Winds of change for Mercury

Mercury has delivered a “resilient financial performance”, along with announcing two significant acquisitions to grow the company’s scale and capabilities, in its newly released report for the year ended June 30, 2021.

The operational result was adversely impacted by a sustained period of low inflows into Lake Taupo (for the second consecutive year) and an unplanned outage at the Kawerau geothermal power station in June, although Mercury is heavily involved in developing renewable energy from wind farms.

The financial impact of this loss of generation was more acute than previous years due to historically high spot prices as a consequence of low national fuel (hydro and gas) availability, Mercury explains.

It reported EBITDAF of $463 million for the period, down 6% on FY20 EBITDAF of $490 million. 

Capital expenditure (capex) of $250 million comprised $56 million of stay-in-business capex and $194 million of growth investment.  Operational expenditure remained broadly flat for the eighth consecutive year on a normalised basis. 

Net profit after tax was $141 million, down $68 million on the previous year.  

“Mercury has delivered a resilient financial performance in the face of some challenging market headwinds,” chief executive Vince Hawksworth says. 

“We have also made two ambitious acquisitions that will give Mercury additional scale and capability as we navigate a rapidly evolving landscape. 

“The acquisition of Tilt Renewables’ New Zealand assets will increase Mercury’s total annual generation by over 1100GWh. It has also secured several prospective development options.” 

Construction of the Turitea wind farm also continues, with the transmission line, grid connection and northern wind farm substation fully commissioned.

First generation has been achieved and Mercury anticipates the full completion of the 33-turbine northern section in the last quarter of 2021. 

“These investments and our further pipeline of potential generation options are a clear demonstration of Mercury’s commitment to decarbonising the electricity supply, and investing for the future,” Hawksworth says.

Mercury also reached agreement to acquire Trustpower’s retail business, subject to various approvals, with completion expected in the second half of FY22. 

“Trustpower’s retail business is a leading multi-product utilities retailer selling electricity, gas, fixed and wireless broadband and mobile phone services to about 231,000 customers nationwide,” Hawksworth says.

The combined business would have about 780,000 connections across both energy and telco services.

“Deeper integration of the two businesses is not planned until the underlying IT systems will enable improved customer experience,” Hawksworth says.

“In combination, the Tilt and Trustpower acquisitions, along with our pipeline of renewable generation, will ensure Mercury has the scale and capabilities it needs to be able to thrive now and into the future.”

Mercury’s board has approved a fully imputed final dividend of 10.2 cents per share (cps), taking total ordinary dividends for FY21 to 17.0cps, an increase of 7.6% on FY20. The dividend will be paid on September 30, 2021.

“Across the industry in New Zealand, more than $1.5 billion of investment is already committed by the industry to the construction of renewable infrastructure,” Mercury chair Prue Flacks says.

“This means the country is well placed to increase the proportion of generation that is renewable from around 80% today to over 90% within five years.”

Mercury’s FY22 EBITDAF guidance has been set at $590 million with increased earnings from the Turitea wind farm, newly acquired Tilt Renewables’ New Zealand assets and its Thrive programme.

It assumes 3900GWh of hydro production with FY22 stay-in-business capex guidance at $70 million.

FY22 ordinary dividend guidance is 20.0cps, fully imputed, representing a 17.6% increase on FY21 and the 14th consecutive year of ordinary dividend increases.

Mercury’s 2021 Annual Report is available here.