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Mercury EBITDAF up 2.3% to $493m on renewables advantage

Mercury EBITDAF up 2.3% to $493m on renewables advantage

>> Special dividend lifts Mercury distributions to $252 million

Mercury has reported a 2.3% lift in operating earnings (EBITDAF) to $493 million for FY2016, the first financial results reported under the company’s new brand.

More than 90,000 Mercury owners, including the Crown, will receive a final fully-imputed ordinary dividend of 8.6 cents per share (8 cents net of Resident Withholding Tax1). This brings the full year fully-imputed ordinary dividend to a total of 14.3 cents per share, in line with guidance. The company has also declared an unimputed special dividend of 4 cents per share.

Chair, Joan Withers, says the unimputed special dividend of 4 cents per share (2.68 cents net of Resident Withholding Tax1) reflects the proceeds from non-core land sales and the current limited requirement for growth capital. Both dividends are payable on 30 September 2016.

“This level of distribution represents both 100% of Free Cash Flow and the proceeds from land sales completed over the past two years, continuing a strong focus on active capital management,” she says. “We are pleased to be returning $252 million to our shareholders for the full year, underscoring the strength of our company in a period of significant change and progress for the business, including our rebranding to Mercury at the end of July.” Mrs Withers says it is Mercury’s intention to continue to fully-impute ordinary dividends.

Chief Executive, Fraser Whineray, says a clear highlight through the financial year was refocusing the business behind a single new Mercury brand: “We now have all of our collective energy and strategy in alignment. We have had a great response and engagement from customers around our new brand and related initiatives since the launch.”

He says the overall picture of the New Zealand electricity market remains healthy, with steady demand growth over the past two years and a well-balanced market with significant thermal generation retired in 2015. This includes the closure of Mercury’s Southdown station in Auckland, meaning the company’s electricity generation is now 100% renewable.

“We have a stable and well-functioning regulatory environment that is delivering high levels of energy security, unprecedented choice for customers and a renewable electricity supply that is 80% and rising. This is an extremely positive context, creating opportunities for us around advancing technology and renewable energy with the right regulatory conditions.”

Financial Results

FY2016FY2015
EBITDAF ($M)493482
NET PROFIT AFTER TAX ($M)16047
UNDERLYING EARNINGS AFTER TAX ($M)152145
ORDINARY DIVIDEND (CENTS PER SHARE)14.314.0
SPECIAL DIVIDEND (CENTS PER SHARE)4.07.5


While Mercury’s hydro generation was below average due to low inflows, operating earnings for the year were up $11 million. Geothermal generation was up 2% to a record 2,830GWh and hydro up 16% to 3,866GWh. Reduced volatility in the wholesale market led to subdued average pricing with a greater impact on generation prices (GWAP) relative to electricity purchase costs (LWAP).

Mr Whineray says Mercury’s increase in commercial sales lifted overall volumes in the final quarter of the financial year. This contributed to a 4% fall in the average energy price to customers as new commercial contracts replaced higher-priced contracts signed between FY2011 and FY2013.

The company’s revenue from third-party metering and energy data services increased with additional meters deployed, reaching 396,000 in FY2016. Mercury recognised $13 million from the disposal of land, including parcels around the site of the former Marsden Point power station to the Office of Treaty Settlements. This largely concludes Mercury’s non-core land sales programme.

Operating costs were flat year-on-year and included prudent investment in the Mercury rebrand.

Net profit after tax increased $113 million to $160 million due to impairments in the prior period and Mercury’s improved EBITDAF in FY2016. Underlying earnings after tax increased by $7 million or 4.8% to $152 million, reflecting improved operating earnings.

Mr Whineray says capital expenditure remains largely focused around the ongoing hydro reinvestment programme to improve the operational efficiency and long-term reliability of these key stations on the Waikato River, geothermal well-drilling to sustain performance, and the further roll-out of smart meters by Metrix.

FY2017 Guidance

With the moderate level of earnings variability from year to year due to hydrological conditions, Mercury has adopted a single ‘point-estimate’ for EBITDAF guidance from FY2017.

Mrs Withers says the aim is to communicate expected business outcomes more clearly to investors. EBITDAF guidance updates will be provided at least twice-yearly at the Annual Shareholders’ Meeting and Interim Results. Quarterly Operational Updates will include mid-point estimates for full-year hydro generation.

EBITDAF guidance for the year ending 30 June 2017 is $490 million, subject to any material events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions. Ordinary dividend guidance has been issued at 14.6 cents per share, up 2% on FY2016.

1 Assuming a tax rate of 33%, applicable to New Zealand residents only.

ENDS

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