Announcement
HALFYR: MCY: Results reflect significant change within half year
08:30am
MCY
22/02/2022 08:30
HALFYR
PRICE SENSITIVE
REL: 0830 HRS Mercury NZ Limited (NS)
HALFYR: MCY: Results reflect significant change within half year
[See table in News Release]
A period of significant change for Mercury - including becoming New Zealand's
largest wind generator - shaped Mercury's half year results to 31 December
2021, said Mercury Chief Executive, Vince Hawksworth.
The settlement of the Tilt Renewables transaction and the Turitea North wind
farm reaching full generation, as well as the legacy Norske Skog contract
close out, all shaped Mercury's half year results as the company positions
itself for a period of growth.
"Within the last six months, Mercury has transformed from a company with no
wind generation to the largest wind generator in New Zealand," Mr Hawksworth
said.
In August, Mercury completed the acquisition of Tilt Renewables' New Zealand
wind farms (generating 482 GWh over the period), and within the remaining
period progressively brought the Turitea North wind farm on stream (adding
another 105 GWh over the period).
"Together these significantly diversify our revenue streams and position us
well for an exciting period of growth as we head into an ever-accelerating
pace of change with decarbonisation front and centre."
The Turitea South wind farm is scheduled for completion in mid-2023, which
will make Turitea New Zealand's largest wind farm.
Meanwhile, the acquisition of Trustpower's retail business will be another
significant milestone for Mercury.
"This will accelerate Mercury's retail strategy, which is centred on
delivering utility solutions and creating more value for our customers.
"This acquisition also significantly increases our scale, allowing us to make
meaningful investment in our underlying IT systems and ways of working to
drive greater innovation, new products and experiences," said Mr Hawksworth.
The High Court approved the Tauranga Energy Consumer Trust restructure in
December with the transaction expected to be completed in the last quarter of
FY22.
During the period Mercury also negotiated the early exit of a foundation
hedge with Norske Skog. The settlement of the wider transaction and its
associated accounting impacts reduced HY2022 EBITDAF by $50m. Exiting this
contract allows Mercury to recontract this volume at a price more reflective
of the current market.
While positioning Mercury well for the future, collectively this activity has
impacted the HY2022 result. HY2022 EBITDAF is $242m, $48m down on the prior
year, recognising acquisition accounting for Tilt and the close-out of the
Norske Skog legacy contract.
Net profit after tax was $427 million, up $297 million on the previous year
largely due to the $367 million net gain on sale of Mercury's 19.9% Tilt
Renewables shareholding. Underlying earnings which normalise net profit after
tax fell 23% to $89m.
"The proceeds from the sale were effectively reinvested into furthering our
decarbonisation ambitions, with the associated acquisition of Tilt's New
Zealand operations and future development options."
Mercury acquired Tilt's New Zealand operations including future development
options for an enterprise valuation of NZ$797m in August 2021, funded from
the sale of its Tilt shareholding and a cash cost of NZ$634 million. This
contributed to $685 million of growth investment in the half.
Shareholders can further support our growth through Mercury's newly
established Dividend Reinvestment Plan.
CHALLENGING OPERATING CONDITIONS CONTINUE
"Despite much positive change, the six months was not without its challenges.
Sustained dry conditions across the Waikato catchment reduced hydro
generation. Careful lake management has been critical to manage electricity
portfolio risks, and that prudence is reflected in our results."
Hydro generation was 91 GWh down on the prior comparable period (where
conditions were also dry) as a result.
The 44-day unplanned outage at Kawerau geothermal power station also extended
into the start of the financial year (ending on 20 July) and coincided with
high spot prices.
"These challenging conditions reinforce the importance of building resilience
in our business and our people."
Mr Hawksworth said it was pleasing to see Mercury's Thrive programme,
focussed on building operational excellence as a mindset, continue to deliver
value, tracking well against the $30 million EBITDAF benefit signalled for
FY22.
DECARBONISATION SHAPING MERCURY'S FUTURE
Mercury Chair, Prue Flacks said, "Ensuring the transition to a renewable
future is equitable is essential. Balancing affordability and security is a
key consideration for the electricity sector's contribution to the
decarbonisation challenge.
"The market must continue to evolve for the next phase of the transition,
keeping what is good but adapting to address new challenges including the
need for rapid response peaking capacity. Mercury welcomes the opportunity to
participate in this transition.
"However, regulatory uncertainty facing the sector is a challenge. We agree
with the Government's position that climate change must be a priority but are
increasingly concerned about the potential for policy or regulatory change
that unintentionally undermines this position and jeopardises New Zealand's
decarbonisation goals.
"A good example of this is our resource management system, which needs to
support renewable generation development if we are to decarbonise at a pace
that becomes more urgent by the day," she said.
OTHER OPERATIONAL HIGHLIGHTS
o Enhancing existing generation including $30 million of rebalancing works at
the Rotokawa geothermal field delivering an additional 7MW on average each
year; and successful trial of CO2 reinjection at Ngatamariki showing
promising signs for reducing CO2 emissions.
o Greater focus on supporting customers experiencing hardship including
progress on Mercury's customer care approach through a collaborative approach
with community, social and government agencies.
o Customer connections holding steady amidst high levels of competition at
327,000, ending a period of declining market share. A clear focus on
delivering value to customers, including the 'Move with Mercury' campaign,
contributed to this outcome.
o Collaborating with industry and the public on the energy transition
initiatives like the Aotearoa Circle Low Carbon Energy Roadmap.
o Building out our COVID-19 preparedness and resilience to sustain critical
business operations in a rapidly moving situation. Mercury has also been
involved in the successful pilot of rapid antigen testing and introduction
across the business of an enterprise-wide vaccination policy.
o Sustained low TRIFR (Total Reportable Incident Frequency Rate) of 0.25 in
the six-month period and no serious harm injuries over the period, despite
significant works at generation sites.
INTERIM DIVIDEND
The Board has declared a fully imputed interim dividend of 8.0 cents per
share, representing an increase of 18% on the HY21 dividend reflecting the
expected lift in earnings, and announced a Dividend Reinvestment Plan which
is intended to be underwritten for this dividend.
GUIDANCE
Mercury's full year EBITDAF guidance remains at $570 million reflecting
impacts of the Tilt Renewables and Trustpower retail acquisitions and
excludes likely interim insurance payment arising from Kawerau station
unplanned outage.
Guidance may change and remains subject to any material events, significant
one-off expenses or other unforeseen circumstances including changes to
hydrological conditions.
FY22 stay-in-business capex guidance remains at $70 million, and FY22
ordinary dividend guidance remains at 20.0cps, fully imputed, representing a
18% increase on FY21 and the 14th consecutive year of ordinary dividend
increases.
ENDS
Howard Thomas
General Counsel and Company Secretary
Mercury NZ Limited
For investor relations queries, please contact:
Tim Thompson
Head of Treasury and Investor Relations
0275 173 470
investor@mercury.co.nz
For media queries, please contact:
Shannon Goldstone
Head of Communications
027 210 5337
media@mercury.co.nz
End CA:00387633 For:MCY Type:HALFYR Time:2022-02-22 08:30:46
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