Mercury first-half profit jumps 53%

UPDATED: Mercury NZ increased first-half profit 53 percent, bolstered by favourable North Island hydro conditions and lifted its full year guidance.

The electricity generator and distributor, formerly known as MightyRiverPower, said net profit increased to $113 million in the six months ended Dec. 31 from $74 million in the prior period. Its earnings before interest, tax, depreciation, amortisation and fair-value adjustments lifted to $270 million from $257 million. Forsyth Barr analyst Andrew Harvey-Green had expected the company to report a net profit of $85.9 million and ebidta of $259.8 million.

The net profit growth was boosted by positive fair value movements and no impairment charges and "Mercury's financial results reflect a strong operating performance, together with above-average rainfall that enabled a 7 percent increase in hydro generation," the company said.

Operating costs were down 6 percent due to lower maintenance costs in the period. Mercury said it would pay a fully imputed dividend of 5.8 cents per share on April 3, up 1.8 percent on the year. It maintained its full-year dividend guidance of 14.6 cents per share.

Looking ahead, the Auckland-based generator lifted the full year ebitdaf guidance it gave in November to $500 million versus prior guidance of $495 million.

"The New Zealand electricity market remains healthy with strong underlying fundamentals and a good balance between supply and demand," it said.

The closure of several industrial facilities over the past 18 months has extended a decade-long trend of falling electricity demand and national consumption dipped in the first half due to wetter and warmer weather conditions, however, "GDP growth and record net migration are positives that will flow through to demand," it said.

Among other elements, the annual guidance assumes 4,250GWh of hydro production, flat operating expenditure on the year and the inclusion of $5 million from the divestment of carbon credits.

Mercury Energy chief executive Fraser Whineray said the 2015 closure of the gas-fired Southdown station "substantially reduced" the company's future carbon obligations and it took the opportunity to sell some of its surplus carbon credits in the first half of the year. This generated cash proceeds of $19 million due to significantly higher carbon pricing and a gain on sale of $5 million. It said the remaining inventory and supply contracts are sufficient to meet future obligations for more than 10 years.

Capital expenditure is expected to be $115 million in the full year as a result of its focus on hydro reinvestment and geothermal drilling. The capex program is focused around Whakamaru and Aratiatia hydro stations, will further improve the efficiency and long-term reliability of operations on the Waikato River and sustain performance of geothermal production, it said.

The company also said it is lobbying for the government to shift from the current renewable electricity target to focusing on total renewable energy. "An energy target would force us as a country to give much greater weight to the opportunity to use renewable heat in industrial applications and to electrify transport," it said. Among other things, Mercury said the regulatory environment must be simplified. In particular, distribution pricing needs to be overhauled as a priority to provide appropriate long-term signals for consumers and generators alike and to keep pace with new technologies, it said.

Mercury shares were unchanged at $3.02 in early trading and have gained 19 percent in the past 12 months.