Genesis Energy has raised its full-year earnings forecast citing ongoing gas outages, dry conditions and uncertainty about the availability of Contact Energy’s Taranaki Combined Cycle plant.
The company today lifted its full-year operating earnings forecast to $360-375 million, from the $350-370 million it was picking late last year. It reported $361 million of earnings before interest, tax, depreciation, amortisation and changes in financial instruments last year.
Genesis, the country’s biggest retailer of gas and electricity, also operates the country’s biggest fleet of gas- and coal-fired generation. It also runs three hydro schemes and a small wind farm and tends to benefit when conditions are dry.
Wholesale power prices have remained high the past two months as North Island hydro storage has declined, gas deliveries from the Pohokura field have again been reduced during maintenance, and Contact has repeatedly extended an outage underway at its TCC plant at Stratford.
Genesis chief executive Marc England says the impact of the fuel supply “shock” the country went through late last year will probably be felt through to winter.
Not only is there an impact from the current supply reduction at Pohokura, but there is also a potential impact on gas storage and availability.
“Our view is that risk remains for the rest of 2019,” England told journalists and analysts on a conference call.
“It’s not going to be over quickly, in our view, and we’re being cautious.”
The company will pay an 8.45 cent interim dividend on April 18, up from 8.3 cents a year ago.
Genesis shares rose 0.2 percent to $2.775, taking their gain the past year to 18 percent.
Earlier today, the company reported a 2 percent decline in first-half operating earnings when an unusual combination of events late last year required greater coal-burn at the firm’s dual-fuel Rankine units at Huntly but also reduced its gas-fired capability.
That, and reduced oil and gas production from the Kupe field it owns 46 percent of, offset gains from improved pricing and volumes in its retail business.
Group ebitdaf fell to $196 million for the six months through December, from the record $198 million reported a year earlier. Net profit jumped to $49 million, from $28 million, on fair value adjustments and reduced depreciation charges. Underlying profit rose 4 percent to $43 million.
Wholesale power prices surged in October and November as declining South Island hydro storage coincided with reduced gas supply from Pohokura and a five-week shut of the 400 MW E3p gas-fired plant Genesis operates at Huntly.
That combination lifted the firm’s average generation price for the half-year to $146/MWh – 52 percent higher than a year before – but production fell by 12 percent.
As a result, ebitdaf from the firm’s wholesale business fell to $104 million, from $106 million a year earlier. Trading earnings were boosted by $9 million, but that was more than offset by a $7 million impact from having to buy more coal, hedges and other spot gas supplies during the E3p shut. Losses on the firm’s market-making activities in the ASX futures market were also $4 million higher than the year before.
England said the losses on market-making – highest in September and December – were driven by the increased volatility during the period.
He said the ASX market is a vital risk management tool for the sector, but he favours a review of the current voluntary arrangements to ensure costs are shared fairly.
There is plenty of liquidity for independent players “and it’s now time for others to come to the table.”
Reduced production from Kupe, reflecting the E3p shut, lower oil yields and the timing of shipments, saw ebitdaf from the firm’s oil and gas arm fall to $53 million from $56 million a year earlier.
In the customer business, electricity sales were 4.4 percent higher at 3,139 GWh, largely due to greater volume being sold to commercial and industrial customers. Average prices were also higher. Gas and LPG volumes also improved, again boosted by sales to business and heavy industry.
That saw customer group ebitdaf climb by $6 million to $62 million. A $1 million reduction in residential gross margin was more than offset by lower operating costs, reduced bad debts, and improved earnings from the LPG operation and business sales.
England noted gross customer churn was down 4.8 percent and the number of customers taking multiple fuels was up 6.4 percent.
Customer loyalty and engagement is probably the highest it has ever been, he said. Digital tools are giving them greater control of their power use and also enabling them to have quicker, cheaper interactions with the company.
While total customer numbers are down about 1 percent, total power, gas and LPG connections are up 1 percent, England said. The firm’s index of the customer life value – the margin from residential customers discounted against their expected tenure – also gained 6 percent during 2018.
