Tidy first-half from Genesis Energy

Wednesday 24th February 2010

Genesis Energy announced markedly improved earnings in the six months to December 31, reporting tax-paid profit of $64.6 million, a 32% increase in spite of a drop of nearly 10% in revenue thanks to low wholesale electricity prices.

Underlying earnings of $70 million showed an even stronger improvement, after exclusion of an unspecified one-off item in the period under review - a level of detail not offered in Genesis's first earnings announcement under a new continuous disclosure regime which is intended to make SOEs emulate listed company disclosure.

Announcing payment of a $28.7 million interim dividend into the state coffers, Chair Jenny Shipley described the result as "pleasing" and reflected "the company's focus on driving greater commercial returns on its assets for its shareholder".

"We are re-shaping this business ... by revising the asset management programme of our generation assets and ensuring our retail load profile is aligned with our generation and trading strategies," said chief executive Albert Brantley.

Genesis would start taking delivery of its 30% share of natural gas from the Kupe gasfield, which is coming into commercial production at present and this would "increase cashflows".

"The company is on track to exceed the financial performance targets in its Statement of Corporate Intent," said Brantley. Owing to long term poor financial performance, that means Genesis will be beating a 1.9% projected return on capital, projected next year to 0.5% before improving to 5.3% in 2013/14.

Operating revenue for the period was down from $1.042 billion to $961.4 million in the six months under review, reflecting lower total generation and lower wholesale electricity prices, which pushed wholesale revenues from $354 million in the previous corresponding period to $269 million.

However, those lower prices also showed through in a $121.8 million drop in electricity purchase costs to $191.3 million in the six months under review.

On the retail side, the impact of intense competition saw revenue flat at $682 million, while there was a sharp jump in unspecified "other operating costs" to $82.9 million ($76.1 million). This, retail gas revenues falling 11.3% to $54.6 million, were the biggest impacts on the retail segment being half as profitable, at $7.2 million pre-tax versus $15.7 million, as in the previous corresponding period.

Genesis said it still needed more hedge contracts to justify keeping all four units at its ageing Huntly plant operational. Hedge arrangements signed last year with Meridian were helping "but further commercial arrangements need to be pursued into future years".

"A variety of asset management options are being investigated to secure maximum operational flexibility whilst maintaining an appropriate return to the shareholder."

Businesswire.co.nz

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