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Genesis Energy grows total sales volumes in volatile market

12 February 2014

Genesis Energy grows total sales volumes in a volatile H1 2014 energy market

Despite considerable competitive pressure in the retail electricity and gas markets, a continuous focus on customer service and product offerings enabled Genesis Energy to grow total sales volumes of electricity, natural gas and LPG which were all up in the six months ended 31 December 2013 (H1 2014) through a combination of new Time of Use (TOU) customers and increased retail customer numbers.

This growth in sales volumes drove improved-operating earnings in the Customer Experience or retail activity during the period, and combined with increases in operating earnings from Genesis Energy’s 31% share of the Kupe Oil and Gas joint venture. However, these improvements were more than offset by a lower Energy Management EBITDAF resulting from lower generation revenues and significant non-recurring items of $21.5m, including costs of approximately $19. 2m associated with termination of the supply contract for imported coal for Huntly.

The difficult electricity wholesale market conditions plus significant non-recurring items reduced earnings before net finance expense, tax, depreciation, depletion, amortisation, impairment, fair value changes and other gains and losses (EBITDAF) to $150.5m from $195.9m in the six months to 31 December 2013.

Genesis Energy recorded a Net Profit After Tax (NPAT) for the six months of $19.7m, down from $70.8m in the previous comparable period due mainly to the lower EBITDAF, a $12.7m negative swing in fair value of derivatives and a $14.2m increase in depreciation, depletion and amortisation expenses.

An interim dividend of $64m has been declared ($57m in H1 2013).

Genesis Energy Chairman Dame Jenny Shipley said that while external operating conditions were challenging, the Company was able to benefit from its strong retail market presence and investment in Kupe.

“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 two per cent. The New Zealand energy market is competitive and dynamic. When the “one off” costs over the first half year are taken into account, the Board believes that the Company is responding well to the commercial challenges it faces and is confident in its ability to pay an interim dividend of $64m,” Dame Jenny said.

Genesis Energy’s share of production from Kupe was up significantly year on year due to the planned outage that was taken in the previous period. The Company’s share of gas sales of 3.5PJ was up 31%, oil production of 273kbbl was up 17% and LPG sales of 15.1kT were 40% higher than last year.

Kupe EBITDAF of $55.1m was 38% higher than last year’s $34.2m, reflecting the year on year increases in production volumes.

Work on the Tekapo Canal remediation project continued during the Half Year and into 2014. The Tekapo A and B hydro stations are currently out of service but the remediation project is on schedule to be completed by early-March 2014.

Genesis Energy’s total revenue of $973m for the half year was six per cent lower than $1,031m revenue in the same period in the previous year. This reflected both lower retail electricity revenue due to above average temperatures (which reduced consumer demand) and lower wholesale electricity revenue due to higher hydro storage levels which reduced wholesale electricity prices.

Retail gas revenue of $74.9m was up on last year ($68.7m) due to higher numbers of gas customers (up four per cent), higher total retail gas volumes (30 per cent) and increased tariffs.

In September 2013, the Company announced that it was placing another 250MW coal/gas generating unit at the Huntly Power Station into long term storage. The stored unit will be maintained at a level of readiness that could see it return to service, within 90 days. Options around decommissioning the first coal-fired unit placed into long-term storage in December 2012 are now being developed.

As well as exiting the contracts for importing coal for Huntly, the contract with Solid Energy to supply coal from its Waikato mines was extended and deliveries re-profiled.

Genesis Energy Chief Executive Albert Brantley said, “these operational changes had short term cost implications but we believe that in future our coal supply will better match our consumption of coal fired generation.”

“With two dual fuel coal/gas units, the newer, high performance 400MW Combined Cycle Gas Turbine (Unit 5), and a flexible 48MW gas-fired peaking unit, along with the potential for further development, the Huntly Power Station remains a valuable long term asset for the Company”.

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