Genesis posts rise in earnings, revenue

Dry weather boosted demand for coal- and gas-fired generation from Genesis Energy’s Huntly site....
Dry weather boosted demand for coal- and gas-fired generation from Genesis Energy’s Huntly site. Photo: Supplied
The country’s largest power retailer has posted increased revenue and operating earnings, but analysts are looking closely at the effects of numerous "one-off’’ gains of Genesis Energy.

During the year Genesis increased its stake in offshore gas field Kupe from 31% to 46%, which helped drive much of the earnings increase.

For its year to June, Genesis’ revenue rose about 18% from  $1.95 billion to $2.30 billion; earnings before interest, tax, depreciation, amortisation and changes in financial instruments (ebitdaf) climbed from $332.5 million to $360.5 million; and after-tax profit plunged 83%, from $118.7 million a year ago to $19.8 million, largely because of non-cash asset write-downs.

Its final dividend rose from 8.4c last year to 8.6c.

Forsyth Barr broker Damian Foster said Genesis’ ebitdaf of almost $361 million was in line with the brokerage’s $360 million, and at the top end of Genesis’ guidance range of  $350 million to $360 million.

However, Mr Foster said that "overall, it was a messy result’’, which would take time to pick through "to get the true picture’’.

"Genesis appears to be trying to paint a picture that there is underlying growth once the one-offs are stripped away.

"Our concern is that the underlying growth may not materialise to the extent Genesis seems to be indicating,’’ Mr Foster said.

He said the split between returns from its Kupe stake and the energy business was also as expected, with $245 million for the energy business and $115 million from Kupe.

The wholesale result included a $13 million insurance payment, related to a Tekapo generation outage, so its performance was "inflated’’, he said.

The Kupe contribution increased by $31 million, of which $19 million was due to a full-year contribution of the increased stake, while $7 million was due to increased volume and prices and another $6 million from one-off benefits.

Mr Foster said while operating cash flow increased by $82 million to $331 million, that was largely due to favourable working capital movements, as well as ebitda growth.

Compared with a year ago ebitdaf grew  8%, or $28 million. However, Mr Foster said $32 million of that was  growth acquired from the Nova LPG purchase and increase in the Kupe stake. Kupe earnings grew by an additional $12 million, meaning the energy contribution fell by $11 million. 

Retail was down $13 million, while wholesale was up $2 million and corporate costs increased by $5 million. Mr Foster said most of the retail decline had been blamed on one-off items during the previous financial year.

Genesis gave guidance of ebitdaf for the year in a range of $350 million to $370 million, he said.

"This is a little softer than we would have hoped and brings into question whether Genesis can achieve its medium-term goals,’’ Mr Foster said.

Genesis reported an 8% increase in full-year operating earnings after dry, still weather boosted demand for coal and gas-fired generation from its Huntly site, BusinessDesk reported.

Despite an unplanned maintenance shutdown at one of the firm’s Tekapo plants, generation volumes increased 11%. Genesis also benefited from an increased share of record gas production at the offshore Kupe field.

It also ran its coal-fired Rankine units more during dry periods at the start of the financial year and again over the summer. It has a "swaption agreement’’ with Meridian Energy to cover Meridian’s output when Meridian’s South Island dams are low, and also uses the Rankine units to cap prices for other retailers and those of its industrial customers which buy power at spot rates.

Genesis chairwoman Jenny Shipley said in a statement to the NZX: "The result reflects strong performance as the integration between Kupe and the company’s flexible generation portfolio delivered value in response to variable wholesale market conditions.’’

It expects earnings of $350 million to $370 million in the current year, assuming a return to more normal hydrology and ongoing customer growth, and allowing for a 50-day midlife shutdown at its largest power station, the 400MW gas-fired E3P plant in Huntly.

That work is expected to trim earnings by about $10 million and could push capital expenditure $11 million higher to $85 million. The company spent $80 million last year, including on upgrades at Tekapo, Tuai and Tokaanu, integrating the new LPG business and new digital retail products, BusinessDesk reported.

Genesis has pledged to stop running  coal units routinely by 2025 and to shut them entirely by 2030. Having written up their value by $51.5 million last year, it wrote them down by almost $49 million this year.

The company said the lower valuation reflected lower price and generation volume assumptions for the units, offset by the life extension to 2030.

Kupe was the driver of the earnings improvement, Genesis’ holding in the field having increased  15% to 46%, and higher oil prices lifted the division’s earnings to $115 million from $84 million last year.

Genesis is the country’s biggest retailer by accounts. While its digital Energy Online brand gained about 4000 accounts during the past year, the firm’s main Genesis brand dropped about 10,000 accounts over the same period, according to Electricity Authority data.

— Additional reporting BusinessDesk

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