Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mercury NZ Ltd (MGHTF, Financial) achieved a record EBITDAF result of $877 million for FY24.
- The company completed the integration of Mercury and Trustpower businesses under one brand, enhancing operational efficiency.
- Stage 1 of Kaiwera Downs was completed under budget and ahead of schedule, with Stage 2 now under construction.
- Ngā Tamariki geothermal expansion of 50 megawatts is under construction and progressing well.
- Mercury NZ Ltd (MGHTF) declared an ordinary full-year dividend of $0.233 per share, marking the sixteenth consecutive year of dividend growth.
Negative Points
- The company faces a challenging period ahead with a forecasted EBITDAF of $820 million for FY25, down from FY24.
- Hydro generation was significantly impacted by dry conditions, with a 21% year-on-year decrease in hydro generation.
- Operating expenses rose by $39 million due to new wind assets, asset maintenance, and inflation.
- The company experienced a $16 million trading loss in the first two months of FY25 due to high spot prices.
- Mercury NZ Ltd (MGHTF) is dealing with challenges in the gas market, leading to increased gas costs.
Q & A Highlights
Q: Just interested in your comments, Vince, on the market-led response to date. Do you see it as a sort of a scary experiment? Or do you have confidence that these demand responses, either fuel or power, are essentially the way forward for New Zealand and for the rest of the world?
A: The aluminum smelters' arrangements reflect their desire to stay in a fully renewable market. The Methanex situation is more complex, involving financial rewards for not producing methanol. We need a careful national conversation about domestic gas and its comparison with LNG. Knee-jerk reactions have proven expensive and ineffective.
Q: You would have seen the EA's dashboard release last night. It suggests an industry that's over-earning. Do you see it differently? Or do you see it as a constructive initiative on their part?
A: It's a narrowly framed question with little context. The data shows margins go down as spot prices go up, indicating the market is sending spot price signals due to fuel scarcity. The small dataset and ill-defined question make it difficult to draw conclusions.
Q: On your yield growth, do you think of it as the retail book regaining from the gas increase and residential recovering the transmission increases, with the rest coming from C&I uplift?
A: The yield growth generally reflects price impacts for us. Our pricing principles are that we pass on our costs to customers. On the generation side, it's not so clear cut due to the auction process in the market.
Q: Is the final claim on the geothermal outage included in the $820 million guidance?
A: No, it is not included in the guidance.
Q: Mercury seems to be doing it the hard way compared to competitors. Is your C&I book maybe a bit too long in the environment we're facing over the next few years?
A: You can't operate your business for the worst possible outcome in the market. We have seen very dry conditions, but we have an obligation to provide fixed price cover to customers. The levers we have include flexibility and agreements for curtailing demand.
Q: Does the recent high wholesale prices change your thinking about risk management going forward?
A: We can revise our portfolio settings, but we can't just increase our offers due to higher fixed costs on generation. It's a zero-sum game, and someone has to pick up the shortness in the market.
Q: Are the consents required for additional wind farms relatively straightforward?
A: The consents should be relatively straightforward, but there are other factors like landowner requirements and delivery supply chain challenges that add time to the process.
Q: What are your thoughts on the fast track consenting process?
A: The fast track process is a one-stop shop that speeds things up but doesn't absolve the responsibility to work with stakeholders. It will show up other bottlenecks like transmission connections and capacity in the marketplace.
Q: What is Mercury's view on the EA's initiative to construct standardized fixed products for trading next year?
A: We will participate in the conversation, but the products need to be priced and allowed to play out in the market. The terms of reference and success criteria need to be clear.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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