Mercury 2017 Interim Results

Mercury 2017 Interim Results

21 February 2017

HY2017 demonstrates clear momentum and customer loyalty

>> Solid progress on key strategic initiatives

>> Operating earnings (EBITDAF) up 5.1%

>> Interim dividend of 5.8 cents per share to be paid on 3 April

Favourable North Island hydro conditions have contributed to a 5.1% lift in Mercury’s operating earnings (EBITDAF) to $270 million for HY2017.

The company’s results for the six months ended 31 December 2016 show strong customer loyalty around the new Mercury brand and significant progress on value-enhancing partnerships. These include commercial relationships with global technology leaders Trina Solar, SolaX Power and PlugShare, and Mercury became an exclusive AirpointsTM partner with Air New Zealand.

Chair, Joan Withers, says Mercury will pay a fully-imputed interim dividend of 5.8 cents per share on 3 April 2017 to 90,000 owners, including the Crown. This represents 40% of the full-year ordinary dividend guidance of 14.6 cents per share, a 2.1% increase on FY2016.

“Mercury’s owners can have confidence that their business is performing well, and they can see evidence of our customer-led strategy. We have real momentum in the business and a clear focus on value-based opportunities.”

Financial Results
HY2017 HY2016
EBITDAF ($M) 270 257
NET PROFIT AFTER TAX ($M) 113 74
UNDERLYING EARNINGS AFTER TAX ($M) 94 89
INTERIM DIVIDEND (CENTS PER SHARE) 5.8 5.7

Mercury’s financial results reflect a strong operating performance, together with above-average rainfall that enabled a 7% increase in hydro generation. Mercury updated forecast FY2017 hydro generation in October (to 4,250GWh).

Chief Executive, Fraser Whineray, says the 2015 closure of the gas-fired Southdown station substantially reduced future carbon obligations and the company took the opportunity to divest some of its carbon credits in HY2017. This generated cash proceeds of $19 million and a gain on sale of $5 million. Net profit after tax was up from $74 million to $113 million due to the improved EBITDAF, movements in the fair value of the company’s financial instruments, and impairments in the prior period. Underlying earnings were up $5 million to $94 million.

Operating costs were down 6% on HY2016 due to lower maintenance costs in the period. Full-year operating costs are forecast to be in line with recent years. Capital expenditure is expected to be $115 million in FY2017 as a result of the company’s current focus on hydro reinvestment and geothermal drilling, which is progressing well.

Growth Options

Alongside the robust results for HY2017, Mrs Withers says the reporting period included solid progress on several key elements of the company’s strategy to create long-term sustainable value.

Highlights included the move to a new Mercury brand, successful customer loyalty initiatives, the launch of New Zealand’s leading solar offering and the development of important partnerships.

The company has also undertaken a broad review of domestic growth options. Mr Whineray says this review, involving external advisors, focused on opportunities with potential to deliver value for customers and help drive progressive returns to Mercury’s owners over time.

“We have established capability and small, but important, new revenue streams in key technologies such as solar and distributed storage to complement our core strength in renewable generation.

“We are investing in the Mercury Research and Development Centre to showcase world-leading solar, battery storage, electric vehicle (EV) charging and other energy technologies in New Zealand conditions. We are also looking beyond the home to opportunities in e-mobility and relevant areas of transportation.”

Partnerships

In the six months to 31 December 2016, Mercury announced a range of initiatives being progressed through value-enhancing partnerships.

Mercury has been confirmed by a global leader in solar panel technology and sustainability, Trina Solar, as their preferred residential and commercial sales partner in New Zealand. We are also the exclusive New Zealand supplier of the SolaX-BOX battery, which offers an advanced and flexible home storage system that complements solar production and can provide effective back-up during a power outage.

The company has partnered with global software and services company, PlugShare, on the Electric HighwayTM to increase the visibility of the full range of EV charging locations to support electric vehicle growth in New Zealand.

Another substantial initiative, led by the chief executives of Mercury and Air New Zealand, saw 30 of New Zealand’s leading businesses commit to a minimum of 30% EVs in their fleets by 2019, representing 1,450 EVs in total.

Mr Whineray says: “This is one of the largest voluntary sustainability initiatives in New Zealand business history, with the potential to take around 3 million kg of carbon emissions out of the environment every year. We also see this as another very meaningful milestone in the uptake of EVs and electricity becoming the transport fuel of choice.”

Customer Loyalty

Mr Whineray says the response to the new Mercury brand (launched on 29 July 2016) has been “extremely positive with our people and with our customers”.

Mercury’s customer satisfaction reached record levels during HY2017 and switching rates were more than 3% lower than the market average reported by the Electricity Authority. Customer numbers increased by about 11,000 over the period, largely due to better retention of existing customers, consistent with our focus on rewarding loyalty.

More than 100,000 customers were rewarded with a Free Power Day, and almost 100,000 have registered for AirpointsTM. Mr Whineray says another significant contributor to loyalty is the popularity of Mercury’s fixed-price contracts.

“This is the single-most successful retail offering in terms of uptake in the New Zealand electricity market, with 1-in-3 Mercury customers opting for the certainty of contracts.”

Mercury’s first AirpointsTM offer has moved more than 4,000 customers to two-year contracts and is also expected to be a powerful retention product. He says Mercury has continued to invest in and seamlessly implement updates to key technology platforms to support service to customers and digital engagement.

FY2017 Guidance

The company has revised EBITDAF guidance for the current financial year (FY2017) to $500 million, subject to any material adverse events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions.

ENDS

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