Mercury’s overall performance was strong in a testing 2020 financial year affected by drought across the Waikato
catchment which impacted hydro generation from September, and the disruption caused by the COVID-19 pandemic.
Minimal rainfall in the final quarter of the financial year continued a sequence of record low hydrological conditions.
Lake Taupō hydro storage ended the year almost 100GWh below its long-term mean at the end of June. Hydro generation for
the year of 3,712GWh (4,006GWh FY2019) was approximately 300GWh down against Mercury’s long-term average. Careful
management of Lake Taupō’s storage levels, and prudent hedging, helped lessen the financial impact of the extremely low
inflows.
Geothermal production of 2,615GWh was only modestly down on last year’s record generation (2,697GWh FY2019), despite
scheduled maintenance activity completed through the year.
Operating earnings, (EBITDAF) of $494 million were down $12 million on the prior year – a strong result given the 2020
financial year was the first full year without earnings from the Metrix smart metering business which was sold in
FY2019.
Capital expenditure (CAPEX) of $279 million ($115 million FY2019) represented a high level of activity across generation
assets and investments into information communication technology (ICT) initiatives – all part of ensuring the platforms
for sustaining and growing performance are strong. This included stay-in-business CAPEX of $114 million ($89 million
FY2019). Mercury completed multi-year refurbishments at Whakamaru and Aratiatia hydro stations as well as a three-well
geothermal drilling programme at Kawerau and Rotokawa steamfields.
Mercury also advanced construction of the Turitea wind farm, committing $184 million in total to 30 June 2020.
Contractor delivery delays across design and construction, as well as some impacts from the COVID-19 related lockdown
from late March, have set back the construction timetable. Completion of the 33 northern turbines is expected in the
final quarter of FY2021, and the 27 southern turbines in the second quarter of FY2022. Project times remain subject to
contractor performance and further COVID-19 restrictions.
Our investment in Tilt Renewables has enabled us, as intended, to participate in renewable energy growth opportunities
in Australia as well as Tilt’s growth in New Zealand.
Operating costs, when normalised for the sale of Metrix and IFRS changes, remained broadly flat for a seventh year in a
row, reflecting Mercury’s disciplined and focussed approach to its core activities.
Net profit after tax (NPAT) of $207 million was down on the prior year’s record ($357 million FY2019) which benefitted
by $177 million from the sale of Metrix. Normalising for this gain on sale, NPAT was up $27 million, primarily due to
lower interest and tax charges more than offsetting the impacts of lower hydrology.OPERATIONAL HIGHLIGHTS
· Effective management of record low hydro inflows.
· Active portfolio management capturing opportunities in a dynamic wholesale and retail market.
· Announcement of Mercury’s commitment to complete all 60 turbines consented at the Turitea wind farm.
o Advancing construction while adapting to challenges posed by the pandemic lockdown.
· Management of planned geothermal maintenance shuts and well drilling programme.
· Efficient change of a number of customer processes and product offers in response to Electricity Price Review
recommendations.
o Focus on minimising disruption for customers.
· Launch of a new brand campaign, Kiss Oil Goodbye, aimed at being more direct in promoting e.transport as an
alternative to fossil fuel use in the New Zealand economy.
· Investment in data science and analytics capability to better inform our customer strategy.COVID-19
As well as these operational highlights, Mercury was not alone in having to respond to impacts from the COVID-19
pandemic. This included support for Mercury’s people, customers, partners and suppliers, all done with a focus on
long-term outcomes. Mercury managed a smooth transition to working from home for most of our people during the Level 4
lockdown; faster payments were arranged for suppliers dependent on cashflow; communications were stepped up, and more
choices offered to help customers; and essential workers were committed and diligent in their work to keep the lights on
for New Zealanders by generating renewable electricity from our hydro and geothermal assets.LEADERSHIP
Mercury Chair Prue Flacks noted change that included Joan Withers’ retirement at the company’s September Annual
Shareholders’ Meeting, and Vince Hawksworth, previously Trustpower’s Chief Executive, joining Mercury in late March, in
the midst of the COVID-19 lockdown, to replace Fraser Whineray.
“Vince’s skills and deep experience in the industry have ensured a smooth transition and strong leadership through this
testing period,” Ms Flacks said.DIVIDEND
Ms Flacks announced the Board had approved a fully imputed final dividend of 9.4 cents per share (CPS), taking total
ordinary dividends for FY2020 to 15.8 CPS, an increase of 2% on FY2019. The dividend will be paid on 30 September 2020.
This is Mercury’s 12th consecutive year of ordinary dividend growth.OUTLOOK
Mr Hawksworth said that the impacts of the COVID-19 pandemic on the economy and on customers will continue to be felt
for some time, requiring careful consideration by Mercury of its decisions, and how it can support positive outcomes.
He noted that the announced closure of the Tiwai Point aluminium smelter, and decisions around timing of the closure,
will lead to increased volatility in wholesale electricity markets, and that transmission pricing implications, and
consideration of investments in pumped storage signalled by the Government, will also have market and investment
implications for Mercury and others.
“Within this, we are looking closely at the things we can control,” Hawksworth said.
“We have instigated a programme to enhance our own operational excellence, and we will be investing carefully in our
people, our assets and in digital solutions for our customers.
“Underpinning these activities, we are confident that we have a strong platform, powered by committed people, to
continue to deliver incremental growth and opportunities in accordance with our strategy,” he said.GUIDANCE
Mercury’s FY2021 EBITDAF guidance has been set at $515 million, subject to any material events, significant one-off
expenses or other unforeseeable circumstances including hydrological conditions. Guidance at the time of this report
assumes 3,900GWh of hydro production. FY2021 SIB capex guidance is $80 million.
FY2021 ordinary dividend guidance is 17.0 CPS, fully imputed, representing a 7.6% increase on FY2020 and the 13th
consecutive year of ordinary dividend increases.ABOUT MERCURY NZ LIMITED
Mercury’s mission is energy freedom. Our purpose is to inspire New Zealanders to enjoy energy in more wonderful ways and
our goal is to be New Zealand’s leading energy brand. We focus on our customers, our people, our partners and our
country; maintain a long-term view of sustainability; and promote wonderful choices. Mercury is energy made wonderful.
Visit us at: www.mercury.co.nz
1Earnings before net interest expense, tax expense, depreciation, amortisation, change in the fair value of financial
instruments, gain on sale and impairments.