Announcement

INTERIM: MCY: Mercury -- HY2019 Results and Interim Report 08:30a.m. 
MCY  
26/02/2019 08:30  
INTERIM  
PRICE SENSITIVE  
REL: 0830 HRS Mercury NZ Limited (NS)  
 
INTERIM: MCY: Mercury -- HY2019 Results and Interim Report  
 
MERCURY EARNINGS STRONG DESPITE LESS WATER  
 
Mercury came close to matching last financial year's record first half  
performance despite less favourable hydro conditions in the Waikato catchment  
leading to lower hydro generation.  
 
Chair, Joan Withers said that earnings (EBITDAF) of $302 million ($304  
million HY2018) reflected strong execution across the entire business,  
underpinned by record spot market prices, a lift in net sales yields, a  
disciplined focus on costs and strong execution of the planned work  
programme.  
 
Mercury will pay a fully-imputed interim dividend of 6.2 cents per share on 1  
April 2019 to its nearly 85,000 owners, including the Crown. This represents  
40% of the full-year ordinary dividend guidance of 15.5 cents per share, an  
increase of 2.6% on FY2018.  
 
"The period once again saw strong, focused execution of the company's  
strategy. Mercury's people have excelled in many areas core to our business,"  
Mrs Withers said.  
 
FINANCIAL RESULTS  
 
EBITDAF for the period was boosted by movements in energy margin, where  
elevated wholesale price volatility and increased geothermal generation  
experienced during the period came close to compensating for the higher hydro  
generation output in the prior comparable period.  
 
Net profit after tax for the period of $104 million was down from $131  
million2 (HY2018), negatively impacted by the change in fair value of  
financial instruments (reflecting higher futures prices). Underlying earnings  
were steady at $114 million.  
 
Stay-in-business capital expenditure of $45 million ($59 million HY2018) was  
focused on the advancement of refurbishment work at Whakamaru and Aratiatia  
hydro stations, IT enhancements and the progression of Mercury's Auckland  
office consolidation to Newmarket which brings together around 550 people  
from multiple locations.  
 
At $99 million for the period, operating expenditure was in line with HY2018.  
 
HY2019 MILESTONES  
 
Mercury Chief Executive Fraser Whineray said that the ongoing programme of  
investment in core assets, such as the refurbishment of Whakamaru and  
Aratiatia hydro stations contributed to the long-term sustainability of the  
business, while securing the country's renewable energy advantage. The  
programme is being further advanced, with a $75 million modernisation project  
for Karapiro announced in January.  
 
"We are now five of nine stations into a carefully prioritised programme of  
upgrades that secures Mercury's ongoing operations for the long term, while  
delivering valuable capacity and efficiency improvements," Mr Whineray said.  
 
In the first quarter of the period, Mercury commissioned a grid-scale and  
grid-connected battery at its Penrose R&D centre, trialling automated trading  
of battery stored electricity. The trial discharged 285MWh back into the grid  
in the first quarter of operation.  
 
DELIVERING CUSTOMER ADVOCACY  
 
Mercury also advanced the ease by which customers can interact with the  
business through the successful launch of its Mercury Go app, which has  
already achieved more than 30,000 downloads.  
 
Mercury's focus on customer value contributed to a reduction in customer  
numbers of 7,000 over the period but delivered a 4% lift in the net sales  
yield across the mass market segment. Mercury brand trader churn, where a  
customer changes retailer without moving house, at 7.4%, continues to be  
maintained at a rate lower than the market average (8.0%).  
 
SPOT MARKET VOLATILITY  
 
Mr Whineray noted that the sector experienced significant spot market  
volatility in the period, driven by an unusual alignment of factors including  
multiple unplanned disruptions in New Zealand's natural gas sector and low  
hydro inflows across the country.  
 
"For context, however, the spot market still did not reach the Electricity  
Authority's stress test scenario of $250/MWh for a quarter. The Authority's  
quarterly stress test is something that every electricity market  
participant's board of directors is aware of, by design," Mr Whineray said.  
 
Importantly none of Mercury's mass market customers were impacted by those  
spot market conditions.  
 
Mr Whineray said there were still lessons, and opportunities for improvement  
in how the sector responds.  
 
"We believe the electricity market would benefit from a much stronger  
disclosure regime from thermal generators concerning their fuel position and  
upstream gas and coal supplies, which would make it equivalent to the ability  
to monitor hydro positions (lake levels) which are available in real time."  
 
FY2019 GUIDANCE CONFIRMED  
 
Mercury's FY2019 EBITDAF guidance remains at $515 million with anticipated  
4,150GWh of hydro generation, subject to any material events, significant  
one-off expenses or other unforeseeable circumstances including hydrological  
conditions.  
 
FY2019 stay-in-business capital expenditure guidance remains at $95 million.  
 
The full year ordinary dividend guidance remains at 15.5 cents per share, up  
2.6% on FY2018. This would represent the 11th consecutive year of ordinary  
dividend growth.  
 
ENDS  
 
For further information:  
 
Media - Craig Dowling 0272 105 337  
 
Investors - Tim Thompson 0275 173 470  
 
ABOUT MERCURY NZ LIMITED  
 
Mercury's mission is energy freedom. Our purpose is to inspire New Zealanders  
to enjoy energy in more wonderful ways and our goal is to be New Zealand's  
leading energy brand. We focus on our customers, our people, our partners and  
our country; maintain a long-term view of sustainability; and promote  
wonderful choices. Mercury is energy made wonderful.  
 
Visit us at: www.mercury.co.nz  
End CA:00331067 For:MCY Type:INTERIM Time:2019-02-26 08:30:21