Fickle rainfall favours Mercury, Genesis in gen-tailers' first-half earnings
By Rebecca Howard
Feb. 27 (BusinessDesk) - Reporting season was a tale of two islands for the electricity sector as dry South Island
conditions sapped first-half earnings for Contact Energy and Meridian Energy, forcing them to lean on backstop Genesis
Energy, while Mercury NZ's North Island hydro schemes were inundated with rain.
Forsyth Barr analyst Andrew Harvey-Green said the results "were in line with what we were expecting given what the
hydrology had done".
"Obviously, it's very different from what we had been expecting at the beginning at the financial year but then the rain
came in the right places or the wrong places, depending on how you look at it and that changed the expectations quite a
bit."
New Zealand's spring and summer months left hydro-lakes in the South Island at levels below average, meaning Meridian
and Contact were more reliant on elecricity purchased from the wholesale market, where prices more than doubled. that
was a boon to Genesis and its Huntly back-up supply, while heavy rainfall in the North Island bolstered Mercury's nine
hydro generation stations on the Waikato River.
Auckland-based Mercury today lifted first-half profit 17 percent to $132 million in the six months ended Dec. 31 on
record generation, driven by favourable North Island rainfall. Earnings before interest, tax, depreciation, amortisation
and fair-value adjustments rose to a record $301 million from $270 million. It also operates five geothermal plants in
the North Island.
Earlier this month, Genesis reported a 28 percent gain in first-half earnings, underpinned by a 29 percent gain at its
wholesale division to $106.4 million as low South Island hydro-lake levels swelled demand for wholesale electricity.
Genesis provides access to back-up supply in the event of a dry year and during periods of peak demand. Its portfolio of
thermal generation and renewable generation assets located in different parts of New Zealand, including the Huntly Power
Station, which runs on both natural gas and coal.
In contrast, Meridian, the country's biggest generator, posted a 7 percent fall in first-half earnings as low inflows
into its South Island hydro catchments reduced its electricity output. Meridian has seven hydro stations on the South
Island and also generates power from wind and solar.
Contact Energy's first-half earnings fell 11 percent and its earnings from generation dropped 13 percent to $173 million
in the half due largely to a 21 percent decline in hydro generation to 1,635 GWh due to record low inflows to the Clutha
dam.
Trustpower didn't report first-half results this month as its financial year ends March 31 but in January the
Tauranga-based company affirmed annual earnings guidance, having raised its outlook three times this financial year on
strong wholesale electricity prices.
Harvey-Green said most companies cannot easily buffer themselves from weather-related issues. "The one company that has
more stability around that is Genesis in terms of its own portfolio and the plants it can run which to support the rest
of the market," he said.
Overall, he noted while earnings got pushed around, the sector as a whole registered little volatility on the share
market.
Mercury recently traded at $3.22 and has gained 2.9 percent over the past 12 months while Genesis was recently at
$2.345, up 9.6 percent over the past year. Meridian shares were at $2.835 and have lifted 5.2 percent since this time
last year while Contact is at $5.28, up 9.3 percent on the year.
Looking ahead, Harvey-Green said it is impossible to predict whether companies will meet their full-year guidance as it
all depends on "where it rains."
(BusinessDesk)