Table of Contents
What changed
Revenue fell 5.2% to NZD 1,664m, reversing the 9.4% growth recorded in HY25. The decline was concentrated in the Generation/Wholesale segment, where revenue dropped NZD 146m to NZD 1,101m — consistent with lower spot prices after the electricity system stress of the prior period. Customer segment revenue moved in the opposite direction, rising to NZD 934m from NZD 850m, likely reflecting improved retail yields and customer volume.
EBITDAF expanded sharply to NZD 537m from NZD 418m (+28.5%), driven almost entirely by Generation/Wholesale, where inferred EBITDAF margin improved to roughly 50.5% from 35.6% — a reflection of better hydro conditions and more favourable generation mix versus the dry-year HY25. The Customer segment remained slightly loss-making at the EBITDAF line (approximately -NZD 19m), though it improved from -NZD 26m.
Despite the EBITDAF step-up, PBT came in at only NZD 27m (versus a NZD 96m loss in HY25), and NPAT was NZD 20m. The gap between EBITDAF and statutory profit reflects the continued weight of depreciation and interest on a NZD 2,345m gross borrowings base. Operating cash flow strengthened materially to NZD 351m from NZD 227m (+54.6%), and pre-lease free cash flow rose to NZD 78m from NZD 25m as working capital improved modestly. Gross borrowings increased NZD 145m to NZD 2,345m, though net debt/EBITDAF improved to 4.2x from 5.0x on the EBITDAF uplift.
What matters
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The hydrology-driven EBITDAF recovery is real but structurally incomplete. The NZD 119m EBITDAF improvement did not translate proportionally into free cash flow or NPAT because the fixed cost structure — depreciation on a growing asset base and interest on NZD 2.3bn of borrowings — consumes the majority of operating earnings. With NPAT at NZD 20m on NZD 537m of EBITDAF, the equity earnings yield on the business is extremely sensitive to any reversal in generation conditions or wholesale prices.
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Capital intensity is rising alongside leverage. Capex reached NZD 273m in the half (16.4% of revenue, up from 11.5% in HY25), and gross borrowings rose a further NZD 145m. While management characterises this as investment in the renewable pipeline, the combination of sub-NZD 100m NPAT and an accelerating capex programme means the dividend is not covered by either NPAT or pre-lease free cash flow. The interim dividend of 10.0 cps implies a full-year ordinary dividend trajectory toward approximately 24 cps (consistent with FY25's 24.0 cps total), which at current free cash flow requires sustained debt support.
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Customer segment profitability remains a drag. Customer EBITDAF was negative in both periods, and while the loss narrowed, the segment does not yet generate a positive return at the operating level. As the segment's revenue share grows (now ~56% of gross segment revenues versus ~48% in HY25), its inability to cover its own cost base is a structural constraint on group margins.
Expectations
No quantitative guidance or EBITDAF target was disclosed in the extracted material, so there is no stated benchmark against which to score this result formally.
The prior-year seasonal shape indicates HY25 was very slightly first-half weighted for EBITDAF (approximately 53% of FY25's NZD 786m fell in H1). If a similar seasonal pattern applies, NZD 537m in H1 implies a full-year EBITDAF run-rate well above the NZD 786m FY25 outcome — but that comparison is complicated by FY25 being a dry-year that suppressed H2 relative to H1. A more useful reference is that FY25 EBITDAF of NZD 786m was itself 10% below FY24's NZD 877m; HY26 at NZD 537m already exceeds the entire H1+H2 of FY25.
Annualised HY26 revenue of approximately NZD 3,328m runs NZD 170m below the FY25 base, suggesting the revenue recovery is partial — improved margins are doing the EBITDAF work, not volume. The implied H2 EBITDAF based on last year's split would be in the NZD 250–370m range, meaning the full-year EBITDAF outcome is likely to be significantly ahead of FY25, though the NPAT conversion will remain constrained unless depreciation and interest costs stabilise.
Quality of result
The EBITDAF improvement has a meaningful hydrology-dependent component: the prior period was explicitly a dry-year outcome, and the recovery in Generation/Wholesale margins from 35.6% to 50.5% is consistent with a reversion toward more normal hydro conditions rather than a structural step-change in the business. That does not make the result low quality, but it does mean the EBITDAF level should not be extrapolated without a view on hydrology.
Cash conversion improved — OCF/EBITDAF rose to 65.4% from 54.3%, and receivable days tightened slightly. Working capital was not a material driver of the OCF uplift; the improvement largely tracks the EBITDAF increase. Inventories fell NZD 37m, which contributed modestly but is not a recurring source.
The dividend coverage picture is weak in statutory terms: the 10.0 cps interim dividend requires approximately NZD 141m of cash outflow (based on approximate share count), well above the NZD 78m pre-lease free cash flow and the NZD 20m NPAT. Mercury has historically signalled that its dividend is set against a medium-term cash generation view rather than a single period's NPAT, but investors should note the dividend is effectively being funded through balance sheet capacity in the near term.
Unresolved
- The EBITDAF-to-NPAT conversion gap is large and growing as assets are added: without a depreciation schedule or interest cost breakdown, it is not possible to assess how much relief the earnings line will gain as new renewable assets generate returns versus how much further it will be pressured by capital additions.
- Mercury has not disclosed forward-looking EBITDAF or NPAT guidance, leaving no anchor for assessing whether HY26 is a high-water mark or a new run-rate.
- Customer segment profitability has not been explained in sufficient granularity — whether the negative EBITDAF reflects customer acquisition cost, metering infrastructure, or structural pricing pressure is not clear from the extracted material.
- The sustainability of the Generation/Wholesale margin improvement depends on lake storage and inflow conditions in H2, which are not disclosed.
This briefing cannot assess the probability-weighted hydrology scenarios that underpin any full-year EBITDAF or free cash flow forecast.
Key metrics
| Metric | HY26 | HY25 | Change |
|---|---|---|---|
| Revenue | $1664m | $1755m | -5.2% ↓ |
| Net profit after tax | $20m | −$67m | +129.9% ↑ |
| Net cash inflow from operating activities | $351m | $227m | +54.6% ↑ |
| Interim dividend per share | 10.0c | 9.6c | +4.2% ↑ |
| EBITDAF | $537m | $418m | +28.5% ↑ |
| Profit before tax | $27m | −$96m | +128.1% ↑ |
| Cash and cash equivalents | $73m | $99m | -26.3% ↓ |
| Total assets | $9888m | $9522m | +3.8% ↑ |
Source: annolyse.ai/briefings/mcy-hy26
Segment breakdown
| Segment | Current revenue | Prior revenue | Current result | Mix shift |
|---|---|---|---|---|
| Generation/Wholesale | $1101m | $1247m | $556m | -4.9pp |
| Customer | $934m | $850m | −$19m | +7.7pp |
Source: annolyse.ai/briefings/mcy-hy26
Analytical metrics
| Metric | HY26 | HY25 | Context |
|---|---|---|---|
| Effective tax rate | 25.9% | n/m (loss period) | prior loss period |
| OCF / EBITDAF (cash conversion) | 65.4% | 54.3% | stable |
| FCF pre-lease | $78.0m | $25.0m | +$53.0m |
| FCF / NPAT | 390.0% | -37.3% | complementary conversion metric |
| Capex % revenue | 16.4% | 11.5% | — |
| Capex | $273.0m | −$202.0m | +$475.0m |
| Debtor days | 44.0 | 45.6 | -1.6 days |
| Inventory days | 10.6 | 13.9 | -3.3 days |
| Trade debtors | $402.0m | $440.0m | −$38.0m |
| Net debt | $2272.0m | $2101.0m | +$171.0m |
| Net debt / EBITDAF | 4.23x | 5.03x | Strengthening |
| Gross borrowings | $2345.0m | $2200.0m | +$145.0m |
| Payout ratio vs NPAT | 704.2% | — | — |
| Payout ratio vs FCF pre-lease | 180.6% | — | not covered |
| ROE (annualised) | 0.4% | -1.4% | Strengthening |
| HY25 share of FY25 revenue | 50.2% | — | Other half was 49.8% |
| HY25 share of FY25 EBITDAF | 53.2% | — | Other half was 46.8% |
| HY25 share of FY25 NPAT | -6.7% | — | Other half was 106.7% |
| Profit from continuing operations | $20.0m | −$67.0m | +$87.0m |
Source: annolyse.ai/briefings/mcy-hy26
This analysis was generated using Annolyse, an AI-powered tool that extracts and analyses NZX/ASX company announcements. The underlying data is extracted from official company filings and verified against source documents. 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.