Earnings drop
Genesis Energy signals market headwinds
Genesis Energy, New Zealand’s largest electricity retailer, says lower oil prices, increased carbon costs and its “below market” contract with the Tiwai Pt aluminium smelter will weigh on earnings this year.
Earnings before interest, tax, depreciation, amortisation and fair value adjustments (ebitdaf) are expected to fall to between $305 million and $325m in the year ending June 30, 2017, from $335.3m the previous year, the Auckland-based company said in a presentation for its annual meeting of shareholders yesterday.
“The business is facing a number of market headwinds including lower realised oil prices due to the historically higher priced oil hedges now having rolled off, increased carbon costs and a new below market contract that was signed to support the ongoing viability of the Tiwai Pt smelter,” said chief executive Marc England.
“Offsetting this, the management team have worked hard to improve underlying business performance and the things we can control such as overhead costs and planned revenue improvement.
“These performance improvements collectively have created capacity to invest in new and transformational growth opportun- ities that will drive medium and longterm ebitdaf growth.”
England said the constant need to promote discounted prices to replace customers who left was driving unnecessary cost to the business, and on to customers.
“We need to break out of this cycle of discounting and find new ways to engage and create enduring relationships with our customers,” he said.
Data released yesterday showed the company’s share in the electricity market fell by 1.4 per cent to 25.4 per cent in the first quarter compared with the year earlier, and its share in the gas market slid 4.8 per cent to 36.1 per cent. Its customer satisfaction levels declined by 3.2 per cent to 92 per cent.
The company forecast it would invest between $35m to $45m on “stay in business” capital expenditure this year, and an additional $10m on growth initiatives.
Genesis Energy shares closed unchanged yesterday at $1.98.
We need to break out of this cycle of discounting and find new ways to engage and create enduring relationships with our customers. Marc England, CEO Genesis Energy