Mercury reports record generation and significant business growth

Mercury has had a good financial year.

Record rain contributing to high hydro-electricity generation has helped boost the company’s books, along with major business growth.

Electricity generation is up 21% (from 7499GWh last year to 9038GWh in FY2023), EBITDAF rose 45% (from $581 million in FY2022 to $841m in FY2023), dividend is up 9%, and net profit after tax is down 78% ($469 million in FY2022 to $103m in FY2023) although last year’s result included the gain made on the sale of Mercury’s Tilt Renewables shareholding.

“This year we realise the full benefits of large-scale investments made over the past two years to grow our renewable generation and customer business,” says Mercury chief executive Vince Hawksworth.

Annual generation exceeded 9TWh – up 21% from 2022 levels.

Record inflows into the hydro catchment underpinned strong hydro generation at 5209GWh, 28% higher than average, and more than 1000GWh was spilled during the year to maintain lakes within consented operating limits, says Mercury.

“We know that for some the rainfall events had devastating impacts, and we provided financial assistance and on-the-ground help for our most severely impacted customers during the year in recognition of this. We also elected to delay the implementation of customer price changes to these affected areas,” says Hawksworth.

Mercury chair Prue Flacks says the company remains highly attuned to its role supporting New Zealanders through the transition to a low-carbon economy and more immediate economic challenges.

“We acknowledge this is a challenging time for many, with the rising cost of living impacting many households,” she says.

“As a major electricity retailer, we have a role to play in supporting customers and we take that responsibility seriously.”

Actions to strengthen customer care this year included collaborating on joint research into hidden hardship with Genesis Energy and working on potential solutions with community groups.

A two-year Winter Energy Study in partnership with Kainga Ora – Homes and Communities to trial how capped bills benefit customers over winter was also launched.

Hawksworth says the company celebrated several key milestones during the year as the business continued to grow its wind generation portfolio.

Wind generation increased 16% to 1471GWh following the $450m Turitea South wind farm becoming fully operational from July.

The $115m 43MW Kaiwera Downs 1 wind farm is also nearing completion and remains on track to be operational by October 2023, with first power targeted for early September.

Kaiwera Downs 2 and Kaiwaikawe wind farms are also both nearing final investment decision development stages.

“Simultaneously, we continued our 20-plus year, half billion-dollar hydro refurbishment programme, to ensure the vital hydro assets in the Waikato are able to operate for another century,” says Hawksworth.

Mercury’s scaled retail business also contributed to its great result. with 860,000 customer connections following the Trustpower retail and NOW NZ acquisitions in 2022.

Mercury reported $841 million operating earnings (EBITDAF), up $260m on the prior year, operational expenditure was $346m – up $116m on the prior year, while total stay-in-business capital expenditure was $119m – up $51m on the prior year.

Results have been partially offset by lower annual geothermal generation due to outages and lower electricity spot prices, says Mercury, adding the turnaround at Kawerau geothermal station to install a new turbine and generator was completed successfully. 

Consent has been granted for the expansion of an additional generating unit at the Nga Tamariki geothermal station, and design and procurement is underway.

Other highlights include developing Mercury’s first Climate Transition Action Plan including emissions reduction targets, cross-sector collaboration including commissioning an independent report by the Boston Consulting Group to provide a system-wide perspective on New Zealand’s low-carbon transition, and sales to commercial and industrial customers (physical and financial) lifting to 3592GWh, including a significant long-term agreement with Amazon to purchase about half the real-time output from the southern section of the Turitea wind farm.

Flacks says Mercury’s board declared a final dividend of 13.1 cents per share (cps) to be paid on  September 29, 2023, bringing the full-year ordinary dividend to 21.8cps, up 9%.

Mercury’s Dividend Reinvestment Plan has been extended, and the company is “largely on track to meet or in some cases exceed its three-year objectives, two years in”.

Its FY24 EBITDAF guidance has been set at $835 million, while stay-in-business capex guidance is $160m, and FY24 ordinary dividend guidance is 23.3cps- a 6.9% increase on FY23.