Mercury’s focus on loyalty paying dividends

Mercury’s focus on loyalty paying dividends

Summary
Operating earnings (EBITDAF) $523 million, up 6%
Net profit after tax $184 million, up 15%
Final ordinary dividend 8.8 cents per share fully imputed to be paid on 29 September 2017
Special dividend 5.0 cents per share fully imputed to be paid on 29 September 2017

Momentum following its rebranding has seen Mercury achieve record customer satisfaction and employee engagement levels at the same time as delivering a strong financial result for the year ended 30 June 2017.

Mercury today reported a 6% lift in operating earnings (EBITDAF) to $523 million for FY2017 ($493 million FY2016). The record result was significantly influenced by an 858 GWh, or 22%, increase in full year hydro generation from persistently strong inflows across the Waikato River catchment. Total hydro generation for the year was 4,724 GWh.

Total generation including geothermal was 7,533 GWh (6,842 GWh FY2016).

Mercury’s financial results were also supported by strong portfolio and plant management, growth in its retail business through a focus on customer loyalty, and a solid contribution from the Metrix smart metering business.

Mercury chief executive Fraser Whineray says the response to Mercury’s rebranding 12 months ago has been extremely positive. Mercury grew its overall customer base by 16,000 to 392,000. Total customer churn at 17.8% (12-month rolling rate) was significantly lower than the market average of 20.5%, while trader churn, where a customer changes retailer without moving house, was 5.7% against a 7.1% market average. The Mercury brand also achieved its best-ever residential customer satisfaction score of 64% highly satisfied (three month rolling average) compared with 60% in FY2016.

“These measurements confirm the success of our rebrand and Mercury’s focus on rewarding customer loyalty and inspiring our customers to enjoy energy in more wonderful ways. Our momentum through the year has been powered by the greater alignment of our people as evidenced in our engagement scores,” Mr Whineray says.

Net profit after tax increased $24 million, or 15%, to $184 million. Underlying earnings after tax increased by $24 million or 16% to $176 million, reflecting improved operating earnings partially offset by higher depreciation and
tax expense.

Operating costs were flat year on year at $214 million and remain $45 million below their peak in FY2012. “This reflects our continued focus on controlling costs, improved procurement strategies, our exit from international geothermal development and the mothballing of Mercury’s thermal generation site at Southdown,” Mr Whineray says.

Stay-in-business capital expenditure was $114 million. This was up on the company’s normalised level of $80 million per annum, reflecting the phasing of ongoing hydro refurbishment projects at Aratiatia and Whakamaru,
and Mercury’s geothermal drilling programme comprising four new wells at Rotokawa and Kawerau. Capital expenditure was $11 million below original guidance of $125 million, due to the performance of the geothermal drilling campaign.

Dividend

Chair Joan Withers says Mercury’s nearly 90,000 owners, including the Crown, will receive a final ordinary dividend of 8.8 cents per share, fully imputed. This brings full year final ordinary dividend payments to a total of 14.6 cents per share, fully imputed, and in line with guidance. This represents a lift of 2% on FY2016, the ninth consecutive year of ordinary dividend growth.

As well as the fully imputed ordinary dividend, Mercury has announced a special dividend of 5.0 cents per share, fully imputed, to distribute excess free cash flow and proceeds from carbon sales. The dividends are payable on 29 September 2017.

“This level of distribution represents a continuing strong focus on active capital management,” Ms Withers says. “We are pleased to be returning a total of $270 million to our shareholders for the full year – an outcome of the strong momentum evident in the business.”

FY2018 Guidance

EBITDAF guidance is $500 million for FY2018, based on 4,150 GWh of hydro generation. This is subject to any material events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions. Ordinary fully imputed FY2018 dividend guidance has been issued at 15.0 cents per share, an increase of more than 2% on FY2017.

Stay in business capital expenditure guidance is $115 million, higher than our long-term expectation of $80 million due to planned hydro, geothermal and technology investments in FY2018.

Mercury will continue to provide updates of its mid-point estimate of full-year hydro generation with its quarterly operating statistics.

Outlook

Mr Whineray says Mercury is well positioned to build on the strong momentum achieved through the 2017 financial year.

“Mercury is investing in solar, battery storage and other customer-led home and transport technologies to ensure we continue to be at the forefront of offering choice to consumers,” he says.

“We see positive underlying drivers of demand growth with a stable economy, general population growth fuelled by positive net immigration and the increasing pace of New Zealand’s transition to electric vehicles. In this dynamic environment Mercury is well positioned to respond with new generating capacity, when the time is right.”

ENDS

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