MCY – resilient performance and ambitious acquisitions
Results announcement
Results for announcement to the market
Name of issuer Mercury NZ Limited (MCY)
Reporting Period 12 months to 30 June 2021
Previous Reporting Period 12 months to 30 June 2020
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$2,045,000 15.7%
Total Revenue $2,045,000 15.7%
Net profit/(loss) from
continuing operations
$141,000 -32.5%
Total net profit/(loss) $141,000 -32.5%
Final Dividend
Amount per Quoted Equity
Security
$0.10200000
Imputed amount per Quoted
Equity Security
$0.03966667
Record Date 15 September 2021
Dividend Payment Date 30 September 2021
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$3.00 $2.69
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Refer to accompanying FY21 audited financial statements.
The percentage change in net profit from continuing operations
and total net profit is based on FY20 restated figures as outlined
in further detail in the FY21 audited financial statements.
Authority for this announcement
Name of person
authorised
to make this announcement
Howard Thomas, Company Secretary
Contact person for this
announcement
Howard Thomas, Company Secretary
Contact phone number +64 9 308 8200
Contact email address Howard.Thomas@Mercury.co.nz
Date of release through MAP
17/08/2021
Audited financial statements accompany this announcement.
---
Mercury delivers resilient financial performance, makes ambitious
acquisitions
FY21 Financial Results Summary
FY2021 FY2020 Change %
EBITDAF ($M) 463 490 -6
NET PROFIT AFTER TAX ($M) 141 209 -33
UNDERLYING EARNINGS AFTER TAX ($M) 145 166 -13
STAY-IN-BUSINESS CAPITAL EXPENDITURE ($M) 56 110 -49
ELECTRICITY GENERATION (GWh) 6,205 6,331 -2
FINAL FULLY IMPUTED ORDINARY DIVIDEND (CENTS PER SHARE)
- TO BE PAID ON 30 SEPTEMBER 2021
TOTAL ORDINARY DIVIDEND (CENTS PER SHARE), FULLY IMPUTED
10.2
17.0
9.4
15.8
+8.5
+7.6
17 August 2021 – The year ended 30 June 2021 saw Mercury deliver resilient financial performance, along
with announcing two significant acquisitions to grow the company’s scale and capabilities.
Mercury reported EBITDAF of $463 million for the period, down 6% on FY20 EBITDAF of $490 million.
The operational result was adversely impacted by a sustained period of low inflows into Lake Taupo (for the
second consecutive year) and an unplanned outage at the Kawerau geothermal power station in June.
The financial impact of this loss of generation was more acute than previous years due to historically high spot
prices as a consequence of low national fuel (hydro and gas) availability.
Capital expenditure (capex) of $250 million comprised $56 million of stay-in-business capex and $194 million of
growth investment. Operational expenditure remained broadly flat for the eighth consecutive year on a normalised
basis.
Net profit after tax was $141 million, down $68 million on the previous year.
“Mercury has delivered a resilient financial performance in the face of some challenging market headwinds,” said
Vince Hawksworth, Mercury Chief Executive.
“We have also made two ambitious acquisitions that will give Mercury additional scale and capability as we
navigate a rapidly evolving landscape.
“The acquisition of Tilt Renewables’ New Zealand assets will increase Mercury’s total annual generation by over
1,100GWh. It has also secured several prospective development options.”
Construction of the Turitea wind farm also continues, with the transmission line, grid connection and northern wind
farm substation fully commissioned. First generation has been achieved and Mercury anticipates the full completion
of the 33-turbine northern section in the last quarter of 2021.
STOCK EXCHANGE LISTINGS: NZX (MCY) / ASX (MCY)
NEWS RELEASE
“These investments and our further pipeline of potential generation options are a clear demonstration of Mercury’s
commitment to decarbonising the electricity supply, and investing for the future,” said Vince.
In addition to the extensive renewable generation pipeline, Mercury also reached agreement to acquire
Trustpower’s retail business. This acquisition is subject to various approvals and completion of the acquisition is
expected in the second half of FY22.
“We see Mercury’s and Trustpower’s retail businesses as highly complementary, and this agreement would see the
best of both being brought together for our customers,” said Vince.
“Trustpower’s retail business is a leading multi-product utilities retailer selling electricity, gas, fixed and wireless
broadband and mobile phone services to approximately 231,000 customers nationwide. The combined business
would have approximately 780,000 connections across both energy and telco services.
“Bringing together the retail businesses of Mercury and Trustpower will also give us the scale to make meaningful
investment in the underlying IT systems, driving greater innovation for our customers. Deeper integration of the two
businesses is not planned until the underlying IT systems will enable improved customer experience.
“In combination, the Tilt and Trustpower acquisitions, along with our pipeline of renewable generation, will ensure
Mercury has the scale and capabilities it needs to be able to thrive now and into the future,” he said.
OTHER KEY OPERATIONAL RESULTS
• A second consecutive year of low rainfall saw a decrease in hydro generation to 3,611GWh, well below the
long-term average of around 4,050GWh.
• Geothermal generation for the year also decreased from 2,615GWh during the previous financial year to
2,594GWh, due to the outage at Kawerau.
• Rationalisation of existing assets, which included:
o The sale of Mercury’s interest in the US-based Hudson Ranch 1 geothermal power station joint
venture, receiving net proceeds of NZ$41 million;
o Transfer of approximately 5,000 customers served under our Bosco brand to Mercury.
• Introduction of Thrive, a company-wide continuous improvement programme.
• Introduction of Whakapuāwai, a company-wide culture and capability programme.
DIVIDEND
The Board has approved a fully imputed final dividend of 10.2 cents per share (cps), taking total ordinary dividends
for FY21 to 17.0cps, an increase of 7.6% on FY20. The dividend will be paid on 30 September 2021. This is
Mercury’s 13th consecutive year of ordinary dividend growth.
OUTLOOK
“Across the industry in New Zealand, more than $1.5 billion of investment is already committed by the industry to
the construction of renewable infrastructure. This means the country is well placed to increase the proportion of
generation that is renewable from around 80% today to over 90% within five years,” said Prue Flacks, Mercury
Chair.
“However, the current market conditions illustrate the challenge of ensuring the right balance is struck between
investment in decarbonisation, security of supply, and ensuring energy is affordable.”
“Mercury strongly supports the goal of net zero carbon emissions by 2050, and we are well placed to play our part
in achieving that goal. A key aspect is that policy certainty is required to send the right investment signals. One
wind farm a year is required to be built to achieve net zero carbon emissions by 2050. Delivering that outcome,
while maintaining security and affordability should be foremost in the Government’s mind,” she said.
GUIDANCE
Mercury’s FY22 EBITDAF guidance has been set at $590 million with increased earnings from the Turitea wind
farm, newly acquired Tilt Renewables’ New Zealand assets and our Thrive programme. Guidance at the time of
this report assumes 3,900GWh of hydro production and is subject to any material events, significant one-off
expenses or other unforeseeable circumstances including hydrological conditions. FY22 stay-in-business capex
guidance is $70 million.
FY22 ordinary dividend guidance is 20.0cps, fully imputed, representing a 17.6% increase on FY21 and the 14th
consecutive year of ordinary dividend increases.
ENDS
Howard Thomas
General Counsel and Company Secretary
Mercury NZ Limited
For investor relations queries, please contact:
Tim Thompson
Head of Treasury and Investor Relations
0275 173 470
investor@mercury.co.nz
For media queries, please contact:
Shannon Goldstone
Head of Communications
027 210 5337
media@mercury.co.nz
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
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ENERGY FREEDOM.
2021 ANNUAL REPORT
MERCURY NZ LIMITED
MERCURY ANNUAL REPORT 2021
MENU
2
ABOUT THIS REPORT
04 WHO WE ARE
05 OUR BUSINESS MODEL
08 CHAIR & CHIEF
EXECUTIVE UPDATE
1. ENERGY FREEDOM TODAY.2. OUR WORLD OF ENERGY FREEDOM.
13 ENGAGING WITH OUR STAKEHOLDERS
14 THE RISKS WE FACE
15 PULLING IT ALL TOGETHER
16 CREATING VALUE IN THE FUTURE
ABOUT THIS
REPORT.
MENU.
Mercury is committed to providing the full picture:
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 the five
pillars that make up how we generate long-term value. We
include a specific Global Reporting Initiative (GRI) Index and
our comprehensive TCFD Report, which is prepared in accordance
with the recommendations of 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 they are all part of
who we are, what we do and why. Across all this, our aim is 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 2021. 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.
Since year end, Mercury has finalised the Scheme Implementation
Agreement to acquire Tilt Renewables Limited’s New Zealand
operations, including its future development options, for an
enterprise valuation of NZ$797 million, funded from the sale of
Mercury’s 19.9% Tilt shareholding, worth NZ$608 million and net
debt of NZ$189 million. This Annual Report is dated 17 August
2021 and is signed on behalf of the Board by:
3. LIVING ENERGY FREEDOM.
OUR PILLAR STORIES
35 FINANCIAL COMMENTARY
37 FINANCIAL TRACK RECORD
38 INDEPENDENT AUDITOR’S REPORT
41 FINANCIAL STATEMENTS
64 TCFD REPORT
4. ENERGY FREEDOM IN NUMBERS.5. THE TEAM BEHIND ENERGY FREEDOM.
76 YOUR EXECUTIVE TEAM
77 GOVERNANCE AT MERCURY
94 REMUNERATION REPORT
100 DIRECTORS' DISCLOSURES
102 SECURITY HOLDER
INFORMATION
106 COMPANY DISCLOSURES
107 OTHER DISCLOSURES
109 GLOBAL REPORTING
INITIATIVE (GRI) INDEX
112 INFORMATION FOR
SHAREHOLDERS
113 DIRECTORY
114 GLOSSARY
PRUE FLACKS // CHAIRKEITH SMITH // DIRECTOR
CUSTOMER
19
PARTNERSHIPS
22
KAITIAKITANGA
25
PEOPLE
28
COMMERCIAL
31
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM T
ODAY
MENU
3
ENERGY FREEDOM TODAY.
We are focussed on being here for the long term. In this section we introduce
you to Mercury. We provide an overview of how we operate, highlight the factors
that affect our ability to create value over time (Our Business Model) and outline
our past and current performance and outcomes. Our Chair, Prue Flacks, and
Chief Executive, Vince Hawksworth, then jointly summarise our 2021 financial year.
TURITEA
++
MAHINERANGI
WAIPIPI
TARARUA
KARĀPIRO
ARAPUNI
WAIPĀPA
MARAETAI I
AND II
WHAKAMARU
ŌHAKURI
ĀTIAMURI
ARATIATIA
NGĀTAMARIKI
NGĀ AWA
PŪRUA
+
LAKE TAUPŌ
ROTOKAWA
MŌKAI
+
KAWERAU
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM T
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4
OUR MISSION:
ENERGY FREEDOM.
We are primarily a generator and retailer of
electricity, focussed on meeting the energy
needs of New Zealand homes and businesses.
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, rewarding
our loyal customers and innovating with
digital solutions.
Thinking in an integrated way about how
we create long-term value is part of who
we are. Since 2015, we’ve been building
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 (to
us, and to our stakeholders).
We generate electricity from 100% renewable
sources: hydro, geothermal and wind. 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 Ranges in the Manawatū region.
This month (August 2021) we acquired Tilt
Renewables Limited’s five operating wind
farms in Aotearoa, as well as their future
development options to add to our own
pipeline of future wind development sites
in this country.
The retail operations serve commercial
and residential (small and medium sized
businesses) customers. Our Commercial
WHO WE ARE.
teams service industrial and wholesale
market customers. Our sub-brand GLOBUG
is our pre-pay electricity product. In June we
entered into a conditional binding agreement
to acquire Trustpower’s retail business, to
accelerate our ability to deliver the right
product mix and value for customers.
We manage a small number of subsidiary
enterprises, such as our EV Subscription
Service.
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.
+ not 100% owned by Mercury
++ under construction
HYDRO STATIONS
GEOTHERMAL STATIONS
WIN D FAR MS
••
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 2021
ENERGY FREEDOM T
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5
296k residential
29k commercial
3k industrial
200 spot
288 women
464 men
468 in Auckland
103 in Hamilton
27 in Taupō
51 in Rotorua
103 in rest of NZ
3,611
2,594
4,522
GWh HYDRO
GENERATION
GWh GEO
GENERATION
GWh PHYSICAL
SALES
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 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.
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.
OUR BUSINESS MODEL
IS CONTINUED OVER
THE NEXT PAGES
2 geothermal joint ventures
5 formal iwi partnerships
16 community and
commercial partnerships
76
K
SHAREHOLDERS
328
K
CUSTOMERS
14
POWER
S TATIONS
752
PERMANENT
EMPLOYEES
13
%
CONSUMPTION
MARKET SHARE
2
K
BONDHOLDERS
15
%
GENERATION
MARKET SHARE
23
PARTNERSHIPS
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM T
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6
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.
• Churn
• Net Promoter Score
• Brand strength
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
COMMISSIONING
UNDERWAY
GROSS GENERATION
EMISSIONS INTENSITY
(KG CO2E/MWH)**
35
KG
TURITEA
DELAYED
CUSTOMER
FY21
OUTCOMES
OUR
PILLARS
M ID -T ER M
STRATEGIC GOALS
HOW WE
MEASURE THIS
LONG-TERM
STRATEGIC GOALS
For a definition of these measures please see our Glossary.
OUR BUSINESS MODEL. (CONTINUED)
MERCURY BRAND
TRADER CHURN
6.1
%
BRAND STRENGTH*
65
%
NET PROMOTER
SCORE (NPS)
10.4
FINAL ADVICE
CONTINUES TO
HEAVILY SUPPORT
ELECTRIFICATION
CCC
CONTINUED
ENGAGEMENT
WITH NEW
ZEALAND BATTERY
PROJECT
SIGNED TWO
RELATIONSHIP
AGREEMENTS
WITH IWI
1.01
PORTFOLIO
LWAP/GWAP
* Three month rolling to April 2021
** FY17-20 & CY20
MERCURY ANNUAL REPORT 2021
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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.
FY21
OUTCOMES
OUR
PILLARS
M ID -T ER M
STRATEGIC GOALS
HOW WE
MEASURE THIS
LONG-TERM
STRATEGIC GOALS
>1,100
GWh
WIND GENERATION
ACQUIRED FROM TILT
RENEWABLES
OUR BUSINESS MODEL. (CONTINUED)
For a definition of these measures please see our Glossary.
EMPLOYEE
ENGAGEMENT
65
%
HIGH SEVERITY
HEALTH & SAFETY
INCIDENTS
ZERO
ANNUAL TOTAL
SHAREHOLDER
RETURN
45.4
%
TOTAL ORDINARY
DIVIDEND, 13TH
CONSECUTIVE YEAR
OF GROWTH
1 7. 0
CPS
OF PEOPLE SAY THEY
ARE ENCOURAGED TO
BE INNOVATIVE
73
%
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM T
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CHAIR & CHIEF
EXECUTIVE UPDATE.
COMPANY PERFORMANCE
The year ended 30 June 2021 saw
financial performance that was resilient
in the face of headwinds that included
challenging generation conditions and
elevated spot prices.
We also announced the acquisition of
Tilt Renewables’ New Zealand assets and
Trustpower’s retail business in the period.
Noting the Trustpower acquisition is still
subject to approval, these acquisitions
represent ambitious steps to ensure we
can shape our future through a period of
rapid change.
Mercury reported $463 million EBITDAF,
which was $27 million lower than the prior
year of $490 million EBITDAF.
Capital expenditure of $250 million
comprised of $56 million of stay-in-business
CAPEX and $194 million of growth CAPEX.
Operational expenditure remained broadly
flat for the eighth consecutive year on a
normalised basis. Net profit after tax of
$141 million was down from the previous
year’s $209 million.
We continue to be well positioned from a
liquidity and capital perspective. The Board
has declared a full year dividend of 10.2
cents per share (cps). This brings the full-
year ordinary dividend to 17.0 cps, up 7.6%
(15.8 cps FY20).
At this time of very low interest rates, we
are very aware of the importance of the
dividend as an income stream, particularly
to our large retail shareholding base, so
we were pleased to be able to increase the
dividend for the thirteenth year running.
MARKET CONDITIONS
A second consecutive year of low rainfall
across the Waikato catchment area saw a
decrease in hydro generation during the
financial year to 3,611GWh, well below the
long-term average of around 4,050GWh.
An unplanned outage at our Kawerau
geothermal power station meant we were
unable to generate from the station from
early June to the end of the financial
year. As a result, geothermal generation
for the year decreased. The Kawerau
station returned to service on 20 July and
is a testament to the commitment and
experience of the team involved in getting
the station operational quickly and safely.
Challenging hydro generation conditions
across the country have been compounded
by constrained gas supply. We also saw
firming in spot pricing following the
extension of the New Zealand Aluminium
Smelter operation until 2024.
PRUE FLACKS // CHAIR
VINCE HAWKSWORTH // CHIEF EXECUTIVE
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM T
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As a result, the industry is navigating record
high spot prices. For example, in Q4 we saw
average prices of around $277 per MWh in
Auckland.
While most of that impact is currently
reduced through contracting and hedging,
a long run of high spot prices will inevitably
put some upward pressure on prices paid
by customers.
With electricity prices well within the lower
third of the OECD, any flow on impact is
unlikely to hinder the strong position New
Zealand is in as we look to a balanced
transition to a more renewable future.
BALANCING DECARBONISATION,
SECURITY OF SUPPLY &
AFFORDABILITY
The energy sector globally is undergoing
a period of rapid change. An enormous
amount of investment in renewable
generation is required to replace fossil fuel
generation, in response to the threat of
climate change. For more on this, see our
Kaitiakitanga Pillar Story.
Here in Aotearoa New Zealand, more
than $1.5 billion of investment is already
committed by the industry to the
construction of renewable infrastructure.
This means the country is well placed to
increase the proportion of generation that is
renewable from around 80% today to over
90% within five years.
However, the current market conditions
illustrate the challenge of ensuring the right
balance is struck between investment in
decarbonisation, security of supply, and
ensuring energy is affordable.
We strongly support the goal of net zero
carbon emissions by 2050, and we are well
placed to play our part in achieving that goal.
We are committed to investing in renewable
generation to support decarbonisation as
well as diversifying sources of generation to
lower the impact of dry years.
We are engaging constructively with policy
makers and sharing our expertise to support
the development of policy that delivers on
decarbonisation in balance with security and
affordability.
A key aspect is that policy certainty is
required to send the right investment
signals. One wind farm a year is required
to be built to achieve net zero carbon
emissions. Delivering that outcome,
while maintaining security and
affordability should be foremost in
the Government’s mind.
RENEWABLE INVESTMENT PIPELINE
We have a significant renewable investment
pipeline in place.
In August, we took ownership of Tilt
Renewables' New Zealand assets. This
acquisition increases our total annual
generation by over 1,100GWh and includes
several prospective development options,
underlining our commitment to investing
in new renewable generation.
We previously held a 19.9% shareholding
in Tilt Renewables, which was an owner
and developer of wind farms in both
New Zealand and Australia. Mercury and
Powering Australian Renewables (PowAR)
agreed that PowAR would acquire all the
shares of Tilt, including our shares, and
we would acquire all of Tilt’s New Zealand
operations, including development options.
PowAR will retain ownership of all of Tilt’s
Australian assets.
This acquisition was funded through the sale
of the 19.9% shareholding and additional net
debt of $189 million. For more on this, see
our Commercial Pillar Story.
Construction of the Turitea wind farm
also continues, with the transmission
line, grid connection and northern wind
farm substation fully commissioned.
First generation has been achieved and
we anticipate the full completion of the
33-turbine northern section in the last
quarter of 2021.
Civil construction for the more challenging
southern end of the site and its 27 turbines
is continuing, with final project completion
in the south currently scheduled for mid
2023. Project times remain subject to
contractor performance, and we continue to
work with our contractor, Vestas, to try and
find ways to bring that date forward.
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM T
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Our investment pipeline also includes a
premium consented wind farm site at
Puketoi. We will evaluate the economics,
market, and regulatory landscape as we
work actively towards construction of our
next development opportunities.
A COMPETITIVE RETAIL MARKET &
THE TRUSTPOWER ACQUISITION
On the retail front, competitive intensity
continues to be very high.
Consumers are increasingly expecting
greater control and transparency around
the products they consume, and bundling
of utilities including electricity, gas and
telecommunications is proving attractive
to many. Ensuring we have the scale and
capability necessary to make the investment
needed to meet our customers’ needs is a
key focus.
The retail market continues to be highly
competitive, with a significant number of
brands competing for customers. Retail
margins are under pressure, and this is
exacerbated by the high prices in the
wholesale market experienced during the
period. This reflects intensive competition
from some retailers (including some
independents) and bundled product
offerings.
With an increasing number of customers
changing supplier, our total customer
numbers fell by 20,000 during the period.
In June, Mercury entered into binding
agreements to acquire Trustpower’s retail
business for NZ$441 million, payable in cash.
We see Mercury and Trustpower as two
highly complementary organisations, and
this agreement would see the best of both
being brought together for our customers.
Trustpower’s retail business is a leading multi-
product utilities retailer selling electricity, gas,
fixed and wireless broadband and mobile
phone services to approximately 231,000
customers nationwide. The combined
business would have approximately
780,000 connections across both energy
and telco services.
Bringing together the retail businesses of
Mercury and Trustpower will also give us
the scale to make meaningful investment
in the underlying IT systems, driving greater
innovation for our customers. Deeper
integration of the two businesses is not
planned until the underlying IT systems will
enable improved customer experience.
The agreement is conditional on a number of
approvals, and we now anticipate completion
in the second half of FY22.
VULNERABLE CUSTOMERS
COVID-19 lockdowns have triggered an
increase in customers reaching out for advice
and assistance. We responded by making
a number of improvements to the ways we
support customers. While the uncertainty
for our customers has reduced somewhat,
the COVID-19 experience has reinforced
that anyone can experience hardship, and
vulnerability is not necessarily a permanent
state.
Our focus is on early intervention, including
communicating earlier when something
goes wrong. We are also starting to use data
better to help with this. We have launched
a customer care hub, recalibrated our
credit check process and undertaken staff
education, community engagement and in-
depth research into vulnerable consumers. For
more on this see our Customer Pillar Story.
OTHER HIGHLIGHTS
We continue to work towards a collaborative
approach to water for the Waikato catchment.
Our vision is for the world’s best catchment
and we are continuing to work with iwi and
other stakeholders to understand what that
means in practice and how we achieve it.
This year began a trial of realtime water
quality monitoring technology, and we are
talking to parties about water accounting –
more accurately measuring water storage and
use. For more on this, see our Partnerships
Pillar Story.
In addition, during the period we rationalised
several assets as we sought to focus our
business further.
In November, we sold our interest in the US-
based Hudson Ranch 1 geothermal power
station joint venture, receiving net proceeds of
NZ$41 million.
MERCURY ANNUAL REPORT 2021
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We also moved approximately 5,000
customers served under our Bosco brand
to Mercury. The consolidation enhances our
ability to offer benefits of the Mercury brand
to Bosco customers as well as supporting
operational efficiencies.
THE THRIVE PROGRAMME
Our company-wide focus of 'Thriving Today,
Shaping Tomorrow' is the strategic foundation
that underpins what we do and how we
work together. It builds on our mindset of
long-term thinking and considered decision
making, with the impact on our customers,
communities and country at its heart.
Thrive is a company-wide programme of
work, established to support continuous
improvement within the business. This
program had its genesis in the dynamic
response and swiftly executed changes
within our business to meet the challenges
brought by COVID-19 to our customers, team
members and stakeholders.
Teams across the business have set out
to be innovative, to set aspirational goals,
strengthen the good things we already
do, and apply a critical lens to test how we
could improve and align our resources with
those aspirations. Using design-thinking
methodologies, our people are solving
business problems or sticking points that
have been identified as having significant
likelihood of adding value once solved. For
more on this, see our People Pillar Story.
EVOLVING OUR CULTURE
As we evolve and adapt to our changing
environment, it’s important that our culture
does the same. We are running a programme
called Whakapuāwai that will build capability
within Mercury to understand our culture
and ensure it supports us to deliver the
performance needed to achieve our strategy.
Inclusion and diversity continues to be
an important focus to ensure the pipeline
of talent we have coming through properly
reflects the diverse society we operate within
and the customers we support. Our goal is to
increase our population of leaders of ethnicity
and we have developed a programme to
identify and remove barriers.
Te Ao Māori at Mercury is a roopu (group)
available to all Mercury kaimahi (staff) to
uplift te reo me ona tikanga, and te ao
māori within the organisation, and seek
opportunities to learn.
The Mercury Pride Network aims to create a
more safe, supportive and equitable Mercury
for our rainbow people and customers.
WELLBEING, HEALTH & SAFETY
Wellbeing, health and safety remains a priority
for the business, and this was reflected in the
positive results for Health and Safety Culture
and Wellbeing sections of our annual
engagement survey.
There were no serious harm injuries in this
period and a significant drop in TRIFR (Total
Recordable Incident Frequency) to 0.64 from
1.26 at the end of FY20.
Through the year we had many asset refurbishment
and construction projects across our generation
portfolio requiring many hours of safety planning to
deliver high risk activity safely.
SUMMARY
We remain well positioned to deliver for our
owners, our customers, our people and
New Zealand more broadly. We are taking
ambitious steps, including significant
acquisitions, to ensure we can shape our
future through a period of rapid change.
We are deeply conscious of the role we have
to play to help lead New Zealand to a low carbon
future, and your Board thanks you for your
ongoing support.
Together we are Mercury,
Energy made Wonderful.
Ngā mihi nui ki a koutou katoa.
PRUE FLACKS // CHAIR
VINCE HAWKSWORTH // CHIEF EXECUTIVE
12
MERCURY ANNUAL REPORT 2021
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MENU
OUR WORLD OF
ENERGY FREEDOM.
In this section we build on the key changes in our external environment
covered by our Chair and Chief Executive, and consider how we have
taken into account and responded to our stakeholders’ identified needs,
interests and opportunities in FY21. We cover the risks we face, and how
we balance tradeoffs through the lens of what matters most – what’s
important to us and to our stakeholders. We look at how this all shapes
our focus on how we create value in the coming years FY22-FY24.
MERCURY ANNUAL REPORT 2021
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ENGAGING WITH
OUR STAKEHOLDERS.
PARTNERSHIPS
INVESTORS
IWI
GOVERNMENT
& REGULATORS
COMMUNITY
SUPPLIERS
INDUSTRY
PARTICIPANTS
CUSTOMERS
EMPLOYEES
Building and maintaining
relationships with stakeholders across
our business is crucial to our success.
We need to know what’s important to our
stakeholders, so we focus on, and commit the
right resource to the most relevant business
activities. 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.
We also recognise we need to maintain, and
potentially build, stakeholder relationships
over time.
During FY21 Mercury undertook a
stakeholder engagement survey targeting
key representatives of our nine identified key
stakeholder groups. Details of our stakeholder
groups and what’s important to them about
Mercury can be found on our website here.
We are keen to continue to gather additional
insights from our stakeholders and will
consider in FY22 the most appropriate
and productive ways to shape our
engagement processes.
How we engaged with our stakeholders
Our FY21 survey was, for the first time,
an online survey. It was designed so that
stakeholders could see the fifteen focus
areas (material issues) previously identified as
important to Mercury, raise any obvious gaps
they saw in this list, and rank the relevance
of each focus area.
The survey had a participation rate of 33%.
We acknowledge the input of everyone who
responded and made this engagement
exercise so worthwhile.
What we learned
The survey showed us that our stakeholders
see a close correlation between our focus
areas and what matters most to them, with
no significant gaps (as reported in the last
annual report). This outcome confirmed we
are concentrating our efforts in the right areas
to meet their expectations.
The top five focus areas that matter most
to our stakeholders about Mercury in
FY21 were:
• sustainable growth
• natural resources
• operational excellence and (tied in fourth
place) generation development
• safety and wellbeing
We also asked our stakeholders to tell us
how they would like to receive information
about what’s important, and we learned that
they prefer direct engagement via email and
one-to-one meetings. This means that future
engagement exercises will be more targeted.
OUR STAKEHOLDERS
BUILDING ON OUR COMMUNITY ENGAGEMENT
A community day was hosted at our Auckland
office for around 80 community, government and
NGO stakeholders who support customers with
continuing credit issues.
The purpose of the day was to acknowledge the work they
do in their communities to make lives better for those who
struggle day to day, and thank them for their trust in us. We
shared what we've been up to since the start of our presence
in the community in 2010 and asked for confirmation
that we’re on the right track. They gave valuable feedback
including a need for more education and resources and
greater engagement, communication in more languages,
flexible payment options, meaningful rewards, and a greater
customer care element. We plan to make this an annual day
to connect these key stakeholders and partners together
with us and with each other.
For further detail around our stakeholder groups and
what’s important to them about Mercury, please see the
Engaging with Our Stakeholders content on our website.
Helen Tua, Janet Tautaiolefua and Jo-Anne Pawley
MERCURY ANNUAL REPORT 2021
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KEY RISK
AREA
SAFETYCOMPLIANCER EPU TAT IO NOPERATIONALFINANCIALPEOPLE
FACTORS
IMPACTING
CURRENT
TRENDS
Safety is an essential
objective for us and is one
of the major risks that
could affect the wellbeing
of employees, contractors,
customers, and the public.
In FY21, process safety
continued as a focus for
our generation business.
Worksafe conducted
inspections at two of our
Major Hazard Facilities to
audit performance against
safety cases. We have also
focussed on improving our
works controls procedures
across our generation fleet.
We are mindful of
managing safety risk,
particularly with large
projects, including
our Turitea wind farm,
hydro and geothermal
refurbishments and
geothermal maintenance
shuts.
Compliance with resource
consents and the Electricity
Industry Participation Code
is important for our ability
to operate. 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 us.
In FY21, several regulatory
processes that had the
potential for significant
impact to us were
progressed. These
included: the Climate
Change Commission draft
and final advice to the
government on actions
to reduce emissions in
New Zealand; the Climate
Related Disclosures bill;
and the start of Resource
Management reform.
Ensuring that our fuel
resources, plants and
systems don’t have
negative impacts on others
is critical. 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 within New
Zealand and globally.
In FY21, we continued to
implement our security
uplift 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 FY21, we were focussed
on the programme of
hydro refurbishments and
geothermal maintenance
shuts; restoring the
Kawerau station and
capturing learnings
following its outage;
and actively balancing
the challenges faced by
constrained fuel supplies
(water, gas).
Key financial risks include:
climate change impacts,
appropriate insurance
cover and our ability to
execute on projects and
new growth initiatives.
Finance and related
activities have key process
controls that are subject
to regular review and
continuous improvement.
A core element of financial
sustainability is the
opportunity cost related to
our ability to identify and
execute growth options.
This was mitigated in FY21
through transactions such
as the Tilt acquisition.
Attracting, developing
and retaining capable
people who can contribute
to our strategic priorities
and grow with the business
continues to be our focus.
We also continue to focus
on the physical and mental
wellbeing of all people
who are important to our
business.
In FY21, the Thrive
programme has created
significant opportunities
for employee engagement
and involvement. In
addition, Mercury has
recently embarked on a
culture change programme
called Whakapuāwai (‘to
thrive or evolve’) which will
seek to create a culture
that embraces learning,
challenges mindsets,
lifts capability and
celebrates curiosity.
OUR
PILLARS
A comprehensive summary
of our key risks and how we
manage them is included in
the Governance at Mercury
section of the 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
WE FAC E .
MERCURY ANNUAL REPORT 2021
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The results of this year’s stakeholder survey
confirm we have identified and continue to focus
on the right areas of our business. Building this
knowledge into our business planning continues
to add value to Mercury and enhances the
important relationships we hold with our many
stakeholder groups.
Our five pillars 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 strategy, mid-term goals and short-
term business planning and reflect the six capitals
of the Integrated Reporting <IR> framework
(see below).
Our FY21 strategy review was undertaken against
a broad context of the risks and opportunities
presented by the external environment and what’s
happening in the world around us. Combining
that wide perspective with what’s important to
our stakeholders enables us to consider how
our approach may need to evolve to ensure we
continue to create value.
PULLING IT ALL TOGETHER.
A materiality assessment, like the one presented
below, helps to visualise these aspects by
combining what matters most to our stakeholders
and what matters most to us. Our materiality
assessment this year has been updated to include
the results of our FY21 stakeholder survey that
confirmed our stakeholders understand that our
focus areas, although defined under five pillars,
are in fact inter-related. This visualisation also
presents a picture of all that is important and
enables a cross-check to ensure our priorities
remain aligned to what matters most.
FY21 MATERIALITY ASSESSMENT.
The focus areas in the top right-hand corner are those that rank the highest. As the most important topics
we have covered them in this Annual Report and used them to define the reporting boundaries.
WHAT’S IMPORTANT TO US
WHAT’S IMPORTANT TO OUR STAKEHOLDERS
WHAT’S IMPORTANT TO US
INDUSTRY &
RESEARCH
CUSTOMER
LOYA LT Y
CUSTOMER
EXPERIENCE
GENERATION
DEVELOPMENT
FY21 MATERIALITY ASSESSMENT
OUR PILLARS<IR> CAPITALS
CUSTOMER
SOCIAL &
RELATIONSHIP
PARTNERSHIPS
KAITIAKITANGA
NATURAL
MANUFACTURED
PEOPLE
HUMAN
INTELLECTUAL
COMMERCIALFINANCIAL
ASSETS
GOVERNMENT &
REGULATORS
HIGH
PERFORMANCE
TEAMS
CAPABILITY &
DEVELOPMENT
IWI
BRAND
CLIMATE
CHANGE
SAFETY &
WELLBEING
NATURAL
RESOURCES
OPERATIONAL
EXCELLENCE
SUSTAINABLE
GROWTH
MERCURY ANNUAL REPORT 2021
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To identify what we need to focus on across
the mid and long-term we considered these
factors (that have been discussed in the prior
pages of this report):
• the economic, regulatory, market
and other elements of our operating
environment (noted in the Chair and
Chief Executive Update)
• internal factors to our business such
as culture and safety (noted in the
Chair and Chief Executive Update)
• what we learn from our partners
and stakeholders
• the risks we face
• materiality
We expect to respond to an ever-accelerating
pace of change, and new mid-term (three-year)
objectives were set after testing the factors
listed above against a set of future-state
scenarios. We also created the strategic themes
of ‘Thriving Today’ and ‘Shaping Tomorrow’
to reflect the purposeful action today that
will influence and build towards measurable
success in the future. Our people should be
able to ask, “is what I’m doing helping us to
thrive today and/or shape tomorrow?”
Our strategic framework maps what we will
need to focus on in the near and mid-term,
to continue to grow and create value over
time. This year we reviewed, re-framed and
re-stated this framework.
Distilling the complexities of strategy into
a new framework took commitment. We
began reviewing the strategic framework last
year, nearing the end-date for the mid-term
goals we had set three years previously. This
coincided with peak COVID-19 in New Zealand.
As we responded to the challenges within
our business and supporting our customers,
team members and other stakeholders, this
became a catalyst to rethink our resilience and
future success as a business.
Consideration of near-term outcomes began
with a program of continuous operational
improvement called ‘Thrive’. This program,
led and implemented by members of the
Mercury team, surfaced ‘problems worth
solving’, including the need to provide greater
connection and clarity for our people around
strategy and the part they play. This fed into
our update of the framework.
One thing that is clear to us through this
update is that refreshing the framework isn’t
about formulating a standalone ‘strategy
on a page’. It’s about continuing to improve
the overall connection each person feels
to their place in delivering to strategy, and
their connection to our purpose. Leaders
throughout the organisation are bringing this
framework to life for their teams within the
context of the outcomes they need to deliver.
The future landscape will be shaped by
ongoing changes specific to us (such as our
acquisition of Tilt’s New Zealand operations
and, conditionally, Trustpower’s retail business)
and the broader environment (such as
decisions around New Zealand Aluminium
Smelter, and market conditions). Evolution
of the strategic framework will continue
to respond to opportunities and risks, at a
pace that balances continued insight and
improvement with clarity of direction.
CREATING VALUE IN THE FUTURE.
Updating our strategic framework so that we are 'Thriving Today' and 'Shaping Tomorrow'.
Craig Webber, Beth Wotherspoon and Bjorn Van Dam
DECARBONISING NEW ZEALAND, MERCURY
THRIVING, AND ENERGY FREEDOM FOR
OUR STAKEHOLDERS ARE KEY THEMES
THAT HAVE SHAPED OUR STRATEGY.
OUR FY22-24 STRATEGIC
FRAMEWORK
MERCURY ANNUAL REPORT 2021
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17
OUR FY22–24 STRATEGIC FRAMEWORK.
CUSTOMER
New Zealand’s leading
energy brand.
KAITIAKITANGA
Recognised as a leader in the
ultra-long-term management
of both physical and
natural assets.
COMMERCIAL
Leading our sector in terms
of financial performance and
shareholder returns, earning
at least our cost of capital.
PEOPLE
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.
PARTNERSHIPS
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.
OUR MISSION:
ENERGY
FREEDOM
TO INSPIRE
NEW ZEALANDERS
TO ENJOY ENERGY IN
MORE WONDERFUL
WAYS
C
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&
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Be an adaptive and
resilient organisation,
responsive to
future needs.
Play a
leading role
in New Zealand’s
successful transition
to a low-carbon
economy.
Enhance our
licence to operate
through collaborative
work with our
stakeholders.
Create executable
options for new
growth.
Unleash the
full potential of our
people through
transforming
culture.
Increase the
value of our
business
to $700M
EBITDAF.
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MERCURY ANNUAL REPORT 2021
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LIVING ENERGY FREEDOM.
In this section, we seek to bring to life the five pillars of
our business, and what they mean to us, through stories
that are examples of material activity undertaken through
the past 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.
MERCURY ANNUAL REPORT 2021
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The care of ‘vulnerable’ customers is a critical
responsibility that, rightly, utility providers are
measured against.
When Bridgid Smith was asked to review
what was available to vulnerable customers it
became clear that there was an opportunity
to develop and build on the existing
support Mercury provides for customers
experiencing hardship.
“Speaking with our customers, our
community stakeholders and our own people
revealed a varied landscape in terms of all
the things we’re already doing well, and those
things we could be doing differently. I learnt
very quickly that this is an extremely
complex issue.”
“It also became clear that the terms we use
as a sector – ‘Vulnerable’ and ‘Medically
Dependent’ – are labels that aren’t doing us
or our customers any favours when trying
to provide relevant, inclusive and effective
solutions.”
‘Vulnerable’ is a term that oversimplifies. In
reality, many of us will be 'vulnerable' at some
point in our lives. It might relate to physical
or mental wellbeing, financial constraint,
emotional distress or language difficulties,
for example. And it might relate to a moment
in time or be something we experience on a
more permanent basis.
Despite this, customers have historically
been categorised as either ‘Vulnerable’ or
‘Medically Dependent’ – broad terms that
give us little to go by when building effective,
targeted solutions which work for individuals
and their circumstances.
“This thinking led us more towards the idea
of ‘customer care’. It’s an acknowledgement
that we need to focus on which customers
need our help the most, what different types
of support they need and when they need
that extra support. It’s not just a box ticking
exercise to say we’ve flagged customers
as ‘vulnerable’.”
1. CUSTOMER.
OUR FOCUS
Mercury’s Customer pillar focus areas are Brand, Loyalty and Experience.
To bring this to life, we tell the story of Bridgid Smith, Mercury’s Customer
Experience Lead, and her ambition to build a truly integrated customer
care proposition to cater for the varied needs of our customers.
REDEFINING
CUSTOMER CARE.
Bridgid Smith and Janet Tautaiolefua
MERCURY ANNUAL REPORT 2021
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CUSTOMER
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.
PILLAR STORY FOCUS AREA
• Experience
KEY RISKS
• Errors in customer data quality, billing or
general communications, impacting on
customer service and compliance.
• Loss of customer data (both physical and
digital) or a systems failure impacting on
our ability to operate core systems.
This year, Bridgid and the wider Mercury team
delivered a number of initiatives to help better
support customers experiencing hardship,
including:
• establishing a survey to deepen our
understanding of customers and the different
types of difficulties they might face
• holding a community stakeholder event to bring
together our key community partners, furthering
engagement and gathering critical feedback
• launching a ‘Customer Care Hub’ on our website,
making it easy for customers to access all the
support and resources available to them in a
single, easy to find location
• implementing a new process for customers
who find the standard join process challenging,
including lowering our credit check threshold
• enabling the Women’s Refuge Shielded Site on
our website for customers to anonymously reach
external help if needed
• trialling new billing and payment options
for customers facing financial hardship and
struggling to pay on time
• improving education and training programmes for
frontline staff to support better conversations with
customers, focussed on embedding empathy
This is not the beginning of our journey – it’s the
next steps from over a decade of focussed effort by
a committed group of individuals – but it’s not the
end either.
In our FY20 Annual Report we profiled our
Community Liaison Manager, Helen Tua, whose
commitment to action continues, alongside
Bridgid and others with a shared passion and
dedication in this space.
“We’re very lucky to be building on ten years of
hard work by Helen Tua and other extremely
dedicated people at Mercury. Thanks to her and
others, we have strong relationships with our
communities and a wealth of knowledge and
experience touching so many parts of society –
government, social agencies, other retailers.”
“And now we have an opportunity to consolidate
that hard work and establish a framework around
how we look after and respond to customers
experiencing hardships which we can continue to
build on in a sustainable way.”
OTHER FOCUS AREAS
• Loyalty
• Brand
WE NEED TO FOCUS ON WHICH
CUSTOMERS NEED OUR HELP
THE MOST, WHAT DIFFERENT
TYPES OF SUPPORT THEY NEED
AND WHEN THEY NEED THAT
EXTRA SUPPORT.
Bridgid Smith, Vandana Junpath
and Janet Tautaiolefua
KAITIAKITANGA
PEOPLE
COMMERCIAL
PARTNERSHIPS
CUSTOMER
MERCURY ANNUAL REPORT 2021
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LOOKING FORWARD
We hear about a growing sense of hardship
from many of the communities we engage
with, demonstrating that we cannot
rely solely on debt metrics alone, which
have improved this year. The reduction
in customer debt levels is the result of a
combination of factors, some of which have
been within our control including the better
use of data as well as the measures outlined
on the previous page. However, these need
to be considered in the broader societal
context – which isn't necessarily reflected in
this data. For this reason, close community
engagement remains fundamental to our
care of customers.
As an electricity retailer, we’ll always play
an essential role in people’s lives, and we
take this responsibility seriously – especially
when ensuring customers are treated fairly,
consistently and with sensitivity.
This is important as we estimate that up to
40% of our customers could be considered
‘vulnerable’ under a more inclusive definition
of the word. These individuals may need
extra care and support to access a consistent
electricity supply.
We also know these customers are often
some of our most loyal and have a right
to feel valued by us. However, our current
products, processes and services don’t always
meet the varied needs of these customers,
affecting their experience and impacting
our operational costs. COVID-19 exacerbated
financial challenges for some customers,
further highlighting the importance of
developing relevant solutions that keep our
customers safe in a commercially sustainable
way.
For this reason, we are working towards
building more robust ways of identifying
customers needing different levels of
care. This will include better use of data
modelling so we can identify early triggers
for customers who may be at risk of
experiencing some form of hardship and
proactively support them before they reach
this stage.
As a result of this, solutions will be more
personalised to specific needs. In many cases
this will be as simple as being more targeted
with the great initiatives, tools and ideas
already in play by repurposing, improving,
prioritising and communicating these. In
other cases, it may involve leveraging data,
technology and our people to build new
solutions. These will be carefully measured
to track the effectiveness for both our
customers and our company.
“This isn’t just the right thing to do, it also
makes good commercial sense. It improves
customer loyalty, reduces our overall debt
and continues to strengthen our reputation
as a responsible retailer.”
As we look to expand our customer offering
beyond electricity and into broadband, our
approach to customer care becomes more
important than ever. For many, COVID-19
made home connectivity a necessity for
education, income and connection to
communities. The digital divide is a very real
issue, and as a future broadband provider
we will need to ensure we’re supporting the
better social outcomes that the internet can
enable, rather than further contributing to
social inequality.
“I want us to be in a place where Mercury
is setting the standard for customer care,
not just as an electricity retailer, but for
other industries.”
CREATING VALUE
THROUGH OUR
CUSTOMERS.
Lucy Jackson, Michael Baker and Jordan Moore
Bridgid’s contribution into the support we offer
to customers experiencing hardship integrates
thinking and delivers shared value across other
Mercury pillars. For example:
• COMMERCIAL – by focusing on Operational
excellence, Bridgid and the team's work
towards improving how we care for customers
experiencing hardship reduces our customer
churn and lowers our debt levels.
• PARTNERSHIPS – working with Government,
social and community agencies helps build
our knowledge (Industry & research) and
strengthen our connections to our customers,
while also improving trust in our brand and
the sector.
• PEOPLE – through the Capability &
development of our people, we are
recognised as being an organisation that
'does the right thing', helping us continue
to attract and retain key talent.
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A CLEARER
CONNECTION TO
T H E WAI K ATO.
The Waikato awa (river) runs from Lake
Taupō to the sea. For nearly 100 years we
have shared this catchment with others,
some of whom have been here a lot longer
than we have. We are proud of our long-
term custodianship of the Waikato Hydro
System and the contribution that it makes to
Aotearoa New Zealand's renewable electricity.
And we don’t forget that communities were
impacted and in some cases even displaced
by these power stations.
Our thinking about water in the Waikato
recognises the value that we can add here,
building and maintaining partnerships
within the catchment and taking current
collaborations to the next level. We have
started to imagine what can be done
together to remedy years of human impact,
to improve the catchment in terms of its
health and wellbeing, and look for more
efficient water allocation and use.
We call this vision The World’s Best
Catchment, and we started to share our ideas
with our partners. We were excited about
the opportunities we saw, but this year has
reminded us we need to understand how iwi
and stakeholders in the catchment visualise
success, in order to make a real difference for
the awa and its communities.
“We need to stop thinking we have all
the answers, and keep listening,” says
Gavin Williamson, Mercury’s Catchment
Sustainability Manager. “We always knew this
was complicated. But we remain inspired to
make the catchment the World’s Best.”
There’s something about the Waikato that
inspires. River iwi, some of whom see the awa
as their tupuna (ancestor), and other groups
and entities are all working hard individually
to improve its health and wellbeing. By
working collaboratively, we can do more
and better.
OUR FOCUS
Mercury’s Partnership pillar focus areas are Industry and Research, Iwi and
Government (central and local) relationships. Our aspirational goal of making
the Waikato the World’s Best Catchment has continued to evolve, as we listen
and learn from our partners in this area.
2. PARTNERSHIPS.
Gavin Williamson (Mercury), Guy McPherson (Adroit)
and Steve Carroll (Whirinaki Working Group)
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This year, in partnership with the Whirinaki
Community Group and supported by the
Waikato Regional Council, we’re picking up
on early work by Te Arawa River Iwi Trust
and Waikato River Authority. We are trialling
technology that could be a step-change in
water quality monitoring in the catchment.
This pilot could lead to realtime monitoring
at multiple sites, with the data feeding to
websites and smartphones to 'daylight'
what is happening with water quality in
real time. These insights will enable better
decision-making and targeting of restoration
projects today, with the potential for hugely
positive impacts in the future.
Eugene Berryman-Kamp is Tumu Whakarae
(Chief Executive) of the Te Arawa River Iwi
Trust, representing the interests of the three
Te Arawa River Iwi: Ngāti Tahu-Ngāti Whaoa,
Ngāti Kearoa-Ngāti Tuarā, Tuhourangi-
Ngāti Wāhiao.
The Trust’s vision is to “support Te Arawa
River Iwi collectively and individually to assert
mana awa and improve the health and
wellbeing of the Waikato river, tributaries
and environs”.
They have been using sensor technology
since 2017 to capture environmental data,
and were quick to support this year’s new
technology trial.
One of the Trust’s strategic goals is to involve
and connect its people with the awa. Eugene
explains: “River iwi in particular use the
whakatauki (proverb) “ko au te awa, ko te awa
ko au” (“I am the river, the river is me”), so
if we’re true to that whakatauki, we need to
have that connection. For some of our people
it’s difficult to do this as they’ve moved away
from the region, so remote water monitoring
enables us to maintain that connection
virtually. It also enables us to monitor the
impact of activities on the river so that if
detrimental things are happening we can
find out about that quickly and in our own
time. In that way we fulfil our kaitiaki
role as active guardians of the awa, in our
rohe (region).”
WE ARE TRIALLING TECHNOLOGY
THAT COULD BE A STEP-CHANGE
IN WATER QUALITY MONITORING
IN THE CATCHMENT.
PARTNERSHIPS
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.
The trial site is at Ngakuru adjacent to the
Whirinaki Stream, an area well known to
Steve Carroll, a local farmer who is also Chair
of the Whirinaki Working Group. This group
of community members was set up three
years ago to help make changes that will
improve water quality in the Whirinaki Arm
of Lake Ōhakuri.
“I’ve learned so much,” says Steve. “I’ve been
a dairy farmer in the area for 20 years and
being involved in this group has enabled us
all to learn that change can happen if we
work together as a wider community. There
has been approximately 30 hectares of land
retired from livestock grazing in this area in
the first two years.”
Steve is looking forward to the information
about water quality that the monitoring
will provide to him and the members of
the community.
“We’re looking for sediment reduction,”
he explains. “Sediment carries most of
the nutrients that end up in the lake.
Evelyn Forrest (Chair TARIT & Trustee Ngāti Tahu-Ngāti
Whaoa Runanga Trust) and Don Scarlet (Mercury)
KAITIAKITANGA
PEOPLE
COMMERCIAL
PARTNERSHIPS
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This monitoring will give us evidence that what we are
trying to achieve is working. We need to see trends
to show the rest of the community and land owners
what can be achieved if we work together.”
The technology, developed by Adroit, will enable the
delivery of continuous data to aid timely decision
making for operational management.
Ulrich Frerk, Technical Director and Founder of the
New Zealand company, says “We create monitoring
solutions that reduce environmental impact and
improve operational efficiencies. Accurate data
is a highly valuable tool that provides so many
opportunities to create better environments.”
“We recognise the knowledge that many people hold
of the natural indicators and seasonal variations that
can be used to judge the river’s health,” says Gavin.
“Now we can add a new way to measure and manage
water quality. If people can look on their phones and
see how the quality of the water running past their
place is changing, it’s got to lead to better decision-
making and more attention to what’s going on in the
river.”
The trial will conclude later this year, and if successful,
we will work with our partners to roll it out more
widely. Funding is already committed from our river
iwi partnerships for the next two sites.
Realtime monitoring is one of the easier ideas to
implement, although it’s emerging technology and
there are time and cost considerations. We have other
ideas for the catchment that are more complicated,
but we need to understand more what success looks
like from others’ perspectives, and whether they want
to partner up to be part of further solutions.
Aotearoa New Zealand is placing a much higher
value on the quality of water, evidenced by the Three
Waters Reform of water supply, wastewater treatment
and stormwater disposal services. The Three Waters
system will be important to our partners and
stakeholders in the catchment, and is critical for the
health and wellbeing of Aotearoa New Zealand. It will
also benefit from realtime water quality monitoring
and water accounting.
We must listen to others in the catchment to
understand if our aspirations align. The past year’s
conversations have shown us that the real barrier to
achieving success will be if we fail to work together.
We must focus on what’s best for the catchment,
rather than each group fighting their own corner.
We believe that although this may require
compromise in the short run, what’s best for
the catchment will ultimately be best for us all.
We know that we’re only at the start, and we will
continue to work with our partners old and new,
towards regional solutions for the water and the
whole Waikato catchment.
CREATING VALUE
THROUGH OUR
PARTNERSHIPS.
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 Operational Excellence.
• KAITIAKITANGA – our partnerships take
us towards being recognised as a leader in
the ultra-long-term management of both
physical Assets and Natural Resources.
• PEOPLE – Capability & development
of our people is enhanced through work
involving complex interconnections as well
as cultural and historical considerations.
LOOKING FORWARD
We acknowledge the deep connections and
knowledge of the catchment held by iwi and
hapū, and their mana whenua status. The
Government has indicated its intention to bring
greater focus to iwi rights and interests, and
while it is not for us to define what success
looks like for our iwi partners in the Waikato,
we have signalled our willingness to join and
contribute to conversations in this area. Our
focus remains on listening and building our
understanding of what iwi want and need in
this space.
We will continue to listen to our partners and
work with them to refine our approach to the
complex issues of water management, with a
view to shared solutions.
It is a time of significant reform for water
management frameworks and governance.
At a national level the resource management
system is being reshaped and Three Waters
proposals are to create new entities to manage
water supply, wastewater treatment and
stormwater disposal services. Like electricity,
water services are critical for the health and
wellbeing of Aotearoa New Zealand.
At a regional and catchment level the Waikato
River Authority is embarking on a review of
Te Ture Whaimana o Te Awa o Waikato, the
Vision and Strategy for the Waikato River, and
Waikato Regional Council will be engaging on
its freshwater plans in the following years to
give effect to the National Policy Statement
Freshwater Management.
We are motivated to engage with policy-
makers as many key pieces of legislation and
guiding documents are reviewed and changed.
Ulrich Frerk (Adroit)
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TAKING CARE OF
TOMORROW, TODAY.
3. KAITIAKITANGA.
To limit global warming to 1.5°C, bold and urgent action
needs to be taken across the world. Aotearoa New Zealand
is one of the few countries to have committed through
legislation to the goal of achieving net zero carbon
emissions by 2050.
This year He Pou a Rangi the Climate Change Commission
delivered its landmark advice Ināia tonu nei: a low emissions
future for Aotearoa, which recognised the fundamental role
renewable electricity will play in achieving New Zealand's
decarbonisation ambitions.
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 how we are supporting a sustainable, inclusive
and just transition to a low-carbon New Zealand. We’re working to ensure we’re thriving
today by caring for our natural resources and shaping tomorrow by investing in renewable
energy assets and taking collaborative action on the climate change challenges at hand.
This is reflected in Our Climate Change Strategy – which
sets out our aspirations to be a leader in New Zealand’s
transition to a low-carbon future.
“We know we need to act with urgency, identifying and
focussing on solutions that are going to take us towards our
objectives as quickly as possible. This means taking not just
a view on what’s good for the company, but what’s good for
the country and our customers,” says Nick Wilson, Mercury’s
Manager Regulatory and Government Affairs.
Nick Wilson and Buddhika Rajapakse
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TRANSPORT ELECTRIFICATION
We have seen our long-term advocacy for
e.transport gain traction this year – with the
Commission identifying transport as the single
biggest driver of emission reductions and the
Government strengthening its policy in support of
transport electrification.
Buddhika Rajapakse, Mercury’s Manager Energy
Futures, says looking to emerging technology
and opportunities is central to Mercury’s Energy
Futures strategy.
“I’ve been developing a strategy for the different
areas in which we want to play and participate
– spaces that are not necessarily core to us
today, but that we can grow into in the future.
E.transport is a big part of it because it’s key to
New Zealand decarbonising,” says Buddhika.
This year we encouraged more people to ‘join
the electric revolution’ with our Kiss Oil Goodbye
campaign and continued to focus on opening up
access to e.transport with various initiatives like
our EV subscription service, our EV fuel package
and our partnership with Big Street Bikers.
“The subscription service is one the things we’re
doing to lower barriers – subscribing means
very little cash down upfront. At the equivalent
of 40c/l of petrol, our subscribers have also
benefitted from the significant fuel cost savings
that come with driving an EV,” says Buddhika.
“Although the service is currently a pilot and
focussed on individual users, a lot of the benefits
we’re trying to deliver could also be really relevant
to business and government – that’s an area we’ll
be looking to explore over the next year.”
We welcome the Government’s commitment to
decarbonise their fleets and are actively engaging
with them on opportunities to support their
transition. Growing EV fleets now brings with it
the benefit of more affordable second-hand EVs
in the future.
“Looking forward, we’re thinking about which
other parts of the transport system we
can support – public and heavy transport
electrification, and out into the more distant
future, aircraft and ships,” says Buddhika.
As more of Aotearoa makes the switch to
e.transport, the demand for renewable energy is
set to increase. The sector is ready to meet that
demand, with enough new renewable generation
consented to ‘fuel’ the country’s entire light
transport fleet.
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.
RENEWABLE ENERGY INVESTMENT
We continue to invest in renewable energy
assets, specifically new wind generation to
complement our hydro and geothermal fleet.
The first electricity was generated at what will
be New Zealand’s largest wind farm at Turitea
in July 2021. We also have consent for a further
53 turbines at Puketoi.
“We took the decision early on to develop Turitea.
Despite flat demand, Mercury was confident
to take a long-term view around generation
investment due to cost reductions in wind, stable
market settings and the urgent need to make
progress on decarbonisation. The main way
to support meaningful change is through our
investments,” says Nick.
“The market plays a critical role in signalling new
investment and we’re seeing that happening now,
with more than $1.5 billion under construction.
Price signals are really important to direct the
capital needed in new renewable generation over
the next 30 years to meet our climate-change
goals.”
This year we added to our wind portfolio, with
our acquisition of Tilt Renewables’ New Zealand
assets. The Tilt development pipeline will see us
OTHER FOCUS AREAS
• Natural resources
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.
KAITIAKITANGA
SUMMARY.
PILLAR STORY FOCUS AREA
• Climate change
• Assets
CLICK HERE to see Kaitiakitanga in action
with the release of geckos back to their
home ground at Turitea.
WE KNOW WE NEED
TO ACT WITH URGENCY,
IDENTIFYING AND
FOCUSSING ON
SOLUTIONS THAT
WILL TAKE US TOWARDS
OUR OBJECTIVES AS
QUICKLY AS POSSIBLE.
KAITIAKITANGA
PEOPLEPARTNERSHIPS
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“We also see opportunities to bring together
stakeholders in the sector to help provide a collective
view on the most material things to make the
transition as quickly as possible – in a way that
promotes an equitable, fair and inclusive transition.
Those are the things that we’re most excited about
looking forward.”
UNDERSTANDING CLIMATE CHANGE RISKS
In FY21, we completed our first scenario analysis,
consistent with our FY20 Climate Change
Management Plan. The analysis – which looks
at what may happen in the future – is a tool for
understanding the implications of climate-related
risks and opportunities for our business and long-term
strategic thinking.
To complete the scenario analysis, a team from across
Mercury compiled data and information on climate-
related risks across the market, policy and legal,
reputational and physical categories. The outcomes of
the scenario analysis are detailed in our Task Force on
Climate-related Financial Disclosures - TCFD Report.
David Payne, Mercury’s Principal Hydrologist, was part
of the team who looked at the physical risks to our
generation assets.
Next year we will work to deepen our understanding
of the implications of climate change on our hydro
assets. As part of this, David and the Dam Safety
Team are working to further incorporate climate
change into dam safety risk modelling.
“Our dams are classified as high impact, which means
they have to pass the Probable Maximum Flood (PMF),
which is the theoretical biggest flood you can create
from a storm. We’ve got a value for that right now and
the flood rules that we have in existence are in place to
deal with that,” says David.
CREATING VALUE
THROUGH
KAITIAKITANGA.
Our role supporting a sustainable,
inclusive and just transition to a low-carbon
New Zealand delivers shared value across other
Mercury pillars. For example:
• CUSTOMER – our EV subscription service
levels up our customer Experience and
our Brand campaign encourages
New Zealanders to ‘Kiss Oil Goodbye’.
• PARTNERSHIPS – we are actively
collaborating with Industry and Government
on policy to accelerate New Zealand’s
transition to a low-carbon future.
• COMMERCIAL – we are leading
decarbonisation through our Sustainable
Growth and Generation Development
investments in New Zealand’s largest
windfarm and Tilt Renewables.
PMF informs our approach to dam safety – our dams are assessed,
maintained and managed to remain safe even under extreme
floods. Proposed dam safety guidelines set to come in later this
year will require New Zealand hydro operators to incorporate climate
change into their extreme event modelling – or be actively working
towards it.
David is engaging with other organisations in New Zealand and
across the world to find a solution. As this challenge affects the
whole hydro sector, David sees value in working collaboratively to
create a methodology to apply to dams across New Zealand.
Once a methodology is in place, our Dam Safety Team will
incorporate climate change into our extreme event modelling to
build up the picture of the risks we are facing and inform how we
continue to ensure dam safety and protect our hydro assets into the
future.
become one of the largest wind generators in the
market and further support the country’s long-term
decarbonisation goals.
WORKING WITH INDUSTRY & GOVERNMENT
We see real opportunities for the energy sector to work
collectively with the Government in the transition to a
low-carbon future. In May, we worked with our peers to
produce a letter outlining our collective commitment
to the Commission’s advice, including the need for a
national energy strategy.
“The Government committed to an energy strategy
shortly after the industry letter. A key component of
the strategy – given the current commitment to 100%
renewable electricity – is ‘what does the pathway
look like to achieve that objective’? We need to make
sure it’s green and affordable; and at the same time
optimise reliability, to keep the lights on,” says Nick.
“The Government is considering how to make progress
towards 100% renewable energy with the New Zealand
Battery Project. Mercury is contributing to this process
around options that will deliver emissions reductions
and maintain balance in energy equity and security,”
says Nick.
OUR ROLE GOING FORWARD
As Aotearoa progresses towards a low-carbon future,
there will be many more complex climate-related
challenges and we will need to work collaboratively to
affect meaningful change.
“We want to build on that. To say, ‘what is the role for
the electricity sector in the decarbonisation journey?’
To think about the contribution that we can make, how
the market needs to evolve to support that, and what
sort of things Mercury can do as part of that journey,”
says Nick.
David Payne
This is the third year we have reported on our
climate-change disclosures in accordance with the
recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD). We are pleased to be
providing more comprehensive information this year –
please see our TCFD Report for more detail.
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Mercury’s strengthened focus on continuous
improvement through Thrive will embed
and deliver on a culture of improvement. As
the name suggests, Thrive aims to position
us to thrive in a competitive and rapidly
changing market.
We have signalled that we are looking for an
improvement in EBITDAF of circa $30 million
in the FY22 year from Thrive, which we will
achieve by focussing operational excellence
on our performance, culture and processes.
Thrive’s success so far is down to the insights
shared by the more than 400 individuals
across the business who gave their feedback
on building a stronger Mercury. This feedback
shed a light on opportunities for more cross-
team collaboration, smarter prioritisation and
more efficient decision making.
To ensure diversity of participation in the
Thrive programme, there was a focus on
understanding and removing barriers,
communicating in inclusive ways and
embracing and celebrating broad capabilities,
experiences and skills of individuals.
We are now in the process of transitioning
from Thrive to Thriving, with about 70
initiatives across the business at various
stages of delivery.
4. PEOPLE.
OUR FOCUS
Mercury’s People pillar focus areas are High Performance Teams, Capability
and Development and Safety and Wellbeing. For Mercury to be successful into
the future, our people need to be well-placed to adapt quickly to a very dynamic
environment. Recognising this, ‘Thrive’ is an internal review of opportunities
to enhance performance. It draws heavily on the insights and capabilities of
our people, including Janelle Tautaiolefua, a switch analyst at Mercury.
THRIVING TOGETHER.
'XCELERATE'
One of these initiatives is 'Xcelerate', a two-day
‘hack-a-thon’ focussed on solving everyday
process challenges. Of the 90 challenges
submitted, ten were selected to be addressed
through Xcelerate. Each challenge was
assigned a cross-functional group tasked with
ideating and testing a solution. This high-
energy and collaborative approach harnessed
the expertise and enthusiasm of our people
and gave them the time, tools and mandate
to build solutions from the ground up.
Sharon Carvalho,
Janelle Tautaiolefua,
James Scholz and
Bill Chien
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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.
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.
PEOPLE
SUMMARY.
PILLAR STORY FOCUS AREAS
• Capability & development
OTHER FOCUS AREAS
• High performance teams
• Safety & wellbeing
use their skills and experience in a different
context.
“The High Performance Team framework
at Mercury also played a major role. We
uncovered the impact stronger personalities
were having on the dynamics of the team
and how this was stopping other views and
ideas from surfacing. It wasn’t until we all
stepped back to allow space for other ideas
to come through that we actually landed on
our solution.”
This solution was a chatbot (focussed on
internal systems) called ‘Piki’. This virtual
personal assistant will help staff quickly find
existing processes or procedures on Mercury’s
internal systems, leveraged from Mercury’s
external customer chatbot (‘Hiko’).
The ‘Existing Process’ team was one of three
given the green light to progress towards
implementation, building solutions at pace,
with a 90-day delivery target.
“Piki will start supporting our customer-facing
teams then grow into other parts of the
business. Technology is moving so fast that
the possibilities feel endless, and this is the
first chapter of a much bigger story.”
Xcelerate brought people together from
across the business and is a powerful
example of how Thrive will deliver enduring
change at Mercury.
“I’ve had some challenges prioritising this
against my current role and stepping into
a tech-heavy project without a strong
One of these people was Janelle Tautaiolefua,
part of Xcelerate’s ‘Existing Processes’ team –
formed to help our people access and follow
existing processes more efficiently.
“We waste a lot of time trying to access the
right information because there are so many
possible places where something could be
saved. It’s time better spent elsewhere,”
says Janelle.
“I worked with a team of people I’d never
worked with before – from generation, ICT
and retail. I could connect with the process,
but the rest was daunting. We all needed to
learn very quickly.”
This 'learning in action' is an approach to
step outside the usual scope of roles, but also
an important opportunity for individuals to
KEY RISKS
• An incident occurring that causes a fatality
or serious injury to our employees, a
contractor, a customer or the public.
• Failing to develop, engage and retain our
growing talent.
• Failing to recognise the importance
of employee wellbeing for growing a
thriving culture.
74%
73%
OF PEOPLE SAY THEY ARE
ENCOURAGED TO BE INNOVATIVE EVEN
THOUGH SOME INITIATIVES MAY NOT
SUCCEED (UP 2% FROM FY20).
OF PEOPLE AGREE THAT MERCURY
HELPS THEM CONTRIBUTE TO THEIR
OWN DEVELOPMENT (UP 4% FROM FY20).
89%
OF PEOPLE SAY THAT THEIR TEAM
DELIVERS HIGH QUALITY RESULTS
(UP 5% FROM FY20).
Janelle Tautaiolefua
KAITIAKITANGA
PEOPLEPARTNERSHIPS
CUSTOMER
COMMERCIAL
MERCURY ANNUAL REPORT 2021
LIVING ENERGY FREEDOM
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30
technological background, but I wouldn’t
change it for anything. I’ve got so much
learning out of it, and I really think we’ve made
a positive impact on the business.”
LOOKING FORWARD
FY22 will see the rubber hit the road for
Thrive, as we continue to advance initiatives.
It will be a significant year for delivery,
and we will start to see more tangible and
measurable outcomes directly attributable to
us 'Thriving'.
As part of this significant shift to delivery, we
will celebrate the successes and learn from
the setbacks that will occur. Not everything
will be delivered end-to-end within the
timeframes set, the key will be how we
respond to these setbacks.
We need to be resilient as an organisation.
Our people need to have both the courage
to stop initiatives where the outcomes do
not justify the resources used; as well as the
adaptability to change paths decisively in
order to hit delivery.
We want our people to see ‘Thriving’ not as a
series of initiatives but a constant mindset of
'I wonder how I can do that better'. We’re not
there yet – feedback from our people shows
we are still in a learning phase. For now, the
structure around Thrive will remain until we
can get greater momentum on our journey
towards a culture of continuous improvement.
Like Janelle, the productivity challenge
is something we all need to learn from.
Speaking with people about Thrive surfaced
the tensions between the ‘day job’ and Thrive
initiatives. Thrive has shown that we need to
re-think some of our ways of working to get
the most out of our day. Our culture will need
to continue to change for us to embrace
continuous improvement every day.
Closely connected to this is Our F Y22-24
Strategic Framework, which is focussed
on providing long-term direction to enable
action (while also protecting our competitive
advantage). Like Thrive, the new framework
frames our thinking on how we review our
resilience and future success. This framework
will be used to help shift our mindset
towards the purposeful prioritisation of
work – facilitating autonomy and mastery by
providing clear linkage to our purpose. The
toolkit developed as part of Thrive will also
continue to help us remain clear on scope,
impact and priority of initiatives.
At its crux, Thrive will support our people to
work smarter. By improving our effectiveness,
we can achieve more sustainable growth, and
thrive, in a changing future. Productivity has
been identified as an ongoing challenge for
New Zealand, and Mercury is not immune
to this. But we are confident that Thrive will
provide the support we need to shift the dial
on this over the long-term.
Thrive is a critical plank for our future
success, and we continue to measure and
track progress of individual initiatives to
maintain accountability.
CREATING VALUE
THROUGH OUR
PEOPLE.
Thrive, and Janelle’s experience of this
programme, integrates thinking and delivers
shared value across other Mercury pillars.
For example:
• COMMERCIAL – By further embedding
Operational excellence through Thrive, we
aim to deliver circa $30 million EBITDAF
uplift in the FY22 year.
• CUSTOMERS – As part of Thrive we want
to reimagine retail, to improve Customer
Experience and strengthen our Brand.
• KAITIAKITANGA – As part of Thrive
we want to deliver greater operational
excellence across generation, to improve
the viability of our hydro and geothermal
Assets.
OUR SKILLS PLEDGE
We remain supportive of the Aotearoa New Zealand Skills Pledge,
established by the Prime Minister’s Business Advisory Council in 2019.
We aim to offer our people the opportunity to be trained and to learn
new skills needed for the changing nature of work.
Our focus during FY21 has involved offering varied learning
experiences. For example, Thrive Xcelerate two-day problem-
solving event, introduction of a SkillShare platform, utilising our
High Performance Team coaches, workshops, webinars and
e.learning. Topics include Culture, Innovation, Agile, Mental Health
Awareness, Unconscious Bias, Resilience, Customer Experience, Cloud-
based Platforms, Storytelling and Industry updates.
TRAINING AREATRAINING HOURS
IN FY20
TRAINING HOURS
IN FY21
Capability development4,3187, 358
Health & safety6,9194,035*
Business compliance1,1961,367
* the decrease in Health & safety training hours relates to natural
fluctuations in training requirements year-to-year as a result of
recertifications required every 2-3 years (course dependent).
Mercury embraces and celebrates the diversity of our people.
Please see our information on Inclusion & Diversity for more detail.
WE WANT OUR PEOPLE
TO SEE 'THRIVING',
NOT AS A SERIES OF
INITIATIVES, BUT A
CONSTANT MINDSET OF
'I WONDER HOW I CAN
DO THAT BETTER'.
MERCURY ANNUAL REPORT 2021
LIVING ENERGY FREEDOM
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31
The purchase in August 2021 of five
operating wind farms from Tilt Renewables
Limited provides Mercury with fuel and
plant diversity and adds over 1,100GWh
to our annual generation production. The
three Tararua wind farms (Manawatū) and
the wind farms at Mahinerangi (Otago) and
Waipipi (Taranaki) joined our Turitea wind
farm (Manawatū), where first generation was
achieved late July. This acquisition means
that Mercury will become one of Aotearoa
New Zealand’s largest wind power companies.
Samuel Moore, Mercury’s Head of Mergers
and Acquisitions (M&A) says, “We view M&A
and generation development as tools to
evolve our business and shape it to meet the
future needs of our company, our customers
and New Zealand. What we have achieved
in FY21 sets us up for a step-change in
our generation production in FY22, with a
material uplift in earnings and generation
development potential in the future.”
We are advancing renewable energy
generation through wind power as part of our
strategy for growth and our mission of Energy
Freedom. We’ve been looking to wind since
2004, recognising the strategic importance
of adding this fuel to our renewable hydro
and geothermal portfolio. Combining Tilt’s
operating and development assets with our
own has turbo-charged that journey and
positions us well to take advantage of the role
RE-SHAPING
OUR GENERATION
PORTFOLIO.
that renewable electricity must play in New
Zealand’s decarbonisation story.
We’re really excited to continue to build on
what Tilt has created in Aotearoa and the staff
are an important part of that. Our combined
team will be second to none in this country.
“We never intended that the 19.9% stake in
Tilt acquired in 2018 would be the end of
the story. It was our seat at the table and
we knew from the start that there would be
opportunities to convert that minority stake
into something greater,” Sam explains.
OUR FOCUS
Mercury’s Commercial pillar focus areas are Operational Excellence, Generation
Development and Sustainable Growth. Our continuing growth and development
in wind generation was a key story this year.
5. COMMERCIAL.
Cate Miehe, Sam Moore, Garth Landers and Geoff Smits
MERCURY ANNUAL REPORT 2021
LIVING ENERGY FREEDOM
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32
“Execution of this transaction does see us exit
the Australian market for the time being, but
we have not lost sight of the significant need
for Australia to decarbonise further due to its
reliance on coal generation. We are searching
for future opportunities where we believe
Mercury can bring something special to the
table.”
IMPACT ON OUR PORTFOLIO
Wind generation is a great complementary
addition to our portfolio of geothermal and
hydro generation. In our view, it is the best fit
and most economic form of new generation
available right now in Aotearoa. Our hydro
system can respond well to compensate for
fluctuations in wind output, and while wind
generation may be variable hour to hour, on
average it provides a reliable source of energy
to support hydro storage.
“We’re really excited about the addition
of wind to our portfolio,” says Phil Gibson,
General Manager Portfolio. “Converting
intermittent, renewable wind generation into
supply that matches our customers’ needs
is hugely motivating. Balancing the energy
trilemma to ensure affordable renewable
electricity is delivered reliably to where it’s
needed is critical to successfully increasing
the amount of renewables in the system.”
This renewable electricity and the smarter
and more efficient use of our portfolio will dial
up the decarbonisation of the New Zealand
economy, displacing thermal fuel and
enabling the conversion of energy used
in transport and process heat to electricity.
“There are some great projects in our
generation development portfolio that
can be brought to market as demand
for renewable electricity grows, and we’re
focussed on building a pipeline to support
New Zealand’s net carbon-zero obligations,”
says Phil. “We’re also committed to ensuring
that supply remains reliable as thermal
generation is phased out, which may involve
new technologies and innovation.”
While the planning and work towards our
Turitea and Puketoi sites date back more than
a decade, our initial stake in Tilt Renewables
was acquired in 2018, with the company's
New Zealand assets acquired this year.
“It was a massive piece of work, being a very
large and complex transaction in a relatively
short space of time,” says Sam.
“We were thinking about next steps for our
Tilt investment when Infratil’s announcement
of its strategic review in December last year
brought that to a head. It morphed into
a process and required a quick response.
Understanding we could not afford all of
Tilt alone, the decision to participate in the
process that followed required us to quickly
(and quietly) find a partner for Tilt’s Australian
assets who we could work with to put together
a compelling proposition.
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
• Failing to successfully execute on new
growth opportunities or significant
development projects.
• Failing to recognise and plan for the
impact of Climate Change on long
term financial sustainability.
• Plant failures and national fuel
constraints impacting on short and
medium term generation.
PILLAR
SUMMARY.
PILLAR STORY FOCUS AREA
• Generation development
ACQUISITION TIMELINE
MAY
2018
Acquired initial stake for $2.30 per share ($144
million),
with option to acquire a further 6.8%
AUG
2018
Joint takeover offer taking Infratil shareholding to
>65% (inclusive of exercise of option) resulted in
Infratil acquiring the remainder of the TECT shares
FEB
2019
Additional investment of $55
million through Dundonnell
capital raising ($1.75 per share)
JUL
2019
Mercury CE appointed to Tilt Board
JUL
2020
Receipt of $55
million via capital distribution due
to sale of Snowtown II wind farm
MAR
2021
Entered into binding agreement with PowAR to acquire
Tilt for NZ$7.80 per share. Mercury to subsequently acquire
NZ operations if scheme successful ($770
million gross).
Mercury’s 19.9% share holding in Tilt valued at $586.5
million
APR
2021
Scheme Implementation Agreement amended to
NZ$8.10 per share, and agreement strengthened
AUG
2021
Transaction complete, Tilt Renewables'
New Zealand assets and team move to Mercury
KAITIAKITANGA
PEOPLEPARTNERSHIPS
CUSTOMER
COMMERCIAL
MERCURY ANNUAL REPORT 2021
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After a quick process, we selected Powering Australian
Renewables (PowAR), and the rest is history.
“Our proposal was for Tilt to be split into two (New
Zealand assets and Australian assets) whereas our
understanding was other bidders in the process would
be bidding for the whole company – meaning there
was a level of complexity attached to our transaction
that others didn’t face.
“Remarkably, because of COVID-19 travel restrictions,
we still have not met anyone from PowAR in person.
Normally on a transaction of this size we would be
locked in rooms together for weeks, but all the due
diligence and the transaction itself was done on the
phone and by videoconference, with the people spread
out and mostly working from home (and at one point,
a campground in the Coromandel).”
The transaction was further complicated in April when,
some weeks after we had inked the deal, a counter-
bidder took advantage of the ability to lodge what is
known as a superior proposal (better price or terms)
for consideration by the Tilt board. That required a
quick response from PowAR and Mercury – and saw us
increase the overall price by 30c per share in return for
amendments which provided much greater certainty
that our Scheme would prevail.
CREATING VALUE
THROUGH
COMMERCIAL.
Our wind generation strategy integrates
thinking and delivers shared value across
other Mercury pillars. For example:
• PEOPLE – this large project benefited
from Capability & Development
embraced by team members.
• PARTNERSHIPS – relationships with
others working in our Industry including
Tilt Renewables (and its team) and the
PowAR team and advisers who worked
on the transaction were key.
• KAITIAKITANGA – the significant
addition of wind generation supports
more efficient output from our hydro
generation. This together with the
pipeline of future wind developments
will enable increased decarbonisation
of New Zealand's electricity generation.
THIS ACQUISITION
MEANS THAT MERCURY
WILL BECOME ONE
OF AOTEAROA NEW
ZEALAND’S LARGEST
WIND POWER
COMPANIES.
“Mercury has found itself on the sell side of transactions
recently, including our interest in Hudson Ranch
geothermal station in the US (2020), and Metrix (2018),
so it’s nice to be on the buy side and building for the
future,” says Sam. “We were very well supported, with
a large cast of financial and legal advisers. My job is
coralling all the troops and that’s the sort of stuff I
love doing.”
We now have strong options for new wind
generation development, including Puketoi east of
Turitea, Kaiwaikawe north-east of Dargaville and several
others. Our opportunities have grown, along with the
parts of the country where we are now potentially part
of the landscape and the community. We are looking
forward to integrating Tilt’s operating assets into
Mercury, welcoming their team onboard and working
to develop and execute on the right strategy given
the much more extensive portfolio of development
opportunities we now have available to us.
Geoff Smits, Cate Miehe, Garth Landers, and Sam Moore
34
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
MENU
ENERGY FREEDOM
IN NUMBERS.
This section explains how our integrated thinking, our decisions and our
actions play out in financial results. We provide commentary on our financial
performance for the year to the end of June 2021 compared with prior years,
as well as our auditor’s report and our financial statements. As in 2020, our
segment reporting has been set out so that you can more clearly see the
financial dynamics of our generation operations as distinct from our retail
energy sales operations. We also feature our approach to assessing and
managing climate change risk with our Task Force on Climate-related Financial
Disclosures - TCFD Report.
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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600
620
640
660
680
700
720
740
FY17FY18FY19FY20FY21
$M
Energy Margin
440
460
480
500
520
540
560
580
FY17FY18FY19FY20FY21
$
M
Operating Earnings (EBITDAF)*
185
190
195
200
205
210
215
FY17FY18FY19FY20FY21
$
M
Operating Costs*
Mercury’s FY21 financial performance of $463 million EBITDAF
was $27 million lower than the prior year of $490 million
EBITDAF. Results were negatively impacted by sustained dry
conditions throughout the Taupō/Waikato catchment. This
ultimately resulted in very low Taupō lake levels over the fourth
quarter at the same time spot and wholesale prices reached
record highs. An unplanned outage of our Kawerau geothermal
station early in June 2021 (returned to service on 20 July 2021)
also negatively impacted our financial performance.
Mercury’s hydro generation was down approximately 440GWh
compared to the group’s long-term average of 4,050GWh.
While Lake Taupō started this calendar year nearly full, a very
dry second half of FY21 saw the Lake Taupō level bottom out by
early June 2021 at just 9% of the full resource consent operating
range, severely restricting flexibility to use storage to supplement
our hydro generation. The Taupō lake level finished the financial
year almost 140GWh below its long-term average which will
likely adversely impact hydro generation in FY22. The unplanned
outage at our Kawerau geothermal station in June resulted in
the loss of 55GWh of generation for the month from the station
at a time spot prices were approximately $240/MWh. Electricity
hedging undertaken in the second half of the year came at a
high cost as wholesale hedge prices reflected the tight supply
conditions.
Average spot prices for the year were materially higher than
FY20 up $78/MWh in Auckland to $184/MWh. In the final
quarter of FY21, spot prices averaged $277/MWh, up $162/MWh
on the same quarter in FY20. High spot prices were the result of
drier hydro conditions nationally and significantly higher thermal
fuel costs driven by gas supply restrictions from New Zealand’s
gas fields, elevated coal usage at the Huntly power station and
higher Emissions Trading Scheme costs.
In regard to our sales business, we saw lifts in customer yields in
all customer segments. Yields in the commercial and industrial
segment (physical and financial) increased by $6/MWh or 7.1%
over the period, with average mass market yields increasing
$9/MWh or 6.8%. Market share has continued to decline with
ICP numbers falling by 20,000 as customer losses exceeded
customer acquisitions driven by aggressive competition from
some retailers (including some independents) and bundled
product offerings. Total electricity sold to customers (physical
and financial) lifted almost 400GWh to 6,081GWh as sales to
commercial/industrial customers grew strongly up 635GWh as
Mercury saw longer term value in these medium-term contracts.
Mercury has continued its disciplined and focussed approach to
operating costs, with its operating base held broadly flat for an
eighth successive year (recognising the accounting treatment
impacts for Software-as-a-Service costs). Our continuous
improvement programme 'Thrive' is forecast to deliver an overall
$30 million EBITDAF uplift in FY22, of which one third will be
from reduced operating expenditures.
Tilt Renewables Limited undertook a capital return in July 2020
for proceeds from its sale of the Snowtown II wind farm in the
previous year, with Mercury receiving $55 million. In August 2021,
the scheme of arrangement between Mercury and Powering
Australian Renewables (PowAR) to acquire Tilt Renewables Limited
was concluded. Mercury has acquired all of Tilt’s New Zealand
operations, including development options, for an enterprise
valuation of approximately NZ$797 million. This acquisition was
funded from the sale of Mercury’s 19.9% Tilt shareholding, worth
NZ$608 million and net debt of NZ$189 million. As a result, the
gain on the sale and the recognition of the new assets will occur
in FY22 (see Note 19 in the Financial Statements).
We sold our investment in Hudson Ranch 1, a geothermal power
station in California, for a gain of $41 million recognised in FY21,
while retaining our interest in the lithium from geothermal brine
programme. We acquired a 48.46% interest in NOW, a Hawkes
Bay based Internet Service Provider for $11 million.
The northern section of the Turitea wind farm started generating
in July 2021, with commissioning expected to be complete in
the last quarter of 2021. Contractor delivery delays across design
and construction continue to delay the southern section of the
wind farm, with commissioning not forecast until mid 2023.
In June 2021, we announced a binding agreement to acquire
Trustpower’s mass market retail business for $441 million. The
transaction remains subject to several conditions including
Commerce Commission approval and the Tauranga Energy
Consumer Trust process.
FINANCIAL COMMENTARY.
ENERGY MARGIN
Energy margin of $616 million was down $36 million
from the previous year on the back of a continuation
of the prolonged dry inflows.
OPERATING COSTS
Operating costs represent the company’s indirect costs
of sales, including salaries and wages, maintenance costs
and all other overheads.
In line with the International Accounting Standards Board’s
(IASB) interpretation guidance, Mercury has changed
the way it accounts for Software-as-a-Service (SaaS)
(see Note 1 in the Financial Statements). This resulted
in $6 million of expenditure being reclassified as OPEX
in the current year and $4 million in the prior year. After
normalising for this and other IFRS changes, as well as
the sale of Metirx, the Group held its operating costs
broadly flat for an eighth year in a row. This continues to
evidence the Group’s disciplined and focussed approach
to its core activities.
OPERATING EARNINGS (EBITDAF)
The company’s EBITDAF of $463 million fell $27 million
from the previous year as previously explained.
OTHER INCOME
Other net income of $37 million was broadly in line with
the prior year and includes equity accounted income from
the group’s investments in associates and joint ventures
(Tilt Renewables Limited, TPC Holdings Limited and
Energy Source LLC).
$463M
OPERATING
EARNINGS
(EBITDAF)
13TH
CONSECUTIVE
YEAR OF ORDINARY
DIVIDEND GROWTH
1 7. 0CPS
FULL YEAR
ORDINARY
DIVIDEND
*See Financial Track Record notes 1, 2 & 3
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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0
50
100
150
200
250
300
FY17FY18FY19FY20FY21
$
M
Capital Expenditure
Stay-in-businessGrowth
0
50
100
150
200
Underlying Earnings After Tax
FY17FY18FY19FY20FY21
$
M
0
5
10
15
20
25
FY17FY18FY19FY20FY21
Cents per share
Distributions
InterimFinalSpecialBuyback
BALANCE SHEET
Total assets of the company increased by $1,101 million, primarily
due to a $938 million upward revaluation of Mercury’s generation
assets, due to a lower cost of capital, and a further $151 million
invested during the year in the company’s Turitea wind farm.
The company invested $250 million in capital expenditure (CAPEX)
during the year, comprising $56 million of stay-in-business (SIB)
CAPEX and $194 million of growth CAPEX, the majority of which
was in relation to Turitea. $20 million was incurred to complete
an upgrade at our Rotokawa geothermal plant, which will increase
output across both stations on the Rotokawa field by 5MW
from FY22. An additional $17m was invested during the year into
NOW New Zealand Limited and EnergySource Minerals LLC.
CAPITAL STRUCTURE & DIVIDENDS
PROFIT FOR THE YEAR
The company’s net profit after tax of $141 million, was down from the previous year’s $209 million
due to lower EBITDAF, combined with unfavourable fair value movements in financial instruments,
mostly interest related and a $15 million loss on disposal of the damaged assets at the company’s
Kawerau geothermal station. These in turn were partially mitigated with the gain on sale of the
company’s US geothermal power station Hudson Ranch of $41 million.
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 decreased by
$21 million for the year, reflecting the impact
of lower hydrology and elevated spot prices.
$141M
PROFIT FOR
THE YEAR
$145M
UNDERLYING EARNINGS
AFTER TAX
$56M
OF STAY-IN-
BUSINESS CAPEX
Net debt (excluding the fair value of leases)
rose to $1,329 million as at 30 June 2021, with
the ongoing capital expenditure in relation to the
building of Turitea, with $335 million spent to
date on the project. Mercury issued in total $550
million of retail and wholesale green bonds in
FY21. The company’s gearing level of 2.5 times
debt/EBITDAF is up on the previous year due to
the reduction in EBITDAF combined with higher
borrowings. The gearing ratio however remains
in the middle of Mercury’s target range of 2.0x
to 3.0x debt/EBITDAF supporting our S&P
credit rating of BBB+.
At year end, Mercury held 39 million shares as
treasury stock, has available debt headroom of
$500 million and held cash and cash equivalents
of $163 million. This continues to provide balance
sheet flexibility for growth over and above current
commitments in relation to the development of
the company’s Turitea wind farm, the purchase
of Tilt’s New Zealand assets and the purchase of
Trustpower’s retail business (which is fully backed
by a commitment for a further bank facility).
A fully imputed ordinary dividend of 10.2 cents
per share (cps) final dividend has been declared.
This brings the full-year ordinary dividend to
17.0 cps, up from 15.8 cps, or 7.6%, marking
our thirteenth consecutive year of ordinary
dividend growth.
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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37
FINANCIAL PERFORMANCE TRENDS
For the year ended 30 June ($ million)
20212020
1
2019
2
2018
2
2017
2 & 3
Income statement
Energy margin
616652667730698
EBITDAF
463490506566523
Net profit for the year
141209357234184
Balance sheet
Total shareholders’ equity
4,1863,7333,5373,3053,308
Total assets
7,9786,8776,4846,1065,997
Total liabilities
3,7923,1442,9472,8012,689
Cash flow
Operating cash flow
338352361370380
Investing cash flow
(296)(194)63(254)(98)
Financing cash flow
42(173)(335)(141)(298)
Capital expenditure
Total capital expenditure
250275115118116
Growth capital expenditure
1941652662
Stay-in-business capital expenditure
5611089112114
Other financial measures
Underlying earnings after tax
145166161198176
Free cash flow
282242272258266
Ordinary and special declared dividends
231215211207270
Ordinary dividends per share (cents)
17.015.815.515.114.6
Basic and diluted earnings per share
10.3615.3626.2317.0013.37
Net debt
1,3291,1491,0961,2641,038
Gearing (net debt/net debt + equity, %)
24.123.523.727.723.9
Debt/EBITDAF (x)
4
2.52.01.91.91.8
FINANCIAL TRACK RECORD.
For the year ended 30 June ($ million)
20212020
1
2019
2
2018
2
2017
2 & 3
Operational measures
Total recordable injury frequency rate (TRIFR)
5
0.641.260.720.871.05
Sales to customers (FPVV, GWh)
4,5224,3614,5004,4774,606
Electricity customers (‘000)
328348373388392
Electricity generation (GWh)
6,2056,3316,7037,5117, 310
1. Restated for change in accounting policy in relation to configuration and customisation costs incurred in implementing SaaS arrangements.
2. Financial results for the period 30 June 2017, 2018 and 2019 include Metrix which the Group sold on 1 March 2019.
3. Financial results for the period ended 30 June 2017 have not been restated for new IFRS standards.
4. Adjusted for S&P treatment of subordinated debt issued in FY2015.
5. Per 200,000 hours; includes on-site employees and contractors.
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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OPINION
We have audited the consolidated financial statements of the
Group on pages 41 to 63 of the Annual Report, that comprise
the consolidated balance sheet as at 30 June 2021, 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 2021, 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 2020, agreed
upon procedures and limited assurance engagements, 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 202 1
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.
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Why significantHow our audit addressed the key audit matter
Generation assets were revalued to $6,362 million at
30 June 2021 as set out in note 7 of the consolidated
financial statements. These are significant because the
generation assets represent approximately 80% 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 wholesale electricity price path and discount rate
assumptions are estimated by the Group’s independent
valuation specialist. Forecast generation volumes are
determined by the Group’s independent valuation specialist
based on the Group’s own forecast average generation
volumes.
We consider the valuation of generation assets to be a Key
Audit Matter given the significance of the assets to the
Group and the fact that the inputs to the valuation models
are inherently subjective.
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 determine the
wholesale electricity price path estimated by the
Group’s external valuation specialist; and
• assess the appropriateness of the discount rate.
• assessed the professional competence and objectivity
of the Group’s external valuation specialist;
• assessed whether the valuation adjustments were
made in accordance with the Group’s accounting policy;
and
• assessed the adequacy of the related financial
statement disclosures in note 7.
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 2021, the fair value of derivative assets total $194
million and derivative liabilities total $530 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. Derivatives for which the valuation inputs are not
readily observable are referred to as ‘Level 3’ derivatives
as disclosed in note 13 of the consolidated financial
statements.
We consider the valuation of Level 3 derivatives to be a
Key Audit Matter as the inputs to the valuation models are
inherently subjective.
In obtaining sufficient appropriate audit evidence we:
• involved our valuation specialists to assess the models
used to estimate the fair value of the Level 3 derivatives
on a sample basis. Our valuation specialists:
• evaluated the appropriateness of the valuation
methodologies; and
• assessed the Group’s estimated wholesale
electricity price path by comparing it to other
price path estimates obtained in performing the
Generation Asset valuation procedures detailed
above.
• together with our internal valuation specialists,
challenged key assumptions and inputs;
• agreed key contract terms, including contract start
and maturity dates and electricity strike prices, to the
relevant contract on a sample basis;
• assessed the adequacy of the related financial
statement disclosures as described in notes 13 and 14.
VALUATION OF GENERATION ASSETSVALUATION OF LEVEL 3 DERIVATIVE FINANCIAL INSTRUMENTS
MERCURY ANNUAL REPORT 2021
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INFORMATION OTHER THAN IN THE FINANCIAL
STATEMENTS & 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 our 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;
LLOYD BUNYAN // ERNST & YOUNG
ON BEHALF OF THE AUDITOR-GENERAL
AUCKLAND, NEW ZEALAND
17 AUGUST 2021
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal control;
• Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management;
• Conclude on the appropriateness of the use of the going
concern basis of accounting by the directors and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s ability to continue as
a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the 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; and
• 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
de ficiencies 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.
MERCURY ANNUAL REPORT 2021
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CONSOLIDATED INCOME STATEMENT.
For the year ended 30 June 2021
Note202 1 $M
Restated
2020 $M
Total revenue22,045 1,768
Total expenses 2(1,582)(1,278)
EBITDAF
1
463 490
Depreciation and amortisation7, 8(221)(207)
Change in the fair value of financial instruments14(47)22
Gain/(loss) on disposal223 –
Net interest expense2(45)(54)
Profit before tax173 251
Tax exp e nse5(32)(42)
Profit for the year attributable to owners of the parent141 209
Basic and diluted earnings per share (cents)10.3615.36
1. EBITDAF: Earnings before net interest expense, tax expense, depreciation, amortisation, change in the fair value of financial instruments,
gain/(loss) on disposal and impairments.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME.
For the year ended 30 June 2021
Note202 1 $M
Restated
2020 $M
Profit for the year141209
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Movement in asset revaluation reserve924 285
Movement in cash flow hedge reserve transferred to balance sheet14 (15) 6
Share of movements in associates’ and joint ventures’ reserves9288
Tax ef fe c t (259) (91)
Items that may be reclassified subsequently to profit or loss
Movement in cash flow hedge reserve14 (208)1
Tax ef fe c t63–
Other comprehensive income for the year, net of taxation533209
Total comprehensive income for the year attributable to owners of the parent674418
The accompanying notes form an integral part of these financial statements.
FINANCIAL STATEMENTS.
MERCURY ANNUAL REPORT 2021
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CONSOLIDATED BALANCE SHEET.
As at 30 June 2021
Note202 1 $M
Restated
2020 $M
SHAREHOLDERS’ EQUITY
Issued capital 378 378
Treasury shares4 (100) (101)
Reserves 3,908 3,456
Total shareholders’ equity 4,186 3,733
ASSETS
Current assets
Cash and cash equivalents 163 79
Receivables10 318 244
Contract assets10 2 2
Inventories6 24 22
Derivative financial instruments14 120 126
Investment in associate held for sale9 248 –
Total current assets 875 473
Non-current assets
Property, plant and equipment7 6,828 5,898
Intangible assets8 107 70
Investment in and advances to associates and joint ventures9 86 328
Advances to joint operations9 5 6
Receivables10 3 6
Derivative financial instruments147496
Total non-current assets7,1036,404
Total assets7,9786,877
Note202 1 $M
Restated
2020 $M
LIABILITIES
Current liabilities
Payables and accruals10 318 280
Borrowings12 471 446
Derivative financial instruments14267 116
Taxation payable5 1 33
Total current liabilities1,057 875
Non-current liabilities
Payables and accruals10 3 12
Provisions11 86 74
Derivative financial instruments14 263 138
Borrowings12 1,020 845
Deferred tax5 1,363 1,200
Total non-current liabilities2,7352,269
Total liabilities3,7923,144
Net assets4,1863,733
For and on behalf of the Board of Directors who authorised the issue of the Financial Statements on 17 August 2021.
The accompanying notes form an integral part of these financial statements.
PRUE FLACKS // CHAIR
17 August 2021
KEITH SMITH // DIRECTOR
17 August 2021
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY.
For the year ended 30 June 202 1
Issued
capital
$M
Retained
earnings
$M
Asset
revaluation
reserve
$M
Cash flow
hedge
reserve
$M
Other
reserves
$M
Total
equity
$M
RESTATED BALANCE AS AT 1 JULY 2019 378 292 3,077 (118) (100)3,529
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–209 –––209
Total comprehensive income for the year–208 204 (4)10418
Dividend– (214)–––(214)
Restated balance as at 30 June 2020378 2863,281(122)(90)3,733
BALANCE AS AT 1 JULY 2020 378 286 3,281 (122) (90) 3,733
Movement in asset revaluation reserve,
net of taxation– 8 658 –– 666
Movement in cash flow hedge reserve,
net of taxation––– (161)– (161)
Share of movements in associates’ and joint
ventures’ reserves–– 20 15 (7) 28
Other comprehensive income– 8 678 (146) (7)533
Net profit for the year– 141 –––141
Total comprehensive income for the year– 149 678 (146) (7) 674
Dividend– (221)––– (221)
Balance as at 30 June 2021378 214 3,959 (268) (97) 4,186
CONSOLIDATED CASH FLOW STATEMENT.
For the year ended 30 June 202 1
202 1 $M
Restated
2020 $M
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers1,9521,697
Payments to suppliers and employees (1,468) (1,209)
Interest received 1 1
Interest paid (51) (60)
Taxes paid (96) (77)
Net cash provided by operating activities338 352
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (254) (195)
Acquisition of intangibles (54) (24)
Acquisition of investment (20)–
Distributions received from and advances repaid to associates and joint ventures 61 4
Proceeds from the sale of Hudson Ranch 41 –
(Lodgements)/return of prudential deposits (70)21
Net cash used in investing activities (296)(194)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 546 375
Repayment of loans (278) (330)
Principal repayment of lease liabilities (5)(4)
Dividends paid (221) (214)
Net cash received/(used) in financing activities 42 (173)
Net increase/(decrease) in cash and cash equivalents held84 (15)
Cash and cash equivalents at the beginning of the period79 94
Cash and cash equivalents at the end of the period163 79
Cash balance comprises:
Cash balance at the end of the period16379
The accompanying notes form an integral part of these financial statements.
MERCURY ANNUAL REPORT 2021
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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 the potential for significant 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 certain financial
instruments, swap rate component of Green Bonds, 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 & Standards
The Group has changed its accounting policy on intangible
software subsequent to an agenda decision for the
configuration and customisation costs incurred relating to a
Software-as-a-Service ('SaaS') arrangement published by the
IFRS Interpretations Committee ('IFRIC') in April 2021. The
nature and effect of the changes as a result of changing this
policy is described below. No other changes to accounting
policies have been made during the year and policies have
been consistently applied to all years presented.
SaaS arrangements are arrangements in which the Group
does not currently control the underlying software used in
the arrangement. Under the new accounting policy, where
costs incurred to configure or customise SaaS arrangements
result in the creation of a resource which is identifiable,
and where the Group has the power to obtain the future
economic benefits flowing from the underlying resource and
to restrict the access of others to those benefits, such costs
are recognised as a separate intangible software asset and
amortised over the useful life of the software on a straight-line
basis. If costs do not meet the recognition criteria, they are
expensed when incurred. The amortisation is reviewed each
reporting period and any changes are treated as changes in
accounting estimates.
The Group has applied the new accounting policy
retrospectively. The effect of this change in accounting policy
are shown in the following table.
Functional & 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 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 & 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)
Balance as at
1 July 2019
Adjustments
$M
Restated
balance as at
1 July 2019
Audited
year ended
30 June
2020 $M
Adjustments
$M
Restated
audited
year ended
30 June
2020 $M
CONSOLIDATED INCOME STATEMENT
Total revenue 1,768 – 1,768
Total expenses (1, 274) (4) (1,278)
EBITDAF 494 (4) 490
Depreciation and amortisation (214) 7 (207)
Change in the fair value of financial
instruments 22 – 22
Gain on sale/impairments–––
Net interest expense (54)– (54)
Profit before tax 248 3 251
Tax exp e nse (41) (1) (42)
Profit for the year attributable to owners
of the parent 207 2 209
CONSOLIDATED BALANCE SHEET
Intangible Assets 85 (11) 74 78 (8) 70
Deferred tax liabilities (1,158) 3 (1,155) (1,202) 2 (1,200)
Retained earnings (300) 8 (292) (292) 6 (286)
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 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, amortisation, change in the fair
value of financial instruments, gain/(loss) on disposal 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.
TYPES OF PRODUCTS & SERVICES
Generation/Wholesale
The generation/wholesale market segment encompasses activity associated with the electricity production, electricity trading,
generation development activities and the company’s share of associates earnings (see Note 9). 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 and related services and products to mass market
customers in New Zealand.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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NOTE 2. SEGMENT REPORTING (CONTINUED)
SEGMENT RESULTS
YEAR ENDED 30 JUNE 202 1
Generation/
Wholesale
$M
Retail
$M
Other
Segments
$M
Inter–
segment
$M
Total
$M
Sales – Electricity generation 1,133 ––– 1,133
Sales to customers and derivatives 454 696 – (277) 873
Earnings of associates and joint
ventures 22 ––– 22
Other revenue 12 5 –– 17
Total revenue 1,621 701 – (277) 2,045
Energy costs (946) (284)– 277 (953)
Line charges (85) (270)–– (355)
Other direct cost of sales, excluding
third party metering (34) (4)–– (38)
Direct costs of other revenue– (2)–– (2)
Metering costs (3) (41)–– (44)
Employee compensation and benefits (37) (31) (15)– (83)
Maintenance expenses (30) (6)–– (36)
Other expenses (33) (31) (7)– (71)
Allocation or corporate overheads (11) (11) 22 ––
Total expenses (1,179) (680)– 277 (1,582)
Segment EBITDAF44221––463
Interest expense (15)– (38)– (53)
Lease interest expense–– (3)– (3)
Interest income–––––
Interest capitalised to capital
work in progress
11–––11
Net interest expense (4)– (41)– (45)
Gain on sale 38 ––– 38
Loss on disposal (15)––– (15)
Gain/(loss) on disposal 23 ––– 23
RESTATED YEAR ENDED 30 JUNE 2020
Generation/
Wholesale
$M
Retail
$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 associates and joint ventures 18 ––– 18
Other revenue 10 6–– 16
Total revenue 1,318 752– (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)
Metering costs (3) (43)–– (46)
Employee compensation and benefits (35) (32) (15)– (82)
Maintenance expenses (34) (6)–– (40)
Other expenses (37) (28) (7)– (72)
Allocation or corporate overheads (11) (11) 22 – –
Total expenses (833) (747)– 302 (1,278)
Segment EBITDAF4855––490
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)
Gain on sale –––––
Loss on disposal–––––
Gain/(loss) on disposal–––––
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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NOTE 2. SEGMENT REPORTING (CONTINUED)
Audit Fees
Mercury NZ Limited (the Company) is a public entity as defined in the Public Audit Act 2021. The Auditor-General has appointed
Lloyd Bunyan of EY to carry out the audit. NZX listing rules and Mercury’s Audit Independence Policy requires that the signing
partner performing the audit to rotate every five years.
Fees payable for the audit and review of the financial statements were $599,000 (2020: $606,000). Non-audit services in relation
to provision of remuneration market survey data were $15,000 (2020: $13,000). EY (US) also provided US tax compliance services
in the amount of $178,000 (2020: $192,000).
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.
202 1 $M
Restated
2020 $M
PROFIT FOR THE YEAR141209
Change in the fair value of financial instruments47(22)
Fixed asset loss on disposal 15 –
Hudson Ranch Sale (41)–
Tilt bargain purchase gain– (18)
Adjustments before tax effect21(40)
Tax ef fe c t (17)(3)
Adjustments after tax effect4(43)
Underlying earnings after tax145 166
Tax has been applied on all taxable adjustments at 28%.
On 7 June 2021, the Kawerau geothermal power station experienced an unplanned outage as a result of a mechanical failure.
The Group recognised a loss on disposal on the assets totalling $15 million as a result.
During the year, the Group sold its interest in its Hudson Ranch 1 Holdings LLC geothermal power station joint venture in
California. The sale resulted in a gain of $41 million.
In the prior year, the Group accounted 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 recognised in prior periods was reversed in the prior year.
NOTE 4. SHARE CAPITAL & DISTRIBUTION
The share capital of the Company is represented by 1,400,012,517 ordinary shares (30 June 2020: 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 1,361,269,425
(2020: 1,361,032,535). These shares do not have a par value, have equal voting rights and share equally in dividends and any
surplus on winding up.
202 1 Number
of shares (M)202 1 $M
2020 Number
of shares (M)2020 $M
Treasury shares
Balance at the beginning of the year3910139101
Disposal of treasury shares–(1)––
Balance at the end of the year 39 100 39 101
Cents per share202 1 $M2020 $M
Dividends declared and paid
Final dividend for 2019 9.3 –127
Interim dividend for 2020 6.4 –87
Final dividend for 2020 9.4128 –
Interim dividend for 2021 6.8 93 –
221214
No imputation credits are available at 30 June 2021 (2020: $nil) as the imputation credit account has a deficit of $21 million
(2020: deficit of $30 million). The imputation credit account is required to have a surplus balance at 31 March each year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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N OT E 5. TA X AT IO N
202 1 $M
Restated
2020 $M
Income Tax
(i) Tax expense
Profit before tax 173 251
Prima facie tax expense at 28% on the profit before tax (48) (70)
Increase in tax expense due to:
• share of associates’ and joint ventures’ tax paid earnings 65
• reversal of deferred tax recognised on investment in Tilt Renewables–10
• capital gain11–
• change in tax treatment of commercial buildings–8
• other differences(1)5
Tax expense attributable to profit from ordinary activities (32) (42)
Represented by:
Current tax expense (66) (90)
Deferred tax recognised in the income statement3448
The income 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.
Deferred Tax
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax and accounting bases
of the 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.
Assets
202 1 $M
Restated
Assets
2020 $M
Liabilities
202 1 $M
Restated
Liabilities
2020 $M
Net
202 1 $M
Restated
Net
2020 $M
(i) Recognised deferred tax assets and liabilities
Property, plant and equipment–– (1,498) (1,261) (1,498) (1,261)
Financial instruments 97 27 ––9727
Employee benefits and provisions 3 3––33
Other 35 31––3531
13561 (1,498) (1,261) (1,363) (1,200)
Property,
plant and
equipment
$M
Financial
instruments
$M
Employee
entitlements
$M
Other
$M
Total
$M
(ii) Movement in deferred tax
Restated balance as at 1 July 2019 (1,211) 23 2 31 (1,155)
Charged/(credited) to the income statement 33 15 1 (1) 48
Charged/(credited) to other comprehensive
income (83) (11)– 3 (91)
Other movements––– (2) (2)
Restated balance as at 30 June 2020 (1,261) 27 3 31 (1,200)
Balance as at 1 July 2020 (1,261)27331 (1,200)
Charged/(credited) to the income statement268––34
Charged/(credited) to other
comprehensive income(263)62–4 (197)
Other movements–––––
Balance as at 30 June 2021 (1,498)97335 (1,363)
In FY20, 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 was reflected in the FY20 deferred tax balance.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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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 $24 million (2020: $22 million) are held to service and repair operating
plant.
NOTE 7. PROPERTY, PLANT & EQUIPMENT
Generation
assets at fair
value $M
Other assets
at cost $M
Right-of-use
assets $M
Capital work in
progress at cost
$MTotal $M
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 value 5,575 48 44 231 5,898
Balance at 30 June 2020
Cost or valuation 5,575 11556231 5,97 7
Accumulated depreciation– (67) (12)– (79)
Net book value 5,575 4844231 5,898
YEAR ENDED 30 JUNE 2021
Opening net book value 5,575 48 44 231 5,898
Additions––– 209 209
Transfers 50 3 – (53)–
Disposals (15)––– (15)
Net revaluation movement 938 ––– 938
Depreciation charge
for the year (186) (12) (4)– (202)
Closing net book value 6,362 39 40 387 6,828
Balance at 30 June 2021
Cost or valuation 6,362 116 56 3876,921
Accumulated depreciation– (77) (16) – (93)
Net book value6,36239403876,828
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 and
impairment 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 properties, office equipment and transmission equipment 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
5.01% (2020: 5.36%). The group’s lease interest and lease liability is disclosed in note 2 and note 12, respectively.
As at 30 June 2021, the capital work in progress balance continues to be elevated due to the Group’s ongoing construction of its
Turitea windfarm. The north section of the windfarm commenced operations in July FY22.
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 2021. This resulted in an increase to the carrying
value of the Group’s hydro and geothermal generation assets of $550 million and $388 million respectively in the current year. This
is in addition to the $296 million revaluation increase recognised across the Group’s hydro and geothermal generation assets in
2020. As a consequence of the revaluation, accumulated depreciation on these hydro and geothermal assets has been reset to nil.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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NOTE 7. PROPERTY, PLANT & EQUIPMENT (CONTINUED)
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 $74/MWh and
$180/MWh (2020: $75/MWh and $93/MWh), average operational expenditure of $171 million p.a. (2020: $161 million p.a.), net
average production volumes of 6,703 GWh p.a. (2020: 6,708 GWh p.a.) and a post-tax discount rate of between 6.2% and 6.6%
(2020: 6.5% to 6.9%). The valuation also assumes the on-going operation of New Zealand Aluminium Smelters Limited at Tiwai
Point, no material changes to the wholesale market regulatory regime, hydro and geothermal fuel supply being sustained over
the modelled horizon and no material changes to generation consent conditions. The discounted cash flow valuation approach
assumes 100% control and consequently a control premium should be applied if using an equity valuation technique to derive
comparative asset values.
The following table outlines the valuation impact of changes to assumptions, keeping all other valuation inputs constant, that the
valuation is most sensitive to.
SensitivityValuation impact
202 1 $M2020 $M
Future wholesale electricity price path+/- 10%$1,044 / ($1,044)$891 / ($898)
Discount rate+/- 0.5%($711) / $892($604) / $747
Operational expenditure+/- 10%($289) / $289($267) / $267
The carrying amount of revalued generation assets, had they been recognised at cost, would have been $1,911 million
(2020: $1,959 million).
Depreciation
Depreciation is calculated on a straight-line basis on all property, plant and equipment other than freehold land, capital work
in progress and exploration and revaluation 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:
202 12020
Office fixture and fittings, including fit-out2-50%2-50%
Generation assets:
• Hydro and thermal generation1-33%1-33%
• Other generation1-33%2-33%
Computer hardware and tangible software5-50%5-50%
Other plant and equipment2-50%2-50%
Vehicles5-33%5-33%
Right of use assets2-33%4-33%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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NOTE 8. INTANGIBLE ASSETS
Intangible
software
$M
Rights
$M
Emissions
units
$M
Work in
progress
$M
Total
$M
RESTATED YEAR ENDED 30 JUNE 2020
Opening net book value 26 20 23 5 74
Additions–– 7 17 24
Transfers 18 –– (18)–
Disposals–– (7)– (7)
Amortisation for the year (19) (2)–– (21)
Closing net book amount 25 18 23 4 70
RESTATED BALANCE AT 30 JUNE 2020
Cost 121 34 23 4 182
Accumulated amortisation (96) (16)–– (112)
Net book value 25 18 23 470
YEAR ENDED 30 JUNE 2021
Opening net book value 25 18 23 4 70
Additions–– 37 19 56
Transfers 16 –– (16)–
Disposals–––––
Surrendered Units–––––
Amortisation for the year (17) (2)–– (19)
Closing net book amount 24 16 60 7 107
BALANCE AT 30 JUNE 2021
Cost 135 34 607236
Accumulated amortisation (111) (18) – – (129)
Net book value2416607107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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 2 - 15 years (2020: between 2 to 15 years). If costs incurred to configure or
customise SaaS arrangements result in the creation of a resource which is identifiable, and where the Group has the power to
obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits,
such costs are recognised as a separate intangible software asset and amortised over the useful life of the software on a straight-
line basis. If costs do not meet the recognition criteria, they are expensed when incurred. 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 (2020: 3 to 60 years). Testing for impairment will only arise
when there is an indication that the asset may be impaired.
Emissions Units & 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). At 30 June 2021 the Group held a total
of 2,048,161 units. Emissions units, whether allocated or purchased, are recorded as intangible assets. Emissions units are not
revalued subsequent to initial recognition.
Emissions units that are surrendered to creditors in compensation for their emissions obligations are recognised as an expense in
the income statement and a reduction to intangible assets in the balance sheet, based on the weighted average cost of the units
surrendered.
Emissions obligations are recognised as a current liability as the obligation is incurred. Up to the level of units held, the liability is
recorded at the carrying value of those units intended to settle the liability. Forward contracts for the purchase of emissions units
are recognised when the contracts are settled.
During the period, the Group elected to take up a fixed price option in lieu of a credit surrender to satisfy it’s obligation under
the scheme.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
At the end of the year the Group had outstanding advances to its Rotokawa joint venture partner in the amount of $5 million
(2020: $6 million) and its associate TPC Holdings Limited of $4 million (2020: $4 million). For terms and conditions of these
related party receivables refer to note 16.
Mercury accounts for its interest in EnergySource LLC as a joint venture and applies the equity method under NZ IAS 28 –
Investments in Associates and Joint Ventures. Previously, Mercury’s share of losses in Energy Source LLC exceeded its interest in
the joint venture and consequently the Group did not recognise its share of losses relating to EnergySource LLC. During the year
EnergySource LLC reported positive earnings that necessitated the Group in recognising all of its share of losses (US$3 million)
against its share of EnergySource LLC’s earnings.
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 2020, which has been recognised as a distribution received from the associate.
On 15 March 2021, Mercury announced that together with Powering Australian Renewables (PowAR), it had entered into a Scheme
Implementation Agreement (SIA) whereby Mercury would dispose of its’s 19.9% share in Tilt and directly acquire all of Tilt’s New
Zealand operations. In April 2021 the offer under the SIA was updated and subsequently went through the necessary shareholder,
regulatory and court approvals before the transaction finalised in August 2021. Accordingly, Mercury’s ownership interest in Tilt
has now been reclassified to “Held for Sale” as required under NZ IFRS 5. Prior to reclassification, Mercury recognised $14 million
as its share in Tilt’s earnings for the period to 30 June 2021. Further details as to the expected impact of this transaction on the
group is provided in note 19.
NOTE 9. INVESTMENTS IN AND ADVANCES TO ASSOCIATES AND JOINT ARRANGEMENTS
(JOINT VENTURES AND JOINT OPERATIONS)
The Group financial statements include the following:
Interest held
Name of entityPrincipal activityType202 12020Country
TPC Holdings LimitedInvestment holdingAssociate25.00%25.00%New Zealand
Tilt Renewables Limited
Electricity generation
and developmentAssociate19.90%19.96%New Zealand
NOW New Zealand LimitedBroadband ISPAssociate48.46%–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 venture–75.00%United States
AssociatesJoint ventures
202 1 $M2020 $M202 1 $M2020 $M
Balance at the beginning of the year 328 76 – –
Additions during the year 11 230 6 –
Share of earnings 16 18 6 –
Share of movement in other comprehensive income and reserves 28 8 – –
Distributions received during the year (58) (4) (3) –
Reclassification to held for sale (248)–– –
Balance at the end of the year 77 328 9 –
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NOTE 10. RECEIVABLES, PAYABLES & ACCRUALS
202 1 $M2020 $M
RECEIVABLES
Trade receivables and accruals312241
Allowance for credit loss (1) (2)
Net trade receivables and accruals311239
Prepayments1011
321250
Trade receivables are measured at amortised cost using the effective interest method. Customers are typically invoiced on a
monthly basis. Large commercial and industrial customers are billed on a calendar month basis, while for most mass market
customers billing occurs on a rolling cycle each month and over the year. Revenue accruals for unread gas and electricity meters
at balance date involves an estimate of consumption for each unread meter, based on 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 large commercial and industrial customers and
mass market customers are on 20 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 $1 million (2020: $3 million) was
recognised during the year. Receivables of $2 million (2020: $2 million) which were deemed uncollectable were written off.
Expected Credit Loss
The Company applies the NZ IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss
allowance for all trade receivables.
To measure the expected credit losses, trade receivables have been grouped based on days past due. The expected loss rates are
based on historical credit losses in prior periods, adjusted for any significant known amounts that are not receivable.
The following table details the loss allowance at 30 June 2021:
1-30 days
past due
31-60 days
past due
More than
60 days
past dueTotal
Expected loss rate%4%27%59%
Gross carrying amount – trade receivables$M91111
Expected credit loss$M––11
202 1 $M2020 $M
Movements in the allowance for credit loss were as follows:
Balance at the beginning of the year21
Charge for the year13
Amounts written off(2)(2)
Balance at the end of the year12
202 1 $M2020 $M
Payables and accruals
Trade payables and accruals293249
Employee entitlements77
Sundry creditors2136
321292
Trade payables are non-interest bearing and are normally settled on 30 to 60 day terms.
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. Credits given to customers are recognised directly against revenue when incurred.
CONTRACT ASSETS202 1 $M2020 $M
Opening Balance23
Additions21
Amortised to operating expenses(2)(2)
Closing balance22
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 two years of the reporting period end.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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NOTE 11. PROVISIONS
202 1 $M2020 $M
Balance at the beginning of the year7459
Provisions made during the year 13 14
Provisions used during the year (4) (1)
Discounting movement3 2
Balance at the end of the year86 74
Current – –
Non-current8674
8674
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 202 1 $M2020 $M
Bank facilitiesNZDVariousFloating– 75
Commercial paper programmeNZD< 3 monthsFloating160 200
USPP – US$125mUSDDec-20204.25%– 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
Green retail bondsNZDSep-20262.16%201 –
Green retail bondsNZDSep-20271.56%201 –
Green wholesale bondsNZDOct-20301.92%146 –
Capital bondsNZDJul-20493.60%302302
Lease liabilities64 68
Deferred financing costs(6) (4)
Fair value adjustments(1)63
Carrying value of loans1,4911,291
Current471 446
Non-current1,020845
1,4911,291
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost, with the exception of the USPP and Green bonds, a portion of which is measured at fair value through profit or loss.
Mercury established a Green Financing Framework in August 2020. On 14 September 2020 Mercury issued $200 million of
new unsecured, unsubordinated fixed rate green bonds (MCY030). The MCY030 bonds are due to mature in September 2027
and have a fixed interest rate of 1.56%. On 9 October 2020 Mercury issued $100 million of unsecured, unsubordinated fixed
rate green bonds (green wholesale bonds). On 21 April 2021 Mercury issued a further $50 million of green wholesale bonds. The
green wholesale bonds are due to mature in October 2030 and have a fixed interest rate of 1.92%. On 29 March 2021 Mercury
issued $200 million of new unsecured, unsubordinated fixed rate green bonds (MCY040). The MCY040 bonds are due to mature
in September 2026 and have a fixed interest rate of 2.16%. Mercury has tracked the $550 million of green bond proceeds in
accordance with the Green Financing Framework. Mercury’s USD 125 million tranche of USPP Notes matured in December 2020,
with net proceeds of the MCY030 bond issue applied to refinance this USPP maturity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
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NOTE 12. BORROWINGS (CONTINUED)
The Group has $500 million of committed and unsecured bank loan facilities as at 30 June 2021 (30 June 2020: $800 million).
$200 million of bridge facilities were terminated on issuance of the MCY030 bonds in September 2020. The company cancelled
another $100 million of facilities during the reporting period. Of the loan facilities of $500 million, $100 million matures in August
2022, $100 million matures in December 2022 (extended during the period from June 2021), $50 million matures in March 2024
and rolling bank facilities of $250 million currently matures in December 2022. In June 2021 Mercury entered into a Commitment
Letter for the provision of a bank facility to fund the recently announced acquisition of Trustpower’s retail business, resulting in
Mercury executing a $440 million bank facility agreement in July 2021.
The Company has a $200 million Commercial Paper programme which is fully backed by committed and undrawn bank facilities.
Notes issued under the programme are short-term money market instruments, unsecured and unsubordinated and targeted at
professional investors. The programme is rated A2 by S&P Global.
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 was 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 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 – Electricity Contracts
The Group enters into electricity contracts that establish a fixed price at which future specified quantities of electricity are
purchased and sold. The electricity contracts are periodically settled with any difference between the contract price and the
electricity spot price settled between the parties. At balance date, the principal value of electricity contracts, including both buy
and sell contracts, with remaining terms of up to 4 years (2020: 11 years), were $1,561 million (2020: $1,495 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 AU 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 foreign denominated expenditure programme. At balance date
the principal or contract amounts of foreign currency forward exchange contracts were $17 million (2020: $146 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 $1,865 million (2020: $1,740 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
202 1 $M2020 $M202 1 $M2020 $M
Group
Electricity forward price increased by 10%3(1)(56)(34)
Electricity forward price decreased by 10%(3)15633
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. All known foreign
exchange exposures are hedged in accordance with Mercury’s Treasury Policy. As such, Mercury expects no material impact on
post tax profit from movement in foreign exchange rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
Impact on equity
202 1 $M2020 $M
New Zealand Dollar – Euro
Currency strengthens by 10% (1)(3)
Currency weakens by 10% 14
New Zealand Dollar – USD
Currency strengthens by 10%–(2)
Currency weakens by 10%–3
New Zealand Dollar – Yuan
Currency strengthens by 10%–(3)
Currency weakens by 10%–4
New Zealand Dollar – AUD
Currency strengthens by 10%1717
Currency weakens by 10%(20)(20)
Interest Rate Risk
It is the Group's policy to apply hedge accounting to reduce profit or loss volatility. For floating rate borrowings, a portion is fixed
using interest rate swaps and hedge accounted with changes in fair value of swaps going through other comprehensive income.
For fixed rate borrowings, the Group enters into interest rate swaps to move a portion equivalent to the swap rate to floating.
Wholesale and capital bonds are measured at amortised cost, with fair value movement of interest rate swaps recognised in the
income statement. Swap rate component of the Green bonds and USPP is measured at fair value, and hedge accounted with
changes in fair value of both debt and interest rate swaps recognised in the income statement.
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
202 1 $M2020 $M202 1 $M2020 $M
Interest rates higher by 100 bps (33)(13)1420
Interest rates lower by 100 bps3513 (15)(22)
(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 S&P Global’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 would 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 unplanned 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
30 JUNE 202 1
Liquid financial assets
Cash and cash equivalents 163 – – – 163
Receivables 318 – 3 – 321
481 – 3 – 484
Financial liabilities
Payables and accruals (318) – (3) – (321)
Loans (475) (14) (223) (1,251) (1,963)
Lease liabilities (4) (4) (33) (41) (82)
(797) (18) (259) (1,292) (2,366)
Net outflow (316) (18) (256) (1,292) (1,882)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
Less than 6
months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
Total
$M
30 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 outflow (413) (15) (464) (690) (1,582)
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
30 JUNE 202 1
Derivative liabilities – net settled (172) (90) (232) (16) (510)
Derivative liabilities – gross settled
• Inflows 18 –––18
• Outflows (17)––– (17)
Net maturity (171) (90) (232) (16) (509)
Less than
6 months
$M
6 to 12
months
$M
1 to 5 years
$M
Later than
5 years
$M
Total
$M
30 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)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
(D) FAIR VALUE ESTIMATION
Fair Values
The carrying amount of financial assets and liabilities recorded in the financial statements approximates their fair values at 30
June 2021 except for: (i) the Fixed Rate Wholesale Bond, the Fixed Rate Wholesale Green bond, the Fixed Rate Retail Green bonds,
the Floating Rate Bonds and the US Private Placement, the fair values for which have been calculated at $27 million (2020: $28
million), $137 million (2020: $nil), $393 million (2020: $nil), $300 million (2020: $298 million) and $118 million (2020: $326
million) respectively; and (ii) the Capital Bonds, the fair value for which has been calculated at $307 million (2020: $314 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 2021, all of the Group’s financial instruments carried at fair value were categorised as level 2, except for some
electricity price derivatives. Electricity price derivative assets of $49 million were categorised as level 1 (2020: $54 million) and
$111 million were categorised as level 3 (2020: $70 million). Electricity price derivative liabilities of $54 million were categorised
as level 1 (2020: $12 million) and $370 million were categorised as level 3 (2020: $99 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 $89/MWh and a maximum price of $172/MWh
(2020: minimum price of $70/MWh and a maximum price of $115/MWh) over the period in question (in real terms) and is
determined by a demand supply based fundamental model which takes account current hydrological conditions, future inflows,
an assessment of thermal fuel costs, anticipated demand and supply conditions and future committed generation capacity.
Where the fair value of a derivative is calculated as the present value of the estimated future cash flows of the instrument, there
are two key inputs being used: the forward price curve and the discount rate. Where the derivative is an option, then the volatility
of the forward price is another key input. The selection of inputs requires significant judgement, and therefore there is a range of
reasonably possible assumptions in respect of these inputs that could be used in estimating the fair values of these derivatives.
Maximum use is made of observable market data when selecting inputs and developing assumptions for the valuation technique.
Level 3 Sensitivity Analysis
The following summarises the potential impact of increases or decreases in price risk exposures of the Group on post tax profit.
Sensitivity analysis is based on an assessment of the reasonably possible movements in forward price.
Impact on post tax profit
202 1 $M2020 $M
Group
Electricity forward price increased by 10%3(6)
Electricity forward price decreased by 10%(3)6
Fair value through other
comprehensive income
Fair value through profit
or loss
202 1 $M2020 $M202 1 $M2020 $M
Reconciliation of level 3 fair value movements
Opening balance (55) (84)2625
New contracts(52)2(4)(8)
Matured contracts21589
Gains and losses
• Through the income statement––(5)–
• Through other comprehensive income(179)12––
Closing balance (284) (55)2526
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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NOTE 13. FINANCIAL RISK MANAGEMENT (CONTINUED)
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.
202 1 $M2020 $M
Electricity price derivatives
Opening deferred inception losses (7) (12)
Deferred inception gains on new hedges2210
Deferred inception gains/(losses) realised during the year12(5)
Closing inception gains/(losses)27 (7)
(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:
202 1 $M
Restated
2020 $M
Borrowings at carrying value1,491 1,291
Fair value adjustments1 (63)
Less cash and cash equivalents(163)(79)
Net debt1,329 1,149
Total equity4,1863,733
Total capital5,5154,882
Gearing ratio24.1%23.5%
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 2021, the Group had a debt to EBITDAF ratio of 2.5 times (2020: 2.0 times).
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:
202 1 $M2020 $M
CURRENT ASSETS
Interest rate derivative 15 23
Electricity price derivative 10367
Foreign exchange derivative-–
Cross currency interest rate derivative 2 36
120126
CURRENT LIABILITIES
Interest rate derivative 24 26
Electricity price derivative24375
Foreign exchange derivative– 15
Cross currency interest rate derivative––
267116
NON-CURRENT ASSETS
Interest rate derivative 2 11
Electricity price derivative 5857
Cross currency interest rate derivative 14 28
7496
NON-CURRENT LIABILITIES
Interest rate derivative81101
Electricity price derivative18237
Cross currency interest rate derivative––
263138
The majority of derivatives (foreign exchange, interest rate, cross currency and electricity) are hedge accounted under NZ IFRS 9
as either cash flow or fair value hedges. Exceptions are Financial Transmission Rights, ASX futures used for trading and non-
standard CFDs.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Electricity Contracts Not Designated as Hedges For Accounting Purposes
The Group has an electricity hedge contract with the Tuaropaki Power Company. The contract settles against a moving hedge
index rather than wholesale electricity prices.
Basis swaps: The Group has entered into a number of contracts to hedge wholesale electricity price risk between North and South
Island generically called basis swaps. The most significant is a contract with Meridian Energy which has a remaining life of 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
202 1 $M2020 $M202 1 $M2020 $M
Cross currency interest rate derivatives (47)18 – –
USPP Borrowings – fair value change47(19) – –
–(1) – –
Interest rate derivatives (including Green bond fair value change) (21)13 41 (16)
Cross currency interest rate derivatives – margin(1)(1)–2
Electricity price derivatives (17)10 (265)31
Foreign exchange rate derivatives–5 16 (17)
Ineffectiveness of cash flow hedges recognised in the income statement (6)–––
Total change in fair value of derivative financial instruments (45)26 (208)–
In addition to the fair value gain on derivative financial instruments, the Group also recognised a $2 million unwinding of fair value
movement of a receivable from a third party.
MOVEMENT IN CASH FLOW HEDGE RESERVE
202 1 $M2020 $M
Opening balance (122) (118)
Effective portion of cash flow hedges recognised in the reserve (208)–
Amortisation of fair values
1
– 1
Amount transferred to balance sheet (15)6
Equity accounted share of associates’ movement in other comprehensive income 15 –
Tax effect of movements 62 (11)
Closing balance (268) (122)
1. Amounts reclassified to the income statement recognised in amortisation.
NOTE 15. RECONCILIATION OF PROFIT FOR THE YEAR
TO NET CASH FLOWS FROM OPERATING ACTIVITIES
202 1 $M
Restated
2020 $M
Profit for the year141209
Items classified as investing or financing activities
• Net interest accrual(8)(4)
• Prudential payment recognised within total revenue6-
• Proceeds from the sale of Hudson Ranch (41)–
Adjustments for:
Depreciation and amortisation 221 207
Carbon costs–7
Net loss on sale of property, plant and equipment 15 1
Change in the fair value of financial instruments 47 (22)
Movement in effect of discounting on long-term provisions 3 2
Share of earnings of associate and joint venture companies (22)(18)
Net cash provided by operating activities before change in assets and liabilities362382
Change in assets and liabilities during the year:
• Increase in trade receivables and prepayments (32) (15)
• (Increase)/decrease in consumable inventories(2) 1
• Increase in trade payables and accruals7618
• (Decrease)/increase in provision for tax(32)14
• Decrease in deferred tax(34)(49)
Net cash inflow from operating activities338351
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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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
202 1 $M2020 $M
Associates
• Management fees and service agreements received1516
• Energy contract settlements received2612
• Service agreements paid 1–
Joint operations
• Management fees and service agreements received and paid22 16
• Energy contract settlements received366
Energy contracts, management and other services are made on normal commercial terms.
An advance to TPC Holdings Limited of $4 million (2020: $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 of $5 million (2020: $6 million) 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.
Joint Ventures
During the period, a previously impaired loan of $2 million to EnergySource LLC was reinstated and repaid.
Transaction value
202 1
$000
2020
$000
Key management personnel compensation (paid and payable) comprised:
• Directors’ fees991 948
• Benefits for the Chief Executive and Senior Management:
Salary and other short-term benefits 6,233 7,086
Termination benefits 353 324
Share-based payments712377
8,289 8,735
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 subsidiaries and other third party entities as part
of their employment without receiving any additional remuneration, with exception to the Group’s Chief Executive who was on the
Board of Directors of Tilt Renewables Limited and directly receives remuneration for his directorship services. Again, a number of
these entities transacted with the Group, in all circumstances on normal commercial terms in the reporting period.
The Group purchases directors and officers insurance for the benefit of key management personnel in relation to the services they
provide to the Group. .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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NOTE 17. COMMITMENTS & CONTINGENCIES
Capital
Commitments202 1 $M2020 $M
Within one year 106264
One to five years 134110
Later than five years 717
247391
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 Karāpiro.
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 seven 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 Pouakani Claims Trust No 2 and a group of kaumatua have 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 Waipapa dams. The claim has been amended to include interests in the water flowing over the riverbed. Mercury holds the
fee simple or beneficial title to those parts of Waikato riverbed beneath the Whakamaru, Maraetai I and II and Waipapa dams
and has received advice that the applicants are unlikely to succeed with a claim to customary title in that land. Mercury is seeking
orders striking out the claim in relation to the parts of the riverbed to which Mercury holds fee simple or beneficial title, and water.
The applicants have also filed a related claim in the Waitangi Tribunal pursuant to the Treaty of Waitangi Act 1975, but have not
yet taken any further steps in relation to that claim.
The Group holds land at Maraetai, Waikato that is subject to a remedies hearing brought against the Government in the Waitangi
Tribunal. The remedies hearing relates to an application seeking binding recommendations for the resumption of land at
Pouakani, including the Group’s land at Maraetai. A Crown Treaty settlement has been offered to Ngāti Kahungunu ki Wairarapa
Tāmaki nui-ā-Rua Settlement Trust, which the Tribunal had indicated in a preliminary finding may be an appropriate recipient
for the land (although that preliminary finding was set aside following a judicial review decision in the High Court, which remains
subject to further appeal). It is not yet known whether that settlement offer will result in the Trust abandoning its claim for
resumption. The Group has received advice that a Tribunal decision on the matter, should the matter be remitted to the Tribunal
for reconsideration, 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 Tribunal has recently indicated its intention to progress to stage three of that inquiry, albeit the scope of stage three is still
being considered in light of the Government’s draft Natural and Built Environments Bill. 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.
NOTE 18. SHARE-BASED PAYMENTS
Long-term Incentive Plan
The Group operates an equity-settled share based long-term incentive (LTI) plan for senior executives. The plan is designed to
enhance the alignment between shareholders and those executives most able to influence the performance of the Group.
Under the plan that vested in 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. For those
shares that vested, executives are entitled to a cash amount which, after deduction for tax, was 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 previous 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 2023.
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 $711,827 in relation to equity-settled share based payment transactions (2020: $376,849).
Movements in the number of share options are as follows:
202 12020
Balance at the beginning of the year 631,434 823,237
Options granted 382,997 320,897
Options expired (34,579) (338,075)
Options exercised (270,249) (174,625)
Balance at the end of the year709,603 631,434
101,876 options were exercisable at the end of the year (2020: 236,911) with the remaining options under the plan having a
weighted average life of 1.4 years (2020: 1.8 years).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
For the year ended 30 June 202 1
MERCURY ANNUAL REPORT 2021
ENERGY FREEDOM IN NUMBERS
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NOTE 19. SUBSEQUENT EVENTS & OTHER MATTERS
The Board of Directors has approved a fully imputed final dividend of 10.2 cents per share to be paid on 30 September 2021.
Transactions Relating to Tilt
On 15 March 2021, the Group announced, together with PowAR, that it had entered into a SIA with Tilt where PowAR will acquire
all the shares of Tilt (including shares owned by the Group) for $7.80 per share, and the Group will acquire all of Tilt's New Zealand
operations, including development options, for an enterprise valuation of approximately $707 million. At the same time, the Group
and PowAR also entered into Implementation and Separation Agreement Term Sheet ("ISA").
On 16 April 2021, the SIA was amended to increase the offer. Under the terms of the transaction, PowAR acquired all the shares of
Tilt (including Mercury’s shares) for $8.10 per share for a total consideration of $3,070 million, and the Group’s enterprise valuation
of the New Zealand’s operations increased from $707 million to $797 million. The acquisition of the New Zealand operations by
the Group is to be funded from the sale of the Group’s 19.9% Tilt shareholding, worth $608 million ($603 million post dividend), an
additional cash payment of $26 million, as well as taking on net borrowings of Tilt which amounted to $163 million. In addition to
the increased offer price, the SIA was amended to remove provisions allowing Tilt to evaluate any other “competing proposal”.
On 23 July 2021, the High Court granted the final approval for the SIA between Tilt, PowAR and the Group under which PowAR
acquired Tilt’s Australian business and the Group acquired Tilt’s New Zealand business. On 3 August 2021, the scheme and ISA
were implemented and the Group disposed of its Tilt shareholding and acquired Tilt’s Zealand business. This transaction retains
Tilt’s New Zealand assets under New Zealand ownership and positions the Group to make an even more significant contribution to
New Zealand’s de-carbonisation goals.
Disposal of Investment
As of 16 April 2021, when the sale of the Group’s 19.9% investment in Tilt became highly probable, the Group re-classified
its investment in Tilt as held for sale. The Group ceased its equity accounting upon the re-classification and measured the
investment at the lower of its carrying amount and fair value less costs to sell. In the absence of significant transactions and
events between 31 March 2021 (Tilt’s financial year-end) and 16 April 2021, the Group applied its equity accounting using Tilt’s
31 March 2021 financial statements (note 9).
On 3 August 2021, the Group realised a gain on disposal of its 19.9% investment in Tilt of $376 million being sale receipt
of $603 million (after $5 million dividend) from 75 million shares at $8.035 per share less carrying value of investment of
$248 million, after adding back reclassified accumulated other comprehensive income attributable to Tilt.
Acquisition of Tilt’s New Zealand Business
On 3 August 2021, the Group acquired 100% of the New Zealand operations of Tilt, including the New Zealand subsidiaries
Tararua Wind Power Limited, Waverly Wind Farm (NZ) Holding Limited, Waverly Wind Farm Limited, Tilt Renewables Insurance
Ltd and all contracts and rights held in Tilt that relate to the New Zealand business. This includes Tilt’s Tararua, Mahinerangi and
Waipipi wind farms with average annual generation in excess of 1,000GWh, power purchase agreements, asset management
agreements, wind development options in New Zealand and debt relating to the Waipipi wind farm.
In accordance with the requirements of NZ IFRS 3
Business Combinations, the Group had, using the information made available,
conducted a purchase price allocation process to the assets and liabilities acquired from Tilt. The deemed fair value of the assets
and liabilities acquired are as below:
$M
Acquisition consideration - by way of cash 634
Deemed fair value as at
3 August 2021 $M
Generation assets1,004
Derivative financial instruments(42)
Intangible assets16
Right-of-use assets4
Lease liabilities (4)
Deferred tax liabilities (181)
Net borrowings (net of cash and cash equivalents and borrowings)(163)
Net identifiable assets acquired634
The Group does not expect to recognise any goodwill or bargain purchase from the transaction above. However, at the time the
financial statements were authorised for issue, the Group had not yet completed the accounting for the acquisition. In particular,
the fair values of the assets and liabilities disclosed above have only been determined provisionally as independent valuations have
not been finalised.
The Group expects to incur $10 million of acquisition-related costs. They will be included in Gain/(loss) on disposal in the
Consolidated Income Statement when incurred.
Conditional Acquisition of Trustpower Limited's Retail Business (Trustpower)
On 21 June 2021, the Group announced that it had entered into binding agreements with Trustpower to acquire Trustpower’s
retail business for $441 million. The transaction is conditional on several matters, including Commerce Commission clearance,
completion of the proposed restructure of Tauranga Energy Consumer Trust (TECT) and Trustpower shareholder approval.
The Group had on 19 July 2021 executed a $440 million term loan with MUFG Bank, Ltd to fund the acquisition. Drawdown of the
term loan facility is contingent on completion of the acquisition.
Close-out of Electricity Swap
On 10 August 2021, the Group completed a deal with a customer to close out their electricity swap that was out of the money
for the Group. The deal also involved the Group novating electricity swaps held by the customer with other third parties and an
immaterial purchase of land. The Group paid a total consideration of $33 million. The net impact of the deal results in a net
reduction of 43MW of electricity swaps by the Group and reduces the Group's net derivative liability by $70 million.
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 202 1
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TCFD
REP ORT.
CONTENTS.
65 INTRODUCTION
66 GOVERNANCE
67 STRATEGY
73 RISK MANAGEMENT
74 METRICS & TARGETS
PREPARED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE TASK FORCE ON
CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD).
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INTRODUCTION.
Over the past four years at Mercury, we have
deepened our understanding of how best to
identify, assess and manage climate-related
risks and opportunities. During this period, we
have improved our governance and disclosure
of those risks and opportunities.
Material climate-related risks and
opportunities have been the subject of regular
discussion by our Executive Management
Team (EMT) and Board since 2018.
A Climate Change Management Plan
(CCMP) was established in FY20. This sets
out a three-year action plan that includes
considering the suitability of an emissions
reduction target and completing scenario
analysis. Findings from the scenario analysis
completed in FY21 have informed our strategy
and improved the understanding of climate-
related risks and opportunities.
We continue to widen and improve our
climate-related disclosures, including by
updating corporate governance statements,
evolving our annual report content, providing
annual emissions inventory reports and by
an annual submission to Carbon Disclosure
Project (CDP - the global platform for
voluntary climate change disclosures).
This year we have continued to extend our
emissions inventory report. This improves the
completeness and transparency of our full
carbon footprint, with a particular focus on
supply chain emissions.
TCFD ELEMENTFY21FY22FY23FY24
Governance
Strategy
Risk
Management
Performance
indicators and
targets
Aligned
with TCFD
requirements
In progress
We have prepared the information relating
to the financial impacts of climate change
in this section of the report with due care
and attention. This information is based on
current expectations and assumptions and is
only an estimate. The risks and opportunities
may not eventuate. If they do, the impact
may differ materially from that described. No
representation is made as to the accuracy,
completeness or reliability of this information.
This information is not earnings guidance.
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TCFD recommendation: Disclose the
organisation’s governance around
climate-related risks and opportunities.
a) Describe the Board’s oversight of climate-
related risks and opportunities.
At Mercury, our Board has responsibility for
the strategic direction and operation of the
company. 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. It is
made up of five independent directors and
meets at least four times per year.
Our risk management framework meets
New Zealand standard AS/NZS ISO 31000
Risk Management – Principles and guidelines.
In FY20, our Board updated its skills matrix
to specifically include climate change. We
reviewed our risk management framework,
and the importance of climate-related risks
was amplified in our consolidated risk register.
In FY21, the Board held an externally
facilitated deep dive into regulatory, economic
and legal aspects of climate-related risks and
opportunities. In May 2021, management
presented its first climate change scenario
analysis report and the outcome of its review
of climate-related risks and opportunities to
the RAAC.
b) Describe management’s role in
assessing and managing climate-related
risks and opportunities.
One of the responsibilities of the Chief
Executive and the Executive Management
Team is to develop, and recommend to
the Board, strategies to identify, assess
and manage climate-related risks and
opportunities and to foster improved
reporting and disclosure of these risks
and opportunities.
In FY21, the EMT delivered:
• the approach to, and findings from, the
climate change scenario analysis, and
reported to the RAAC
• the annual review of climate-related risks
and opportunities
• endorsement of Mercury setting an
emissions reduction target, which will be
established in FY22
Our management operates a Risk
Management Committee whose mandate is
(1) to promote risk awareness and appropriate
risk management to all Mercury people; and
(2) to monitor and review risk activities as
required. The day-to-day management of
climate-related risks and opportunities occurs
across Sustainability, Regulatory Affairs,
Environmental Resources, Finance, Legal,
Communications, Risk Assurance, Generation,
Portfolio and Customer. During FY21, two
cross-functional teams were established to:
• improve the robustness of management
systems around carbon foot-printing and
associated emissions reporting
• undertake a detailed scenario analysis to
inform future climate change strategy
GOVERNANCE.
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STRATEGY.
TCFD recommendation: Disclose the actual and
potential impacts of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning where such
information is material.
a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long-term.
b) Describe the impact of climate-related
risks and opportunities on the organisation’s
businesses, strategy, and financial planning.
To help improve our understanding of climate-
related risks and opportunities in the short,
medium and long-term and test the resilience of
our strategy, we undertake scenario analysis. Our
first scenario analysis was completed in FY21.
TIMEFRAMES
The focus of the scenario analysis was on mid-
century. This aligns with New Zealand’s regulatory
aspirations for NetZero by 2050.
Risk and opportunities will be discussed across short
1-5 years (out to 2025), medium 5-10 years (out to
2030) and long-term 10-20 years (out to 2050). This
aligns with Mercury’s business planning timeframes
and those required in ESG reporting and disclosures.
DATA SETS & MODELS USED
Modelling has been undertaken by the National
Institute of Water and Atmospheric Research (NIWA)
for many of the physical risks associated with a
changing climate. This modelling, and other specific
studies related to impacts on the electricity sector,
have informed this report.
The Government’s work on climate change
adaptation planning and associated risk screening
methodologies was also reviewed and adopted, where
appropriate, to increase understanding of the risks on
generation assets and connected infrastructure from
a changing climate.
The physical impacts of a changing climate on
geothermal generation have been modelled using
NIWA national climate change models, observed
temperature data and in-house modelling software.
We have used the Climate Change Commission's
‘Tailwind’ modelling of future electricity demand for
predicting EBITDAF opportunities from technology
uptake in the transportation and food processing
sectors.
We also have access to the Energy Efficiency and
Conservation Authority (EECA) TIMES Model for
predicting the combined impact of various risk
categories. We are considering using this to develop
specific future scenarios to add additional insight into
certain risks e.g. electricity market risks.
PHYSICAL
• physical risks based on a 2 ̊C future
• higher temperature scenarios, where modelling
was available, to provide useful comparisons
e.g. changes to precipitation and impact on
hydro catchment inflows
TRANSITIONAL
• policy and regulatory risks based on the
NetZero by 2050 future regulated by the
Zero Carbon Act
• policy and regulatory risks based on
New Zealand’s obligations under the
Paris Agreement (2030)
• policy and regulatory risks based on Mercury’s
participation in the New Zealand emissions
trading scheme (ETS)
METHODOLOGY
& ASSUMPTIONS.
TCFD recommends considering a scenario based
on an optimistic view of the future, where global
greenhouse gas emissions are reduced, and
temperature increases are limited to below 2 ̊C.
The development of this view of climate-related
risks and opportunities that may impact Mercury,
requires an analysis of both physical risks and
transitional impacts (the impacts of our transition
to a lower carbon economy as a result of strong
climate action policy and regulation), using the
following key scenarios:
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USING THE TCFD
CATEGORIES.
The TCFD framework suggests dividing climate
change risks into the categories of: Market and
Technology Shifts; Reputation; Policy and Legal;
and Physical Risks.
For this analysis, additional granularity has been
introduced in the market and technology shift
category. This is because we operate in both the
electricity and carbon markets. Technological
shifts also have the potential to provide both
risks and opportunities for Mercury. These risk
areas have been separated out to enable a
more focussed and valuable scenario analysis
to be produced.
POLICY & LEGAL
An evolving patchwork of requirements at
international, national and regional level.
• increased input/operating costs for high
carbon activities
• threats to securing licence to operate for
high carbon activities
• emerging concern and liabilities
R EPU TAT IO N
Growing expectations for responsible
conduct from stakeholders, including
investors, lenders and consumers.
• enhanced reputation and brand value
• loss of trust and confidence in
management
PHYSICAL RISKS
Chronic changes and more frequent and
acute extremes of climate.
• increased business interruption and
damage across operations and supply
chains with consequences for input
costs, revenues, asset values, and
insurance claims
MARKET & TECHNOLOGY SHIFTS
Policies and investments to deliver a low carbon
emissions economy.
• reduced market demand for higher-carbon
products/commodities
• increased demand for energy-efficient,
lower-carbon products and services
• new technologies that disrupt markets
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RISK RATING:TIMELINE:
Short
S
Medium
M
Long-term
L
High
H
Medium
M
THE TOP FIVE CLIMATE-RELATED
RISKS & OPPORTUNITIES
FOR MERCURY
A comprehensive list of risks and opportunities were identified through the
process. In the following table, these have been broken into the top five risks
and opportunities for Mercury. A second table (on the next pages) provides
details of the other risks also identified against the TCFD categories.
RISKSOPPORTUNITIES
M
REGULATION THAT DOES NOT
BALANCE THE ENERGY TRILEMMA
M
DECREASE IN ELECTRICITY
DEMAND
M
EXTREME
WEATHER EVENTS
M
INCREASE IN
ELECTRICITY DEMAND
M
INCREASED
INFLOWS
DESCRIPTION
Regulation could be introduced that does
not consider management of New Zealand’s
energy trilemma, negatively impacting some
elements of the trilemma (e.g. security or
affordability) for others (e.g. renewability).
Electricity demand could decrease
due to de-industrialisation in the short
to medium term as carbon prices
increase. In the longer term there may be
decreased winter demand due to warmer
temperatures.
Physical damage to generation assets
caused by flood or other extreme weather
events.
Increase in electricity demand from
significant electrification of transport
(EVs, trucking and air), industrial process
heat conversions to electricity, data
centres, export hydrogen production and
population growth.
Increases in average precipitation in
the catchment provide the potential for
increased generation.
LIKELIHOODLikelyPossibleUnlikelyLikelyPossible
IMPACTS
Increased costs and/or decreased revenue.
Reduced ongoing investment. Reduced
ability to attract investment.
Decreased revenues.Decreased revenue and/or increased SIB
capex.
Increased revenues.Increased revenues.
TIME PERIOD
SMLSMLMSMLLM
FINANCIAL
IMPLICATIONS
Not quantified.Not yet quantified.Not quantified.$6m (S), $35m (M), $98m (L), p.a.
EBITDAF uplift.
EBITDAF uplift of $8.5m p.a. (M) and
$9m (L).
METHODOLOGY
Current high levels of regulatory reform
present a very broad range of outcomes that
are too uncertain to meaningfully quantify at
this point in time.
We continue to work through the
quantification of potential EBITDAF
impacts of a decrease in demand in a
way that takes into account the dynamic
response.
We continue to increase the granularity
of information we have on extreme
weather events. This will help inform the
quantification of any investment required
to mitigate physical asset risk.
Using Climate Change Commission
‘Tailwinds’ scenario and our current 15%
generation market share.
A small (circa 2%) increase in average
precipitation within the catchment
(assuming 2020 prices).
MANAGEMENT
RESPONSE
Maintain engagement with government,
regulators and media commentators.
Maintain/lead the narrative on the positive
contributions of renewable electricity to New
Zealand. Continue to make submissions
on legislation, regulation and planning
instruments.
Continue to work closely with our large
commercial and industrial customers.
Active promotion of electrification of
transport. Continue to work with industry
to explore fossil fuel substitution to
electricity opportunities. Explore potential
business models for green hydrogen
production and data centres.
Continue to conduct scenario modelling
and review outcomes to inform operating
plans and any changes required to
resource consent conditions and high
flow management plans.
We are well-positioned to grow market
share of generation in New Zealand with
good prospects in wind and geothermal,
investment in Tilt Renewables and the
pipeline of wind generation development.
Continue to conduct scenario modelling
and review outcomes to inform operating
plans and any changes required to
resource consent conditions and dispatch
decisions.
RISKS &
OPPORTUNITIES.
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OTHER CLIMATE-RELATED
RISKS ALSO IDENTIFIED
AGAINST THE TCFD
CATEGORIES
SHORT-TERM 1-5 YEARS MID-TERM 5-10 YEARS LONG-TERM 10-20 YEARS
MARKETS (ELECTRICITY &
CARBON) & TECHNOLOGY
Physical and transitional climate-related
risks could have significant impacts on our
markets. Decarbonisation is likely to impact the
relationship between supply and demand – the
electrification of transport and the conversion
of industrial process heat from thermal fuel
sources to electricity will increase demand and
present financial risks and opportunities. There
are countervailing impacts on demand, including
possible reduction in demand from major
commercial and industrial users of electricity:
the closure of the New Zealand Aluminium
Smelter (NZAS) would significantly impact
demand. Technological disruption may create
several risks and opportunities.
The increasing development and contribution to the
electricity market of renewable generation has the
potential to reduce electricity prices in the spot market.
A further decrease could be experienced with the
closure of the NZAS. Rising international aluminium
and/or carbon prices could, however, improve the
economics and competitiveness of the aluminium
smelter making ongoing operations in New Zealand
attractive.
Price volatility may increase as thermal generation
reduction reduces market reserve capacity causing
higher wholesale prices. Increasing carbon costs could
lift thermal generation costs and wholesale prices,
particularly during dry hydro periods. The increasing
reliance on wind generation to firm generation may
increase price volatility, as a result of the inherent
variability of wind.
Our existing carbon forest credit surplus could deliver
ETS compliance at below market prices, potentially
reducing compliance costs by $4 million per annum.
Carbon capture and reinjection pilots could prove
successful and provide an opportunity to reduce ETS
compliance costs by circa $2 million per annum.
Increasing renewable generation could lead to
higher price/supply volatility and risk, increasing
the economic premium of dispatchable demand.
National demand could be significantly reduced by
the closure or exit of the NZAS, or the reduction in
output of major industrial electricity users.
Increasing carbon costs could lift the
competitiveness of renewable generation and
improve the economic viability of combined
intermittent generation and storage.
Technology that provides large-scale storage
is likely to become more economically viable,
providing solar/battery development opportunities.
The increase in distributed and embedded
generation, particularly rooftop and large-scale
solar, could reduce demand for other renewable
generation development.
If gas reticulation becomes unsustainable,
due to the loss of large thermal fuel users,
then electricity demand could increase.
Large-scale storage could become increasingly
viable providing further solar/battery
development opportunities.
3-6TWh of rooftop solar distributed generation
could provide both a risk (reduce demand) and
an opportunity (development).
R EPU TAT IO N
Reputational risks and opportunities arise
at an organisational and sectoral level.
Recognition that renewable electricity is the key to a
just transition to NetZero for New Zealand could
benefit the reputation of the electricity generation
sector and Mercury.
Our reputation could be enhanced through recognition
as a thought leader on renewable energy and the
electrification of transport as well as partnerships for
action on climate change in the Waikato catchment.
Our reputation could be further enhanced as low
carbon energy futures projects are developed
and delivered and outcomes from geothermal
emissions capture/use pilot projects prove positive.
Mercury’s reputation could be enhanced through
partnerships for action on climate change in the
Waikato catchment and electrification of industry
with key commercial and industrial customers.
Reliability of supply could be impacted by
additional network infrastructure, at the lines
level, increasing the risk of asset failure impacting
customer experience and our reputation.
There is a potential countervailing factor arising
from an increased environmental focus on
geothermal power station emissions, as higher
carbon-emitting activities are reduced or retired.
As emissions from thermal generation are
removed and replaced by renewables there could
be an increased focus on geothermal emissions.
Reliability of supply could continue to be
impacted by additional network infrastructure,
at the lines level, increasing the risk of asset
failure impacting customer experience and our
reputation.
RISKS &
OPPORTUNITIES.
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SHORT-TERM 1-5 YEARS MID-TERM 5-10 YEARS LONG-TERM 10-20 YEARS
POLICY & LEGAL
There are several risks and opportunities that
may arise either from policy responses or
from the absence of policy responses. Legal
risks also arise in the context of proceedings
against companies and directors arising from
climate-related activity or inactivity, or related
representative actions, including as a result of
social movements.
Resource Management Act reform could negatively
impact access to natural resources and/or renewable
energy development.
Government policy responses may not reflect the
Climate Change Commission’s advice in relation to
a focus on 60% renewable energy target leading
to investment uncertainty for energy generation
development and heavy industry in New Zealand.
Lack of clear policy direction could lead to uncertainty
in investment in generation development.
Class actions against organisations and directors of
organisations failing to act on climate change may
become more prevalent.
The combination of sustained high prices and criticism
of vertically integrated electricity generators and retailers
may increase the risk of separation of generation and
retail functions.
The Government's pursuit of a 100% renewable
electricity target could exacerbate dry year risk
as Lake Onslow intervenes in electricity market
operations resulting in impacts on the effective
operation of the wholesale market and a supply
surplus.
Security of supply risk could increase due to under
/over investment in renewables particularly if
coupled with premature retirement of thermal
generation capacity.
The electricity sector regulatory regime could
restrict our opportunity to ensure resilience in
supply networks and could negatively impact
customer experience.
Class actions against organisations and directors
of organisations failing to act on climate change
could increase.
Policy and regulation to achieve NetZero could
negatively impact the energy trilemma –
reliability, renewability, affordability.
Class actions against organisations and directors
of organisations failing to act on climate change
are very likely to increase.
PHYSICAL
Physical risks may take the form of acute,
generally shorter term events, such as fire or
flood, or longer term chronic impacts, for example
the less efficient operation of geothermal power
stations arising from sustained increases in
temperature. These may lead to financial risks
and opportunities as a result of the impact on our
assets, on how our business operates, or more
broadly as a result of the impacts on the markets
in which we operate. We continue to refine our
view on physical risks, in particular how they
might impact the wider electricity system.
Stressors such as storms, fire weather
and lightning pose a risk to:
• major hazard facilities
• generation assets
• connected network infrastructure
• carbon forest investments
• national and international supply chains
impacting generation repairs and maintenance
and development
Periods of drought could reduce catchment
inflows and reduce hydro generation capacity.
Stressors increase in frequency and intensity
likely increasing the risk to major hazard
facilities, generation assets and connected
network infrastructure.
Periods of extended drought could
reduce catchment inflows and reduce
hydro generation capacity.
Stressors pose a risk to national and international
supply chains and could impact generation and
development.
Increasing average temperatures and the incidence
of hot days may reduce geothermal plant output
and/or the reliability of air-cooled plant and
equipment increasing output variability.
Storms, fire weather and lightning could increase
in frequency and intensity increasing the risk to
major hazard facilities, generation assets and
connected network infrastructure.
Periods of extended drought could reduce
catchment inflows and reduce generation
capacity.
Stressors pose a risk to national and international
supply chains and could impact generation and
development.
Increasing average temperatures and the
incidence of hot days may reduce geothermal
plant output and/or the reliability of air-cooled
plant and equipment increasing output variability.
Prevailing westerly wind patterns could increase
in winter providing the potential for increased
wind generation which also better matches winter
electricity demand.
RISKS &
OPPORTUNITIES.
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c) Describe the resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios, including a 2°C
or lower scenario.
We test the resilience of our strategy through the lens of these risks and
opportunities. This leads to better planning for and management of these risks
and opportunities. In turn, our current and future climate change disclosures
become more meaningful.
TRANSITION TO A LOW CARBON ECONOMY
The Climate Change Commission highlighted that as Aotearoa has one of the
lowest emissions electricity sectors in the world, this electricity can be used to
reduce emissions through electrifying transport, process and space heating.
As a fundamental element of strategy, we consider the role we can play in
supporting the decarbonisation of New Zealand.
In addition to significant investments made in renewable generation
development (to help reduce emissions from the electricity sector itself
and other sectors), we also consider the role we can play in supporting
decarbonisation of other sectors.
DEMAND
Electricity demand is a fundamental element of our business model. Ensuring
ongoing resilience requires an approach to strategy that takes into account
an increasingly uncertain future. There are multiple outlooks for the industry,
with their divergence shown by way of two scenarios: (1) the transition to
decarbonisation is fraught, resulting in stagnant demand and high spot prices
and (2) rapid decarbonisation activities in New Zealand leads to a significant
electricity demand increase over time and renewable electricity remains
relatively cheap.
In relation to scenario 1 – New Zealand electricity demand has not increased
since 2008, there are continued examples of de-industrialisation, the adoption
of EVs has been slow mostly due to their price, and there is steadily improving
energy efficiency. New Zealand Aluminium Smelter (NZAS) may or may not
continue to operate beyond 2024.
In relation to scenario 2 – the Commission predicts strongly rising electricity
demand (1% compounding growth to 2035).
We consider resilience to our strategy by ensuring that we are positioned for a
range of different outcomes related to demand.
SECURITY OF SUPPLY
Maintaining security of electricity supply will continue to be an issue for New
Zealand as we increase our proportion of supply from renewable sources.
Thermal generation currently plays a significant role in responding to periods
of reduced renewable supply such as dry periods in the hydro catchments. This
is likely to continue through the transition, particularly through to 2030. During
this transition period, as the share of renewable generation increases, it is likely
that this will lead to higher levels of electricity spot price volatility.
There are several conversations occurring related to security of supply. The
Government’s New Zealand Battery Project is underway and set to advise on
potential solutions to the challenge of energy security in ‘dry years’ (when hydro
inflows are low for long periods of time). The Commission has noted that, while
finding a solution to this challenge could enable a 100% renewable electricity
sector, it could cost taxpayers billions of dollars. Other actions may have a larger
impact on emissions reductions for the same cost as a solution to the dry year
challenge.
We consider resilience to our strategy by considering implications of increasing
electricity spot price volatility and participating in ongoing conversations/
processes related to security of supply.
PHYSICAL ASSETS
Underpinning our strategy is a long-term approach to the management of our
physical assets. One element of this is that our management of dam safety
risks assumes a value for Probable Maximum Flood (PMF). This is a measure
of the possible volume and flow rate of the Waikato River in the event of an
extreme flood. Our PMF values are prudently conservative. We are mindful that
it is possible that in a changing climate PMF values may need to be increased
over time. Based on currently available data and analysis, our risk management
practices and mitigants are appropriate. We continue to seek out additional
information to ensure resilience of our strategy.
RESILIENCE OF
STRATEGY.
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TCFD recommendation: Disclose how
the organisation identifies, assesses, and
manages climate-related risks.
a) Describe the organisation’s processes for
identifying and assessing climate-related risks.
Risk management is an integral part of
Mercury’s business. We have an overarching
Risk Management Policy supported by a suite
of risk management policies appropriate for our
business. The purpose of the Risk Management
Policy is to embed a comprehensive capability
in risk management which provides a consistent
method for identification, assessment, controlling,
monitoring and reporting of existing and potential
risks to our business and to the achievement of its
plans.
Our risk management framework meets
New Zealand standard AS/NZS ISO 31000
Risk Management – Principles and guidelines.
Applying the common risk management
framework, our climate change risks and
opportunities are classified using a common
methodology (the risk matrix) and recorded in
the risk register systems. The Risk Management
Committee reviews climate-related risks every year
under this management framework.
b) Describe the organisation’s processes
for managing climate-related risks.
The day-to-day management of climate-
related risks and opportunities occurs across
Sustainability, Regulatory Affairs, Environmental
Resources, Finance, Legal, Communications, Risk
Assurance, Generation, Portfolio and Customer.
In relation to markets, our Portfolio and Finance
teams manage risks and opportunities presented
by:
• the electricity market – we continually model
scenarios of resource availability, electricity
market supply and demand and adjust our
approach accordingly
• the carbon market – we are involved in forest
carbon investments and have long-term
contracts in place
Regulatory risks and opportunities are managed
by our Government and Regulatory Affairs team
in conjunction with external communications.
Detailed submissions have been made recently
on the draft Climate Change Commission advice,
changes to the New Zealand Emissions Trading
Scheme, proposed regulation of climate-related
disclosures and Resource Management Act
reform. We interacted directly with the Climate
Change Commission and support its view that a
100% renewable electricity target would negatively
impact New Zealand’s energy trilemma.
In relation to technology, we continue to develop
our customer offering in relation to e.transport.
Physical risks and opportunities from climate
change fall into acute (already impacting
the business, e.g. extended periods of drought
and likely to increase in the medium term) and
chronic (not currently impacting the business
but likely to impact over the medium to long-
term). We have continued to monitor
proposed methodologies for climate change
risk assessment and adaptation planning, both
nationally and internationally.
We have models of storm events experienced
within the Waikato catchment and have worked
in partnership with Waikato and Bay of Plenty
Regional Councils in training exercises to educate
and inform council staff on the management of
storms and flood risks.
We continue to investigate scenario modelling for
climate change adaptation which has revealed
currently available regional level datasets are
potentially too high level to provide the robust
and detailed outputs required for long-term
investment decisions for hydro assets. Our various
submissions to the Government have highlighted
the need for a review of National Institute of Water
and Atmospheric Research (NIWA)'s funding
model so future scenario analysis by life-line
utilities and others are made from a common
base of data.
RISK MANAGEMENT.
MERCURY ANNUAL REPORT 2021
TCFD REPORT
MENU
74
TCFD recommendation: Disclose the metrics and targets used to
assess and manage relevant climate-related risks and opportunities
where such information is material.
a) Disclose the metrics used by the organisation to assess climate-related
risks and opportunities in line with its strategy and risk management process.
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse
gas (GHG) emissions, and the related risks.
c) Describe the targets used by the organisation to manage climate
-related risks and opportunities and performance against targets.
We produce an annual emission inventory report following international standards
and methodologies. As can be seen from the table and graphics that follow, our
emissions profile is dominated by Scope 1 emissions, namely fugitive emissions
from geothermal electricity generation, which account for 64% of the entire profile.
Thermal emissions from the operation of a gas-fired power station reduced to zero
in FY16 as the facility was mothballed.
METRICS & TARGETS.
OUR EMISSIONS HAVE REDUCED
BY 33% SINCE 2015.
OUR GENERATION EMISSIONS INTENSITY
IS CONSISTENT WITH A 1.5°C FUTURE.
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
CY20
NET CARBON POSITION FY15 TO CY20
From FY21, Mercury will report these metrics on a calendar year basis to align with our global
reporting obligations. CY20 covers the period 01 January 2020 to 31 December 2020 inclusive.
Prior disclosures which aligned with financial year timelines have not been restated.
0
100,000
200,000
300,000
400,000
500,000
600,000
T
o
nne
s
C
O
2
e
FY15FY16FY17FY18FY19FY20
CY20
Scope 1Scope 2Scope 3Scope 3 (methodology change)
CARBON FOOTPRINT FY15 TO CY20
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 – 56%
downstream from gas sales to
dual fuel customers.
* From CY20, we have amended our methodology for calculating Scope 3 emissions. The grey
area represents Scope 3 emissions such as SIB capex and general maintenance which were not
previously calculated. These emissions represent 15% of the CY20 total.
** NZ Grid Average as per MBIE data.
*** Science Based Target Initiative 2030 Sector Target for a 1.5°C future.
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
Emissions Intensity kg CO
2
e/MWh2030 1.5°C Target***NZ Grid Average**Generation GWh
0
20
40
60
80
100
120
140
160
Generation (GWh)
0
4,000
3,000
2,000
1,000
5,000
6,000
7,000
8,000
CY20
EMISSIONS INTENSITY OF GENERATION FY15 TO CY20
Given the predominance of fugitive Scope 1 emissions, emissions from other scopes are
considered immaterial except for downstream Scope 3 emissions from the sale of gas
to our domestic dual fuel customers and emissions from the purchase of capital goods
measured through stay-in-business (SIB) capex spend.
Our emissions intensity for a six-year period is shown in the graph below. We've overlaid
this with the New Zealand grid average intensity and the level consistent with a 1.5°
future (as established by the Science Based Target Initiative). The intensity calculation
uses Scope 1 emissions only, no adjustments have been made in relation to carbon
credits and trading conducted under the New Zealand Emissions Trading Scheme.
75
MERCURY ANNUAL REPORT 2021
THE TEAM BEHIND ENERGY FREEDOM
MENU
THE TEAM BEHIND
ENERGY FREEDOM.
A big team contributes to our Energy Freedom mission:
about 750 people, around 78,000 owners, our partners
and our customers. Here we introduce you to our Executive
Management Team, and present our corporate governance
statement including our Board of Directors. We also share
our remuneration policy and report, directors’ disclosures
and other disclosures, information for security holders,
sustainability index, a directory to help you contact us and
a glossary of industry and financial terms.
MERCURY ANNUAL REPORT 2021
THE TEAM BEHIND ENERGY FREEDOM
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76
YOUR
EXECUTIVE
MANAGEMENT
TEAM.
VINCE HAWKSWORTH //
CHIEF EXECUTIVE
LUCIE DRUMMOND //
GENERAL MANAGER
SUSTAINABILITY
JULIA JACK //
CHIEF MARKETING OFFICER
PHIL GIBSON //
GENERAL MANAGER
PORTFOLIO
MARLENE STRAWSON //
GENERAL MANAGER
PEOPLE & PERFORMANCE
STEWART HAMILTON* //
GENERAL MANAGER GENERATION
WILLIAM MEEK //
CHIEF FINANCIAL OFFICER
*employment started after FY21 year end.
CRAIG NEUSTROSKI //
GENERAL MANAGER CUSTOMER
The Executive Management Team leads our
business to ensure its continued success and to
position us for future opportunities and challenges.
The team all bring deep subject knowledge, and
they lead their business areas focusing on working
together in a changing environment.
MERCURY ANNUAL REPORT 2021
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77
Dear Shareholder
It is my pleasure to present our corporate
governance statement for the year ended
30 June 2021.
This corporate governance statement outlines Mercury’s
Corporate Governance Framework, including information
about the composition, characteristics and function of
Mercury’s Board, the ways in which we ensure that we act
ethically and responsibly at Mercury, our approach to risk,
and inclusion and diversity.
FY21 has been a year of significant activity for Mercury’s
Board. As has been discussed elsewhere in this report, the
Board and Board Committees considered and approved key
M&A transactions including Mercury’s agreement to acquire
Trustpower’s retail business and Tilt’s New Zealand operations
and development options, and the divestment of Mercury’s
interest in the Hudson Ranch 1 geothermal power station
joint venture. Mercury also adopted its Green Financing
Framework and issued both retail and wholesale green bonds
in accordance with that framework. The Tilt transaction and
our green bond issuances demonstrate Mercury’s support for
the need to take bold action to achieve the Climate Change
Commission’s goal of net zero carbon emissions in Aotearoa
New Zealand by 2050.
BOARD CHANGES & SUCCESSION PLANNING
Keith Smith will retire at the Annual Shareholders' Meeting
(ASM) this year after 12 years as a director including over
10 years years serving as Chair of our Risk Assurance and Audit
Committee. Keith’s broad experience in a range of industries
has been invaluable for Mercury. In addition, he has been
instrumental in the evolution of Mercury’s risk management
framework. On behalf of the Board, I would like to thank Keith
for his significant contribution to the Board and to Mercury.
PRUE FLACKS
CHAIR
Through the Nominations Committee we have undertaken a
comprehensive review of the collective skills and experience
of the directors, matched against our refreshed skills matrix
and likely tenures, as it is important that our succession
planning ensures we have the right mix of skills and
experience over time.
While Keith’s retirement means we lose some of our financial
and audit capability, that skill set will be well covered by James
Miller and Scott St John. Our review concluded it is timely to
add a director with operational experience at a very senior level
in the New Zealand energy industry. Your Board was extremely
pleased to appoint Dennis Barnes as a director with effect from
1 September 2021. Dennis will retire and stand for election at
the ASM in September this year.
I am also very pleased to advise that we have selected Kim
Gordon, an Auckland-based technology consulting partner
with law firm MinterEllison, as our fourth “future director”
under the Future Directors programme established by the
Institute of Directors. The Board selected Kim due to her strong
technology and retail skills and her commitment to growing
a governance portfolio.
BOARD SKILLS MATRIX
This year the Nominations Committee has reviewed and
updated the Board skills matrix. The skills matrix is now
presented in the context of key outputs required from
directors, which is important in our succession planning.
We have strived to balance deep commercial experience with
specialist skills, so that the Board as a whole has the capability
to ensure Mercury can achieve its strategic objectives and
deliver long-term value for shareholders. We have identified a
need for the skills of the Board to evolve to support a sustained
period of generation build and development projects as we
enter a phase of executing our development portfolio. Skills are
assessed at the level of the Board as a collective, as opposed
to each individual director, as this is a better indicator of overall
Board capability. However, the key skills which individual
directors contribute to the Mercury Board are highlighted
under each director's profile. Again, this is important for our
succession planning.
We have put a lot of thought into these changes and I
hope that you will find the refreshed approach both more
informative and more transparent.
EXECUTIVE MANAGEMENT TEAM
In response to the evolution of our strategy, we have supported
a restructure of our Executive Management Team (EMT).
Mercury has realigned its business with seven executive roles
reporting to the Chief Executive: three existing roles of Chief
Financial Officer, Chief Marketing Officer, and General Manager
People and Performance; and newly created roles of General
Manager Generation, General Manager Portfolio, General
Manager Sustainability and General Manager Customer. Three
roles were dis-established. These changes will help contribute
to our ongoing success and position us well for the future.
Please see further detail about the EMT in Your Executive
Management Team.
GREEN FINANCING FRAMEWORK &
BOND ISSUANCE
This year, the Board approved the adoption of Mercury’s Green
Financing Framework and the issuance of our first green bonds.
This demonstrates our commitment to a low carbon future for
New Zealand, supports our investment in renewable energy
generation assets and activities, and encourages the growth of
green financial instruments and associated investments.
The issuance of green bonds enables investors to actively invest
in financing that contributes towards sustainable development
of projects and expenditure relating to renewable energy and
other eligible projects, in accordance with the Green Financing
Framework. Mercury has obtained programmatic certification
for our green bonds from the Climate Bonds Initiative Standard.
CORPORATE CONFIDENCE INDEX
I am pleased to note that the Board was recognised during the
reporting period in the annual Corporate Confidence Index
(CCI) in critical areas such as effective board, high standard of
corporate governance and appropriate board composition.
ANNUAL SHAREHOLDERS' MEETING
Finally, I look forward to engaging with our shareholders at
our upcoming ASM. This year, preparations are well underway
to hold our first ASM in the hybrid format, with shareholders
being able to join in person or remotely using their PC or other
device. We recognise and are broadly supportive of the New
Zealand Shareholders' Association’s Policy on Annual and
Special Shareholder Meetings and the principle of maximising
meaningful shareholder participation and quality engagement.
THE TEAM BEHIND ENERGY FREEDOM
LETTER FROM OUR CHAIR.
GOVERNANCE AT MERCURY.
MERCURY ANNUAL REPORT 2021
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78
ANDY LARK // DIRECTOR
First Appointed // 10 July 2014
Last Elected // 24 September 2020
Key Skills*: Digitisation, disruption and
innovation; broad experience in customer
facing businesses.
Andy has a background in
entrepreneurship, marketing and digital
technologies. He is currently the Chair
of Group Lark, an accelerant for brand
and digital transformations, and Chief
Marketing and Strategy Officer for
Dubber, a provider of cloud-based call
recording and voice AI. Prior roles include
Chief Marketing & Online Officer for the
Commonwealth Bank of Australia, Chief
Marketing Officer for Dell’s Large Enterprise
& Public Group, Chief Marketing and Digital
Officer for Foxtel, and Chief Business
Officer for Xero.
HANNAH HAMLING // DIRECTOR
First Appointed // 1 February 2020
Last Elected // 24 September 2020
Key Skills*: Natural resource management
(including water and climate change);
health & safety; risk management.
Hannah is an environmental scientist with a
particular interest in sustainable development
and resilience. Hannah has an extensive
background in consulting, management
and board roles across various sectors
including electricity, construction and water
management. Until January 2020, she was
President of the Asia Pacific Region and
Global Sustainable Development Leader for
Golder, a Canadian global ground engineering
and environmental science company. Before
joining Golder, Hannah was Managing
Director of New Zealand environmental
consultancy firm Kingett Mitchell.
PRUE FLACKS // CHAIR
First Appointed // 1 May 2010
Last Elected // 28 September 2018
Appointed Chair of the Board in
September 2019
Key Skills*: Governance; commercial
experience; stakeholder relationships;
people leadership.
Prue is an experienced director across
a range of industries. She was formerly
a commercial lawyer and a partner in
Russell McVeagh for more than 20 years.
Prue is currently a director of Chorus and
was formerly a director of Bank of New
Zealand, and chair of Queenstown Airport
Corporation.
JAMES MILLER // DIRECTOR
First Appointed // 2 May 2012
Last Elected // 27 September 2019
Key Skills*: M&A and capital structure;
investment analysis; audit and risk
management; energy industry.
James has significant experience in capital
markets including specialist expertise in the
energy sector and in utility economics. James
is Chair of NZX, Deputy Chair of Accident
Compensation Corporation, and a director of
The New Zealand Refining Company. He was
recently appointed as a director of Vista Group
International with effect from 31 August 2021.
James was previously a director and Head of
NZ Wholesale Equities with Craigs Investment
Partners, Head of Equities and Head of
Research at ABN AMRO and a director of
Auckland International Airport. James is a
chartered accountant and will chair Mercury’s
Risk Assurance and Audit Committee
following Keith Smith’s retirement.
YOUR BOARD OF DIRECTORS.
* Key Skills are defined as the particular skills each director brings to the Mercury Board,
and what we would need to consider replacing when that director retires.
GOVERNANCE AT MERCURY.
KEITH SMITH // DIRECTOR
First Appointed // 1 May 2009
Last Elected // 28 September 2018
Key Skills*: Governance; finance and audit;
risk management; commercial experience.
Keith is a deeply experienced chartered
accountant and director of both public and
private companies across a wide range
of industries. He is Chair of Goodman
(NZ), a director of Sky TV and a trustee
for Cornwall Park Trust Board. Prior roles
include Deputy Chair of The Warehouse
Group and director of Genesis Energy.
Keith steps down from the Board on 23
September 2021 after 12 years' service.
GOVERNANCE AT MERCURY.
MERCURY ANNUAL REPORT 2021
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79
MIKE TAITOKO // DIRECTOR
First Appointed // 28 August 2015
Last Elected // 28 September 2018
Key Skills*: Iwi and other stakeholder
relationships; natural resource
management (including water and
climate change); digitisation.
Mike is a leading advisor on Māori
economic development and has well-
established networks in Māoridom.
Mike has strong commercial skills in the
application of digital technologies and
is the co-founder and CEO of Takiwā, a
technology company commercialising
cloud-based geospatial analytics
services. He was formerly a Director of
Auckland Tourism Events and Economic
Development (ATEED).
PATRICK STRANGE // DIRECTOR
First Appointed // 1 February 2014
Last Elected // 24 September 2020
Key Skills*: Energy industry;
major project investment; health
and safety.
Patrick has spent more than 30 years
working as a senior executive and director in
both private and listed companies, including
more than six years as Chief Executive of
Transpower New Zealand. Patrick currently
chairs Chorus and Auckland International
Airport and was previously a Director of NZX
Limited and Essential Energy, Australia.
KIM GORDON // FUTURE DIRECTOR
First Appointed // 1 May 2021
Key Skills*: Digitisation; experience in
customer businesses.
Kim is a partner at MinterEllison,
specialising in technology consulting.
She has a wide range of experience with
public and private organisations, across
legal, energy and finance sectors, and an
extensive background in technology and
technology-centric transformation. As a
Future Director, Kim is invited to attend
Mercury Board meetings and Committee
meetings, although she does not participate
in decision-making.
DENNIS BARNES* // DIRECTOR
1
First Appointed // With effect from
1 September 2021
Key Skills*: Energy industry; people
leadership; major project investment.
Dennis was most recently Chief Executive
of Contact Energy, a nine year role during
which he led Contact Energy’s investment
in renewable energy and flexible generation
(including construction of the Te Mihi
geothermal power station, the development
of the Tauhara field and the introduction in
2011 of the Ahuroa gas storage facility and
Stratford peaking plant). Before this role,
Dennis managed Origin Energy’s significant
portfolio of wholesale markets activities.
1. Dennis was not a director during the reporting
period. Dennis joins the Board on 1 September
2021 and will stand for election at the 2021
ASM in September.
SCOTT ST JOHN // DIRECTOR
First Appointed // 1 September 2017
Last Elected // 24 September 2020
Key Skills*: M&A and capital structure;
stakeholder relationships;
commercial experience; people leadership.
Scott has an extensive background in
investment advisory and capital markets.
Scott is Chair of Fisher & Paykel Healthcare
Corporation and a director of Fonterra
Cooperative Group and ANZ New Zealand.
He was the Chief Executive of First NZ
Capital from 2002 to 2017 and was
formerly Chancellor of the University of
Auckland.
* Key Skills are defined as the particular skills each director brings to the Mercury Board,
and what we would need to consider replacing when that director retires.
MERCURY ANNUAL REPORT 2021
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80
Shareholders
Chief Executive
Executive Management Team
Risk Assurance and
Audit Committee
People and Performance
Committee
Nominations
Committee
MERCURY BOARD
MERCURY PEOPLE
THE TEAM BEHIND ENERGY FREEDOM
GOVERNANCE AT MERCURY.
At Mercury, we are committed to the highest standards of corporate
governance. Our corporate governance framework includes robust policies
and processes which are fundamental to all of Mercury’s foundational pillars.
At the heart of this framework is our commitment to protect and enhance the
interests of our owners through the highest standards of governance, business
behaviour and transparency.
Our corporate governance framework underpins the maintenance of strong
relationships with our stakeholders and our ability to create long-term
value. It also ensures Board accountability to our owners and provides for
an appropriate delegation of responsibilities to our Chief Executive and our
Executive Management Team (EMT).
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.
Over the reporting period, our corporate governance practices were in
substantial compliance with the NZX Corporate Governance Code. The only
exception relates 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. This exception is fully
explained later in this statement.
While not required due to our ASX foreign-exempt listing status, we also
comply with ASX Corporate Governance Principles and Recommendations
(fourth edition).
We consider that governance at Mercury generally aligns with the BlackRock
Corporate Governance and Engagement Principles published in January 2021
and we disclose against the framework set out by the Financial Stability Board
Taskforce on Climate Related Financial Disclosures (see the TCFD Report).
We consider our practices and procedures substantially reflect the guidelines
and principles from the International Corporate Governance Network (ICGN)
Global Governance Principles and the Organisation for Economic Cooperation
and Development (OECD).
CORPORATE GOVERNANCE FRAMEWORK.
This corporate governance statement (comprising pages 77 to 93 of this
report) has been prepared in accordance with NZX Listing Rule 3.8.1(a) and
was approved by the Board of Mercury NZ Limited on 17 August 2021. The
information contained in this corporate governance statement is current
as at that date. Some information in the corporate governance statement
is expressed to be current at another date, for example the FY21 balance
date of 30 June 2021.
MERCURY ANNUAL REPORT 2021
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BOARD COMPOSITION &
CHARACTERISTICS
The Board
The Board comprises eight directors: Prue Flacks
(Chair), Hannah Hamling, Andy Lark, James Miller,
Keith Smith, Scott St John, Patrick Strange and
Mike Taitoko. Kim Gordon is Mercury’s current
Future Director. Dennis Barnes will be joining
the Board as a director from 1 September 2021.
Keith Smith steps down from the Board on 23
September 2021 after 12 years' service. A brief
profile of each director is available here.
Chair
Prue Flacks is the Chair of the Board and
was first appointed as a director in 2010 and
was appointed as Chair in 2019. Prue is an
independent, non-executive director. The Chair’s
overarching responsibilities are to provide
leadership to the Board and to ensure the Board
is well informed and effective. More information
about the role of the Chair is contained in the
Board Charter (in the Corporate Governance
section of our website).
Future Director
Kim Gordon was appointed as our fourth Future
Director on 1 May 2021. Her appointment runs for
18 months. The Board has been a long-standing
supporter of the Institute of Directors’ Future
Directors Programme which provides people
with governance potential and ambition with
mentorship and the opportunity to participate
on a board. It aims to increase the next generation
of board-ready directors in New Zealand. Mercury
has offered three previous appointees valuable
experience sitting at the board table for 12 or
more months. Future Directors are invited to
attend Mercury Board meetings and Committee
meetings, although they do not participate in
decision making.
Structure
The Board is structured to ensure that as a
collective group it has the skills, experience,
knowledge, diversity and perspective to fulfill
its purpose and responsibilities. The Board’s
responsibilities are set out in Mercury’s Board
Char ter.
INDEPENDENCE & CONFLICTS
All of Mercury’s 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 incentive 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.
The Board’s responsibilities are set out in the Board Charter, and include:
Strategy and Planning• establishing clear strategic goals with
appropriate supporting business plans
and resources
• monitoring strategy implementation
Environmental and Health
& Safety
• ensuring Mercury’s environmental and
health and safety culture and practices
comply with all legal requirements,
reflect best practice in New Zealand and
are recognised by employees and other
stakeholders as key priorities
Financial Performance and
Integrity
• monitoring financial performance and
the integrity of reporting
Executive Authority • setting delegated authority levels for the
Chief Executive and EMT
Risk and Audit• ensuring that effective audit, risk
management and compliance systems
are in place and monitored to protect
Mercury’s assets and to minimise the
possibility of Mercury operating beyond
legal or regulatory requirements or
beyond acceptable risk parameters as
determined by the Board
Ethics and Corporate
Behaviour
• ensuring Mercury adheres to high
standards of corporate behaviour,
responsibility and ethics
The Board reviews Mercury’s Board Charter at least every two years.
The Chief Executive and EMT are responsible for:
• developing and making recommendations
to the Board on Mercury strategies and
associated initiatives
• managing and implementing strategies
approved by the Board
• formulating and implementing policies and
reporting procedures for management
• decision making compatible with Mercury’s
Delegations Policy
• managing business risk
• the day-to-day management of Mercury
The Chief Executive and EMT have appropriate
employment agreements setting out their roles and
conditions of employment.
Chief Executive and EMT performance are reviewed
regularly against objectives and measures set by the
Board in annual performance scorecards. The Chief
Executive’s and each EMT member’s performance
were evaluated during the reporting period on
this basis. Further details are contained in the
Remuneration Report.
THE TEAM BEHIND ENERGY FREEDOM
GOVERNANCE AT MERCURY.
RESPONSIBILITIES
The Board is responsible for Mercury’s strategic direction and operation and has delegated certain responsibilities to the Chief Executive
and the Executive Management Team (EMT). Our Board is committed to creating long-term value for investors and to safeguarding the
highest standards of governance, corporate behaviour and accountability.
MERCURY’S BOARD.
MERCURY ANNUAL REPORT 2021
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SELECTION, NOMINATION
& APPOINTMENT
We undertake appropriate checks before appointing a director or putting
forward any candidate for election as a director in accordance with our
governance processes.
All directors are elected by Mercury’s shareholders (other than directors
appointed by the Board to fill casual vacancies, who must retire and stand
for election at the next meeting of shareholders) with rotation and retirement
determined by the NZX Listing Rules. The Board is responsible for considering
and appointing directors to the Board after candidates have been identified by
the Nominations Committee (see Board Committees).
Mercury has a written agreement with each director set out in a letter of
appointment containing the terms and conditions of their appointment.
A copy of the standard form of this letter is available in the Corporate
Governance section of our website. In addition, Mercury also enters into deeds
of indemnity and insurance with each director, in terms of which Mercury
indemnifies, and provides insurance to, directors in accordance with the
Companies Act 1993.
INDUCTION & DEVELOPMENT
All new directors participate in a comprehensive induction programme to
familiarise them with Mercury’s business and the electricity industry.
The Board receives regular briefings on Mercury’s business operations from
senior managers. Regular Board strategy days are held to consider matters
of strategic importance to Mercury, and Board and management run scenario
thinking sessions for key issues. Visits to Mercury’s facilities keep the Board
informed of Mercury’s assets and operations and in particular with respect
to health and safety and wellness matters. In this reporting period the
Board introduced a programme designed to enhance the effectiveness of
directors. This programme involves both deep-dives into aspects of Mercury’s
business and sessions focusing on the broader environment including future
trends and innovation. Directors are also encouraged to continue their own
professional development by attending relevant courses, conferences
and briefings.
It is fundamental to the Board that directors have and are committing
sufficient time to perform their duties properly and effectively. The Board has
considered this issue during the reporting period and is satisfied that, taking
into account all of their commitments, each director had sufficient time to
perform their Mercury duties.
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GOVERNANCE AT MERCURY.
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THE TEAM BEHIND ENERGY FREEDOM
GOVERNANCE AT MERCURY.
BOARD SKILLS MATRIX
The Board strives to ensure that Mercury has the right
mix of skills and experience for Mercury to achieve its
strategic goals. The Board also focuses on ensuring it
takes advantage of, and benefits from, the diversity of
skills, backgrounds and experiences of the individual
directors and that its culture reflects Mercury’s values.
When the Board, through the Nominations Committee,
assesses its skills and competencies, it does so in the
context of key outputs required from the Board:
• setting risk parameters for both value creation
and value protection
• cultural leadership to reflect our values,
environmental kaitiakitanga and social licence
to operate
• strategy development in an environment of
disruption, requiring the courage to challenge,
resilience and agility to respond
During the reporting period, the Nominations
Committee has undertaken a comprehensive analysis
of the skills of the Board and has reviewed and
updated the Board skills matrix. The refreshed skills
matrix more readily enables an assessment of skills
within the context described above. Recognising that
how well the Board performs is a function of the skills
and experience of individual directors and how the
directors work together as a whole, it is considered that
addressing the level of skills and experience collectively
is a better indicator of Board capability overall.
Although the Board fosters collaborative and open
discussion and each director is expected to contribute
broadly, the key skills which individual directors
contribute to the Mercury Board are indicated in the
director profiles. The purpose of identifying key skills
at an individual level is to signal the skills which would
need to be considered when a director retires. This is
important for succession planning purposes.
Skill & Experience CategoryCombined BoardSkill & Experience CategoryCombined BoardSkill & Experience CategoryCombined Board
Strategy & risk settingsStakeholdersGovernance & risk management
Significant commercial
experience across
different industries and
economic cycles
Customer relationships,
including vulnerable customers
Governance experience,
including listed companies
Major project investment
and experience
Government relationships
Finance/accounting/audit
committee experience
M&A and capital
structure experience
Shareholder/investment
community relationships
Risk management process and
experience, including cyber
security and climate related
Digitisation, disruption and
innovation in energy and
other sectors
Iwi relationships/
connectivity
People leadership
Health and safety
experience
Energy industry
Natural resource
management (including
water and environmental)
Electricity industry
experience
Large organisation
leadership experience
Retail
Understanding key drivers of
value in a customer facing
business, through governance
or operational experience
Wholesale markets
trading (energy and/or
other commodities)
KEY
Medium
Some
Substantial
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REVIEWING PERFORMANCE
The performance of the directors (individually and collectively), and the
effectiveness of Board processes and committees, are regularly evaluated
using a variety of techniques including external consultants, questionnaires
and Board discussion. A performance review led by the Chair was carried out
during the reporting period. The next full review, with the assistance of an
external facilitator, will be carried out during the calendar year 2021.
TENURE
Mercury notifies shareholders of their right to nominate a candidate for
election as a director by stock exchange notice. Where any director election
or re-election is to occur at a shareholder meeting, the Notice of Meeting
includes all information on candidates for director election or re-election
that the Board considers may be useful to provide to shareholders.
Directors must retire every three years and, if desired, seek re-election.
The Mercury Board takes director tenure into account in considering the
independence of directors.
0-3 YEARS
3-6 YEARS
6+ YEARS
BOARD COMMITTEES
The Board has three standing committees: the Risk and Assurance &
Audit Committee (RAAC), the People and Performance Committee and
the Nominations Committee. Each Committee focuses on specific areas
of governance. Together, they strengthen the Board’s oversight of Mercury.
Committee meetings are scheduled to coordinate with the Board meeting
cycle. Each Committee reports to the Board at the subsequent Board meeting
and makes recommendations to the Board for consideration as appropriate.
As an exception to the NZX Corporate Governance Code, Mercury does not
comply with Recommendation 3.3 because it does not have a separate
remuneration committee. This exception has been approved by the Board.
The functions that would ordinarily be allocated to a remuneration committee
are shared between the People and Performance Committee in respect of the
Chief Executive and the EMT, and the Nominations Committee in respect of
the directors.
An overview of the role and responsibilities, membership and meetings of the
Board’s three standing Committees during the reporting period is provided in
the table on the next page.
As signaled at Mercury’s 2018 ASM, Keith Smith will retire at the September
2021 ASM and will not stand for re-election. Prue Flacks and Mike Taitoko,
having served for three years since their last re-election, will retire at the
September 2021 ASM and stand for re-election in accordance with the NZX
Listing Rules.
DirectorOriginally Appointed
Last Reappointed/
Elected
Prue Flacks (Chair)1 May 201028 September 2018
Hannah Hamling1 Februray 202024 September 2020
Andy Lark10 July 201424 September 2020
James Miller2 May 201227 September 2019
Keith Smith1 May 200928 September 2018
Scott St John1 September 201724 September 2020
Patrick Strange4 February 201424 September 2020
Mike Taitoko28 August 201528 September 2018
GOVERNANCE AT MERCURY.
Dennis Barnes was appointed a director after the reporting period, with
effect from 21 September 2021. He will stand for election at the September
2021 ASM.
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People & Performance CommitteeRisk Assurance & Audit CommitteeNominations Committee
Roles and
responsibilities
Assisting the Board to fulfil its People and Performance
responsibilities relating to:
• Mercury’s People and Performance strategy and plan
• review of inclusion and diversity objectives and
progress against objectives
• the remuneration and performance of the Chief
Executive and EMT
• People and Performance policies and practices
Monitoring and providing guidance to management
on People and Performance related matters.
Overseeing, reviewing and advising the Board on Mercury’s:
• risk management policy and processes (which include oversight of
Health & Safety assurance and climate-related risks and opportunities)
• internal control mechanisms and internal and external
audit functions
• compliance with policies and processes
• financial information prepared by management for publication
Management retains responsibility for the implementation
and operation of adequate risk assurance, internal control
and audit systems. The Board has delegated to the RAAC
the authority to oversee and monitor these activities.
Providing assurance that the Board has the composition, expertise and diversity of thought
to comply with the law, high standards of governance and Mercury’s strategic objectives.
In particular:
• identifying, for the Board to consider, people with the necessary expertise, experience, diversity and
perspectives for selection as potential directors to be nominated for election at the next annual
shareholder meeting or to fill a casual vacancy on the Board
• reviewing director nominations from shareholders
• ensuring that appropriate checks are undertaken before recommending individuals be appointed
• developing and maintaining a record and assessment of the skills, experience and knowledge
of directors
• recommending to the Board an annual evaluation process of the Board and its committees
• developing, maintaining and recording an assessment of the skills, experience and knowledge
of directors
• recommending to the Board any proposal relating to director remuneration to be put
to shareholders
• ensuring that succession plans are in place for the continued effective composition and expertise
of the Board
• recommending induction and continuing education for directors
MembershipAt least three directors, the majority of whom must be
independent.
Members as at 30 June 2021:
• Scott St John (Chair)
• Andy Lark
• Mike Taitoko
Prue Flacks is also a member by virtue of her
position as Board Chair.
At least three directors, each of whom must be independent
non-executives.
Members as at 30 June 2021:
• Keith Smith (Chair)
• Hannah Hamling
• James Miller
• Patrick Strange
Prue Flacks is also a member by virtue of her position as Board Chair.
The Board Chair is not eligible to Chair the Committee.
At least one member must have an accounting or financial
background as that term is described in the NZX Listing Rules.
At least three directors, the majority of whom must be independent.
Members as at 30 June 2020:
• Prue Flacks (Chair)
• James Miller
• Patrick Strange
MeetingsAt least three times annually.
During the reporting period, the Committee met four times.
At least three times annually.
During the reporting period, the Committee met four times.
At least annually.
During the reporting period, the Committee met once.
GOVERNANCE AT MERCURY.
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COMMITTEE CHARTERS
Each standing Committee operates in accordance with a written Charter
approved by the Board and reviewed as required and at least every two years.
The Committee Charters are available in the Corporate Governance section
of our website.
DIRECTORS’ MERCURY SHAREHOLDINGS
The Board encourages the alignment of directors’ interests with those of
shareholders and with Mercury’s strategic aims. To improve this alignment,
the Board encourages directors to accumulate meaningful shareholdings in
Mercury. Further details of directors' shareholdings in Mercury are set out in
Directors' Disclosures.
ACCESS TO ADVICE & COMPANY SECRETARY
Directors may access such information and seek such independent advice
as they consider necessary or desirable, individually or collectively, to fulfil
their responsibilities and permit independent judgement in decision making.
They are entitled to have access to internal and external auditors without
management present and, with the Chair’s consent, seek independent
professional advice at Mercury’s expense.
All directors have access to the advice and services of the Company Secretary
for the purposes of the Board’s affairs. The Company Secretary is appointed
on the recommendation of the Chief Executive and must be approved by
the Board. The Company Secretary is accountable to the Board, through
the Chair, on all governance matters. As at the date of this Corporate
Governance Statement, Howard Thomas is the Company Secretary.
The table below outlines the number of meetings of the Board and standing
Committees during FY21 and director attendance at those meetings.
BoardRisk Assurance
& Audit
Committee
People &
Performance
Committee
Nominations
Committee
Number of
Meetings
9*441
Prue Flacks9441
Hannah Hamling94
1
1
2
Andy Lark94
James Miller941
Keith Smith94
Scott St John94
3
4
Patrick Strange 931
Mike Taitoko94
*In addition to the meetings detailed above, eight further meetings were held during
FY21. These meetings were outside of, and in addition to, the usual meeting cycle and
were in relation to M&A transactions, including the Tilt and Trustpower transactions.
1. Hannah Hamling attended one Risk Assurance and Audit Committee meeting
as an observer.
2. Hannah Hamling attended one People and Performance Committee meeting
as an observer.
3. Scott St John attended four Risk Assurance and Audit Committee meetings
as an observer.
GOVERNANCE AT MERCURY.
Information on the relevant qualifications and experience of Committee
members is available in Your Board of Directors.
Mercury assesses on a regular basis whether additional standing or ad hoc
committees are required. Additional temporary committees are established
from time to time, including as required to provide governance oversight on
short-term projects. As at the date of this statement, Mercury has considered
that no other standing committees are required.
During the year ended 30 June 2021, the Board established three temporary
committees for discrete projects, including the Tilt transaction. The Board also
approved director representation on the Due Diligence Committee established
for a green bond issuance.
The table below details the directors that were members of those temporary
committees and the number of meetings held.
Temporary CommitteeMeetings attended
1Prue Flacks6
James Miller6
Scott St John6
Patrick Strange6
2Andy Lark2
Hannah Hamling2
Scott St John2
Mike Taitoko2
3Prue Flacks1
James Miller1
Scott St John1
Patrick Strange1
Director members of the
Due Diligence Committee
Meetings attended
4Prue Flacks4
Hannah Hamling4
James Miller4
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THE TEAM BEHIND ENERGY FREEDOM
AUDIT PLAN & ROLE OF AUDITOR
As a public entity under the Public Audit Act
2001, Mercury and each of our subsidiaries
(together, the ‘Group’) have the Auditor-General
as our independent auditor. The Auditor-General
appointed Lloyd Bunyan of Ernst & Young to
carry out the FY21 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 the Audit
Independence Policy available on the Corporate
Governance section of our website. Consistent
with the Stakeholder Engagement Policy, the
external auditor attends the Annual Shareholders’
Meeting and is available to shareholders to answer
questions relevant to the audit.
INTERNAL AUDIT
& RISK ASSURANCE
Mercury has a comprehensive internal audit plan
and risk assurance plan, which take a holistic view
of Mercury’s culture, practices and procedures
and include periodic reviews of relevant areas of
Mercury’s operations. The internal audit plan is
designed and approved by the RAAC each year
in consultation with the Risk Assurance Officer
and the Internal Auditor (currently made up of an
internal team, Deloitte and other internal audit and
process specialists appointed on an outsourced
basis) who report on progress and the results of
internal audit reviews at each RAAC meeting. The
Internal Auditor has access to management and
the right to seek information and explanations.
The RAAC meets with the Internal Auditor at least
once each year without management present.
During FY21, the focus of the RAAC was safety,
reputation and operational risks, which were
trending or elevated risks for the Group.
TIMELY & BALANCED
DISCLOSURE
Shareholders & Markets
Mercury is committed to maintaining a
fully informed market through effective
communication with the NZX and ASX, our
shareholders and investors, analysts, media
and other interested parties. Mercury provides
all stakeholders with equal and timely access
to material information that is accurate,
balanced, meaningful and consistent. Where
Mercury provides a new and substantive investor
or analyst presentation, it ensures the presentation
materials are released to the NZX and ASX
ahead of the presentation.
The Market Disclosure Policy is designed to
ensure this occurs in compliance with Mercury’s
continuous disclosure obligations under the
NZX Listing Rules. The Policy is available in the
Corporate Governance section of our website.
The Board has appointed the Company Secretary
as the Disclosure Officer who is responsible
for administering the Policy. The Disclosure
Committee (made up of the Board Chair, RAAC
Chair, Chief Executive, Chief Financial Officer and
Disclosure Officer) is responsible for ensuring that
Mercury complies with its disclosure obligations.
The Chief Executive and EMT are responsible for
providing the Disclosure Officer with all material
information relating to their areas of responsibility.
Information which, in the opinion of the Disclosure
Officer, may require disclosure is provided to the
Disclosure Committee for decision.
Disclosures relating to the annual and interim
financial statements must be reviewed by the
RAAC before being approved by the Board. Once
approved for disclosure, the Disclosure Officer is
responsible for releasing material information to
the market.
Directors consider at each Board meeting whether
there is any material information which should be
disclosed to the market.
Integrity of Reporting
The Chief Executive and the Chief Financial Officer
are required each half year and full year to provide
a letter of representation to the Board confirming
that the financial statements have been prepared
in accordance with legal requirements, comply
with generally accepted accounting practice
and present fairly, in all material respects, the
financial position of Mercury and the results of its
operations and its cash flows.
A letter of representation confirming those
matters was received by the Board with respect
to the Group’s FY21 financial statements.
We report on non-financial information in our
Annual Report. Material environmental, social and
governance matters are covered in the report,
corporate governance statement and the TCFD
Report. To provide this information in a format
accessible to our stakeholders we use both the
Global Reporting Initiative (GRI) standards and the
International Integrated Reporting Council (IIRC)
Integrated Reporting <IR> framework. We do not
currently have a policy on assurance of non-
financial data.
OUR KEY RISKS
Safety Risks
Mercury undertakes activities that potentially
involve significant safety risks including electrified
assets, handling of iso-pentane, steam field
operations, well drilling, operating large generation
equipment, dam safety, power station construction
and medically dependent customer management.
A key risk for Mercury is that an incident occurs
causing a fatality or serious injury to our staff, a
contractor, a customer or the public.
Compliance Risks
Legislative & regulatory changes
Regulatory changes imposed on the current
wholesale and retail market structure and pricing
regimes may affect how Mercury is managing
its integrated business model of generating and
retailing electricity and could adversely impact
on Mercury’s ability to create value. Legislative or
regulatory changes, including Treaty of Waitangi
claims, changes to consent conditions, or levies on
the use of natural resources, may result in Mercury
facing direct or indirect restrictions, conditions or
additional costs on Mercury’s access to freshwater
or geothermal resources and its hydro and
geothermal generation activities.
Operational Risks
Fuel security & supply
Mercury’s generation depends upon the availability
of water for hydro generation and geothermal
fluid for geothermal generation. The principal risks
include the inability to generate expected levels of
electricity due to either temporarily or permanently
reduced fuel supplies, loss of access to supply, or
increased costs to secure the necessary fuel, all of
which may adversely affect Mercury’s earnings.
GOVERNANCE AT MERCURY.
ASSURANCE & MANAGING RISK.
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Electricity market exposure
In the short run, our ability to manage our
electricity portfolio risk depends upon its ability
to purchase and sell electricity in the wholesale
electricity market which could be impacted by:
• short-term changes in supply and demand
• national fuel availability based on hydrological
and thermal conditions (including extended
national drought)
• competitor behaviour
• significant reduction or ceasing of electricity
consumption (for example the New Zealand
Aluminium Smelter or other large industrial
companies)
• constrained transmission and distribution
of electricity
In the long run, wholesale prices are determined
by the level of national demand relative to supply
from power generation and can be affected by
levels of activity in the industrial sector, population
size, economic conditions, competitor behaviour,
generation build or retirement, technological
changes or new sources of energy, and
regulatory changes.
We could also be adversely affected if a
large group of customers, one or more major
customers, or a New Zealand market participant
were to default on payment for electricity provided
or for hedge settlements.
Power station availability
Our ability to generate electricity depends upon
the continued efficient operation of our power
stations. The viability, efficiency or operability of
our power stations could be adversely affected by
a range of factors including:
• material failure of turbines, transformers, or
geothermal wells that results in unplanned
power station outages which require
replacement or repair
• events, such as a global pandemic, impacting
on key people required to operate stations,
provide hydro control or trading oversight
• catastrophic events such as a major
earthquake, volcanic eruption, or other natural
catastrophes that could cause failure of one or
more of our power stations
Information security
We depend on several key systems for our
continued operations. There is a risk that the
security of critical systems will be compromised
and/or information accessed, deleted or corrupted,
impacting on our ability to operate critical
systems. Such an event could result in costs to
resolve or repair; potential downtime of operations;
potential breaches of our customers’ privacy,
including unauthorised access to their personal
information; and reputational impacts from any
loss of service, or resulting impacts on safety, our
environment or community.
Financial Risks
Insurance
Mercury is insured through a comprehensive
programme including cover for generation
property, plant and equipment and business
interruption with a combined limit of $1 billion.
Some catastrophic events are uninsurable, or
we have chosen not to insure against them,
such as acts of terrorism. In the event of a
severe catastrophic event, it is possible that the
insurance portfolio will not provide sufficient cover,
impacting future operational performance and the
financial condition of Mercury. We estimate that
the maximum foreseeable loss to which the Group
could potentially be exposed is approximately $9
billion with an assessed likelihood of occurrence
of 1 in 100,000 years. We review the level and
nature of our insurance cover annually. From
1 November 2020, following a third-party risk
tolerance analysis which considered several key
financial metrics specific to Mercury, the decision
was made to retain additional financial risk in the
event of an insurable loss to our generation assets.
Side C cover, which insures the company against
liabilities arising out of securities market conduct
breaches, was also removed from our directors’
and officers’ insurance portfolio.
Growth & Development
Growth and development projects are subject to
risks that may affect expected financial returns or
outcomes:
• major generation development projects
during construction give rise to risks including
cost over-runs, commissioning delays,
environmental impacts and employee/
contractor safety
• political and regulatory uncertainty and
poor economic conditions may limit our
development choices or adversely affect the
viability or costs of future developments
Other
A deterioration of our financial condition or
instability in capital markets could increase our
cost of capital, affect our ability to raise debt, or
reduce our cash liquidity thereby impacting our
financial performance and pursuit of our strategic
objectives.
The Crown’s shareholding and the provisions of
the Public Finance Act may limit our ability to raise
equity capital.
There is a risk that foreign currency or interest
rate movements may impact our earnings by
increasing the cost for imported goods and
services and the cost of debt.
Reputational Risks
Our reputation with investors, stakeholders and the
broader community is one of our most significant
assets. In addition to the risks mentioned
elsewhere in this statement, the following events
could threaten that reputation and could lead to
negative publicity resulting in the loss of business
revenues or reduction in Mercury’s value:
• errors in customer connections, billing or
general customer communications
• errors by directors, management, contractors or
related industry operators negatively reflecting
on Mercury
• adverse environmental impact caused by, or
perceived to be caused by, Mercury’s operations
• health and safety incidents under the
operational control of Mercury
• a reduction in standards of how we treat the
communities that we operate in
Other Material Risks
Other material business risks that could impact
on the short-, medium- or long-term financial
performance of Mercury (including material
exposure to economic, environmental or social
sustainability risks) include: political, regulatory,
foreign exchange, accounting and other
international jurisdiction risks; and catastrophic
events (including dam failure causing inundation
and significant reinstatement time).
Climate Change Risks
For details of our key climate-related risks and how
we are managing them – please see our TCFD
Report.
GOVERNANCE AT MERCURY.
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RISK MANAGEMENT FRAMEWORK
& RAAC RESPONSIBILITIES
Risk management is an integral part of our business.
We have an overarching Risk Management Policy in
place (available in the Corporate Governance section of
our website) supported by a suite of risk management
policies appropriate for our business, including Risk
Appetite Statement, the Mercury Code, an Energy
Markets Risk Management Policy, a Treasury Policy and
a Delegations Policy.
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
our business and to the achievement of its plans. The
Policy sets out the risk management objectives and
requirements of Mercury within which management is
expected to operate. The Policy applies to all business
activities of the Group including Mercury-controlled
joint ventures and 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.
We must accept some risks to achieve our strategic
objectives and to deliver shareholder value. These are
embodied in our Risk Appetite Statement which are
set and regularly reviewed by the Board. As part of the
current Risk Appetite Statement, Mercury targets a
BUSINESS
FUNCTIONS
GOVERNANCE
Establishes,
communicates and
implements risk
management
Oversees the
framework
Monitors
implementation
of framework and
tests controls
Manages day
to day risks
and controls
All Business
Units
Risk
Management
Committee
Risk Assurance
& Audit
Committee
Risk
Assurance
Officer
GOVERNANCE AT MERCURY.
long-term credit rating of BBB on a stand-alone basis
from S&P Global (or its equivalent).
We have a Risk Assurance Officer who has
the independence to determine the effectiveness of
risk management, assurance and internal audit. The
Risk Assurance Officer has a dual reporting line to the
Chief Financial Officer and the RAAC Chair. The RAAC
tasks the Risk Assurance Officer to ensure healthy and
robust debate and interaction between management,
risk assurance and audit providers.
Our management operates a Risk Management
Committee whose 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. Membership of
the Risk Management Committee is made up of
representatives from the Executive Management
Team and is chaired by the Chief Executive. The Risk
Management Committee meets at least four times
each year.
In addition to these risk management processes
several measures are employed to manage risks,
including employee awareness, incident training, due
diligence, financial risk mitigation tools and active
involvement in the regulatory environment.
As noted above, 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 our 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 FY21.
Mercury’s Constitution, and relevant Charters and
Policies are available in the Corporate Governance
section of Mercury’s website.
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OUR INVESTOR RELATIONS
PROGRAMME
We are committed to open and effective communication
with our stakeholders and owners by providing
comprehensive relevant information. Mercury takes the
steps set out in our Stakeholder Engagement Policy to
achieve this.
Mercury communicates with its investors in various ways,
including the Investor section of our website, annual
shareholders’ meetings (ASM) and webcasts, our annual
and interim reports, regular information disclosures, and
analyst and investor briefings and road shows. Mercury
aims to provide clear communication of our strategic
direction, including articulating our strategic priorities and
how these leverage Mercury’s competitive advantages.
A notice of meeting for our 2020 ASM was posted on
Mercury’s website at least 20 working days prior to the
meeting in accordance with NZX Corporate Governance
Code recommendation 8.5.
We also run a programme to build understanding and
appropriate measurement of Mercury’s performance
among investors and research analysts. That programme
aims to be responsive, clear, timely, consistent, even-
handed and accurate, and is designed to ensure
appropriate access to management and directors.
Summary records of the issues discussed at meetings
with investors and analysts are kept for internal use,
unless a recording or transcript of the presentation is
published on our website.
WEBSITE
Mercury’s website contains a comprehensive set of investor-
related information and data including stock exchange
and media releases, interim and annual reports, investor
presentations and webcasts, and shareholder meeting
materials. Mercury will continue to build environmental,
social and governance (ESG) website content to meet
the increasing demand for transparent disclosures of its
performance across these areas and the management of
long-term risks and opportunities.
Shareholders can direct questions and comments to
Mercury through the website or contact the Head of
Treasury and Investor Relations.
ANNUAL SHAREHOLDERS’ MEETINGS &
WEBCASTS
ASMs are held in New Zealand at a time and location which
aim to maximise participation by shareholders. Mercury’s
ninth ASM since listing on the NZX Main Board and ASX will
be held in Auckland on 23 September 2021. As at the date
of this statement, preparations are well underway for our first
ASM that will be held in a hybrid format (in person and on line),
considered in the New Zealand Shareholders’ Association’s
recent policy developments as the most effective approach
to enable meaningful shareholder engagement.
ELECTRONIC COMMUNICATIONS
We encourage shareholders to provide email addresses to
enable them to receive shareholder materials electronically.
Communicating electronically is faster and more cost-
effective. Most of our shareholders receive information
electronically. However, we understand that this does not
suit everyone and we also provide hard copy reports to
shareholders who wish to receive them.
GOVERNANCE AT MERCURY.
At Mercury, all our people strive to do what’s right. We
have put in place the Mercury Code to ensure 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.
MERCURY ATTITUDE
A Mercury employee is expected to apply the Mercury
Attitude. This attitude shapes our decisions, our actions
and our interactions with each other.
• Commit and Own it
• Share and Connect
• Be Curious and Original
Our Mercury Attitude aligns our direction to achieve
our Purpose.
THE MERCURY CODE & OUR POLICY
FRAMEWORK
The Mercury Code, which was adopted and is regularly
reviewed by our Board, is our version of a code of conduct
and ethics. The Mercury Code underpins everything we
do. It requires all Mercury people, including directors and
employees, to act honestly and with integrity and fairness
at all times, and to strive to foster those standards within
Mercury. The Mercury Code is available in the Corporate
Governance section of our website.
ENGAGING WITH INVESTORS.ACTING ETHICALLY & RESPONSIBLY.
The Mercury Code and the policy framework described
below support our promises to each other and define our
commitment to our customers, our people and community
and our investors.
Directors are required, in the performance of their duties, to
give proper attention to the matters before them and to act
in the best interests of Mercury at all times.
We also want to ensure that we work with suppliers who
share our commitment to acting ethically and doing the right
thing. During the reporting period, we reviewed our Supplier
Guiding Principles. We have developed and strengthened
these principles in our new Supplier Code of Conduct which
replaces the Supplier Guiding Principles and describes the
way we work with our suppliers and what we expect in return.
The Supplier Code of Conduct includes our commitments
and our expectations in relation to social responsibility, health
and safety, compliance with all applicable modern slavery
laws, environmental responsibility, and business integrity.
The Supplier Code of Conduct is available in the Corporate
Governance section of our website.
The areas set out in the table on the next page are of
fundamental importance to Mercury to ensure good
governance and responsible business practices are followed.
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Our Governance & Responsible Business Practices
ConflictsConflicts of interest must be avoided, except with the prior consent of Mercury. Mercury people are
encouraged to discuss possible conflicts with their manager. Mercury takes practical, preventative action
wherever possible, for example by substituting project managers in circumstances of possible conflict with
contractors and suppliers.
Our directors declare all potential conflicts of interest prior to appointment and if applicable, at each
Board meeting in relation to specific agenda items.
BriberyThe acceptance of bribes, including gifts or personal benefits of material value which could reasonably
be perceived as influencing decisions, is prohibited under the Mercury Code. Under Mercury’s Delegations
Policy, donations to political parties are prohibited.
Use of
Mercury Assets
The Mercury Code places restrictions on the use of corporate information, assets and property. All persons
covered by the Mercury Code are encouraged to report any breach or suspected breach of the Code.
WhistleblowingWe provide a framework for the protection of employees wishing to disclose serious wrongdoing. This is
described in Mercury’s Whistleblowing Policy.
Employees are also encouraged to voice with their manager, the HR team, the General Counsel, other
managers or directors any concern over ethical or irresponsible behaviour, even if not reaching the threshold
of serious wrongdoing.
Trading In
Company Securities
Mercury’s Trading in Company Securities Policy sets out the rules and restrictions relating to trading in
Mercury securities by directors and employees and contractors, including the prohibition on insider trading.
The Policy is closely monitored by the Company Secretary and is overseen by the RAAC.
The Chief Executive and EMT members are prohibited, by the Trading in Company Securities Policy, from
entering into transactions in associated products which limit the economic risk of participating in unvested
entitlements under Mercury’s Long-Term Incentive Plans.
Market DisclosuresOur Market Disclosure Policy ensures we maintain a fully informed market through communication with the
markets, investors and stakeholders and by giving them equal and timely access to material information.
Integrated
Sustainability
Our Integrated Sustainability Policy sets out the core principles and values that promote ethical and
responsible decision making.
We recognise that our success in creating long-term value for our shareholders (including our operational
and financial results) depend on maintaining confidence in: how the Company acts and conducts its
business; our approach to managing natural resources and meeting environmental standards; our health
and safety culture and practices; the service we provide for our customers; the employment experience we
offer our people; the relationships we have with our business partners and the communities within which we
operate; and broader measures of economic, environmental and social performance.
Under the Policy, we commit to integrating sustainability through principles relating to our five-pillar
strategy: Customer, Partnerships, Kaitiakitanga, People, Commercial.
GOVERNANCE AT MERCURY.
Our Governance & Responsible Business Practices
PrivacyWe are committed to the safeguarding and proper use of personal information. We have a comprehensive
Privacy Policy, which is reviewed every two years, and a robust privacy framework. Privacy is afforded
significant consideration within Mercury and is managed in accordance with our risk management
framework.
Our General Counsel is 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 our Risk Management Committee. Privacy issues are
reported to the Risk Management Committee on a quarterly basis. We also have an Enterprise Information
Security Manager who is responsible for ensuring that appropriate systems and processes are in place for
the storage and security of personal information.
Environmental Our Environmental Policy recognises that our generation activities rely on access to natural resources that
we know are highly valued by our communities. We strive to maintain this trust by working with partners to
deliver renewable electricity and make a long-term difference New Zealand’s environmental health.
We work responsibly to deliver today and sustainably for future generations and will achieve this by focusing
on: Kaitiakitanga, challenging our performance, promoting awareness, complying with requirements, and
setting objectives and targets.
Modern SlaveryDuring the reporting period we prepared and reported our Modern Slavery Statement in line with our
obligations under the Australian Modern Slavery Act 2018.
Our statement outlines the work undertaken during FY20 to assess and address the risk of modern slavery
in our operations and supply chain and identified the following key focus areas for FY21: further supply
chain review, updating our Supplier Guiding Principles to educate our suppliers about our modern slavery
statement and encourage suppliers to work with us to reduce the risk of modern slavery, improving spend
visibility, creating and implementing procurement guidelines, and updating our contracts and templates to
integrate modern slavery requirements.
TCFD and Carbon
Reporting
Since 2018, Mercury has been developing transparent sustainability reporting in line with the framework set
out by the Financial Stability Board Taskforce on Climate Related Financial Disclosures (TCFD). In this report,
we have disclosed against this framework, including disclosure of Mercury’s actual and potential impacts
of climate-related risks and opportunities on Mercury’s business, strategy and financial planning; and
extensive reporting on Mercury’s carbon position. Refer to the TCFD Report.
Takeover Response
Policy
We have adopted a Takeover Response Policy to guide the Board and management if the Company receives
a takeover notice or the Company becomes aware that a takeover offer in respect of the Company (or an
analogous scheme of arrangement) is, or is likely to be, proposed by another person.
The Mercury Code, Modern Slavery Statement, and all Policies referred to in the table above are available on the Corporate
Governance section of our website.
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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, disability 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 differences 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
• 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
Increasing representation of ethnicities
representative of New Zealand communities
(Māori, Pasifika and Asian) in positions of
leadership is one of our inclusion and diversity
priorities.
We have been working with a group of emerging
leaders who identify as Māori, Pasifika or Asian, to
understand their aspirations and development needs.
The experiences and insights shared by this group
have helped to shape a development programme
that supports career progression and contributes to
creating a more inclusive work environment.
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.
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.
INCLUSION & DIVERSITY.
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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 2020As at 30 June 2021
Employees41%43%45%Employees39%38%
People Leaders*33%34%35%People Leaders*32%32%
EMT33%>36%>40%EMT33%43%
Board33%>36%>40%Board25%25%
Ensure that everyone is rewarded fairly for their work, regardless of gender.Target is 100% pay equity.Actual: Pay equity 97.2%. In 2021, adjustments were made to individual salaries to
address identified pay gaps within roles. Pay equity is calculated as the average position
in range (relativity to the role's band midpoint) of female fixed remuneration compared
with the average position in range of male fixed remuneration.
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 44, 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 2021 Ethnicity**NZ Population 2018 Census
Māori
Employees
People Leaders*
6%
4%
6%
5%
7%
6%
Māori
Employees
People Leaders*
4%
1%
17%
Pasifika
Employees
People Leaders*
9%
4%
9%
4%
10%
5%
Pasifika
Employees
People Leaders*
6%
2%
8%
Asian
Employees
People Leaders*
22%
11%
22%
11%
23%
13%
Asian
Employees
People Leaders*
22%
13%
15%
Increase representation of team members and people leaders across targeted ethnic groups
– Māori, Pasifika 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.
* People Leaders includes all levels of leadership.
* People Leaders includes all levels of leadership.
** Employee data, as at 30 June 2021, from Mercury’s payroll system provides the
baseline benchmark of self-identified ethnicity.
InclusionEnsure that our teams 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 2021 Employee Engagement Survey, 77% 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 2021 Employee Engagement Survey, 87% 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 2021, the proportion of women on the EMT (including the Chief Executive) was 43%, or three out of seven (as at 30 June 2020 this was 33% or three 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 2020 this was 25%, or two out of eight). Our Future Director is a woman.
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 2022 gender diversity targets.
GOVERNANCE AT MERCURY.
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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 2021.
This report outlines Mercury’s strategy and approach to
remuneration, in particular for its executives. It sets out
remuneration information for the Chief Executive, direct
reports to the Chief Executive and directors.
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
Governance at Mercury.
In response to the COVID-19 Pandemic and the impact on
the overall economy and social environment, all executives’
remuneration, including the Chief Executive’s, was unchanged
for FY21.
I acknowledge the way the Executive Management Team
(EMT) and all Mercury employees have responded to the
challenges this year.
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
• 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 fairly 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 FY21 the relevant
target percentage for the Chief Executive was 50% and up to
35% for other EMT members.
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 FY21 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 were selected to closely
align with Mercury’s strategic objectives, purpose and goals,
and Mercury’s five key pillars. The FY21 weightings are
shown on the following page.
REMUNERATION
REP ORT.
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PillarFY21 Weighting %
Commercial: EBITDAF
1
40
People15
Customer 20
Partnerships15
Kaitiakitanga10
Note 1: EBITDAF is normalised for positive and negative annual
variations in Waikato hydro generation.
For FY21 there were two performance levels within each
pillar area: ‘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.
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.
For FY22 we have reviewed the framework and aligned under
six three year goals. The FY22 weighting for the commercial
goal remains at 40% with the other five goals being worth 10
or 15%
Long-term performance incentives
to FY21 vesting
Long-term performance incentives (LTIs) are at-risk
payments designed to align the reward of 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
• 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.
The last LTI grant (FY19-FY21) under this plan vested in FY21.
Long-term performance incentives plan
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
• 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 FY21 grant period commencing 1 July 2020, the
value represented 75% of the Chief Executive base salary and
between 20% to 35% of base salary for other EMT members
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.
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Chief Executive's remuneration (FY21 & FY20)
Salary
2
$Benefits
3
$Subtotal $Pay for performance $
Total remuneration
$
STILTISubtotal
Chief Executive – Vince Hawksworth
FY211,212,64448,97 11,261,615537,900N/A537,9001,799,515
FY20309,23165,927
4
375,158138,782
5
N/A138,782513,940
Chief Executive – Fraser Whineray
FY20805,88365,909871,792460,680
5
321,004
6
781,6841,653,476
Note 2: Actual salary paid includes holiday pay paid as per NZ legislation. The base salary for Vince Hawksworth for FY21 and FY20 was
$1,200,000 and for Fraser Whineray for FY20 was $1,085,838.88. Fraser Whineray departed Mercury March 2020.
Note 3: Benefits include KiwiSaver and insurance.
Note 4: Vince Hawksworth received a $55,000 one-off payment for relocation costs in FY20 which is included in the FY20 benefits figure.
Note 5: Both Chief Executives' short-term incentive was pro-rated for the period worked in FY20.
Note 6: Holiday pay and KiwiSaver of $36,081 was paid in FY21 to Fraser Whineray on the LTI amount but is not reported here.
For reference: On 1 April 2020 Vince Hawksworth was appointed to the Board of Tilt Renewables Limited as a Director. For the period
from 1 April 2020 until 30 June 2021, he was paid AUD138,500 (gross) in director fees by Tilt Renewables.
Five-year summary – Chief Executive's remuneration
Total
remuneration
paid
7
$
Percentage
STI against
maximum
8
%
Percentage
vested LTI against
maximum %
Span of LTI
performance
period
Chief Executive –
Vince HawksworthFY211,799,51550N/AN/A
FY20513,94051N/AN/A
Chief Executive –
Fraser WhinerayFY201,653,47669872017 – 2020
FY191,975,71565502016 – 2019
FY181,803,2836702015 – 2018
FY171,881,19263982014 – 2017
Note 7: Total remuneration paid including Salary, Benefits, STI and LTI payments.
Note 8: Maximum STI was 178% of ‘on-target’ performance pay.
Breakdown of Chief Executive's pay for performance (FY21)
9
DescriptionPerformance measures
Percentage
achieved by
Vince Hawksworth
STI
10
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)
74.5
20% based on individual measures125
10% based on business KPIs (for Chief Executive only)125
Note 9: Vince Hawskworth was not issued shares under the FY19-FY21 grant issued 1 July 2018 due to starting Mercury in 2020.
Therefore no LTI was rewarded to Vince in FY21.
Note 10: The above STI for FY21 will be paid in FY22.
Five-year summary – TSR Performance (company vs peer group)
0
-5
10
20
30
50
40
30 June
2017
30 June
2018
30 June
2019
30 June
2020
30 June
2021
TSR %
Mercury
Peer group
NZX 50
CHIEF EXECUTIVE’S REMUNERATION.
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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 FY21, the
company’s contribution for Vince Hawksworth was $40,543.
FY22 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 FY22.
FY22Base Salary $Benefits
11
$Subtotal $Pay for performance 'on-target' $
Total remuneration
$
STILTI granted
12
Subtotal
Chief
Executive1,224,00045,1491, 269,149612,000918,0001,530,0002,799,149
Note 11: Benefits include KiwiSaver and insurance.
Note 12: This LTI will be granted in FY22 and, if hurdles are met, paid in shares in 2024.
Chief Executive’s remuneration performance pay for FY22
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$000
FixedOn-planMaximum
Long-term Incentives Granted (2024 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 FY21, the Chief Financial Officer received remuneration totalling $831,350. This amount included a $156,895 STI payment
and a $134,851 LTI payment, both relating to FY20 but paid in FY21. The remaining $539,604 was a combination of fixed
remuneration and benefits.
REMUNERATION REPORT.
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SHARE OWNERSHIP
The Chief Executive and Chief Financial Officer’s ownership of Mercury shares as at 30 June 2021 are:
Executive
Number of shares owned (excludes shares
held in trust for the LTI scheme)
Change in shares owned
from 30 June 2020
Chief Executive32,08030,000
Chief Financial Officer0
13
-163,215
Balance of EMT
14
96,462-79, 235
Note 13: The Chief Financial Officer disclosed in an Ongoing Disclosure Notice to the market dated 13 May 2021 a transfer of 100,001 shares to
Tracey Meek, the Chief Financial Officer's wife. The Chief Financial Officer ceased to have a relevant interest in these shares upon
transfer to Tracey Meek.
Note 14: Balance of shares owned by other EMT members as at 30 June 2021, excluding shares owned by the Chief Executive and Chief
Financial Officer and excluding shares owned by Kevin Angland, Nick Clarke and Tony Nagel, who all left the company during the
reporting period. As at 30 June 2021, Kevin Angland, Nick Clarke and Tony Nagel had a combined relevant interest in 206,649 shares,
some of which were owned by family trusts.
EMPLOYEE REMUNERATION
The Group paid remuneration in excess of $100,000 including benefits to 430 employees (not including directors) during the
FY21 year in the following bands:
Remuneration band
15
Currently employed No longer
employed
Total
$100,001-$110,00059867
$110,001-$120,00045550
$120,001-$130,00067774
$130,001-$140,00041445
$140,001-$150,00038341
$150,001-$160,00035136
$160,001-$170,0001616
$170,001-$180,0009312
$180,001-$190,0001515
$190,001-$200,00013114
$200,001-$210,0001111
$210,001-$220,0001010
$220,001-$230,00044
$230,001-$240,00044
$240,001-$250,00011
Remuneration band
15
Currently employed No longer
employed
Total
$250,001-$260,00033
$260,001-$270,00011
$270,001-$280,00011
$280,001-$290,00044
$300,001-$310,000314
$310,001-$320,00011
$320,001-$330,00033
$330,001-$340,00011
$340,001-$350,00022
$390,001-$400,00011
$440,001-$450,00011
$570,001-$580,00011
$620,001-$630,00011
$710,001-$720,00011
$830,001-$840,00011
$900,001-$910,0001
16
1
$1,020,001-$1,030,0001
16
1
$1,150,001-$1,160,0001
16
1
$1,400,001-$1,410,00011
Total39436430
Note 15: The remuneration bands above include 7 employees who received redundancy payments in FY21.
Note 16: In addition to redundancy, these employees received two short-term incentive payments (in relation to FY20 and FY21) and two long-term
incentive payments (in relation to FY18-FY20 and FY19-FY21) in FY21.
The total remuneration ratio for FY21 between employee (median) and Chief Executive was 1:15. The ratio of Employee (median)
remuneration and Chief Executive base salary was 1:13. Note: For the ease of data collection, these ratios are based on actual
remuneration paid in FY21 for employees and the Chief Executive. Therefore, the Chief Executive’s remuneration for these ratios
differs from the remuneration reported earlier.
REMUNERATION REPORT.
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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. Mercury does not pay any retirement benefits to non-executive directors. The following people held office as directors
during the year to 30 June 2021 and the remuneration set out in the table below was approved during the period. The number of meetings and
attendance rate by director during the year to 30 June 2021 was as follows:
DirectorBoard
Risk Assurance &
Audit Committee
People &
Performance Committee
Nominations
CommitteeOther
17
Total
18
No. of meetings944113
Fees $
Meetings
Attended Fees $
Meetings
Attended Fees $
Meetings
Attended Fees $
Meetings
Attended Fees $
Meetings
AttendedFees $
Prue Flacks
180,000
19
(Chair)
944111180,000
Hannah
Hamling
98,00098,730 4
20
1
20
6,4546113,184
Andy Lark98,00098,00049542106,954
James Miller98,000910,00044,00019, 31711121,317
Keith Smith98,0009
26,000
(Chair)
4124,000
Scott St John98,0009 4
20
20,000
(Chair)
44,7729122,772
Patrick Strange98,000910,00034,00013,8177115,817
Mike Taitoko98,00098,00049542106,954
Total866,00054,73036,0008,00026,268
21
990,998
Note 17: There were 3 sub-committees for FY21 and director representation on a due diligence committee established in respect of the green bond issuance.
Further information about temporary sub-committees is available here.
Note 18: Disclosure Committee is not reported on as these occur as ad-hoc and on an as required basis.
Note 19: Prue Flacks’ fees cover attendance at all Committee meetings.
Note 20: Hannah Hamling attended one Risk Assurance and Audit Committee meeting and one People and Performance Committee meeting as an observer. Scott
St John attended four Risk Assurance and Audit Committee meetings as an observer.
Note 21: $15,270 of the "Other" fees were approved during the period and paid after the reporting period and was distributed between Hannah Hamling, Andy Lark,
James Miller, Scott St John, Patrick Strange and Mike Taitoko.
For reference: Future Director Kim Gordon was paid $3,333.34 in relation to her role as future director in FY21. This payment occurred after the period.
REMUNERATION REPORT.
MERCURY ANNUAL REPORT 2021
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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 2021:
Prue Flacks
Bank of New ZealandDirector
2
Chorus LimitedDirector
Hannah Hamling
Nil
Andy Lark
Group Lark Pty LimitedChair
Dubber Pty LimitedChief
Marketing
and Strategy
Officer
1
James Miller
NZX LimitedChair
ACCDeputy Chair
The New Zealand Refining Company LimitedDirector
ACC Board Investment CommitteeChair
ACCGovernance
roles
1
Vista Group International LimitedDirector
3
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
2
Community Financial Services LimitedDirector
2
Goodman (NZ) Limited and subsidiariesChair
Harpers Gold Limited and subsidiariesDirector/
Shareholder
2
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
Scott St John
ANZ Bank of New Zealand LimitedDirector
4
Fisher & Paykel Healthcare
Corporation Limited
Chair
1
/
Shareholder
Fonterra Co-operative Group Limited Director
Next Foundation (and associated vehicles)Director
University of AucklandChancellor
2
Patrick Strange
Chorus LimitedChair
Auckland International Airport LimitedChair
Mike Taitoko
Takiw ā L imi te dDirector/
Shareholder
Auckland Tourism Events & Economic
Development
Director
2
Maratini Holdings LimitedDirector/
Shareholder
Canvasland Holdings LimitedDirector/
Shareholder
Waiora Consulting LimitedDirector/
Shareholder
Toha Foundry LimitedDirector/
Shareholder
1. Entries added by notices given by the directors during the year
ended 30 June 2021.
2. Entries removed by notices given by the directors during the year
ended 30 June 2021.
3. Entry added by notice given by James Miller during the year ended
30 June 2021. Directorship will take effect from 31 August 2021.
4. Entry added by notice given by Scott St John during the year ended
30 June 2021. Directorship took effect from 6 July 2021.
DIRECTORS’ DISCLOSURES.
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Directors’ & Officers’ Indemnities
Indemnities have been given to and insurance has been effected for, directors and senior managers of the Group to cover
acts or omissions of those persons in carrying out their duties and responsibilities as directors and senior managers.
Disclosure of Directors’ Interests in Share & Bond Transactions
Directors disclosed, pursuant to section 148 of the New Zealand Companies Act 1993, the following acquisitions and disposals of
relevant interests in shares and bonds during the period to 30 June 2021:
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 Flacks14 September 2020Acquisition of green
bonds (MCY030) upon
allotment by Mercury
NZ Limited
69,00069,000
Hannah Hamling7 October 2020On market acquisition
of ordinary shares
5,1301,000
Hannah Hamling16 March 2021On market acquisition
of ordinary shares
12,7002,000
Hannah Hamling25 March 2021On market acquisition
of ordinary shares
1,935300
Prue Flacks19 April 2021On market acquisition
of ordinary shares
124,30418,500
Disclosure of Directors’ Interests in Shares & Bonds
Directors disclosed the following relevant interests in shares and bonds as at 30 June 2021:
Director
Number of Shares in which
a relevant interest is held
Number of bonds in which
a relevant interest is heldChange since 30 June 2020
Prue Flacks4 4,97438,000 MCY 020 capital bonds
69,000 MCY030 green bonds
18,500 shares
69,000 MCY030 green bonds
Hannah Hamling3,300–3,300
Andy Lark3,300––
James Miller40,320––
Keith Smith30,156 ––
Scott St John 45,000––
Patrick Strange39,160––
Mike Taitoko2,200––
Disclosure of Subsidiary Directors’ Interests
The following are particulars included in the Interests Register for Mercury’s subsidiary companies as at 30 June 2021:
DirectorInterest Entity
Nicholas ClarkeNil.
Prue Flacks*
Phil GibsonNil.
Vincent HawksworthChief Executive
Director
Director
Mercury NZ Limited
NOW New Zealand Limited
Tilt Renewables Limited
Julia JackShareholderPower to the Pedal Limited
James Miller*
William MeekChief Financial OfficerMercury NZ Limited
Tony NagelNil.
Michael StevensNil.
Mike Taitoko*
Marlene StrawsonNil.
Howard ThomasNil.
*refer to Disclosure of Directors’ Interests.
DIRECTORS’ DISCLOSURES.
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Twenty largest registered shareholders as at 30 June 2021
1
Name
Number
of shares
% of shares
2
Her Majesty the Queen in Right of New Zealand716,140,52851.15
HSBC nominees (New Zealand) Limited56,098,1314.01
HSBC nominees (New Zealand) Limited A/C State Street47,920,7553.42
JP Morgan Chase Bank N.A. NZ Branch-Segregated Clients ACCT42,235,9823.02
Citibank Nominees (New Zealand) Limited40,089,9692.86
Mercury NZ Limited
3
37,7 11,5842.69
Accident Compensation Corporation23,189,4861.66
National Nominees Limited15,333,0491.10
HSBC Nominees A/C NZ Superannuation Fund Nominees Limited15,242,2711.09
BNP Paribas Nominees (NZ) Limited12,404,4450.89
BNP Paribas Nominees (NZ) Limited11,230,5100.80
FNZ Custodians Limited10,920,3240.78
Forsyth Barr Custodians Limited10,886,1820.78
New Zealand Depository Nominee Limited10,613,9700.76
HSBC Custody Nominees (Australia) Limited10,477,9860.75
JBWere (NZ) Nominees Limited 10,387,7960.74
Custodial Services Limited 10,106,0040.72
BNP Paribas Nominees (NZ) Limited 8,188,7290.58
Custodial Services Limited 7,801,0810.56
Generate Kiwisaver Public Trust Nominees Limited 6, 287, 3 460.45
Total1,103,266,12878.80
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 2021,
which included 37,711,584 ordinary shares held as treasury shares.
3. Held as treasury shares.
Distribution of shareholders & holdings as at 30 June 2021
Size of holding
Number of
shareholders
% of
shareholders
1
Number of
shares
Holding
quantity %
1
1 to 1,00028,81138.1119,675,9751.41
1,001 to 5,00037,16849.1786,093,9366.15
5,001 to 10,0006,0938.0644,674,9753.19
10,001 to 100,0003,4004.5070,100,3335.01
100,001 and above 1230.161,179,467, 29884.25
Total75,5951001,400,012,517100
1. Rounding applied.
Substantial product holders as at 30 June 2021
Class of Securities
Number of
Securities
in Substantial
Holding
Total Number of
Securities in Class
Her Majesty The Queen in Right of New ZealandOrdinary shares731,342,799
1
1,400,012,517
2
1. This comprises (a) 716,140,528 shares held by the Crown on its own account; (b) 15,134,271 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 2021, 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.
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Twenty largest registered holders of MCY020 capital bonds (3.60%) as at 30 June 2021
1
Name
Number of
MCY020
capital bonds
% of MCY020
capital bonds
2
Forsyth Barr Custodians Limited 96,436,00032.15
JBWere (NZ) Nominees Limited 34,528,00011.51
Hobson Wealth Custodian Limited 17,028,0005.68
Custodial Services Limited 16,821,0005.61
FNZ Custodians Limited14,591,0004.86
Custodial Services Limited 12,709,0004.24
Custodial Services Limited 11,178,0003.73
Citibank Nominees (New Zealand) Limited 7,002,0002.33
Generate Kiwisaver Public Trust Nominees Limited6,500,0002.17
Forsyth Barr Custodians Limited6,399,0002.13
Custodial Services Limited5,449,0001.82
Custodial Services Limited 4,837,0001.61
Best Farm Limited2,900,0000.97
Custodial Services Limited2,628,0000.88
Forsyth Barr Custodians Limited 1,845,0000.62
The Tindall Foundation Inc1,800,0000.60
Masfen Securities Limited1,200,0000.40
Tea Custodians Limited Client Property Trust Account850,0000.28
BNP Paribas Nominees (NZ) Limited806,0000.27
JBWere (NZ) Nominees Limited 750,0000.25
Total246,257,00082.09
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 MCY020 capital bonds on issue as at 30 June 2021.
Distribution of MCY020 (3.60%) capital bondholders and holdings as at 30 June 2021
Size of holding
Number of MCY020
capital bondholders
% of MCY020 capital
bondholders
1
Number of MCY020
capital bonds
Holding
quantity %
1
1,001 to 5,000775.31382,0000.13
5,001 to 10,00026518.292,578,0000.86
10,001 to 100,0001,01670.1234,033,00011.34
100,001 and above916.28263,007,00087.67
Total1,449100300,000,000100
1. Rounding applied.
BONDHOLDER INFORMATION
SECURITY HOLDER INFORMATION.
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Twenty largest registered holders of MCY030 green bonds (1.56%) as at 30 June 2021
1
Name
Number of
MCY030
green bonds
% of MCY030
green bonds
2
Accident Compensation Corporation 45,000,00022.50
Forsyth Barr Custodians Limited 16,305,0008.15
ANZ Custodial Services New Zealand Limited 11,830,0005.92
BNP Paribas Nominees (NZ) Limited 9,817,0004.91
Custodial Services Limited9,667,0004.83
HSBC Nominees (New Zealand) Limited8,500,0004.25
Tea Custodians Limited Client Property Trust Account8,350,0004.18
National Nominees Limited 7,967,0003.98
NZPT Custodians (Grosvenor) Limited 6,800,0003.40
ANZ Wholesale NZ Fixed Interest Fund 6,305,0003.15
Citibank Nominees (New Zealand) Limited 6,000,0003.00
FNZ Custodians Limited5,308,0002.65
JBWere (NZ) Nominees Limited 4,957,0002.48
Custodial Services Limited 4,819,0002.41
Custodial Services Limited 4,625,0002.31
BNP Paribas Nominees (NZ) Limited4,400,0002.20
Custodial Services Limited 3,763,0001.88
Mint Nominees Limited 3,000,0001.50
Queen Street Nominees ACF Pie Funds 3,000,0001.50
Custodial Services Limited 2,413,0001.21
Total172,826,00086.41
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 200,000,000 MCY030 green bonds on issue as at 30 June 2021.
Distribution of MCY030 (1.56%) green bondholders and holdings as at 30 June 2021
Size of holding
Number of MCY030
green bondholders
% of MCY030 green
bondholders
1
Number of MCY030
green bonds
Holding
quantity %
1
1,001 to 5,000175.2083,0000.04
5,001 to 10,0006018.35549,0000.27
10,001 to 100,00020061.167,240,0003.62
100,001 and above5015.29192,128,00096.06
Total327100200,000,000100
1. Rounding applied.
SECURITY HOLDER INFORMATION.
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Twenty largest registered holders of MCY040 green bonds (2.16%) as at 30 June 2021
1
Name
Number of
MCY040
green bonds
% of MCY040
green bonds
2
FNZ Custodians Limited28,365,00014.18
Citibank Nominees (New Zealand) Limited 17,850,0008.93
Forsyth Barr Custodians Limited 17,775,0008.89
BNP Paribas Nominees (NZ) Limited 16,041,0008.02
Custodial Services Limited 12,079,0006.04
HSBC Nominees (New Zealand) Limited12,025,0006.01
BNP Paribas Nominees (NZ) Limited 9,370,0004.69
Southland Building Society 9,250,0004.63
Custodial Services Limited 6,570,0003.29
Custodial Services Limited 6,467,0003.23
Custodial Services Limited6,002,0003.00
Pin Twenty Limited 5,000,0002.50
Investment Custodial Services Limited 4,815,0002.41
Tea Custodians Limited Client Property Trust Account 3,810,0001.91
Mint Nominees Limited 3,800,0001.90
Risk Reinsurance Limited3,800,0001.90
Dunedin City Council3,000,0001.50
Mt Nominees Limited 3,000,0001.50
Custodial Services Limited 2,525,0001.26
BNP Paribas Nominees (NZ) Limited 2,500,0001.25
Total174,044,00087.02
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 200,000,000 MCY040 green bonds on issue as at 30 June 2021.
Distribution of MCY040 (2.16%) green bondholders and holdings as at 30 June 2021
Size of holding
Number of MCY040
green bondholders
% of MCY040 green
bondholders
1
Number of MCY040
green bonds
Holding
quantity %
1
1,001 to 5,000217.12105,0000.05
5,001 to 10,0006522.03624,0000.31
10,001 to 100,00016054.246,139,0003.07
100,001 and above4916.61193,132,00096.57
Total295100200,000,000100
1. Rounding applied.
SECURITY HOLDER INFORMATION.
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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 the
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 during the 2021 financial year and as at the end of the
2021 financial year, being 30 June 2021: Prue Flacks (chair),
Hannah Hamling, Andy Lark, James Miller, Keith Smith, Scott
St John, Patrick Strange, and Mike Taitoko.
SUBSIDIARY COMPANIES
The following persons held office as directors of subsidiaries of
Mercury NZ Limited during FY2021.
Company nameDirectors
Mercury Geothermal LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mercury LTI LimitedPrue Flacks
Mike Taitoko
Howard Thomas
Ngātamariki Geothermal LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Rotokawa Generation LimitedWilliam Meek
Nicholas Clarke
1
Phil Gibson
Michael Stevens
Rotokawa Geothermal LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Michael Stevens
Special General Partner LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mighty River Power LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Blockchain Energy LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Company nameDirectors
Bosco Connect LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Glo-Bug LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Kawerau Geothermal LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mercury Energy LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mercury SPV LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mighty Geothermal Power
International Limited
Vincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mighty Geothermal Power LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mercury ESPP LimitedWilliam Meek
Tony Nagel
1
Howard Thomas
Marlene Strawson
Company nameDirectors
Mercury Solar LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
What Power Crisis (2016) LimitedVincent Hawksworth
William Meek
Tony Nagel
1
Howard Thomas
Mercury Drive LimitedJulia Jack
Mercury Wind Limited (formerly
Mercury SPV 2021 Limited)
William Meek
Howard Thomas
1. Directors who have resigned during FY2021.
For reference, Vince Hawksworth was appointed as a director of
Mercury Wind Limited on 4 August 2021.
After the reporting period, on 3 August 2021 Mercury NZ
Limited acquired the subsidiaries set out below. As at 17
August 2021, the following persons held office as directors of
those subsidiaries:
Company nameDirectors
Mercury Insurance Captive
Limited (formerly Tilt Renewables
Insurance Limited)
James Miller
Vincent Hawksworth
William Meek
Howard Thomas
Tararua Wind Power LimitedVincent Hawksworth
William Meek
Howard Thomas
Waverley Wind Farm (NZ) Holding
Limited
Vincent Hawksworth
William Meek
Howard Thomas
Waverley Wind Farm LimitedVincent Hawksworth
William Meek
Howard Thomas
COMPANY DISCLOSURES.
MERCURY ANNUAL REPORT 2021
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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”) has 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.
On 10 December 2018, Mercury entered into an agreement
with the Crown, under which the Crown agrees to participate in
any future dividend reinvestment plan or share buyback of the
Company, in each case only to the extent required to maintain
the Crown’s proportionate shareholding following the dividend
reinvestment plan or share buyback. A copy of the Crown
Participation Agreement is available on the Treasury’s website.
Mercury does not have any current plan to launch a dividend
reinvestment plan or share buyback.
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.
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 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:
• 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.
OTHER DISCLOSURES.
MERCURY ANNUAL REPORT 2021
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If a relevant interest is held in any shares in breach of the 10%
Limit then, for so long as that breach continues:
• no votes may be cast in respect of any of the shares in
which a relevant interest is held in excess of the 10% Limit;
and
• the registered holder(s) of shares in which a relevant interest
is held in breach of the 10% Limit will not be entitled to
receive, in respect of the shares in which a relevant interest
is held in excess of the 10% Limit, any dividend or other
distribution authorised by the Board in respect of the shares
.
However, if the Board determines that a breach of the 10%
Limit was not inadvertent, or that it does not have sufficient
information to determine that the breach was not inadvertent,
the registered holder may not exercise the votes attached
to, and will not be entitled to receive any dividends or other
distributions in respect of, any of its shares.
An exercise of a voting right attached to a share held in breach
of the 10% Limit must be disregarded in counting the votes
concerned. However, a resolution passed at a meeting is not
invalid where votes exercised in breach of the voting restriction
were counted by the Company in good faith and without
knowledge of the breach.
The Board may refuse to register a transfer of shares if it
knows or believes that the transfer will result in a breach of
the 10% Limit or where the transferee has failed to lodge a
statutory declaration requested from it by the Board within
the prescribed timeframe.
Crown directions
The Crown has the power to direct the Board to exercise
certain of the powers conferred on it under the Constitution
(for example, where the Crown suspects that the 10% Limit
has been breached but the Board has not taken steps to
investigate the suspected breach).
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:
• 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.
PUBLIC ENTITY
Mercury is a public entity under the Public Audit Act 2001, and
the Group's independent auditor is the Auditor-General.
DONATIONS
Donations of $92,333 were made by the Group during the
year ended 30 June 2021 ($99,500 during the year ended 30
June 2020). Under Mercury’s Delegations Policy, donations to
political parties are prohibited.
Trustee corporations and nominee companies
Trustee corporations and nominee companies (that hold
securities on behalf of a large number of separate underlying
beneficial holders) are exempt from the 10% Limit provided
that certain conditions are satisfied.
Share cancellation
In certain circumstances, shares could be cancelled by the
Company through a reduction of capital, share buy-back or
other form of capital reconstruction approved by the Board
and, where applicable, the shareholders.
Sale of less than a Minimum Holding
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.
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 17 August 2021 the Board declared a fully imputed final
dividend of 10.2 cents per share to all shareholders who are
on the Company’s share register at 5pm on the record date
of 15 September 2021. The dividends will be imputed at a
corporate tax rate of 28%, which amounts to an imputation
credit of 3.97 cents per share for the final dividend. Mercury
will also pay a supplementary dividend of 1.80 cents per share
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 $92.6
million (6.8 cents per share) paid to shareholders on 1 April
2021, brings the total declared dividends to $231.4 million (or
17.0 cents per share).
As at the date of this annual report, the Company has a
S&P Global 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 2021 was $3.00, compared with $2.69
at 30 June 2020.
OTHER DISCLOSURES.
MERCURY ANNUAL REPORT 2021
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STANDARD CORE REPORTING
GRI standardDisclosure title LocationComments
GENERAL DISCLOSURES
ORGANISATIONAL PROFILE
GRI 102 General disclosures 2021
102-1Name of the organisationFront Cover
102-2Activities, brands, products
and services
Who We Are & Our Business Model pp4-7
102-3Location of headquartersDirectory p113
102-4Location of operationsWho We Are & Our Business Model pp4-7
102-5Ownership and legal formCompany Disclosures p106
102-6Markets servedWho We Are & Our Business Model pp4-7
102-7Scale of the organisationWho We Are & Our Business Model pp4-7
102-8Information on employees
and other workers
Who We Are & Our Business Model pp4-7
102-9Supply chainGovernance at Mercury: Acting Ethically &
Responsibly pp90-91
102-10Significant changes to the
organisation and its supply chain
Governance at Mercury: Acting Ethically &
Responsibly pp90-91
102-11Precautionary principle or
approach
Governance at Mercury p89
102-12External initiativesEngaging With Our Stakeholders p13,
Redefining Customer Care p19,
A Clearer Connection to the Waikato p22
102-13Membership of associationsEngaging With Our Stakeholders p13 and
Company website - Engaging with our
stakeholders
102-14Statement from senior
decision-maker
Chair & Chief Executive Update pp8-11
102-16Values, principles, standards,
and norms of behavior
Company website – The Mercury Code
102-18 - 102-39Governance Governance at Mercury pp77-93
102-40List of stakeholder groupsEngaging With Our Stakeholders p13 and
Company website - Engaging with our
stakeholders
102-42Identifying and selecting
stakeholders
Engaging With Our Stakeholders p13 and
Company website - Engaging with our
stakeholders
GRI standardDisclosure title LocationComments
102-43Approach to stakeholder
engagement
Engaging With Our Stakeholders p13 and
Company website - Engaging with our
stakeholders
102-44Key topics and concerns raisedEngaging With Our Stakeholders p13 and
Company website - Engaging with our
stakeholders
102-45Entities included in the
consolidated Consolidated
Financial statements
Notes To The Consolidated Financial
Statements p44
102-46Defining report content and
topic Boundaries
About This Report p2,
Pulling It All Together p15
102-47List of material topicsPulling It All Together p15
102-48Restatements of informationFinancial Statements pp41-63There are
restatements of 2020
financial statements
in the 2021 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 p113
102-54Claims of reporting in
accordance with the GRI
Standards
About This Report p2
102-55GRI content indexGRI Content Index p109
102-56External assurance Our 2021 report has
not been externally
assured.
MANAGEMENT APPROACH
GRI 103 General disclosures 2021
103-1Explanation of the material
topic and its Boundary
Pulling It All Together p15
GRI 103Management approachOur Business Model pp4-7Within the
organisation
GLOBAL REPORTING INITIATIVE (GRI) INDEX.
MERCURY ANNUAL REPORT 2021
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SPECIFIC STANDARD DISCLOSURES
Material topicsDescriptionLocationBoundaries
GRI 200 Economic standard
series
GRI 201 Economic performance
GRI 201Management approachOur Business Model pp4-7Within the
organisation
201-1Direct economic value
generated and distributed
Our Business Model pp4-7Within and outside
the organisation
201-2Consolidated Financial
implications and other risks and
opportunities due to climate
change
TCFD Report p64Within and outside
the organisation
GRI 204 Procurement PracticeSupplier Code of ConductActing Ethically & Responsibly p90
GRI 207 TaxTax managementFinancial Statements Note 5 p48
GRI 300 Environmental
standards series
GRI 303 Water
303-1Water withdrawal by sourceMercury does not “withdraw” water for
generation. 43,426 Mm
3
were used for
hydro generation in FY21.
Within and outside
the organisation
GRI 305 Emissions
305-1Direct (Scope 1) GHG emissionsMetrics & Targets p74Within and outside
the organisation
305-2Energy indirect (Scope 2)
GHG emissions
Metrics & Targets p74Within and outside
the organisation
305-3Other indirect (Scope 3)
GHG emissions
Metrics & Targets p74Within and outside
the organisation
305-4Emissions intensityMetrics & Targets p74Within and outside
the organisation
GRI 307 Environmental compliance
3 07-1Non-compliance with
environmental laws
and regulations
Mercury did not receive any infringement
notices for breaches of consent conditions
during FY21.
Within and outside
the organisation
GRI 400 Social standards series
GRI 103Management approach
Our Business Model pp4-7
Within the organisation
Material topicsDescriptionLocationBoundaries
GRI 401 Employment
401-1New employee hires and
employee turnover
Mercury hired 92 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 generation
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 pp4-7,
Chair and Chief Executive's Update p11,
People Pillar Story pp28-30,
Financial Track Record p37
Within the organisation
GRI 404 Training and education
404-2Programmes for upgrading
employee skills and transition
assistance programmes
Our Skills Pledge p30Within the organisation
GRI 405 Diversity and equal
opportunities
405-1Diversity of governance bodies
and employees
Inclusion & Diversity pp92-93Within the organisation
GRI 413 Local communities
413-1Operations with local community
engagement, impact
assessments and development
programs
Redefining Customer Care pp19-21,
A Clearer Connection To The Waikato pp22-24
Within and outside
the organisation
413-2Operations with significant actual
and potential negative impacts on
local communities
Redefining Customer Care pp19-21,
A Clearer Connection To The Waikato pp22-24
Within and outside
the organisation
GLOBAL REPORTING INITIATIVE (GRI) INDEX.
MERCURY ANNUAL REPORT 2021
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SECTOR SPECIFIC: UTILITIES
Material TopicsDescriptionLocationBoundaries
GRI 103Management approachOur Business Model pp4-7Within the organisation
EU1Installed capacityOur Business Model pp4-7Within the organisation
EU2Net energy outputOur Business Model pp4-7Within the organisation
EU3Number of customer connectionsOur Business Model pp4-7Within and outside
the organisation
EU5Allocation of CO
2
e allowancesMetrics & Targets p74Within and outside the
organisation
EU10Planned capacity against
projected electricity demand
over the long-term
Re-shaping Our Generation Portfolio pp31-33Within and outside
the organisation
GRI 103Management approachOur Business Model pp4-7Within the organisation
EU18Percentage of contractor and
subcontractor employees that
have undergone relevant health
and safety training
Our Skills Pledge p30Within and outside
the organisation
GRI 103Management approachOur Business Model pp4-7Within the organisation
EU27Number of disconnections
for non-payment
Redefining Customer Care pp19-21Outside the organisation
GRI 103Management approachOur Business Model pp4-7Within the organisation
EU30Average plant availability by
energy source and by regulation
regime
Hydro 84%, Geothermal 95%Within the organisation
GLOBAL REPORTING INITIATIVE (GRI) INDEX.
MERCURY ANNUAL REPORT 2021
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Shareholder enquiries
You can view your investment portfolio, change your address,
supply your email, update your details or payment instructions
online: www.investorcentre.com/nz. You will need your CSN
and FIN numbers to access this service.
Enquiries may be addressed to the Share Registrar
(see Directory for contact details).
Investor information
Our website at mercury.co.nz is an excellent source of
information about what’s happening within the company.
Our Investor Centre allows you to view all regular investor
communications, information on our latest operating
and financial results, dividend payments, news and share
price history.
Electronic shareholder communication
It is quick and easy to make the change to receiving your
reports electronically. This can be done either:
• Online at www.investorcentre.com/nz by using your
CSN and FIN numbers (when you log in for the first time).
Select ‘My Profile’ and ‘Communication Preferences’ to
update your details; or
• By contacting Computershare Investor Services Limited
(see Directory for contact details).
INFORMATION FOR
SHAREHOLDERS.
MERCURY ANNUAL REPORT 2021
THE TEAM BEHIND ENERGY FREEDOM
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113
Board of Directors
Prue Flacks, Chair
Dennis Barnes (with effect from 1
September 2021)
Hannah Hamling
Andy Lark
James Miller
Keith Smith
Scott St John
Patrick Strange
Mike Taitoko
Executive Management Team
Vince Hawksworth,
Chief Executive
Lucie Drummond,
General Manager Sustainability
Phil Gibson,
General Manager Portfolio
Stewart Hamilton,
General Manager Generation
Julia Jack,
Chief Marketing Officer
William Meek,
Chief Financial Officer
Craig Neustroski,
General Manager Customer
Marlene Strawson,
General Manager People & Performance
Company Secretary
Howard Thomas,
General Counsel and Company Secretary
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
MUFG Bank
Mizuho Bank
Westpac
Credit Rating (re-affirmed November 2020)
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 2021
THE TEAM BEHIND ENERGY FREEDOM
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114
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/(loss) on disposal 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.
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.
GLOSSARY.
Check out all the wonderful work
we’ve accomplished together
at mercury.co.nz/starship or
scan the QR code to donate.
DONATE NOW!
20 YE ARS AGO,
A DYNAMIC DUO
WAS BORN.
In 2001, we became a Five Star Partner of Starship
children’s hospital, making us sidekicks to the
thousands of brave little superheroes who pass
through their doors each year.
As Aotearoa New Zealand’s only dedicated children’s hospital,
Starship helps save the lives of Kiwi kids from all over the country.
Take the story of the Amazing Avery, who after a serious
car accident spent nearly a month in Starship learning how
to stand and walk unassisted again.
Thanks to the generous donations of our wonderful customers,
we’ve managed to raise more than $13.5 million to help the
team at Starship continue to provide Kiwi kids like Avery with
the best medical facilities, treatment and care possible!
---
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 15/09/2021
Ex-Date (one business day before the
Record Date)
14/09/2021
Payment date (and allotment date for
DRP)
30/09/2021
Total monies associated with the
distribution
$138,866,960.99
Source of distribution (for example,
retained earnings)
Income available for distribution
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution $0.14166667
Gross taxable amount $0.14166667
Total cash distribution $0.10200000
Excluded amount (applicable to listed
PIEs)
N/A
Supplementary distribution amount $0.01800000
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
$0.03966667
Resident Withholding Tax per
financial product
$0.00708333
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
17/08/2021
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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