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Genesis first-half earnings gain as dry summer boosts wholesale unit, Kupe beds in

Wednesday 14th February 2018

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Genesis Energy lifted first-half earnings 28 percent as low hydro-lake levels in the South Island boosted the company's demand for wholesale electricity and announced plans to completely phase out coal use by 2030.

Earnings before interest, tax, depreciation, amortisation, and fair value adjustments, the favoured measure of power companies, rose to $199.5 million in the six months ended Dec. 31 from $155.7 million a year earlier, the Auckland-based company said in a statement. Revenue climbed 26 percent to $1.21 billion. That was largely in line with Forsyth Barr analyst Andrew Harvey-Green's forecast for ebitdaf of $195.2 million on sales of $1.13 billion. 

Net profit dropped 24 percent to $28.4 million, or 2.84 cents per share, as depreciation, depletion and amortisation costs jumped about 41 percent to $103.5 million and the fair value of financial instruments posted a loss of $19.7 million, turning around a gain of $1.9 million in the year-earlier period.

Genesis's wholesale division lifted earnings 29 percent to $106.4 million, the biggest contribution to the group, while Kupe contributed earnings of $55.7 million, a gain of 75 percent from the prior period. Genesis has a 46 percent stake in the Kupe Joint Venture, which owns the Kupe oil and gas field in the offshore Taranaki Basin.

"Wholesale performance was very strong for the half year with record wholesale prices for November and December and higher than average generation," chief executive Marc England said. "As expected the swaption agreements we have with other companies were called on during this period." 

New Zealand's spring and summer months left hydro-lakes in the South Island at levels below average, meaning Meridian Energy and Contact Energy were more reliant on the wholesale market than their rivals with North Island hydro-storage. 

Genesis noted Kupe performed strongly for the half year and overall production was up, with plant utilisation at 94 percent of capacity from 86 percent in the prior period. Kupe’s gas production is supporting generation requirements at its 953 Megawatt gas and coal-fired power station at Huntly ensures a flexible mix of fuels is available, it said.

It said ASX-listed Beach Energy’s acquisition of a 50 percent stake from Origin’s Lattice Energy took effect on Jan. 31 and is expected to make it possible to accelerate the planning for phase 2 of the site, including compression and the potential drilling of a new well.

According to England, Genesis’s diverse generation portfolio plays a central role in maintaining the reliable supply of electricity when hydro lake storage is low but coal only makes up a small portion of total grid electricity generation and “New Zealand now needs a plan to move away from a dependency on it,” he said.

Chair Jenny Shipley said that by 2025 Genesis has committed to not use any coal to generate electricity in normal market conditions and aims to phase it out completely by 2030. The company had planned to wind up the coal-fired units at the Huntly power station by the end of 2018, but extended their life for another four years in 2016.

Genesis's board declared an interim dividend of 8.3 cents per share, payable on April 20 with an April 6 record date. That's up from 8.2 cents a year earlier. 

The company narrowed annual ebitdaf guidance to between $350 million and $360 million from an earlier forecast range of $345 million-to-$365 million. It reported ebitdaf of $333 million in 2017. 

The guidance was slightly lower as an unplanned extended outage at Tekapo B is estimated to have a $12 million impact on full year performance, largely weighted to the second half of the year. The 187MW hydro scheme is located at the head of the Waitaki Valley in the Mackenzie District of the South Island. 

The shares rose 0.4 percent to $2.39 and have gained 10 percent over the past year. 


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