Commerce Committee Financial Review 2014 Presentation

13 March 2014

Commerce Committee Financial Review for the 18 months to 31 December 2013

Presented by:

Joan Withers Chair

Doug Heffernan Chief Executive

William Meek Chief Financial Officer

ABOUT MIGHTY RIVER POWER

Business overview > Sell to 1-in-5 New Zealand homes and businesses: >

Mercury Energy, GLO-BUG, Bosco Connect and Tiny Mighty Power

> 2nd largest metering business, Metrix, provides enhanced information solutions for electricity retailers and their customers > More than 95% of electricity production from renewable sources > Geothermal growth through long-term commercial partnerships with Maori landowners > Applying geothermal expertise through operating business in Chile and EnergySource in the US

> 12th largest company on NZX

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ABOUT MIGHTY RIVER POWER

Our shareholders > Listed on NZX and ASX in May 2013

SHARE REGISTER AT 30 JAN 2014

> More than 100,000 shareholders > Shareholding changes since IPO:

12% 7%

> Retail shareholding up 3%

52%

> NZ institutions down 2% > International institutions down 1%

29%

> Share price changes since 10 May 2013: >

MRP down 19.6%

>

CEN down 6.6%

Crown

>

TPW down 13.9%

NZ Retail

>

NZX50 up 9.4%

NZ Institutions International Institutions

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FINANCIAL HIGHLIGHTS

FY2013 vs FY2012 800 FY2012 FY2013

700

$m

600 500

400 300 200 100 0 Energy Margin

EBITDAF

Net Profit

Underlying Earnings

Free Cash Flow

Capital Expenditure

Total declared dividend

> FY2013 financial results above IPO forecasts > Energy Margin – key measure of operating performance held up despite drought 4

FINANCIAL HIGHLIGHTS

HY2013 vs HY2014 HY2013 HY2014

400 350

$m

300 250 200 150 100 50 0 Energy Margin

Operating Expeniture

EBITDAF

Net Profit

Underlying Earnings

Free Cash Flow

Capital Total Declared Expenditure Dividend

> Achieved forecast 4% growth in operating earnings in period of lowest-ever inflows to Lake Taupo > Hydro volumes down 25%; partially offset by additional geothermal > Underlying Earnings down – lower earnings due to payment from US investment in prior period

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BROADER PERSPECTIVE

Partnerships benefiting communities > Aligned values around harnessing natural resources and sustainability > Joint venture partnerships with Maori landowners a key foundation of successful track record in geothermal development > Tauhara North No.2 Trust – 35% owner of Nga Awa Purua Station > Dividends to beneficiaries for FY2013 > Capital growth and income supporting investment diversification

> Tuaropaki Power Company – 75% owner of Mokai Station – 6th largest electricity generator > Dividends distributed to beneficiaries for FY2013 > Geothermal energy to Miraka dairy factory exporting milk products to Asia

> Potential for much broader ‘green energy’ advantage

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LOOKING AHEAD

Dividend and Outlook > 2014 interim dividend up 8% to 5.2 cents per share to be paid on 31 March 2014

DECLARED DIVIDENDS Interim

Final

250

> On track for full year FY2014 forecast growth in operating earnings $m

200

> Forecast at end of February for return to more normal inflows in autumn

150

100

50

> Our forecast total dividend for FY2014 is a fully imputed 13 cents per share

0 2010

2011

2012

2013

2014

Financial Year

SHARE PRICE

YIELD

IPO price ($2.50)

7.2%

Current pricing ($2.01)

9.0%

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LOOKING AHEAD

Governance and Management > Governance changes since IPO > Trevor Janes retired at end of term (31 Dec 2013) > Patrick Strange joined Board (4 Feb 2014) > Planned appointment of one more director in 2014 will bring Board complement to eight

> Chief Executive leaving the Company at the end of August 2014 > Doug Heffernan, Chief Executive of Mighty River Power since formation (1998)

> Search process, including internal candidates, is well underway > Board working with executive search firm with international credentials

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BUSINESS UPDATE

Building a strong safety culture > Zero harm is an absolute priority

TOTAL RECORDABLE INJURY FREQUENCY RATE (rolling 12 month, per 100,000 hours)

> No ‘serious harm’ injury events in the period

2.5 2.0

> In HY2014 1.1 million hours were worked on our sites, with five non-serious incidents

1.5 1.0 0.5

> Ngatamariki project recorded reduction in the TRIFR compared with the previous project: 3.54 vs 0.98

0.0 Dec-09

Dec-10

Dec-11

Dec-12

Jun-13

Dec-13

> Particular focus on extending safety culture to contractors and sub-contractors > Industry-wide initiatives through StayLive

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BUSINESS UPDATE

Ngatamariki station successfully completed > $475 million geothermal project completed > Identified high-temperature resource in 1950s > 10 years in the planning with Trust > More than 1 million work hours, many local jobs

> Reliable geothermal generation, now 40% of output > Greater resilience in portfolio > Runs 24/7 and not dependent on the weather

> Invested more than $1.4 billion in geothermal development since FY2006 > Mighty River Power is world’s 5th largest geothermal developer and 15th largest operator > Geothermal growth has displaced thermal – with large reduction in carbon emissions

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BROADER PERSPECTIVE

Green energy advantage for New Zealand > NZ ranked No.8 globally by World Energy Council > 2013 Index: security + affordability + sustainability > Good policy a key differentiator

> The New Zealand electricity market has delivered world best results > 1,200MW of unsubsidised renewable generation over the past 10 years; displacement of fossil fuels > NZ does not face the significant upward pressure in prices still required overseas – towards clean-tech economy

> ‘Green’ premium could better leverage exports, integrate into tourism positioning

> WEC says: “countries investing in a sustainable way will be the economies that thrive… energy vital to competitiveness and the way an economy operates”

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BUSINESS UPDATE

Lower capital expenditure > End of major domestic growth phase > Three successful geothermal projects completed since 2008

> No large power stations in NZ for at least three to five years > Patient approach to international investment > In line with proven New Zealand model > First operating plant based in California

> FY2014 capital expenditure forecast reduced ~$40 million > Now $95 million - $120 million > August forecast was $125 million - $175 million

> Regulatory uncertainty > Undertaking review of FY2015 - FY2025 reinvestment capex

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BUSINESS UPDATE

Helping customers reduce their bills > Investing in adding value for customers > $100 million in AMI ‘smart’ meter platform: enables rich information > Good Energy Monitor (GEM) > Free on-line service introduced in 2013 > Gives customers up-to-date picture, greater control of usage > 80,000 customers actively engaged with product

> Most active users already saving 3.4% more than other customers > GEM customers on track for $2 million annual savings

> Customers value GEM, more loyal in competitive market

THE SIZE OF THE BILL IS WHAT COUNTS FOR CUSTOMERS

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BUSINESS UPDATE

Social responsibility through commercial innovation > Commercial solution to avoid disconnection > Key factor in our industry-low disconnect rate 0.1%

> Pay-as-you-go prices comparable with post-pay > Technology allows regular small payments

> Requires additional equipment > GLO-BUG average saving of more than $300/year > ‘Smart’ meter roll-out now offers national potential

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BUSINESS UPDATE

Improving outcomes for consumers > Separate bills: network charges and energy use > Make each company responsible > Separation on one bill proven not sufficient

> Simple comparison of pricing and offers > Enhances competition; customer choice > Lowers barriers for independent retailers > Simplifies regulators job

> Full benefit of regulated distribution/lines to consumers > Simplifies arrangements for distributed generation > Solar can access wholesale prices – bypass retailers

> Support use of innovative technology

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BUSINESS UPDATE

Regulation – Balancing consumer and investors interests > Typical investors are: KiwiSaver funds, community trusts, and individuals saving for retirement > Investors expect integrated generator/retailers to have predictable market values with regular dividends

> Investors don’t expect regulations and industry taxes to be changing abruptly > Two recent proposals break these principles: > Transmission pricing (TPM)

– massive ‘rearranging of the deck chairs’ > Single Buyer model – a water issue rather than about electricity

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BUSINESS UPDATE

Active involvement in our communities > 15-year relationship with New Zealand Rowing > Among NZ’s most successful sports

> Supporting Starship Children’s Hospital, together with our customers, for more than a decade > Mercury Energy and our Star Supporters Club raised a record $1 million last year

> Involved in Taupo Ironman for the past six years > Enable 2,000 strong volunteer crew for event support

> Waikato Catchment Ecological Enhancement Trust (WCEET) > Established with funding from Mighty River Power as part of hydro consenting process

> $3.0 million already invested in 149 projects

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COMMERCE COMMITTEE FINANCIAL REVIEW

Questions