDITOR’S REPORT
49 FINANCIAL STATEMENTS
4. ENERGY FREEDOM IN NUMBERS.5. THE TEAM BEHIND ENERGY FREEDOM.
71 YOUR DIRECTORS & YOUR
EXECUTIVE TEAM
72 GOVERNANCE AT MERCURY
79 REMUNERATION REPORT
85 DISCLOSURES
87 SECURITY HOLDER
INFORMATION
92 SUSTAINABILITY INDICES
- GRI INDEX
- TCFD INDEX
95 INFORMATION FOR
SHAREHOLDERS
96 GLOSSARY
97 DIRECTORY
PRUE FLACKS // CHAIRKEITH SMITH // DIRECTOR
PREPARING FOR CLIMATE CHANGE
33
CUSTOMER
24
PARTNERSHIPS
27
KAITIAKITANGA
30
PEOPLE
36
COMMERCIAL
39
ENERGY FREEDOM TODAY.
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
3
MENU
We are focussed on being here for the long term.
There are interdependencies between a range of
factors that affect our ability to create value over
time. In this section we introduce you to Mercury;
provide an overview of how we operate (Our Business
Model); outline our past and current performance and
outcomes; and share our goals for the future. Our Chair,
Prue Flacks, and Chief Executive, Vince Hawksworth,
then jointly summarise our 2020 financial year.
TURITEA
KARĀPIRO
ARAPUNI
WAIPĀPA
MARAETAI I
AND II
WHAKAMARU
ŌHAKURI
ĀTIAMURI
ARATIATIA
NGĀTAMARIKI
NGĀ AWA
PŪRUA+
LAKE TAUPŌ
ROTOKAWA
MŌKAI+
KAWERAU
AUCKLAND
OUR MISSION:
ENERGY FREEDOM.
We are primarily a generator and retailer of
electricity, focussed on meeting the energy
needs of New Zealanders.
Our mission, which guides us in what we
do and why, is Energy Freedom for all New
Zealanders. This is about Aotearoa New
Zealand being stronger economically and
more sustainable through better use of
homegrown, renewable energy.
Our purpose is to inspire New Zealanders to
enjoy energy in more wonderful ways. We do
this by championing e.transport, providing
offers to our loyal customers and innovating
with digital solutions to make interactions
with us easy and rewarding.
Thinking in an integrated way about how
we create long-term value is part of who
we are. Since 2015, we’ve been building the
understanding across Mercury of how we
collectively contribute to the delivery of our
strategy by following Our Business Model and
focussing on things that matter most. We
generate electricity from 100% renewable
sources: hydro, geothermal and soon, wind.
We also have just under 20% ownership of
Tilt Renewables (NZX:TLT) which has wind
and solar generation developments in New
Zealand and Australia.
Our current electricity generation sites are
situated in the central North Island of New
Zealand, along the Waikato River (hydro) and
nearby steamfields of the northern part of
the Central Plateau (geothermal). Our Turitea
wind farm is being developed in an area
renowned for wind generation – part of the
Tararua Range in the Manawatū region.
Our retail operations serve residential,
commercial (small and medium sized
businesses), industrial and spot market
customers. Sub-brands include GLOBUG,
our pre-pay electricity product.
WHO WE ARE.
We manage a small number of subsidiary
enterprises, such as Mercury Solar (solar
installations) and Mercury Drive (an exploratory
electric vehicle by subscription service). We
also have a solar and battery research and
development (R&D) facility.
We have a corporate office in Auckland,
other offices in Hamilton, Rotorua, Taupō,
Palmerston North and Wellington, as well as
operational sites at our power stations and at
our R&D centre in Penrose, Auckland.
(+ not 100% owned by Mercury)
ENERGY FREEDOM T
ODAY
MERCURY ANNUAL REPORT 2020
4
MENU
R&D CENTRE
HYDRO STATIONS
GEOTHERMAL STATIONS
WIN D FAR M
(under construction)
SOLAR
••
S
H
A
R
E
&
C
O
N
N
E
C
T
••
C
O
M
M
I
T
&
O
W
N
I
T
••
C
U
R
I
O
U
S
&
O
R
I
G
I
N
A
L
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
MENU
5
OUR PURPOSE
OUR MISSION
OUR DIRECTION.
TO INSPIRE
NEW
ZEALANDERS
TO ENJOY
ENERGY IN
MORE
WONDERFUL
WAYS.
ENERGY
FREEDOM.
KAITIAKITANGA
LONG-TERM SUSTAINABILITY OF
NATURAL RESOURCES AND ASSETS.
PEOPLE
ENABLING OUR PEOPLE TO
PERFORM TOGETHER IN A
CHANGING ENVIRONMENT
AND KEEP EACH OTHER SAFE.
COMMERCIAL
ACHIEVING OUR COMMERCIAL GOALS
THROUGH SUSTAINABLE GROWTH.
CUSTOMER
INSPIRING, REWARDING AND MAKING
IT EASIER FOR OUR CUSTOMERS.
PARTNERSHIPS
PROVIDING GREATER OPPORTUNITIES
FOR NEW ZEALAND, OUR INDUSTRY, OUR
PARTNERS AND OUR BUSINESS THROUGH
LONG-TERM COLLABORATION.
••
S
H
A
R
E
&
C
O
N
N
E
C
T
••
C
O
M
M
I
T
&
O
W
N
I
T
••
C
U
R
I
O
U
S
&
O
R
I
G
I
N
A
L
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
MENU
6
348
K
CUSTOMERS
314k residential
32k commercial
2k industrial
300 spot
14
POWER
S TATIONS
786
PERMANENT
EMPLOYEES
309 women
477 men
496 in Auckland
100 in Hamilton
28 in Taupō
61 in Rotorua
101 in rest of NZ
2 geothermal joint ventures
4 formal iwi partnerships
18 community and
commercial partnerships
24
PARTNERSHIPS
3,712
2,615
4,361
GWh HYDRO
GENERATION
GWh GEO
GENERATION
GWh PHYSICAL
SALES
15
%
GENERATION
MARKET SHARE
13
%
CONSUMPTION
MARKET SHARE
INPUTSOUR BUSINESS ACTIVITIESOUTPUTS
OUR BUSINESS MODEL.
9 hydro
5 geothermal
OUR BUSINESS
MODEL EXPLAINED.
Our Business Model shows our key inputs
interacting with our business activities
(which has Our Direction at its core) to create
outputs of sustainable, commercial value.
The outcomes of our activity are measured
and take us towards mid-term and long-term
goals that reflect our enduring mission.
OUR BUSINESS MODEL
IS CONTINUED OVER
THE NEXT PAGES
78
K
SHAREHOLDERS
2
K
BONDHOLDERS
KAITIAKITANGA
LONG-TERM SUSTAINABILITY OF
NATURAL RESOURCES AND ASSETS.
PEOPLE
ENABLING OUR PEOPLE TO
PERFORM TOGETHER IN A
CHANGING ENVIRONMENT
AND KEEP EACH OTHER SAFE.
COMMERCIAL
ACHIEVING OUR COMMERCIAL GOALS
THROUGH SUSTAINABLE GROWTH.
CUSTOMER
INSPIRING, REWARDING AND MAKING
IT EASIER FOR OUR CUSTOMERS.
PARTNERSHIPS
PROVIDING GREATER OPPORTUNITIES
FOR NEW ZEALAND, OUR INDUSTRY, OUR
PARTNERS AND OUR BUSINESS THROUGH
LONG-TERM COLLABORATION.
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
MENU
7
We are inspiring, rewarding and
making it easy for customers in our
target segments.
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.
We understand and are managing
the long-term sustainability of the
natural resources and assets that
we rely on.
• Brand strength
• Churn
• Net Promoter Score
Electricity is viewed as an enabler
of the transition to a low carbon
economy.
Key stakeholder relationship plans are
in place and are in effect.
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.
Integrated Management Plans are
in place facilitating our long-term
approach.
Recognised as a leader in the ultra-
long-term management of both
physical and natural assets.
New Zealand’s leading energy brand.
PARTNERSHIPS
KAITIAKITANGA
WHAKAMARU
REFURBISHMENT
COMPLETE; KARĀPIRO
APPROVED
MERCURY BRAND
TRADER CHURN
5.9
%
NET PROMOTER
SCORE (NPS)
13.7
BRAND STRENGTH
60
%
CO
2
E/MWh
GROSS GENERATION
EMISSIONS INTENSITY
36
KG
WORKED WITH
SUPPLIERS TO
MITIGATE LOCKDOWN
IMPACTS
COVID-19
ELECTRICITY
PRICE REVIEW
RECOMMENDATIONS
BEING ACTIONED
EPR
COMMUNITY
RELATIONSHIPS
16
1.02
PORTFOLIO
LWAP/GWAP
HYDRO
CUSTOMER
FY20
OUTCOMES
OUR
PILLARS
M ID -T ER M
STRATEGIC GOALS
HOW WE
MEASURE THIS
LONG-TERM
STRATEGIC GOALS
OUR BUSINESS MODEL. (CONTINUED)
For a definition of these measures please see our Glossary.
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
MENU
8
EMPLOYEE
ENGAGEMENT
67
%
PEOPLE
COMMERCIAL
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.
We deliver EBITDAF growth and
maintain an appropriate average for
stay-in-business CAPEX investment,
while operating within agreed
risk parameters.
• Employee engagement
• No serious injuries
Progressive ordinary dividends
enabled by sustainable earnings
growth.
Leading our sector in terms of
financial performance and
shareholder returns, earning at
least our cost of capital.
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.
HIGH SEVERITY
HEALTH & SAFETY
INCIDENT
ONE
ANNUAL TOTAL
SHAREHOLDER
RETURN
4.5
%
STAY-IN-BUSINESS
CAPEX
$114
M
OF EMPLOYEES FELT
PRODUCTIVITY WAS
THE SAME OR BETTER
WHILE WORKING
REMOTELY DURING
LOCKDOWN
85
%
FY20
OUTCOMES
OUR
PILLARS
M ID -T ER M
STRATEGIC GOALS
HOW WE
MEASURE THIS
LONG-TERM
STRATEGIC GOALS
WIND
COMMITMENT
TO FULL TURITEA
WIND FARM
OUR BUSINESS MODEL. (CONTINUED)
For a definition of these measures please see our Glossary.
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
9
MENU
CHAIR & CHIEF
EXECUTIVE UPDATE.
Mercury’s overall performance was strong
in a testing 2020 financial year affected by
drought across the Waikato catchment, which
impacted hydro generation from September,
and the disruption caused by the COVID-19
pandemic.
Minimal rainfall in the final quarter continued
a sequence of record low hydrological
conditions. Lake Taupō hydro storage ended
the year almost 100GWh below its long-term
mean at the end of June.
Hydro generation for the year of 3,712GWh
(4,006GWh FY19) was approximately
300GWh down against our long-term
average. Careful management of Lake
Taupō’s storage levels, and prudent hedging,
helped lessen the financial impact of the
extremely low inflows.
Geothermal production of 2,615GWh was
only modestly down on last year’s record
generation (2,697GWh FY19), despite
scheduled maintenance activity completed
through the year.
Operating earnings, (EBITDAF) of $494
million were down $12 million on the prior year
– a strong result given FY20 was the first full
year without earnings from the Metrix smart
metering business, which was sold in FY2019.
Capital expenditure (CAPEX) of $279 million
($115 million FY19) represented a high level
of activity across our generation assets and
information communication technology
(ICT) investment – all part of ensuring our
platforms for sustaining output are strong.
We completed multi-year refurbishments at
our Whakamaru and Aratiatia hydro stations
as well as a three-well geothermal drilling
programme at Kawerau and Rotokawa
steamfields.
We also advanced construction of the Turitea
wind farm, having committed $184 million in
total to the end of June. Contractor delivery
delays across design and construction, as well
as some impacts from the COVID-19 related
lockdown from late March, have set back the
construction timetable. Completion of the
33 northern turbines is expected in the final
quarter of FY21, and the 27 southern turbines
in the second quarter of FY22. Project times
remain subject to contractor performance
and further COVID-19 restrictions.
Our investment in Tilt Renewables has
enabled us, as intended, to participate in
renewable energy growth opportunities
in Australia as well as Tilt’s growth in
New Zealand.
VINCE HAWKSWORTH // CHIEF EXECUTIVE
PRUE FLACKS // CHAIR
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM T
ODAY
MENU
10
Operating costs, on a normalised basis,
remained broadly flat for a seventh year in a
row, reflecting our disciplined and focussed
approach to its core activities.
Net profit after tax of $207 million was down
from the previous year’s record ($357 million
FY19), which benefitted by $177 million from
the sale of Metrix.
Total shareholder returns (TSR) through
the year were 4.5%, reflecting underlying
strength and solid execution in a challenging
environment. Mercury’s market capitalisation
was $6.4 billion at financial year end ($6.3
billion FY19).
Further details can be read in our Financial
Commentary and Financial Statements.
CAPITAL MANAGEMENT
Mercury continues to be well positioned
from a liquidity and capital perspective.
We undertook $600 million of refinancing
through the year, split evenly between new
bank facilities and a capital bond.
Our gearing ratio is 2.0, in line with the
strong end of our target range of 2.0x to
3.0x debt/EBITDAF ratio. We continue to look
for opportunities to further strengthen our
capital position.
Our capital management initiatives support
Mercury’s investment-grade credit rating
(BBB+), which was reaffirmed by Standard
& Poor’s (S&P) Global Ratings in December
2019. A review conducted by S&P, following
the announced decision by Rio Tinto to
shut Tiwai Point aluminium smelter, saw no
change in this rating.
We are pleased to declare a fully imputed
final dividend of 9.4 cents per share (CPS).
This brings the full-year ordinary dividend to
15.8 CPS, up 2% (15.5 CPS FY19), marking
our 12th consecutive year of ordinary
dividend growth.
Guiding our approach to maintaining
incremental dividend increases, we recognise
that we have a large register of retail
shareholders who appreciate our efforts to
sustain this in a low interest rate environment
that we anticipate is likely to continue.
YOUR BOARD
Joan Withers’ retirement in September
created a Board vacancy that we were very
pleased to fill later in the financial year
with the appointment of Hannah Hamling.
Hannah has a broad range of applicable
governance skills and specific expertise
in water management which will be of
ongoing value to Mercury. She will seek
election at our 2020 Annual Shareholders’
Meeting along with those directors retiring
by rotation.
We continue to support the Future Directors
programme which aims to improve the
pipeline of talent coming into governance.
We appreciated the contribution of Anna
Lissaman, who finished her term as Future
Director during the year, and we have
commenced the process of making another
appointment.
COVID-19 PANDEMIC
The COVID-19 pandemic tested our incident
response processes, support structures
for our people and our resilience as an
organisation. How people responded
to support each other, our customers,
suppliers and communities through such
an unprecedented and sustained disruption
was a major highlight that is outlined in
more detail in The World Around Us.
HIGHLIGHTS
In our 2019 Annual Report, we signalled a
number of activities that would be important
to us in the year ahead. We are pleased to
confirm that, not only have we advanced
construction of stage one of the Turitea
wind farm, in November we were able to
announce our commitment to complete the
wind farm to the full extent of the consented
60 turbines at a total cost budgeted at $464
million. This will ultimately make Turitea New
Zealand’s largest wind farm. Electrons will
It is a pleasure to present to you Mercury’s 2020 Annual Report,
my first as Chair after succeeding Joan Withers who retired at our
September Annual Shareholders’ Meeting (ASM).
One of my early tasks was to manage the appointment of a new Chief
Executive to replace Fraser Whineray who left in the third quarter for a
role in another sector.
I would like to acknowledge the significant contributions of Joan
Withers and Fraser Whineray to Mercury over a long period, including
part of the 2020 financial year.
The Board was extremely pleased to appoint Vince Hawksworth as
our new Chief Executive. Vince joined us in the midst of the COVID-19
lockdown at the end of March. Although this was a challenging time to
step into the role, Vince’s skills and deep experience in the industry have
ensured a smooth transition and strong leadership through this period.
We are all very conscious of the current environment and the potential
impacts on our customers, communities, suppliers and partners over
the longer term. My focus is ensuring the Board supports Vince and his
executive team to keep our people safe, support our customers, and
continue to deliver on our strategy for the benefit of our owners and
wider stakeholders.
PRUE’S KEY
OBSERVATIONS.
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start to flow in 2021, and on completion it will
provide enough renewable electricity annually
to power more than 375,000 electric vehicles.
We continued our focus on customer value
to successfully manage our positions in
elevated and volatile wholesale markets,
which continued to be a feature through the
year.
We completed refurbishments at
Whakamaru and Aratiatia hydro stations,
part of a multi-year programme across our
stations to ensure efficient performance
well into the future. In the case of the
Whakamaru refurbishment, an additional
20% capacity has been achieved, equivalent
to adding an extra turbine. We advanced
planning for our Karāpiro rehabilitation,
however replacement of the first main
generating unit is now scheduled for
August FY22, as a result of delays related to
COVID-19.
Detailed workforce planning continues, with
a pilot completed through the year aimed at
testing ways to build a workforce that is agile
and digitally enabled.
SECTOR DYNAMICS
The electricity sector has again performed
well in managing, for New Zealanders, the
energy ‘trilemma’ of energy security, energy
equity, and environmental sustainability of
energy systems.
Supply was secure and stable despite an
unprecedented dry weather sequence in the
North Island. At the same time the Electricity
Retailers Association (ERANZ) reported in
May that the average annual power bill has
continued to fall, reaching a new 11-year low
in real terms. This is a reflection of a range of
measures over this period that encouraged
increased competition, and also measures
towards efficient use of electricity, which
Mercury fully supports.
There has been material progress made
on advancing the safe and secure sharing
of customer data to enable better network
planning with distributors. This has been
enabled by the Electricity Authority’s
(EA) move to implement a data sharing
agreement, which we fully support. The data
sharing, which will be advanced in FY21, will
support greater innovation and reliability
outcomes for consumers.
We supported the intent of the Government’s
Electricity Price Review (EPR), and actively
put in place changes based on the EPR’s
outcomes.
Our assessment of the EA’s transmission
pricing methodology (TPM) guidelines, as well
as its draft ruling against Meridian Energy on
a claim of creating an undesirable trading
situation (UTS) is outlined in The World
Around Us.
CUSTOMERS
Understanding the impacts of the COVID-19
pandemic on our customers, and responding
quickly and empathetically in a fast-changing
environment, was not without its challenges.
There was some great work undertaken to
put in place new payment solutions for those
whose incomes were disrupted. Specific
initiatives are outlined in the section The
World Around Us.
Our focus on loyalty continued with
initiatives such as our Mercury App engaging
customers with activity-based incentives
during the COVID-19 lockdown.
Our focus on yield, rebalancing our portfolio
towards commercial and industrial customers,
saw residential customer numbers down
3.7% to around 314,000. After two years
of no mass market headline price changes,
we communicated retail price changes in
Februar y.
We launched a new brand campaign, ‘Kiss Oil
Goodbye’ in February, aimed at more boldly
driving a transition to e.transport, but quickly
made the decision to pause the campaign
when the pandemic hit. It was restarted
in July. We believe that it is important to
support demand for renewable energy by
reinvigorating the movement for a transition
away from fossil fuels.
Starting my role as Chief Executive of Mercury in the first week of
the country’s Level 4 COVID-19 lockdown was both challenging and
exciting.
My first impression was of an organisation that had smoothly and
capably transitioned to ensure our employees could safely operate the
business to generate electricity and support our customers.
Subsequently, I have been delighted to visit and get to know our assets
and to meet many of our people face to face. The passion for “Energy
Freedom” is demonstrated in their actions every day.
However, it is the combination of great assets, passionate people and
clear mission that provides a strong platform for performance even in
the face of an increased level of uncertainty as Mercury navigates the
closure of the Tiwai Point aluminium smelter and the economic and
social impacts of COVID-19.
I look forward to leading the Mercury team in this period of change to
achieve outstanding results.
VINCE’S KEY
OBSERVATIONS.
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PEOPLE
Our people showed tremendous resilience
in the face of New Zealand’s pandemic
response. Individuals and teams adapted
well to changed work circumstances, and
our previous investments in digital ways of
working helped support the transition away
from, and back to, our physical places of work.
We surveyed our people about their
experiences and are looking at ways to
embed lessons on effective flexible working
arrangements so we are ready to adapt
quickly again to changing circumstances if
required.
... THEIR WELLBEING, HEALTH & SAFETY
The wellbeing, health and safety of our people
continues to be a fundamental focus of
attention.
All senior leaders undertook a mental
wellbeing awareness course, initially delivered
face-to-face but adapted for online learning
as most of our people worked from their
homes through the period of the COVID-19
lockdown.
Support was offered, to our people impacted
by the COVID-19 lockdown, with particular
care given to employees over 70 or immuno-
compromised.
It was disappointing to us that there was one
serious harm incident during the year (zero in
FY19). Our thoughts were with the individual,
who suffered a broken leg while working at
one of our hydro sites. He has subsequently
made a return to work. We continue to work
hard on safety controls, with a focus on
reducing the likelihood of serious harm or
other significant events.
LOOKING FORWARD
We operate in an uncertain environment
and there is no room for complacency. The
impacts of the COVID-19 pandemic on the
economy will continue. The announced
closure of the Tiwai Point aluminium
smelter, and decisions around timing of the
closure, will lead to increased volatility in
wholesale electricity markets. Transmission
pricing implications, and consideration of
investments in pumped storage signalled by
the Government, will also have market and
investment implications for us and others.
In this environment we must look at the
things we can control. We have instigated a
programme to enhance our own operational
excellence, ensuring we have the right people
in the right places, doing the right things
effectively and efficiently.
We will be investing carefully in our people,
in our assets, and in digital solutions for our
customers.
Underpinning these activities, we are
confident that we have a strong and resilient
platform, powered by committed people, to
continue to deliver incremental growth and
opportunities in accordance with our strategy.
FY21 ACTIVITIES
• Completion of Turitea wind farm, and
further preparation work for Karāpiro hydro
station refurbishment.
• Advance our digital choices for customers,
including investigating ways to improve our
customers’ experience assisted by voice
biometrics.
• Programmes rolled out to build a workforce
fit for a quickly changing environment.
• Operational excellence initiatives.
GUIDANCE
Mercury’s FY21 EBITDAF guidance has been
set at $515 million, subject to any material
events, significant one-off expenses or other
unforeseeable circumstances including
hydrological conditions. Guidance at the time
of this report assumes 3,900GWh of hydro
generation. FY21 stay-in-business CAPEX
guidance is $80 million.
FY21 ordinary dividend guidance is 17.0 CPS,
fully imputed, representing a 7.6% increase
on FY20 and the 13th consecutive year of
ordinary dividend increases.
On behalf of your Board and Executive
Management Team (EMT) we gratefully
acknowledge the contribution of our people,
the loyalty of our customers and the support
of our partners and owners to our business.
Together we are Mercury,
Energy made Wonderful.
Ngā mihi nui ki a koutou katoa.
PRUE FLACKS // CHAIR
VINCE HAWKSWORTH // CHIEF EXECUTIVE
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OUR WORLD OF ENERGY FREEDOM.
In this section we cover how we take into account and
respond to key changes in our external environment;
how we consider our stakeholders’ identified needs,
interests and opportunities; the risks we face; and
how we balance trade-offs through the lens of what
matters most. We outline how this all shapes our
focus on how we create value.
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Mercury operates within a wider world. While what
we do has impacts on other parties (for example,
customers, partners and the environment), factors
outside of our business impact us. These can present
risks, challenges and opportunities so we put effort
into understanding external factors most material
to our business and use this understanding to guide
our decisions.
COVID-19 PANDEMIC
The most disruptive unanticipated external
factor to impact us has been the COVID-19
pandemic. In addition to day-to-day
execution of our strategy and delivery of
our scorecard targets, we had to turn our
attention in the second half of the financial
year to limiting the impact of the pandemic
on our business.
Our Incident Management Plan was activated
on 31 January 2020 to ensure effective
coordination of our response across people,
customers, suppliers and stakeholders.
Outlined here are responses across key areas.
People
We put our focus on people’s safety and
wellbeing while maintaining business
continuity. On 19 March, we successfully
tested technology systems to ensure all
people in non-essential roles could work
from home. On 23 March, the Government
announced a move to Alert Level 3 for 48
hours to prepare for a move to Alert Level 4,
which would require most people to work from
home and only leave their homes for essential
travel.
Work was completed to identify and have
processes in place for essential workers. These
workers included spot traders/electricity
dispatchers, station operators, payroll and staff
or contractors providing essential maintenance
services (e.g. for our Aratiatia refurbishment
and Ngātamariki generator maintenance).
Essential workers over 70 years old or
immunocompromised were contacted to
ensure safety and wellbeing needs were met.
THE WORLD
AROUND US.
Communications to our people were frequent
and focussed on providing reassurance and
helping to keep people connected. We set
up a dedicated email inbox so our people
were able to get direct answers to queries
and so we could identify any employees or
family members at higher risk of contracting
COVID-19.
Surveys were undertaken to understand the
impact of lockdown on wellbeing, productivity
and comfort levels and this resulted in some
direct contact with individuals who were
struggling and needed help.
The national response moved from Alert
Level 4 to Alert Level 3 on 27 April. On 18 May
at Alert Level 2 we initiated a phased return
to work.
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Transitioning across the alert levels included
logistics associated with equipment,
reconfiguring workspaces and the way activity
on sites was completed, and a redesign of all
training for it to be conducted virtually.
On 8 June, we made a full return to the office.
In June, we surveyed employees on their
experiences of working during lockdown.
54% of employees responded, answering
questions about productivity, decision making
and staying connected. Most found these
factors either improved or stayed the same
during lockdown.
Customers
Our primary focus was on providing support
and help to those customers who needed it
most. The programme of work during this
time was significant and included:
• creating a new web page for customers
looking for reassurance and support as a
result of COVID-19
• establishing a dedicated COVID-19 phone
number
• pausing debt collection processes and
disconnections
• making GLOBUG calls from mobiles
toll-free
• contacting over-the-counter payers to offer
alternatives
• initiating a programme to mitigate risks
with resuming energy management
processes for GLOBUG customers
• designing and implementing phone-based
collection reminder processes for GLOBUG
customers
• launching a free power hour offer to
customers while in lockdown
• aligning the Mercury App challenges to
being active at home
• rolling out a ‘boredom buster’ campaign
to engage with customers
• developing a small commercial
segmentation approach that allowed for
differentiated payment support for small
businesses
• sponsorship of the SOS Business initiative
to help small businesses with cashflow
Stakeholders
We provided weekly situation reports to the
National Emergency Management Agency
(NEMA) and proactively communicated
with key Wellington stakeholders including
Ministers, Government officials and regulators.
These were welcomed by the recipients.
We undertook engagement with regulatory
and government stakeholders on the
measures we implemented to support
customers. Particular focus was given to
GLOBUG customers facing growth in debt
when energy management processes were
paused. We received positive feedback from
stakeholders around our proactive, pragmatic,
and transparent approach.
Transpower effectively coordinated with
generators around security of supply.
While some maintenance was deferred,
essential works continued, conscious of
winter approaching. We answered a number
of information requests from Transpower,
Ministry of Business, Innovation and
Employment (MBIE) and Treasury around
our COVID-19 preparedness and response.
Suppliers
We engaged early during lockdown with
a range of key suppliers. After effecting
the changes necessary for lockdown, our
conversations focussed on opportunities to
enable contractors to maintain staff where
possible, and for staff to maintain income
levels. We were able to provide support
through a range of initiatives including:
• providing work to core generation
contractors that they could complete from
home to complement the limited on-site
work they were undertaking
• our procurement team working closely with
suppliers who employ a number of low-paid
vulnerable workers. We made a number of
concessions to help to keep those workers
in employment
• the Rotokawa Joint Venture team working
closely with MB Century to keep its drilling
crew together through the lockdown period
so they were able to return to complete well
drilling when that was allowed
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We worked with our iwi partners to support
them as they responded to the needs of their
people while working remotely. Our support
included:
• sharing our call centre and ICT expertise to
assist Raukawa management to coordinate
its transition to working from home
and manage community support cases
remotely
• supporting Waikato-Tainui’s initiative to buy
and distribute heaters for its kaumātua
• working with Tūwharetoa to consider
increasing distribution of partnership
fund reserves to support its people most
affected by COVID-19
Key lessons
Through our transition from incident
management and response to recovery
mode, we held formal debrief sessions for our
incident management teams. Items identified
in these sessions will be used by business
units to update their Business Continuity
Plans and Incident Management Processes.
Key lessons include:
• technology worked well to enable working
from home – transitioning from Skype to
Microsoft Teams will further enhance virtual
work practices
• incident management teams enabled
collaborative and fast decisions informed
by data – business units are considering
how to incorporate these practices into lead
team management
• working from home required new ways
of working for remaining paper-based
processes – transition to digital processes
has been accelerated
• most of our people enjoyed working
from home – we advanced Executive
Management Team (EMT) discussions
on what increased flexibility could look like
for us
ELECTRICITY PRICE REVIEW
We welcomed the findings from the
Government’s Electricity Price Review (EPR).
Areas for priority attention were: reforms
to the vulnerable consumer and medically
dependent consumer guidelines; prompt-
payment discounts; and saves and win-
backs. Resources were allocated to ensure
implementation of changes consistent with
the policy intent while considering the best
interests of our customers. We continue to
engage with the Government and regulators
on outstanding areas of EPR reform, including
market making and the phase-out of the Low
Fixed Charge Tariff Regulations.
TRANSMISSION PRICING METHODOLOGY
The Electricity Authority (EA) announced
its new transmission pricing approach in
June 2020. The principle applied is that the
shared costs of maintaining and upgrading
the national electricity grid will be allocated
according to benefits gained, as opposed
to being evenly spread across the country.
Transpower, which maintains the national
grid, is expected to come up with a pricing
structure in line with the EA’s new guidelines
by 30 June 2021 with new pricing to be in
place by April 2023. The final impact to us
will not be known until Transpower completes
its review. Following the announcement there
have been a number of factors that may
result in further delays to implementation
or potential changes in approach including
a judicial review of the EA’s process and the
impacts of the closure of the Tiwai Point
aluminium smelter.
WAT ER
The Government released its freshwater
management plan in May 2020. Engagement
through the consultation process has
helped lessen regulatory environmental
risks to electricity generation (operation
and flexibility). Implementation of the
Government’s proposals will be through
regional plan reviews carried out over the
next six to seven years. We are one of many
with an interest in freshwater reform and will
continue to participate in central and local
government initiatives to improve freshwater
quality and management. Our planning for
a Waikato World’s Best Catchment strategy
features as our Partnership pillar story .
TIWAI POINT ALUMINIUM SMELTER
The announcement by the owners of the
Tiwai Point aluminium smelter that the
smelter would end its contract with Meridian
Energy for electricity supply in August 2021
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came after the end of our financial year. We
note that Transpower is progressing with
its plan for transmission upgrades. Until
completion, we expect significant spot price
separation between the North and South
Island. The cost of transmission upgrades
will also have upward impacts on prices for
consumers that will offset softer demand
immediately following the smelter’s closure.
Our view remains that we are relatively well
positioned, with our North Island generation
sources close to high demand areas.
LOOKING FORWARD
We had previously viewed market supply and
demand as having achieved balance, allowing
a clear pathway for generation development,
supported by our ongoing leadership in
e.transport. Following the announcement
on the pending closure of the Tiwai Point
aluminium smelter, there is an increased
risk of volatility in the market, as supply and
demand will have to rebalance yet again.
There remains the opportunity for renewable
electricity growth as decarbonisation of
the economy continues to be an enduring
theme. MBIE scenario modelling* suggests
that demand for renewable electricity may as
much as double in the period to 2050.
There are heightened financial risks due
to the economic impact of the COVID-19
pandemic, including pricing pressures, which
point to the clear need to focus on efficiency.
In addition, there needs to be greater clarity
from the Government on essential services
designation for critical infrastructure like
Turitea.
There are also opportunities for greater
flexibility of work arrangements due to the
proven ability of many of our people to work
from home, as well as the opportunity to
accelerate digitisation to support our people
and our customers.
There is potential for various interventions
related to the sector to be suggested as part
of the election cycle. These could come in
the form of renewable energy incentives
and/or new energy initiatives. The EA will be
making a final ruling on its consideration of
an undesirable trading situation complaint
against Meridian Energy. A consequence
could be a review of market trading
provisions. An incident of poor behaviour by
one market participant should not be seen as
an indication of systemic failure.
We will continue to advocate for recognition
of New Zealand’s electricity sector as being
well functioning and balanced in terms
of the energy trilemma, being energy
security, energy equity, and environmental
sustainability of energy systems. Policy should
focus on the most material opportunities to
transition to a low-emissions future for New
Zealand’s economy, such as the electrification
of transport and process heat, while not
disrupting the trilemma.
* Electricity demand and generation scenarios (EDGS), July 2019
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Building and maintaining
relationships with stakeholders
across our business is crucial to
our success. Our strategy and
business plans are developed with
consideration given to the relevant
needs and wants identified by these
stakeholders as most important to
them.
This year, we wanted to engage with
our nine stakeholder groups and
were all set to go when the country
went into lockdown. We consulted
those closest to our stakeholders,
our internal relationship owners, and
the consensus was it would be more
appropriate if they completed the
survey on behalf of their stakeholder
groups. We will undertake the
detailed stakeholder engagement,
we had planned, later in 2020, when
the time is right.
Stakeholders, their specific role,
how we engage with them and
what’s important to them are
described here.
PARTNERSHIPSSHAREHOLDERS & INVESTORSIWIGOVERNMENT & REGULATORS
Via our partnerships, we seek and deliver
opportunities through which we can develop
mutually beneficial ventures aligned with our
mission, purpose, vision and goal.
Approximately 80,000 investors and
shareholders provide the stability and
financial capital for our business to grow
and continue to create value.
Our close relationships with iwi provide us
with the platform through which to establish
long-term, mutually beneficial partnerships
and plans.
Government and regulators set the
regulatory frameworks that determine our
operating environment and provide the
construct within which we can develop our
business.
WHAT IS IMPORTANT TO THEM ABOUT MERCURY THIS YEAR?
• Natural resources
• Brand
• Loyalty
• Operational excellence
• Generation development
• Safety & wellbeing
• Natural resources
• Generation development
• Climate change
• Safety & wellbeing
• Climate change
• Customer experience
HOW DO WE ENGAGE WITH THEM?
We build positive, mutually beneficial,
longstanding relationships with the
communities in which we operate. Some of
the ways we engage with our partners are
through commercial joint ventures, customer
reward partnerships, and by dedicating time
and effort into understanding each other’s
business.
Our shareholders and investors are the
backbone of our business. We engage
through material market updates, annual
and half year reports, earnings and dividends
announcements and quarterly operating
reports, adhering to the principles of
continuous disclosure. Our management
and Board also deliver an annual shareholder
meeting (ASM), provide analyst briefings and
hold institutional investor meetings.
Many of the areas where our generation
facilities (hydro, geothermal and wind)
are located are of cultural and historical
significance for iwi. In order to ensure that
we respect, value, protect and sustain these
areas, proactive engagement occurs with iwi.
This includes partnership meetings, contract
discussions, engagement on proposed new
work and completing live work, industry
conferences and supplier briefings.
We work collaboratively at different levels
of government and with other governing
entities to develop solutions, identify
opportunities, and overcome challenges.
Engagement takes place through formal
scheduled meetings, responses to
submissions, ministerial briefings, and
participation in energy industry events and
regulatory/political forums. We host site
visits and engage through the development
of external reports that we commission or
contribute to.
ENGAGING WITH OUR STAKEHOLDERS.
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COMMUNITYSUPPLIERSINDUSTRY PARTICIPANTSCUSTOMERSEMPLOYEES
Our community relationships provide us with
support to operate and the context to better
understand the social and environmental
issues we face in our communities.
Our suppliers deliver products and services
that allow us to enhance our business and
operations.
Industry participants provide an opportunity
to share, exchange knowledge and grow the
industry to its highest potential.
Customers sustain our business, provide the
foundation for continued growth and future
product development.
Our 786 employees drive our business.
Through their skills, knowledge, diversity
and efforts we thrive and prosper.
WHAT IS IMPORTANT TO THEM ABOUT MERCURY THIS YEAR?
• Natural resources
• Generation development
• Safety & wellbeing
• Sustainable growth
• Operational excellence
• Safety & wellbeing
• Natural resources
• Safety & wellbeing
• Climate change
• Customer experience
• Customer loyalty
• Safety & wellbeing
• Capability & development
• Safety & wellbeing
• High Performance Teams
HOW DO WE ENGAGE WITH THEM?
Key team members actively participate in
a variety of community forums. We also
sponsor events in the communities in which
we operate and respond to community river
flow and lake level requests. Through our
role in the Waikato Catchment Ecological
Enhancement Trust (WCEET), we engage
on improvements to the natural and social
environments which the business depends
upon. We work with budgeting groups and
government agencies to understand and
better support the needs of vulnerable
customers.
Suppliers are continuously engaged in
completing various projects or fulfilling
on-going customer and other business
commitments. We also use business review
meetings, contract negotiations, supplier
briefings and proactive engagement with
industry conferences to work collaboratively
with, gain insight into, and develop new
standards with suppliers.
We work collaboratively with the energy
industry to provide and support new
opportunities for growth as well as to
overcome challenges. We work with various
industry participants through one-on-one
meetings and active participation in industry
groups such as ERANZ, Business Energy
Council, Sustainable Business Council and
Business New Zealand. We also regularly
attend and contribute to industry events and
conferences, as well as stakeholder events
organised by sector participants. We do this
in order to stay across industry issues, assist
with solutions, and to contribute to future
progress and innovation.
Our customers are at the core of everything
we do. Understanding their needs,
expectations and what they care about
helps us to have in place the products
and services that earn their business.
Our customer relationships are valued, and
often longstanding. We strive for effective
and responsive customer engagement,
proactively seeking feedback and input
through several avenues including: through
our Customer Engagement Centre (via
calls, email, letters, direct mail); our website
and My Account portal; via social media;
customer surveys and market research;
and through our community partnerships,
sponsorships and events.
Ensuring different perspectives and
viewpoints are heard is crucial to our success.
We do this through engagement and
pulse surveys, as well as our internal digital
communication channels and our network of
change supporters. Our employees also stay
connected to what’s important through our
development and onboarding programmes.
ENGAGING WITH OUR STAKEHOLDERS. (CONTINUED)
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KEY RISK
AREA
SAFETYCOMPLIANCER EPU TAT IO NOPERATIONALFINANCIALPEOPLE
FACTORS
IMPACTING
CURRENT
TRENDS
Safety is an essential
objective for us and
continues to be one of the
major risks that could affect
the wellbeing of employees,
contractors, customers, and
the public.
We continue to make
progress on key aspects
such as:
• our Process Safety
programme, with
WorkSafe’s conditional
acceptance of our safety
cases
• continued improvements
in reporting of incidents
or near misses, allowing
more informed decisions
to be made regarding
areas for improvement
This year we were mindful
of managing any increase
in safety risk due to the
significant number of large
projects over the course
of the year, including
our Turitea wind farm, a
drilling campaign, hydro
refurbishments and
geothermal maintenance
shuts.
Compliance is important
for our ability to operate
to our desired capacity
through key elements
such as resource consents
and within the Electricity
Industry Participation Code.
Compliance with internal
policies is an important tool
to assess risks and deter
fraud. We also consider
regulatory change in
this area, which presents
significant risks to Mercury.
In FY19, several
regulatory processes
that had the potential
for significant impact to
us were concluded. The
outcomes of the Tax
Working Group, Interim
Climate Change Committee
and EPR were all either
supportive or largely
neutral in their impact to
us. During this year, while
there have been fewer key
regulatory review processes,
we were aware of increased
risks in this area resulting
from broader impacts of
COVID-19.
The importance of
stakeholder relationships
and input has continued to
grow across each of our key
stakeholder groups – our
customers, communities,
partners and owners.
The amount of data that
we hold and rely on also
continues to increase.
The level of activity and
sophistication of cyber-
attacks continues to
increase globally.
This year, we continued
to build our security
enhancement programme
and strengthen our
stakeholder management.
Operational risks have
a potentially significant
impact on our ability to
generate electricity and
create revenue. The key
operational risks include:
asset management and
availability; fuel availability;
market exposure; and
business interruption
(events such as natural
disasters or global
pandemics).
In managing these risks in
FY20, we were focussed on:
• the programme
of drilling, hydro
refurbishments and
geothermal maintenance
shuts
• the ongoing situation in
relation to Tiwai
• the impacts of COVID-19
Finance and related
activities have key process
controls that are subject
to regular review and
continuous improvement.
This year we have
focussed on managing the
construction of the Turitea
wind farm. We have also
been mindful of managing
any shifts in financial risks
resulting from broader
impacts of COVID-19.
Ongoing investment
in leadership and
management programmes,
and a focus on High
Performance Teams,
have contributed to
staff engagement levels
continuing to lift.
We look at a range of key
people information to
increase the transparency
of people risk, enabling
monitoring and response.
OUR
PILLARS
A comprehensive summary of
Mercury’s key risks and how
we manage them is included
in the Corporate Governance
Statement that is published
alongside this report. We
review and update these risks
every year to take into account
changes in the external
environment and our internal
operations.
In this section we provide a
summary of the trends we
have seen this year in our key
risk areas. We take these into
account in our view of what
matters most and to shape
our focus for how we create
value over time.
THE RISKS
W E FAC E .
MERCURY ANNUAL REPORT 2020
OUR
WORLD OF ENERGY FREEDOM
21
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Our five pillars, established in 2016, represent
the key drivers of material value creation
for our business. Together with our fifteen
focus areas they enable us to integrate
what matters most to Mercury and our
stakeholders. They form the framework for
our long-term business strategy, mid-term
goals and short-term business planning
and reflect the six capitals of the Integrated
Reporting <IR> framework (see below).
Each year our view of what is material for
us is informed by reviewing our strategy
against a broad context, including the
items covered in the preceding pages: the
external environment, what’s important
to our stakeholders, risks to manage and
opportunities to explore. We keep up to date
with changes in these areas to consider how
our approach needs to evolve to ensure we
continue to create value.
Undertaking a materiality assessment, like the
one plotted on this page, helps to visualise
these aspects by combining what matters
PULLING IT ALL TOGETHER.
most to our stakeholders and what matters
most to us. For our materiality assessment
this year, we used our fifteen focus areas,
related to our five pillars.
All of the focus areas in the materiality
assessment are important and, although they
are each linked to one of our five pillars, they
also relate to, and are supported by, each
other. The assessment serves as a cross-
check to ensure our priorities remain aligned
to what matters most.
Focussing on what matters most.
The focus areas in the top right-hand corner are those that rank the highest. As the most material topics
we have covered them in this Annual Report and used them to define the reporting boundaries.
WHAT’S IMPORTANT TO OUR STAKEHOLDERS
WHAT’S IMPORTANT TO US
INDUSTRY &
RESEARCH
CUSTOMER
LOYA LT Y
CUSTOMER
EXPERIENCE
GENERATION
DEVELOPMENT
BRAND
IWI
GOVERNMENT &
REGULATORS
CLIMATE
CHANGE
ASSETS
NATURAL
RESOURCES
CAPABILITY &
DEVELOPMENT
HIGH
PERFORMANCE
TEAMS
SAFETY &
WELLBEING
OPERATIONAL
EXCELLENCE
SUSTAINABLE
GROWTH
FY20 MATERIALITY ASSESSMENT
OUR PILLARS<IR> CAPITALS
CUSTOMER
SOCIAL &
RELATIONSHIP
PARTNERSHIPS
KAITIAKITANGA
NATURAL
MANUFACTURED
PEOPLE
HUMAN
INTELLECTUAL
COMMERCIALFINANCIAL
MERCURY ANNUAL REPORT 2020
OUR
WORLD OF ENERGY FREEDOM
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22
C R E AT I N G
VALUE IN
FY20.
We harness energy from natural resources. We have a long-term
focus that recognises the interests of other stakeholders, including
future generations of New Zealanders. Our renewable generation
contributes towards New Zealand’s renewable energy advantage
that delivers value to customers and contributes to meeting
New Zealand’s climate change goals. In order to protect the natural
environment on which we rely to deliver energy to our customers,
resource consent compliance is a key focus. We place a high
priority on collaboration with government and local communities
in which we operate to ensure ongoing natural resource availability,
protection and enhancement of environmental outcomes,
including the health and wellbeing of the Waikato River and its
catchment.
We believe that the best way to create value in our business,
and deliver the best experience possible to our customers, is by
ensuring we have High Performance Teams on our side. We aim
to make Mercury a great and safe place to work, where employees
feel engaged and motivated to live out their full potential. We
value diversity, particularly in contributing to innovative thinking,
and have a culture of inclusion where people feel they can
contribute and succeed in our business. The safety and wellbeing
of our people and everyone we work with is a component measure
of executive remuneration. We have a complementary focus on
employee development, great people management and a high-
performance culture, which ensures staff are recognised and
rewarded for excellence.
Deep and enduring partnerships are a vital foundation for
our business and broader economic outcomes. Kaitiakitanga
(guardianship and protection) is embedded in our operations and
the relationships we have with our commercial, community and
iwi partners. Our long-standing partnerships with Māori and other
landowners have been essential to new wind developments and
existing geothermal operations that rely on the ongoing access
to natural resources. Our commercial partnerships have focussed
on green growth opportunities such as electric vehicle uptake in
New Zealand. We are proud to have long-standing commitments
to support local communities. These help to allow us to bring our
purpose to life and ensure value creation extends past the direct
economic performance of the company.
PARTNERSHIPSKAITIAKITANGA
Our purpose is to inspire New Zealanders to enjoy energy in more
wonderful ways. We are doing this through an approach that
rewards loyalty, leverages customer-led technology, and makes
our service seamless and easy for people. We are grateful to our
customers for choosing us and in response we focus on what they
tell us matters most to them – giving them a great experience,
keeping them connected and helping to maintain security of
their supply and rewarding their loyalty. Customer satisfaction is
a core benchmark for our business and to ensure that everyone
at Mercury is accountable for delivering customer focus, it is a
component measure of executive remuneration.
CUSTOMERS
PEOPLE
Our financial results reflected in this Annual Report, and the
trends they reflect, are a product of our focussed ultra-long-term
business strategy, centred on delivering value to our owners. We
apply strong financial disciplines and robust risk management in
operating our business and pursuing future growth. We take pride
in our leading economic performance. We aim to deliver stable
and sustainable cash flows that support dividends to our owners
and grow in value over time. Through our partnerships and working
with communities we also provide broader economic development,
societal and environmental benefits.
COMMERCIAL
Here we define our value creation in
FY20, across our five pillars, that has
been achieved through the adoption
and continued development of our
integrated approach.
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23
LIVING ENERGY FREEDOM.
In this section we seek to bring to life our pillars,
and what they mean to us, through a story that
is an example of material activity undertaken
through the year. We reflect on our responses to
challenges and opportunities, share our successes,
progress and also lessons from things that didn’t
go as planned. We also feature, as part of our
Kaitiakitanga pillar, our approach to preparing
for climate change so you can understand more
about our contribution in this area towards a more
sustainable future.
MERCURY ANNUAL REPORT 2020
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24
Imagine moving into a home without
electricity and not being able to get electricity
connected due to your credit history.
Then imagine moving in on a windy
Wellington evening, the week the country
went into a lockdown as a result of the
nationwide response to the COVID-19
pandemic.
That was the reality a customer faced
after being released from prison and
remanded to a specific address due to parole
requirements.
Unfortunately, not having electricity was not
reason enough to move the customer to
different accommodation, Porirua Whānau
CEO Liz Kelly said.
“I had this customer who had just been
released from prison during Level 4 (the
country’s highest lockdown response level)
and was facing the weekend without power.
He was released on a Friday around 6pm,
and I really didn’t think there were any
options. The customer had to stay at that
address and there was nothing I could do to
change that,” Liz said.
“I called Helen Tua at Mercury, pretty
desperate. I thought it was terrible, this
customer was supposed to be starting out
fresh, having a second chance, but had to
move into a dark house during lockdown.
That’s a lonely welcome back to the world,”
Liz added.
Helen Tua is Mercury’s Community Liaison
Manager, a role she has had for ten years.
She was able to connect with others at
Mercury, and through collective efforts of
members of the customer team, had power
to the house up and running within the hour
through Mercury’s prepay product GLOBUG.
GLOBUG is New Zealand’s largest residential
prepay electricity provider. Social agencies,
budgeting services and other community
1. CUSTOMER.
OUR FOCUS
Mercury’s Customer pillar focus areas are Brand, Loyalty and Experience.
To bring this to life, here we tell the story of Helen Tua’s contribution to the
experiences that some of our more vulnerable customers have with us.
CLOSE CONNECTIONS
HELP VULNERABLE
CUSTOMERS.
MERCURY ANNUAL REPORT 2020
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MENU
PILLAR
SUMMARY.
STRATEGIC GOALS: MID-TERM
We are inspiring, rewarding and making it
easy for customers in our target segments.
STRATEGIC GOALS: LONG-TERM
New Zealand’s leading energy brand.
OTHER FOCUS AREAS
• Brand
• Loyalty
PILLAR STORY FOCUS AREA
• Experience
KEY RISKS
• Errors in customer connections, billing
or general customer communications,
impacting on customer service.
• Loss of data or a systems failure impacting
on our ability to operate core systems.
support groups rely on GLOBUG because
it can help struggling households avoid
building up debt through unmanaged energy
consumption.
Customers pay for electricity ahead of using
it, in a way that can be coordinated with
their budgets, rather than being sent a bill
at the end of the month, which can make
budgeting more difficult.
Liz said she was delighted, and grateful Helen
got electricity connected so quickly, but
wasn’t surprised as Helen is well-known for
“getting things done”.
Helen has dedicated herself to building
strong relationships with community groups,
budgeting and government agencies
such as Porirua Whānau. Her drive aligns
with Mercury’s belief in long-term fair and
affordable access to electricity as a step to
helping all financially challenged households.
She sees a strong connection between this
work and our mission of Energy Freedom.
Maintaining relationships with the
community leaders and social agencies
working hard on behalf of vulnerable
customers helps bridge the gap between just
supplying electricity and understanding our
customers.
Helen says that when we understand our
customers, we can support them better and
ensure low income families, or individuals
in difficult circumstances, get a fair deal.
SOCIAL AGENCIES, BUDGETING
SERVICES AND OTHER COMMUNITY
SUPPORT GROUPS RELY ON GLOBUG
BECAUSE IT CAN HELP STRUGGLING
HOUSEHOLDS AVOID BUILDING
UP DEBT THROUGH UNMANAGED
ENERGY CONSUMPTION.
It requires ongoing work because some
customers are marginalised by society and
can distrust the intentions of businesses and
government authorities.
The situation of the person just released from
prison was an example of that.
“It’s very difficult for people who have served
prison time to rebuild their lives,” Helen said.
“They’ve generally come from vulnerable
backgrounds and then they’re further
stigmatised by having a criminal record.”
Having poor credit records can make it
difficult to get a post-pay account.
KAITIAKITANGA
PEOPLE
COMMERCIAL
PARTNERSHIPS
CUSTOMER
MERCURY ANNUAL REPORT 2020
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“GLOBUG offers them, and many others, a
viable option that enables them to work within
their means and gives them fair access to
electricity.”
For many of GLOBUG’s 22,000 customers,
keeping up with bills is a daily struggle. We
work closely with those social and community
agencies actively helping struggling
households to ensure GLOBUG customers are
treated with empathy and dignity, Helen said.
The economic impact of the COVID-19
pandemic created additional challenges for
many customers. There were answers we
needed from community organisations and
social services on how we could best support
these customers.
“The biggest challenge within the GLOBUG
world was: how do we support access to the
essential service of electricity, but not grow
the debt of customers who are largely with
this product because it helps them avoid
debt?”
In early April, escalating debt was at risk of
getting out of hand.
Through Helen’s established contacts,
we sought guidance and feedback on its
approach, and that helped develop a new
energy management solution that was
sustainable commercially for us and worked
for our vulnerable customers by supporting
their budgeting needs.
Options for payment deferrals were
established, repayment rates were reviewed,
training focussed on empathy and
communications were enhanced with an
emphasis on care and clarity.
Committed work from all those involved
with GLOBUG enabled changes to be made
quickly, and embedded for some longer term
positive outcomes.
This approach was subsequently mirrored
across post-pay customer relationships as
well as partner and supplier engagements.
GLOBUG OFFERS THEM, AND MANY
OTHERS, A VIABLE OPTION THAT
ENABLES THEM TO WORK WITHIN
THEIR MEANS AND GIVES THEM FAIR
ACCESS TO ELECTRICITY.
CREATING VALUE
THROUGH OUR
CUSTOMERS.
LOOKING FORWARD
Mercury expects the impacts of COVID-19 on the
economy to impact a growing number of our
customers through FY21 and possibly beyond. The
cost of electricity will be top of mind and therefore
the efforts to support customers will continue to be
important and also expected of us by stakeholders.
We expect vigorous competition to continue to be
a feature of the market, with activity ramping up
as competitors reposition portfolios ahead of the
impacts of a South Island demand drop that will
result from the signalled closure of the Tiwai Point
aluminium smelter. We intend to fight to earn our
customers’ business, using data to target digital
offers that inspire, reward and make things easy.
Helen’s contribution to the support we offer to
vulnerable customers integrates thinking and
delivers shared value across other Mercury
pillars. For example:
• PARTNERSHIPS – working with budgeting
agencies and other groups in communities
helps our knowledge of customer needs
while building trust in our brand and
for our sector (Industry & research and
Government).
• COMMERCIAL – Insights from Helen’s work
contributed to improvements in the way
we managed the risk of growing debt levels
(Sustainable growth).
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THE WORLD’S
BEST CATCHMENT.
“The mighty Waikato River is under pressure.
Water quality is declining and there is
growing competition for its resources.
But if we make the right decisions now
and work together, we can make the
Waikato the World’s Best Catchment,” says
Gavin Williamson, Mercury’s Catchment
Sustainability Manager.
For Gavin this is a personal mission. He
remembers 40 years ago when things
were different: “When I was a schoolboy
swimming in Lake Karāpiro I could see clearly
to the bottom of the river. Now I couldn’t see
six inches in front of my face.”
Mercury’s ‘best catchment’ aspiration is a
bold idea that comes from our long history in
the catchment and our unique perspective of
the river.
“With nearly 100 years’ experience operating
power stations on the river, Mercury is a long-
term caretaker. We are well experienced in
knowing how much water there is, where it is
in the catchment, and when,” Gavin explains.
“We see the long landscape from Taupō
to below Karāpiro and we are confident in
our knowledge and expertise, but the huge
positive outcome we are imagining needs
everyone to be on board.”
OUR CHANGING APPROACH
Our vision is an evolution of our relationship
with the river, and those we share it with.
The Waikato awa (river) flows from Taupō
to Te Puaha o Waikato (the river mouth).
The catchment extends even further, from
the upper reaches of the Whanganui (via
the water diversions around the mountains
and into Lake Taupō) to Auckland, where
water is piped from the Waikato River by
Watercare. In addition, Hamilton, Taupō and
other communities along the river rely on
drinking water from the Waikato catchment.
The waters of the awa are also the lifeblood
of industry, tourism, recreational activity and
OUR FOCUS
Mercury’s Partnerships pillar focus areas are Industry and Research, Iwi and
Government (central and local) relationships. To bring this to life, we tell the story
here of our evolving work to develop a partnership strategy with the aspirational
goal of making the Waikato the World’s Best Catchment.
2. PARTNERSHIPS.
MERCURY ANNUAL REPORT 2020
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irrigation for dairy and horticulture. All have
needs, and all will be able to offer insight into
how to make the catchment better.
During our consenting process 20 years
ago, we listened carefully to what people
had to say and took the opportunity to talk
with them about how we might carry out
our responsibilities as a hydro generator with
appropriate care and respect for the river.
As we matured as an organisation our
conversations in the catchment became both
more focussed and also more diverse. We
saw that we were all on similar pathways.
We’ve learned from others who also love this
place and have been here the longest. We
believe that the way in which the region’s
water resources are managed has to
involve the strongest possible participation
and endorsement by river iwi, whose rohe
(territories) stretch from the Whanganui
diversions through the Waikato and to the
Tasman sea. Strong relationships have
been formed and tested, and trust and
understanding have grown. We have learnt
that the awa is a sacred tūpuna (ancestor)
and living taonga (treasure). We have a duty
to nurture its health and wellbeing.
GOING FORWARD TOGETHER
While we imagine what the ‘best’ catchment
might look like, we’ve also seen what ‘bad’
looks like.
In 2017, a haerenga (tour) visited the Murray-
Darling Basin in Australia, a catchment
with a complex and severely challenged
water management system that is dealing
with systemic issues around water quality
and allocation. The tour, called Tukitahi
(representing ‘going forward together’)
brought together people from the mountains
to the sea: iwi from along the Waikato River
and Ngāti Rangi from the Whanganui awa
headwaters, Mercury, Genesis Energy, NIWA,
Watercare, Fonterra and other organisations,
and local and regional councils and central
government.
WE HAVE LEARNT THAT THE
AWA IS A SACRED TUPUNA AND
LIVING TAONGA. WE HAVE A DUTY
TO NURTURE ITS HEALTH AND
WELLBEING.
PILLAR
SUMMARY.
STRATEGIC GOALS: MID-TERM
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.
STRATEGIC GOALS: LONG-TERM
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.
OTHER FOCUS AREAS
• Government
• Industry
PILLAR STORY FOCUS AREA
• Iwi
KEY RISKS
• Short and long-term changes in supply
and demand impacting on the wholesale
electricity market.
• Regulatory changes that could affect how
we manage our integrated business model.
KAITIAKITANGA
PEOPLE
COMMERCIAL
PARTNERSHIPS
CUSTOMER
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“We saw that the Waikato River catchment
isn’t that broken. We started to imagine
what could be done together to start to
repair years of human impact and improve
the catchment in terms of allocation and
use, creating headroom for positive land use
change and improved storage opportunities,”
says Gavin.
This thinking led to the idea of the World’s
Best Catchment vision. To put this vision
into action, Mercury’s leadership endorsed a
new role, Catchment Sustainability Manager,
and Gavin was appointed. “This is a truly
long-term, future-focussed role working with
iwi, regulators, scientists, the region’s hugely
important farming communities and others,”
says Gavin.
“Our first step will be to take our World’s Best
Catchment vision to our key partners in the
community and get their views on whether
this fits with what they are thinking.
“We plan to work closely with the Waikato
Regional Council, aligning with its freshwater
strategy. Also with river iwi, to understand and
align with their strategic plans and aspirations
for water. We will talk to our corporate
partners in the catchment to see how we can
pool our resources and work collaboratively on
projects that benefit the catchment.”
Getting started has already been challenging.
It’s not just the catchment that’s under
pressure – people and organisations are
stretched and working hard on immediate
priorities.
“Amidst the increasing urgency of the
national conversation around water,
freshwater reforms, regional policy processes
and pressure on the catchment from
Auckland’s 2019/20 drought, we somehow
have to find time to see the catchment
through each other’s eyes and work together
for sustainably better outcomes.
“Success will look different for everyone
but for true success everyone needs to find
alignment. The bottom line is that the river
comes first, with water quality and water
allocation including iwi allocation front and
centre.”
FROM IDEA TO REALITY
The waters of the awa keep flowing, and as it
passes downstream, Mercury uses its gravity
to generate renewable electricity.
“It’s our privilege to be here,” says Gavin.
“We’ve been here for a long time, we’re going
to be here for a long time too. The values we
hold run deep in the organisation.
“Our plan is to work with our partners to
explore their connections to the river and
learn what could make this the world’s best
catchment from their point of view.
“This is a huge ambition, bigger than me and
bigger than Mercury. We need everyone to be
on board to make this the best it can be, and
that means the best in the world.”
CREATING VALUE
THROUGH OUR
PARTNERSHIPS.
LOOKING FORWARD
We are aiming to reconnect in FY21 with those
who were part of the Tukitahi tour to reconsider
the insights we all had. The Government has
released its Three Waters reform programme
and it will be important to listen and learn about
the implications of that on each other, and to
plan for appropriate actions that benefit the
collective needs of those who are part of the
Waikato catchment. We will be considering new
partnerships that can support our business
strategy, and reviewing established partnerships
so that areas of shared value are understood.
Our vision for Waikato to be the World’s Best
Catchment involves integrated thinking and
delivers shared value across other Mercury
pillars. For example:
• COMMERCIAL – the collaborative approach
to catchment management supports our
necessary hydro refurbishment programme
that secures Sustainable growth.
• KAITIAKITANGA – our partnerships take
us towards being recognised as a leader in
the ultra-long-term management of both
physical and natural Assets.
• PEOPLE – Capability & development
of our people is enhanced through work
involving complex interconnections as well
as cultural and historical considerations.
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POWERING UP
WHAKAMARU FOR
THE FUTURE.
3. KAITIAKITANGA.
Mercury’s Waikato Hydro System comprises
nine power stations housing 39 huge
turbines turned by gravity from the powerful
water of the Waikato River. Keeping this
interconnected system of water and
machinery running efficiently is a science, but
it’s also an art – and a huge responsibility.
A commitment to the te ao Māori concept of
kaitiakitanga (guardianship and protection)
influences our long-term purpose as an
organisation. It guides the ways in which
we work with both natural resources and
the power stations that were built by earlier
generations of New Zealanders.
Our Waikato Hydro System generates
around 10% of New Zealand’s electricity,
and it contributes 60% of Mercury’s input of
renewable energy to the national grid.
It is not surprising then that our reinvestment
programme for the nine hydro stations on the
Waikato River is a significant investment item.
So far around a quarter of a billion dollars has
gone back into these mighty machines over
the past decade.
Applying the concept of kaitiakitanga
means our infrastructure teams look
not for more of the same, but better:
sustainable improvements to efficiency, risk
management, resource management and
environmental outcomes. The commercial
benefits of our approach to custodianship of
the assets derive from securing long-term
access to water (the fuel supply) and from
being able to generate the most electricity,
most efficiently, from that water.
This business commitment is planned by
our Asset Management teams. Graeme Hill,
Infrastructure Asset Manager, leads these
teams and it’s a job he is passionate about.
OUR FOCUS
Mercury’s Kaitiakitanga pillar focus areas are Natural Resources, Climate
Change and Assets. To bring this to life, here we tell the story of the
refurbishment of our Whakamaru hydro station. The refurbishment
reflects how we balance our care for the legacy of our assets with
recognition of their place in the wider environment.
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“The whole concept of doing our part while
we’re looking after the hydro station assets
then passing it over to future generations is
something that my team really subscribes to,”
he says.
That means taking an ultra-long term view –
fitting, when you consider that our connection
to the awa (river) already dates back almost a
century.
“When we plan refurbishment* of these
machines, working closely with operation
and maintenance teams, we are looking at
a 50-year horizon (operational life) for the
generating plant.
“We look at the age of the stations and
when the equipment was last refurbished or
replaced. What is their actual performance
like right now? What is their condition and
corresponding risk? Where do they sit in the
inter-connected hydro system so that the
timing of the outage required to refurbish
them has minimal impact on the system’s
ability to generate electricity, our resource
consents, and our obligations to New
Zealand’s electricity market?”
Whakamaru hydro station is located 40km
north of Taupō. It was commissioned in 1956.
“In terms of scale and complexity
Whakamaru is the first station where we
either overhauled or replaced, in total, every
major part of the main generating units,”
says Graeme. It required several years of
planning and more than four years of work to
complete.
The teams saw opportunities to achieve
greater efficiency in the use of the water
through careful consideration of the turbine
components and working closely with the
manufacturers, Andritz Hydro and GE
Renewable Energy.
The outcome was an increase in unit capacity
on each of the four units of 5-6MW, meaning
an overall increase of over 20% (from 100MW
to around 124MW) – enough to power an
additional 12,700 electric vehicles annually.
IN TERMS OF SCALE AND
COMPLEXITY WHAKAMARU IS THE
FIRST STATION WHERE WE EITHER
OVERHAULED OR REPLACED, IN
TOTAL, EVERY MAJOR PART OF THE
MAIN GENERATING UNITS.
STRATEGIC GOALS: MID-TERM
We understand and are managing the long-
term sustainability of the natural resources
and assets that we rely on.
STRATEGIC GOALS: LONG-TERM
Recognised as a leader in the ultra-long-
term management of both physical and
natural assets.
The station’s design and position within the
inter-linked hydro system meant flow could
‘bottle neck’ as the station lacked flexibility,
so increasing the ability to pass water flow
through the station efficiently was another
important outcome.
“The project involved the rehabilitation
of four units – that’s four years of work
including around six months outage time
per unit each year. It’s a huge level of
sustained concentration for everyone on site,
contractors, designers and manufacturers
offshore.”
During the six-month installation of each unit
there were up to 40 people on site, six days a
week, with international specialists, and work
crews from the local region.
Aligned with our focus on our people, robust
health and safety plans and procedures were
embedded, and regularly reviewed. Minor
incidents and near misses were reported and
analysed. Pleasingly, reflecting the attention
OTHER FOCUS AREAS
• Natural resources
• Climate change
KEY RISKS
• An event that impacts on the viability,
efficiency or operability of our power
stations.
• Availability of water for hydro generation
and geothermal fluid for geothermal
generation.
PILLAR
SUMMARY.
PILLAR STORY FOCUS AREA
• Assets
* The term “refurbishment” is used where equipment has been overhauled close to original condition but not actually replaced. As the machines
move closer to their end of life, full rehabilitation/replacement is needed. This has been a major undertaking at Mercury over the last decade.
KAITIAKITANGA
PEOPLEPARTNERSHIPS
CUSTOMER
COMMERCIAL
MERCURY ANNUAL REPORT 2020
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partners MB Century, Andritz Hydro, and
GE Renewable Energy who contributed to
the Whakamaru rehabilitation. Speeches
were made, and when Graeme stood up to
address the assembled group, in front of
him were around 40 people, some of whom
had been part of the project since early
thinking started over 14 years ago. Graeme is
passionate about the legacy of the assets, but
it’s the people who work on them, and in the
background to support them, that make him
proud.
“Completion of this project is a massive
milestone in Mercury’s multi-million dollar,
multi-decade journey of reinvestment on the
Waikato River. We could not have done this
without the support, dedication, know-how
and commitment to a quality result from
everyone involved.”
The Whakamaru programme came in on
budget at $67 million. Extensive works at our
power stations at Ōhakuri, Arapuni, Aratiatia
and now Whakamaru are part of significant
re-investment – a total of a quarter of a billion
dollars so far – to secure the operational
efficiency and effectiveness of the hydro
system for future generations.
given to health and safety across complex
tasks involving huge machinery, the project
was injury-free.
Unit outages were scheduled over summer
months to lessen the impact on the market of
reduced generation at the station.
With major parts being manufactured and
transported from around the world, the
first time they are assembled is on site, and
that has informed the approach for future
projects.
“You can’t underestimate the importance
of technical quality assurance because
we’re getting equipment manufactured
in many countries. This requires the main
manufacturer to apply rigorous attention to
detail, and that they closely manage their
subcontractors.”
Time needs to be allowed for quality
assurance to avoid problems later that can
cause delays and performance problems.
Often we may need a Mercury team member
or independent specialist to be present at the
factory to inspect manufacturing processes
and witness testing.
Fast forward and the project is complete.
A sunny March afternoon, a gathering
in Taupō for many of the Mercury team
and representatives from our supporting
20%
OVERALL
INCREASE IN
CAPACITY
$67M
WHAKAMARU
REHABILITATION
PROGRAMME
CREATING VALUE
THROUGH
KAITIAKITANGA.
Our Whakamaru hydro station refurbishment
integrates thinking and delivers shared value
across other Mercury pillars. For example:
• PEOPLE – this large project embedded
high standards of Safety & wellbeing, and
benefitted from Capability & development
embraced by team members.
• PARTNERSHIPS – design, manufacture
and equipment installation works with
Industry partners for the benefit of New
Zealand’s electricity market.
• COMMERCIAL – delivering output gains
through Operational excellence contributes
to Sustainable growth.
LOOKING FORWARD
Enabling works and equipment manufacture will
continue for the significant rehabilitation work
planned for Karāpiro power station. Other works
planned include completion of the Rotokawa
geothermal plant upgrade and making progress
on our multi-year transformer replacement
programme on our hydro power stations.
Ongoing work associated with our Dam Safety
programme recognises the role we play in
protecting our communities.
We will continue to review our environmental
monitoring programmes to ensure we are investing
in good science that not only helps us understand
the impacts of our operations, but also contributes
to a wider community understanding of changes
occurring in our areas of operation.
We will undertake climate change scenario
modelling and consider the appropriateness of
emissions targets.
CLICK HERE to watch eight months work in
30 seconds of the Whakamaru station upgrade.
MERCURY ANNUAL REPORT 2020
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Climate change has been identified as a
material issue for Mercury and our many
stakeholders. It is a focus area under our
Kaitiakitanga pillar, and we acknowledge we
have a kaitiakitanga, or guardianship, role
to play in helping New Zealand reduce its
greenhouse gas (GHG) emissions and to take
responsibility for our own climate change
impacts.
There is growing awareness of the financial
risks associated with climate change.
Corporate entities are expected to effectively
manage risks and capitalise on emerging
opportunities and a recognised reporting
framework has been produced by the TCFD.
The Financial Stability Board (FSB) created
the TCFD in 2015 to develop a consistent
disclosure framework for use by companies in
providing information to their shareholders.
We have used the TCFD framework over the
past two annual reporting periods and we
will continue to do so, gradually developing
the completeness and transparency of our
climate change disclosures (our current
PREPARING FOR
CLIMATE CHANGE.
Reporting against the Task Force on
Climate-related Financial Disclosures (TCFD).
Our Board has responsibility for Mercury’s
strategic direction and operation.
Responsibilities are set out in the Board
Charter, and in relation to climate change
include:
• establishing clear strategic goals with
appropriate supporting business plans and
resources
• monitoring strategy implementation,
financial performance and the integrity of
reporting
• ensuring that effective audit, risk
management and compliance systems are
in place and monitored
Climate Change risks and opportunities
are currently managed, at a governance
level, through the Risk Assurance and
Audit Committee (RAAC) of the Board.
The RAAC has responsibility for overseeing,
reviewing and advising the Board on our risk
management policy and processes including
climate related risks and opportunities. In
FY20, we updated our Board skills matrix to
specifically include climate change, reviewed
its risk management framework and made
disclosure of climate-related risks more
explicit. Annual review of climate related
risks is included as part of internal risk
management processes.
MANAGEMENT’S ROLE
One of the responsibilities of the Chief
Executive and Executive Management
Team (EMT) is developing and making
recommendations to the Board on our
strategies and associated initiatives including
climate change. In FY20 the EMT was
involved in several workshops and discussions
reviewing our climate change risks and
opportunities and approving a Climate
Change Management Plan (CCMP).
OPERATIONAL MANAGEMENT
The day-to-day management of climate
change related risks and opportunities occurs
across Corporate Affairs/Communications,
Finance/Risk Assurance and Sustainability,
Hydro Wholesale, Geothermal and Customer.
Our CCMP documents our strategy, climate
related risks and opportunities, management
response, roles and responsibilities and
includes a three-year action plan.
TCFD ELEMENTFY20FY21FY22FY23
Governance
Strategy
1.5 ̊ and 2.0 ̊C scenario
modelling to be
undertaken in FY21
Risk
Management
Performance
indicators and
targets
Mercury to investigate
the appropriateness of
targets in FY21
compliance is represented in the table below).
We have structured this section using the
recommended TCFD elements of governance,
strategy, risk management, metrics and
targets.
Aligned
with TCFD
requirements
In progress
GOVERNANCE &
RISK MANAGEMENT
FOR CLIMATE CHANGE.
STRATEGY.
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EMT workshops undertaken in FY20, on climate-related risks and opportunities, produced a
list of 13 covering all the TCFD risk types. A summary of the top five, their potential impacts,
timelines, risk rating and how we intend to manage them is provided in the table below.
Again, we have aligned these to the relevant TCFD categories for consistent reporting.
RISK RATING:TIMELINE:
Short
S
Medium
M
Long term
L
High
H
Medium
M
H
TRANSITIONAL: POLICY &
LEGAL RISK
H
TRANSITIONAL: MARKET
& TECHNOLOGY RISK
M
TRANSITIONAL: MARKET &
TECHNOLOGY OPPORTUNITY
M
TRANSITIONAL: MARKET RISK
& OPPORTUNITY
M
PHYSICAL RISK
SML
SML
MLSMLL
Any increase in regulation and/or actions that do
not consider management of New Zealand’s energy
trilemma as a whole, (energy security, energy equity,
and environmental sustainability of energy systems)
could lead to negative impacts for New Zealand, our
sector and our customers.
Regulatory constraints may be placed on carbon
or electricity pricing, impacting on both markets
and posing both reputational and financial risks
for Mercury. To manage this, we remain engaged
with the regulatory processes around the emissions
trading scheme and forestry rules.
We will continue to maintain engagement with
government, regulators and media commentators
and will maintain/lead the narrative on the positive
contribution renewable energy makes to New
Zealand’s climate change ambitions.
We will continue to make submissions on legislation,
regulation and planning instruments relevant to
climate change, renewable energy, carbon forestry
and the energy trilemma to ensure the best
outcomes for New Zealand’s low carbon future.
A decrease in demand due to de-industrialisation,
increased use of batteries and an increase in de-
centralised energy generation will impact on the
electricity market and Mercury. Technologies already
exist in many of these areas and additional new
technologies will be developed to aid the transition
to a low carbon future. It is important that we closely
monitor future technology developments, their
costs and returns, as they are crucial considerations
should we consider investing in them. We have
experience in grid-scale and domestic batteries
and associated solar technologies. As we develop
large-scale wind generation we will broaden our
knowledge and understanding of this technology
which may have applications at a smaller scale in
the future.
An increase in electricity demand from significant
electrification of transport (light vehicles, trucking
and air), industrial process heat conversions to
electricity, data centres, export hydrogen production
and New Zealand population growth provides
the potential for increased revenues. Mercury has
positioned itself to grow market share of generation
in New Zealand through the development of the
Turitea wind farm and has additional prospects in
both wind and geothermal. We actively promote
the electrification of transport, and will continue to
work with industry to explore fossil fuel substitution,
business models for green hydrogen and renewable
electricity supply to data centres.
The physical impacts of climate change will have
a direct impact on electricity demand. Warmer
winters may reduce demand for heating, whilst
hotter summers may well increase demand for
cooling in the warmer months.
Drier summers with extended periods of drought
could increase demand for water e.g. for irrigation.
This has the potential to impact water availability
in the catchment and our ability to generate.
Scenario analysis will enable us to to understand
these potential impacts on both energy and
water requirements. There are both risks and
opportunities around continued access to fuel
(water) through increasing demand for water use
and/or storage decreasing. Changes in demand
due to physical changes will inevitably influence
electricity market prices. We will closely monitor
policy controls, statutory change and legal
precedents that could impact our access to water.
We will continue to engage in the relevant Resource
Management Act (RMA) processes, monitor
policy statements and continue to develop our
water strategy, working with the many catchment
stakeholders.
Physical climate impacts will arise over the long
term due to extreme or acute weather events e.g.
storms, droughts, increasing frequency of days with
high temperatures. Longer-term or more chronic
risks include increasing temperatures with impacts
on inflows into the hydro catchment. There are
financial risks and opportunities associated with
these changes which may be both direct (on our
assets and operations) and indirect (on markets and
supply chains).
Increasing extremes of catchment inflows and high
temperature days presents the risk of damage to
our generation assets or impacts on our ability to
generate.
Our assets are capable of managing high inflow
events and high temperature days. However, there
remains a risk that some damage or interruption to
operation may occur if extreme events increase in
frequency.
This would have a negative impact on revenues
and/or increase operating costs. Scenario modelling
to be undertaken in FY21 will form the basis for the
management of climate-related risks and inform
generation operating plans, potential changes
required to resource consent conditions and high
flow management plans.
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35
The TCFD promotes the disclosure
of corporate greenhouse gas
emission footprints using a standard
approach. Mercury publicly discloses
a comprehensive annual emissions
inventory report, covering all direct and
indirect greenhouse gas emissions.
FY15FY16FY17FY18FY19FY20
E
m
i
s
s
i
o
n
s
i
n
t
e
n
s
i
t
y
kg C
O
2
e
/MWh
Generation GWhEmissions Intensity kg CO
2
e/MWh
0
10
20
30
40
50
60
70
80
Generation (GWh)
0
4,000
3,000
2,000
1,000
5,000
6,000
7,000
8,000
EMISSIONS INTENSITY OF GENERATION FY15 TO FY20
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
T
o
nne
s
C
O
2
e
FY15FY16FY17FY18FY19FY20
Net carbon position (tonnes)Emissions from generation and gas sales
NET CARBON POSITION FY15 TO FY20
0
100,000
200,000
300,000
400,000
500,000
600,000
T
o
nne
s
C
O
2
e
FY15FY16FY17FY18FY19FY20
Scope 1Scope 2Scope 3
GHG EMISSIONS BY SCOPE FY15 TO FY20
In FY20 we explored, in more detail, the emissions associated with
our value chain, which includes emissions from: sold products (gas to
dual fuel customers) and various categories of supplier e.g. IT services,
general maintenance, staff travel and accommodation, waste to landfill.
Developing our understanding of our broader emissions footprint,
together with outcomes of scenario modelling, is an important step
when considering the appropriateness and type of any future emissions
reduction target(s).
METRICS
& TARGETS.
OUR NET CARBON POSITION
As an active participant in New Zealand’s
Emissions Trading Scheme (ETS) Mercury
has invested in carbon forests since 2010.
We have ten contracts in place that support
different New Zealand forestry projects and
enable us to meet our obligations under the
ETS. At the end of FY20, after meeting our
ETS compliance obligations, we had a surplus
of just over one million tonnes.
Direct emissions – predominantly
fugitive emissions from
geothermal facilities.
Scope 1
Scope 2
Indirect emissions - from
electricity used at generation
sites and in offices.
Scope 3
Other indirect emissions – 83%
downstream from gas sales to
dual fuel customers.
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36
Taking ownership, developing capability and
leading his team to safely deliver important
business outcomes: Well Services Manager
Andrew Marsh lives and breathes Mercury’s
people goals as he builds his career.
“I joined what was then Mighty River Power
as an engineer in 2010, during an exciting
time of growth for geothermal generation,”
says Andrew. “Kawerau and Ngā Awa Pūrua
geothermal stations had recently been
completed and Ngātamariki was under
development. It was an ideal time to cut my
teeth in the renewable energy space, and an
exciting time to start my Mercury career.”
Andrew took on his first formal management
role in 2012, recruiting two engineers to lead
a Process Engineering team. “I jumped at
the chance, because it started me on my
leadership path at Mercury and in particular
taught me what a team needs from its leader
in order to be successful,” says Andrew.
“During this stretch of my career I also keyed
in to the importance of understanding
people’s needs and providing a sense of
purpose and direction.”
In 2018 Andrew was appointed Well Services
Manager. Geothermal Technical Resources
Manager, Wu Khoo, says: “Andrew’s
4. PEOPLE.
OUR FOCUS
Mercury’s People pillar focus areas are High Performance Teams,
Safety and Wellbeing, and Capability and Development. To bring this
to life, as an example that touches on all focus areas, here we tell
the story of Andrew Marsh and his growth while contributing to our
geothermal well drilling programme.
LIVING THE
LEADERSHIP JOURNEY.
appointment to Well Services Manager was
a deliberate move by us to help develop his
commercial knowledge and his approach to
risk-taking and decision making.”
These were growth areas identified at regular
development meetings and the feedback
resonated with Andrew. “Decision making
in the geothermal sphere is complex and
compressed, because you can be spending
at the rate of $200,000-$300,000 a day,”
Andrew says. “It’s imperative that you are able
to make crucial decisions both quickly, and as
a team.”
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STRATEGIC GOALS: MID-TERM
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.
STRATEGIC GOALS: LONG-TERM
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.
KEY RISKS
• An incident occurring that causes a fatality
or serious injury to our staff, a contractor, a
customer or the public.
• Failing to develop and retain our growing
talent.
PILLAR
SUMMARY.
PILLAR STORY FOCUS AREAS
• Capability & development
• Safety & wellbeing
• High Performance Teams
teams by addressing team composition,
dynamics and environment. By helping
teams to build trust, embrace conflict and be
aligned on their purpose and priorities, HPT
tools support teams to work better together
to deliver on team goals and our mission and
purpose.
“The pressure on the project to deliver
while managing large budgets and short
timeframes was where the HPT framework
really showed its strengths,” says Andrew.
“With a drilling project on the horizon, it
was clear that we needed to adjust to be
more multi-disciplinary, utilising the input
of geology, reservoir and drilling engineering
experts as well as drawing on the diversity of
thought and experience in the wider team.”
Andrew drew on the guidance of one of our
HPT coaches, Communications Manager Katy
Scoullar. HPT coaches are trained internally
as both a development opportunity for those
involved and as a way to help teams use the
HPT framework to achieve better results.
“We settled on three HPT sessions to draw
out existing team strengths and qualities
and set basic ground rules,” says Katy. “The
first session explored communication styles
and delved into what each team member
could bring to the table. The second let team
members get to know each other better and
set basic meeting ground rules to ensure the
team stayed on track.
Andrew hadn’t been in the Well Services
Manager role long before his development
areas were tested. “I was assigned with
leading a drilling project,” Andrew says.
“This turned out to be an intense period of
growth for me, because as well as having
more responsibility, I had to accelerate the
establishment of bench-strengths by building
the team up from two to eight.”
As well as a team reporting directly to him,
he had a team of specialists to work with
in other areas of the business, along with a
contracting team on the field. Fortunately
for Andrew, he was able to draw on our ‘High
Performance Teams’ (HPT) framework.
Introduced to Mercury in 2018, the HPT
framework helps to build more effective
87%
OF PEOPLE SAY THAT WITHIN THEIR
TEAM, THEY ASK FOR HELP WHEN
THEY NEED IT AND LEARN FROM
EACH OTHER.
91%
OF PEOPLE AGREE THAT MERCURY IS
COMMITTED TO THE HEALTH & SAFETY
OF ITS PEOPLE.
70%
OF PEOPLE SAY THAT THEIR MANAGER,
OR SOMEONE IN MANAGEMENT, HAS
SHOWN A GENUINE INTEREST IN THEIR
CAREER ASPIRATIONS.
KAITIAKITANGA
PEOPLEPARTNERSHIPS
CUSTOMER
COMMERCIAL
MERCURY ANNUAL REPORT 2020
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“At the third, Andrew presented to the team,
outlining his expectations and preparing
them for potential high-pressure situations
involving sometimes multi-million-dollar
decisions. We workshopped scenarios which
served to clarify expectations of the team and
their various roles.”
“Adopting HPT principles led us to discover
that while individually we might not have had
the ability to fulfil a drilling project, collectively
we did,” says Andrew.
“HPT allows everyone to state their
sometimes divergent positions, free of
constraint or of fear of others’ opinions,
leading to open and frank discussions and a
united commitment to the best outcome.
“This was hugely beneficial for both internal
and external relationships, the strength of
which tends to play out in key areas like health,
safety and wellbeing, which is an ongoing area
of focus for Mercury,” says Andrew.
“Early on in the project, we experienced
a small number of safety issues in quick
succession – an ankle roll, then a finger break.
It was evident we had to tackle these incidents
proactively and the excellent relationship with
our contractor, supported by HPT principles,
meant we could work more effectively to find
a solution and turn this safety blip around,”
Andrew said.
Importantly, there was clarity around roles: the
contractor focussed on how to run the site,
Mercury looked after the safety framework,
compliance and safety-in-design.
The drilling project saw the completion of two
wells at Kawerau and a third well at Rotokawa.
Even with all the planning, there were
challenges. Andrew and his team had to
respond to a nearly two-week delay at
Kawerau when a failed drill string became
stuck two kilometres down the well.
Operations ultimately had to cease short
of the final depth target.
Overall the drilling project had highly
successful outcomes, with the completion of
the wells exceeding capacity expectations.
And while one well went over budget due to
the drill string issue, it helped delineate the
southern area of the Kawerau steamfield,
providing critical information for future
planning.
“I feel fortunate to be having my leadership
journey at Mercury, supported by those
around me and by frameworks like HPT. I
don’t feel I would have had such useful tools
at my disposal or had my development areas
identified and addressed so head-on by any
other employer,” Andrew says.
CREATING VALUE
THROUGH OUR
PEOPLE.
Andrew’s professional journey with Mercury
integrates thinking and delivers shared value
across other Mercury pillars. For example:
• PARTNERSHIPS – working closely
and collaboratively with contractors
and Iwi partners supports our growing
understanding of managing geothermal
resources (Industry & research).
• KAITIAKITANGA – being aware of our
responsibilities to the environment and
to others helps secure the long-term
sustainability (Natural resources) and
viability of our geothermal assets (Assets).
• COMMERCIAL – success through the
project team’s operational excellence focus
contributes to our overall geothermal
generation of 2,600GWh per annum
(Generation development).
OUR SKILLS PLEDGE
In 2019, the Prime Minister’s Business Advisory Council set
a challenge to organisations to sign up for the Aotearoa
New Zealand Skills Pledge. We have committed to the pledge
and we aim to offer our people the opportunity to be trained
and to learn new skills needed to make their contribution to
the future of work.
We pledge to:
• publicly disclose our investment in on-the-job training
and reskilling hours annually
• double the number of on-the-job training and reskilling
hours we provide by 2025
Our focus during FY20 has been on increasing training hours
in development programmes and e.learning, particularly
targeting capabilities required to build a future-ready
sustainable workforce.
TRAINING AREATRAINING HOURS
IN FY19
TRAINING HOURS
IN FY20
Capability development4,2054,318
Health & safety5,9206,919
Business compliance8611,196
LOOKING FORWARD
We recognise that we are in an environment of
change and uncertainty that will affect many of
our people directly or indirectly. Lessons from the
COVID-19 lockdown will guide the evolution of our
approach to flexible working arrangements and
accelerate our digital capability. Wellbeing and
safety is an area we will continue to focus on, with
face-to-face and online training for all our people
offered on an ongoing basis. We will continue to
leverage our High Performance Teams framework
and Our Attitudes (Share & connect, Commit
& own it, Curious & original), to further improve
cross-functional collaboration and continue to lift
engagement.
CLICK HERE to find out how
geothermal energy is made.
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39
5. COMMERCIAL.
Our wind farm at Turitea passed some key
milestones this year. Highlights we celebrated
included the ground-breaking and start of
construction in October, and November’s
announcement of the decision to extend the
initial 33 turbines to the full 60-turbine build
to create what will be New Zealand’s largest
wind farm.
For a long-term investment, the possibility
for change is baked into the business case,
but it’s fair to say that the second half of
the financial year saw unprecedented and
unforeseen impacts related to the COVID-19
pandemic. Responding to the impact of this
pandemic has tested this construction project
and shown strengths within the team and
across Mercury.
Dennis Radich, Generation Development
Manager and Project Director of the Turitea
development, is well-equipped to work with
ambiguity.
When Dennis joined Mercury in 2009, the
company was building geothermal power
stations and his remit was to advance the
next layer of growth for the company. At
that time the site at Turitea was undergoing
a complex and protracted Board of Inquiry
consenting process, and it was anticipated
that, once this was resolved, we would build a
wind farm there.
But by the time the consents for the Turitea
wind farm were granted, the Global Financial
Crisis had flattened market demand. “All
growth expectations had tapered off,”
DEALING WITH
SHIFTING WINDS.
remembers Dennis. The company hit pause
on building new generation and waited for the
economics to improve.
Years passed. In mid-2017 the team identified
improving economics in wind generation,
revisited the analysis around building a wind
farm and ran a tender process before taking
a business case to our Board in November
2018.
The Board’s decision to approve the project,
says Dennis, “made a huge difference in the
outlook for the company and for me.
“We had identified a real opportunity to make
a meaningful difference to Mercury’s growth
path. At a personal level my role had come
full circle back to Turitea as my number one
OUR FOCUS
Mercury’s Commercial Pillar focus areas are Operational Excellence, Generation
Development and Sustainable Growth. To bring this to life, we tell the story here
of the work underway to build New Zealand’s largest wind farm, Turitea.
60
TURBINE WIND FARM
$465
M
*
INFRASTRUCTURE
PROJECT
MERCURY ANNUAL REPORT 2020
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priority, although my original remit, which
focussed on the commercial side, had now
expanded significantly to include leading the
physical infrastructure build.”
The first 33 turbines were announced in
March 2019, followed quickly with a further
announcement of the remaining 27 turbines
in November that year.
“First-mover advantage is important, and we
ensured we were in a position to move quickly
enough to announce that we were going
ahead with the full 60 turbines.
“The outlook for the wholesale market had
lifted dramatically and that supported more
investment.”
The decision to proceed with the full
60-turbine wind farm was based on
comprehensive analysis of the market, the
cost to build, and other variables.
“The most measurable part is cost – being
able to model capital cost and operating
cost of the wind farm,” Dennis explains.
“For a renewable asset, with very close to
free fuel, the lion’s share of the outgoing is
in the capital cost at the start. You need to
be confident that your 25-year forecasts
are appropriate to justify that upfront
commitment."
Unknown risks, such as market demand
and future electricity prices, were modelled.
Uncertainty around the future of the
aluminium smelter at Tiwai Point, that uses
around 13% of all electricity produced in this
country, was also considered as part of the
business case but ultimately, “in the context
of a 25-year investment decision, Tiwai is a
relatively short-term factor,” says Dennis.
“Renewable energy projects are about the
very long term, and we believe the business
case is sound for the completion of the
Turitea wind farm to support New Zealand
demand well into the future.”
As construction takes place, some flexibility is
necessary.
“Being prepared to change plans is a key
part of managing real life in a large, complex
project. Limitations on port capacity at Napier
at the time, and a couple of pinch points
on the transport route for the 55m turbine
blades, meant we went to the other side of
the North Island to Port Taranaki for blade
impor t.”
This required a new route up the range at
Turitea that wasn’t previously contemplated.
What nobody could anticipate was COVID-19
and its profound impact on individuals,
communities and businesses. Major
construction projects like the Turitea wind
farm did not escape its impact.
“From January to February there was an
evolving situation internationally,” says Dennis.
“We were aware that the coronavirus might
at least disrupt the supply chain with key
components coming from China, Italy and
Indonesia. Then we saw the global spread
of the threat, something that none of us
had seen before or could reasonably have
expected.”
During the Alert Level 4 lockdown, Mercury
and its contractors suspended construction
work as required by the Government’s
COVID-19 directions. When the country
returned to Alert Level 3, the site reopened.
STRATEGIC GOALS: MID-TERM
We deliver EBITDAF growth and maintain
an appropriate average for stay-in-business
CAPEX investment, while operating within
agreed risk parameters.
STRATEGIC GOALS: LONG-TERM
Leading our sector in terms of
financial performance and shareholder
returns, earning at least our cost of capital.
OTHER FOCUS AREAS
• Operational excellence
• Sustainable growth
KEY RISKS
• An incident occurring that causes a
fatality or serious injury to our staff, a
contractor, a customer or the public.
• Supply chain disruptions that delay
deliveries and impact construction
timelines.
PILLAR
SUMMARY.
PILLAR STORY FOCUS AREA
• Generation development
* excludes capitalised interest
KAITIAKITANGA
PEOPLEPARTNERSHIPS
CUSTOMER
COMMERCIAL
MERCURY ANNUAL REPORT 2020
LIVING ENERGY FREEDOM
41
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“Getting the opportunity to remobilise was
extremely welcome but demobilisation and
remobilisation is not costless and in a very
simple sense it extends the timeline of the
project.
“This is a strong reminder that despite the
best laid plans, there are plenty of things
outside your control.
“COVID-19 remains an ongoing situation we’re
adapting to, but what we do know is that
Turitea will be built. It will be a great asset for
Mercury and for New Zealand’s renewable
generation,” says Dennis.
And the team have their sights set beyond
the Turitea wind farm.
“We never intended to stop with just the
Turitea wind farm,” says Dennis. “This wind
farm is the first important step in building
Mercury’s wind generation portfolio. The
infrastructure that we’re putting in place
around transmission and grid connection for
this wind farm is sized to also facilitate the
Puketoi wind farm, further to the east.
“We have laid the groundwork to build
another wind farm at Puketoi at the
appropriate commercially motivated time and
it has an even better quality wind resource
than Turitea.”
There is an ancient Chinese proverb: “When
the winds of change blow, some people build
walls, others build wind mills”.
WHEN THE WINDS OF
CHANGE BLOW, SOME
PEOPLE BUILD WALLS,
OTHERS BUILD WIND
MILLS.
CREATING VALUE
THROUGH
COMMERCIAL.
LOOKING FORWARD
Operational efficiency and effectiveness will be
a key focus, recognising a challenging economic
environment, likely volatility in wholesale markets
and competitor repositioning ahead of the
signalled closure of the Tiwai Point aluminium
smelter. An internal team has been established to
consider efficiency initiatives.
Growth will be delivered by bringing generation to
the grid from our Turitea wind farm. Completion
of the 33 northern turbines is expected in the final
quarter of FY21, and the 27 southern turbines in
the second quarter of FY22.
Our capital management approach ensures we
retain the flexibility to be able to take advantage of
opportunities that may present themselves.
Our Turitea wind farm project integrates
thinking and delivers shared value across
other Mercury pillars. For example:
• PEOPLE – this large project embedded
high standards of Safety & wellbeing, and
benefitted from Capability & development
embraced by team members.
• PARTNERSHIPS – relationships with
Vestas, the world’s largest supplier of wind
turbines, to deliver and maintain the wind
farm; and Palmerston North City Council to
ensure the safe delivery of the project within
the council-owned Turitea Reserve.
• KAITIAKITANGA – close engagement with
tangata whenua to ensure the development
activities are undertaken in accordance with
local tikanga.
CLICK HERE to watch how we plan to build
the largest wind farm in New Zealand.
MERCURY ANNUAL REPORT 2020
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ENERGY FREEDOM
IN NUMBERS.
This section explains how our integrated thinking,
our decisions and our actions play out in financial
results. Here we provide commentary on our
financial performance for the year to the end of
June 2020 compared with prior years, as well as
our auditor’s report and our financial statements.
This year, we have amended our segment reporting
so that you can more clearly see the financial
dynamics of our generation operations as distinct
from our retail energy sales operations.
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
43
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600
620
640
660
680
700
720
740
FY16FY17FY18FY19FY20
$M
Energy Margin
440
460
480
500
520
540
560
580
FY16FY17FY18FY19FY20
$
M
Operating Earnings (EBITDAF)
185
190
195
200
205
210
215
FY16FY17FY18FY19FY20
$
M
Operating Costs
Mercury produced a solid performance in FY20 in the face of prolonged
drought conditions and a national lockdown due to COVID-19. While EBITDAF
for FY20 is down $12 million, when normalised for the sale of the company’s
metering business in February 2019, it is $8 million favourable.
The impacts of COVID-19 on Mercury so far were modest compared to
many businesses, as we continued operating as an essential service with all
generation activity continuing during the nationwide lockdown through March
and April. While office-based staff were required to work from home during
lockdown, the company’s investment in its digital platform meant this could
be undertaken with minimal impact to customers and staff. Construction at
our Turitea wind farm was temporarily halted, however this had resumed by
early May.
Similar to the prior year, weather across the Waikato catchment was acutely
dry from September, with hydro generation down approximately 300GWh
against our long-term average. Prudent portfolio management during the
period saw Lake Taupō levels rise to nearly full at the start of summer ahead
of the normally drier summer/autumn months and saw Lake Taupō close the
year almost 100GWh below its long-term average for the time of year.
Geothermal generation was slightly down at 2,615GWh for the year, off the
back of two-yearly maintenance outages at both Kawerau and Ngā Awa
Pūrua. A three-well drilling campaign was also completed during the year.
Our focus on customer value and loyalty, as opposed to customer numbers,
saw both customer acquisitions and losses fall. Average mass market yields
increased $4/MWh or 3.2% over the prior period. However, elevated spot
prices during FY20 pressured margins, which remained challenged across all
segments. Repricing of the commercial and industrial segment saw average
yields increase by $7/MWh or 8.8% during the year.
We have continued our disciplined and focussed approach to costs. Operating
costs in FY20 at $190m were in line with FY19 normalised levels as signalled.
We also committed to building the southern section of our Turitea wind farm,
taking total committed spend for the project to $465 million. The northern
section of the wind farm is expected to be completed in autumn FY21, with
the southern section following suit in spring FY22.
FINANCIAL
COMMENTARY.
$494M
OPERATING
EARNINGS
(EBITDAF)
12TH
CONSECUTIVE
YEAR OF ORDINARY
DIVIDEND GROWTH
15.8CPS
FULL YEAR
ORDINARY
DIVIDEND
ENERGY MARGIN
Energy Margin of $652 million was down $15m
from the previous year affected by the drought,
resulting in 300GWh less hydro production.
Lower inflows into the Waikato catchment
meant that good lake and portfolio
management has been key. A strong portfolio
performance was a consequence of good
management of Lake Taupō levels, decisions in
the customer portfolio to increase commercial
and industrial contracting, not renewing the
Farmsource contract and targeted customer
acquisitions. Average energy yields increased
across both mass market and commercial and
industrial sales, up 3.2% and 8.8% respectively.
OPERATING COSTS
The Group held its operating costs broadly flat
for a seventh year in a row, after normalising
for International Financial Reporting Standards
(IFRS) changes and the sale of Metrix. This
continues to evidence the Group’s disciplined
and focussed approach to its core activities.
OPERATING EARNINGS
(EBITDAF)
FY20 operating earnings were solid given drier
hydro conditions and the sale of Metrix. The
company’s EBITDAF of $494 million fell $12
million from the previous year, off the back of
approximately 300GWh of lower hydrology
and the sale of Metrix in February 2019.
OTHER INCOME
Other net income for the year of $32 million
was down $6 million on the previous year as
the group had its first full year without Metrix,
its metering business that was sold in February
2019, which contributed $15 million in FY19.
Other income now includes equity accounted
income from the group’s investments in
associates (Tilt Renewables and Mokai, via
Tuaropaki Power Company), which contributed
$18 million in FY20, an increase of $17 million
over FY19. These have been included because
earnings from associates is forecast to become
more material through time.
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0
50
100
150
200
250
300
FY16FY17FY18FY19FY20
$
M
Capital Expenditure
Stay-in-businessGrowth
0
50
100
150
200
$
M
Underlying Earnings After Tax
FY16FY17FY18FY19FY20
0
5
10
15
20
25
FY16FY17FY18FY19FY20
Cents per share
Distributions
InterimFinalSpecialBuyback
PROFIT FOR THE YEAR
Mercury's profit for the year of $207 million was lower than the previous year’s record of $357 million,
which benefitted by $177 million from the sale of the company’s smart-metering business, Metrix.
Normalising for this gain on sale, the group’s net profit after tax was up $27 million, primarily due to
lower interest and tax charges more than offsetting the impacts of lower hydrology.
$207M
PROFIT
$114M
OF STAY-IN-
BUSINESS CAPEX
$164M
UNDERLYING
EARNINGS
AFTER TAX
CAPITAL STRUCTURE
AND DIVIDENDS
Mercury's gearing level of 2.0 times debt/
EBITDAF is up marginally on the previous year
due to the capital expenditure in relation to
construction of the Turitea wind farm, with $184
million advanced to date. The gearing ratio
however remains at the strong end of Mercury’s
target credit range of 2.0x to 3.0x debt/EBITDAF
to support our S&P Global credit rating of BBB+.
Mercury holds 39 million shares as treasury stock
and has available debt headroom of $525 million
and cash and cash equivalents of $79 million.
This provides balance sheet flexibility for liquidity
and growth in relation to the development
of the Turitea wind farm and other potential
opportunities.
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
ordinary dividend of 9.4 cents per share (CPS)
final dividend has been declared. This brings
the full-year ordinary dividend to 15.8 CPS, up
from 15.5 CPS, or 2%, in 2019, marking our 12th
consecutive year of ordinary dividend growth.
UNDERLYING EARNINGS
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 increased
by $3 million for the year, reflecting the
company’s continued focus on careful portfolio
management, customer value and a disciplined
approach to cost.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities represents cash flows from the
sale of electricity and gas, along with the costs associated with its sale and
the cash costs of interest and taxes.
BALANCE SHEET
Total assets of the company increased by $401 million, primarily due to a
$296 million upward revaluation of Mercury’s generation assets, due to the
assessed cost of capital falling, and $184 million invested to date in the
company’s Turitea wind farm. Turitea construction also contributed to an
increase in net debt, which was $53 million higher compared to last year.
The company invested $279 million in capital expenditure (CAPEX) during
the year, comprising $114m stay-in-business (SIB) CAPEX and $165 million
of growth CAPEX, the majority of which was in relation to Turitea.
The major hydro refurbishments were completed at Whakamaru in March
2020 and Aratiatia in July 2020 and preliminary refurbishment works at
our Karāpiro station continued. The company also completed a three-well
drilling campaign this year.
MERCURY ANNUAL REPORT 2020
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FINANCIAL PERFORMANCE TRENDS
For the year ended 30 June
1
($ million)
20202019201820172016
Income statement
Energy margin
652667730698660
EBITDAF
494506566523493
Net profit for the year
207357234184160
Balance sheet
Total shareholders’ equity
3,7393,5373,3053,3083,315
Total assets
6,8856,4846,1065,9976,085
Total liabilities
3,1462,9472,8012,6892,770
Cash flow
Operating cash flow
356361370380283
Investing cash flow
(198)63(254)(98)(40)
Financing cash flow
(173)(335)(141)(298)(228)
Capital expenditure
Total capital expenditure
27911511811672
Growth capital expenditure
165266213
Stay-in-business capital expenditure
1148911211459
Other financial measures
Underlying earnings after tax
164161198176152
Free Cash Flow
242272258266224
Ordinary and special declared dividends
215211207270252
Ordinary dividends per share (cents)
15.815.515.114.614.3
Special dividends per share (cents)
–––5.04.0
Basic and diluted earnings per share (cents)
15.2126.2317.0013.3711.6
Net debt
1,1491,0961,2641,0381,068
Gearing (net debt/net debt + equity, %)
23.523.727.723.924.4
Debt/EBITDAF (x)
2
2.01.91.91.82.0
FINANCIAL TRACK RECORD.
For the year ended 30 June
1
($ million)
20202019201820172016
Operational measures
Total recordable injury frequency rate (TRIFR)
3
1.260.720.871.050.74
Sales to customers (FPVV, GWh)
4,3614,5004,4774,6064,397
Electricity customers (‘000)
348373388392376
Electricity generation (GWh)
6,3276,7037,5117, 3106,462
1. Financial results for the periods ended 30 June 2017 and earlier have not been restated for new IFRS standards.
2. Adjusted for S&P treatment of subordinated debt issued in FY2015.
3. Per 200,000 hours; includes on-site employees and contractors.
MERCURY ANNUAL REPORT 2020
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OPINION
We have audited the consolidated financial statements of the
Group on pages 49 to 69 of the Annual Report, that comprise
the consolidated balance sheet as at 30 June 2020, 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 2020, 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.
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
International Code of
Ethics for Assurance Practitioners (including International
Independence Standards) (New Zealand)
issued by the New
Zealand Auditing and Assurance Standards Board, and we have
ful filled our other ethical responsibilities in accordance with these
requirements.
In addition to the audit, we have carried out assignments
including a review of the Group’s consolidated financial
statements for the six months ended 31 December 2019,
agreed upon procedure engagements, a limited assurance
engagement, provision of remuneration market survey data and
tax related services in the United States of America, all of 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 the other
assignments described above, we have no relationship with, or
interests in, the Group.
TO THE SHAREHOLDERS OF MERCURY NZ LIMITED
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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.
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 consolidated 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.
INDEPENDENT AUDITOR’S REPORT.
MERCURY ANNUAL REPORT 2020
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VALUATION OF GENERATION ASSETS
Why significantHow our audit addressed the key audit matter
Generation assets were revalued to $5,575 million at
30 June 2020 as set out in note 7 of the consolidated
financial statements. These are significant because the
generation assets represent approximately 81% of the
Group’s total assets.
The Group engages an 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 as described in note 7 of the consolidated financial
statements.
The New Zealand economy as a whole has been, and is likely
to continue to be, significantly impacted by the restrictions
and economic uncertainty resulting from the COVID-19
pandemic. Note 1 explains the impact of the COVID 19
pandemic on the Group. Significant assumptions used in the
valuation of generation assets are inherently subjective and
in times of economic uncertainty the degree of subjectivity
is higher than it might otherwise be. The Group’s valuation
specialist considered the impacts of COVID-19 within their
valuation, particularly as it related to the electricity price path
and discount rate assumptions.
In addition, note 7 states that the fair value of generation
assets has been calculated assuming the ongoing operation
of New Zealand Aluminium Smelters Limited Tiwai Point
aluminium smelter (“Tiwai”), which was the expectation
at 30 June 2020. On 9 July 2020 the owners of Tiwai
announced its intention to close Tiwai which is expected to
be completed in August 2021. As described in note 19 the
Group treated this announcement as a post balance date
event and did not make any adjustment to the fair value of
the generation assets calculated as at 30 June 2020.
In obtaining sufficient appropriate audit evidence we:
• met with the Group’s external 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 used to determination
of the wholesale electricity price path by the
Group’s external valuation specialist;
• assess the appropriateness of the discount rate;
and
• consider the Group’s external valuation
specialist’s assessment of the impact of
COVID-19 on key assumptions including the
electricity price path and discount rate applied.
• assessed management’s treatment of the announced
Tiwai closure as a non-adjusting post balance date
event;
• assessed the professional competence and objectivity
of the Group’s external valuation specialist;
• assessed the valuation adjustments were made in
accordance with the Group’s accounting policy; and
• assessed the adequacy of the related financial
statement disclosures in notes 7 and 19.
VALUATION OF NON-STANDARD ELECTRICITY PRICE DERIVATIVE FINANCIAL INSTRUMENTS
Why significantHow our audit addressed the key audit matter
The Group’s activities expose it to certain risks which are
managed using derivative financial instruments. At 30
June 2020, the fair value of derivative assets total $222
million and derivative liabilities total $254 million as set
out in note 14 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
14 of the consolidated financial statements.
Significant assumptions used in the valuation of Non-
Standard Derivatives are inherently subjective and in times
of economic uncertainty the degree of subjectivity is
higher than it might otherwise be, including relating to the
anticipated electricity price path.
In obtaining sufficient appropriate audit evidence we:
• involved our valuation specialists to assess the models
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 anticipated wholesale
electricity price path to other price path
estimates obtained in performing the
Generation Asset procedures detailed above.
• together with our internal valuation specialists,
challenged key assumptions and inputs. This included
assessing the impact of the COVID-19 pandemic on the
electricity price path applied.
• agreed underlying data to the contract terms on a
sample basis.
• assessed the adequacy of the related financial
statement disclosures as described in note 14.
MERCURY ANNUAL REPORT 2020
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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, 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 directors’ responsibilities arise from the Financial
Markets Conduct Act 2013.
The directors are also responsible for such internal control
as they determine is necessary to enable the preparation
of consolidated financial statements that are free from
material misstatement, whether due to fraud or error and
for the publication of the consolidated 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 consolidated 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
in fluence the economic decisions of users taken on the basis
of these consolidated 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
LLOYD BUNYAN // ERNST & YOUNG
ON BEHALF OF THE AUDITOR-GENERAL
AUCKLAND, NEW ZEALAND
18 AUGUST 2020
report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content
of the 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 consolidated financial
statements. Also, we did not evaluate the security and
controls over the electronic publication of the consolidated
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,
actions taken to eliminate threats or safeguards applied.
From the matters communicated with the directors, we
determine those matters that were of most significance in
the audit of the consolidated 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.
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FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT.
For the year ended 30 June 2020
Note2020 $M2019 $M
Total revenue21,768 2,001
Total expenses 2(1, 274)(1,495)
EBITDAF
1
494 506
Depreciation and amortisation7, 8(214)(204)
Change in the fair value of financial instruments1422 26
Gain on sale/impairments– 177
Net interest expense2(54)(75)
Profit before tax248 430
Tax exp e nse5(41)(73)
Profit for the year attributable to owners of the parent207357
Basic and diluted earnings per share (cents)15.2126.23
1. EBITDAF: Earnings before net interest expense, tax expense, depreciation and amortisation, change in the fair value of financial instruments,
gain on sale and impairments.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME.
For the year ended 30 June 2020
Note2020 $M2019 $M
Profit for the year207357
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Movement in asset revaluation reserve 285 244
Movement in cash flow hedge reserve transferred to balance sheet14 6 (1)
Share of movements in associates’ and joint ventures’ reserves98 (9)
Tax ef fe c t (91) (66)
Items that may be reclassified subsequently to profit or loss
Movement in cash flow hedge reserve141 (118)
Movement in other reserves–1
Tax ef fe c t– 32
Other comprehensive income for the year, net of taxation209 83
Total comprehensive income for the year attributable to owners of the parent416440
The accompanying notes form an integral part of these financial statements.
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CONSOLIDATED BALANCE SHEET.
As at 30 June 2020
Note2020 $M2019 $M
SHAREHOLDERS’ EQUITY
Issued capital 378 378
Treasury shares4 (101) (101)
Reserves3,462 3,260
Total shareholders’ equity3,739 3,537
ASSETS
Current assets
Cash and cash equivalents 79 94
Receivables10 244 256
Contract assets10 2 3
Inventories6 22 23
Derivative financial instruments14126 50
Total current assets 473 426
Non-current assets
Property, plant and equipment75,898 5,528
Intangible assets8 78 85
Investments 9– 234
Investment in and advances to associates9 328 76
Advances to joint operations9 6 6
Receivables106–
Derivative financial instruments1496 129
Total non-current assets6,412 6,058
Total assets6,885 6,484
Note2020 $M2019 $M
LIABILITIES
Current liabilities
Payables and accruals10280 216
Borrowings12 446 541
Derivative financial instruments14 116 45
Taxation payable5 33 19
Total current liabilities 875 821
Non-current liabilities
Payables and accruals10 12 9
Provisions11 74 59
Derivative financial instruments14 138 208
Borrowings12 845 692
Deferred tax51,202 1,158
Total non-current liabilities2,271 2,126
Total liabilities3,146 2,947
Net assets3,7393,537
For and on behalf of the Board of Directors, who authorised the issue of the Financial Statements on 18 August 2020.
The accompanying notes form an integral part of these financial statements.
PRUE FLACKS // CHAIR
18 August 2020
KEITH SMITH // DIRECTOR
18 August 2020
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY.
For the year ended 30 June 2020
Issued
capital
$M
Retained
earnings
$M
Asset
revaluation
reserve
$M
Cash flow
hedge
reserve
$M
Other
reserves
$M
Total
equity
$M
BALANCE AS AT 1 JULY 2018378 164 2,901 (24)(114) 3,305
Movement in asset revaluation reserve,
net of taxation–– 176 –– 176
Movement in cash flow hedge reserve,
net of taxation––– (85)– (85)
Movements in other reserves– 2 –– (1) 1
Recycling of fair value losses in available
for sale reserves– (15)–– 15 –
Share of movements in associates’ and joint
ventures’ reserves––– (9)– (9)
Other comprehensive income – (13)176 (94)1483
Net profit for the year–357 –––357
Total comprehensive income for the year – 344 176(94)14440
Dividend–(208)–––(208)
Balance as at 30 June 2019378 300 3,077 (118)(100)3,537
BALANCE AS AT 1 JULY 2019 378 300 3,077 (118) (100)3,537
Movement in asset revaluation reserve, net of
taxation–– 205 ––205
Movement in cash flow hedge reserve, net of
taxation––– (4)– (4)
Share of movements in associates’ and joint
ventures’ reserves–(1)(1)–10 8
Other comprehensive income–(1) 204 (4)10209
Net profit for the year–207 –––207
Total comprehensive income for the year–206 204 (4)10416
Dividend– (214)–––(214)
Balance as at 30 June 2020378 2923,281(122)(90)3,739
CONSOLIDATED CASH FLOW STATEMENT.
For the year ended 30 June 2020
2020 $M2019 $M
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers1,6971,987
Payments to suppliers and employees (1,205) (1,478)
Interest received 1 1
Interest paid (60) (70)
Taxes paid (77) (79)
Net cash provided by operating activities 356 361
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (195) (93)
Acquisition of intangibles (28) (29)
Acquisition of investment– (55)
Distributions received from and advances repaid to associates and joint ventures 4 5
Proceeds from the sale of metering business– 270
Return/(lodgements) of prudential deposits21(35)
Net cash (used)/received in investing activities(198) 63
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans375 30
Repayment of loans (330) (166)
(Payment)/receipt of lease (liabilities)/incentives(4)9
Dividends paid (214) (208)
Net cash used in financing activities (173) (335)
Net (decrease)/increase in cash and cash equivalents held (15) 89
Cash and cash equivalents at the beginning of the year 94 5
Cash and cash equivalents at the end of the year 79 94
Cash balance comprises:
Cash balance at the end of the year7994
The accompanying notes form an integral part of these financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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,
the US Private Placement 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.
Accounting policies and standards
No changes to accounting polices have been made during
the year and policies have been consistently applied to all
years presented. Certain comparatives have been restated
where needed to conform to current year classifications and
presentation.
The Group has decided to recognise earnings of associates
and joint ventures within total revenue as it anticipates these
to become more significant going forward. Prior periods have
been restated to reflect this change.
Functional and presentation currency
These financial statements are presented in New Zealand
Dollars ($) which is the Group’s functional currency, apart
from Mercury’s equity accounted share in Tilt Renewables
Limited as its functional currency is the Australian dollar and
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:
• Fair value of generation plant and equipment (refer note 7)
• Retail revenue accruals (refer note 10)
• Provision for restoration and environmental rehabilitation
costs (refer note 11)
• Valuation of financial instruments (refer note 13 and note 14)
• Incremental borrowing rates for the purpose of establishing
lease liabilities (refer note 7)
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NOTE 1. ACCOUNTING POLICIES (CONTINUED)
COVID-19 Pandemic
On 11 March 2020 the World Health Organisation declared a global pandemic as a result of the outbreak and spread of COVID-19.
Following this, on Wednesday 25 March 2020 the New Zealand Government raised its alert level to 4 (full lockdown) for an initial
four-week period. The alert level was moved back down to level 3 on 27 April 2020 and then level 2 on 13 May 2020, with specific
restrictions removed at each level. On 8 June 2020, level 1 was achieved and all remaining restrictions were lifted except for
border controls.
The generation and retailing of electricity was deemed an essential service. Therefore Mercury was able to continue trading
throughout all alert levels. As a result, this has limited the impact of COVID-19 during the reporting period on Mercury. It is
acknowledged that there is significant uncertainty in how COVID-19 will impact the New Zealand economy and Mercury in the
future.
An assessment of the impact of COVID-19 on Mercury's 30 June 2020 balance sheet is set out below. This assessment is
effective as at 18th August 2020 and has made use of all available information at that time.
Balance Sheet Item COVID-19 AssessmentNote
CashNo impact to the carrying value of cash on hand. N/A
ReceivablesMercury has increased its allowance for impairment loss by $1 million to account for the
effect of COVID-19 on the macroeconomic conditions which rendered the historical trend of
receipts from customers less reliable.
Note 10
Contract AssetsCapitalised customer acquisition costs are amortised over the expected life of the customer
relationship. There was no impact from COVID-19 on contract assets.
Note 10
Derivative Financial
Instruments
COVID-19 has affected interest rates, foreign exchange rates and forward electricity prices.
Derivatives are recorded at fair value. Valuation techniques used for Level 2 and 3 derivatives
incorporate COVID-19 impacts.
Note 13
Property, Plant and
Equipment
Generation assets are held at fair value. They have been revalued as at 30 June 2020
following an independent valuation by PricewaterhouseCoopers. The fair value assessment
of generation assets was carried out at 30 June 2020 and has incorporated impacts arising
from COVID-19.
Note 7
Right-of-use assetsMercury received rent relief from landlords on three properties. The relief is immaterial and
has not impacted how these leases have been previously recognised.
Note 7
Investments and
associates
All of Mercury’s investments and associates are recognised via the equity method under NZ
IAS 28. Since all investments are in the same industry and were able to continue trading
throughout all alert levels, no indicators of impairment exist.
Note 9
ProvisionsThe Group’s material provision is for the abandonment and subsequent restoration of
geothermal wells. COVID-19 does not affect this provision.
Note 11
BorrowingsBorrowings are held at amortised cost and the Group’s USPP is exchanged to NZD using the
exchange rate at balance date. Any impact of COVID-19 on the NZD v USD exchange rate is
reflected in the USPP carrying value.
Note 12
Income TaxThe COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act reintroduced
tax depreciation on non-residential buildings. The $8million impact of this legislation has
been reflected in the deferred tax balance and tax expense. No other tax relief measures
had a material impact on Mercury’s tax balances.
Note 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 2. SEGMENT REPORTING
IDENTIFICATION OF REPORTABLE SEGMENTS
The operating segments are identified by management based on the nature of the products and services provided. Discrete
financial information about each of these operating segments 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 earnings before net interest expense, tax expense, depreciation and amortisation, change in
the fair value of financial instruments, gain on sale and impairments by each segment inclusive of an allocation of central
operating revenue and costs. Operating segments are aggregated into reportable segments only if they share similar economic
characteristics.
During the year, the company’s operating segments were changed to better reflect how the business is managed and operating
decisions are made. Accordingly, the newly reported segments are (i) Generation/Wholesale, (ii) Retail and (iii) Other segments.
Under this newly reported methodology, the company’s previously owned metering business Metrix – which was sold in March
2019 – has also been separated for comparative purposes. All comparative information has been restated accordingly.
TYPES OF PRODUCTS AND SERVICES
Generation/Wholesale
The generation/wholesale market segment encompasses activity associated with the electricity production, electricity trading,
generation development activities and the Group's share of associates earnings. It also includes revenue from the sale of electricity
to both commercial & industrial customers and the retail segment.
Retail
The retail market segment encompasses activity associated with sale of energy, related services and products, including solar
equipment, to mass market customers in New Zealand.
Metrix
Represents the metering services of Metrix – which was sold in March 2019 – for comparative purposes only.
Other Segments
Represents corporate support services which are not directly attributable to the generation/wholesale or retail segments.
Inter-segment
Transactions between segments represent transfer charges by generation/wholesale to retail for the purchase of electricity.
SEGMENT RESULTS
YEAR ENDED 30 JUNE 2020
Generation/
Wholesale
$M
Retail
$M
Metrix
$M
Other
Segments
$M
Inter–
segment
$M
Total
$M
Sales – electricity generation 706 –––– 706
Sales to customers and derivatives 584 746 –– (302) 1,028
Earnings of associates18 ––––18
Other revenue 10 6 ––– 16
Total revenue1,318 752 –– (302)1,768
Energy costs (604) (308)–– 302 (610)
Line charges (77) (308)––– (385)
Other direct cost of sales, excluding
third party metering (32) (9)––– (41)
Direct costs of other revenue– (2)––– (2)
Third party metering (3) (43)––– (46)
Employee compensation and benefits (35) (32)– (15)– (82)
Maintenance expenses (34) (6)––– (40)
Other expenses (36) (25)– (7)– (68)
Allocation or corporate overheads (11) (11)– 22 ––
Total expenses (832) ( 74 4)–– 302 (1, 274)
Segment EBITDAF4868–––494
Interest expense (8)–– (48)– (56)
Lease interest expense––– (3)– (3)
Interest income––– 1 – 1
Interest capitalised to capital
work in progress
4 –––– 4
Net interest expense (4)–– (50)– (54)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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SEGMENT RESULTS (CONTINUED)
YEAR ENDED 30 JUNE 2019
Generation/
Wholesale
$M
Retail
$M
Metrix
$M
Other
Segments
$M
Inter–
segment
$M
Total
$M
Sales – electricity generation 944 –––– 944
Sales to customers and derivatives 497 807 –– (291) 1,013
Earnings of associates 1 –––– 1
Other revenue 16 10 33 – (16) 43
Total revenue 1,458 817 33 – (307) 2,001
Energy costs (795) (298)–– 291 (802)
Line charges (77) (345)––– (422)
Other direct cost of sales, excluding
third party metering (25) (8)––– (33)
Direct costs of other revenue– (3) (3)–– (6)
Third party metering (3) (46)–– 16 (33)
Employee compensation and benefits (35) (32) (5) (14)– (86)
Maintenance expenses (34) (5) (3)–– (42)
Other expenses (34) (27) (2) (8)– (71)
Allocation or corporate overheads (11) (11)– 22 ––
Total expenses (1,014) (775) (13)– 307 (1,495)
Segment EBITDAF 444 4220––506
Interest expense (3)–– (71)– ( 74)
Lease interest expense––– (2)– (2)
Interest income––– 1 – 1
Interest capitalised to capital
work in progress
––––––
Net interest expense (3)–– (72)– (75)
Prior year comparative figures have been amended to reflect the share of earnings of associates now recognised in total revenue.
Audit fees
Fees payable to EY, who are appointed by the Auditor-General, for the audit and review of the financial statements and other
assurance and agreed upon procedure engagements were $606,000 (2019: $605,000). Non-audit services in relation to
provision of remuneration market survey data were $13,000 (2019: $33,000). EY (US) also provided US tax compliance services in
the amount of $192,000 (2019: $264,000).
NOTE 3. NON-STATUTORY MEASURE – UNDERLYING EARNINGS
Underlying earnings after tax 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 profit before tax, which represents material
items), impairments, any change in the fair value of derivative financial instruments and gain on sale, all net of tax expense.
Changes in the fair value of financial instruments are excluded from underlying earnings in order to align their impact when they
mature with the underlying hedged items.
2020 $M2019 $M
PROFIT FOR THE YEAR207357
Change in the fair value of financial instruments(22)(26)
Impairments/Gain on sale in metering business– (177)
Tilt bargain purchase gain(18)–
Adjustments before tax expense(40)(203)
Tax (cre di t)/exp e nse(3) 7
Adjustments after tax expense(43)(196)
Underlying earnings after tax164161
Tax has been applied on all taxable adjustments at 28%.
During the year the Group began accounting for its investment in Tilt Renewables Limited ("Tilt") as an investment in an associate.
This required a comparison between the cost of the Group’s investment and the fair value of it’s share of identifiable assets, with
the difference of $18 million being recognised as a bargain purchase gain on transition. Prior to moving to equity accounting, a
$10 million deferred tax expense was recognised in prior periods in relation to unrealised fair value movements of the Group's
investment in Tilt. This tax expense was reversed during the period. For further details see Note 9.
The Group has previously backed out its equity accounted share of the change in fair value of financial instruments of associate
entities. The Group no longer feels that it is relevant to include this within underlying earnings and has amended its calculation
accordingly. This change had no impact on the prior period comparatives for underlying earnings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 4. SHARE CAPITAL AND DISTRIBUTION
The share capital of the Company is represented by 1,400,012,517 ordinary shares (2019: 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 1,361,032,535 (2019:
1,360,894,041). These shares do not have a par value, have equal voting rights and share equally in dividends and any surplus on
winding up.
2020 Number
of shares (M)2020 $M
2019 Number
of shares (M)2019 $M
Treasury shares
Balance at the beginning of the year3910139101
Acquisition of treasury shares––––
Balance at the end of the year 39 101 39 101
Cents per share2020 $M2019 $M
Dividends declared and paid
Final dividend for 2018 9.1 –124
Interim dividend for 2019 6.2 –84
Final dividend for 2019 9.3 127 –
Interim dividend for 2020 6.4 87 –
214208
No imputation credits are available at 30 June 2020 (2019: $nil) as the imputation credit account has a deficit of $30 million
(2019: deficit of $25 million). The imputation credit account is required to have a surplus balance at 31 March each year.
N OT E 5. TA X AT IO N
2020 $M2019 $M
Income Tax
(i) Tax expense
Profit before tax 248 430
Prima facie tax expense at 28% on the profit before tax (69) (120)
Increase/(decrease) in tax expense due to:
• share of associates’ and joint ventures’ tax paid earnings 5 –
• reversal of deferred tax recognised on investment in Tilt Renewables10–
• capital gain–51
• change in tax treatment of commercial buildings8–
• other differences5 (4)
Tax expense attributable to profit from ordinary activities (41) (73)
Represented by:
Current tax expense (90) (81)
Deferred tax recognised in the income statement498
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.
Following an announcement from Tilt that it will be looking to reinvest earnings into capital development and due to the additional
influence gained from having a director appointee, the Group considers it unlikely that Tilt will pay dividends in the foreseeable
future and has therefore reversed its $10m deferred tax liability recognised at 30 June 2019 in relation to unrealised fair value
gains.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 5. TAXATION (CONTINUED)
Assets
2020 $M
Assets
2019 $M
Liabilities
2020 $M
Liabilities
2019 $M
Net
2020 $M
Net
2019 $M
(i) Recognised deferred tax assets and liabilities
Property, plant and equipment–– (1,263) (1,213) (1,263) (1,213)
Financial instruments27 23 ––27 23
Employee benefits and provisions3 2 ––3 2
Other3130––3130
6155 (1,263) (1,213) (1,202) (1,158)
Property,
plant and
equipment
$M
Financial
instruments
$M
Employee
entitlements
$M
Other
$M
Total
$M
(ii) Movement in deferred tax
Balance as at 1 July 2018 (1,155) 5 2 17 (1,131)
Charged/(credited) to the income statement 26 (14)– (5) 7
Charged/(credited) to other comprehensive
income (85) 32 –19(34)
Balance as at 30 June 2019 (1,214) 23 2 31 (1,158)
Balance as at 1 July 2019 (1,214) 23 2 31 (1,158)
Charged/(credited) to the income statement 34 151 (1)49
Charged/(credited) to other
comprehensive income(83)(11)–3 (91)
Other movements––– (2) (2)
Balance as at 30 June 2020 (1,263)27331 (1,202)
The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act reintroduced tax depreciation on non-residential
buildings. The $8 million impact of this legislation has been reflected in the deferred tax balance. No other tax relief measures
had a material impact on Mercury’s tax balances.
NOTE 6. 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 $22 million (2019: $23 million) are held to service and repair operating
plant.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
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
$MTotal $M
YEAR ENDED 30 JUNE 2019
Opening net book value 5,215 48 37 12 58 5,370
Additions 16 3 25 42 53 139
Transfers 30 ––– (30)–
Disposals (1) (45) (2) (1) (1) (50)
Net revaluation movement 250 –––– 250
Depreciation charge
for the year (163) (6) (8) (4)– (181)
Closing net book value 5,347 –524980 5,528
Balance at 30 June 2019
Cost or valuation 5,347 23 125 59 80 5,634
Accumulated depreciation– (23) (73) (10)– (106)
Net book value 5,347 – 52 49 80 5,528
YEAR ENDED 30 JUNE 2020
Opening net book value 5,347 – 52 49 80 5,528
Additions 1 ––– 259 260
Transfers 101 – 7 – (108)–
Disposals––––––
Net revaluation movement 296 –––– 296
Depreciation charge
for the year (170)– (11) (5)– (186)
Closing net book value5,575 – 48 44 231 5,898
Balance at 30 June 2020
Cost or valuation 5,575 – 115 56 231 5,97 7
Accumulated depreciation–– (67) (12) – (79)
Net book value5,575 – 48 44 231 5,898
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 7. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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 constitute property and motor vehicles and represents the Group’s right to use those underlying assets as a
lessee under lease agreements. In line with IFRS 16, all leases are recognised on the balance sheet. Lease payments are recorded
as a repayment of the lease obligation and interest expense. 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 was 5.36% (2019: 5.26%). The Group’s lease
interest and lease liability is disclosed in note 2 and note 12 respectively.
As at 30 June 2020, the capital work in progress balance is elevated due to the Group’s ongoing construction of its Turitea
wind farm. Its phased commissioning is anticipated to commence in the second half of next year.
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 2020. This resulted in an increase to the carrying
value of the Group’s hydro and geothermal generation assets of $253m and $43m respectively in the current year. This is in
addition to the $250m revaluation increase recognised across the Group’s hydro and geothermal generation assets in 2019. 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 $93/
MWh (2019: $75/MWh and $106/MWh), average operational expenditure of $161 million p.a. (2019: $158 million p.a.), net average
production volumes of 6,708 GWh p.a. (2019: 6,703 GWh p.a.) and a post-tax discount rate of between 6.5% and 6.9% (2019: 7.2%
to 7.6%). The valuation also assumed the on-going operation of New Zealand Aluminium Smelters Limited at Tiwai Point (see note
19 – subsequent events), 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.
SensitivityValuation impact
2020 $M2019 $M
Future wholesale electricity price path+/- 10%$891 / ($898)$833 / ($837)
Discount rate+/- 0.5%($604) / $747($531) / $641
Operational expenditure+/- 10%($267) / $267($235) / $235
The carrying amount of revalued generation assets, had they been recognised at cost, would have been $1,959 million
(2019: $1,937 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:
20202019
Office fixture and fittings, including fit-out2-50%2-50%
Generation assets:
• Hydro and thermal generation1-33%1-33%
• Other generation2-33%2-33%
Computer hardware and tangible software5-50%5-50%
Other plant and equipment2-50%2-50%
Vehicles5-33%5-33%
Right of use assets4-33%4-33%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
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NOTE 8. INTANGIBLE ASSETS
Intangible
software
$M
Rights
$M
Emissions
units
$M
Work in
progress
$M
Total
$M
YEAR ENDED 30 JUNE 2019
Opening net book value 55 20 16 10 101
Additions 13 1 7 8 29
Transfers 10 –– (10)–
Disposals (20)–– (2) (22)
Amortisation for the year (22) (1)–– (23)
Closing net book amount 36 20 23 6 85
BALANCE AT 30 JUNE 2019
Cost 149 34 23 6 212
Accumulated amortisation (113) (14)–– (127)
Net book value 36 20 23 6 85
YEAR ENDED 30 JUNE 2020
Opening net book value 36 20 23 6 85
Additions–– 7 21 28
Transfers 22 –– (22)–
Surrendered Units–– (7)– (7)
Amortisation for the year (26) (2)–– (28)
Closing net book amount 32 18 23 5 78
BALANCE AT 30 JUNE 2020
Cost 138 34 235 200
Accumulated amortisation (106) (16) – – (122)
Net book value 32 18 235 78
Software
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use. These costs are
amortised over their estimated useful lives of between 2 to 15 years (2019: between 2 to 15 years). As these assets are deemed to
have a finite life, impairment testing will only be performed when there is an indication that the intangible asset may be impaired.
Rights
Rights, of which land access rights are the most significant, acquired to further the Group’s generation development programme
are stated at cost less accumulated amortisation and any accumulated impairment losses. Rights, which have a finite life, are
amortised over the life of the rights, which range from 3 to 60 years (2019: 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 9. INVESTMENT AND ADVANCES TO ASSOCIATES AND JOINT ARRANGEMENTS
(JOINT VENTURES AND JOINT OPERATIONS)
The Group financial statements include the following:
Interest held
Name of entityPrincipal activityType20202019Country
TPC Holdings LimitedInvestment holdingAssociate25.00%25.00%New Zealand
Tilt Renewables Limited
Electricity generation
and developmentAssociate19.96%19.97%New Zealand
RotokawaSteamfield operationJoint operation64.80%64.80%New Zealand
Ngā Awa PūruaElectricity generationJoint operation65.00%65.00%New Zealand
EnergySource LLCInvestment holdingJoint venture20.86%20.86%United States
EnergySource Minerals LLCMineral extractionJoint venture20.84%20.84%United States
Hudson Ranch I Holdings LLCElectricity generationJoint venture75.00%75.00%United States
AssociatesJoint ventures
2020 $M2019 $M2020 $M2019 $M
Balance at the beginning of the year 76 88 – –
Additions during the year 230 – – –
Share of earnings18 1 – –
Share of movement in other comprehensive income and reserves8 (9) – –
Distributions received during the year (4) (4) – –
Balance at the end of the year 328 76 – –
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
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NOTE 9. INVESTMENT AND ADVANCES TO ASSOCIATES AND JOINT ARRANGEMENTS
(JOINT VENTURES AND JOINT OPERATIONS) (CONTINUED)
At the end of the year the Group had outstanding advances to its Rotokawa joint venture partner in the amount of $6 million
(2019: $6 million) and its associate TPC Holdings Limited of $4 million (2019: $4 million). For terms and conditions of these
related party receivables refer to note 16.
Mercury’s share of losses in Energy Source LLC exceeds its interest in the joint venture. 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.
The Group purchased an initial 19.99% stake in Tilt Renewables Limited (“Tilt”) in 2018. At that time the Group did not have
representation on its board of directors and this investment was accounted for as an investment at fair value through the income
statement. On 19 July 2019 the Group’s Chief Executive was appointed as a non-independent director to the board of Tilt.
Consequently, the Group considers that it gained significant influence in the context of NZ IAS 28 – Investments in associated
and joint ventures and has accounted for its investment as an investment in an associate from that date. This has resulted in an
unrealised fair value loss of $4m being recognised for the period, bringing the investment to its market value on 19 July 2019.
In applying NZ IAS 28, the Group is required to compare the cost of its investment on 19 July 2019, to the fair value of its share of
identifiable net assets of Tilt, and account for any resulting differences this creates when equity accounting its share of earnings
and reserves. In doing so, the Group has taken into account the information arising from the sale of Tilt’s Snowtown 2 subsidiary in
December 2019. The effect of this adjustment is to largely bring Tilt’s identifiable net assets in line with its market value as of
19 July 2019 and recognise a bargain purchase gain of $18m.
Additionally, following an announcement from Tilt that it will be looking to reinvest earnings into capital development and due to the
additional influence gained from having a director appointee, the Group considers it unlikely that Tilt will pay dividends in the foreseeable
future and has therefore reversed its $10m deferred tax liability recognised at 30 June 2019 in relation to unrealised fair value gains.
NOTE 10. RECEIVABLES, PAYABLES AND ACCRUALS
2020 $M2019 $M
RECEIVABLES
Trade receivables and accruals241248
Allowance for impairment loss (2) (1)
Net trade receivables and accruals239247
Prepayments11 9
250256
Sales to customers and derivatives are typically invoiced on a monthly basis. Revenue from sales to and derivatives with large
commercial and industrial customers is billed on a calendar month basis, while billing of sales to mass market customers occurs
on a rolling cycle each month and over the year. Sales of energy to customers, both physical and financial (i.e. derivatives) are on
contract terms that have similar characteristics and are therefore treated as a portfolio of contracts. 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.
Trade receivables are non-interest bearing and are generally on 30 day terms. For terms and conditions of related party
receivables refer to note 16.
The Group recognises an allowance for impairment loss when there is objective evidence that the Group will not be able
to collect amounts due according to the original terms of the receivable. An allowance charge of $3 million (2019: $2 million)
was recognised during the year. Receivables of $2 million (2019: $3 million) were deemed uncollectable were written off.
Expected Credit Loss
The Company applies the NZ IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables.
To measure the expected credit losses, trade receivables have been grouped based on days past due. The expected loss rates
are based on the payment profiles of sales over a 12 month period before 30 June 2020 and the corresponding historical credit
losses during the period, adjusted for any significant known amounts that are not receivable.
On that basis the following table details the loss allowance at 30 June 2020:
More than
30 days past
due
More than
60 days past
due
More than
90 days past
dueTotal
Expected loss rate%4%27%59%
Gross carrying amount – trade receivable$M5128
Loss allowance$M––11
2020 $M2019 $M
Movements in the allowance for impairment loss were as follows:
Balance at the beginning of the year12
Charge for the year32
Amounts written off(2)(3)
Balance at the end of the year21
2020 $M2019 $M
Payables and accruals
Trade payables and accruals249187
Employee entitlements77
Sundry creditors3631
292225
Trade payables are non-interest bearing and are normally settled on 30 to 60 day terms.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
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NOTE 10. RECEIVABLES, PAYABLES AND ACCRUALS (CONTINUED)
Customer contract assets
Incremental costs (like commissions) of acquiring or retaining customers, are recognised on the balance sheet as customer
contract assets, and are 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 treatment of credits given to customers are recognised directly against revenue when
incurred.
CONTRACT ASSETS2020 $M2019 $M
Contract assets
Opening Balance33
Additions13
Amortised to operating expenses(2)(3)
Closing balance2 3
Of the total contract assets balance, $1 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 11. PROVISIONS
2020 $M2019 $M
Balance at the beginning of the year5951
Provisions made during the year 14 6
Provisions used during the year (1) –
Discounting movement 2 2
Balance at the end of the year 74 59
Current – –
Non-current7459
7459
Provisions have been recognised for the abandonment and subsequent restoration of areas from which geothermal resources
have been utilised. The provision is calculated based on the present value of management's best estimate of the expenditure
required, and the likely timing of settlement. Changes in these estimates made during the year are reported as an increase in
provisions and a reduction in revaluation reserves. The increase in provision resulting from the passage of time (the discount
effect) is recognised as an interest expense.
NOTE 12. BORROWINGS
Borrowing currency
denominationMaturity Coupon 2020 $M2019 $M
Bank facilitiesNZDVariousFloating75 –
Commercial paper programmeNZD< 3 monthsFloating200 199
Capital bondsNZDJul–20196.90%-305
Wholesale bondsNZDFeb–20208.21%-31
USPP – US$125mUSDDec–20204.25%163 163
Wholesale/credit wrapperNZDSep–2021Floating300 300
USPP – US$30mUSDDec–20224.35%39 39
Wholesale bondsNZDMar–20235.79%26 26
USPP – US$45mUSDDec–20254.60%59 59
Capital bondsNZDJul–20493.60%302 –
Lease liabilities68 69
Deferred financing costs(4)(1)
Fair value adjustments63 43
Carrying value of loans1,291 1,233
Current446 541
Non-current845 692
1,291 1,233
The Group has $800 million of committed and unsecured bank loan facilities as at 30 June 2020 (30 June 2019: $500 million).
The Company executed $300m of new facilities during the reporting period. Of the $800 million loan facilities, $100 million
matures in June 2021, $200 million matures in September 2021, $100 million matures in August 2022, $100m matures in
October 2022, $50m matures in March 2024 and rolling bank facilities of $250 million currently matures in December 2021.
The Group has a $200 million Commercial Paper programme which is fully backed by committed and undrawn bank facilities.
Notes issued under the programme are short-term money market instruments, unsecured and unsubordinated and targeted at
professional investors. The programme is rated A2 by Standard & Poor’s.
On 11 July 2019 Mercury redeemed the existing $300m MCY010 bonds and issued $300m 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 of 11 July 2024.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
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NOTE 12. BORROWINGS (CONTINUED)
The Group has entered into a Master Trust Deed and Supplementary Trust Deeds for all its NZD denominated Senior Fixed and
Floating Rate Bonds with the New Zealand Guardian Trust Group Limited, acting as trustee for the holders. The Group has agreed,
subject to certain exceptions, not to create or permit to exist a security interest over or affecting its assets to secure indebtedness,
and to maintain certain financial covenants. There has been no breach of the terms of these deeds.
The Group has entered into a negative pledge deed in favour of its bank financiers in which the Group has agreed, subject to
certain exceptions, not to create or permit to exist a security interest over or affecting its assets to secure its indebtedness, and
to maintain certain financial ratios in relation to the Group. These undertakings and covenants also apply to the US Private
Placement terms and conditions. There has been no breach of the terms of this deed or the terms and conditions of the US
Private Placement.
The Group has entered into various lease contracts for the right to use land & buildings, motor vehicles and office equipment and
is also deemed to be a lessee of transmission equipment.
NOTE 13. 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 11 years (2019: 12 years), were $1,495 million (2019: $1,506 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, Yuan and Australian Dollar.
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 $146 million (2019: $102 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 $1,440 million (2019: $2,095 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.
Impact on post tax profitImpact on equity
2020 $M2019 $M2020 $M2019 $M
Group
Electricity forward price increased by 10%(1)(12)(34)(33)
Electricity forward price decreased by 10%112 33 33
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.
Impact on post tax profitImpact on equity
2020 $M2019 $M2020 $M2019 $M
New Zealand Dollar – Euro
Currency strengthens by 10% – – (3)(3)
Currency weakens by 10% – – 43
New Zealand Dollar – USD
Currency strengthens by 10% – –(2)(2)
Currency weakens by 10% – –32
New Zealand Dollar – Yuan
Currency strengthens by 10% – –(3)(2)
Currency weakens by 10% – –42
New Zealand Dollar - AUD
Currency strengthens by 10% – –17–
Currency weakens by 10% – –(20)–
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
Interest rate risk
Sensitivity analysis is based on an assessment of the reasonably possible movement in the 10 year swap rate over a one year
period based on actual movements over the last 10 years. The movement in post tax profits are due to higher/lower interest costs
from variable rate debt and cash balances combined with the result of fair value changes in interest rate swaps and options that
are valid economic hedges but which do not qualify for hedge accounting under NZ 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.
Impact on post tax profitImpact on equity
2020 $M2019 $M2020 $M2019 $M
Interest rates higher by 100 bps (13)(4)20 13
Interest rates lower by 100 bps13 4 (22)(16)
(B) CREDIT RISK
The Group manages its exposure to credit risk under policies approved by the Board of Directors. The Group performs credit
assessments on all electricity customers and normally requires a bond from commercial customers who have yet to establish a
suitable credit history. Customer bonds are held in a separate bank account.
It is the Group’s policy to only enter into derivative transactions with banks that it has signed an ISDA master agreement with, and
which have a minimum long-term Standard & Poor’s (or Moody’s equivalent) credit rating of A- or higher.
With respect to energy contracts, the Group has potential credit risk exposure to the counterparty dependent on the current
market price relative to contracted price until maturity.
In the event of a failure by a retailer to settle its obligations to the Energy Clearing House, following the exhaustion of its prudential
security, a proportionate share of the shortfall will be assumed by all generator class market participants. The Group consequently
will be impacted in the event that this occurs.
The carrying amounts of financial assets recognised in the balance sheet best represent the Group’s maximum exposure to credit
risk at the reporting date without taking account of any collateral held by way of customer bonds.
(C) LIQUIDITY RISK
The Group manages its exposure to liquidity risk under policies approved by the Board of Directors. Policies require that prescribed
headroom is available in undrawn and committed facilities to cover unanticipated needs and that a limited amount of facilities
mature over the immediate 12 month forward-looking period. The Group’s objective is to maintain a balance between continuity
of funding and flexibility through the use of various funding sources.
Non-derivative financial liabilities
The following liquidity risk disclosures reflect all contractually fixed payoffs, repayments and interest from recognised non-
derivative financial liabilities. The timing of cash flows for non-derivative financial liabilities is based on the contractual terms of
the underlying contract. It should be noted that the amounts presented are contractual undiscounted cash flows, consequently
the totals will not reconcile with the amounts recognised in the balance sheet.
While the tables below give the impression of a liquidity shortfall, the analysis does not take into account expected future
operating cash flows or committed and undrawn debt facilities that will provide additional liquidity support.
Less than
6 months
$M
6 to 12
months
$M
1 to 5
years
$M
Later than
5 years
$M
Total
$M
JUNE 2020
Liquid financial assets
Cash and cash equivalents 79 – – – 79
Receivables 244 – 6 – 250
323 – 6 – 329
Financial liabilities
Payables and accruals (280) – (12) – (292)
Loans (452) (11) (425) (640) (1,528)
Lease liabilities (4) (4) (33) (50) (91)
(736) (15) (470) (690) (1,911)
Net inflow/(outflow) (413) (15) (464) (690) (1,582)
Less than 6
months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
Total
$M
JUNE 2019
Liquid financial assets
Cash and cash equivalents 94 – – – 94
Receivables 256 – – – 256
350 – – – 350
Financial liabilities
Payables and accruals (216) – (9) – (225)
Loans (219) (46) (601) ( 743) (1,609)
Lease liabilities (4) (4) (31) (52) (91)
(439) (50) (641) (795) (1,925)
Net inflow/(outflow) (89) (50) (641) (795) (1,575)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
ENERGY FREEDOM IN NUMBERS
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
Derivative financial liabilities
The table below details the liquidity risk arising from derivative liabilities held by the Group at balance date. Net settled derivatives
include interest rate derivatives and electricity price derivatives. Gross settled derivatives relate to foreign exchange derivatives
that are used to hedge future purchase commitments. Foreign exchange derivatives may be rolled on an instalment basis until
the underlying transaction occurs. While the maturity of these derivatives are short-term the underlying expenditure is forecast to
occur over different time periods. The table also summarise the payments that are expected to be made in relation to derivative
liabilities. The Group also expects to receive funds relating to derivative asset settlements. The expectation of cash receipts in
relation to derivative assets should also be considered when assessing the ability of the Group to meet its obligations.
Less than
6 months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
Total
$M
JUNE 2020
Derivative liabilities – net settled (58) (30) (98) (11) (198)
Derivative liabilities – gross settled
• Inflows 131 ––– 131
• Outflows (146)––– (146)
Net maturity (73) (30) (98) (11) (213)
Less than
6 months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
Total
$M
JUNE 2019
Derivative liabilities – net settled (64) (51) (119) (16) (250)
Derivative liabilities – gross settled
• Inflows 104 ––– 104
• Outflows (102)––– (102)
Net maturity (62) (51) (119) (16) (248)
(D) FAIR VALUE ESTIMATION
Fair values
The carrying amount of financial assets and liabilities recorded in the financial statements approximates their fair values except
for: (i) the Fixed Rate Bonds, the Floating Rate Bonds and the US Private Placement, the fair values for which have been calculated
at $28 million (2019: $60 million), $298 million (2019: $296 million) and $326 million (2019: $312 million) respectively; and (ii) the
Capital Bonds, the fair value for which has been calculated at $314 million (2019: $305 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 2020 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 $54 million were categorised as level 1 (2019: $44 million) and $70 million
were categorised as level 3 (2019: $79 million). Electricity price derivative liabilities of $12 million were categorised as level 1 (2019:
$17 million) and $99 million were categorised as level 3 (2019: $138 million).
Financial instruments that are measured using a valuation technique with only observable market inputs, or unobservable inputs
that are not significant to the overall valuation, include interest rate derivatives and foreign exchange derivatives not traded on a
recognised exchange.
Financial instruments that use a valuation technique which includes non-market observable data include non-exchange traded
electricity contracts which are valued using a discounted cash flow methodology using a combination of ASX market prices
for the first three years, combined with Management’s internal view of forward prices for the remainder of the contract’s term.
Management’s internal view of forward prices incorporates a minimum price of $70/MWh and a maximum price of $115/
MWh (2019: minimum price of $69/MWh and a maximum price of $114/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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
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.
Impact on post tax profit
2020 $M2019 $M
Group
Electricity forward price increased by 10%(6)(6)
Electricity forward price decreased by 10%6 6
2020 $M2019 $M
Reconciliation of level 3 fair value movements
Opening balance (59)54
New contracts6(28)
Matured contracts241
Gains and losses
• Through the income statement– (8)
• Through other comprehensive income12(78)
Closing balance (29)(59)
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.
2020 $M2019 $M
Electricity price derivatives
Opening deferred inception gains/(losses) (12) (15)
Deferred inception gains (losses) on new hedges10 3
Deferred inception losses realised during the year(5) –
Closing balance (7) (12)
(E) CAPITAL RISK MANAGEMENT
Management seeks to maintain a sustainable financial structure for the Group having regard to the risks from predicted short and
medium-term economic, market and hydrological conditions along with estimated financial performance. Capital is managed to
provide sufficient funds to undertake required asset reinvestment as well as to finance new generation development projects and
other growth opportunities to increase shareholder value at a rate similar to comparable private sector companies.
In order to maintain or adjust the capital structure, changes can be made to the amount paid as dividends to shareholders, capital
can 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:
2020 $M2019 $M
Borrowings at carrying value1,291 1,233
Fair value adjustments US Private Placement(63)(43)
Less cash and cash equivalents(79)(94)
Net debt1,149 1,096
Total equity3,7393,537
Total capital4,8884,633
Gearing ratio23.5%23.7%
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 on-going basis. For the purpose of calculating this ratio and consistent with the rating
agency treatment, the calculation of debt is deemed to be all senior debt and 50% of subordinated debt less cash and cash
equivalents. For the year ended 30 June 2020, the Group had a debt to EBITDAF ratio of 2.0 times (2019: 1.9 times).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 14. 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:
2020 $M2019 $M
CURRENT ASSETS
Interest rate derivative 23 6
Electricity price derivative 67 41
Foreign exchange derivative– 2
Cross currency interest rate derivative 36 1
126 50
CURRENT LIABILITIES
Interest rate derivative 26 4
Electricity price derivative75 40
Foreign exchange derivative 15 –
Cross currency interest rate derivative– 1
116 45
NON-CURRENT ASSETS
Interest rate derivative 11 2
Electricity price derivative 57 82
Cross currency interest rate derivative 28 45
96 129
NON-CURRENT LIABILITIES
Interest rate derivative101 91
Electricity price derivative37 115
Cross currency interest rate derivative – margin–2
138 208
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 and South
Island generically called basis swaps. The most significant is a contract with Meridian Energy which has a remaining life of 5 years.
The changes in fair values of derivative financial instruments recognised in the income statement and other comprehensive
income are summarised below:
Income statement
Other comprehensive
income
2020 $M2019 $M2020 $M2019 $M
Cross currency interest rate derivatives1810 – –
Borrowings – fair value change(19) (11) – –
(1)(1) – –
Interest rate derivatives133 (16) (30)
Cross currency interest rate derivatives – margin(1)(1)21
Electricity price derivatives10(26)31(92)
Foreign exchange rate derivatives5– (17) 3
Total change in fair value of derivative financial instruments26(25)–(118)
In addition to the fair value loss on derivative financial instruments, the Group also recognised a fair value loss on its investment
in Tilt Renewables Limited of $4 million prior to moving to equity accounting for its investment on 19th July 2019 (2019: fair value
gain of $51m).
MOVEMENT IN CASH FLOW HEDGE RESERVE2020 $M2019 $M
Opening balance (118) (24)
The effective portion of cash flow hedges recognised in the reserve– (118)
Amortisation of fair values
1
1 1
The amount transferred to balance sheet6 (1)
Equity-accounted share of associates’ movement in other comprehensive income– (9)
Tax effect of movements(11)33
Closing balance (122) (118)
1. Amounts reclassified to the income statement recognised in amortisation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
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NOTE 15. RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS
FROM OPERATING ACTIVITIES
2020 $M2019 $M
Profit for the year207357
Items classified as investing or financing activities
• Net interest accrual(4)5
Adjustments for:
Depreciation and amortisation 214 204
Carbon costs7–
Dividend income received from the investment in Tilt Renewables– (1)
Net (gain)/loss on sale of property, plant and equipment1 1
Change in the fair value of financial instruments (22) (26)
Gain on sale of assets– (177)
Movement in effect of discounting on long-term provisions2 4
Share of earnings of associate and joint venture companies (18) 1
Other non-cash items– (1)
Net cash provided by operating activities before change in assets and liabilities387 367
Change in assets and liabilities during the year:
• Increase in trade receivables and prepayments (15)(26)
• Decrease in consumable inventories 1 4
• Increase/(decrease) in trade payables and accruals18 (9)
• Increase/(decrease) in provision for tax14 (2)
• Decrease in deferred tax(49) (8)
Net cash inflow from operating activities356 326
NOTE 16. RELATED PARTY TRANSACTIONS
Majority shareholder
The majority shareholder of Mercury NZ Limited is the Crown, providing it with significant potential influence over the Group. All
transactions with the Crown and other entities wholly or partly owned by the Crown 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:
Transaction value
2020 $M2019 $M
Associates
• Management fees and service agreements received1616
• Energy contract settlements received/(paid)1214
Joint operations
• Management fees and service agreements received16 12
• Energy contract settlements received/(paid)632
• Interest income– 1
Energy contracts, management and other services are made on normal commercial terms.
An advance to TPC Holdings Limited of $4 million (2019: $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 receipt of any outstanding balances.
No related party debts have been written off, forgiven, or any impairment charge booked.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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NOTE 16. RELATED PARTY TRANSACTIONS (CONTINUED)
Transaction value
2020
$000
2019
$000
Key management personnel compensation (paid and payable) comprised:
• Directors’ fees 948 990
• Benefits for the Chief Executive and Senior Management:
Salary and other short-term benefits 7,086 6,519
Termination benefits 324 –
Share-based payments377 532
8,735 8,041
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 Group. 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 Directors also provide directorship
services to other third party entities. A number of these entities transacted with the Group 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
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 17. COMMITMENTS & CONTINGENCIES
Capital
Commitments2020 $M2019 $M
Within one year 264 198
One to five years 110 129
Later than five years 17 14
391 341
Capital commitments include purchases of both property, plant and equipment (PP&E) and intangibles. PP&E commitments
include contracts for construction of wind generation assets at Turitea and refurbishment of hydro generation assets at Karapiro.
Intangible commitments are contracts to purchase New Zealand emissions trading scheme (NZ ETS) units. In the event the NZ
ETS is terminated the existing forward purchase agreements, which cover the eight year period from the end of the reporting
period, will also terminate.
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.
The Pouākani Claims Trust No 2 and a group of kaumatua have recently filed a claim in the Māori Land Court seeking a
declaration that certain parts of the Waikato riverbed are Māori customary land, including the riverbed beneath the Whakamaru,
Maraetai I and II and Waipāpa dams. Mercury holds the fee simple or beneficial title to that land and has received advice that the
applicants are unlikely to succeed with a claim to customary title in those parts of the Waikato riverbed beneath the Whakamaru,
Maraetai I and II and Waipāpa dams.
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 Māori Council relating to fresh water and geothermal resources was lodged in 2012 with the
Waitangi Tribunal. The Tribunal concluded that Māori 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
MERCURY ANNUAL REPORT 2020
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NOTE 18. SHARE-BASED PAYMENTS
Long-term incentive plan
The Group operates equity-settled share based long-term incentive (LTI) plans for senior executives. The plans are designed to
enhance the alignment between shareholders and those executives most able to influence the performance of the Group.
Under the plans due to vest in July 2020 and July 2021 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. 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.
During the year, a new performance plan was introduced where executives were awarded share rights in Mercury NZ Limited.
Under the plan executives are granted the shares at nil cost if certain total shareholder return targets are met, irrespective of
continued employment over the performance period. Performance is measured against a combination of: i) other electricity
generators who are listed on the NZSX; and (ii) out performance against the Group’s internal return on capital hurdles. The plan is
due to vest in July 2022.
Each LTI plan provides the board with a level of discretion and represents the grant of in-substance nil-price options to executives.
During the year the Group expensed $376,849 in relation to equity-settled share based payment transactions (2019: $531,516).
Movements in the number of share options are as follows:
20202019
Balance at the beginning of the year 823,237 745,97 1
Options granted 320,897 277,001
Options expired (338,075) (199,735)
Options exercised (174,625)–
Balance at the end of the year631,434 823,237
236,911 options were exercisable at the end of the year (2019: 286,118) with the remaining options under the plan having a
weighted average life of 1.8 years (2019: 1.5 years).
NOTE 19. SUBSEQUENT EVENTS
The board of directors has approved a fully imputed final dividend of 9.4 cents per share to be paid on 30 September 2020.
Tiwai Point aluminium smelter
On 9 July 2020 New Zealand Aluminium Smelters (NZAS) announced its intention to wind down its operations at Tiwai Point,
which it expects to complete in August 2021.
The smelter accounts for around 13% of New Zealand’s electricity consumption. Its closure is likely to have a material impact on
the country’s electricity demand/supply balance and wholesale electricity prices. For example, electricity futures prices for the year
ending June 2022 were trading at $96/MWh in Auckland and $80/MWh at Benmore and had reduced to $81/MWh and $55/
MWh at Auckland and Benmore respectively as of 31 July 2020.
While the future impact of the smelter’s closure remains uncertain, a dynamic electricity market response is likely with significant
transmission upgrades planned and likely closures and/or reductions in gas and coal generation. Assuming the NZAS intention
had been announced prior to 30 June 2020 and the currently observed impacts on future wholesale/futures prices at 31 July
2020 had also occurred then the resultant impact on the Group’s accounts would have been:
• The revaluation of the Group’s generation assets at fair value would have been smaller, with a $42m positive revaluation, as
compared to the $296m recognised. As the current generation asset values fall within a range of possible post Tiwai valuations
this difference is not expected to reverse in FY2021, other than through routine depreciation.
• The fair valuation of the Group’s electricity derivatives would be higher by $76m, with a balance of $89m. This difference will
eventually crystallise based on actual electricity spot prices in the future as the underlying contracts settle.
Tilt capital distribution
On 7 April 2020 the board of Tilt Renewables Limited (Tilt) announced its intention to undertake a share buy-back and
cancellation, with one share out of every five shares held being cancelled at $2.91 per share. This resulted in the Group receiving
$55 million on 10 July. As a result the Group’s cash reserves increased and the value of its investment in Tilt has been reduced by
a commensurate amount. The Group continues to own a 19.96% stake in Tilt.
COVID-19
On 12 August 2020 the Auckland region re-entered COVID-19 Alert Level 3, with the rest of the country moving to Alert Level 2.
Whilst the future remains uncertain in relation to COVID-19, the impacts on the Group based on experiences from the previous
nationwide lockdown are not expected to be material.
There are no other material events subsequent to balance date that would affect the fair presentation of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 2020
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MENU
THE TEAM BEHIND
ENERGY FREEDOM.
There’s a big team that contributes to our mission:
about 800 people; around 80,000 owners; our
partners and our customers. Here we introduce
you to our directors and executive team. We
present our governance report and remuneration
policy and report. We also share other disclosures,
information for shareholders, sustainability indices,
a glossary to help your understanding of industry
and financial terms, and a directory to help you to
stay in touch with us.
MERCURY ANNUAL REPORT 2020
THE TEAM BEHIND ENERGY FREEDOM
71
MENU
YOUR DIRECTORS.
YOUR EXECUTIVE TEAM.
PRUE FLACKS // CHAIRVINCE HAWKSWORTH //
CHIEF EXECUTIVE
HANNAH HAMLING // DIRECTORKEVIN ANGLAND //
GENERAL MANAGER RETAIL & DIGITAL
NICK CLARKE // GENERAL MANAGER
GEOTHERMAL & SAFETY
JAMES MILLER // DIRECTORLUCIE DRUMMOND //
RISK ASSURANCE OFFICER
MARLENE STRAWSON // GENERAL
MANAGER PEOPLE & PERFORMANCE
MIKE TAITOKO // DIRECTORPATRICK STRANGE // DIRECTORWILLIAM MEEK //
CHIEF FINANCIAL OFFICER
TONY NAGEL // GENERAL
MANAGER CORPORATE AFFAIRS
SCOTT ST JOHN // DIRECTORJULIA JACK //
CHIEF MARKETING OFFICER
KEITH SMITH // DIRECTORPHIL GIBSON // GENERAL
MANAGER HYDRO & WHOLESALE
ANDY LARK // DIRECTOR
MERCURY ANNUAL REPORT 2020
THE TEAM BEHIND ENERGY FREEDOM
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Shareholders
Chief Executive
Executive Management Team
Risk Assurance &
Audit Committee
People & Performance
Committee
Nominations
Committee
MERCURY BOARD
MERCURY PEOPLE
GOVERNANCE AT MERCURY.
CORPORATE GOVERNANCE
HIGHLIGHTS FOR FY20
Over the reporting period, in addition to our usual Corporate
Governance Framework, we focussed on the following
activities:
Board composition:
In February 2020, we welcomed new director Hannah
Hamling to the Board following the vacancy created by
the retirement of former Chair Joan Withers in September
2019. Hannah’s strong environmental science background,
governance skills and experience in water management
issues adds to and complements the Board’s collective
skills, diversity and experience. Hannah’s appointment
was the result of careful consideration to ensure our Board
remains well balanced.
Chief Executive:
Following an extensive and robust search process the Board
announced in December 2019 the appointment of our new
Chief Executive, Vince Hawksworth. Vince’s experience in
the energy sector in New Zealand and Australia positions
him well to lead Mercury in its next phase of investment
in renewable energy, as we add wind generation to our
renewable energy portfolio.
COVID-19 governance:
The unprecedented events created by the COVID-19
pandemic have accelerated the transition to digital ways
of working, both as a Board and with management. During
and following lockdown, the governance of the business
continued seamlessly, including Board Meetings and Board
Committee Meetings, using digital platforms and other
technology.
2020 ASM:
As at the date of this report, preparations are well underway
for us to hold our first virtual Annual Shareholders’ Meeting.
Given public health guidance and restrictions on gatherings
resulting from the COVID-19 pandemic, we believe it is
prudent that for our 2020 ASM we do not hold an in-
person meeting, but enable our shareholders to engage
with our Board virtually through an online platform.
At Mercury, we are committed to the highest
standards of corporate governance. Robust
frameworks, policies and processes are
fundamental to our foundational pillars.
This underpins our maintenance of strong
relationships with our stakeholders, the long-
term sustainability of our business and assets,
and our ability to create long-term value.
The Board regularly reviews our corporate
governance policies and practices to ensure
compliance with NZX and ASX standards
(Mercury is an ASX Foreign Exempt Listed
company) as well as reflecting contemporary
corporate governance trends in New Zealand
and Australia.
Our corporate governance practices comply with the ASX
Corporate Governance Principles and Recommendations
(fourth edition) and are in substantial compliance with the
NZX Corporate Governance Code. The only exceptions relate
to:
• Recommendation 3.3 (Remuneration Committee),
where the governance of remuneration at Mercury is split
between the People and Performance Committee for
executive and general remuneration, and the Nominations
Committee for director remuneration; and
• Recommendation 3.6 (Takeover Protocol), which was a
decision based on restrictions under the Public Finance
Act 1989 on ownership of Mercury’s shares. However, to
comply with the NZX Corporate Governance Code, Mercury
adopted a Takeovers Response Policy in calendar year
2020.
These exceptions are explained in our full Corporate
Governance Statement.
We have also reviewed the guidelines and principles from the
International Corporate Governance Network (ICGN) Global
Governance Principles, the International Finance Corporation
(IFC) Global Corporate Governance Forum and the OECD, and
we consider our practices and procedures substantially reflect
these guidelines. We also consider that Governance at Mercury
generally aligns with the BlackRock Corporate Governance and
Engagement Principles published in 2020, although we are
continuing to develop the completeness and transparency of
our environmental and social issue disclosures, particularly in
respect of climate change disclosure.
In the following section, we give an overview of our Board
composition and experience, how we manage risks, our
commitment to acting ethically and responsibly, our approach
to privacy and our approach to inclusion and diversity.
MERCURY ANNUAL REPORT 2020
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CommitteeMembersRoles and responsibilities
Risk Assurance &
Audit Committee
Keith Smith (Chair), James Miller
and Patrick Strange. Prue Flacks
was also a member by virtue of
her position as Board Chair
Overseeing, reviewing and advising the Board on Mercury’s:
• risk management policies and processes (which includes oversight
of health and safety assurance and climate-related risks and
opportunities)
• internal control mechanisms and internal and external audit
functions
• compliance policies and processes
• financial information prepared by management for publication
People &
Performance
Committee
Scott St John (Chair), Andy Lark,
and Mike Taitoko. Prue Flacks was
also a member by virtue of her
position as Board Chair
Assisting the Board to fulfil its People and Performance
responsibilities relating to:
• Mercury’s People and Performance strategy and plan
• the remuneration and performance of the Chief Executive and
Executive Management Team (EMT)
• People and Performance policies and practices
Nominations
Committee
Prue Flacks (Chair), James Miller
and Patrick Strange
Identifying people with the necessary expertise, experience, diversity
and perspectives for selection as potential directors to be nominated
for election at the next Annual Shareholders’ Meeting or to fill a
casual vacancy on the Board. Further, the Committee recommends
to the Board an annual evaluation process of the Board and its
committees and develops and maintains an assessment of the
skills, experience, and knowledge of the directors. The Nominations
Committee also makes recommendations to the Board on any
proposal relating to director remuneration to be put to shareholders.
MERCURY’S BOARD
Composition and characteristics
The Board currently comprises eight directors: Prue Flacks
(Chair), Hannah Hamling, Andy Lark, James Miller, Keith
Smith, Scott St John, Patrick Strange and Mike Taitoko. Each
of the directors is non-executive and independent. Details of
our directors are available in the Board of Directors section of
our website.
The Board has been a long-standing supporter of the Institute
of Directors’ Future Directors Programme and has offered
three appointees valuable experience sitting at the board
table for 12 or more months. This programme provides future
directors with exposure to real-life governance in action and
valuable mentorship. It aims to increase the pool of board-
ready new directors in New Zealand. Future directors are
invited to attend Mercury Board meetings and Committee
meetings, although do not participate in decision-making. Our
third future director, Anna Lissaman, concluded her 18-month
tenure on 31 December 2019. The Board is currently in the
process of determining our next future director.
The Board is structured to ensure that as a collective group it
has the skills, experience, knowledge, diversity and perspective
to fulfil its purpose and responsibilities. The Board’s
responsibilities are set out in Mercury’s Board Charter.
The Board Charter is available in the Executive Team section
of our website.
Independence and conflicts
All Mercury directors are considered by the Board to be
'independent' directors in that they are non-executive directors
who are not substantial shareholders and who are free of any
interest, business or other relationship that would materially
interfere with, or could reasonably be seen to materially
interfere with, the independent exercise of their judgement.
No director has been employed or retained, within the last
three years, to provide material professional services to
Mercury. Within the last 12 months, no director was a partner,
director, senior executive or material shareholder of a firm
that provided material professional services to Mercury or
any of its subsidiaries. No director has been, within the last
three years, a material supplier to Mercury or has any other
material contractual relationship with Mercury or another
group member other than as a director of Mercury. No
director receives performance-based remuneration from, or
participates in, an employee share scheme of Mercury. No
director controls or is an executive or other representative
of an entity which controls, 5% or more of Mercury’s voting
securities. The Chief Executive is not a director of Mercury.
Our Board characteristics are set out in the diagram on the
following page.
Committees
The Board has three standing committees: the Risk Assurance
& Audit Committee (RAAC), the People & Performance
Committee (PPC) and the Nominations Committee. Each
Committee focuses on specific areas of governance. Together
they strengthen the Board’s oversight of Mercury. As an
exception to Recommendation 3.3 of the NZX Corporate
Governance Code, the Board does not have a separate
remuneration committee. Instead, the functions which would
ordinarily be allocated to that committee are shared between
the PPC in respect of the Chief Executive and the Executive
Management Team (EMT), and the Nominations Committee
in respect of the directors. During the reporting period, the
members of the Committees were as follows:
GOVERNANCE AT MERCURY. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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BOARD CHARACTERISTICS
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A
K
I
T
A
N
G
A
P
E
O
P
L
E
C
O
M
M
E
R
C
I
A
L
Retail, marketing and brand experience
Male Female
Regulatory knowledge and experience
Government relationships
Shareholder/investment community
Iwi relationships/connectivity
Natural resource management
(including climate change)
relationships
Large company leadership experience
Digitisation/technology
Electricity industry experience
100%
50%
50%
25%
25%
75%
75%
0-3 years
3-6 years
6+ years
Human resources, health and
safety experience
Governance experience
Australian energy market experience
Finance/accounting/audit committee/
risk management experience
Business strategy experience
Innovation and growth, entrepreneurship
Commodity or financial markets trading
100%
S
K
I
L
L
S
T
E
N
U
R
E
D
I
V
E
R
S
I
T
Y
G
E
N
D
E
R
0%
Each standing committee operates in accordance with a
written Charter approved by the Board. The Committee
Charters are available in the Corporate Governance section of
our website.
Mercury assesses on a regular basis whether additional
standing or ad hoc committees are required. During the year
ended 30 June 2020, the Board established two temporary
committees for discrete projects.
The Nominations Committee has developed a matrix setting
out the skills relevant to the role of the Board. The matrix is
used to evaluate the collective skills and experience of the
directors against Mercury’s current and future requirements.
This is a key input for the recruitment of new directors. The
Board is focussed on ensuring that it takes advantage of,
and benefits from, the diversity of skills, background and
experiences of individual directors and that its culture reflects
Mercury’s values.
The Board fosters a culture of collaborative and open
discussion where each director is expected to contribute
broadly.
This ensures that the Board as a collective group exceeds the
individual contributions of its members.
Evaluations are regularly conducted to review the performance
of the directors (individually and collectively), and the
effectiveness of Board processes and committees. This is
undertaken using a variety of techniques including external
consultants, questionnaires and Board discussion. The last full
Board review, with the assistance of an external facilitator, was
completed in September 2019. The review found Mercury’s
Board to be in the top tier, with strong diversity of thought
in which different views were used to test and build off one
another. It noted that directors engage constructively through
multiple levels of the business, demonstrating genuine
engagement outside of boardroom duties. Opportunities for
strengthening insights in some areas of the business were
identified. It is intended that a Board performance review led
by the Chair will be completed before the end of calendar year
2020. The Board also completed a comprehensive analysis of
the skills of the Board during the reporting period.
GOVERNANCE AT MERCURY. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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SKILL ATTRIBUTEHannah
Hamling
Andy
Lark
James
Miller
Mike
Taitoko
Patrick
Strange
Prue
Flacks
Keith
Smith
Scott
St John
Customer
Retail, marketing and brand experience
Senior experience in retail, marketing and brand
development as we seek to positively differentiate
our offering.
Partnerships
Regulatory knowledge and experience
An understanding of the evolving regulatory
environment in which we operate and the role that
plays in ensuring sustainable custodianship of our
assets and providing benefit to our customers.
Government relationships
An understanding of the functioning of
government and experience developing and
maintaining constructive relationships and
interactions with government and regulators.
Shareholder/investment community relationships
Experience in, and understanding of, shareholder
and investment community concerns and
developing constructive relationships.
SKILL ATTRIBUTEHannah
Hamling
Andy
Lark
James
Miller
Mike
Taitoko
Patrick
Strange
Prue
Flacks
Keith
Smith
Scott
St John
Iwi relationships/connectivity
An understanding and appreciation of Māori
culture, the ability to build and foster deep
trusting relationships with iwi and a deep
connection with iwi concerns and aspirations.
Kaitiakitanga
Electricity industry experience
Senior executive or governance experience within
the electricity industry, together with a deep
understanding of operational excellence.
Natural resource management
(including climate change)
Familiarity with issues associated with natural
resources including climate change and living
our value of kaitiakitanga.
Primary skillsSecondary skills
The table below highlights those skills that the Board considers are required for governance. This aligns with Mercury’s
commitments to our foundational pillars and strategy for creating long-term value for our shareholders.
GOVERNANCE AT MERCURY. (CONTINUED)
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SKILL ATTRIBUTEHannah
Hamling
Andy
Lark
James
Miller
Mike
Taitoko
Patrick
Strange
Prue
Flacks
Keith
Smith
Scott
St John
People
Human resources, health and safety experience
Familiarity with people and performance issues to
provide an environment for personal and business
growth and an appropriate understanding of
health and safety and wellness concerns.
Large company leadership experience
Sustainable success in business at a senior
executive level.
Digitisation/technology
A detailed understanding of ICT and disruptive
technologies and their potential impact to provide
our customers with choice and freedom.
Commercial
Governance experience
Commitment to the highest standards of
governance and an ability to assess the
effectiveness of senior management.
Australian energy market experience
Familiarity with the Australian energy market
and the opportunities and challenges of doing
business in that market.
SKILL ATTRIBUTEHannah
Hamling
Andy
Lark
James
Miller
Mike
Taitoko
Patrick
Strange
Prue
Flacks
Keith
Smith
Scott
St John
Finance/accounting/audit committee/risk
management experience
Senior executive or board experience in financial
accounting and reporting, corporate finance and
internal controls, and developing and overseeing
an appropriate risk framework and culture.
Business strategy experience
A track record of developing and implementing
a successful and sustainable strategy.
Innovation and growth, entrepreneurship
A track record of demonstrated entrepreneurship
and/or demonstrated understanding and
commitment to innovation and a clear record of
achieving organisational growth.
Commodity or financial markets trading
Experience and understanding of commodity
and financial markets.
Primary skillsSecondary skills
GOVERNANCE AT MERCURY. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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ACTING ETHICALLY & RESPONSIBLY
At Mercury, all our people strive to do what’s right. Our Mercury
Code ensures that our people know what the ‘right thing to do’
is. The Mercury Code documents the behaviours we require
to embed and sustain our culture to successfully deliver our
strategy and achieve our purpose of inspiring New Zealanders
to enjoy energy in more wonderful ways. The Mercury
Code requires all Mercury people, including directors and
employees, to act honestly and with integrity and fairness at
all times. The Mercury Code and associated policy framework
underpin our ethical and behavioural standards. They support
our promises to each other and define our commitment to our
customers, our people and communities, and our investors.
The Mercury Code is available in the Corporate Governance
section of our website.
We also want to ensure that we work with suppliers who share
our commitment to acting ethically and doing the right thing.
Our Supplier Guiding Principles set out the way we work
with our suppliers and what we expect from our suppliers in
return. These principles include our commitments to treating
people fairly, promoting wellbeing, protecting our business
and our reputation, protection of personal information and
sustainability. Our Supplier Guiding Principles are available in
the Corporate Governance section of our website.
MANAGING RISK & ASSURANCE
Risk management is an integral part of Mercury’s business.
Mercury has in place an overarching Risk Management Policy
(available in the Corporate Governance section of our website)
supported by a suite of risk management policies appropriate
for our business which together form our risk management
framework.
The purpose of the Risk Management Policy is to embed
a comprehensive, holistic, Group-wide capability in risk
management which provides a consistent method of
identifying, assessing, controlling, monitoring and reporting
existing and potential risks to Mercury’s business and to
the achievement of our plans. The Policy sets out the risk
management objectives and requirements of Mercury within
which management is expected to operate. The Policy is
reviewed annually by the RAAC and approved by the Board.
The risk management framework supports a comprehensive
approach to risk, encompassing financial, strategic,
environmental, operational, regulatory, reputational, social
and governance risks. This includes assessing and managing
climate-related risks. The framework involves actively
identifying and managing risk and taking measures to reduce
the likelihood of risk, contain potential hazards and take
mitigating action to reduce impacts in line with risk tolerances.
This approach is consistent with the precautionary principle.
Mercury has a Risk Assurance Officer who has the
independence to determine the effectiveness of risk
management, assurance and internal audit. The Risk
Assurance Officer has a dual reporting line to the Chief
Financial Officer and the RAAC Chair. The RAAC tasks the
Risk Assurance Officer to ensure there is healthy and robust
debate and interaction between management, risk assurance
and audit providers.
Mercury operates a Risk Management Committee, comprised
of representatives from the EMT and chaired by the Chief
Executive. Its mandate is to promote risk awareness and
appropriate risk management to all employees, and to monitor
and review risk activities as circumstances and our strategic
and operational objectives change. The Committee meets at
least four times each year.
Mercury must accept some risks to achieve our strategic
objectives and to deliver shareholder value. These are
embodied in Mercury’s Risk Appetite Statements which are set
and regularly reviewed by the Board and are set out in more
detail in Mercury’s Corporate Governance Statement, available
in the Corporate Governance section of our website.
The RAAC is responsible for overseeing, reviewing and
providing advice to the Board on Mercury’s risk management
policies and processes. The Risk Assurance Officer reports
regularly to the RAAC on the effectiveness of Mercury’s
management of material business risks. In addition, the RAAC
annually reviews the risk management framework. The last
review of the risk management framework took place in FY20.
The Auditor-General is the external independent auditor of
Mercury and each of its subsidiaries (together, the ‘Group’),
under the Public Audit Act 2001. The Auditor-General has
appointed Lloyd Bunyan of Ernst & Young to carry out the
FY20 audit on his behalf. The NZX Listing Rules require
rotation of the key audit partner at least every five years. The
provision of external audit services is guided by our Audit
Independence Policy, which is available on our website. The
external auditor attends all RAAC meetings and, consistent
with the Stakeholder Engagement Policy, attends the Annual
Shareholders’ Meeting and is available to our shareholders to
answer questions relevant to the audit.
PRIVACY
Mercury has a comprehensive Privacy Policy and robust
privacy framework. Our objective is to ensure that personal
information in our care is managed carefully and respectfully.
Privacy risk is managed within our risk management
framework. Our General Counsel is also Mercury’s Privacy
Officer and is responsible for implementing our Privacy
Policy, promoting awareness of privacy matters, monitoring
matters on a day-to-day basis, and escalating matters as
required to our Chief Executive, with notification to the Risk
Management Committee. Privacy issues are reported to the
Risk Management Committee on a quarterly basis.
We consider the establishment and maintenance of a culture
of privacy to be an important part of our privacy framework.
Employees are required to complete Privacy Act training within
a certain period of joining Mercury and to update that training
annually. Business units that process personal information
have Business Privacy Leads who champion privacy within
their business unit. Recognising that mistakes are sometimes
made, our processes for dealing with privacy breaches include
escalation and assessment procedures and require the
development of plans to prevent similar breaches occurring
in the future. Our Privacy Policy is reviewed as required and at
least every two years.
INCLUSION & DIVERSITY
Mercury embraces and celebrates diversity in all its forms. A
key element of the Mercury Attitude is that we encourage our
people to share and connect. We aim to make Mercury a great
and safe place to work, where our employees feel engaged
and motivated to live up to their full potential, and also the full
potential of their teams. Being part of a team that celebrates
different backgrounds, views, experience and capability helps
create an inclusive workplace where our people grow and
thrive, leading to better business performance.
Our commitment to inclusion and diversity starts with our
Inclusion and Diversity Policy and framework. A copy of this
policy is available in the Corporate Governance section of our
website.
Mercury’s approach to inclusion and diversity focuses on
gender, age, ethnicity, sexual orientation, inclusion and
flexibility. Activity is aligned to the following principles:
• increasing the diversity of our workforce at senior levels;
• creating a flexible and inclusive work environment that
values difference and enhances business outcomes;
• harnessing diversity of thought and capitalising on
individual differences;
• promoting leadership behaviours that reflect our belief in
the value of inclusion and diversity; and
• attracting and retaining a talented workforce through
increasing the diversity of the candidate pool and
maintaining a recruitment strategy that is attractive to all
candidates.
Our progress against inclusion and diversity goals is measured
against objectives set by the Board. These objectives are made
up of a mixture of targets and benchmarks. Generally, targets
exist where we believe that achieving diversity in that area
is aided by us working towards a specific measure. In other
areas, we use benchmarks where comparison against those
identified data points will help inform our view of how our work
towards diversity in that area is progressing.
GOVERNANCE AT MERCURY. (CONTINUED)
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Our performance against measurable objectives set by the Board is set out below:
Area of focusObjectiveTargetActual
GenderImprove representation of women at senior leadership levels.
202020212022As at 30 June 2019As at 30 June 2020
Employees41%43%45%Employees41%39%
People Leaders33%34%35%People Leaders33%32%
EMT33%>36%>40%EMT22%33%
Board33%>36%>40%Board25%25%
Ensure that everyone is rewarded fairly for their work, regardless of gender.Targeting between 97% and 103% ratio on average over time.Actual as at 30 June 2020 across all bands, excluding EMT = 93% – 104%.
AgeWork towards an age profile for our team that is suitable for our business,
taking into account the population that we work in.
Benchmark against the national median age of the labour force in the New Zealand
National Labour Force Projections.
Our average age across the workforce is 43, which is consistent with the national median
age of the labour force in the New Zealand National Labour Force Projections.
EthnicityWork towards aligning the ethnicity of our team with the population and
communities that we work in.
Ensure that our leadership reflects the diversity of our teams.
Ethnicity202020212022EthnicityMercury 2020 Ethnicity*NZ Population 2018 Census
Māori
Employees
People Leader
6%
4%
6%
5%
7%
6%
Māori
Employees
People Leader
4.8% (38)
1.7% (2)
16.5%
Pacific
Employees
People Leader
9%
4%
9%
4%
10%
5%
Pacific
Employees
People Leader
6.6% (52)
1.7% (2)
8.1%
Asian
Employees
People Leader
22%
11%
22%
11%
23%
13%
Asian
Employees
People Leader
22.4% (176)
10.0% (12)
15.1%
Increase representation of team members and people leaders across targeted ethnic groups
– Māori, Pacific and Asian.
Benchmark against national statistics (Census data) that show the ethnicity of the
population and communities that we work in.
Targets will be reviewed year-on-year, taking into consideration workforce impacts associated
with digitalisation and automation and the available tertiary-qualified talent pool.
* Employee data, as at 30 June 2020, from Mercury’s payroll system provides the
baseline benchmark of self-identified ethnicity.
InclusionEnsure that our team are supported to do their best work and they
engage fully as part of our team.
Targeting better performance than the external benchmark.In response to our 2020 Employee Engagement Survey, 78% of employees confirmed
that people from all backgrounds have equal opportunities to succeed at Mercury,
compared with 2020 Global Inclusion Benchmark of 76%. This benchmark is from
Culture Amp (Mercury’s employee feedback platform) based on survey responses from
employees across nearly 200 organisations globally.
FlexibilityFacilitate flexible workplace arrangements to enable employees to
balance responsibilities appropriately.
Targeting better performance than the external benchmark.In response to our 2020 Employee Engagement Survey, 72% of employees confirm that
they are genuinely supported if they choose to make use of flexible working arrangements,
compared with 2020 Oceania Large Organisations Benchmark of 78%.
As at 30 June 2020, the proportion of women on the EMT (including the Chief Executive) was 33%, or three out of nine (as at 30
June 2019 this was 22% or two out of nine). The proportion of women on the Board at balance date was 25%, or two out of eight,
including the Chair (as at 30 June 2019 this was 25%, or two out of eight).
The Board believes that for this reporting period Mercury has made progress towards achieving our inclusiveness and diversity
objectives and against our Inclusion and Diversity Policy generally. However, the Board notes that continued focus is required in
order for us to achieve our 2021 gender diversity targets.
GOVERNANCE AT MERCURY. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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DIRECTOR & EXECUTIVE
EMPLOYEE REMUNERATION
Dear Shareholder
As Chair of the People and Performance Committee (PPC)
of the Board, it is my pleasure to present our Remuneration
Report for the year ended 30 June 2020.
This report outlines Mercury’s strategy and approach to
remuneration and in particular for its executives. It sets out
remuneration information for the Chief Executive, direct
reports to the Chief Executive and directors. This year with the
departure of the Chief Executive – Fraser Whineray and the
arrival of the new Chief Executive – Vince Hawksworth, two
sets of remuneration data for the Chief Executive for FY20 are
set out in the report.
Mercury’s Board is committed to a remuneration framework
that promotes a high-performance culture and aligns
executive reward to the achievement of strategies and
objectives to create sustainable value for shareholders. The
Board is committed to demonstrating transparency in its
remuneration policy and practice.
The Board is supported by the PPC for these activities. The
role and membership of the PPC is set out in the Corporate
Governance section of this Annual Report.
I was pleased to take up the position of Chair of the PPC in
October 2019. This has been an interesting and challenging
year especially with the COVID-19 pandemic response putting
New Zealand into lockdown. Mercury supplies an essential
service and it is important our assets are operated and
maintained to ensure security of electricity supply. Our people
are critical to this. The Board’s approach to remuneration
outcomes for FY20, and to setting remuneration for FY21,
has been to balance the need to be fair to, and maintain
the goodwill of our people with, in the context of the overall
economic and social environment. A decision was made
by the Board to not review remuneration for any Mercury
employee earning a base salary of $100,000 or more in 2020.
Therefore, all executives’ remuneration, including the Chief
Executive’s, has not changed for FY21. Further, it was decided
that short-term incentive payments for FY20 would not
exceed on-target amounts.
I am proud of the way the Executive Management Team
(EMT) and all Mercury employees responded to the COVID-19
pandemic and a very challenging year overall, for the benefit
of Mercury, its customers, shareholders and New Zealand.
SCOTT ST JOHN
CHAIR, PEOPLE & PERFORMANCE COMMITTEE
Executive remuneration
Mercury’s remuneration policy for the EMT is founded on three
guiding principles:
• remuneration is aligned to long-term sustainable
shareholder value;
• remuneration for individuals will reflect the level of
performance and delivery of successful outcomes; and
• simplicity over complexity will be reflected in the design.
Total remuneration is made up of three components:
fixed remuneration, short-term performance incentives
and long-term performance incentives. Short- and long-
term performance incentives are deemed ‘at-risk’ because
the outcome is determined by performance against a
combination of predetermined financial and non-financial
objectives.
Mercury’s remuneration philosophy is to pay for performance
and there is an opportunity for executives to receive, where
performance has been exceptional, a total remuneration
package in the upper quartile for equivalent market-matched
roles.
The PPC reviews the annual performance appraisal outcomes
for all members of the EMT and approves the outcomes for
all EMT members other than the Chief Executive. The Chief
Executive’s remuneration is approved by the Board on the
recommendation of the PPC. The review takes into account
external benchmarking to ensure competitiveness with
comparable market peers, along with consideration of an
individual’s performance, skills, expertise and experience.
Fixed remuneration
Fixed remuneration consists of base salary and benefits.
Mercury’s policy is to pay fixed remuneration with reference to
the fixed pay market median.
Short-term performance incentives
Short-term incentives (STIs) are at-risk payments designed to
motivate and reward for performance in that financial year.
The target value of an STI payment is set annually, usually
as a percentage of the executive’s base salary. For FY20 the
relevant target percentage for both Chief Executives (Fraser
Whineray and Vince Hawksworth) was 50% and for other EMT
members it was up to 35%.
A proportion (70% for the Chief Executive and 50% for other
EMT members) of the STI is related to a shared set of Key
Performance Indicators (KPIs) based on business priorities for
the next 12 months, with the objective of aligning the EMT’s
focus with the company’s priorities.
The shared KPIs in FY20 covered the areas of Commercial,
People, Customer, Partnerships and Kaitiakitanga with
respective weightings applied across areas as outlined
below. The Commercial KPI is normalised for positive and
negative annual variations in hydrology as these are beyond
management’s control. The criteria are selected to closely
align with Mercury’s strategic objectives, purpose and goals,
and Mercury’s five key pillars. For FY21 the weightings have
been adjusted as shown.
REMUNERATION REPORT.
MERCURY ANNUAL REPORT 2020
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PillarFY20 Weighting %FY21 Weighting %
Commercial: EBITDAF
1
3040
People2515
Customer 2020
Partnerships1515
Kaitiakitanga1010
Note 1: EBITDAF is normalised for positive and negative annual variations in Waikato hydro generation.
For FY20 there were three performance levels within each
pillar area: ‘threshold’, ‘on-target’ and ‘stretch’. The stretch
performance levels allowed employees to be rewarded for
exceptional performance. The maximum amount of an STI
payment for an EMT member for the shared KPIs was 178%
of the STI on-target amount (subject to the cap referred to
previously, subsequently imposed by the Board).
The balance of the STI for the Chief Executive is related to
individual performance measures set by the Board. In the case
of other EMT members, the balance is related to business unit
and individual performance measures.
In the event all five performance thresholds are not met for
the Group KPIs, no STI payment will be made.
The Board retains discretion to ensure the final outcome of
STI payments fairly reflects performance over the relevant
financial year.
Long-term performance incentives to
FY21 vesting
Long-term performance incentives (LTIs) are at-risk payments
designed to align the reward of certain executives with the
enhancement of shareholder value over a multi-year period.
Under the LTI plan applying up to the grant date of 1 July
2018, grants were made annually with performance measured
over a three-year period. The face value less tax was used to
determine the number of shares held in trust for each grant
and was set at the date of the grant. Each grant under that LTI
plan is divided into two tranches having different performance
hurdles:
• 50% of the grant is based on Mercury’s total shareholder
return (TSR) relative to the NZX 50 and is subject to a
“gate” that Mercury’s TSR over that period must be at least
positive; and
• 50% of the grant is based on Mercury’s TSR relative to
the performance of an industry peer group (comprising
Meridian Energy, Genesis Energy, Contact Energy and
Trustpower). There is no positive TSR performance gate
on this tranche but Mercury’s TSR must be at the 50th
percentile of the comparator group for any award to be
made on this component of the LTI plan.
LTI payments are made in shares rather than cash. The
maximum number of shares which an executive may receive
for each grant is determined by dividing the value of the grant
less tax by the market value of one Mercury share as at the
date of the grant.
Long-term incentive plan from
FY22 vesting
The new LTI plan that commenced 1 July 2019 is a dividend-
protected share rights plan. Under this LTI plan, executives
are granted a number of share rights determined by dividing
the face value of the grant by the value of one Mercury share
at the date of the grant. At vesting, subject to meeting the
performance hurdles, each share right is converted to one
ordinary share. The executive may also receive additional
shares representing the value of dividends paid over the
vesting period. The executive is liable for tax on the shares
received at this point. Under this plan, grants will continue to
be made annually with performance measured over a three-
year period.
Each grant under this LTI plan also has two tranches with
different performance hurdles:
• 50% of the grant is based on Mercury’s TSR relative to
the performance of an industry peer group (comprising
Meridian Energy, Genesis Energy, Contact Energy and
Trustpower). There is no positive TSR performance gate
on this tranche but Mercury’s TSR must be at the 50th
percentile of the comparator group for any award to be
made on this component of the LTI plan; and
• 50% of the grant is based on Mercury’s absolute TSR
against the company’s cost of equity over the vesting
period, plus 1%.
For the FY20 grant period commencing 1 July 2019, the value
represented between 20% to 40% of an executive’s base
salary as at that date.
The Board retains discretion over the final outcome for
both LTI plans, to allow appropriate adjustments where
unanticipated circumstances may impact performance,
positively or negatively, over a three-year period.
REMUNERATION REPORT. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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Chief Executive's remuneration (FY20 and FY19)
Salary
2
$Benefits
3
$Subtotal $Pay for performance $
Total remuneration
$
STILTISubtotal
Chief Executive – Vince Hawksworth
FY20309,23165,927375,158138,782
4
N/A138,782513,940
Chief Executive – Fraser Whineray
FY20805,88365,909871,792460,680
4
321,004
5
781,6841,653,476
FY191,124,21457,4331,181,647614,079179,989794,0681,975,715
Note 2: Actual salary paid includes holiday pay paid as per NZ legislation. The annualised base salary for Vince Hawksworth
for FY20 was $1,200,000 and for Fraser Whineray FY19 was $1,054,212.50 and FY20 was $1,085,838.88.
Note 3: Benefits include KiwiSaver and insurance. Vince Hawksworth received a $55,000 one-off payment for relocation costs which
is included here.
Note 4: Both CE’s short-term incentive was pro-rated for the period worked in FY20.
Note 5: Holiday pay and Kiwisaver of $36,081 was paid to Fraser Whineray on this LTI amount but is not reported in FY20 figures due to being
paid in FY21.
For reference: On 19 July 2019 Fraser Whineray was appointed to the Board of Tilt Renewables Ltd as a Director. For details of
remuneration received in FY20 refer to Tilt Renewables’ annual report.
Five-year summary – Chief Executive's remuneration
Total
remuneration
paid
6
$
Percentage
STI against
maximum
7
%
Percentage
vested LTI against
maximum %
Span of LTI
performance
period
Chief Executive –
Vince HawksworthFY20513,94051N/AN/A
Chief Executive –
Fraser WhinerayFY201,653,47669872017– 2020
FY191,975,71565502016 – 2019
FY181,803,2836702015 – 2018
FY171,881,19263982014 – 2017
FY161,501,43457782013 – 2016
Note 6: Total remuneration paid including Salary, Benefits, STI and LTI payments.
Note 7: Maximum STI was 178% of ‘on-target’ performance pay.
Breakdown of Chief Executive's pay for performance (FY20)
DescriptionPerformance measures
Percentage
achieved by
Vince Hawksworth
Percentage
achieved by
Fraser Whineray
STI
8
Set at 50% of base salary.
Based on a combination
of key financial and non-
financial performance
measures
70% based on the five Company Shared
KPIs (see table above for weightings)
88.5119.75
20% based on individual measures95130
10% based on business KPIs (for Chief
Executive only)
95130
LTI
8
Shares issued and rewarded
under the long-term incentive
scheme. Shares issued 1 July
2017 at $368,974.38 gross to
Fraser Whineray
50% weighting relative TSR performance
against NZX 50 (fixed at date of grant)
with 50% vesting at 50th percentile and
100% at 75th percentile; pro rata vesting
in between
N/A100
50% weighting relative TSR performance
against industry peer group (comprising
Meridian Energy, Genesis Energy, Contact
Energy and Trustpower) with 50% vesting
at 50th percentile and 100% at 75th
percentile; pro rata vesting in between
N/A 74
Note 8: The above STI and LTI payments for FY20 will be paid in FY21, with the exception of Fraser Whineray’s STI which was paid
at time of his departure in FY20.
Five-year summary – TSR Performance (company vs peer group)
0
-5
10
20
30
50
40
30 June
2016
30 June
2017
30 June
2018
30 June
2019
30 June
2020
TSR %
Mercury
Peer group
NZX 50
CHIEF EXECUTIVE’S REMUNERATION.
REMUNERATION REPORT. (CONTINUED)
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82
KiwiSaver
The Chief Executive is a member of KiwiSaver. As a member of this scheme, the Chief Executive is eligible to contribute and
receive a company contribution of 3% of gross taxable earnings (including short- and long-term incentives). For FY20, the
company’s contribution for Vince Hawksworth was $10,927 and for Fraser Whineray $61,819.
FY21 CHIEF EXECUTIVE’S REMUNERATION STRUCTURE
The Board has elected, in the interests of transparency, to disclose in advance the structure and package that will apply for FY21.
FY21Base Salary $Benefits
9
$Subtotal $Pay for performance 'on-target' $
Total remuneration
$
STILTI granted
10
Subtotal
Chief
Executive1,200,00036,0001,236,000600,000900,0001,500,0002,736,000
Note 9: Benefits include KiwiSaver. Insurance amount is not yet available and is additional.
Note 10: This LTI will be granted in FY21 and, if hurdles are met, paid in shares in 2023.
Chief Executive’s remuneration performance pay for FY21
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$000
FixedOn-planMaximum
Long Term Incentives Granted (2023 vesting)
Annual Variable
Base Salary & Benefits
CHIEF FINANCIAL OFFICER’S REMUNERATION
In the interests of providing greater transparency of executive remuneration, the Board has elected to provide details regarding
total remuneration paid to the Chief Financial Officer.
In FY20, the Chief Financial Officer received remuneration totalling $852,245. This amount included a $185,538 STI payment
and a $77,500 LTI payment, both relating to FY19 but paid in FY20. The Chief Financial Officer also received a $50,000 one off
discretionary payment as compensation for the additional responsibilities of acting as Chief Executive between the departure
of Fraser Whineray and the commencement of Vince Hawksworth. The remaining $539,207 was a combination of fixed
remuneration and benefits.
REMUNERATION REPORT. (CONTINUED)
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SHARE OWNERSHIP
The Chief Executive and Chief Financial Officer’s ownership of Mercury shares as at 30 June 2020 are:
Executive
Number of shares owned (excludes shares
held in trust for the LTI scheme)
Change in shares owned
from 30 June 2019
Chief Executive – Vince
Hawksworth
2,080+2,080
11
Chief Financial Officer163,215-82,260
Balance of EMT
12
175,697+23,392
Note 11: Vince Hawksworth joined Mercury on 30 March 2020, as such his share ownership entry was new during the reporting period. As at 30
June 2020, Mercury’s former Chief Executive, Fraser Whineray owned 41,200 shares, which reflects a change of -192,151 shares owned
at 30 June 2019.
Note 12: Balance of shares owned by other EMT members, excluding shares owned by the current Chief Executive, former Chief Executive and
Chief Financial Officer and excluding shares owned by Matt Olde who left the company on 6 March 2020. As at 30 June 2020, Matt
Olde had a relevant interest in 93,648 shares, some of which were owned by a family trust.
EMPLOYEE REMUNERATION
The Group paid remuneration in excess of $100,000 including benefits to 403 employees (not including directors) during the
FY20 year in the following bands:
Remuneration band
13
Currently employed No longer
employed
Total
$100,001-$110,0006060
$110,001-$120,00049352
$120,001-$130,0006161
$130,001-$140,0004444
$140,001-$150,00037138
$150,001-$160,0003535
$160,001-$170,00017219
$170,001-$180,0001414
$180,001-$190,00099
$190,001-$200,0001212
$200,001-$210,000617
$210,001-$220,00033
$220,001-$230,00077
$230,001-$240,000415
$240,001-$250,000314
Remuneration band
13
Currently employed No longer
employed
Total
$250,001-$260,00022
$260,001-$270,00044
$270,001-$280,00022
$280,001-$290,00033
$290,001-$300,00022
$300,001-$310,00011
$310,001-$320,00011
$320,001-$330,00022
$340,001-$350,00033
$350,001-$360,00011
$370,001-$380,00011
$410,001-$420,00011
$450,001-$460,00011
$540,001-$550,00011
$580,001-$590,00011
$590,001-$600,00011
$660,001-$670,00011
$690,001-$700,00011
$720,001-$730,00011
$850,001-$860,00011
$1,370,001-$1,380,0001
14
1
$2,120,001-$2,130,0001
15
1
Total39112403
Note 13: The remuneration bands above include 5 employees who received redundancy payments in FY20.
Note 14: In addition to redundancy, this employee received two short-term incentive payments (in relation to FY19 and FY20) and two long-term
incentive payments (in relation to FY17-FY19 and the two subsequent three-year periods) in FY20.
Note 15: This employee received two short-term incentive payments (in relation to FY19 and FY20) and one long-term incentive payment in FY20.
The total remuneration ratio for FY20 between employee (median) and Chief Executive base salary was 1:14. Note: For the ease
of data collection, this ratio is based on actual remuneration paid in FY20 for employees and the Chief Executive’s base salary.
We have not provided a comparison against the Chief Executive’s actual remuneration this year due to Vince Hawksworth being
employed by Mercury for only part of the year.
REMUNERATION REPORT. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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84
DIRECTOR REMUNERATION
The directors’ remuneration is paid in the form of directors’ fees. Additional fees are paid to the Chair and in respect of work carried out by
directors on various Board committees to reflect the additional time involved and responsibilities of these positions.
The total pool of fees able to be paid to directors is subject to shareholder approval and currently stands at $991,000. Directors’ fees were
last reviewed in 2015, with the increase implemented over two years in 2015 and 2016. These fees are set following consultation with key
stakeholders and having considered independent remuneration benchmarking advice. Mercury meets directors’ reasonable travel and
other costs associated with Mercury business. The following people held office as directors during the year to 30 June 2020 and received
the following remuneration during the period. The number of meetings and attendance rate by director during the year to 30 June 2020
was as follows:
DirectorBoard
Risk Assurance &
Audit Committee
People &
Performance Committee
Nominations
CommitteeOther
15
Total
16
No. of meetings1043118
Fees $
Meetings
Attended Fees $
Meetings
Attended Fees $
Meetings
Attended Fees $
Meetings
Attended FeesFees $
Joan Withers
(Chair)
44,286
(Chair)
17
21144,286
Prue Flacks
(Chair)
18
159,825
(Chair)
1034,92139841165,730
Andrew Lark98,000108,0003106,000
James Miller98,0001010,00044,00015,500117,500
Keith Smith98,00010
26,000
(Chair)
4124,000
Patrick Strange98,0001010,00042,8701110,870
Mike Taitoko98,000108,0003106,000
Scott St John98,00010 4
19
16,609
(Chair)
3114,609
Hannah
Hamling
40,8335 2
19
2
19
1
19
2,75043,583
Total832,94 446,00037,5307,85 48,250932,578
Note 15: James Miller and Hannah Hamling received a one-off payment for attendance at a temporary committee established during the reporting period.
Note 16: Disclosure Committee attendance is not reported on as these occur as adhoc and on an as required basis.
Note 17: Joan Withers’ fees cover all Committee meetings that she attended.
Note 18: Prue Flacks’ fees cover $135,714 as Chair and $24,111 in the capacity of director. Prue’s fee for the People & Performance Committee and the
Nominations Committee reflect her participation in those committees as director between the period of 1 July 2019 to 27 September 2019.
Following that period, Prue participated in committees in the capacity of Board Chair and she did not receive payment for those attendances in
addition to her fees as Chair.
Note 19: Scott St John and Hannah Hamling attended some committee meetings as observers.
For reference: Future Director Anna Lissaman was paid $15,000 in FY20.
REMUNERATION REPORT. (CONTINUED)
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INTERESTS REGISTER
Disclosure of Directors’ Interests
Section 140(1) of the New Zealand Companies Act 1993 requires a director of a company to disclose certain interests.
Under subsection (2) a director can make disclosure by giving a general notice in writing to the Company of a position held
by a director in another named company or entity. The following are particulars included in the Company’s Interests Register
as at 30 June 2020:
Prue Flacks
Bank of New Zealand LimitedDirector
Chorus LimitedDirector
Queenstown Airport Corporation LimitedChair
2
Hannah Hamling
NilNil
Andy Lark
Group LarkChair
James Miller
NZX LimitedChair
ACCDeputy Chair
The New Zealand Refining Company LimitedDirector
ACC Board Investment CommitteeChair
St Cuthbert’s College Trust BoardTrus tee
2
Keith Smith
Enterprise Motor Group Limited
and subsidiaries
Chair
H J Asmuss & Co LimitedChair
Mobile Surgical Services Limited
and subsidiaries
Chair
The Warehouse Group Limited and
subsidiaries
Deputy Chair
Community Financial Services LimitedDirector
Goodman (NZ) Limited and subsidiariesChair
Harpers Gold Limited and subsidiariesDirector/
Shareholder
Cornwall Park Trust BoardTrus tee
Sir John Logan Campbell Residuary EstateTrus tee
Healthcare Holdings Limited and
subsidiaries and associates
Chair
Advisory board of Tax Traders LimitedMember
Anderson & O’Leary LimitedChair
Tree Scape LimitedDirector
TILT Renewables LimitedShareholder
Sky Network Television LimitedDirector
1
Westland Dairy Company LimitedDirector
2
Scott St John
Fisher & Paykel Healthcare
Corporation Limited
Director/
Shareholder
Fonterra Co-operative Group Limited Director
Next Foundation (and associated vehicles)Director
University of AucklandChancellor
Macleod TrustTrus tee
2
St John Family TrustTrus tee
2
Butland Medical FoundationTrus tee
2
Patrick Strange
Chorus LimitedChairman
Auckland International Airport LimitedChair
Essential EnergyDirector
2
Mike Taitoko
Takiw a L imi te dDirector/
Shareholder
Auckland Tourism Events & Economic
Development
Director
Maratini Holdings LimitedDirector/
Shareholder
Canvasland Holdings LimitedDirector/
Shareholder
Waiora Consulting LimitedDirector/
Shareholder
Toha Foundry LimitedDirector/
Shareholder
Digital Economy & Digital Inclusion
Ministerial Advisory Group
Member
2
1. Entries added by notices given by the directors during the year
ended 30 June 2020.
2. Entries removed by notices given by the directors during the year
ended 30 June 2020.
DIRECTORS’ DISCLOSURES.
MERCURY ANNUAL REPORT 2020
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Directors’ and Officers’ Indemnities
Indemnities have been given to, and insurance has been effected for, directors and senior managers of the Group to cover
acts or omissions of those persons in carrying out their duties and responsibilities as directors and senior managers.
Disclosure of Directors’ Interests in Securities Transactions
Directors disclosed, pursuant to section 148 of the New Zealand Companies Act 1993, the following acquisitions
and disposals of relevant interests in Mercury securities during the period to 30 June 2020:
Name of director
Date of acquisition/
disposal of relevant
interest
Nature of relevant
interest
Consideration
(NZD)
Securities in which a
relevant interest was
acquired/(disposed)
Prue Flacks11 July 2019Redemption of capital
bonds
40,000.00(40,000)
Prue Flacks22 August 2019On market purchase of
capital bonds
39,798.8238,000
Prue Flacks22 November 2019On market purchase
of shares
14,370.003,000
Scott St John 21 November 2019On market purchase
of shares
14,282.703,000
Scott St John 2 March 2020On market purchase
of shares
22,900.005,000
Keith Smith13 March 2020On market purchase
of shares by a relevant
person – power to
acquire or dispose of, or
to control the acquisition
or disposition of, or power
to exercise, or to control
the exercise of, a right to
vote attached to shares
9,838.402,288
Patrick Strange4 March 2020On market purchase
of shares
117,725.9525,000
Scott St John 6 March 2020On market purchase
of shares
19,207.204,000
Scott St John 9 March 2020On market purchase
of shares
23,475.005,000
Scott St John 10 March 2020On market purchase
of shares
22,777.005,000
Scott St John 13 March 2020On market purchase
of shares
20,983.005,000
Scott St John 17 March 2020On market purchase
of shares
19,086.005,000
Disclosure of Directors’ Interests in Mercury Securities
Directors disclosed the following relevant interests in Mercury securities as at 30 June 2020:
Director
Number of Shares in which
a relevant interest is held
Number of Bonds in which
a relevant interest is heldChange since 30 June 2019
Prue Flacks26,47438,0003,000 Shares; 38,000 Bonds
Hannah Hamling–––
Andy Lark3,300––
James Miller40,320––
Keith Smith30,156–2,288 Shares
Scott St John 45,000–32,000 Shares
Patrick Strange39,160–25,000 Shares
Mike Taitoko2,200––
DIRECTORS’ DISCLOSURES. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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Twenty largest registered shareholders as at 30 June 2020
1
Name
Number
of shares
% of shares
2
Her Majesty The Queen in Right of New Zealand 716,140,52851.15
HSBC Nominees (New Zealand) Limited65,375,9144.67
JP Morgan Chase Bank, N.A. NZ Branch-Segregated Clients ACCT46,610,9473.33
HSBC Nominees (New Zealand) Limited A/C State Street43,125,7093.08
Citibank Nominees (New Zealand) Limited39,456,2282.82
Mercury NZ Limited37,7 11,584
3
2.69
Accident Compensation Corporation26,322,5391.88
Forsyth Barr Custodians Limited16,761,5031.20
HSBC Nominees A/C NZ Superannuation Fund Nominees Limited15,179,4331.08
National Nominees Limited11,102,8190.79
HSBC Custody Nominees (Australia) Limited10,499,0050.75
BNP Paribas Nominees (NZ) Limited10,030,8050.72
JBWere (NZ) Nominees Limited9,495,6200.68
New Zealand Depository Nominee Limited9,028,7290.64
BNP Paribas Nominees (NZ) Limited8,182,2260.58
FNZ Custodians Limited8,069,0950.58
Custodial Services Limited7,047,0240.50
Citicorp Nominees Pty Limited6,295,4440.45
Custodial Services Limited6,128,74 40.44
BNP Paribas Nominees (NZ) Limited4,610,7860.33
Total1,097,174,68278.37
1. As required by the NZX Listing Rules, New Zealand Central Securities Depository (NZCSD) holdings are included above
and not detailed separately.
2. Percentage calculated on the basis of Mercury having 1,400,012,517 ordinary shares on issue as at 30 June 2020,
which included 37,711,584 ordinary shares held as treasury shares.
3. Held as treasury shares.
Distribution of shareholders and holdings as at 30 June 2020
Size of holding
Number of
shareholders
% of
shareholders
Number of
shares
Holding
quantity %
1 to 1,00029, 39937.5 420,281,8871.45
1,001 to 5,00038,76749.589,955,5936.43
5,001 to 10,0006,4448.2347,320,3903.38
10,001 to 100,0003,6024.674,192,7585.3
100,001 and above 1110.141,168,261,88983.45
Total78,3231001,400,012,517100
Substantial product holders as at 30 June 2020
Class of Securities
Number of
Securities
in Substantial
Holding
Total Number of
Securities in Class
Her Majesty The Queen in Right of New ZealandOrdinary shares732,789, 318
1
1,400,012,517
2
1. This comprises (a) 716,140,528 shares held by the Crown on its own account; (b) 16,580,790 shares forming part of the New Zealand
Superannuation Fund which are the property of the Crown; and (c) 68,000 shares held by Public Trust on trust for the Crown and certain iwi.
2. As at 30 June 2020, Mercury had 1,400,012,517 ordinary shares on issue, which included 37,711,584 ordinary shares held as treasury shares.
SHAREHOLDER INFORMATION
SECURITY HOLDER INFORMATION.
MERCURY ANNUAL REPORT 2020
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88
Twenty largest registered bondholders as at 30 June 2020
1
Name
Number of
capital bonds
% of capital
bonds
2
Forsyth Barr Custodians Limited92,638,00030.88
JBWere (NZ) Nominees Limited35,869,00011.96
Custodial Services Limited15,564,0005.19
FNZ Custodians Limited 14,913,0004.97
Custodial Services Limited13,297,0004.43
Custodial Services Limited10,583,0003.53
Investment Custodial Services Limited7,896,0002.63
Forsyth Barr Custodians Limited6,302,0002.10
Custodial Services Limited5,154,0001.72
Generate Kiwisaver Public Trust Nominees Limited5,000,0001.67
Custodial Services Limited4,904,0001.63
National Nominees Limited4,187,0001.40
New Zealand Methodist Trust Association 3,155,0001.05
Best Farm Limited2,900,0000.97
Citibank Nominees (New Zealand) Limited2,815,0000.94
Custodial Services Limited2,717,0000.91
The Tindall Foundation Inc1,800,0000.60
Forsyth Barr Custodians Limited1,455,0000.49
Masfen Securities Limited1,200,0000.40
Sterling Holdings Limited1,175,0000.39
Total233,524,0007 7.8 4
1. As required by the NZX Listing Rules, New Zealand Central Securities Depository (NZCSD) holdings are included above
and not detailed separately.
2. Percentage calculated on the basis of Mercury having 300,000,000 capital bonds on issue as at 30 June 2020.
Distribution of bondholders and holdings as at 30 June 2020
Size of holding
Number of capital
bondholders
% of capital
bondholders
Number of
capital bonds
Holding
quantity %
1,001 to 5,000784.67390,0000.13
5,001 to 10,00027516.452,682,0000.89
10,001 to 100,0001,21472.6142,045,00014.02
100,001 and above 1056.28254,883,00084.96
Total1,672100300,000,000100
BONDHOLDER INFORMATION
SECURITY HOLDER INFORMATION. (CONTINUED)
MERCURY ANNUAL REPORT 2020
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STOCK EXCHANGE LISTINGS
Mercury NZ Limited (referred to in this section as “Mercury” or
“the Company”) is listed on the New Zealand stock exchange
and as an ASX Foreign Exempt Listing on the Australian stock
exchange.
In New Zealand, Mercury is listed with a “non-standard” (NS)
designation. This is due to particular provisions of Mercury’s
Constitution, including the requirements regulating ownership
and transfer of Ordinary Shares.
ASX approved a change in Mercury NZ Limited’s ASX
admission category from an ASX Listing to an ASX Foreign
Exempt Listing, effective from the commencement of trading
on 19 February 2016.
The Company continues to have a full listing on the NZX Main
Board, and the Company’s shares are still listed on the ASX.
The Company is primarily regulated by the NZX, complies
with the NZX Listing Rules, and is exempt from complying
with most of the ASX Listing Rules (based on the principle of
substituted compliance).
MERCURY NZ LIMITED
The following persons held office as directors of Mercury NZ
Limited as at 30 June 2020: Prue Flacks, James Miller, Mike
Taitoko, Keith Smith, Patrick Strange, Andy Lark, Scott St
John, and Hannah Hamling. During the reporting period, Joan
Withers ceased to hold office as director.
1
.
Company nameDirectors
Mercury Geothermal LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mercury LTI LimitedPrue Flacks
Mike Taitoko
Howard Thomas
Ngatamariki Geothermal LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Rotokawa Generation LimitedWilliam Meek
Nicholas Clarke
Michael Stevens
Rotokawa Geothermal LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Michael Stevens
Rotokawa Joint Venture Limited
(50%)
Aroha Campbell
Nicholas Clarke
Mana Newton
Natasha Strong
2
Garth Landers
Mark Thompson
Michael Stevens
Paul Robert Ware
Special General Partner LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
SUBSIDIARY COMPANIES
The following persons held office as directors of subsidiaries of
Mercury NZ Limited during FY20:
Company nameDirectors
Bosco Connect LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Glo-Bug LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Kawerau Geothermal LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mercury Energy LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mercury SPV LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mighty Geothermal Power
International Limited
Fraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mighty Geothermal Power LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mercury ESPP LimitedWilliam Meek
Tony Nagel
Marlene Strawson
Company nameDirectors
Mighty River Power LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Blockchain Energy LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mercury Solar LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
What Power Crisis (2016) LimitedFraser Whineray
2
Vincent Hawksworth
William Meek
Tony Nagel
Mercury Drive LimitedJulia Jack
Fraser Whineray
2
William Meek
2
Tony Nagel
2
1. Joan Withers retired as a director of Mercury NZ Limited
on 27 September 2019.
2. Directors who have resigned during FY20.
COMPANY DISCLOSURES.
MERCURY ANNUAL REPORT 2020
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WAIVERS FROM THE NEW ZEALAND AND
AUSTRALIAN STOCK EXCHANGES
NZX
Mercury NZ Limited (referred to in this section as “Mercury”
or “the Company”) transitioned to the new NZX Listing Rules
dated 1 January 2019 on 17 April 2019, and relied on the class
waivers and rulings granted by NZX Regulation on 19 November
2018 in relation to the transition. In advance of the expiry of the
transitional class waivers and rulings on 30 June 2020, on 19
May 2020 NZX Regulation granted the Company waivers in
respect of NZX Listing Rules 8.1.5 and 8.1.6(b). These waivers
permit Mercury’s Constitution (“Constitution”) to contain
provisions allowing:
• the Crown and Mercury to enforce the 10% limit; and
• Mercury to suspend dividend and voting rights attached to
Mercury ordinary shares where the 10% limit is breached.
ASX
ASX has granted the Company waivers in respect of the ASX
Listing Rules to allow the Constitution to contain provisions
reflecting the ownership restrictions imposed by the New
Zealand Public Finance Act 1989 (“Public Finance Act”) and
to allow the Crown to cancel the sale of shares to applicants
who acquire shares under the General Offer and are not New
Zealand applicants.
The majority of the waivers that ASX previously granted to
Mercury are no longer relevant following the change of the
Company’s admission category to an ASX Foreign Exempt
Listing in February 2016. The waivers from ASX Listing Rules
8.10 and 8.11 continue to apply. These waivers permit the
Constitution to contain provisions:
• allowing the Crown and Mercury to enforce the 10% limit;
and
• enabling Mercury to prevent shareholders who acquired
shares under the General Offer and are not New Zealand
applicants from transferring those shares and to enable
Mercury to sell those shares.
A summary of the restrictions on the ownership of shares
under the Public Finance Act and the Constitution is set
out below. If Mercury issues any other class of shares, or
other securities which confer voting rights, in the future, the
restrictions summarised below would also apply to those other
classes of shares or voting securities.
51% Holding
The Crown must hold at least 51% of the shares on issue.
The Company must not issue, acquire or redeem any shares
if such issue, acquisition or redemption would result in the
Crown falling below this 51% holding.
10% Limit
No person (other than the Crown) may have a ‘relevant
interest’ in more than 10% of the shares on issue (“10%
Limit”).
The Company must not issue, acquire or redeem any shares
if it has actual knowledge that such issue, acquisition or
redemption will result in any person other than the Crown
exceeding the 10% Limit.
Ascertaining whether a breach has occurred
If a holder of shares breaches the 10% Limit or knows or
believes that a person who has a relevant interest in shares
held by that holder may have a relevant interest in shares in
breach of the 10% Limit, the holder must notify Mercury of the
breach or potential breach.
Mercury may require a holder of shares to provide it with a
statutory declaration if the Board knows or believes that a
person is, or is likely to be, in breach of the 10% Limit. That
statutory declaration is required to include, where applicable,
details of all persons who have a relevant interest in any shares
held by that holder.
Determining whether a breach has occurred
Mercury has the power to determine whether a breach of the
10% Limit has occurred and, if so, to enforce the 10% Limit. In
broad terms, if:
INFORMATION ABOUT MERCURY NZ
LIMITED ORDINARY SHARES
This statement sets out information about the rights,
privileges, conditions and limitations, including restrictions on
transfer, that attach to shares in Mercury.
Rights and privileges
Under the Constitution and the New Zealand Companies Act
1993 (“Companies Act”), each share gives the holder a right to:
• attend and vote at a meeting of shareholders, including the
right to cast one vote per share on a poll on any resolution,
such as a resolution to:
–appoint or remove a director;
–adopt, revoke or alter the Constitution;
–approve a major transaction (as that term is defined in
the Companies Act);
–approve the amalgamation of the Company under
section 221 of the Companies Act; or
–place the Company in liquidation;
• receive an equal share in any distribution, including
dividends, if any, authorised by the Board and declared and
paid by the Company in respect of that share;
• receive an equal share with other shareholders in the
distribution of surplus assets in any liquidation of the
Company;
• be sent certain information, including notices of meeting
and the Company reports sent to shareholders generally;
and
• exercise the other rights conferred upon a shareholder by
the Companies Act and the Constitution.
Restrictions on ownership and transfer
The Public Finance Act includes restrictions on the
ownership of certain types of securities issued by Mercury
and consequences for breaching those restrictions. The
Constitution incorporates these restrictions and mechanisms
for monitoring and enforcing them.
• Mercury considers that a person may be in breach of the
10% Limit; or
• a holder of shares fails to lodge a statutory declaration when
required to do so or lodges a declaration that has not been
completed to the reasonable satisfaction of the Company,
then Mercury is required to determine whether or not the 10%
Limit has been breached and, if so, whether or not that breach
was inadvertent. Mercury must give the affected shareholder
the opportunity to make representations to the Company
before it makes a determination on these matters.
Effect of exceeding the 10% Limit
A person who is in breach of the 10% Limit must:
• comply with any notice received from Mercury requiring
them to dispose of shares or their relevant interest in shares,
or take any other steps that are specified in the notice, for
the purpose of remedying the breach; and
• ensure that they are no longer in breach within 60 days
after the date on which they became aware, or ought
to have been aware, of the breach. If the breach is not
remedied within that timeframe, Mercury may arrange for
the sale of the relevant number of shares on behalf of the
relevant holder. In those circumstances, the Company will
pay the net proceeds of sale, after the deduction of any
other costs incurred by the Company in connection with the
sale (including brokerage and the costs of investigating the
breach of the 10% Limit), to the relevant holder as soon as
practicable after the sale has been completed.
If a relevant interest is held in any shares in breach of the 10%
Limit then, for so long as that breach continues:
• no votes may be cast in respect of any of the shares in
which a relevant interest is held in excess of the 10% Limit;
and
• the registered holder(s) of shares in which a relevant interest
is held in breach of the 10% Limit will not be entitled to
receive, in respect of the shares in which a relevant interest
is held in excess of the 10% Limit, any dividend or other
distribution authorised by the Board in respect of the shares
.
OTHER DISCLOSURES.
MERCURY ANNUAL REPORT 2020
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However, if the Board determines that a breach of the 10%
Limit was not inadvertent, or that it does not have sufficient
information to determine that the breach was not inadvertent,
the registered holder may not exercise the votes attached
to, and will not be entitled to receive any dividends or other
distributions in respect of, any of its shares.
An exercise of a voting right attached to a share held in breach
of the 10% Limit must be disregarded in counting the votes
concerned. However, a resolution passed at a meeting is not
invalid where votes exercised in breach of the voting restriction
were counted by the Company in good faith and without
knowledge of the breach.
The Board may refuse to register a transfer of shares if it
knows or believes that the transfer will result in a breach of
the 10% Limit or where the transferee has failed to lodge a
statutory declaration requested from it by the Board within the
prescribed timeframe.
Crown directions
The Crown has the power to direct the Board to exercise
certain of the powers conferred on it under the Constitution
(for example, where the Crown suspects that the 10% Limit
has been breached but the Board has not taken steps to
investigate the suspected breach).
Trustee corporations and nominee companies
Trustee corporations and nominee companies (that hold
securities on behalf of a large number of separate underlying
beneficial holders) are exempt from the 10% Limit provided
that certain conditions are satisfied.
Share cancellation
In certain circumstances, shares could be cancelled by the
Company through a reduction of capital, share buy-back or
other form of capital reconstruction approved by the Board
and, where applicable, the shareholders.
• Mercury must sell shares held by that applicant, up to the
number of shares sold to it under the Offer, irrespective of
whether or not those shares were acquired by the applicant
under the Offer (unless the applicant had previously sold,
transferred or disposed of all of its shares to a person who
was not an associated person of the applicant); and
• the applicant will receive from the sale the lesser of:
–the sale price for the shares less the costs incurred by
the Crown and the Company; and
–the aggregate price paid for the shares less those
costs, with any excess amount being payable to the
Crown.
If an applicant who misrepresented their entitlement to shares
has sold, transferred or otherwise disposed of shares to an
associated person, then the power of sale will extend to shares
held by that associated person, up to the number of shares
transferred, sold or otherwise disposed of to the associated
person by the relevant applicant.
DONATIONS
Donations of $99,500 were made by the Group during the
year ended 30 June 2020 ($101,294 during the year ended
30 June 2019). Under Mercury’s Delegations Policy, donations
to political parties are prohibited.
OTHER DISCLOSURES
Mercury NZ Limited is incorporated in New Zealand and is not
subject to Chapters 6, 6A, 6B and 6C of the Corporations Act
2001 (Australia). Mercury will not acquire any classified assets
in circumstances in which the ASX Listing Rules would require
the issue of restricted securities, without the written consent
of ASX.
On 18 August 2020 the Board declared a fully imputed final
dividend of 9.4 cents per share to all shareholders who are on
the Company’s share register at 5.00pm on the record date
of 15 September 2020. The dividends will be imputed at a
corporate tax rate of 28%, which amounts to an imputation
credit of 3.66 cents per share for the final dividend. Mercury
will also pay a supplementary dividend of 1.66 cents per share
Sale of less than a Minimum Holding
Mercury may, at any time, give notice to a shareholder
holding less than a Minimum Holding of shares (as that
term is defined in the NZX Listing Rules) that if, at the end of
three months after the date the notice is given, shares then
registered in the name of the holder are less than a Minimum
Holding, Mercury may sell those shares on market (including
through a broker acting on Mercury’s behalf), and the holder
is deemed to have authorised Mercury to act on behalf of the
holder and to sign all necessary documents relating to the
sale.
For the purposes of the sale and of Rule 5.12 of the ASX
Settlement Operating Rules, where the Company has given a
notice that complies with Rule 5.12.2 of the ASX Settlement
Operating Rules, the Company may, after the end of the time
specified in the notice, initiate a Holding Adjustment to move
the relevant shares from that CHESS Holding to an Issuer
Sponsored Holding (as those terms are defined in the ASX
Settlement Operating Rules) or to take any other action the
Company considers necessary or desirable to effect the sale.
The proceeds of the sale of any shares sold for being less than
a Minimum Holding will be applied as follows:
• First, in payment of any reasonable sale expenses.
• Second, in satisfaction of any unpaid calls or any other
amounts owing to the Company in respect of the shares.
• The residue, if any, must be paid to the person who was the
holder immediately before the sale or his or her executors,
administrators or assigns.
Cancellation of sale of shares
The Crown may cancel the sale of shares to an applicant
under the offer of shares by the Crown (“the Offer”) in the
Mighty River Power Share Offer Investment Statement and
Prospectus if the applicant misrepresented its entitlement
to be allocated shares under the Offer as a ‘New Zealand
Applicant’ (as that term is defined in the Share Offer
Investment Statement and Prospectus). If the Crown cancels a
sale of shares on those grounds:
relating to the final dividend to non-resident shareholders.
The Company will receive from the New Zealand Inland
Revenue Department a tax credit equivalent to supplementary
dividends.
These dividends, together with the interim dividend of $87.1
million (6.4 cents per share) paid to shareholders on 1 April
2020, brings the total declared dividends to $215.1 million (or
15.8 cents per share).
As at the date of this annual report, the Company has a
S&P’s BBB+ rating with a stable outlook. The Company
benefits from a one-notch uplift due to the Crown’s majority
ownership.
Mercury’s Net Tangible Assets per Share (excluding treasury
stock) as at 30 June 2020 was $2.69, compared with $2.54
at 30 June 2019.
OTHER DISCLOSURES. (CONTINUED)
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GRI INDEX STANDARD CORE REPORTING
GRI standardDisclosure title LocationComments
GENERAL DISCLOSURES
ORGANISATIONAL PROFILE
GRI 102 General disclosures 2020
102-1Name of the organisationFront Cover
102-2Activities, brands, products
and services
Who We Are pp4-8
102-3Location of headquartersDirectory p97
102-4Location of operationsWho We Are pp4-8
102-5Ownership and legal formCompany Disclosures p89
102-6Markets servedWho We Are pp4-8
102-7Scale of the organizationWho We Are pp4-8
102-8Information on employees
and other workers
Who We Are pp4-8
102-9Supply chainThe World Around Us pp14-17
102-10Significant changes to the
organisation and its supply chain
The World Around Us pp14-17
102-11Precautionary principle or
approach
Company website – Corporate Governance
Statement
102-12External initiativesThe World Around Us pp14-17, Engaging With
Our Stakeholders p18, Close Connections Help
Vulnerable Customers p24, The World’s Best
Catchment p27
102-13Membership of associationsEngaging With Our Stakeholders p19
102-14Statement from senior
decision-maker
Chair & Chief Executive Update pp9-12
102-16Values, principles, standards,
and norms of behavior
Company website – The Mercury Code
102-18Governance structure Company website – Corporate Governance
Statement
102-40List of stakeholder groupsEngaging With Our Stakeholders pp18-19
102-42Identifying and selecting
stakeholders
Engaging With Our Stakeholders pp18-19
GRI standardDisclosure title LocationComments
102-43Approach to stakeholder
engagement
Engaging With Our Stakeholders pp18-19
102-44Key topics and concerns raisedEngaging With Our Stakeholders pp18-19
102-45Entities included in the
consolidated Consolidated
Financial statements
Notes To The Consolidated Financial
Statements p52
102-46Defining report content and
topic Boundaries
About This Report p2,
Pulling It All Together p21
102-47List of material topicsPulling It All Together p21
102-48Restatements of informationThere are no
restatements of
information in the
2020 reporting period.
102-49Changes in reportingMercury continues to
use both GRI and <IR>
reporting frameworks.
102-50Reporting period Front Cover
102-51Date of most recent report Front Cover
102-52Reporting cycleFront Cover
102-53Contact point for questions
regarding the report
About This Report p2,
Directory p97
102-54Claims of reporting in accordance
with the GRI Standards
About This Report p2
102-55GRI content indexGRI Content Index p92
102-56External assurance Our 2020 report has
not been externally
assured.
MANAGEMENT APPROACH
GRI 103 General disclosures 2020
103-1Explanation of the material
topic and its Boundary
Pulling It All Together p21
SUSTAINABILITY INDICES.
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SPECIFIC STANDARD DISCLOSURES
Material topicsDescriptionLocationBoundaries
GRI 200 Economic standard series
GRI 103Management approachOur Business Model pp6-8Within the
organisation
GRI 201 Economic performance
GRI 201Management approachOur Business Model pp6-8Within the
organisation
201-1Direct economic value generated
and distributed
Our Business Model pp6-8Within and outside
the organisation
202-1Consolidated Financial
implications and other risks and
opportunities due to climate
change
Strategy p34Within and outside
the organisation
GRI 300 Environmental standards series
GRI 103Management approachOur Business Model p6, Our FY20
Outcomes & Strategic Goals pp7-8
Within the
organisation
GRI 303 Water
303-1Water withdrawal by sourceMercury does not “withdraw” water for
generation. 43,426 Mm
3
were used for
hydro generation in FY20.
Within and outside
the organisation
GRI 305 Emissions
305-1Direct (Scope 1) GHG emissionsMetrics & Targets p35Within and outside
the organisation
305-2Energy indirect (Scope 2)
GHG emissions
Metrics & Targets p35Within and outside
the organisation
305-3Other indirect (Scope 3)
GHG emissions
Metrics & Targets p35Within and outside
the organisation
305-4Emissions intensityMetrics & Targets p35Within and outside
the organisation
GRI 307 Environmental compliance
3 07-1Non-compliance with
environmental laws
and regulations
Mercury received two infringement notices for
minor breaches of consent conditions at its
Turitea construction site in January 2020.
Within and outside
the organisation
Material topicsDescriptionLocationBoundaries
GRI 400 Social standards series
GRI 103Management approach
Our Business Model pp6-8
Within the organisation
GRI 401 Employment
401-1New employee hires and
employee turnover
Mercury hired 123 new employees and the
voluntary turnover rate was 12%
Within the organisation
401-2Benefits provided to full-time
employees that are not provided to
temporary or part-time employees
Company website – Life at MercuryWithin the organisation
401-3Parental LeaveCompany website – Life at MercuryWithin the organisation
GRI 403 Occupational health
and safety
403-1Workers representation in formal
joint management-worker health
and safety committees
Workers representatives hold a range of
positions on health and safety committees,
including joint chair of the geothermal
committee
Within the organisation
403-2Types of injury or rate of injury,
occupational diseases, lost days,
and absenteeism, and number of
work related fatalities
Our Business Model pp6-8,
Chair and Chief Executives Update p12
Within the organisation
GRI 404 Training and education
404-2Programmes for upgrading
employee skills and transition
assistance programmes
Pillar Summary p37,
Our Skills Pledge p38
Within the organisation
GRI 405 Diversity and equal
opportunities
405-1Diversity of governance bodies
and employees
Inclusion & Diversity pp77-78Within the organisation
GRI 413 Local communities
413-1Operations with local community
engagement, impact assessments
and development programs
Close Connections Help Vulnerable Customers
pp24-26, The World’s Best Catchment
pp27-29, Living The Leadership Journey
pp36-38
Within and outside
the organisation
413-2Operations with significant actual
and potential negative impacts on
local communities
Close Connections Help Vulnerable Customers
pp24-26, The World’s Best Catchment
pp27-29, Living The Leadership Journey
pp36-38
Within and outside
the organisation
SUSTAINABILITY INDICES. (CONTINUED)
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SECTOR SPECIFIC: UTILITIES
Material TopicsDescriptionLocationBoundaries
GRI 103Management approachOur Business Model pp6-8Within the organisation
EU1Installed capacityOur Business Model pp6-8Within the organisation
EU2Net energy outputOur Business Model pp6-8Within the organisation
EU3Number of customer connectionsOur Business Model pp6-8Within and outside
the organisation
EU5Allocation of CO
2
e allowancesMetrics & Targets p35Within and outside the
organisation
EU10Planned capacity against
projected electricity demand
over the long-term
Dealing With Shifting Winds p39Within and outside
the organisation
GRI 103Management approachOur Business Model pp6-8Within the organisation
EU18Percentage of contractor and
subcontractor employees that have
undergone relevant health and
safety training
Our Skills Pledge p38Within and outside
the organisation
GRI 103Management approachOur Business Model pp6-8Within the organisation
EU27Number of disconnections
for non-payment
The World Around Us p15, Close Connections Help
Vulnerable Customers pp24-26
Outside the organisation
GRI 103Management approachOur Business Model p6Within the organisation
EU30Average plant availability by energy
source and by regulation regime
Hydro 88%, Geothermal 94%Within the organisation
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) INDEX
IssueTCFD RecommendationLocationPage No.
GovernanceBoard oversight of climate-related
risks and opportunities
Annual Report 2020 – Preparing for Climate Change
Annual Report 2020 – Governance at Mercury
pp33-34, 72-78
Management’s role in assessing
and managing climate-related
risks and opportunities
Annual Report 2020 – Preparing for Climate Change
Annual Report 2020 – Governance at Mercury
pp33-34, 72-78
StrategyClimate-related risks and
opportunities identified over the
short, medium and long-term
Annual Report 2020 – Strategypp34
The impact of climate-related risks
and opportunities on business
strategy and financial planning
Annual Report 2020 – Strategypp34
Strategy resilience taking into
consideration climate-related
scenarios, including a 2°C or
lower scenario
Annual Report 2020 – Preparing for Climate Changepp33
Risk ManagementProcesses for identifying and
assessing climate-related risks
Annual Report 2020 – Strategy
Annual Report 2020 – Governance at Mercury
pp33-34, 72-78
Process for managing
climate-related risks
Annual Report 2020 – Strategy
Annual Report 2020 – Governance at Mercury
pp33-34, 72-78
Integration of the processes for
identifying and assessing
climate-related risks into overall
risk management
Annual Report 2020 – Strategy
Annual Report 2020 – Governance at Mercury
pp33-34, 72-78
Metrics and
Targets
Metrics and targets used to assess
climate-related risks and
opportunities in line with strategy
and risk management process
Annual Report 2020 – Metrics & Targets, Company
website 2019 Emissions Inventory Report
p35
Scope 1, 2 and 3 GHG emissions
and any related risk
Annual Report 2020 – Metrics & Targets, Company
website 2019 Emissions Inventory Report
p35
Targets used to manage
climate-related risks and
opportunites and performance
against targets
Annual Report 2020 – Preparing for Climate Change,
Metrics & Targets. Company website 2019 Emissions
Inventory Report
p33, p35
SUSTAINABILITY INDICES. (CONTINUED)
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Shareholder enquiries
Changes in address, dividend payment details and investment
portfolios can be viewed and updated online:
investorcentre.com/nz. You will need your CSN and FIN
numbers to access this service.
Enquiries may be addressed to the Share Registrar (see
Directory for contact details).
Investor information
Our website at mercury.co.nz is an excellent source of
information about what’s happening within the company.
Our Investor Centre allows you to view all regular investor
communications, information on our latest operating and
financial results, dividend payments, news and share price
history.
Electronic shareholder communication
It is quick and easy to make the change to receiving your
reports electronically. This can be done either:
• Online at investorcentre.com/nz by using your CSN and FIN
numbers (when you log in for the first time). Select ‘View
Portfolio’ and log in. Then select ‘Update My Details’ and
select ‘Communication Options’; or
• By contacting Computershare Investor Services Limited
(see Directory for contact details).
INFORMATION FOR SHAREHOLDERS.
MERCURY ANNUAL REPORT 2020
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Brand Strength
This measures a brand’s equity and perception in the market based on
a monthly survey. It is a constructed score derived from 5 pillars that are
weighted to reflect their impact on overall Brand Strength. It is reported on
a 3-month rolling average and reflects Mercury’s Brand Strength amongst
customers and non-customers.
CO
2
E
Carbon dioxide equivalents (a measure of total greenhouse gases).
Churn
Rolling average of Mercury Brand customers that change energy providers.
CPS
Cents per share.
EBITDAF (or Operating Earnings)
Earnings before net interest expense, tax expense, depreciation, amortisation,
change in the fair value of financial instruments, gain on sale and
impairments.
Energy Margin
Sales from electricity generation and sales to customers and derivatives, less
energy costs, line charges, other direct costs of sales, and third-party metering.
Free Cash Flow
Net cash flow from operating activities less stay-in business capital
expenditure.
Generation-weighted Average Price (GWAP)
Generation Weighted Average Price of electricity generated and sold to the
wholesale electricity market.
Growth Capital Expenditure (CAPEX)
Capital expenditure incurred by the company to create new assets and
revenue.
GWh
Gigawatt hour. One gigawatt hour is equal to one million kilowatt hours.
Load-weighted Average Price (LWAP)
Load Weighted Average Price of electricity purchased from the wholesale
electricity market.
MWh
Megawatt hour. One megawatt hour is equal to one thousand kilowatt hours.
Net Debt
Total borrowings (both current and non-current) less cash and cash
equivalents.
Net Promoter Score (NPS)
This is the difference between the percentage of Promoters (who rate their
likelihood to recommend Mercury 9-10 on a scale of 0-10) and Detractors
(who rate their likelihood to recommend Mercury 0-6 on a scale of 0-10).
Results are reported on a 3-month rolling average. The result reported here
is NPS within our target customer segments where we recorded a 2-point
increase above target for FY20. In FY20 we changed our reporting to a new
survey measuring NPS through a sample of approximately 2000 customers
per month.
Operating Costs
Represents employee compensation and benefits, maintenance expenses and
other expenses.
Other Income
Earnings of associates and other revenue, less direct costs of other revenue.
Stay-in-Business (SIB) Capital Expenditure (CAPEX)
Capital expenditure incurred by the company to maintain its assets in good
working order.
Total Recordable Injury Frequency Rate (TRIFR)
A record of the number of reported medical treatment, restricted work, lost
time and serious harm injuries per 200,000 hours, including employees and
on-site contractors.
Total Shareholder Return (TSR)
The financial gain or loss resulting from the change in share price plus any
dividends paid expressed as a percentage of the initial share price.
Underlying Earnings After Tax
Profit for the year after removing one-off and/or infrequently occurring events
(exceeding $10 million of profit before tax, which represents material items),
impairments, any change in the fair value of derivative financial instruments
and gain on sale, all net of tax expense.
GLOSSARY.
Mercury presents certain non-GAAP (Generally Accepted Accounting Practice) financial information throughout the annual
report. This is provided where we believe it will provide greater clarity to users of the information. It also provides consistency
across reporting periods and comparability amongst industry peers.
MERCURY ANNUAL REPORT 2020
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Board of Directors
Prue Flacks, Chair
Hannah Hamling
Andy Lark
James Miller
Keith Smith
Scott St John
Patrick Strange
Mike Taitoko
Executive Team
Vince Hawksworth,
Chief Executive
Kevin Angland,
General Manager Retail & Digital
Nick Clarke,
General Manager Geothermal & Safety
Lucie Drummond,
Risk Assurance Officer
Phil Gibson,
General Manager Hydro & Wholesale
Julia Jack,
Chief Marketing Officer
William Meek,
Chief Financial Officer
Tony Nagel,
General Manager Corporate Affairs
Marlene Strawson,
General Manager People & Performance
Company Secretary
Howard Thomas
Investor Relations & Sustainability Enquiries
Tim Thompson,
Head of Treasury & Investor Relations
Mercury NZ Limited
P O Box 90399
Auckland 1142
New Zealand
Phone: +64 27 517 3470
Email: investor@mercury.co.nz
Registered Office in New Zealand
33 Broadway, Newmarket, Auckland 1023
Registered Office in Australia
c/– TMF Corporate Services (Australia) Pty Limited
Level 16, 201 Elizabeth Street
Sydney, NSW 2000
Phone: +61 2 8988 5800
Legal Advisors
Chapman Tripp
Level 34
PwC Tower at Commercial Bay
15 Customs Street West
Auckland 1010
PO Box 2206
Auckland 1140
Phone: +64 9 357 9000
Bankers
ANZ Bank
ASB Bank
Bank of New Zealand
China Construction Bank
Mitsubishi UFJ Financial Group
Mizuho Bank
Westpac
Credit Rating (re-affirmed December 2019)
Long term: BBB+
Outlook: Stable
Share Registrar – New Zealand
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road, Takapuna,
Auckland 0622
Private Bag 92119
Auckland 1142, New Zealand
Phone: +64 9 488 8777
Email: enquiry@computershare.co.nz
Web: www.investorcentre.com/nz
Share Registrar – Australia
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street, Abbotsford, VIC
3067
GPO Box 3329, Melbourne, VIC 3001, Australia
Phone: 1 800 501 366 (within Australia)
Phone: +61 3 9415 4083 (outside Australia)
Email: enquiry@computershare.co.nz
DIRECTORY.
MERCURY ANNUAL REPORT 2020
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---
Distribution Notice
Section 1: Issuer information
Name of issuer Mercury NZ Limited
Financial product name/description Mercury NZ Limited ordinary shares
NZX ticker code MCY
ISIN (If unknown, check on NZX
website)
NZMRPE0001S2
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year X Quarterly
Half Year Special
DRP applies
Record date 15/09/2020
Ex-Date (one business day before the
Record Date)
14/09/2020
Payment date (and allotment date for
DRP)
30/09/2020
Total monies associated with the
distribution
$127,978,685.06
Source of distribution (for example,
retained earnings)
Income available for distribution
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution $0.13055556
Gross taxable amount $0.13055556
Total cash distribution $0.09400000
Excluded amount (applicable to listed
PIEs)
N/A
Supplementary distribution amount $0.01658824
Section 3: Imputation credits and Resident Withholding Tax
Is the distribution imputed Fully imputed
If fully or partially imputed, please
state imputation rate as % applied
28%
Imputation tax credits per financial
product
$0.03655556
Resident Withholding Tax per
financial product
$0.00652778
Section 5: Authority for this announcement
Name of person
authorised to make
this announcement
Howard Thomas, Company Secretary
Contact person for this
announcement
Howard Thomas, Company Secretary
Contact phone number +64 9 308 8200
Contact email address Howard.Thomas@Mercury.co.nz
Date of release through MAP
18/08/2020
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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