Might get started. Team, if you'd like to take your seats. Thank you very much. [Non-English content] to all our shareholders and guests in person and online. It's an absolute pleasure to welcome you to Mercury's A nnual Shareholders Meeting for 2026. I'm Howard Thomas. I'm Mercury's Company Secretary. This week is [Non-English content] and the start of Mahuru Māori, both of which Mercury are celebrating. We're going to begin the meeting today with a karakia, which I'm going to invite Director Rachel Taulelei to lead. Rachel.
[Non-English content]
Kia ora, Rachel. I'm going to quickly run through some housekeeping before we get started. This is a non-smoking venue. If you'd like to smoke, please exit the building and go to the car park. Toilets are located in the foyer area, past the Computershare desk where you came in this afternoon. If there's an emergency, please follow the instructions of Eden Park and security staff. Your nearest safe exit is back down the entry stairs for Gate G. That's where you came in this way. Or alternatively, to my right, which is Gate F. That's down at the eastern end. Continue across the car park and then into Reimers Avenue, where you'll find the assembly point. If you have mobility issues, please seek assistance from Eden Park staff.
Please turn off your cell phones or put them on silent for the duration of today's meeting. Thank you. Following today's meeting, you are invited to come and join our Directors, management, and the rest of the Mercury team for light refreshments in this room. For those of you here in person, we love your feedback, so your feedback forms were placed on your seats. Please let us know what you think, and then you can place the form in the feedback box, which is near the exit, or you can just leave it with any Mercury employee. Some procedural matters. After each resolution is presented, we'll pause for questions on that resolution. We'll have time for general business questions towards the end of the meeting today. We ask that questions be kept relevant to the proceedings, keep them succinct, and keep them clear.
Now, for those of you here in person today, we have roving microphones. If you want to ask a question during Q and A, please just raise your hand and one of the good Mercury people will bring you a mic. Please state your name and whether you are a shareholder or a proxy holder. We have representatives from Computershare here today and also good reps from customer service. You will see them around the place in yellow T-shirts. If you have any questions as a customer about your Mercury account, please speak to them, rather than asking questions during the Q and A session. Our team is here to help you. You will also find them set up at the table on the way in there.
For those of you online with a question during the meeting, please use the Q and A tab, which is on the right-hand side of your screen to submit a question. If you need help, you can type your query and one of the Computershare team will help using the chat function. Alternatively, you can call Computershare directly on 0800-650-034. We have a moderator, Paul, today, who is going to do his best to represent all the questions that are asked online. If there are several questions on the same topic, he will group those together into one representative question where possible. The Chair will shortly open online voting for today's resolutions. That will give online attendees plenty of time to vote. If you are eligible, you will be able to cast your vote under the Vote tab. Your vote has been cast when the tick appears.
You can change your vote up until the time we declare voting closed by selecting Change Your Vote. Today we have four resolutions. Resolution one is the re-election of Hannah Hamling as a Director. Resolution two is the re-election of Adrian Littlewood as a Director. Resolution three is the re-election of Mark Binns as a Director, and resolution four is the election of Scott Scoullar as a Director. The Chair will let you know before he moves to close voting. Voting instructions for shareholders and proxies here today in person will be provided when we get to that part of the meeting. I now invite your Chair, Scott St John, to open our 2026 Annual Shareholders Meeting. Scott.
Thank you, Howard. [Non-English content] Good afternoon and thank you for joining us at Mercury's 2026 Annual Shareholders Meeting. My name is Scott St John, and I am the Chair of Mercury NZ. On behalf of your Directors, our Chief Executive, Stew Hamilton, and our leadership team, all of whom are here, I extend you a very, very warm welcome. I am pleased to confirm that we have a quorum represented here today, and therefore, I declare Mercury's 2026 Annual Shareholders Meeting open. Voting is open on all items of business. Outlining our agenda for today. First, I will introduce you to our board. I will then make a few comments on our financial and broader environmental conditions that we are operating in. Stew will then talk to Mercury's 2026 highlights. We will then move to resolutions, and lastly, we will have general Q and A.
First for the introductions, starting on my right at the far end, we have Jasper van Halder. Jasper is a Future Director who has joined us under the Institute of Directors in new zealand Future Directors Programme. We have Susan Peterson next in, who chairs our People and Performance Committee. Scott Scoullar, who is a relatively new Director. Mark Binns, who is not quite so new. Adrian Littlewood, and Hannah Hamling, who chairs our Safety and Enterprise Risk Committee. On my left at the far end, we have Rob Hamilton, who chairs the Audit and Financial Risk Committee, Rachel Taulelei. We are also joined by Mercury's Chief Financial Officer, Richard Hopkins, who is next to Rachel. Then we have our Chief Executive, Stew Hamilton, and you have already met Howard Thomas. Also here today are representatives from EY. They are appointed by the Auditor-General.
We have our solicitors from Chapman Tripp, and as I mentioned, members of the Mercury executive team. I also welcome Daniel Madley, who I believe is online representing The New Zealand Treasury. It is great to have you here with us today. I would like to share some observations and reflections about the past year. There is no doubt that Mercury is in excellent shape and delivered impressive results this year. Those results were underpinned by higher volumes of generation, the development of three new renewable generation assets, and a continued focus on really disciplined cost management. From a financial point of view, Mercury delivered a strong 2026 performance, which was very pleasing after the tough conditions in 2025. It was encouraging to see that all of our guidance metrics for investors were either met or exceeded expectations.
In terms of the headline numbers, net profit after tax was NZD 321 million, up NZD 320 million on last year, driven by higher earnings and partially offset by non-cash movements in the fair value of our electricity derivatives. Our EBITDAF, and that is our earnings before interest, tax, depreciation, amortization, and fair value adjustments, was up significantly to just under NZD 1.1 billion. This was an increase of NZD 282 million or 36% on the 2025 number off the back of higher hydro generation, rained a lot more, new geothermal and wind generation, and disciplined cost management. Our operating expenses decreased to NZD 370 million, landing NZD 26 million lower than the previous year, despite ongoing inflationary pressures and the major transformation and activity during the year. We have also made huge strides investing in disciplined growth opportunities and continuing to deliver strong dividends to our owners.
In the financial year 2026, around two-thirds of our FY 2026 operating earnings or more than NZD 700 million was reinvested in new and existing generation assets. Our stay-in business capital expenditure was NZD 150 million, up 9% on last year and in line with our long-term planning. In particular, it is great to be underway with our nearly NZD 600 million hydro refurbishment program as we continue to invest in existing infrastructure. Your board was pleased to declare a fully imputed final dividend of NZD 0.17 per share. This brought the FY 2026 full-year ordinary dividend to NZD 0.27 per share, up 13% on the previous year, our 18th consecutive year of ordinary dividend growth. Our FY 2026 EBITDAF guidance has been set at NZD 1.075 billion.
This reflects the lift in new generation capacity being available for the whole year, and continued focus on cost discipline, and it assumes that we can produce 4.1 TWh of hydro generation from our assets on the Waikato River. We will see. As I noted, the company's balance sheet remains strong, and there is good headroom to fund our current growth program. That means we can keep investing in high-quality, renewable generation assets, deliver sustainable shareholder returns, deliver value to our customers, and ultimately, deliver benefits for New Zealand. We have signaled a review of our dividend policy and capital allocation settings over the next 12 months as earnings, cash flow, and investment requirements evolve. We will keep you informed of this work. No outcome has been predetermined, with our current policy remaining in place until that review is completed.
We should be very proud of the role that Mercury plays, not just in delivering an essential service in our core function as an electricity generator and retailer, but also in helping build the energy system that New Zealand needs for the decades ahead. I wanted to take a moment to share a few thoughts around how we decide to press go on a renewable energy project. The market is working, and Mercury is taking a leading role in delivering for New Zealand's energy future. Our significant investment is helping the electricity sector deliver the fastest rate of renewable generation development in New Zealand history. This will help meet future demand growth, strengthen resilience, and support the country's economic prosperity. We use long-term earnings and reinvestment discipline to fund our renewable electricity construction pipeline.
The cost to build this infrastructure is significant, and the decisions made here flow into the pricing pathways for decades. New generation takes years to consent and construct, while demand from population growth, electrification, and new industries, like data centers, arrive in their own timelines. We take a very deliberate approach to building the right project at the right time to deliver a more stable price path for New Zealand and New Zealanders over the long term. I am optimistic about the country's future, powered by an increasingly renewable supply and encouraged by the government's focus on clearing the path for private sector to keep delivering for New Zealand. The importance of having our own energy independence as a country has been brought into sharp focus with the ramifications from geopolitical and economic uncertainty in many parts of the world, impacting on fuel supplies and prices.
New Zealand already benefits from an electricity system that is around 90% renewable. The next opportunity is to lift total renewable energy use across the wider energy system from its base of around 30% today. Investment in new renewable generation improves security of supply, helps provide commercial customers with greater cost certainty over time, and will underpin the transition to a much more renewable overall energy system. Mercury has a big role to play as more and more of our transport, heating, and industrial activity transitions to electricity. The market can deliver on the transition to a low-carbon renewable energy system, but there are challenges to navigate. This includes ensuring the electricity system remains resilient during dry periods. We believe that harnessing a mix of solutions is the best, lowest-cost way to tackle this.
With the availability of gas in sharp decline, we do not see any one single lever as being the fix. Our activity underway to counter the challenge comprises developing renewable options ahead of demand and committing major capital as demand becomes visible, working with customers on demand response and flexible plans, and continued investment in firming. This includes our baseload geothermal pipeline and our involvement in the strategic energy reserve at the Huntly Power Station. Another area of focus is ensuring electricity remains affordable and accessible for households and businesses as the transition progresses. We know electricity bills matter to households, especially when many are facing wider cost of living pressures across things like rates and fuel and rent and food.
On average, New Zealand electricity prices compare well internationally, with residential retail prices the ninth lowest in the OECD in 2025 and industrial prices the fifth lowest in the OECD. We expect regulated lines and transmission increases to continue to be a major driver of household bill increases. That is a piece that we do not control. While energy increases, the part that we do control should remain at around CPI. We know the best way that we can support affordability and energy security over the long term is to invest in more renewable electricity and deliver the infrastructure that Aotearoa needs to meet growing demand. Achieving our ambitions requires disciplined allocations of shareholders', your, capital. The board's focus is on balancing investment in existing assets and new growth with balance sheet resilience, appropriate financial headroom, and sustainable shareholder returns.
We want to continue to fund renewable investment at scale, deliver sustainable shareholder returns, and provide value for our customers, communities, and Aotearoa over the long term. Before I close, I want to acknowledge our Chief Executive, Stew Hamilton, and the Mercury executive leadership team, and the entire 1,300-strong Mercury team for the significant progress that your company has made over the 2026 financial year. Also want to thank my fellow Directors for their guidance and governance over what has been a busy but satisfying year. Of course, thank you to you, our owners. We appreciate your continued support for Mercury as we continue to execute on our Better Today, Building Tomorrow, Brighter Together strategy in financial year 2027 and beyond. Before I hand over to Stew, it does occur to me that being involved with an electricity company is a little bit like being the All Black coach.
There is a lot of folk that have a view on how we should go about our work. Not all of those views are without bias, and not all of those views have a lot of rigor attached to them. What I can assure you is that through my eyes, this is a company that you and all of our stakeholders can be very proud to be associated with. Stew.
[Non-English content]. It is a pleasure to be here with you today. As Scott had noted, Mercury is in excellent shape. We have got resilient earnings, disciplined growth, and a strong balance sheet that is enabling us to deliver value over the short and long term. Our progress reflects a clear focus on being Better Today, Building Tomorrow, and being Brighter Together by partnering for long-term success. Our strong financial performance is being converted into record levels of new generation, greater system resilience, and the capacity to support New Zealand's future economic growth. We have completed or are near completion of around NZD 1 billion of investment in three major builds. Together, they represent 1.1 TWh of new renewable generation. That is the equivalent of powering around 160,000 additional homes.
The Ngā Tamariki Geothermal Station expansion near Taupō is now complete, and that has boosted the country's supply of renewable, reliable baseload energy. Meanwhile, we have the largest wind farm in the South Island. Last week, we had the pleasure of celebrating the opening of stage two of our Kaiwera Downs wind farm near Gore, which was delivered on budget and on time. Together, stages one and two will generate enough electricity annually to power the equivalent of around 96,000 homes. The NZD 486 million expansion kicked off in 2024 following our signing of the long-term power purchase agreement with New Zealand Aluminium Smelters to support the Tiwai Smelter in Southland. As well as adding new renewable electricity to the grid, the expansion added around NZD 100 million to the local and regional economy through employment of contractors, subcontractors, support staff, accommodation, and hospitality.
The third major build underway is at the Kaiwaikawe wind farm near Dargaville. It has been delivering electricity to the grid since July and is on track to be fully operational by the end of 2026. We are not slowing down following this major period of investment. Our next development will be at Puke Kapo Hau, which is the Mahinerangi stage two wind farm west of Dunedin. We are completing final grid connection studies with Transpower for this NZD 506 million project. All going well, we expect to begin construction on it later this year. Mahinerangi Wind Farm, with both stages one and stages two, will be New Zealand's largest wind farm once complete. Puke Kapo Hau is positioned to support growing South Island demand. You may have heard that Datagrid is developing what is expected to be New Zealand's most advanced large-scale data center project.
This is expected to be one potential source of significant future demand. Off the back of that, we have signed a 140 MW power purchase option agreement with Datagrid and invested NZD 53 million for a 12.7% minority stake in Datagrid New Zealand. This is a great example of long-term demand, renewable development, and disciplined investment working together. Beyond Puke Kapo Hau, we have multiple potential pathways to achieve our target of adding 3.5 TWh of generation by 2030. This includes scaling our wind and geothermal platforms and progress on our hydro refurbishment program. This growth supports our FY 2030 EBITDAF target of NZD 1.2 billion-NZD 1.25 billion. Our next geothermal growth phase is a particularly exciting area for us as it will not only strengthen our portfolio, but it will support long-term contracting and position us to support major energy users in New Zealand.
Our potential grid-scale battery storage at Whakamaru will further strengthen the resilience and flexibility of our portfolio. As electricity demand grows, our focus continues to be on bringing forward new renewable generation to support that growth, while continuing to maintain reliable electricity for homes, for businesses, and communities across the country. Turning to our customers, we are delivering more value for our customers with lowering our cost to serve, with our scale, with platform improvements, and the operating discipline continuing to lift productivity. Our multi-product offerings across energy and telecommunications continue to be popular with over 40% of our customers now on two or more products. This includes over 190,000 customers having fiber or wireless broadband and 50,000 customers having mobile. In electricity, we now have two rates available, flat rates and Flex Rates.
Flex Rates, which were launched in June, are a flexible time-of-use plan that gives eligible customers greater control over their electricity spend. They are already proving popular with both new and existing customers. Our smart hot water control program has also progressed well with 50,000 cylinders, which is the equivalent of 20 MW now under management over winter. We recognize that higher cost of living continues to impact New Zealand consumers and businesses. We are responding with tailored support for customers and communities. Our care for households includes providing direct support for our customers experiencing hardship and collaborating with community partners to ensure comprehensive support for those most in need. We will also continue to provide material support to social retailers such as Nau Mai Rā and Toast Electric, as well as community organizations to extend care beyond our own customer base.
Later this month, you will see us celebrating 25 years as a five-star partner with the Starship Foundation. Over that time, we are proud to have raised over NZD 20 million with our customers for the hospital in that time. Meanwhile, longer-term contracts continue to be the way that we can support businesses. Looking forward, we anticipate to see continued appetite for long-term electricity supply agreements that give businesses certainty of cost and supporting our investment in more renewable energy for New Zealand to help customers electrify. An excellent option for meeting demand for major energy users is baseload geothermal. Not only is it renewable, it runs 24 hours a day, seven days a week, regardless of the weather. As I mentioned earlier, scaling our geothermal platform is an exciting development focus for us.
Before Scott moves to the formal business of the meeting, I would love to play you a short video about our geothermal growth plans. To conclude, we have made significant progress over financial year 2026. We have entered into this financial year of 2027 in a very strong position. I encourage you to review our updated strategic framework, which is available in our integrated report and online, and for more detail of what we are focused on, it shows how we are continuing to grow and create value over time. [Non-English content]. Thank you for your continued support.
From the spark of the thought about OEC5 to the spark of the electron onto the grid, less than two years. That is really great representation of the capability we have. We are building generating assets faster than any time in our history, faster than the Think Big period. From a New Zealand perspective, we are growing renewable energy. It means we have got a resilient grid. Having a resilient electricity grid will lead to resilience in our energy system. That is more important now than ever. It is really like the renaissance of Mercury's geothermal plan. We have now built a really great team of capable people, and they are really actively looking for the next plant and the next plant. That sets us up for the next 10, 20 years in terms of geothermal development.
Something which Mercury has done very well over the last 30 years is partnering commercially with Mana Whenua across a number of geothermal fields, and that really aligns the commercial world and iwi world together. We have got awesome amounts of fields to look after. We are only really extracting from 10% of our opportunity at the moment. We have now got a team that is match fit, raring to go. They have really built the muscle in terms of understanding reservoirs, understanding the design of plants, building and operating plants. That is going to add value for Mercury. It also adds value for New Zealand. We have been world leaders in geothermal for many years. Now is the chance for us to actually take on the next part of what geothermal looks like. This is just the beginning. We have got so much more to do.
Thank you, Stew, and hopefully that has given you a sense of where we are trying to get to and how we are going to get there. We now move to the formal business of the day. As Howard mentioned today, we have four resolutions. After each resolution, we will pause for questions on that resolution. All voting at today's meeting will be by way of a poll, and accordingly, in my capacity as chair, I require that a poll be held for each of the resolutions. For those here in person, shareholders who are entitled to vote and proxies who have the discretion as to how they vote should have either the voting form that was sent with the notice of meeting or an alternative voting form given to them by Computershare when they registered upon arrival.
If you completed a postal vote, you do not need to complete another voting form. If you have not received a voting form, please go to the Computershare desk located outside of this room, where the representatives will be able to assist you. I invite you to vote after all resolutions have been introduced to the meeting. Voting will close at the conclusion of the questions. Voting forms will be collected at the end of the resolutions and voting section of the meeting by the Computershare team, who will act as scrutineers, and the results will be posted on the NZX and the ASX later this afternoon. Resolution one relates to the re-election of Hannah Hamling as a Director.
Hannah was appointed a Director of Mercury in February 2020 and is Chair of the Safety and Enterprise Risk Committee and a member of the Audit and Financial Risk Committee. Hannah is an environmental scientist with extensive local and international experience in resource management and health and safety, and risk management, together with a strong background in engineering and construction project management. I invite Hannah, being eligible for re-election, to address the meeting.
Thank you, Scott. [Non-English content]. Thank you for all you coming today and all of those online. This is my third election, so I am addressing you for the last time. I have also written you quite a small dissertation about myself. I am only joking. It is quite large. As Scott said, my education is in science. I have a master's degree and first-class honors from the University of Auckland. I am also a member of the New Zealand Institute of Directors. With the exception of a brief start at a merchant bank, most of my career has been environmental science and geotechnical engineering, working with industry and governments both in New Zealand, Australia, Southeast Asia, the Pacific and parts of Europe. By way of background, at 30, I owned a business with three male colleagues and was a Director of that company.
If you ever want to sharpen your business skills, go into business with three men. I thrived on the challenges of growing revenue and achieving excellence of work. In the early 2000s when I was Managing Director of that company, I sold our business to a global engineering company called Golder. I was appointed on the global board of Golder in 2010, a 10,000-person company with 168 offices across the globe. I remained on that board until 2015, when I took up a role on the executive team as president of Asia-Pacific, was responsible for 900- 1,200 staff and revenues of over NZD 400 million. At Golder in 2015, I double-headed as Managing Director for our Australian operation, general manager of two construction operations, while also being president of Asia-Pacific. We were very efficient.
In 2019, under my leadership, Golder Australasia won the Beaton Best Professional Services Firm award and the Best Consulting Engineering Firm. As Scott has mentioned, I was selected for the board of Mercury in 2020 for my experiences in risk management, health and safety, sustainability, as well as my previous executive leadership roles. My experience across a wide range of industry, both in New Zealand and the globe, allows me to provide insight into risk management as well as opportunities for future electrification. I have spent many years in safety boots, fluoro vests. I have held toolbox meetings, stand down for safety days, implemented HR systems, increased efficiencies and revenue, and turned around failing operations. I am now dedicated to my role as a Director in Mercury and my role as Chair of the Safety and Enterprise Risk Committee and a member of the Finance and Audit Committee.
So you may well be asking a question, what have I contributed over the last six years to make myself a valuable Director to Mercury? I have encouraged and supported the ongoing strengthening of the critical risk program with a strong focus on major hazard facilities and process risk management. I have supported the management team and championed the board in the maturity of the organization's health, safety, and well-being culture to advance its goals in safety citizenship. Mercury is fortunate to have strong H&S management and an aligned board. I have been relentless in my focus on our role to play and the part in decarbonizing New Zealand in a way which strengthens the economy and provides reliable returns to shareholders.
I encourage a focus on the future of electricity industry through a global lens, where appropriate, considering innovations and learnings from pitfalls of other countries on this electrification transition and capturing the opportunities the transition brings. In my role as SERC Chair and with my esteemed colleague, Adrian and Mark, we have been able to dive deeper into enterprise risk and safety and wellbeing. I have been able to share my experience of developing a risk-based approach and support the management team in its journey to risk citizenship. The SERC committee is also running hard to be valuable and effective in governing cybersecurity. While at Mercury, I have had wonderful and humbling experiences representing Mercury at numerous events and functions with our Māori JV partners and people who have [Non-English content] on which Mercury operates.
In my final term, I am confident that I will, along with my board colleagues, continue to contribute to Mercury's advancement as a forward-looking energy company by helping Mercury's excellent executive team achieve its strategic objectives and continue to grow returns to shareholders and New Zealanders. Thank you for the time today. I ask for your support in seeking re-election and reappointment as your representative to the board of Mercury.
Thank you, Hannah. Are there any questions? I now move as an ordinary resolution that Hannah Hamling be re-elected as a Director. We will move to resolution two. This relates to the re-election of Adrian Littlewood as a Director. Adrian was appointed a Director of Mercury in August 2023 and is a member of the Safety and Enterprise Risk Committee, the People and Performance Committee, and the Nominations and Corporate Governance Committee. Adrian has wide experience across the infrastructure, property, and technology sectors, including large-scale project management, corporate and market strategy, and leadership of large organizations in rapidly changing environments. Adrian.
Thank you, Scott. Good afternoon, everyone. As Scott said, my name is Adrian Littlewood, and I am pleased to be putting myself forward for re-election to the board, having served one term. Just a quick bit of background on me. Early in my career, I started as a commercial lawyer. I saw the light, left the law, and became a management consultant in the U.K.. Upon my return to New Zealand, I worked in a tech startup for a while and then joined Spark New Zealand and worked in a wide variety of roles there before I joined Auckland Airport, where I was there for 13 years, with the final nine years as CEO. Outside of executive roles, I have held a bunch of governance roles, and I currently sit on the board of Craigs Investment Partners. That is the only other board that I sit on.
In my spare time, I have also done a bunch of work for the government on a range of projects, including the turnaround of Kāinga Ora, the Cyclone Gabrielle Recovery Taskf orce, and most recently in May this year, leading the review of how government delivers technology infrastructure and transformations and can use new tools like AI to improve service to all of us, its citizens. That is my background. The reason for me wanting to stand again this year is actually very similar to when I stood three years ago, when I explained to this meeting I had a pretty simple criteria for why I wanted to stand for Mercury. It was that the company was important to our country's prosperity. It was a truly New Zealand company making its decisions locally, not offshore.
It was tackling some important challenges in the years ahead, and that my experience, I felt, could be helpful in those challenges. Three years on, those factors, I think, remain just as relevant, and in fact, my time at Mercury has reinforced what an important role Mercury plays in our country's future. You heard from Scott and Stew today about the critical new energy infrastructure the team is building across multiple fuel types, which is very important. In doing so, and I think this is really important, the team is using its skill and experience with the board's support to find the best projects for our country that deliver the most value and the most reliable energy options.
At the same time, we are investing in AI and new technology and processes to intelligently deploy, renew, and eke more out of the generation assets we already have, and I think that is a topic that deserves attention because the team do a great job. On top of that, we are actively investing in new industries, such as data centers, as Stew mentioned, that when done well, can diversify and lift New Zealand's prosperity in coming decades. My time with the company over the last three years has shown how determined I think this board and your management team are in leading this change and doing it well for not only our customers, but also for you, its shareholders.
I mention those things because I believe my experience in working for some of New Zealand's biggest companies on some of their most challenging issues across large infrastructure projects, technology change, complex operations, all in a quite a complicated regulatory environment, is directly relevant to the challenges ahead of the company in the years ahead. I thank you for your support to become a Director in 2023 and I again seek your support for re-election. Thank you.
Thank you, Adrian. Are there any questions. I will now move as an ordinary resolution that Adrian Littlewood be re-elected as a Director. We will move to resolution three, which relates to the re-election of Mark Binns as a Director. Mark was appointed a Director of Mercury in September 2023 and is a member of the Safety and Enterprise Risk Committee. Mark is an experienced Director and business leader with extensive operational experience in the New Zealand energy and construction sectors. I invite Mark, being eligible for election, to address the meeting.
Thank you very much, Scott. Kia ora and good afternoon, shareholders. Go the 'Was. Scott kindly introduced me as not being the newest board member here today, and he's correct. The issue for the people present is to decide whether there is some life and some value still left in the old fellow. We will see. The job of appointing Directors is a very, very important one for shareholders. You want Directors that have a vision for the future, skills and experience to help management achieve it and to hold them accountable. The world is partway through an energy transition, and despite what some experts such as Donald Trump may say, the future is renewables. You've heard that Mercury intends to be at the forefront of that transition in New Zealand.
I have the experience and the time with the CEO of Meridian Energy as an example of that. I've got a lot of energy experience. I've got a lot of construction experience. I had something like 22 years with Fletcher Building, and most of that was with the construction and infrastructure side of the business. I feel that I have the ability and the energy and the dedication to make a contribution to the company's future, which is at a very, very important point. What attracts me personally is that what we do at Mercury actually matters. It matters for New Zealand, and it is going to matter a lot in the future. With that, I thank you very much for considering me for re-election today. Thank you very much.
Thank you very much, Mark. Are there any questions? There being no questions, I now move as an ordinary resolution that Mark Binns be re-elected as a Director. Resolution four relates to the election of Scott Scoullar as a Director. Scott joined the Mercury board on September 1, 2026, not that long ago. He is an experienced business leader and Director with deep finance, accounting, and commercial expertise across the public and private sectors. Scott is Chief Executive of Summerset Group and serves on the boards of the Retirement Villages Association and the New Zealand Aged Care Association. I invite Scott, being eligible for election, to address the meeting.
Thank you, Scott, and afternoon to our shareholders, both in the room and online. My name is Scott Scoullar, and it is my pleasure to offer myself for election as an independent Director to the Mercury board following appointment as a Director, as Scott mentioned. For those of you who do not know me, I am Wellington-based, and for my sins, I am a CEO for Summerset Group, an NZX, ASX retirement village aged care operator. I have spent my career in leadership and in finance to date in both public and private sectors, so a mix of both. I have had the privilege of working with organizations that serve New Zealanders every day. I have been with Summerset since 2014, initially as CFO, and then in late 2020, I was appointed as CEO for the company.
Before Summerset, I was CFO for Housing New Zealand and IRD, and prior to that, I spent 10 years of my career in National Bank in senior financial roles. Cumulatively, I have got close to 30 years' worth of experience across both commercial and financial aspects of operating businesses and was CFO for the best part of 13 years of that. My governance experience includes sitting on the audit committee for The New Zealand Treasury, previously sitting on audit and risk committee for New Zealand Customs Service and also on Wellington City Mission. As Scott mentioned before, I currently sit on the board of the New Zealand Aged Care Association and Retirement Villages Association as well. I am also a fellow of CPA Australia, and I am a member of ICANZ and INFINZ, and also a qualified accountant, although I do not say that out loud very often.
I am obviously new to Mercury and have been appointed recently. When I was approached to apply for the board role, it appealed to me as I believe that I can bring my experience from Summerset essentially to Mercury and add governance value through my experiences in a very large-scale, capital-intensive business with a diverse staff base and complex operating and health and safety environment. To provide context around that, with Summerset, we operate in both New Zealand and Australia. We have got about NZD 10 billion worth of assets, and we develop NZD 500 million worth of CapEx projects per year. When I first joined Summerset, we had about NZD 1 billion worth of assets, and in the last 12 years, we have gone from NZD 1 billion worth of assets to NZD 10 billion worth of assets.
I feel that positions me well to provide value in the sense of growth in Mercury in itself and the capital-intensive nature of both businesses are quite similar. Summerset also prides itself on being independently judged as best New Zealand retirement village operator, and that is judged by our residents living in our villages. We have customer satisfaction ratings of over 90%. Again, I think that sort of gives me a unique lens and insight into customer service, value propositions, and opportunities to drive that in a business. Retirement villages and aged care, in particular, also operate in a highly regulated and complex environment. I believe my experience with this aspect will also stand me in good stead here. To conclude, it is my honor to seek reelection as a Director on the board of Mercury and ask your support. Thank you.
Thank you, Scott. Are there any questions? I now move as an ordinary resolution that Scott Scoullar—
Hey, Scott, we do have one—
Oh. Do—
—online question that is just come in now.
Okay. Right.
What are Scott's initial impressions of Mercury?
That is you, Scott. While he is walking here, that it is a very, very good company. Go ahead.
Yeah. Look, I attended my first board meeting on Monday and was supremely impressed with, I guess, just the focus of management and the alignment of both the board and management on just about everything we sort of talked about. There was a lot of challenge and rigor, but at the same time, a lot of focused conversations with your alignment. Yeah. It's pretty hard to give too much insight based on one very first meeting, but that would be my sort of initial synopsis.
Thank you very much. Paul, is there anything else on the line?
That's all, Scott.
What'd you say? No.
That's all, Scott.
Okay. Thank you. I now move as an ordinary resolution that Scott Scoullar be elected as a Director. For those in the room who wish to vote on these motions, please tick one box to select for, against, or abstain alongside each resolution in the section marked on your voting form. If you hold a proxy on behalf of a shareholder, you will need to cast that shareholder's vote in order for them to be counted. Where there are undirected votes, proxy holders may vote these as they see fit by ticking the appropriate box. It is worth clarifying that all directed votes are treated as postal votes, and proxies need not complete a voting form in respect of directed votes. Finally, in all cases, please ensure the voting form is signed.
After voting, please place your form in one of the ballot boxes which are being passed around the room as I speak. If anyone is unsure how to complete the voting form or hasn't got a form, please go to the registration desk and somebody will be able to help you there. Once all votes have been cast, they will be counted by Computershare. The results of today's meeting will be released to the NZX and the ASX on the completion of verification of voting, which will be later on this afternoon. Please prepare your forms, cast your votes now, and in a minute, I will close the voting system. I'll just pause here for a moment. Okay. Voting is now closed.
Computershare, please finish collecting all the papers in the room, and we will now open the meeting to questions of general business from the floor, which have been submitted during the course of the meeting. I know there are some questions coming through online as well, but I'll take questions from the floor first, and I know there are some. I'm looking out there. I think there's one over here. Sir.
I'm Bruce Park, shareholder. There's no solar generation identified in your future development. Will this change or what's the story?
Yes, there was some solar indicated in one of the charts, but Stew, I'll just get you to briefly run through how we're thinking about solar at the moment and through to 2030.
Yeah, sure. Is that on? Can you hear me? Okay. Yeah. Solar has a critical role to play in New Zealand's future, no doubt about it. We have a small set of interest in solar at the moment, and you might have seen on the chart before, as we head towards 2030, we absolutely expect to be contracting for solar. We also have some solar options in our pipeline of development as well. It'll definitely keep coming. In the meantime, we believe strongly in wind, hydro, and geothermal. We think they are the most valuable, and that mix is really strong for not only Mercury's portfolio but for New Zealand. Matt and team have an amazing set of capabilities in wind and in geothermal, so that's really where we're putting our capital and our time and energy towards.
But you will see solar show up as part of our portfolio in the coming years.
Was there a question over there somewhere? Over there. Back row, sir. Yep.
Oh, hi. I've got a couple of questions on the wind farms.
Yep.
What percentage of the year do the wind farms actually produce electricity? Question one, and question two, how do the economics compare with hydro and geothermal parts of the business?
Tim, I'm going to go to you. Or Matt.
Thanks for the question. So yeah, part one, generally, a good wind farm has a capacity factor in the 40s, which means that when we install, say—
Can't hear you.
Pardon me? Can't hear me? Can you hear me okay now? Okay. Yeah. Part one, a wind farm, yes, the wind does not always blow, but a good wind farm will generate from about 40% of the installed capacity. We have wind farms that generate at 50% and wind farms that generate in the 40s. We can probably make them economic in the high 30% as well. In terms of how the economics compare, we are focused on developing and delivering the best projects, and for us, that means the most economic projects. Generally speaking, wind compares very well with geothermal. Solar investments, as Stew mentioned, we think are less competitive, but in the right context, in terms of contracting for those projects, we can invest in those economically as well.
But really, it's about, I think as Scott and Stew referenced, our goal is to invest in the best projects. Our belief is that the best projects are in wind and geothermal, and there are a lot of other factors that go into that around location and strength of the wind, the ability to transport components there. There's a lot of different factors that we consider. But that's, yeah, that's our view, wind and geo being the highest value fuels.
I think there was a question just in front of that last question, somewhere over here maybe. Yes, no? No. Okay, over here.
Go there.
Try now. No, mic.
It's not working. Oh, it's working.
Yep. No, we can hear you.
Yeah. I see that on page 45, the areas of judgment for the property plant and equipment, that it's a huge asset, and discount rate is ±0.5%, and if the interest rate goes up by 0.5%, you will have NZD 700 million asset reduction value. Aren't you worried about the higher interest rates because U.S. 10-year bond has already closed 4.9% or 4.7%? Because if the rates worldwide go up, then you may end up with NZD 2 billion hit on your asset value.
Okay, I don't have that page right in front of me, but I think what you may be looking at, and Richard, you might be able to help me, is we think across a whole range of things. What if? What happens if something goes up? What happens if something goes down? We're trying to give a sensitivity to a series of events to make sure that we're operating within our risk appetite. I can assure you, we are operating within our risk appetite. As you point out, the world's a sort of an interesting place, and volatility is increasing, but that's not something that the board is seeing as a sort of a clear and present danger. Richard, do you want to comment?
Yeah. No, you've covered it well there, Scott. We do put sensitivities in the accounts, looking at the valuations of our assets. The other thing that we do is we have a hedging program in place as well, where we hedge interest rates out longer term. We have a treasury committee that meets regulators to discuss that, both on interest rates and on FX, then we have some discussions at the Audit and Financial Risk Committee as well. Look, we think we're well managed on that. But yeah, we're constantly looking at what the markets are doing and adjusting to that.
So other.
Just down please.
Sir.
Yeah, Chuck Bird, shareholder. I was just wondering how much control the government has over Mercury, especially if we had to change the government. When I look at Australia, the government's, I think, made a real mess of their power systems over there.
Yes. Yes, I hear you. Look, the business is run independently. You have an independent board. All the Directors are independent. The way the board appointment process works is that we go through our meeting today. We consult with the government. Of course, we look for their endorsement. But we have never seen an example where the government has sort of stepped in and tried to change one of the recommendations this board was looking to take through to its shareholders. But I agree with you, we're best left to ourselves.
Yeah. Sir.
Hi.
Continuing about the asset values, my real concern is because there is a word called EBITDAF.
Yes.
We generally don't see any reputable company using the words anything apart from EBITDA because even EBITDA is not respected by people like Charlie Munger.
Yeah. In the energy sector, a lot of people use EBITDAF to have a look at how the company is operating, at what efficiency is the company operating. You're quite right. The key word in EBITDAF is the B. It's before we pay tax, interest, and all of those other things. What it does give you is a strong sense of how we're operating in an efficiency sense on the assets that we have. Rich, anything to add?
No. You have covered it well. I think the other thing is we do look at the equivalent of owner earnings, which is what Charlie Munger does. We look at operating cash flows, a djusting it for capital expenditure and working capital as well. We look at all of those measures. EBITDAF is one of many things that we look at.
Number two, sir.
Hi, shareholder. I just want to reiterate on this other share person who said about government not interfering. Peters wants to kick us in the guts. I mean, what happens there?
Look, what we've found is the government's actually bending over backwards to help us develop the assets that we are developing. We are getting a lot of assistance in that regard, and it's really important assistance because if the stuff that we do takes longer, it increases the cost of those things, makes them less economic. We won't build as much. We're very appreciative of that leg of what's happening. Not every other country can possibly say the same. I'll leave it there. Other questions? Sir.
What's your approach to offshore wind farms, and did the company have any involvement with the consortium from Europe who have spent a lot of money and time investigating the South Taranaki Bight, only to have the rug pulled under them by this present government?
Look, kind of the short answer is no. We've got a lot on our plate that we're really, really excited about. Our sort of go-forward investment slate is really full with lots of optionality sitting inside it. That said, we're aware of that. Stew, do you want to add anything?
I think that's right. We've got enormous amounts of opportunity on onshore, and onshore wind is much cheaper and much more valuable than offshore. Our first approach is to make sure we're building onshore, and we'll keep doing that. At this stage, we haven't had any major engagement with offshore wind parties, but we'll be curious and watch that quite carefully because at some stage as we keep building out that onshore, then offshore might become valuable for New Zealand.
Yeah. We look at all fuel sources. We have a particular focus on the ones that we're involved in now, but we look at all the fuel sources because the relative pricing of those fuel sources is important to us. Next question. I've got one through here. Sir.
[Newshead from Stranraer]. I'm a shareholder of the company. I find increasingly with company reporting that in the profit and loss accounts there's a reference to a change in the fair value of derivatives and so on. They tend to have a very significant effect on profits up and down. It seems to me that perhaps Mercury is in the same situation. That this very good profit that you've produced this last year might fall into that category, and we may not see the same sort of result next year.
Yeah. Look, I hear you. We have to apply accounting rules to all of our accounts. We get audited. We follow that line. I'm very, very conscious of the fact that sometimes the fair value adjustments can be confusing, and in a short-term sense, can distort. A lot of companies have to deal with this. Quite often these things are non-cash in their nature. Richard, do you want to add anything?
Yeah, look, that covers it well, Scott. I guess the key point is this is accounting and not a cash change. That's really why we focus on EBITDAF because that's the nearest proxy for what's going on with the real economic performance of the business.
Yes, but to that extent, the actual profit and loss account can be a bit misleading.
Yeah, it can. If we look at the banks or when we talk to credit rating agencies, everyone's focused on the EBITDAF and the cash, not the accounting piece.
Is there liable to be the same sort of effect next year as there has been this year? Haven't you made quite a gain with it this year?
We have made an accounting gain this year, and it will be volatile every year. I cannot sit here today and say if it is going to go up or down because it is a judgment call as at June 30 each year. We go through huge processes with advisors to value all the assets and all of the derivatives. Look, it is an accounting requirement. I would recommend that you focus on the cash flow statement and on EBITDAF, because that is actually what means that we can fund the growth and pay the dividends.
Other questions. I might. Oh, madam just up here.
I have two questions. Barbara O'Connor from the New Zealand Shareholders' Association. One is in relation to a question from last year when the shareholder asked if it was possible to get reduced power in lieu of company dividends, and it was agreed that you would look at that.
The second question?
The second question, I have just found it. My second question is about the investment in Datagrid New Zealand.
Yep.
I guess I would be really interested to know what you have identified as the impairment and execution risks associated with that data center.
Okay. Well, look, I will maybe deal with that first, and then I will pass to Stew on the first question. We go through a process when we allocate any capital. The way we have thought about this particular piece of capital is that we believe that in its own right, we believe it has a strong investment case. There is a secondary benefit to the business in that it is a facilitator of future growth to the company. You will probably have seen that when we announced our earnings a few weeks ago, we announced another NZD 500 million-ish wind farm, the energy of which will in part or largely be allocated to powering up that wind farm. That is kind of how we go about a lot of what we do.
What we are looking for are areas of demand, and then we are looking for assets that we can build an investment case to deliver to that piece of demand that delivers shareholders a return on their investment. Going to that first question, my recollection is when we discussed that after the meeting last year, that administratively, in the context of the shape of our share register, that administratively, that would be quite a hard thing for us. Do you want to add anything to that?
That's right, Scott, and you'll see that we've announced a review of our dividend policy over the coming year. That sort of portion of it is quite administratively difficult. But we've certainly taken on board from a number of shareholders the question of where do our dividends sit at, what's the best place for it to be placed, and it's an active conversation with the board. Off the back of that, we actually will start to look at a review of that policy over the coming 12 months.
Okay. Thank you. I'm going to go to a question online, and the question notes I talked about our balance sheet resilience and our gearing is at circa 31%. Are there plans to reduce the gearing in the mid to long term, and what is the company's acceptable gearing range? We think about it more in the sense of what is our ability to service that debt. Several people have been referring to EBITDAF. We look at our EBITDAF, and that delivers us a starting point in terms of how much debt that the company can take. The EBITDAF is our ability to service it. The debt is the obligation.
I haven't got the numbers at the tip of my tongue, but essentially, what we look at is a sort of a guiding range between 2 x and 3 x EBITDAF as the range that we want to operate in. We will occasionally do relatively large licks of investment that'll kick the gearing up, and then we earn our way down, and then we kick it up again. If our EBITDAF, just bear with me, but if our EBITDAF's about NZD 1 billion, 2 x EBITDAF is NZD 2 billion. That would be the low marker for our sort of guidance. On the same basis, if our debt was about NZD 3 billion, that is 3 x EBITDAF. So that's the sort of range we operate in. Anything to add, Richard?
No, that covers it well. I think as we look forward, we've got a big build program, particularly out to 2030 and beyond. When we look at building all of the things that we'd like to build for New Zealand, we think that the amount of debt that we will have will increase. Our current best estimate is we'll go up to 2.6x debt to EBITDA at peak.
Then it will reduce from there. Our role is to make sure we have the funding available for the big projects that we think New Zealand needs to be built. We have that, and then to make some really disciplined decisions about whether or not the economics create shareholder value each time we make those choices. In summary, we expect the level of debt to increase over the next few years as we build. Then after that, we will decrease back down towards the 2 x.
There is a question online that says, "I thought we lived in New Zealand, not Aotearoa." It is Māori Language Week, so today I live in Aotearoa. Thank you. Next question, Paul.
Yeah.
Okay.
We have a question from Mr. Glenn.
"How much energy does Mercury aim to generate from geothermal in the next 5-1 0 years?" Stew, between you might sort of agree how we look at this, because we have to be a little bit careful about forward-looking statements relative to what we have said publicly. I am not sure whether we have given a 10-year number, but what we will be able to give you a sense of with this answer is the proportion of our demand that we hope will come from geothermal. Do you want to have the first swing at that?
Do you want to come up here? Can you hear me from here?
Yes.
Great.
Yeah. We've got a question that's come in now, Scott.
Do you want me to answer that question first?
Yeah, yeah, answer that question first.
Sure. Sounded like geothermal happening over in the corner before. Certainly, at our Investor Day, I think it was earlier this year, our geothermal Investor Day, we talked about this in quite a lot of detail.
I certainly encourage you to go back onto our website if you want more information about that. We have put in place a plan to grow by another 5 TWh in our geothermal fields. As we saw previously, we are only currently extracting from about 10% of our total opportunity, so there is certainly enormous amounts of opportunity there. We currently have just under 3 TWh of geothermal in our portfolio, so another five would nearly, certainly double to triple it, which is pretty good. We are currently drilling. We have just approved, or the board has approved NZD 75 million of drilling in our fields over the next 12 months, and that will then enable us to target the first 1 TWh .
We are certainly looking at the first 1 TWh over the next 5- 10 years, and then the rest of that 5 TWh will certainly flow through the 2030s and beyond.
Thank you, Stew. The question is, what steps is the company taking to lobby the government in respect of the election policies of at least two parties to force gen tailers to divest their retail arms? What effect would such a divestment have on the company? Look, clearly, we are alive to the conversation that is going on politically around how best to structure the industry. In terms of speaking to the government, in a broader sense, I think we are living in a world where the whole concept of stakeholder engagement is changing, and there is a bunch of reasons for that. Politics is hard. Governments globally are under pressure as a consequence of perhaps having too much debt. This concept of stakeholder engagement, we believe, needs to change.
We have certainly upped the ante or upped our resources in this regard over the last year or so. We are taking a lot of advice in this space, and we are actively involved, engaged, particularly Stew, in terms of talking to the various arms of government and the various parties that are involved. I think that is probably as much as I can say in that regard. [audio distortion] Stew.
I would say that we have sort of three broad approaches when it comes to that. Firstly is we are active in advocating for the positions that we think are best for New Zealand, as much as we can, and that is across the political spectrum, in all parties and areas. Secondly is we need to make sure that we are running our business very, very well, supporting our customers, supporting medically dependent customers, making sure that we are not putting ourselves in the position where we are inviting any sort of intervention. Then thirdly, we are preparing ourselves for the various actions that might come out. We certainly think broadly about the risks that exist, both opportunities and threats, and are setting ourselves up to be prepared for that.
Okay, Paul, I am looking at the screen. You are shaking your head, so the online is finished. Is there anything else from the floor? Okay. There appears to be no further questions or matters for discussion. Thank you for your engagement. That brings us to the end of Mercury's 2026 Annual Shareholders Meeting. For those here in person, we hope you will stay for some light refreshments, and I am now going to pass to Rachel for a closing karakia. Thanks, Rach.
[Non-English content]. Thank you very much for your support today. It's my pleasure to close our Hui today, our meeting today, with a karakia that will both send you on your way safely and ensure that the Warriors take it to the Dolphins. That's the vibe I'm leaving here. That's the one.