INSIGHTS BLOG

Q&A WITH FRASER WHINERAY – CE, MERCURY

Research Team, 4 September 2019

In this 5-minute video, we talk with Chief Executive of Mercury, Fraser Whineray. We discuss their latest result, the exciting new technologies in this sector, and the investing advice he wishes he knew sooner. Questions covered include:

  1. Your earnings came in ahead of guidance this year. What were the key influences on this?
  2. What does NZ’s electricity demand outlook look like?
  3. What technology in this sector will support that demand?
  4. You don’t support a 100% renewable electricity target for the country. Why is that?
  5. What’s the most challenging aspect of your role? And the most rewarding?
  6. What advice do you wish you were given, when you first started investing?

Craigs: Your earnings came in ahead of guidance this year. What were the key influences on this?

Fraser: The 2019 financial year was particularly challenging so I was delighted that the team came in at $505 million of EBITDAF, which was $10 million ahead of guidance. Key things that drove that was high geothermal production – up to about 98% availability which is tremendous, and that was a record for us. Also, keeping working on efficiency gains throughout the business. So we’ve held operating expenditure flat for six years in a row. And at the net profit after tax level, there was a significant boost provided by lower interest costs, but also the sale of Metrix which we’d added value to and got a gain on sale there.

Craigs: What does NZ’s electricity demand outlook look like?

Fraser: The long-term electricity demand outlook for New Zealand is fantastic. During the last twelve months, we’ve seen the Productivity Commission, the Interim Climate Change Committee and the Ministry for Business Innovation and Employment all reset their long-term electricity scenarios to something which is around 50% higher than where it is today for the next thirty years, through to 2050. This is very important for decarbonisation, it’s important for our balance of payments, energy security in the country. And also reducing cost to consumers because of course driving electric vehicles, of which we have the largest fleet in the country, is about 30 cents a litre with a car. And so it’s much better to have transport running on that basis. So to put that in to context, that 50% expansion over 30 years means building the Turitea Wind Farm, which we just announced in March, for $250 million near Palmerston North. One of those every 9 months for 30 years. And so there’s a lot ahead in the sector in terms of long-term growth, because electricity genuinely is the solution not the problem now.

Craigs: What technology in this sector will support that demand?

Fraser: Well there’s two great technologies that are intersecting in New Zealand in a wonderful marriage. The first is we have tremendous wind resources in New Zealand, some of the best actually in the world in terms of reliability and wind speeds. The second technology which is receiving a lot of focus is to do with electricity storage, which enables transport using electricity. So electrified cars, we’ve seen Ports of Auckland announce they’ve purchased the first electric tug which is as powerful as their most powerful one. We’re seeing electric scooters, electric bikes, and indeed electric planes, probably for all domestic flights. Norway said all domestic flights have to be electric by 2040 for example.

Craigs: You don’t support a 100% renewable electricity target for the country. Why is that?

Fraser: We’re a 100% renewable electricity generator now, and we’ve got some more renewable generation to build in to the future. For the country to go 100% renewable, it has to be conscious about system security. It’s very important that when the wind doesn’t blow, or the sun doesn’t shine, or the water doesn’t flow, that we have something to back it up. Now geothermal has been tremendous for New Zealand in that regard because it’s the only renewable that doesn’t depend on terrestrial weather systems, because it gets its energy from underground. But if you want to keep energy reliable for consumers, and reliability is very important to them, if you want to keep it as renewable as possible with the lowest carbon footprint for the whole energy system, and you want the cost to be good particularly for the most vulnerable consumers, then you can’t go for 100% renewable electricity, because that just makes electricity too expensive.

Craigs: What’s the most challenging aspect of your role? And the most rewarding?

Fraser: Well the most challenging aspect of the role since I started five years ago, and I’ve been in the company for 11, is trying to change the narrative on electricity to be the solution and not the problem in the country. It’s just such an amazing thing that this country does compared to every other country in the world, after a hundred years of hard work by Kiwi women and men, to produce this system that we have here. And now we can take huge advantage of it going in to the future with the renewable resources that we have, to build around wind and geothermal. So the narrative on electricity and the opportunities for it has been something we’re working on extensively. That is also hugely rewarding because I think we’ve seen that move quite substantially in the last 12 months. The most rewarding aspect of the job is when you see teams working really well throughout the business, and coming up with great ideas and executing on them really well. So that is certainly the most rewarding part, great team work.

Craigs: What advice do you wish you were given, when you first started investing?

Fraser: I think the best advice I could have been given then, would be to remember that it’s a very long game. I think I’ve cost myself more money by taking off positions too early and not enjoying the long ride, and keeping the beater up by taking them off too soon. I guess being patient and letting things run with a good investment professional would have been a better way for me to go than feeling tempted to touch positions too quickly and without giving it due thought.

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