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28/2/2018 — General
Mercury lifts the profit line
By Simon Hartley

Brimming Island lake levels and a South Island drought combined to deliver electricity generator and retailer Mercury New Zealand Ltd (NZX & ASX: MCY) record output and earnings for its first half trading.

Overall sales revenue was up 21% from $772 million to $937 M, earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) rose from $270 M to $301 M and after tax profit was up from $113 M to $132 M, for its December half year.

Mercury chairwoman Joan Withers said the result was driven by favourable North Island rainfall boosting hydro generation by 14% to a record 2694 Giga watt hours (GWh). That generation coincided with lower than average electricity output for the South Island's hydro generators, which played to Mercury's strategic geographic advantage, Ms Withers said.

Mercury upped its half year dividend from 5.8 cents to 6¢, with broker expectations it would consider paying a special dividend at year-end.

Mercury shares, up 2.88% on a year ago, were unchanged yesterday at $3.22 following the announcement.

Forsyth Barr broker Damian Foster said that overall, the half year was “a great result” for Mercury.

“We believe it is one of the better generator-retailer operators in the market and it has done well with the favourable hydro conditions,” he said.

However, Foster cautioned that while there was little doubt Mercury had performed well and taken advantage of the “strong hand” it was dealt in first half trading, that was not a measure of underlying performance.

“A return to normal hydrology will see earnings fall in full year 2019,” he said.

Foster said Mercury's $132 M after-tax profit included $24 M of fair value movements, and stripping that out meant normalised profit was $114 M, still 21% up on a year ago and $4 M better than Forsyth Barr's forecast.

He said operating cash flows were strong at $214 M, up $21 M on last year and with a significant increase in tax paid, up by $25 M, which was why cash flow growth had not matched ebitdaf growth.

“Debt levels remain benign, giving Mercury room to pay a special dividend at year end; which we expect it to do,” Foster said.

Craigs Investment partners broker Peter McIntyre said the extra North Island hydro combined with rising wholesale prices, up from $53 Megawatt hours a year ago to $91 resulted in another uplift in the company's full year 2018 guidance given in January.

The guidance rose from $515 M to $530 M, with a hydro generation forecast of a estimated total 4550GWh, or 550 GWh above the long-run average, McIntyre said.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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