Sunday, 19 Sep 2021

Mercury earnings take hit on low rainfall and Kawerau outage

Low inflows into Lake Taupo and an unplanned outage at its Kawerau geothermal power station has dragged down the earnings of Mercury Energy.

The power company reported earnings before interest tax, depreciation, amortisation and fair value adjustments (EBITDAF) down 6 per cent to $463 million for the year to June 30 compared to $490m in the previous financial year.

Net profit after tax was down $68m to $141m.

Vince Hawksworth, Mercury chief executive, said it was a resilient financial performance in the face of some challenging market headwinds.

It is the second year in a row the company has been hit by low rainfall into Lake Taupo which saw its hydro generation fall to 3611GWh, well below the long-term average of around 4050GWh.

The unplanned outage at Kawerau hit the power station in June and saw its geothermal generation for the year decrease from 2,615GWh during the previous financial year to 2,594GWh.

The company said in a statement to the NZX that the financial impact of the loss in generation had been more acute than previous years due to historically high spot prices as a result of low hydro and gas availability.

Mercury’s operational expenditure was largely flat for the eighth year in a row while its capital expenditure included $194m of growth investment.

Hawksworth said the company had made two ambitious acquisitions during the year which would give Mercury additional scale and capability.

“The acquisition of Tilt Renewables’ New Zealand assets will increase Mercury’s total annual generation by over 1,100GWh. It has also secured several prospective development options.”

Mercury also reached an agreement to buy the retail business of Trustpower. The acquisition is expected to be completed by June next year provided it meets various approvals.

“We see Mercury’s and Trustpower’s retail businesses as highly complementary, and this agreement would see the best of both being brought together for our customers.”

Hawksworth said the combined businesses would have approximately 780,000 connections across both energy and telco services.

“Bringing together the retail businesses of Mercury and Trustpower will also give us the scale to make meaningful investment in the underlying IT systems, driving greater innovation for our customers. Deeper integration of the two businesses is not planned until the underlying IT systems will enable improved customer experience.

It is still in the process of constructing its Turitea wind farm but this was expected to be fully completed 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,” said Hawksworth.

Mercury chair Prue Flacks said more than $1.5 billion of investment had already been committed to for the construction of renewable infrastructure which meant the country was wellplaced to increase the proportion of renewable generation from around 80 per cent to over 90 per cent within five years.

“However, the current market conditions illustrate the challenge of ensuring the right balance is struck between investment in decarbonisation, security of supply, and ensuring energy is affordable.”

Flacks said building one wind farm a year would be required to meet net-zero carbon emissions by 2050.

“Delivering that outcome, while maintaining security and affordability should be foremost in the Government’s mind,” she said.

Mercury will pay a dividend of 10.2 cents per share for the half taking total dividends for the financial year to 17cps – up from 15.8cps in the prior financial year.

It is forecasting EBITDAF for its 2022 financial year of $590m with increased earnings from the Turitea wind farm and the newly acquired Tilt assets and a dividend of 20cps.

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