Mercury’s first half profit has dropped as weak wholesale conditions and intense competition drove down revenue.

The power generator and retailer’s net profit dropped 20.2 percent in the six months to December to $83 million, reflecting below average generation and divestment of its smart metering business.

Revenue was down 14 percent to $928m, while the underlying profit fell 15 percent to $258m.

Outgoing chief executive Fraser Whineray said the result compared with a near-record period the prior year, but reflected strong execution across its business when adjusted for lower generation and the sale of Metrix.

“While hydro generation was below the mid-point forecast we had at the start of the financial year, our portfolio strategy has captured opportunities in this dynamic environment,” Whineray said.

“A deliberate portfolio strategy to maintain a longer net-generation position, particularly from October, has been positive for earnings and risk management.”

Whineray said Mercury expected to see ongoing challenging wholesale conditions due to national thermal fuel and transmission constraints, however the company’s portfolio was well positioned.

“Intense competition in retail and strained retail margins will continue to be a feature.

“I also anticipate further competitor decisions on new generation development and retirement,” Whineray said.

The company downgraded its underlying profit guidance to $500m, which compared with a previous guidance of $510m.

“Mercury is well positioned for the full year as a result of our portfolio and channel management, reinvestment activities in generation, digital and our people, and new investment decisions,” Whineray said.

The full year dividend guidance remained at 15.8 cents per share.

This article was originally published on RNZ and re-published with permission.

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