Table of Contents
What changed
Revenue fell 7.5% to $873.0m and EBITDAF – Mercury's primary earnings measure – fell 17.7% to $242.0m from $294.0m. Despite that, PBT rose 171.1% to $450.0m and NPAT rose 228.5% to $427.0m, so the gap between the operating earnings line and the bottom line is extreme. Operating cash flow fell 19.0% to $132.0m while capex dropped to $70.0m from $177.0m, lifting pre-lease free cash flow to $62.0m from -$14.0m. Gross borrowings rose to $1,665.0m from $1,348.0m and cash fell to $48.0m from $91.0m, pushing net debt to $1,617.0m. The interim dividend was raised 17.6% to 8.0 cents per share.
What matters
- The NPAT surge is not an operating signal. EBITDAF fell meaningfully, but PBT more than doubled and the effective tax rate collapsed to 5.1% from 21.7%. The release excerpts do not attribute the PBT jump to a disclosed one-off, but the divergence from EBITDAF of roughly $336m of gains below the EBITDAF line (depreciation, net financing, and fair-value movements) means the headline NPAT should not be read as underlying earnings growth. On the cleaner EBITDAF read, the half went backwards.
- Leverage stepped up materially. Net debt/EBITDAF rose to 6.7x from 4.3x as borrowings grew $317.0m while EBITDAF shrank. Even allowing for Mercury's seasonal shape, this is a significant balance-sheet move and was accompanied by a higher dividend and lower capex, not deleveraging.
- Capital allocation tilted to shareholders while operations weakened. The interim payout rose to 8.0cps, with capex down 60% year-on-year. The payout ratio versus NPAT looks undemanding at 25.5% only because NPAT is flattered by non-operating items; versus EBITDAF and cash flow the posture is more stretched.
Expectations
No quantitative guidance or forward-work target is disclosed. On shape, HY21 contributed only 46.2% of FY21 revenue but 63.5% of FY21 EBITDAF, indicating a first-half-weighted earnings profile (hydrology-driven) layered on second-half-weighted revenue. Applying the HY21 EBITDAF share to HY22's $242.0m implies a full-year EBITDAF run-rate near $381m, which would be well below FY21's $463m. Annualised HY22 revenue of $1,746m is around 85% of the FY21 base of $2,045m. The release supports a narrative of weaker first-half operating earnings; it does not support a bottom-line recovery thesis at the EBITDAF level.
Quality of result
Low, for a reader focused on underlying performance. The EBITDAF decline, the drop in operating cash flow, and the rise in net debt all point the same way. The headline NPAT beat is produced by below-EBITDAF items and a sharply reduced tax charge (effective rate 5.1% vs 21.7%), neither of which the extract explains. OCF/EBITDAF was broadly flat at 54.5% vs 55.4%, so cash conversion did not worsen materially at the ratio level, but the absolute OCF decline combined with the cash balance falling by $43.0m is consistent with a balance-sheet-assisted, rather than operationally driven, result.
Unresolved
- What specific items drove PBT from $166.0m to $450.0m while EBITDAF fell – financial-instrument revaluations, asset revaluations, or disposal gains?
- Why did the effective tax rate fall to 5.1%, and is this repeatable?
- What caused capex to halve year-on-year, and does the FY22 capex programme still include the previously signalled growth spend?
- What is the hydrology and wholesale-price backdrop that compressed EBITDAF, and how does management expect it to evolve into H2?
- Is the higher dividend supported by a medium-term policy, given leverage has risen to 6.7x net debt/EBITDAF?
This briefing cannot assess the underlying generation volume, pricing, and hedging drivers of the EBITDAF decline, nor the composition of the non-operating gains that produced the NPAT surge, because neither is disclosed in the supplied extract.
Key metrics
| Metric | HY22 | HY21 | Change |
|---|---|---|---|
| Revenue | $0.9m | $0.9m | -7.5% ↓ |
| Net profit after tax | $0.4m | $0.1m | +228.5% ↑ |
| Net cash inflow from operating activities | $0.1m | $0.2m | -19.0% ↓ |
| Interim dividend per share | 8.0c | 6.8c | +17.6% ↑ |
| EBITDAF | $0.2m | $0.3m | -17.7% ↓ |
| Profit before tax | $0.5m | $0.2m | +171.1% ↑ |
| Cash and cash equivalents | $0.0m | $0.1m | -47.3% ↓ |
| Total assets | $8.5m | $6.8m | +25.2% ↑ |
Reference: annolyse.ai/briefings/mcy-hy22
Analytical metrics
| Metric | HY22 | HY21 | Context |
|---|---|---|---|
| PBT growth | +171.1% | — | cleaner earnings measure |
| Effective tax rate | 5.1% | 21.7% | — |
| OCF / EBITDAF (cash conversion) | 54.5% | 55.4% | deteriorated |
| FCF pre-lease | $62.0m | −$14.0m | +$76.0m |
| FCF / NPAT | 14.5% | -10.8% | complementary conversion metric |
| Capex % revenue | 8.0% | 18.7% | — |
| Capex | −$0.1m | −$0.2m | +$0.1m |
| Net debt | $1617.0m | $1257.0m | +$360.0m |
| Net debt / EBITDAF | 6.70x | 4.30x | Weakening |
| Gross borrowings | $1.7m | $1.3m | +$0.3m |
| Payout ratio vs NPAT | 25.5% | — | — |
| ROE (annualised) | 9.3% | 3.5% | Strengthening |
| HY21 share of FY21 revenue | 46.2% | — | Other half was 53.8% |
| HY21 share of FY21 EBITDAF | 63.5% | — | Other half was 36.5% |
| HY21 share of FY21 NPAT | 92.2% | — | Other half was 7.8% |
| Profit from continuing operations | $0.4m | $0.1m | +$0.3m |
Reference: annolyse.ai/briefings/mcy-hy22
This analysis was generated using Annolyse, an AI-powered tool that analyses NZX/ASX company announcements. The analysis is based on available company filings and standard Annolyse calculations. This is general information only and does not constitute financial advice. The analysis may contain errors. Always read the original company filings and consult a licensed financial adviser before making investment decisions.