MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

The remaining thin air capital on the balance sheet is therefore: $1,573m - $231m = $1,342m

But how has this 'thin air capital' been deployed, and is there any left? That's next.

New projects and acquisitions are funded by a combination of equity and debt. Using the 'Optimised Gearing Ratio' (OGR) for the company, and knowing the future investment commitments already inked, we can figure out how much investment the remaining 'thin air capital' on the books can support.

Before we do that though, there is a bit more 'equity trading capital' that we can add to the 'thin air capital' equity pile.

Mercury Significant Asset Sales: 2019-2021	Profit	Reference
Snowtown Windfarm (Aus) Disposal Dividend (from Tilt)	$55m	(AR2021 p32, p35)
Hudson Geothermal Power Station (USA) Sale	$41m	(AR2021 p36, p52)
Tilt 19.9% stake sale	$367m	(post 1431, AR2021 p63)
Metrix Metering Business sale	$177m	(AR2019 p71)
Total equity capital raised	$640m

The Tilt stake asset sale actually occurred on 3rd August 2021, which is in the FY2022 financial year. However the terms were agreed on 16th April, in FY2021. I am therefore making the argument that 'effective completion' of the deal was in FY2021 and the planning downstream investment consequences of that deal were effectively 'baked in' by EOFY2021.

The net total of this 'thin air capital' plus 'equity trading capital' that has been accumulated could theoretically support extra debt 'd'. If we use the company's optimised gearing ratio.of 45%, then we can calculate 'd' as follows:

From post 1440, 'thin air capital' available was $1,344m.

$1,344m+$640m = $1,984m ('thin air capital + 'equity trading capital')

'd' / $1,984m = 45% => d= 0.45x $1,984m = $893m

We thus have a total funds available for investment an amount of:

$1,984m (equity) + $893m (debt) = $2,877m dollars,
(while still staying within Mercury's own optimised balance sheet guidelines.)

Offsetting that gain, the following significant capital investments have been committed to from FY2019 to FY2021

Mercury Significant Capital Investments: 2019-2022	Cost	Reference	Funding Spent
Turitea Windfarm (Stage 1 only)	$256m	(AR2019 p15)	($184m FY2020), ($72m FY2021)
Turitea Windfarm (Stage 2 only)	$208m	(PR2021 p14)	($79m FY2021), Balance by EOFY2023
ex-Tilt 'NZ Located' Wind Farms	$797m	(AR2021 p35)	August 2021 (FY2022)
Trustpower Retail Business	$441m	(AR2021 p35)	May 2022 (FY2022)
Total capital budgeted spend	$1,702m

Notes

1/ Turitea Funding: AR2020 p9, AR2021 p36

None of these investments were operating by the time the company balance date closed off (30-06-2021). But the Turitea North Windfarm was approaching the end of its construction with most capital expenditure already done. The expected uplift in EBITDAF from Turitea North, is forecast to be $35m on an annual basis.

Mercury has never been in a position where it has 'bought' so many new customers from another retailer in one block before, like the outlined Trustpower transaction. But nor has it proposed to buy such a large quantum of new generation capacity in any one year either. For the purpose of this exercise I will only consider 'capital spent' as relating to projects (and customers) that already exist. So I will remove 'Turitea South' (Turitea Windfarm Stage 2) from my capital spend total.

Available Capital to Spend @EOFY2021

$2,877m - ($1,702m-$208m) = $1,383m

This is enough to buy: $1,383m/$208m = 6 Turitea South windfarms

SNOOPY