Mercury lifts first-half profit and dividend, but lowers annual earnings guidance

Mercury has lifted its first half profit and dividend. Photo / Supplied

Power generator and retailer Mercury raised its first-half profit and dividend but said the dry weather would affect its annual earnings.

The company's operating earnings - EBITDAF - for the six months to December 31 were $294 million, up $36m, driven by higher energy margins, additional trading profits and cost control, but partially offset by a 108 gigawatt per hour fall in overall generation.

The net profit was up $47m to $130m due mostly to higher EBITDAF and Mercury's gain on sale recognised from the sale of its interest in Hudson Ranch 1 and its geothermal power station in California, which netted about $40m.

Mercury declared a fully imputed interim dividend of 6.8 cents per share, up 6 per cent on the half-year 2020 dividend.

The company now expects its full-year EBITDAF to come in at around $520m, down from an earlier forecast of $535m.

"This reflects an expected 100 GWh decrease in full-year hydro generation to 3,800 GWh due to dry weather in the Taupo catchment since mid-January and ASX electricity futures indicating wholesale prices will remain elevated for the remainder of the financial year," Mercury said.

Mercury revised its capital expenditure down to $70m from $80m and said it would maintain its final dividend guidance of 17.0 cents per share.

Chief Executive Vince Hawksworth said Mercury had shown resilience faced with Covid-19 uncertainty, sustained elevated wholesale and futures price for electricity and a highly competitive environment.

Construction of the Turitea wind farm continued, and the transmission infrastructure to serve the wind farm is now largely complete but the building of wind turbines faced significant delays.

Turbines and the substation are being built in the northern section and environmental controls are being put in place for earthworks and construction in the south.

Continued contractor delivery delays across design and construction led to the completion of the northern turbines now being further delayed until October this year.

Construction of the southern turbines portion of the wind farm has also been significantly delayed, due in part to knock-on impacts of the northern build programme.

According to turbine supplier Vestas' most recent schedule, completion of the southern turbines is now forecast to be in July 2023.

Mercury said a "concerted effort" was being applied to bring that date forward.
Overall customer numbers were down 3 per cent to 336,000, over the six months.

"This was expected given our focus on value and lower acquisition of customers in a high wholesale price environment which is forecast to continue," the company said.

Reduced mass market volume had been replaced with higher-yielding wholesale sales.

Work at Mercury's Rotokawa geothermal station to boost output by optimising its geothermal fuel mix had progressed.

Mercury said the ability to plan for an orderly exit of the Tiwai aluminium smelter had been a positive development, now that the smelter's owner Rio Tinto had delayed closure of the plant to 2024.

"Mercury remains relatively well-positioned for this eventuality with its sources of renewable electricity generation located close to key areas of demand," it said.

Shares in Mercury last traded at $6.38, having gained 15.6 per cent over the last 12 months.