Metrix sale - Mercury Update Conference Call

Metrix sale - Mercury Update Conference Call Metrix sale: Mercury Update conference call transcript 17 December 2018, 2pm Transcribed by WEST Pages: 3 Start of Transcript Operator: Thank you for standing by, and welcome to the Mercury update conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key, followed by the number one, on your telephone keypad. I would now like to hand the conference over to Mr Fraser Whineray, Mercury's chief executive. Please go ahead.

Fraser Whineray: Thank you and good afternoon everyone. I'm Fraser Whineray, as you know. I'm joined here with Tim Thompson who's the head of investor relations for the business. Thank you for joining us on this conference call to just cover off any residual questions beyond what we provided on the release this morning that Mercury has entered into an agreement to sell its Metrix smart metering business here in New Zealand.

So just a little bit of background. You will recall in the last 12 or 18 months we have looked at a couple of Australian smart metering opportunities. We were unsuccessful in those, and also grew to know a number of other participants in the market through that. It was through some of those connections that this opportunity ultimately arose.

Metrix has been through a good period of growth in terms of rolling out its smart meters in predominantly the Auckland, but also some other places in New Zealand, and has also just completed a substantial investment in its core operating systems which puts it on a very strong footing.

Ultimately, the intelliHUB Group, which is formed from a piece of Acumen coming from Origin, a piece of intelliHUB, which was a subsidiary of Landis and Gyr, a global metering manufacturer. Also, intelliHUB acquiring the rights to roll out trust powers smart meters here in New Zealand. This is sort of a fourth leg to that sequence which goes a long way to producing a leading Australasian smart metering business.

Given it was non-core to us, represents about 5% of assets by value, we were comfortable in selling Metrix and then entering into an appropriate metering services agreement as part of that since half of Mercury's customers depend on Metrix's smart meter data.

Strategically, it probably comes as no surprise. I think we're the last generator retailer to divest a metering business in Australasia. So many others have already undertaken this step. It's been good for us to have Metrix as part of our business in Mercury. We've done more with smart metering data than anyone else in Australasia actually through that time, through customer products and innovations. But now it's a good opportunity to create that as a partnership with the intelliHUB group, but not within our direct ownership and continue innovating at Mercury for our customers.

So we welcome the opportunity for intelliHUB Group to buy this and then form that partnership going forward.

So that's probably a fair enough introduction, and I'm happy to move into questions. I presume you've all received these three slides with the release which also cover off the annualised financial impacts for removing Metrix from our earnings going forward.

So happy to take questions, thanks.

Metrix sale - Mercury Update conference call Transcript by West | 17 December 2018 | Page 1 of 3

Operator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press start two. If you are on a speaker phone, please pick up the handset to ask your question.

Your first question comes from Nevill Gluyas with First NZ Capital. Please go ahead.

Nevill Gluyas: (First NZ Capital, Analyst) Good afternoon team.

Fraser Whineray: Hi Nevill.

Nevill Gluyas: (First NZ Capital, Analyst) Some questions. Coming into Christmas, we need more transactions just before Christmas. A question for you on the meter service agreement, the long term one you've signed.

What is the term of that agreement?

Fraser Whineray: That's confidential, but it will be long term and consistent with other sort of metering services arrangements of that type when they were entered into.

Nevill Gluyas: (First NZ Capital, Analyst) So if I said 10 to 15 years, is it that kind of duration?

Fraser Whineray: Well we're not disclosing the term, but you can make an assumption.

Nevill Gluyas: (First NZ Capital, Analyst) Alright, okay. The other question, which appears to be implied in the annualised financial impact table you've provided. It does look as though, if you can confirm, that the prices under this agreement are very similar to what you used in your internal transfer?

Fraser Whineray: Yeah, I understand they're identical. If not identical, they must be almost exactly - they're very similar, very similar. 5:07If not exactly the same.

Nevill Gluyas: (First NZ Capital, Analyst) Perfect, thank you. Then, of course, all the excitement turns to what might happen with the proceeds of sale. Obviously, we saw the Crown Participation Agreement notice a few days ago. But also some rumours in the market that you guys are looking at windfarms. I just wondered how much you can tell us about what your plans for the capital are or when you might tell us what those will be?

Fraser Whineray: Yeah, as we mentioned on the release, the intention is to consider the use of the proceeds in terms of their application with the company's FY - the full year results. Which is when we traditionally look at that stuff anyway.

You already know we've put money into Tilt and there'll be a capital raise in the New Year for [Dundonnell] for that. Then we'll - once the money's landed and we have to see it landed then as I said we'll consider it with the financial results. But as for the speculation on when Lady Di's living with Michael Jackson in an apartment in Portugal as well, that's speculation too. So I'll just - we won't be able to comment on any speculation.

Tim Thompson: I think in terms of the Crown Agreement, I think there's no linkage there. It was just an agreement we entered into at this point in time.

Fraser Whineray: Oh yeah, there's absolutely no linkage to that, no. I mean, it would be aspirational of us to think we could coordinate both of these things to that effect.

Nevill Gluyas: (First NZ Capital, Analyst) I give you guys credit for it. Okay. So in terms of - so really there's that FY19. So it's not until August, you don’t think you'll be able to give us any guidance even at the interim in February?

Fraser Whineray: Yeah, that's right, that's right. The money hasn't landed in February either. The money doesn’t land until after the interims. So it's always best to count your chickens once you've got them in the coop.

Nevill Gluyas: (First NZ Capital, Analyst) Alright. Maybe just to close, is there any conditionality or subjectivity to the numbers here, or is this pretty much a done deal?

Fraser Whineray: It's pretty much a done deal. There's some very minor consents we have to get, but that's it.

Nevill Gluyas: (First NZ Capital, Analyst) Yeah, okay. That's great, thank you.

Fraser Whineray: Thank you. Thanks Nevill.

Metrix sale - Mercury Update conference call Transcript by West | 17 December 2018 | Page 2 of 3

Operator: Thank you. Once again, if you wish to ask a question please press star one on your telephone and wait for your name to be announced. We will now pause briefly to allow more questions to enter the queue Your next question comes from Max Lesser with ANZ. Please go ahead.

Max Lesser: (ANZ, Analyst) Good afternoon guys. Could I just ask what is the book value - hi, sorry. Can I just ask what is the book value of the assets you've sold? I know you said approximately 5% of assets, but can you be a bit more specific than that? Could you also let me know if there's been any re-valuation of those assets over the period you've held them? Thanks.

Fraser Whineray: No, there hasn't been a re-valuation. In terms of the actual book value, we haven't disclosed that. But that will be - it's just basically the meter install costs and then with depreciation. So it's probably - and the investment, obviously, we've made in IT systems on top of those meters. So I don’t know, I don’t have the actual figure in front of me Max. But it's - it will be - it's probably in the order of $100 million or something, but don't quote me on that. If you need to know the answer to that specifically, notwithstanding changing anything cash wise, we can find that for you. There will be a gain on sale, but that's an accounting thing.

Max Lesser: (ANZ, Analyst) Yep, no accounting gains or losses on sales are still interesting to us regardless whether they're non-cash. But thanks for that.

Fraser Whineray: Sure.

Operator: Thank you.

Fraser Whineray: Thanks Max. Operator: Once again, if you wish to ask a question please press star one on your telephone and wait for your name to be announced. We'll now pause again to allow questions to enter the queue We are showing no further questions at this time. I'll now hand back to Mr Whineray for closing remarks.

Fraser Whineray: Thank you very much. Well thanks everybody for joining this call. It seems like it was a suitably straightforward strategic interpretation by the many participants on the call. That lack of - well low number of questions I'd suggest, and also the clarity which we've provided, what the financial impact is on an annualised basis and future earnings.

Of course, we'll wait until late in the financial year before talking about what we do with the capital In the meantime, if you've got any other queries don't hesitate to reach out to Tim Thompson, and we'll do the best we possibly can to answer them. In the meantime, have a very Merry Christmas, and look forward to seeing you in 2019. Thank you.

End of Transcript

Metrix sale - Mercury Update conference call Transcript by West | 17 December 2018 | Page 3 of 3