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Genesis Energy forecasts lower annual earnings on fossil fuel costs, Tiwai

By Tina Morrison

Lower oil prices, increased carbon costs and a "below market" contract with Tiwai Point will weigh on Genesis Energy's earnings.
Lower oil prices, increased carbon costs and a "below market" contract with Tiwai Point will weigh on Genesis Energy's earnings.

Genesis Energy, New Zealand's largest electricity retailer, said lower oil prices, increased carbon costs and its "below market" contract with the struggling Tiwai Point aluminium smelter will weigh on earnings this year.

Earnings before interest, tax, depreciation, amortisation and fair value adjustments 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 delivery at its annual meeting of shareholders today.

"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 Point 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 opportunities that will drive medium and long-term ebitdaf growth."

England said the constant need to promote discounted prices to replace customers who left was driving unnecessary cost to the business, and onto 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 today 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, based on customer data from the Electricity Authority and the Gas Industry Company. Its customer satisfaction levels declined by 3.2 per cent to 92 per cent.

England said the company aims to use new technology, digital applications and strong partnerships in the future to allow more consumers to take control of their energy usage and enable them to become energy producers as well as consumers.

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 advanced 0.5 per cent to $1.99, and have gained 6.2 per cent this year.

- BusinessDesk

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