Mighty River Power profits flat as spending to keep customers rises
Mighty River Power says its costs rose $7 million in the second half of 2015 as it battled to keep customers amid "intense" competition.
The Auckland-based company, which is 51 per cent owned by the Government, reported earnings before income tax, depreciation, amortisation, change in fair value of financial instruments (EBITDAF) of $257 million for the six months to December 31, $1m lower than the same period a year earlier.
While production from its hydroelectricity stations in the Waikato River were up on the second half of 2014, the company said wholesale prices were slightly lower and the company increased spending on customer offers.
Chairwoman Joan Withers said Mighty River Power has seen "intense competition and intense pricing pressure both leading up to and within the period" being reported on Tuesday.
Mighty River Power owns the Mercury retail brand. Its products include the Globug, a prepaid electricity plan.
Chief executive Fraser Whineray said the intensity of competition pushed up its operating costs by $7m in the first six months of the financial year, however the company believed the second half spending would be lower, with operational spending roughly the same as in the year to June 30, 2015.
"We're very focused on engaging with our customers around loyalty products," Whineray said.
"These things take a bit of investment, but once set up are less expensive to run."
Contact Energy said earlier this month that customer switching had increased to record levels in late 2015, putting pressure on margins.
Mighty River Power declared an interim dividend of 5.7c for the first half of the year, up 0.1c on the same time in 2015.
Net profits rose to $74m from $8m a year earlier, results in 2014 hit by impairments as it wrote down the value of its investment in geothermal exploration in Chile. During the second half of 2015 the company recognised another $18m impairment, including the permanent sealing of its wells in Chile.
The company also closed its Southdown power station in Auckland.
Withers lowered the company's guidance for full year EBITDAF from $490m-$515m to $480m-$500m, but signalled that the guidance could change several times as part of "business as usual" before the end of the year.
Shares in the company were down 1c at $2.64 at 10:30am.
Mighty River Power has 95,000 shareholders, mostly owning a few thousand shares each, after the Government bonus shares for taking part in the first partial state asset sale in the mixed ownership model programme.
This is down from around 104,000 when the float took place in early 2013.
Mighty River Power's float was due to take place in 2012 but was delayed after a court challenge from iwi.
Shortly after the Government opened the share offer, Labour and the Greens launched policies to reform the wholesale electricity market, forcing the Crown to give investors who had signed up to buy shares the option of pulling out.