Genesis Energy Limited · NZX:GNE
Genesis Energy — Investor Day (November 2016)
84 slides from Genesis Energy's investor day presentation, Nov 22, 2016
Slide 1: Investor Strategy Day
Investor Strategy Day 22 November 2016
Slide 2: 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
Slide 3: Agenda
Agenda 1 Introduction & overview 2 Strategic direction 3 Optimise __ __ Tracey Hickman Marc England __ Nigel Clark Michael Summers-Gervai Marc England Shaun Goldsbury Dean Schmidt 4 Innovate __ 5 Invest __ 6 Outlook __ James Magill Jen Cherrington-Mowat Nicola Richardson Dean Schmidt Chris Jewell Ma
Slide 4: Investor Day 22 November 2016
Investor Day 22 November 2016
Slide 5: Overview of NZ Electricity Market
Overview of NZ Electricity Market Investor Strategy Day 22 November 2016 5
Slide 6: An integrated business delivering value
An integrated business delivering value Investor Strategy Day 22 November 2016 6
Slide 7: Retail market overview
# Retail market overview Michael Summers-Gervai Customer Analytics Manager
Slide 8: Energy Retailing
Energy Retailing Genesis Energy maintains largest market share, as traditional retailers still dominate LPG MARKET SHARE(kt) 11% ELECTRICITY MARKET SHARE NATURAL GAS MARKET SHARE RESIDENTIAL 25.4% 39.0% <1% BULK Sources: MBIE, Genesis Energy analysis, EA, GIC Investor Strategy Day 22 November 2016 8
Slide 9: Market switching
Market switching Customers changing retailers remains high as number of energy participants continues to increase MARKET SWITCHING TRENDS ACTIVE RETAILERS (>100 ICPS) 30 450000 26 400000 25 350000 300000 20 250000 15 200000 150000 10 100000 5 50000 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 20
Slide 10: Customer churn
Customer churn 1 in 5 NZ customers switch each year but Genesis Energy maintains churn rates at or below market average ELECTRICITY ANNUAL CHURN GAS ANNUAL CHURN 24.00% 24.00% 22.00% 22.00% 20.00% 20.00% 18.00% 18.00% 16.00% 16.00% 14.00% 12.00% 14.00% 10.00% 12.00% Jan-15 Apr-15 Jul-15 Oct-15 Jan-1
Slide 11: Electricity market volume
Electricity market volume Business segment under represented in volume compared to ICP share 25% RESIDENTIAL 26% ICP kWh 20% BUSINESS 11% ICP kWh Investor Strategy Day 22 November 2016 11
Slide 12: Distributed Energy
Distributed Energy It’s early days but the direction is clear TOTAL SOLAR INSTALLATIONS USD/MWh LEVELISED COST OF SOLAR (US) 14,000 $500 12,000 12,009 $400 10,000 8,000 $300 1.6m 6,000 Households $200 4,000 1,645 $100 2,000 - $0 Sep 13 Sep 16 2010 2011 2012 2013 2014 2015 Residential Commerical Util
Slide 13: Brand strength
Brand strength Genesis Energy brand strength places us in a strong position ENERGY COMPANY BRAND AWARENESS CORPORATE REPUTATION 100% 90% 80% 70% 60% 50% Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Sources: Genesis Energy Market Research, Colmar Brunton Investor Strategy Day 22 Nov
Slide 14: Customer insights
Customer insights Discounted pricing, moving and door-knocking are driving churn as our customers become more digitally active DISCOUNT DRIVEN MOVING LEGACY CHANNELS EXIT 40% 30% ADVANCED METERS DIGITAL INTERACTIONS ONLINE SALES 30% x2 x4 Sources: Genesis Energy market research and analysis Investor
Slide 15: Wholesale market overview
# Wholesale market overview Shaun Goldsbury Electricity Portfolio Manager
Slide 16: Electricity supply
Electricity supply Renewable generation builds have led to thermal retirements NZ Electricity Generation by Fuel Type Installed Capacity by Fuel Type Hydro Geothermal Coal Gas Wind Others Hydro Geothermal Coal/Gas Gas Wind Diesel Thermal Retirements 50,000 3,000 45,000 40,000 2,500 35,000 2,000 30,0
Slide 17: Hydro risk curves
Hydro risk curves Remaining thermal has more value due to retirements rebalancing market 4,500 National Hydro Risk Curves 4,000 3,500 3,000 2,500 GWh 2,000 1,500 1,000 500 0 2013 2014 2015 2016 2017 1% Risk 2% Risk 4% Risk 8% Risk 10% Risk Max Storage Historical Average Actual Storage Source: System
Slide 18: Electricity demand growth
Electricity demand growth Genesis Energy is preparing a future with a range of possible outcomes Annual Electricity Demand Growth Forecast 50,000 45,000 40,000 GWh 35,000 30,000 25,000 20,000 1997 1999 2024 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1998 2000 2001 2002 2003 2004 2005 200
Slide 19: Transmission grid
Transmission grid Critical due to our unique geography and location of generation HVDC Transfers North Island Import North Island Export 4,000 3,000 2,000 1,000 GWh - -1,000 -2,000 -3,000 -4,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Source: Transpower In
Slide 20: Transmission upgrades are required
Transmission upgrades are required If Tiwai closes these upgrades take a long time and the cost means it may not be the best option for the consumer • Timeframe of at least five years • Only Southland upgrade is approved • Cost estimate is hundreds of millions of dollars • Who pays? (TPM) Investor S
Slide 21: Wholesale market more fragmented
Wholesale market more fragmented If Tiwai closes companies with South Island generation are the most affected Tiwai Exit Scenario: Wholesale Price Path1 North Island South Island • Initial price drop • Large regional separation • Market rebalances • Genesis Energy has a long retail position in the S
Slide 22: Wholesale prices more volatile
Wholesale prices more volatile If Tiwai closes the congested transmission grid will lead to an increase in regional and seasonal price volatility North Island Generation Capacity • Thermal generation still Winter Average Demand Winter Peak Demand needed for capacity • Plant runs less but gets paid m
Slide 23: Retail market is a shock absorber
Retail market is a shock absorber If Tiwai closes companies with large retail bases are the least affected • Wholesale price is only 35% Electricity Price Comparison (2000-2016) of customers bill Wholesale Retail • Retail prices respond slowly • Genesis Energy retail market share is: − 26% of overal
Slide 24: Emissions trading scheme
Emissions trading scheme Genesis Energy accounts for 3% of New Zealand carbon emissions GT CO2e New Zealand Carbon Emissions 2014 New Zealand Unit (NZU) Spot Price 90 $25 80 $20 70 60 $15 50 40 $10 30 $5 20 10 $0 0 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Agriculture Industrial Processes and Waste
Slide 25: Creating fuel flexibility
Creating fuel flexibility Kupe is at the heart of our fuel strategy • Kupe is completely vertically integrated, with gas, oil and LPG sold to: − Export − Wholesale − Retail − Generation Investor Strategy Day 22 November 2016 25
Slide 26: Rankine fuel optionality
Rankine fuel optionality Fuel flexibility is a core value driver Huntly Rankine Monthly Fuel Use (TJ) and Gas % Total TJ Rolling 12 Months Gas % 5,000 40% 4,500 35% • Rankine output has decreased 4,000 30% 3,500 25% TJ • Gas usage % has increased 3,000 Gas % 2,500 20% 2,000 15% − Kupe and spot gas d
Slide 27: Gas position is reducing over time
Gas position is reducing over time In 2020 we see a significant value uplift and material risk reduction Genesis Energy Gas Contracts New Zealand Total Gas Production Kupe Contract Flexible + MUG Kupe 300 Future Kupe (incl non-firm gas) Third party contract Other contracted gas Gas Demand 250 Gas De
Slide 28: Our strategic direction
Our strategic direction # Marc England Chief Executive Re-imagining energy to be customers’ first choice for energy management
Slide 29: Our Vision
OUR VISION Re-imagining energy to be customers’ first choice for energy management.
Slide 30: Strategic themes to energy management
Strategic themes to energy management 1. Optimise generation 2. Optimise “Traditional Retail “ Optimise − Deliver best in class cost to serve To improve short term − Drive loyalty into the customer base return − Win and keep valuable customers 3. Seeking corporate efficiency gains 1. Enable products
Slide 31: Approaching strategic planning
Approaching strategic planning Dean Schmidt EGM Corporate Affairs & Transformation
Slide 32: Future thinking informs decisions today
Future thinking informs decisions today Scenarios provide plausible futures against which to challenge actions and assumptions Scenarios are a mix of qualitative and quantitative insights Investor Strategy Day 22 November 2016 5
Slide 33: Scenarios: new retail entrants and distributed energy costs
NEW RETAIL ENTRANTS NEW RETAIL ENTRANTS NEW RETAIL ENTRANTS NEW RETAIL ENTRANTS Established players Continued growth Continued growth Multiple new entrants from other industries of Tier 2 innovation of Tier 2 innovation across competitive or countries enter and channels and channels spectrum (telco,
Slide 34: Optimising generation
Optimising generation Tracey Hickman EGM Generation and Wholesale
Slide 35: Operating with closer integration
Operating with closer integration Driving value through greater integration of maintenance, operations and wholesale activities Maintenance Operations Wholesale Investor Strategy Day 22 November 2016 8
Slide 36: Optimising generation assets to drive improved value
Optimising generation assets to drive improved value Can pull six levers to optimise the assets Reliability and safety Productivity Flexibility Efficiency Risk Availability Cost Revenue Trade (buy and sell) Investor Strategy Day 22 November 2016 9
Slide 37: Risk management matches maintenance with consequence
Risk management matches maintenance with consequence Integrated risk management drives process safety and reliability up, and costs down Risk Bowties Causes Controls Event Mitigation Consequences Asset Maintenance programme Management Capital investment programme Planning Investor Strategy Day 22 No
Slide 38: Effective planning, timing and efficient resource utilisation
Effective planning, timing and efficient resource utilisation Effective planning and scheduling of maintenance drives plant availability and productivity up and costs of outages down March Flexible use of people resources drives costs down Investor Strategy Day 22 November 2016
Slide 39: Trading and hedging to manage operational risk
Trading and hedging to manage operational risk Operating and trading our assets to drive efficiency, leverage flexibility, reduce risk and create new value Hydro Efficiency Rankine Efficiency Trading & Hedging Operational Risk Investor Strategy Day 22 November 2016 12
Slide 40: Optimising generation and trading
Optimising generation and trading Greater value being delivered by integration of maintenance, operations and energy trading Revenue Opex, Capex Plant defects Investor Strategy Day 22 November 2016 13
Slide 41: Optimising customer value
Optimising customer value Nigel Clark EGM Customer Operations
Slide 42: Driving improvement across operations
Driving improvement across operations Leading Low cost Increase Innovative & customer business customer differentiated experience & model lifetime value products & service services DIGITAL ANALYTICS INNOVATIVE CULTURE Investor Strategy Day 22 November 2016
Slide 43: Driving improvement across operations
Driving improvement across operations Frictionless digital services for better customer outcomes at lower cost • Customer focus • Interactions down • Frictionless • Best technology • Understanding • Flexible • Track Performance • Multiple channels Leading Low cost • Analytics and continuous customer
Slide 44: Driving improvement across operations
Driving improvement across operations Understanding customers to deliver engaging products and services • Understanding • Scaled Agile • Segmentation • SME and LPG growth • Proactive • Future service structures • Loyalty Increase • Low Churn Sales customer capability lifetime value Investor Strategy
Slide 45: More self service and reduction in call handling
More self service and reduction in call handling Changing interaction is delivering great results Investor Strategy Day 22 November 2016 18
Slide 46: Growing customer value
Growing customer value Improving the customer experience through a focus on digital, analytics and an innovative culture Cost to Acquire Customer Churn Sales Cost to serve Investor Strategy Day 22 November 2016 19
Slide 47: Innovate to grow
Innovate to grow James Magill EGM Product Marketing
Slide 48: Leveraging new technology to meet customer needs
Leveraging new technology to meet customer needs Embracing the changing environment Digital expectations Distributed Energy Future technologies Investor Strategy Day 22 November 2016 21
Slide 49: Innovating for today's markets as well as the future
Innovating for today’s markets as well as the future Experiment with integrating technologies to develop, iterate and ultimately scale new products/services Investor Strategy Day 22 November 2016 22
Slide 50: New opportunities for growth
New opportunities for growth We are evolving the way we work and design products for our customers Design Understand Test Scale Iterate Investor Strategy Day 22 November 2016 23
Slide 51: Existing opportunities for growth
Existing opportunities for growth Focus on opportunities for growth in existing markets by disrupting current business models Bottled gas Small & medium enterprise Residential Investor Strategy Day 22 November 2016 24
Slide 52: Changing landscape for distributed energy
Changing landscape for distributed energy Moving from traditional one flow to seven flows of electrons Investor Strategy Day 22 November 2016 25
Slide 53: Innovate for growth
Innovate for growth Innovation and sales focus on improving share of LPG and SME markets LPG volume market share SME volume market share Energy Management product holdings Investor Strategy Day 22 November 2016 26
Slide 54: From electricity market to energy market
From electricity market to energy market Rethinking the traditional regulatory frameworks as the boundaries blur • Create a level playing field for emerging technology competition in the home and Level playing business field • Create a simplified distribution network that seamlessly integrates new t
Slide 55: Digital strategy
Digital strategy Jen Cherrington-Mowat EGM Technology and Digital
Slide 56: Customers are core to the technology and digital strategy
Customers are core to the technology and digital strategy Every project must contribute to our operational and customer value proposition A technology and digital strategy delivered through: Customer • Customer-centric design-led thinking and product and service development • Best of breed partners,
Slide 57: Enabling growth through tech' investment
Enabling growth through tech’ investment Modular, scalable, best of breed applications and infrastructure Mobile app Investor Strategy Day 22 November 2016 30
Slide 58: Tech' investment has already started
Tech’ investment has already started Key programmes of work are underway to support the business ambitions CRM My Account Self Service Billing Mobile app Call Centre Infrastructure Integration Applications Channels Customers layer Investor Strategy Day 22 November 2016 31
Slide 59: Next generation insight enabling new products and services
Next generation insight enabling new products and services Data and analytics supporting data-driven insights 1011000111 1000101010 1110011100 1011000101 Data Data Insights Customer Convenience, Comfort and Control Investor Strategy Day 22 November 2016 32
Slide 60: Digital strategy is enabling growth
Digital strategy is enabling growth Customer insights coupled with modular and adaptable IT structure enable new services Customer Insights Capex Investment in digital services Investor Strategy Day 22 November 2016 33
Slide 61: Invest
Invest Chris Jewell Chief Financial Officer
Slide 62: Balance sheet capability
Balance sheet capability Estimated Net Debt/EBITDAF ratio Head room for investment in growth 3 Estimated Phase II Development • Balance Sheet provides flexibility to deploy for 2.8 Net Debt/EBITDAF ratio investment in growth and pay dividends 2.6 2.4 • Current debt levels well within S&P BBB+ key 2.
Slide 63: Areas of investment opportunities
Areas of investment opportunities Investment opportunities aimed at enhancing and supporting our core business Kupe – building on our LPG – investing to grow retail integrated fuels strategy and and bulk market share creating a flexible fuels strategy with 15% share acquisition from NZOG Distributed
Slide 64: Recap of Kupe transaction highlights
Recap of Kupe transaction highlights Acquisition of New Zealand Oil and Gas’ 15% share in Kupe Transaction Acquisition of NZOG’s 15% stake in Kupe JV for $168m increasing Genesis Energy’s stake to 46% Strategic Greater flexibility over future gas supply and increased JV influence Balance Sheet Stren
Slide 65: Improving integrated fuels strategy: Gas
Improving integrated fuels strategy: Gas Significant value in future uncontracted gas Projected Kupe Gas Sales1 • Significant value in 26PJ of uncontracted gas • Domestic gas reserves declining and current prices are low Pre Transaction 124 53 118 − Transaction effectively contracts all of NZOG’s fu
Slide 66: Improving integrated fuels strategy: LPG
Improving integrated fuels strategy: LPG Platform to grow LPG business • Acquisition will increase Genesis Energy’s Genesis Energy share of New Zealand LPG production share of total New Zealand LPG production from 14% to 21% Genesis Energy 14% • Additional 13kt pa purchased whilst NZ is Pre Deal Oth
Slide 67: Positive impact on earnings
Positive impact on earnings EBITDAF expected to increase • Transaction is expected to increase annualised EBITDAF by Financial Impact FY2016 FY2017 approximately $39m of Acquisition Estimated Pro-forma Estimated $m Incremental Impact1 Incremental Impact2,3 • Based on pro-forma FY2016 estimates, earn
Slide 68: Strong strategic rationale
Strong strategic rationale Greater gas flexibility and JV influence • Enhances previously communicated ‘Integrated Fuels Strategy’ to create value from production through to thermal generation and retail: ‒ Ownership of an additional 26PJ of uncontracted gas ‒ Additional LPG volumes – 13kt/yr - 21%
Slide 69: How we work
How we work Nicola Richardson EGM People and Culture
Slide 70: Being deliberate with our best asset: our people
Being deliberate with our best asset: our people To become a lean and agile top quartile employer Lean corporate • Optimisation of the corporate functions Invest in • Investment in new capabilities, product development, capability insights, sales and software integration skills • An unwavering focus
Slide 71: Focus on Zero Harm is paying off
Focus on Zero Harm is paying off 92% improvement in Total Recordable Injury Rate over five years Total Recordable Injury Frequency Rate 0.52 2011 2016 Investor Strategy Day 22 November 2016 44
Slide 72: Commitment and summary
Commitment and summary Marc England Chris Jewell
Slide 73: 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
Slide 74: Total Shareholder Return (TSR)
Total Shareholder Return (TSR) Genesis Energy TSR has been positive to date Genesis Energy Share TSR Since IPO vs NZX50 Dividend Per Share Genesis Energy TSR NZX50 TSR • Genesis Energy is targeting upper 80% 14 quarter annual TSR amongst 70% FY2015 Interim FY2016 interim 12 Total Shareholder Return
Slide 75: How we think about building shareholder value
How we think about building shareholder value Targeting upper quartile TSR Estimated contributions to targeted FY17- • Our plan targets upper quartile annualized FY21 annualised TSR by strategic initiative New initiatives collectively 6.8% TSR growth over FY17-FY21 16% 14+% 14% • Shareholders will s
Slide 76: How we aim to deliver and track TSR
How we aim to deliver and track TSR Strategic Initiative Description Target Incremental Annualised Cumulative CAPEX annualised EBITDAF uplift to achieve target TSR FY17 -FY21 $m FY17-FY21 $m FY17-FY21 Genesis Energy core • Underlying earnings driving current dividend yield $15m - $25m 7% Optimise •
Slide 77: Target earnings profile
Target earnings profile Targeting $400m+ EBITDAF by FY21 (with a range of $375m - $425m) • FY17 EBITDAF guidance – $305m - $325m Estimated contributions to growth in annualised EBITDAF FY17-21 • Transformation journey $375m -$425m underway - FY17 earnings 420 $15m -$25m $35m -$40m guidance includes
Slide 78: How our balance sheet will support growth
How our balance sheet will support growth Estimated Net Debt/EBITDAF ratio Focus on creating capacity 3 Estimated Phase II Development 2.8 Net Debt/EBITDAF ratio • Balance Sheet remains strong to invest for growth, pay 2.6 down debt, and pay dividends 2.4 2.2 • Some new hybrid debt funding possible
Slide 79: How we are tracking success
How we are tracking success New disclosure metrics • Commitment to disclose further metrics over time to help the market track our journey towards EBITDAF growth OPTIMISE INNOVATE Retail Generation & Wholesale Retail IT • Retail cost to serve • Availability • LPG customer • App releases • Cost to ac
Slide 80: How we think about creating shareholder value
How we think about creating shareholder value Progressive growth Dividend c.8% yield $164m+ pa Cash funded Weighted average $35-50m pa Stay in organic earnings Targeted TSR Business capex growth of 14+% $10-15m pa growth of c.2-3% capex Debt EPS growth of Acquisitions c.5-10% funded $168m Investor S
Slide 81: Uplift – through business transformation
Uplift – through business transformation • Upper quartile TSR targeted • Target $400m+ EBITDAF by FY21 • Transformation journey underway – Some value embedded in FY17 guidance – Kupe acquisition delivers immediate value • Strategy underpins dividend payments • Further disclosures planned on lead ind
Slide 82: Our plan on a page
Bringing together today’s sessions Our plan on a page REIMAGINING ENERGY Vision to be customers’ first choice for energy management Strategic Themes OPTIMISE INNOVATE INVEST To improve short term return For medium term growth In long-term value creation Priorities Strategic Maximise Leverage data, C
Slide 83: An integrated approach to strategy
An integrated approach to strategy We will make decisions with a holistic approach to value Corporate strategy An optimised supplier Lean and agile 1st and energy manager quartile performer OPTIMAL TSR Path to 14+% annualised TSR Investor strategy Financial strategy Yield plus growth Maintain 2.5-2.
Slide 84: A team committed to driving success
A team committed to driving success Driving change in every part of the Genesis Energy business With thoughtful insight, acute focus and action, Genesis Energy will be a $400m+ EBITDAF company by FY2021 Success will come from: Being obsessed Disrupting the Focusing on Delivering lean and with custom