Genesis Energy reports strong underlying earnings

Media Statement 14 October 2009

Genesis Energy reports strong underlying earnings

Genesis Energy has agreed terms with Meridian Energy on a contractual arrangement which will extend the economic life of the Huntly Power Station the Company’s Chairman, Brian Corban CNZM, QSO, said today.

“The arrangement will improve considerably the prospects that Huntly generation capacity will be available to the electricity market for some time to come. We will continue to work towards achieving further commercial arrangements which help Huntly contribute to New Zealand’s future power security.” His statement coincides with the tabling in Parliament of the Company’s financial results which show a $29 million net decrease in the value of its generation assets following a revaluation at 30 June 2009.

A decrease in the value of the older Huntly Units 1 to 4 and the open cycle gas fired turbine Unit 6 was largely offset by increases in the value of hydro assets and Huntly Unit 5 the combined cycle gas turbine. Accounting rules require reductions in asset valuations to be charged against the income statement while increases in asset valuations are taken directly to Shareholders’ equity.

The decrease in the value of Huntly Units 1 to 4 and 6 and the write-downs of gas exploration and business development expenditure resulted in Genesis Energy reporting a Net Loss after Tax of $136 million for the year ended 30 June 2009, compared to a prior year Net Profit after Tax of $99 million. Despite the loss, underlying earnings were positive at $82 million and the Company continues to perform strongly as a generator and supplier of electricity and gas.

The Company is well positioned for the future with a robust balance sheet and ample funding facilities in place. “Our underlying earnings are more than satisfactory given the very competitive markets and the increasing operational and fuel costs facing us,” said Mr Corban. The Company has paid a final dividend of $10.4 million bringing total dividends paid in respect of the 2009 financial year to $20.8 million.

Media Statement 14 October 2009

“What today’s result reflects is a transitional period where the economics of Huntly Units 1 to 4 are becoming increasingly challenging. Without a commercial return, these Units will need to be progressively retired over several years to save costs. Putting in place commercially based transactions allows us to defer the retirement of these units. So long as we have a commercial return, we can maintain Huntly’s contribution towards New Zealand’s energy security.” Genesis Energy’s total revenue for the year was $1,957 million, a decrease from the previous year’s total revenue of $2,437 million, resulting from the combination of lower wholesale prices and decreased generation.

Total operating costs for the year were $1,755 million, against $2,136 million for last year, largely due to the lower cost of electricity purchased for the Retail business and a lower fuel cost. Generation Genesis Energy’s Production business commenced the financial year with dry conditions and high thermal output but by the end of the first quarter significant inflows into South Island hydro lakes reversed the situation.

Water inflows into the company’s own North Island hydro schemes were also volatile with extremely low levels followed by high inflows. Despite the dry conditions of winter 2008 impacting the first quarter of this financial year, the fuel burn cost of $355 million for the year decreased from $402 million in the previous year. Capital expenditure totalled $227 million.

The majority of capital expenditure was applied to the Kupe gas project with other capital applied to plant upgrades at Huntly and Tokaanu Power Stations, and gas exploration at Mangatoa. Retail Mr Corban said the company had performed well in an exceptionally competitive retail market.

“We have focused on defending our customer base, especially as switching was encouraged by other retailers offering sharp pricing.” During the last year Genesis Energy introduced “Brownie Points” a loyalty scheme which rewards customers not only based on their consumption but also for changes in their various behaviour.

Media Statement 14 October 2009

The company began rolling out its Advanced Meter programme in early 2009. To date 14,000 Advanced Meters have been installed in customers’ properties, mostly in Waitakere City. These meters will enable Genesis Energy to provide customers with accurate monthly electricity bills, however many more benefits to customers will follow. In September 2009, Genesis Energy provided a trial group of Advanced Meter customers with New Zealand’s first seven day a week peak and off-peak electricity tariffs on a single meter, without requiring a special second meter to record night tariffs, as was needed in the past.

ends

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