Strong operating performance confirms interim dividend

NEWS RELEASE

23 February 2016

Strong operating performance confirms interim dividend

Mighty River Power today announced steady operating earnings (EBITDAF) of $257 million for the six months ended 31 December 2015, supported by a strong operating performance and successful customer loyalty initiatives.

The Company has declared an interim dividend of a fully-imputed 5.7 cents per share, up 2%, to be paid to Mighty River Power’s 95,000 owners on 31 March.

Chief Executive, Fraser Whineray, said pricing and competitive pressure remained intense during the period, in a market that is among the most competitive in the world1. National electricity demand has continued to lift (up 1.4% on the prior period) and the broader industry dynamic is positive with an improvement in ASX electricity futures prices.

Highlights in the first half included increasing Mercury customer satisfaction and increased output from geothermal generation. Safety performance also improved with a reduction to one lost-time injury during the period, although above the Company’s goal of ‘zero-harm’.

Other significant milestones included the closure of the Southdown gas-fired power station in Auckland from 31 December. “We have now gone beyond 100% renewable electricity with our recent move into solar,” he said.

Mighty River Power – unaudited financial results for the six months ended 31 December 2015

Mighty River Power – unaudited financial results for the six months ended 31 December 2015

HY2015

HY2015

Change on HY2015

EBITDAF ($m)

257

258

(1)

Net profit after tax ($m)

74

8

66

Underlying earnings after tax ($m)

89

90

(1)

Interim dividend (cents per share)

5.7

5.6

0.1

EBITDAF of $257 million was down $1 million on the prior period, with increases in hydro production (up 26%) and geothermal (up 5%) offset by lower generation yields, reflecting subdued wholesale electricity prices, and competitive pressure on energy pricing to residential and business customers.

Net profit after tax (NPAT) of $74 million compares with $8 million in the prior period, with the difference due to lower non-cash impairments. The Company recognised an additional impairment of $18 million, which includes the permanent sealing of exploratory geothermal wells in Chile, along with a partial impairment reversal of $1 million from the closure of Southdown.

The competitive market was also reflected in higher operating costs (up $7 million), as the Company invested more intensively during the first half of the financial year in brand promotions and loyalty initiatives.

These included growth in the pre-pay segment with GLOBUG and the introduction of free Good Energy Days that had a measured positive impact on customer satisfaction.

Mr Whineray said Mercury’s social media community was the largest in the sector and the number of customers engaging with the Company’s brands though digital channels continued to increase through the half year. At the same time, the proportion of customers rating as ‘highly satisfied’ has climbed above 65%, with the Company targeting further improvement in this measure.

Along with the Company’s focus on customers, Mighty River Power Chair, Joan Withers, said the Board was pleased to be reporting progress on key strategic initiatives. These included the final stages of the exit from international geothermal development (announced in December 2014), the planned closure of Southdown (announced in March 2015) and the addition of solar capability.

“Our strategy centres on keeping a sharp focus on running the business well, our investment priorities and on evolving our Company for the future – through operational fitness, service innovation and in shaping new customer offerings.”

Mr Whineray said the purchase of the well-established solar business, What Power Crisis (WPC), would add proven expertise in the growing niche of solar power. WPC also has a track record in the Pacific, delivering both on and off grid solutions with storage, including the Fred Hollows Foundation Eye Hospital in the Solomon Islands, along with showcase commercial projects in New Zealand for the Auckland Museum and Air New Zealand.

“With plug-in electric vehicle numbers on New Zealand roads recently accelerating past 1,000, and a four-fold expansion of solar since 2014, people are changing their approach to energy. New Zealand’s renewable energy foundations were acknowledged in the weight of submissions last year for the country’s Climate Change target, strongly highlighting the importance of action on the electrification of transport.”

DIVIDEND AND GUIDANCE

Hydrology in the Waikato River catchment was below average through HY2016, with the drier conditions leading to a reduction in forecast full-year hydro production of 150 GWh, worth almost $11 million, to 4,000 GWh.

Mrs Withers said hydrology alone could shift EBITDAF 10%, so based on many years of experience the Company expected guidance to move during the year, possibly several times, as part of business as usual.

Full year EBITDAF is now expected to be in the range of $480 million to $500 million (previous guidance being $490 million to $515 million range) subject to any material adverse events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions. This assumes average inflows through to 30 June 2016.

The FY2016 ordinary dividend guidance is unchanged at 14.3 cents per share.

Mrs Withers said it was pleasing to have ratings agency Standard & Poor’s confirm Mighty River Power’s corporate credit rating as BBB+/Stable in December. The Company targets an investment grade long-term credit rating of BBB+ as part of a prudent and sustainable capital structure. The Company receives a one-notch uplift from its stand-alone rating of ‘bbb’, reflecting the majority ownership of the Crown.

1. Source: Accenture – The New Energy Consumer 2015.

ENDS

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