Genesis Energy Limited · NZX:GNE
Genesis Energy — HY17 Earnings Presentation
41 slides from Genesis Energy's earnings presentation, Feb 28, 2017
Slide 1: For personal use only
For personal use only Good morning everyone and thank you for joining the call today. Ten months in I continue to be excited by the opportunities that face Genesis Energy. Our view on the future is that the energy markets will change considerably over the next few years and we’re making good progres
Slide 2: Agenda
Agenda HY17 Highlights and Strategy Update Marc England Chief Executive Operational Performance Marc England Chief Executive HY17 Results Presentation Financial Performance Chris Jewell Chief Financial Officer Outlook and Guidance Update Marc England Chief Executive 2 genesis THEROT
Slide 3: HY17 Highlights and Strategy Update
HY17 Highlights and Strategy Update Marc England
Slide 4: For personal use only
For personal use only As outlined in our guidance last October our performance in the first half, when compared to the same period last year, has been impacted by changes in macro market conditions. The above average rainfall has not been good ‘Hay Making’ conditions for Genesis Energy, however duri
Slide 5: For personal use only
For personal use only Our reset strategic vision of reimagining energy is built on three core themes: ‘Optimising’ the business to improve short term returns, “Innovating’ for medium term growth and ‘Investing’ for long term value creation. This plan on slide 5 is a reminder from our November strate
Slide 6: For personal use only
For personal use only Onto some of the specific early wins. We have made a positive start to the transformation journey with a number of activities already delivered over the past six months. Across the ‘Optimise’ theme we have delivered significant cost savings, $4.5 million of which will flow thro
Slide 7: For personal use only
For personal use only In addition to the achievements I have just spoken about slide 7 contains a sample of several strategic initiatives we have underway. Operational Excellence in both our Customer and Wholesale segments continues on the good work already executed in the first half. Building sales
Slide 8: Financial Performance
Financial Performance Chris Jewell Chief Financial Officer
Slide 9: For personal use only
For personal use only Thank you Marc and good morning. The result I will talk through today should be considered a solid result, which is consistent with previous market guidance. The result reflects the anticipated negative global fuel market factors, and some unforeseen significantly above average
Slide 10: For personal use only
For personal use only Turning to slide 10, I have already touched on most of this information in the highlights slide so I will move straight onto slide 11 to go through the EBITDAF movements in more detail. 10
Slide 11: EBITDAF movements
For personal use only In this slide we have separated out the EBITDAF movements into those which are due to market adverse and uncontrollable conditions and one‐off transformation activities from our more business as usual activities. You can see that the market adverse conditions and transformation
Slide 12: Customer segment
For personal use only We saw strong performance in the Customer segment in the first half up 10% and 16% excluding one‐off items. The main drivers were price increases in both the mass market and TOU electricity sectors, cost savings and a decline in our cost to acquire. These are pleasing results a
Slide 13: Wholesale segment
For personal use only In the Wholesale segment whilst the wet weather conditions favoured renewable over thermal generation the net impact was minimised as our fuel contracts have become more flexible over time. With spot electricity prices and GWAP down 14% over the period, thermal output was 23% d
Slide 14: Kupe performance
For personal use only Kupe performance is mainly impacted by the rolling off of higher priced hedges with the average hedge price down 35% over the period. This was offset by increased production despite a 12 day unplanned outage towards the end of the period. Our Joint Venture partners continue to
Slide 15: Operating cost savings
For personal use only Optimising our business and reducing our operating costs has been one of our strategic themes. A key highlight for the half was the $6 million of cost savings delivered. $4.5 million is ongoing on an annualised basis given some of the cost reduction was attributable to items su
Slide 16: Cash flow
For personal use only Excluding the funding on hand to settle the Kupe transaction at 31 December our net cash increase was $5.7 million during the period. Operating cashflow was down due to the lower EBITDAF, a one off tax credit in the prior comparative period and inventory movements relating to r
Slide 17: For personal use only
For personal use only Genesis Energy continues to have a strong balance sheet with gearing at 35%, an average tenor of 7.9 years with an average cost of debt of 5.5%. During the period we reduced net debt by $26m or 2.2%. We remain within our target metrics to retain our BBB+ rating whilst retaining
Slide 18: Interim dividend
For personal use only Our strong financial position and the current trading environment means it is appropriate to maintain the level of the dividend and as such we have declared an interim dividend of 8.2 cents per share or $82m. On a real term basis our dividends remain ahead of inflation since th
Slide 19: Operational Highlights
Operational Highlights Marc England Chief Cxecutive 19
Slide 20: Customer segment
For personal use only Thank you Chris. It has been a great start to the year for our customer segment from both a financial and operational perspective as we have pivoted to more of a value focus. Whilst we are still in a period of transition we have executed on a number of strategies to drive growt
Slide 21: Market conditions
For personal use only Market conditions were difficult in the first half with intense price competition for ICP’s continuing and the warm temperatures impacting retail demand which was down 4.5% on pcp. As an example in Auckland we had the warmest spring in almost 20 years, 47 degree days above aver
Slide 22: Cost to acquire
For personal use only By focusing on different ways to target and acquire customers we have made a material reduction in our cost to acquire over the period ‐ down 15%. A tactical approach to credits being offered and an ongoing focus on online channels both contributed to this result and this is im
Slide 23: Cost to serve
For personal use only We are also looking to reduce our cost to serve to a best in class level which will come about by finding more efficient ways of servicing our customers supported by technology investment to encourage more digital transactions. Within this we have had an 11% reduction in FTE’s
Slide 24: LPG growth
For personal use only LPG remains a key strategic priority for Genesis Energy around the ‘Innovate’ strategic theme, even more so now with our increased ownership of Kupe and the access to LPG this provides. There is a significant disconnect between this upstream position and our current market shar
Slide 25: Energy insights and bill itemisation
For personal use only Another pillar of our Energy Management ambition being delivered through our strategic initiatives under the ‘Innovate’ theme is to driving useful insights for our customers to enhance their energy experience. Most of us wouldn’t accept a credit card bill from our bank that was
Slide 26: The Local Energy Project
For personal use only Continuing this theme on slide 26, I am pleased to announce today that Genesis Energy is launching a collaboration with customers and other industry partners including Powerco to design game‐changing digital tools that will re‐imagine how customers use energy. This the first ph
Slide 27: Wholesale segment
For personal use only Moving now to the wholesale segment of the market on slide 27, as we have previously outlined, macro factors had a large impact on performance. Weather conditions favoured renewables over thermal generation and this led to lower spot prices. Offsetting this was our lower fuel c
Slide 28: Hydrology and demand
For personal use only As you’ve heard frequently over the last few weeks of results 2016 was a wet year, particularly in catchments where our peers run hydro, and as a result storage levels were high and our thermal generation was not required to run which led to lower spot prices. The wet condition
Slide 29: Generation portfolio flexibility
For personal use only Genesis Energy is, however, in a unique position with its generation portfolio – it has the choice of whether to run thermal, hydro, or to buy on market and preserve its higher cost units to suit market conditions. This offers us downside protection against unfavourable market
Slide 30: Generation cost optimisation
For personal use only Near term, our ongoing focus on cost optimisation in generation delivered further results in the first half through a combination of reduced headcount, improved plant expenditure and lower contracting costs from lower coal burn – shown on slide 30. We have also implemented a ne
Slide 31: Kupe acquisition
For personal use only We quickly put our ‘Invest’ strategic priority into action in the first half with the acquisition of an additional 15% of Kupe. There are a number of clear benefits to increasing our ownership – further integration of our fuel position, increased exposure to a higher performing
Slide 32: Kupe outage
For personal use only We did, unfortunately, incur a 12 day unplanned outage which had an unexpected net impact to our first half performance, further compounded by a longer term LPG outage. Both issues have now been resolved and we expect to see production capacity availability at or near full capa
Slide 33: Health and safety
For personal use only As I mentioned in the key highlights section our commitment to zero harm is continuing to show results with our TRIFR down 70% over the past 12 months. What has impressed me since joining Genesis Energy is the high level of engagement our staff have on health and safety and it
Slide 34: Outlook and Guidance Update
Marc England Chief Executive 34
Slide 35: Outlook
For personal use only Turning to our outlook, we have updated our guidance to a range of 320 to 330 million dollars for the full year which includes our increased share of Kupe and some of the unexpected trading conditions we have spoken about today. Our target earnings profile remains to deliver yo
Slide 36: Investment proposition
For personal use only I wanted to finish on slide 36 by talking about why Genesis Energy is a good investment proposition. When we provided our updated strategy to the market in November this was against a backdrop of a changing market environment where the traditional utility view of energy is chan
Slide 37: Supplementary Information
Supplementary Information a genesis 37
Slide 38: Financial Statements
Financial Statements — = Income Statement HY17 HYI6 Variance ($m) ($m) Revenue $965.3 $1,041.6 (7.3%) Total Operating Expenses (809.6) (866.1) EBITDAF 155.7 175.5 (11.3%) Depreciation, Depletion & Amortisation _(73.6)_—(73.1) Impairment (0.8) 0.0 Fair Value Change 19 (21.0) Other Gains (Losses) (1.6
Slide 39: Reconciliation of EBITDAF to NPAT
Reconciliation of EBITDAF to NPAT S Income Statement HY17 HY16 Variance * EBITDAF is a non-GAAP item but is used as a key ($m) ($m) metric by management to monitor performance at a EBITDAF aa (113%) business segment and group level Depreciation, Depletion & Amortisation (73.6) (73.1) Impairment of N
Slide 40: For personal use only
For personal use only 40
Slide 41: Disclaimer
Disclaimer This presentation has been prepared by Genesis Energy Limited ("Genesis Energy’) for information purposes only. The information in this presentation is of a general nature and does not purport to be complete nor does it contain all the information required for an investor to evaluate an i