Mercury NZ Ltd. ((MGHTF)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Mercury NZ’s latest earnings call struck an upbeat tone, with management highlighting a record first‑half EBITDAF, strong cash conversion and a string of on‑time, on‑budget projects. While they acknowledged hydrology volatility, derivative‑driven NPAT noise and execution risks on major investments, the overarching message was one of disciplined growth, balance‑sheet strength and confidence in long‑term capacity build‑out.
Record Earnings and Cash Conversion
Mercury reported first‑half EBITDAF of $537 million, a 28% jump on the prior period, underpinned by strong operational performance and favourable market conditions. Operating cash flow closely matched earnings at $531 million, reinforcing management’s claim that these are high‑quality earnings with robust conversion from profit to cash.
Resilient Generation and Hydro Flexibility
Generation volumes rose by 0.5 TWh, with hydro inflows at about the 85th percentile supporting record hydro output, including a record July. Management described hydro as the “flexibility engine” of the portfolio, providing the swing capacity that underpinned both elevated earnings and cash generation during the half.
Cost Discipline and OpEx Improvements
Operating expenses fell materially versus last year, and the company reaffirmed its FY26 OpEx target of $370 million, down from $396 million in FY25. OpEx per connection fell 4% year on year and sits 16% below HY2024, helped by headcount savings, deferred maintenance and lower consulting costs, signalling real structural efficiency gains.
On-Time, On-Budget Project Delivery
The Ngatamariki OEC5 geothermal unit, adding 50 MW, was commissioned in January 2026 on time and on budget, showcasing execution capability. Two wind farms, Kaiwera Downs 2 and Kaiwaikawe, are progressing to schedule and budget and are expected to generate enough power for about 140,000 homes once completed.
Major Hydro Upgrade to Lock in Capacity
The board approved a $590 million final investment decision to upgrade the Maraetai I, Ohakuri and Atiamuri hydro stations, which will add 76 MW of capacity and about 87 GWh annually. The works will run over the next decade, aimed at preserving long‑term asset resilience and ensuring these cornerstone hydro assets remain productive in a more renewable‑heavy grid.
Balanced Investment and Solid Balance Sheet
Net debt rose modestly by $60 million to $2.243 billion despite heavy growth investment, with roughly half of EBITDAF being reinvested into the business. Debt‑to‑EBITDA stands at 2.2x, comfortably within the 2–3x target range, supported by $465 million of undrawn facilities and plans to refinance a $200 million green bond later this year.
Customer Growth and Better Unit Economics
Mercury continued to expand its customer base, adding about 30,000 connections and lifting multiproduct customers to around 40% of the portfolio. Fibre customers now exceed 150,000 with broadband penetration above 94%, and management highlighted improving unit economics driven by bundled pricing and a lower cost‑to‑serve model.
Stable Guidance and Progressive Dividend
The company left full‑year guidance unchanged, targeting EBITDAF of $1.0 billion, OpEx of $370 million and stay‑in‑business CapEx of $150 million. Dividend guidance remains $0.25 for the year, supported by a 4% lift in the interim payout to $0.10, maintaining a progressive but capital‑conscious dividend profile.
Expanding Pipeline and Development Capability
Mercury’s development pipeline has grown by about 2 TWh, with an ambition to reach 3.5 TWh of new generation by 2030 as it rebuilds geothermal and wind capabilities. An eight‑well drilling program is complete, positioning the company for at least one new geothermal project before 2030 and staged battery storage deployments to firm the expanding renewables portfolio.
Focus on Safety and People
Safety metrics continued to improve, with a total recordable injury frequency rate of 0.39 for the calendar year, reflecting ongoing investment in health, safety and well‑being programs. Recent senior hires were flagged as strengthening the customer, sustainability and people functions, supporting execution of the company’s growth strategy.
NPAT Volatility from Derivative Fair Values
Despite the strong operating performance, reported NPAT was just $20 million, weighed down by negative non‑cash fair value movements on electricity derivatives, including new long‑dated contracts. Management stressed that this accounting volatility masks the underlying strength of EBITDAF and cash generation, and does not reflect core operating trends.
Hydrology Dependence and Hydro Spill
Management noted that more than 400 GWh of hydro energy was spilled during the period, underscoring both the strength and limitations of the current system. They cautioned that earnings and cash flows remain sensitive to hydrology and wholesale pricing, with future dry years or market swings capable of materially impacting results.
Project Timing and Consent Uncertainty
Several future projects, including Waikokowai, Puketoi and additional geothermal developments, are still navigating consenting and commercial optimisation. Management said they will advance only where returns are clearly value‑accretive, highlighting timing risk but also a disciplined approach to capital deployment.
Supply Chain and Long Lead-Time Challenges
The hydro upgrade program requires early commitment to long‑lead turbine and generator manufacturing slots with global suppliers such as ANDRITZ. While procurement is underway, management flagged the risk that global demand could disrupt timing or phasing, potentially stretching project schedules over the decade.
Conservative Guidance Despite Strong First Half
Even with a strong first‑half performance, Mercury opted not to raise its full‑year EBITDAF guidance of $1.0 billion. Executives cited hydrology and wholesale price uncertainty as reasons to stay cautious, signalling prudent risk management but also limiting expectations for near‑term earnings upgrades.
Dividend Payout Prioritises Investment
The dividend policy remains progressive but at the lower end of the payout range to preserve capital during what management calls a peak investment period. While income‑focused investors may prefer a higher yield, the stance underscores a strategic choice to fund a substantial pipeline of growth projects from operating cash.
Dependence on Future Firming via Batteries
Mercury’s growth plans assume successful delivery of firming capacity, particularly the planned battery energy storage system at Whakamaru, which is consented for up to 300 MW. The company is currently sizing an initial 100–150 MW stage and sees value in aligning the final investment decision with the rollout of new renewable capacity, adding execution and timing risk but significant upside if delivered well.
Forward Guidance and Long-Term Targets
Looking ahead, Mercury reiterated FY26 guidance of $1.0 billion in EBITDAF based on 4.4 TWh of hydro output, OpEx of $370 million and stay‑in‑business CapEx of $150 million, alongside the $0.25 full‑year dividend target. By 2030, the company aims to lift EBITDAF to $1.15–1.25 billion and deliver 3.5 TWh of new generation capacity, supported by a net‑debt‑to‑EBITDA ratio expected to remain within its 2–3x guardrails.
Mercury’s earnings call painted a picture of a business in strong operational health, leveraging a wet year and tight cost control while pushing hard on a sizeable investment program. For investors, the key takeaways are strong underlying cash generation, disciplined balance‑sheet management and a deep pipeline of growth projects, offset by hydrology, execution and accounting‑driven volatility risks that management is keenly managing.