ENERGY FREEDOM FOR A CHANGING WORLD. 2020 ANNUAL REPORT // MERCURY NZ LIMITED MENU. ABOUT THIS MENU 1. ENERGY FREEDOM TODAY. 2. OUR WORLD OF ENERGY FREEDOM. REPORT. 04 WHO WE ARE 14 THE WORLD AROUND US 05 OUR DIRECTION 18 ENGAGING WITH OUR STAKEHOLDERS Mercury is committed to providing transparent disclosures in 06 OUR BUSINESS MODEL 20 THE RISKS WE FACE easily understood, comparable and engaging ways so that we meet the expectations of our many stakeholders. 09 CHAIR & CHIEF EXECUTIVE 21 PULLING IT ALL TOGETHER UPDATE 22 CREATING VALUE IN FY20 This report follows the Integrated Reporting <IR> framework. We describe Our Business Model, including inputs, outputs and the outcomes of our strategic approach across five pillars, taking a long-term view of value creation. We also include a specific Global Reporting Initiative (GRI) Standards index and our climate change section follows the Task Force on Climate- ABOUT THIS REPORT 3. LIVING ENERGY FREEDOM. related Financial Disclosures (TCFD). OUR PILLAR STORIES We have grouped our reporting into five sections to help you find areas of particular interest, but note that they are all part of who we are, what we do and why. Across all this, we seek to report openly and honestly on our performance in a way that shows the integrated approach CUSTOMER PARTNERSHIPS KAITIAKITANGA PEOPLE COMMERCIAL we take. If you have any comments about this report, including things 24 27 30 36 39 we could do better, please email [email protected] STATEMENT FROM THE DIRECTORS PREPARING FOR CLIMATE CHANGE The directors are pleased to present Mercury NZ Limited’s 33 integrated Annual Report and Financial Statements for the year ended 30 June 2020. The Auditor-General is required to be Mercury’s auditor, and has appointed Lloyd Bunyan 4. ENERGY FREEDOM IN NUMBERS. 5. THE TEAM BEHIND ENERGY FREEDOM. of Ernst & Young to undertake the audit on his behalf. The directors are not aware of any circumstances since the end of 43 FINANCIAL COMMENTARY 71 YOUR DIRECTORS & YOUR 92 SUSTAINABILITY INDICES the year that have significantly affected or may significantly REPORT 2020 ANNUAL MERCURY affect the operations of Mercury. This Annual Report is dated 45 FINANCIAL TRACK RECORD EXECUTIVE TEAM - GRI INDEX 18 August 2020 and is signed on behalf of the Board by: 46 INDEPENDENT AUDITOR’S REPORT 72 GOVERNANCE AT MERCURY - TCFD INDEX 49 FINANCIAL STATEMENTS 79 REMUNERATION REPORT 95 INFORMATION FOR 85 DISCLOSURES SHAREHOLDERS 87 SECURITY HOLDER 96 GLOSSARY INFORMATION 97 DIRECTORY PRUE FLACKS // CHAIR KEITH SMITH // DIRECTOR 2 MENU oday T ENERGY FREEDOM TODAY. REEDOM F nergy E We are focussed on being here for the long term. There are interdependencies between a range of factors that affect our ability to create value over time. In this section we introduce you to Mercury; provide an overview of how we operate (Our Business Model); outline our past and current performance and outcomes; and share our goals for the future. Our Chair, Prue Flacks, and Chief Executive, Vince Hawksworth, then jointly summarise our 2020 financial year. MERCURY ANNUAL REPORT 2020 ANNUAL MERCURY 3 WHO WE ARE. MENU KARĀPIRO KAWERAU ARAPUNI AUCKLAND OUR MISSION: WAIPĀPA MARAETAI I ĀTIAMURI AND II oday ENERGY FREEDOM. T WHAKAMARU ŌHAKURI MŌKAI+ REEDOM NGĀTAMARIKI F ARATIATIA ROTOKAWA nergy NGĀ AWA E We are primarily a generator and retailer of PŪRUA+ LAKE TAUPŌ electricity, focussed on meeting the energy TURITEA needs of New Zealanders. Our mission, which guides us in what we generate electricity from 100% renewable We manage a small number of subsidiary do and why, is Energy Freedom for all New sources: hydro, geothermal and soon, wind. enterprises, such as Mercury Solar (solar Zealanders. This is about Aotearoa New We also have just under 20% ownership of installations) and Mercury Drive (an exploratory Zealand being stronger economically and Tilt Renewables (NZX:TLT) which has wind electric vehicle by subscription service). We more sustainable through better use of and solar generation developments in New also have a solar and battery research and homegrown, renewable energy. Zealand and Australia. development (R&D) facility. HYDRO STATIONS Our purpose is to inspire New Zealanders to Our current electricity generation sites are We have a corporate office in Auckland, enjoy energy in more wonderful ways. We do situated in the central North Island of New other offices in Hamilton, Rotorua, Taupō, GEOTHERMAL STATIONS this by championing e.transport, providing Zealand, along the Waikato River (hydro) and Palmerston North and Wellington, as well as offers to our loyal customers and innovating nearby steamfields of the northern part of operational sites at our power stations and at REPORT 2020 ANNUAL MERCURY SOLAR with digital solutions to make interactions the Central Plateau (geothermal). Our Turitea our R&D centre in Penrose, Auckland. with us easy and rewarding. wind farm is being developed in an area Thinking in an integrated way about how renowned for wind generation – part of the WIND FARM we create long-term value is part of who Tararua Range in the Manawatū region. (under construction) we are. Since 2015, we’ve been building the Our retail operations serve residential, understanding across Mercury of how we commercial (small and medium sized R&D CENTRE collectively contribute to the delivery of our businesses), industrial and spot market strategy by following Our Business Model and customers. Sub-brands include GLOBUG, focussing on things that matter most. We our pre-pay electricity product. (+ not 100% owned by Mercury) 4 OUR DIRECTION. MENU OUR PURPOSE OUR MISSION TO INSPIRE ENERGY oday NEW FREEDOM. T ZEALANDERS REEDOM TO ENJOY F nergy E • ENERGY IN CT COM NE M N IT COMMERCIAL O & CUSTOMER C MORE ACHIEVING OUR COMMERCIAL GOALS O INSPIRING, REWARDING AND MAKING & W THROUGH SUSTAINABLE GROWTH. E IT EASIER FOR OUR CUSTOMERS. N R I A WONDERFUL T H S • • • WAYS. • C L U A RI IN OUS & ORIG MERCURY ANNUAL REPORT 2020 ANNUAL MERCURY PEOPLE PARTNERSHIPS ENABLING OUR PEOPLE TO PROVIDING GREATER OPPORTUNITIES PERFORM TOGETHER IN A FOR NEW ZEALAND, OUR INDUSTRY, OUR CHANGING ENVIRONMENT PARTNERS AND OUR BUSINESS THROUGH AND KEEP EACH OTHER SAFE. LONG-TERM COLLABORATION. KAITIAKITANGA LONG-TERM SUSTAINABILITY OF NATURAL RESOURCES AND ASSETS. 5 OUR BUSINESS MODEL. MENU INPUTS OUR BUSINESS ACTIVITIES OUTPUTS 314k residential 32k commercial oday 348K 3,712 4,361 T CUSTOMERS 2k industrial GWh HYDRO GWh PHYSICAL 300 spot GENERATION SALES REEDOM F 2 geothermal joint ventures 2,615 nergy 4 formal iwi partnerships GWh GEO E 24 T • CO GENERATION 18 community and EC MM PARTNERSHIPS N I commercial partnerships N T COMMERCIAL O & CUSTOMER C ACHIEVING OUR COMMERCIAL GOALS O INSPIRING, REWARDING AND MAKING & W THROUGH SUSTAINABLE GROWTH. E IT EASIER FOR OUR CUSTOMERS. N R I A T % % H 15 13 9 hydro S GENERATION CONSUMPTION • • 5 geothermal • 14 • MARKET SHARE MARKET SHARE POWER C L U A STATIONS R IN IOU IG S & OR OUR BUSINESS 309 women 28 in Taupō MODEL EXPLAINED. 477 men 61 in Rotorua 786 Our Business Model shows our key inputs PERMANENT 496 in Auckland 101 in rest of NZ EMPLOYEES 100 in Hamilton interacting with our business activities (which has Our Direction at its core) to create outputs of sustainable, commercial value. MERCURY ANNUAL REPORT 2020 ANNUAL MERCURY PEOPLE PARTNERSHIPS The outcomes of our activity are measured ENABLING OUR PEOPLE TO PROVIDING GREATER OPPORTUNITIES and take us towards mid-term and long-term 78K 2K PERFORM TOGETHER IN A FOR NEW ZEALAND, OUR INDUSTRY, OUR goals that reflect our enduring mission. SHAREHOLDERS BONDHOLDERS CHANGING ENVIRONMENT PARTNERS AND OUR BUSINESS THROUGH AND KEEP EACH OTHER SAFE. LONG-TERM COLLABORATION. OUR BUSINESS MODEL IS CONTINUED OVER KAITIAKITANGA LONG-TERM SUSTAINABILITY OF THE NEXT PAGES NATURAL RESOURCES AND ASSETS. 6 (CONTINUED) OUR BUSINESS MODEL. MENU OUR FY20 MID-TERM HOW WE LONG-TERM PILLARS OUTCOMES STRATEGIC GOALS MEASURE THIS STRATEGIC GOALS oday T We are inspiring, rewarding and • Brand strength New Zealand’s leading energy brand. % % making it easy for customers in our CUSTOMER 5.9 13.7 60 • Churn REEDOM MERCURY BRAND NET PROMOTER BRAND STRENGTH target segments. F TRADER CHURN SCORE (NPS) • Net Promoter Score nergy E There is bipartisan national, regional Electricity is viewed as an enabler Recognised as a leader within our PARTNERSHIPS EPR 16 COVID-19 and community support for positive of the transition to a low carbon industry, with our industry recognised ELECTRICITY COMMUNITY WORKED WITH contributions from the renewable economy. as a positive contributor to New PRICE REVIEW RELATIONSHIPS SUPPLIERS TO electricity industry. Zealand, and with Mercury’s access to RECOMMENDATIONS MITIGATE LOCKDOWN Key stakeholder relationship plans are BEING ACTIONED IMPACTS Existing relationships are maintained in place and are in effect. fuel enduring and enhanced. and strengthened, and new relationships are created, consistent with our purpose and strategy. MERCURY ANNUAL REPORT 2020 ANNUAL MERCURY We understand and are managing Integrated Management Plans are Recognised as a leader in the ultra- KAITIAKITANGA 1.02 HYDRO 36KG the long-term sustainability of the in place facilitating our long-term long-term management of both PORTFOLIO WHAKAMARU CO2E/MWh natural resources and assets that approach. physical and natural assets. LWAP/GWAP REFURBISHMENT GROSS GENERATION we rely on. COMPLETE; KARĀPIRO EMISSIONS INTENSITY APPROVED 7 For a definition of these measures please see our Glossary. (CONTINUED) OUR BUSINESS MODEL. MENU OUR FY20 MID-TERM HOW WE LONG-TERM PILLARS OUTCOMES STRATEGIC GOALS MEASURE THIS STRATEGIC GOALS oday T We have enabled our people to • Employee engagement A Zero Harm organisation that has % % understand and respond to the enabled our people to adapt to the PEOPLE ONE 67 85 • No serious injuries REEDOM HIGH SEVERITY EMPLOYEE OF EMPLOYEES FELT changing nature of work in order changing nature of work to deliver the F HEALTH & SAFETY ENGAGEMENT PRODUCTIVITY WAS to deliver the highest levels of highest levels of performance and INCIDENT THE SAME OR BETTER WHILE WORKING productivity and performance productivity.