Announcement
FLLYR: MCY: Mercury's performance strong in testing year
08:31am
MCY
18/08/2020 08:31
FLLYR
PRICE SENSITIVE
REL: 0831 HRS Mercury NZ Limited (NS)
FLLYR: MCY: Mercury's performance strong in testing year
FY2020 FINANCIAL RESULTS SUMMARY
[see table in attached news release]
18 August 2020 - Mercury's overall performance was strong in a testing 2020
financial year affected by drought across the Waikato catchment which
impacted hydro generation from September, and the disruption caused by the
COVID-19 pandemic.
Minimal rainfall in the final quarter of the financial year continued a
sequence of record low hydrological conditions. Lake Taupo hydro storage
ended the year almost 100GWh below its long-term mean at the end of June.
Hydro generation for the year of 3,712GWh (4,006GWh FY2019) was approximately
300GWh down against Mercury's long-term average. Careful management of Lake
Taupo's storage levels, and prudent hedging, helped lessen the financial
impact of the extremely low inflows.
Geothermal production of 2,615GWh was only modestly down on last year's
record generation (2,697GWh FY2019), despite scheduled maintenance activity
completed through the year.
Operating earnings, (EBITDAF) of $494 million were down $12 million on the
prior year - a strong result given the 2020 financial year was the first full
year without earnings from the Metrix smart metering business which was sold
in FY2019.
Capital expenditure (CAPEX) of $279 million ($115 million FY2019) represented
a high level of activity across generation assets and investments into
information communication technology (ICT) initiatives - all part of ensuring
the platforms for sustaining and growing performance are strong. This
included stay-in-business CAPEX of $114 million ($89 million FY2019). Mercury
completed multi-year refurbishments at Whakamaru and Aratiatia hydro stations
as well as a three-well geothermal drilling programme at Kawerau and Rotokawa
steamfields.
Mercury also advanced construction of the Turitea wind farm, committing $184
million in total to 30 June 2020. Contractor delivery delays across design
and construction, as well as some impacts from the COVID-19 related lockdown
from late March, have set back the construction timetable. Completion of the
33 northern turbines is expected in the final quarter of FY2021, and the 27
southern turbines in the second quarter of FY2022. Project times remain
subject to contractor performance and further COVID-19 restrictions.
Our investment in Tilt Renewables has enabled us, as intended, to participate
in renewable energy growth opportunities in Australia as well as Tilt's
growth in New Zealand.
Operating costs, when normalised for the sale of Metrix and IFRS changes,
remained broadly flat for a seventh year in a row, reflecting Mercury's
disciplined and focussed approach to its core activities.
Net profit after tax (NPAT) of $207 million was down on the prior year's
record ($357 million FY2019) which benefitted by $177 million from the sale
of Metrix. Normalising for this gain on sale, NPAT was up $27 million,
primarily due to lower interest and tax charges more than offsetting the
impacts of lower hydrology.
OPERATIONAL HIGHLIGHTS
o Effective management of record low hydro inflows.
o Active portfolio management capturing opportunities in a dynamic wholesale
and retail market.
o Announcement of Mercury's commitment to complete all 60 turbines consented
at the Turitea wind farm.
- Advancing construction while adapting to challenges posed by the pandemic
lockdown.
o Management of planned geothermal maintenance shuts and well drilling
programme.
o Efficient change of a number of customer processes and product offers in
response to Electricity Price Review recommendations.
- Focus on minimising disruption for customers.
o Launch of a new brand campaign, Kiss Oil Goodbye, aimed at being more
direct in promoting e.transport as an alternative to fossil fuel use in the
New Zealand economy.
o Investment in data science and analytics capability to better inform our
customer strategy.
COVID-19
As well as these operational highlights, Mercury was not alone in having to
respond to impacts from the COVID-19 pandemic. This included support for
Mercury's people, customers, partners and suppliers, all done with a focus on
long-term outcomes. Mercury managed a smooth transition to working from home
for most of our people during the Level 4 lockdown; faster payments were
arranged for suppliers dependent on cashflow; communications were stepped up,
and more choices offered to help customers; and essential workers were
committed and diligent in their work to keep the lights on for New Zealanders
by generating renewable electricity from our hydro and geothermal assets.
LEADERSHIP
Mercury Chair Prue Flacks noted change that included Joan Withers' retirement
at the company's September Annual Shareholders' Meeting, and Vince
Hawksworth, previously Trustpower's Chief Executive, joining Mercury in late
March, in the midst of the COVID-19 lockdown, to replace Fraser Whineray.
"Vince's skills and deep experience in the industry have ensured a smooth
transition and strong leadership through this testing period," Ms Flacks
said.
DIVIDEND
Ms Flacks announced the Board had approved a fully imputed final dividend of
9.4 cents per share (CPS), taking total ordinary dividends for FY2020 to 15.8
CPS, an increase of 2% on FY2019. The dividend will be paid on 30 September
2020. This is Mercury's 12th consecutive year of ordinary dividend growth.
OUTLOOK
Mr Hawksworth said that the impacts of the COVID-19 pandemic on the economy
and on customers will continue to be felt for some time, requiring careful
consideration by Mercury of its decisions, and how it can support positive
outcomes.
He noted that the announced closure of the Tiwai Point aluminium smelter, and
decisions around timing of the closure, will lead to increased volatility in
wholesale electricity markets, and that transmission pricing implications,
and consideration of investments in pumped storage signalled by the
Government, will also have market and investment implications for Mercury and
others.
"Within this, we are looking closely at the things we can control,"
Hawksworth said.
"We have instigated a programme to enhance our own operational excellence,
and we will be investing carefully in our people, our assets and in digital
solutions for our customers.
"Underpinning these activities, we are confident that we have a strong
platform, powered by committed people, to continue to deliver incremental
growth and opportunities in accordance with our strategy," he said.
GUIDANCE
Mercury's FY2021 EBITDAF guidance has been set at $515 million, subject to
any material events, significant one-off expenses or other unforeseeable
circumstances including hydrological conditions. Guidance at the time of this
report assumes 3,900GWh of hydro production. FY2021 SIB capex guidance is $80
million.
FY2021 ordinary dividend guidance is 17.0 CPS, fully imputed, representing a
7.6% increase on FY2020 and the 13th consecutive year of ordinary dividend
increases.
ENDS
For further information:
Media - Craig Dowling; 0272 105 337
Investors - William Meek; 0275 173 470
End CA:00358150 For:MCY Type:FLLYR Time:2020-08-18 08:31:20
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