Mercury performs well in testing times

Mercury says its overall performance was strong in a testing 2020 financial year affected by drought and COVID-19.

The energy company recorded a net profit after tax of $207 million – down on the prior year’s record $357 million.

That’s despite drought across the Waikato catchment impacting hydro generation from September, and the COVID-19 pandemic, Mercury says in its newly released report on the financial year ending June 30, 2020.

Operating earnings (EBITDAF) of $494m were down $12m – a strong result given the 2020 financial year was the first full year without earnings from the Metrix smart metering business sold in FY2019, it adds.

Capital expenditure (CAPEX) of $279m ($115m FY2019) represented a high level of activity across generation assets and investments into information communication technology (ICT) initiatives.

That’s all part of ensuring the platforms for sustaining and growing performance are strong, Mercury explains.

This included stay-in-business CAPEX of $114m ($89m FY2019).

Mercury completed multi-year refurbishments at Whakamaru and Aratiatia hydro stations as well as a three-well geothermal drilling programme at Kawerau and Rotokawa steamfields.

It also advanced construction of the Turitea wind farm near Palmerston North, committing $184m in total to June 30, 2020.

Contractor delivery delays across design and construction, as well as some impacts from the COVID-19 related lockdown from late March, delayed construction with completion of the 33 northern turbines expected in the final quarter of FY2021, and the 27 southern turbines in the second quarter of FY2022.

Mercury’s investment in Tilt Renewables has enabled it to participate in renewable energy growth opportunities in Australia as well as Tilt’s growth in New Zealand.

Hydro generation for the year of 3712GWh (4006GWh FY2019) was about 300GWh down against Mercury’s long-term average.

Careful management of Lake Taupo’s storage levels and prudent hedging helped lessen the financial impact of the extremely low inflows, the company says.

Geothermal production of 2615GWh was only modestly down on last year’s record generation (2697GWh FY2019), despite scheduled maintenance activity through the year.

Mercury chair Prue Flacks notes changes included Joan Withers’ retirement at the company’s September annual shareholders’ meeting, and Vince Hawksworth, previously Trustpower’s chief executive, joining Mercury in late March to replace Fraser Whineray.

Flacks says Mercury’s board approved a fully imputed final dividend of 9.4 cents per share (CPS), taking total ordinary dividends for FY2020 to 15.8 CPS, an increase of 2% on FY2019.

The dividend will be paid on September 30.

Hawksworth notes the announced closure of the Tiwai Point aluminium smelter, and decisions around timing of the closure, will lead to increased volatility in wholesale electricity markets, and that transmission pricing implications, and consideration of investments in pumped storage signalled by the Government, will also have market and investment implications for Mercury and others.

“We have instigated a programme to enhance our own operational excellence, and we will be investing carefully in our people, our assets and in digital solutions for our customers.”

Mercury’s FY2021 EBITDAF guidance has been set at $515 million, and its FY2021 SIB capex guidance is $80m.

FY2021 ordinary dividend guidance is 17.0 CPS, fully imputed, representing a 7.6% increase on FY2020 and the 13th consecutive year of ordinary dividend increases.