Genesis Energy says exceptional hydro power generating conditions helped take its operating earnings - ebitdaf - to a record $523.5 million in the June year, up 19 per cent on the previous year’s.
The company - which runs the coal and gas-fired Huntly Power Station, along with several hydro assetsin the North and South Islands - said its net profit fell by 12 per cent to $195.7m, reflecting changes on valuations of its Huntly units.
Genesis declared a final dividend of 8.8c, taking the total annual declared dividend to 17.6c - the same as the previous year’s.
That was despite free cash flow jumping by 27 per cent to $335.2m.
The dividend, as a percentage of free cash flow, fell to 56 per cent from 70 per cent.
Chief executive Malcolm Johns said the board had decided to hold the dividend steady in order to pay down debt, while preserving capital for future investment opportunities in renewables.
NZX-listed Genesis, which is 51 per cent owned by the Government, had previously guided for Ebitdaf - earnings before interest, tax, depreciation, amortisation and financial instruments - for 2023 of $515m.
The company said its 2024 ebitdaf is expected to be around $430m, subject to hydrological conditions, gas availability “and any material adverse events or unforeseeable circumstances”.
Mohandeep Singh, senior research analyst at Craigs, said it was a good result, although the flat dividend would disappoint some.
“Given how wet 2023 was - which we have seen in the Mercury result - Genesis was able to pull back on its costly thermal generation and buy electricity from a lower-priced spot market,” he said.
“This also helped to have a massive reduction in its emissions for the year,” he said.
“Next year’s guidance of $430m is a little softer than expectation, at face value, but part of the difference is because of the extended outage of Huntly’s Unit 5,” Singh said.
Favourable hydro conditions throughout the year led to 65 per cent of Genesis’ generation coming from renewable sources, the highest proportion since the company was formed in 1999, the company said.
Conversely, thermal generation fell to record lows, resulting in significantly reduced fuel costs and a 45 per cent reduction in emissions compared with 2022.
Lower thermal generation was also the key driver in a 16 per cent drop in revenue to $2,374.2m on the corresponding period.
The impact of inflation was felt in increased costs for insurance, software, staff and for the Kupe oil and gas field.
Staff numbers rose, particularly in customer-facing roles, and contributed to an 11 per cent increase in operating expenditure to $330.2m.
Johns said the result enabled Genesis to invest in new renewable generation and play a key role in New Zealand’s transition to a new energy future.
Genesis announced a solar farm in Canterbury of around 52 megawatts (MW) and rights to three other sites in the North Island that could deliver about 400MW combined. A final investment decision is expected on the Canterbury development later this year.
“Looking through the three lenses of people, planet and profit, this is a pleasing result,” he said.
Johns said Genesis was examining other renewable options for the future and is looking at building a battery at its Huntly site.
He said the energy sector is at the heart of New Zealand’s successful transition to a low-carbon future, and Genesis had an important role to play with the assets that it owns.
Early this month, Genesis Energy said an outage at its Unit 5 combined cycle gas plant at Huntly would cost $20m-30m.
Unit 5, which usually delivers continuous or baseload power to the electricity grid, has been out of action since June 30.
An investigation revealed a failure of one of the unit’s three circuit breakers.
Genesis had earlier advised that it expected Unit 5 to return to service by August 31, but it has now pushed that date out to May next year.
The cost of fixing Unit 5 is included in the year-ahead guidance.
Genesis chief executive Malcolm Johns.
Commenting on the flat dividend, Johns told the Herald: “There is always a balance between rewarding shareholders and ensuring that you have the capital to continue to invest in the future of the business.”
The board had opted to pay down $68m in debt.
“That gives us some powder in the keg around solar development, technology and developing the business to drive productivity,” he said.
He said Genesis was reviewing its strategy for the years ahead, as New Zealand pursued its policy of decarbonising the economy.
The review would cover its pipeline of renewable energies investment, the role that Huntly would play in ensuring grid security of supply, particularly for the upper North Island.
The timing of Genesis’ new North Island solar builds is subject to regulatory processes, and final investment decision. However, the first of the new sites is expected to be generating electricity by 2026.
Shares in Genesis last traded at $2.75, having dropped by 12.6 per cent over the last 12 months.
Salt Funds managing director Matt Goodson said the result was largely in line, but the outlook is a touch weak on slightly higher-than-expected costs.
“The key thing driving the share price at the moment is its removal from the MSCI Small Cap Index at month-end,” he said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
