Profit fall hits Genesis hope

The Government's hope for a premium listing price for the last of the state-owned energy companies took a hit yesterday when Genesis Energy reported much lower revenue and profits.

Operating profit for the company, which was expected to be listed in the first quarter of this year, was down $45.4 million, or 23%, to $150.5 million for the six months ended December.

Revenue was down 6%, or $58.2 million, to $973.1 million from more than a $1 billion in the previous corresponding period.

Earnings before interest and tax were down 54%, or $73.9 million, to $62.8 million, and reported earnings were down 72%, or $51 million, to $19.7 million from $70.8 million in the pcp.

However, the company approved an interim dividend of $64 million to be paid to the Government, up from $57 million in the pcp.

Craigs Investment Partners broker Chris Timms was surprised by the size of the dividend being paid. The dividend was up 12% on the pcp despite operating earnings being down 23%.

The balance sheet showed operating cash flow fell 24% in the period but total non-current liabilities rose 23% to nearly $1.4 billion.

Genesis Energy may struggle to find investor support without substantial share discounting. Photo supplied.
Genesis Energy may struggle to find investor support without substantial share discounting. Photo supplied.
''They will have their reasons but I am surprised about the amount of dividend being paid when it may have been better to pay down some debt.''

The partial float of the company could reap the Government up to $1 billion and he expected the float to occur before May, Mr Timms said. The performance of Meridian Energy and Mighty River Power would be taken into account when pricing the shares.

''I suspect the Government will have to discount because, first, the options investors have in the sector and, second, the performance of Mighty River Power. In the scheme of things, Meridian has performed quite well. It has traded as high as $1.12, down to 91c and is trading now at $1.01. Dividend support will be a massive thing to get Genesis ahead and to do that, the Government will have to discount,'' Mr Timms said.

Genesis had a large retail base and that would be reflected in who might be interested in investing.

Investors had to look at the stock as one to hold long term for income, not something to flick off on the first day, he said.

The electricity sector was at the bottom of its earnings cycle and within the next three to five years, demand would catch up with supply and the sector would be sought-after by investors, Mr Timms said.

Genesis chairwoman Dame Jenny Shipley tried to put a positive spin on the results, while admitting external operating conditions were challenging.

''The company has held its market share in electricity and gas retailing, despite intense competition, particularly from smaller retailers, and has grown customer accounts by 2%.

''The New Zealand market is competitive and dynamic.''

When the one-off costs over the first half-year were taken into account, the board believed the company was responding well to the commercial challenges it faced and was confident in its ability to pay an interim dividend of $64 million, she said.

The prospective float was not mentioned in Dame Jenny's presentation.

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