FIRST TAKE: Wet North Island winter, customer gains drive Mercury's 15% profit growth

Tuesday 22nd August 2017

Mercury Energy ran its North Island hydro generation hard while southern competitors suffered a dry winter, helping boost the Auckland-based electricity generator and retailer's net profit in the year to June 30 by 15 percent, to $184 million.

"The record result was significantly influenced by an 858 Gigagwatt hours, or 22 percent, increase in full year hydro generation from persistently strong inflows across the Waikato River catchment," said chief executive Fraser Whineray.

Combined with low capital expenditure requirements, the result allowed the Mercury board to declare not only a 2 percent increase in fully imputed final dividend but a 5 cents per share special dividend "to distribute excess free cash flow and proceeds from carbon sales", said chair Joan Withers in a statement to the NZX.

On its preferred measure, the company saw earnings before interest, tax, depreciation, amortisation, and movements in the value of financial instruments rise 6 percent to $523 million.

The company gave ebitdaf guidance for the current financial year of $500 million and a further increase in total annual dividends of more than 2 percent at 15 cents per share, based on total hydro generation of 4,150GWh in the current year, compared with the 4,724GWh in the year under review.

The final ordinary dividend of 8.8 cents per share fully imputed will be paid on Sept. 29, along with the fully imputed special dividend.

Whineray also credited Mercury's rebranding in the last year to a lower than market average level of customer churn and strong customer satisfaction scores.

"Operating costs were flat year on year at $214 million and remain $45 million below their peak in FY2012," said Whineray. “This reflects our continued focus on controlling costs, improved procurement strategies, our exit from international geothermal development and the mothballing of Mercury’s thermal generation site at Southdown."

Stay-in-business capital expenditure was $114 million and the company expects to spend $115 million in the current year, meaning both years sit above Mercury's stated average annual capex spend of $80 million, reflecting hydro refurbishment projects at Aratiatia and Whakamaru, and drilling of four new geothermal steam wells at Rotokawa and Kawerau, which came in under budget.

The result was achieved on total revenue for the year to $1.597 billion, compared with $1.564 billion the previous year, with total costs rising slightly from $1.071 billion to $1.074 billion.

(BusinessDesk)

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