Financial and Operating Environment Analysis of Mercury NZ International

MERCURY NZ
INTERNATIONAL
FIN600 TX YYYY
NAME:
STUDENT ID:

Student name – ID FIN600 TX YYYY
Assignment –Mercury NZ International
Executive Summary-
The report takes into account financial and operating environment analysis of an ASX listed
company Mercury NZ International having its headquarters in New Zealand. It operates as a
utilities industry providing electricity services to the consumers.
Through the analysis, an overview of the company and its financial performance over the last two
years has been established. Annual report for the year 2018 and 2017 of Mercury NZ are being
considered for such analysis. For the purpose of establishing the future growth potential and
continuity of the company, ratio analysis considering the factors of profitability, efficiency, liquidity
etc has been undertaken along with comparison with the industry averages for certain ratios. At last,
external factors such as political and social factors along with ethical issues faced by the company
during the years have been discussed to elaborate the position of the company.
Overall, the assignment provides an understanding of the various aspects of financial as well
operating environment of a real existent company whilst applying the accounting knowledge and
skills.
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Student name – ID FIN600 TX YYYY
Assignment –Mercury NZ International
Contents
Page Number
1 Introduction 3
1.1 Background and Business
2 Company Analysis
2.1 Analysis of financial statements of the business 3
Current Financial performance, economic outlook
3 Ratio Analysis
3.1 Profitability ratios 4
3.2 Efficiency ratios 5
3.3 Liquidity ratios 6
3.4 Gearing ratios 7
4 Recommendations and overall assessment 8
5 References/Bibliography 9
Appendices – attached Excel Spreadsheet
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Student name – ID FIN600 TX YYYY
Assignment –Mercury NZ International
1 Introduction-
1.1 Background and Business
Mercury NZ International is a government owned company, headquartered in Auckland however
listed on both Australian as well as New Zealand Stock exchanges. It was earlier known as Mighty
River Power Limited and believes in making the world better, energy-efficient and wonderful. The
logo with which the company swears by is “Bee” symbolizing constant life and energy generation.
The company is engaged in retail trading of electricity for both domestic and commercial usage
across the country through its 100 percent renewable energy sources of power generation. It
generates electricity through its nine hydro generation and five geothermal plants located mainly in
the North Island of the country and retails the energy so generated in form of electricity through
various brand names such as Tiny Mighty, GLOBUG and Bosco. These remain fully functional
throughout the year considering huge resource potential with the country and Mercury’s constant
efforts to keep them sustainable. This not only provides the advantages of being at the lowest cost
electricity providers but also makes them one of the largest electricity suppliers and generators in
the country. Apart from its energy market segment, the company also provides metering
infrastructure and solar power installation services to the industries across the country.
2 Company Analysis-
2.1 Financial statements, Current Financial performance, economic outlook
In order to obtain an understanding of the company; Mercury NZ and the financial and economic
scenario prevalent, annual reports for the year 2017 and 2018 have been taken into consideration.
An analysis of the financial statements comprising income statement, balance sheet, cash flow
statement and other notes attached to them gives an insight of its operations over the years and
helps in evaluating its financial performance.
The year 2018 was marked as another record setting year for the company with core earnings of
$561 million, an expansion of $38 million on the past budgetary year. Accordingly, the net profits
for the company increased and stood at $ 234 million providing an increase of around $ 50 million.
This is due to the efforts of the company in keeping its operating costs at standstill of $ 214 million
over the last five years with a constant increase in its revenue. Apart from this, increased hydro
power generation during the year 2018 pinned the growth in profits.
The company provided an increase in its asset base by over $ 945 million due to the healthy
acquisitions made during 2018 of Tilt Renewable in NZX. Buy-back of $ 50 million provided a
flexible balance sheet with treasury stock along with reduced gearing levels as the debt portion
increased by $ 211 million during the year.
The company has started FY 2019 on a strong note with hydro power generation at 84th percentile
and sustained heavy competition with incarsed churn for the quarter ending September 2018.
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