Mercury - 2018 Annual Shareholders' Meeting Chair and Chief Exec Address

Mercury – 2018 Annual Shareholders’ Meeting Where:

VODAFONE EVENTS CENTRE, AUCKLAND

When:

10.30am, 28 September 2018

PAGES:

26

ADDRESS BY THE CHAIR: JOAN WITHERS

[SLIDE: JOAN WITHERS, CHAIR]

Kia ora koutou katoa. Haere mai ki tenei hui motuhake.

Good morning ladies and gentlemen, and thank you for joining us.

My name is Joan Withers and I am Chair of Mercury NZ Ltd.

On behalf of your Directors, the Chief Executive, our leadership team and all of our people at Mercury… a very warm welcome to those of you able to join us here today.

And a warm welcome also to those owners who are following this meeting online via our webcast.

I appreciate that you have taken the time to engage with us on the occasion of our 2018 Annual Shareholders’ Meeting.

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For those of you here in person, I hope you have enjoyed some of the images from the slide show that has been playing as you’ve taken your seats.

It’s been put together to showcase Mercury employees and some of the things they get involved in, through their jobs and in their communities, as we work to inspire New Zealanders to enjoy energy in more wonderful ways.

We value this opportunity to interact with you, our owners, and we ask for feedback to ensure this meeting provides a useful forum for us to report on progress in delivering on Mercury’s strategy and of course to conduct the necessary governance business of the Board. With that context, I am pleased to confirm that we have a quorum represented here today and therefore declare the 2018 Annual Shareholders’ Meeting of Mercury NZ Limited open.

With me on stage are: •

our Chief Executive, Fraser Whineray;

•

our Chief Financial Officer, William Meek; and

•

our Company Secretary, Howard Thomas.

Here today, we also have all of Mercury’s Executive, along with our auditors, Ernst and Young, and the company’s solicitors, Chapman Tripp.

[SLIDE: YOUR BOARD]

I would like to begin my overview today by introducing your Board, and as I introduce them, could I ask them to stand so you can identify them: •

Keith Smith, who chairs our Risk Assurance and Audit Committee and joined as a director in 2009.

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o Keith is an experienced professional director with a strong accountancy services background including as a former partner in the chartered accountancy practice, BDO. o Among other directorships, Keith is currently Chair of Goodman and also Deputy Chairman of The Warehouse Group Limited.

•

Prue Flacks, who chairs our People and Performance Committee, has been on the Board since 2010. o Prue is a barrister and solicitor with extensive experience in commercial law and, in particular, banking, finance and securities law. o She was a partner at Russell McVeagh for 20 years. o Prue is the Chair of Queenstown Airport Corporation and a director of Chorus and Bank of New Zealand.

•

Mike Taitoko, who joined in 2015. o Mike is a leading advisor on Maori economic development. He also brings to the Board strong commercial skills in the application of digital technologies. o He is a member of the Digital Economy and Digital Inclusion Ministerial Advisory Group. o He is also Managing Director of data analytics and visualisation company Takiwa, and a director of Bio-Resource Processing Alliance and Auckland Tourism Events and Economic Development (ATEED).

•

Andy Lark, who joined the Board in 2014. o Andy has a background in entrepreneurship, and has held senior and executive roles in marketing and digital technologies. o He is Chief Marketing Officer at Australian pay television company Foxtel. o His prior roles include Chief Marketing and Online Officer for the Commonwealth Bank of Australia and Chief Marketing Officer for Xero. o Andy is currently the Chair of Group Lark, supporting brand and digital transformations, and a director of SLI Systems.

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•

Dr Patrick Strange, who joined the Board in 2014. o Patrick brings considerable energy sector expertise to the Board, having previously been Chief Executive of New Zealand’s transmission owner and operator, Transpower New Zealand Limited. o Prior to being appointed Chief Executive of Transpower he was a director of our company in 2006-2007. o He’s currently Chair of Chorus Limited, and a director of NZX Limited and Essential Energy, Australia. He is also currently a director of Auckland International Airport and it was recently announced he will assume the position of Chair of Auckland International Airport on the 31st of October.

•

Scott St John, who joined Mercury in September last year. o Scott is Chancellor of University of Auckland and has an extensive background in investment advisory and capital markets. o Scott holds directorships with Fisher & Paykel Healthcare Corporation and Fonterra Cooperative Group. He is a former member of the Capital Markets Development Taskforce and the Financial Markets Authority Establishment Board. o Scott was Chief Executive of First NZ Capital from 2002 to 2017.

•

James Miller, who joined in 2012 in the lead-up to our IPO. o James has an extensive background in capital markets. o Prior roles include being a director, and Head of NZ Wholesale Equities with Craigs Investment Partners, and Head of Equities and Head of Research at ABN AMRO. o He is Chair of NZX Limited, and a director of ACC and Auckland International Airport.

I encourage you to familiarise yourselves with their professional experience and skills which are outlined variously in our Annual Report’s governance section and on Mercury’s website.

•

It is a pleasure to also introduce Anna Lissaman - our Future Director. o Anna is an accomplished business leader with experience across private and public sector organisations.

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o Currently she is Director of People & Talent at TVNZ. In line with the parameters of the Future Director scheme, which are aimed at developing New Zealand’s next generation of governance leaders, Anna contributes to our discussions and debates, but is not involved in Board decision-making.

Anna joined us for an 18-month period that will conclude at the end of next calendar year, and we are already enjoying and benefiting from her contribution.

[SLIDE: SKILLS AND DEVELOPMENT]

Before I move away from the focus on our directors, let me talk a little about the governance of our board itself, our skill mix, our performance and our succession planning.

We continue to be vigilant in ensuring that Mercury’s Board is well-balanced with skills and experience aligned to the company’s strategic priorities, and I believe the Company is well served in that regard.

Again, this year, we have conducted an externally facilitated comprehensive board performance review. This involves peer to peer review, a review of the Chair’s performance and an evaluation of the behavioural elements of board deliberations. One other external measure of relative performance is the highly regarded Corporate Confidence Index which measures institutional confidence in 50 major listed companies across Australia and New Zealand. The MCY board has been acknowledged as being in the top six of those rated in critical areas such as effective board, high standard of corporate governance and appropriate board composition.

The Nominations Committee of our Board compose a board skill matrix which appears in our Annual Report and which we regularly track to ensure that the skills and experience we have around the table match the Company’s requirements both now and going forward.

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We individually and collectively pay attention and have a significant commitment to the ongoing development of directors and as one of NZ’s largest listed companies we work hard to contribute to the debate around and development of improving standards of corporate governance.

To illustrate just one area where we have focused on improving our knowledge of critical issues for the business, this year Mercury’s Board and management combined for a valuable session on sustainability and climate change led by the globally-recognised Cambridge Institute for Sustainability Leadership. Our understanding of global sustainability opportunities and the significant impacts of climate change on business and society has improved materially as a result of the time invested.

Mercury has always been keenly aware of the importance of making a positive contribution to society.

We achieve this through our stewardship of our assets, our guardianship of the environment we operate in, and our commitment to our customers and our people.

[SLIDE: BOARD COMPOSITION]

Later in our meeting we will consider resolutions related to the re-election of three of our directors who are retiring by rotation.

I would like to make reference at this point, however, to the Chair’s role.

I announced at the 2016 Annual Shareholders’ Meeting that I would not be seeking re-election beyond my current term which will end at the 2019 ASM.

Succession planning for my replacement as Chair is underway, and we are blessed in that we have a number of high calibre contenders currently sitting as directors.

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Under our constitution the Minister of Finance must approve the appointment of the Chair and I have great confidence your Board will provide an excellent successor for ratification. Board succession planning is a topic that the Nominations Committee works on regularly and we again are fortunate in that MCY is able to attract high calibre candidates for director roles as they become available.

[SLIDE: AGENDA]

Turning to the areas we will be covering today...

I’m looking forward to taking you through some of our highlights from the past year. I’ll also cover Dividends, Share Price Performance and EBITDAF guidance before handing over to Fraser.

Fraser will update you on our business and financial performance, and further bring to life Mercury’s integrated approach to creating sustainable value and our Company’s alignment with critically important long-term national outcomes.

In terms of the formal business, we have three resolutions to put to the meeting.

We will cover each resolution in turn and invite questions specific to those items.

It will then be time to vote on our three resolutions which relate to the re-election of directors.

I will outline the process for the discussion and voting on the resolutions at that point in the agenda.

Following the resolutions, we will take questions from you on our financial and operational performance or other questions relating to the Company.

At the close of the meeting, we hope you will join us for what is probably going to be a late morning tea.

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This time also provides an opportunity for us to get feedback from you, our owners, and for us to provide some more detail about the things we are doing to take us towards our mission of Energy Freedom.

I invite you to talk with Mercury people – easily recognisable with their yellow jackets and name tags – about some of the wonderful things they do to inspire, reward and make things easy for the people who interact with us every day.

They will be available at the various stands we have set up to showcase various activity from across Mercury’s operations.

[SLIDE: LEADERSHIP]

As well as delivering strong financial results, Mercury continues to play a broader role in support of its customers, communities and the country that distinguishes the business in a highly competitive market.

During the year Mercury continued to influence the national narrative on energy and transport innovation, promoting the electrification of transport and initiating a scalable national gridconnected 1MW battery trial.

We take very seriously our contribution to an effective, efficient and innovative energy sector that benefits all New Zealanders.

As a board, we are delighted with the role Chief Executive Fraser Whineray has played in being a very early protagonist of the benefits to be gained by the country moving to a renewable energy target, rather than just a renewable electricity target, and the importance of the electrification of vehicles as part of that goal.

Fraser will talk in more detail about these themes shortly.

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The past year delivered record EBITDAF. While Mercury benefitted from positive hydro conditions, as demand stayed firm, a number of other milestones were achieved.

The company received external recognition, winning awards for its marketing and engagement programmes, its annual reporting, its people programmes and for the work of wonderful people in our contact centres.

I’m pleased to share with you that just last week, our contact centre people and teams again shone at the national awards celebrating professional excellence.

The list of winners was quite extensive, so I will highlight just two: •

Adam Tran who won Inbound Agent of the Year across the Energy Category

•

And winning Energy Retailer of the Year - Inbound Sales, against strong sector competition from Genesis & Meridian

Executing strongly doesn’t just happen by accident or good fortune. The management of our generation assets in all conditions is a critical competency. The dedication, hard work and commitment of the people who work for Mercury is a cornerstone of our success. They make sure that when the rain is falling, and the turbines are spinning, we are able to deliver that power to the people efficiently, effectively and safely so that the country – and you our owners – receive value.

I would like to acknowledge the role of Mercury’s executive and wider management team for their contribution to the year’s results and for their work in identifying opportunities for growth going forward.

[SLIDE: WELLBEING AND ENGAGEMENT]

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People are one of our critical pillars, and Fraser will talk more about this shortly. We give this considerable focus because our commitment to the wellbeing and also the health and safety, of people at Mercury is fundamental to the sustainability of our business.

Our goal continues to be Zero Harm. We are very pleased to have been able to report that there were no serious injuries in FY2018.

Our measure, Mercury’s Total Recordable Injury Frequency rate (known as TRIFR), was 0.87 down from 1.05 in FY2017.

That is encouraging, though we continue to aim to do better. The year featured the further advancement of programmes to encourage safety to always be top of mind for our people.

As I noted in our annual report, eighty-two percent of employees confirm that Mercury cares about the wellbeing of its people, compared with the 2017 benchmark across organisations of 79%.

These are important signals that reflect well on efforts to embed a strong safety and wellbeing culture within Mercury.

I am pleased with how the company places an emphasis on its people.

Related to that are dynamic development programmes, including our High Performance Team framework, which support Mercury’s pursuit of its mission and the achievement of its strategy.

Your Board has supported management on the High Performance Team path, ensuring strong foundations are built through trust and openness.

I have talked in the past about the consolidation of the Mercury brand, and a further important step is being taken early in 2019 with the consolidation of our several Auckland locations into one combined office space in Newmarket.

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The new work environment, supported by leading technology, will enable our Auckland teams to be better connected, and more efficient and flexible in how they innovate and respond to a dynamic market.

[SLIDE: STRATEGY MILESTONES] Our reporting highlights Mercury’s strategy of delivering customer advocacy, leveraging core strengths and delivering sustainable growth.

Customer satisfaction remains strong at 63%, with initiatives including the launch through the year of a stunning campaign featuring the classic car we’ve named Evie, which has been converted by a number of clever Kiwi companies to run on home-grown electricity.

One of our customers had a treat involving Evie, after writing to us about how he was inspired to use his Mercury Free Power Day. We captured his experience in a short video that I thought you’d enjoy seeing today.

[Play video] I’d like to acknowledge Mr Warren Johns, a loyal customer, who is with us today and who will be with Evie after the meeting.

Evie has proved to be a bold conversation starter around the move to EVs, and for those of you who haven’t already had a look, we are pleased to present her to you after the meeting.

We made progress with our sustainable growth strategy through the purchase of a 19.99% stake in NZX and ASX-listed Tilt Renewables Limited, for nearly $144 million, or $2.30 per share.

As many of you will know, there is an offer in the market for majority owner Infratil, partnering with Mercury, to purchase the balance of Tilt shares. This offer does not require any further capital from

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Mercury, but Mercury’s support gains it a seat on the Tilt board, a useful position to support Mercury leveraging long-term value from this investment.

Mercury also completed an on-market share buyback programme acquiring nearly 15.6 million ordinary Mercury shares (or 1.1%) for total consideration of NZ$50 million reflecting a price of NZ$3.207 per share. Consistent with the 2014 buyback the shares are being held as treasury stock to provide greater balance sheet flexibility. For the shareholders who retained their shares, each now owns slightly more of the company, and therefore a larger share of any distributions.

[SLIDE: SHAREHOLDER RETURNS] Moving now to returns to shareholders…

Mercury’s Total Shareholder Return, or the return from dividends paid and share price changes, within FY2018 was 7.5%.

TSR was negatively impacted by Mercury’s removal from the MSCI Global Standard Index in the third quarter of the financial year as the significant share price escalation of A2 Milk triggered its inclusion on the index in our place.

Given the number of funds mandated to follow the MSCI index, this event resulted in record levels of shares transacting over a very short period of time.

As announced with our Annual Results, a final ordinary dividend was struck at 9.1 cents per share, fully imputed.

This dividend is due for payment to shareholders today.

The dividend brought Mercury’s full-year fully imputed ordinary dividend to 15.1 cents per share, up from 14.6 cents per share in FY2017.

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Mercury’s dividend is consistent with its policy to make ordinary distributions with a pay-out ratio of 70% to 85% of Free Cash Flow on average through time.

This return to shareholders represents the tenth consecutive year of ordinary dividend growth.

Our capital management initiatives support Mercury’s investment-grade credit rating, BBB+, which was reaffirmed by S&P Global Ratings in December 2017.

[SLIDE: EBITDAF and DIVIDEND GUIDANCE]

We have issued guidance for the FY2019 year based on forecast hydro generation of 4,200 gigawatt hours, 200 gigawatt hours above normalised average, based on catchment inflows and generation year-to-date.

EBITDAF guidance for FY2019 is $515 million, subject to any material events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions.

Ordinary dividend guidance has been issued at 15.5 cents per share, an increase of 2.6% on FY2018.

Stay-in-business capital expenditure guidance is $95 million due to planned hydro, geothermal and technology investments in FY2019, as well as investment in people and culture through Mercury’s Auckland office consolidation to Newmarket.

[SLIDE: ACKNOWLEDGEMENTS]

Before I hand over to Fraser, I want to thank you again for your support as owners of Mercury.

As I noted in our annual report, Mercury is well positioned to continue generating consistent and growing returns for our owners, along with value for our partners, our customers, our people and our communities.

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Thank you also to our customers for their loyalty, and our people for their commitment and professionalism.

And finally, thank you to our business partners and to the many people and organisations sharing the mutual relationships with Mercury that drive our success.

I will now hand over to our Chief Executive, Fraser Whineray.

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ADDRESS BY THE CHIEF EXECUTIVE: FRASER WHINERAY

[SLIDE: FRASER WHINERAY, CHIEF EXECUTIVE]

Tihei mauriora.

Kei ngā mana, Kei ngā reo, Kei ngā karangatanga maha e hui tahi nei i tēnei rā, tēnā rā koutou katoa!

Thank you Joan.

Good morning ladies and gentlemen. I am very pleased to have this opportunity to present to you, the owners of Mercury, at your ASM on behalf of everyone at Mercury.

Before I share my thoughts on the year, and look at the opportunities ahead, I would like to acknowledge the passing early this month of a great New Zealander: World War II fighter ace, Alan Peart.

[SLIDE: ALAN PEART]

After flying a Spitfire with distinction for both the RNZAF and RAF, and earning the Distinguished Flying Cross, Alan returned to New Zealand and was one of the four engineers who worked on the construction of Maraetai 1 dam, which was commissioned in 1952.

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Alan revisited the station in 2016 to witness the dam’s ongoing contribution to powering our lives – a story that featured in a newsletter to shareholders. Alan was 96.

Haere rā, Alan.

[SLIDE: OUR YEAR IN REVIEW]

At the time of announcing our annual results, just a little over a month ago, I noted that it rained a lot during last financial year. That certainly benefitted Mercury and the country.

That is why you will see the image of raindrops on the Waikato River featured on our Annual Report cover, which you can view online, and which some have received in hard copy. [Spare copies are available here today.] Those tiny raindrops combine of course to something very powerful, up to 13 billion of them per second through each hydro station.

[SLIDE: EVIE - ELECTRIFYING OUR FUTURE]

In our annual report, you will also see our wonderful electric vehicle: Evie, and I hope you get a closer look today.

Evie is not for sale! But she is very important at tackling some misperceptions about electric vehicles in the mass market. I’ll provide a preview of these later.

One in fifty cars imported into New Zealand is now electric. 10,000 enthusiasts have EVs now, of which 91 are Mercury’s, but we need to get numbers nationally past 100,000 to know that the opportunity is resonating with mainstream consumers. Then the single largest initiative to tackle a low-carbon, lower-cost economy by 2050 will be inevitable. We started pushing this message five ASMs ago. The Productivity Commission has also recently reaffirmed the importance of this transformation in its August report on how New Zealand can achieve a lower-carbon economy.

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[SLIDE: OUR PERFORMANCE]

Since rebranding two years ago, Mercury has continued to accelerate the execution of its strategy which consists of three parts: to deliver customer advocacy, leverage core strengths and achieve sustainable growth.

Across key financial, brand and people metrics, we have set new records in FY2018 above the previous records achieved in FY2017.

A fundamental driver of performance has been a clear customer-led approach backed by a comprehensive lift in leadership capability throughout Mercury. The team is in very good shape, has a clear direction and is showing strong momentum early in FY2019. The year ahead will see our growth strategy take a stronger prominence, building on our underlying core business execution.

Strong and steady rainfall in the hydro catchment led to record generation. This was the primary but not only driver in lifting EBITDAF to record levels.

However, capturing value from those inflows wouldn’t have been possible without the expertise and efforts of our people. In flood or drought, teams throughout the Company dynamically manage planned and unplanned plant maintenance, our portfolio and wholesale markets positions and also hundreds of resource consent conditions as part of environmental stewardship.

Stay-in-business capital expenditure of $112 million reflected high quality execution across hydro, geothermal and technology platforms. The reinvestment programme is critical to our sustainability and the delivery of renewable energy over the long-term.

The story of our Aratiatia refurbishment, as an example, is told in our annual report.

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We have continued a very strong run on cost management with operational expenditure remaining flat at around $214m across five years, and next year we are forecasting the same opex levels as well.

Our returns to shareholder this year comprised 15.1 cents of ordinary dividends, and a buyback equal to 3.5 cents per share; a total of 18.6 cents per share.

In this and previous years, we have returned surplus capital by way of imputed and unimputed special dividends and buybacks. With our investment in Tilt Renewables we have lifted our debt levels off the ‘minimum mortgage’ level of circa $1 billion, as we invest in value accretive opportunities that support Mercury growing ordinary dividends over the long-term.

The annual report covers the many highlights during the year – customer engagement, records, external recognition, safety and wellbeing, progress with improving the quality of our generation, IT and brand assets, capital management and moving the national narrative on electricity forward. I won’t repeat those here. Our people have done so much worthy of mention we could be here for some time!

In the balance of my address I’d like to focus on three key areas: the first is to outline our approach to people, which is ultimately the Company’s only long-term source of competitive advantage; the second being some internal insights on our customer focus; the third is to discuss the regulatory environment for electricity, which has been getting a lot of attention as a result of the Electricity Price Review, which is underway.

[SLIDE: OUR PEOPLE]

At the moment, there is a lot of talk about employment conditions in the media. Given how much you will understand that having good people contributes to the long-term value of Mercury, I

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thought I’d share a few things that help make us an attractive place to work: a feature that has been recognised in several awards this reporting year.

The principal reason why someone leaves a job is because they don’t like the person they report to. All Mercury people leaders, and a cohort of people expected to lead teams in the medium term, went through a four-day management fundamentals programme in 2017. This included me.

It has been tremendous for ensuring that we all understand our impact on the Company and adopt a common approach to what good management looks like.

We have alignment around what we’re trying to do. It is a customer back, not electron forward approach. People understand our broader mission of New Zealand’s Energy Freedom, and it is important to have a sense of excitement about the future to retain and attract people. Like the police advertisement a few years ago, ‘get better work stories’, we are getting much better at sharing these positive moments and achievements with each other, so everyone can advocate for the Company.

Mercury’s physical environment and the location of our offices is very important to culture.

Contributing to that, we’re in the process of getting everyone in Auckland into one location in Newmarket this coming January – a journey of some four years. People must have good access to public transport and transport routes. Newmarket is the best location in Auckland for trading off these factors, particularly in helping primary caregivers participate in the workforce.

All of our permanent employees get five MyDays above their four weeks’ annual leave. These are extra days to help balance busy work and personal lives. This helps provide flexibility for staff.

All employees receive life insurance and income protection insurance which we buy in bulk. This has proven invaluable for people and their families in some exceptionally difficult circumstances.

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We also offer our people reimbursement for an annual ‘warrant of fitness’ for physical and mental health matters with their doctor. This has resulted in some of our staff catching serious issues early, when treatment is likely to have substantially superior lasting outcomes.

It is important for Mercury’s long-term value to have engaged, motivated, aligned and supported people that work well together in high performance teams. That is why I thought it useful to outline just a few tangible examples of Mercury’s approach.

[SLIDE: OUR CUSTOMER FOCUS] In the past, I’ve talked about what we do to inspire, reward and make things easy for our customers. That continues to be our approach. We know however, that ‘keeping the lights on’ – or quality and reliability of supply – is fundamental. That requires different parts of our electricity system to work well together.

Earlier this year, in April there was a significant storm that impacted several electricity networks in the Auckland region; there is more than one network in the region. This storm did have some quite significant peak winds from a perhaps unusual direction after a period of reasonable calm and good plant-growing conditions.

Many homes lost power, which was understandable. However, many residents faced an excessive amount of time to get electricity back on; customers faced unnecessary anxiety across one network area in particular.

At Mercury, we’re obsessed about customer impacts through outages. Most often these are not within our control but we do our utmost to ensure that customer welfare is front of mind. On that Monday in April, we quickly assembled our Incident Management team to form a coordinated response.

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Normally in an outage, the network company provides a list to the retailers of the households that have a power failure. Then those retailers act according to their own plans and protocols. At Mercury, we turn our attention immediately to our medically dependent and vulnerable customer database and take appropriate steps.

Counties Power, despite having huge interruptions to its network from the storm, could provide this information because it knew what was going on at a household level through its investment in technology in partnership with Metrix, our smart metering business.

Counties can identify in six seconds when an individual meter fails to have electricity, and then initiate appropriate communications to customers and maintenance contractors to remedy the situation. Counties Power did tremendously well in managing the recovery from that April storm, though you probably didn’t hear about it. They had invested in technology, processes and partnerships in a customer-centric way.

With another network company, using our Incident Management team, we had to improvise to find out what was going on at a household level. We triangulated smart meter data with our customer database to assess priorities and get in touch with our medically dependant customers. We also sent a number of our award-winning call centre champions to help get this one network’s call queue down from over an hour to a few minutes. We didn’t care who their retailer was – we just wanted all residents to feel heard and to know that the network company had a better picture of what was going on to restore power more quickly.

On behalf of our customers and all consumers in Auckland, the outage performance was unacceptable given that good money, in fact more than $200m per year, is paid by Mercury on our customers’ behalf for an acceptable standard. We have concern that those standards, and even minimum standards agreed with the regulator, the Commerce Commission, haven’t been met over successive years.

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We encourage networks in Auckland and elsewhere to follow the Counties Power model and focus on customer outcomes and the core business of keeping the lights on.

[SLIDE: OUR WORLD]

Turning now to the external environment, I am greatly encouraged by the work of the Interim Climate Change Committee, which has been tasked with looking at “how to get New Zealand to 100% renewable electricity by 2035”.

This highly experienced group, including Dr Jan Wright, Dr Suzi Kerr, Dr David Prentice and Dr Keith Turner, has already worked out that the question is the wrong one, since how much renewable electricity there is in New Zealand is not the key to our country’s sustainability. What is key, is whether or not we have low carbon outcomes across the entire energy (not just electricity) system.

This group spent an entire day with six chief executives from the sector to focus on opportunities and challenges – real consultation. They wanted to hear from 150-years of collective sector experience to debate issues on merit and not soundbites; what is best for New Zealanders and New Zealand in the long-term. I applaud them for having the confidence and courage to engage in the way they have.

Recently, the first ‘issues’ paper has been released for the Electricity Price Review.

The review is being held for a number of reasons including because of concerns about the possibility of inequity issues due to regional pricing differences. Regional pricing differences have been easily explained by differences in distribution costs from 29 separate network companies.

I’m not saying that is necessarily acceptable, but it’s pretty easy to understand. Provincial New

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Zealand requires more wire to deliver power to each house than in the cities and a number of networks are not subject to Commerce Commission oversight for capping returns as they are wholly owned by the community. This can produce a local and circular tax system by pushing prices higher than they should be with the Commerce Commission’s oversight.

In getting feedback from a very wide range of submitters and employing consultants, the panel didn’t find a smoking gun. Because there isn’t one.

We will be providing the strongest possible encouragement to the EPR to have the courage to challenge the negative narrative and to present the facts with balance. Any outcome must ensure that long-term harm isn’t done to New Zealand and New Zealanders for the purposes of needing something politically “big and bold”.

Here are the facts: • The New Zealand electricity system is described by the International Energy Agency’s 2017 report, as “a world leading example of a well-functioning electricity market, which continues to work effectively.”

• Retail prices are in the lower third of OECD nations.

• New Zealand has the highest levels of retail competition in the OECD. It also has a huge number of generators and renewable generation development options. It has a futures market with more than 10 times the daily liquidity of residential customers that switch.

• It is the easiest market in the world to switch, recognising that in most markets there isn’t even a choice.

• It has a very high penetration of smart meters, which supports customer insight, decision making, trust, and there is much more to come with the application of technology – like the partnership with Counties Power I mentioned earlier.

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To have those outcomes, in particular competitive retail pricing, in an unsubsidised renewable, reliable and islanded electricity market, is world leading.

Mercury has spent years focused on households who find it particularly hard to manage the lumpiness of power bills. Electricity use is a very unconscious transaction, taking place hundreds of times per day, summing on average to less than $6 a day, paid for once per month.

We continue to develop our approach. We have greater engagement with budgeting agencies and community groups than any competitor, better and fairly-priced products to prevent households getting even further into debt which they cannot manage, and products which have been shown through real facts to keep the lights on.

I would encourage people to question the narrative put forward that retailers in general aren’t working hard on behalf of customers.

Two other examples that get referred to with some frequency are the Australian and UK electricity markets. They are both in a shambles. They are in a shambles because of expedient, nondynamic and politically-motivated tinkering – and in the case of Australia they’ve experienced a doubling of gas prices through Liquid Natural Gas exports.

[SLIDE: ELECTRICITY AS THE SOLUTION]

However, having shown what is on the whole working very well in New Zealand, it can always be improved.

We will be making submissions to assist the EPR panel to factually, quantitatively and compassionately determine fair outcomes that will actually improve things. It has taken more than a century of diligence and perseverance by Kiwi women and men to create this advantage.

Care needs to be taken to ensure that these advantages are not squandered.

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[SLIDE: OUR CAMPAIGN] Before wrapping up, I thought I’d return to EVIE, our electric car and the feature of our current campaign promoting e-transport.

We introduced Evie via a TV ad and digital communications. Through story-telling we are seeking to put some passion and fun into the EV dialogue: while busting some myths and highlighting the very real benefits available.

This month we debuted a new ad – saying you can ‘fill up’ for the price of a burger – just by plugging in at home.

You may not have seen that yet, and I thought today we’d show this, as well as give you an exclusive preview of two more ads, and themes to follow. This preview is one of the privileges of being an owner of Mercury. I hope you enjoy them.

[PLAY ADS]

Some pretty entertaining messages there which have very real and factual points behind them.

Don’t bother going to petrol stations. You can charge your EV anywhere.

[SLIDE: OUR ROADMAP]

Over the past four years we have taken very deliberate steps to simplify and reinvest in the business.

We have a clear strategy: deliver customer advocacy, leverage our core strengths and advance sustainable growth.

The core business is performing strongly, though delivering only incremental growth in a very competitive retail environment.

Mercury 2018 ASM Chair and CE address | 28 September 2018 | Page 25 of 26

We have delivered a decade of ordinary dividend growth. We would like to make that two decades. This cannot be done on hope, but decisive strategy, conviction and investment, in an environment of change.

Sustained ordinary dividend growth requires sustained earnings growth and we expect to take more meaningful steps towards long-term growth in the coming years.

The Tilt Renewables investment is one of those steps. We have taken the initial investment at $2.30 per share and now, in a second step, we’re looking to take Tilt Renewables private with Infratil.

We continue to listen carefully to all of our stakeholders, in particular the new Government with its focus on value, fairness and choice for customers; low-carbon energy; and the regional economy.

We have been delivering in these areas and will ensure that they continue to be strengthened.

On behalf of all of us at Mercury, I am very pleased with what has been achieved throughout this last financial year and I am excited by the opportunities ahead, though note the risks if regulatory approaches rush for expediency rather than genuine outcomes for New Zealanders over the longterm.

We acknowledge the commitment we have from you our owners. I hope that you are pleased with what Mercury’s people are achieving on your behalf and equally excited about the Company’s long-term future.

Thank you for your time today.

Nga mihi nui ki a koutou katoa

Mercury 2018 ASM Chair and CE address | 28 September 2018 | Page 26 of 26