FY18 Results and Annual Report
MARKET RELEASE
Date: 29 August 2018
NZX: GNE / ASX: GNE
Delivering sustainable growth with EBITDAF up 8%
Year ended June 2018 Change year on year
EBITDAF
1
$361 million 8% increase on FY17 of $333 million
Net Profit $20 million 86% decline on FY17 of $119 million
Earnings per share 1.75 cents Down 1.13 cps from 11.88 cps
Final dividend per share 8.6 cents Up 2% on FY17 on 8.4 cents
Free cash flow
2
$184 million $2m increase on FY17 of $182 million
Strong sustainable growth and a commitment to a more future-focused New Zealand
Genesis Energy (GNE) announced today that it delivered sustainable growth in FY18 as its integrated portfolio,
acquisitions and strategy execution delivered EBITDAF
1
of $361 million, 8% higher than the prior financial year.
Net profit fell to $20 million due to non-cash fair value adjustments, however free cash flow and dividends
increased.
Genesis Chairman, Dame Jenny Shipley, said the result reflects strong performance as the integration between
Kupe and the company’s flexible generation portfolio delivered value in response to variable wholesale market
conditions. The Customer Segment performed well in a year of transition that included the integration of a new
LPG operation, a billing system migration and a brand relaunch with the backdrop of increasing electricity market
competition.
“The Genesis Board, Executive and I are also proud to share Genesis’ Sustainability Framework with you as part
of our Annual Report. This document underlines the Company’s ongoing commitment to deliver sustainable
growth for shareholders, innovation for our customers, a supportive workplace for our people and lasting
benefits to society,” says Dame Jenny.
Chief Executive, Marc England, said Genesis has demonstrated the value in a diverse portfolio this year, not only
across a geographically and fuel diverse electricity generation portfolio but also between the different business
models of the Kupe Joint Venture, Wholesale Electricity and our multi-fuel Customer Segment.
“Over FY18 we have created a multi-fuel, single service platform to support our yield plus growth investment
proposition. Today, Genesis customers have more knowledge and visiblity than they have ever had to help them
monitor, predict and compare their energy spend. We are now also adding a holistic approach to sustainability
as we demonstrate commitment to supporting New Zealand’s transition to a low emissions economy,” says
England.
Final dividend and a dividend reinvestment plan
The Genesis board has declared a final dividend of 8.6 cents per share, an increase of 2% which has a record
date of 5 October 2018 and will be paid on 19 October 2018.
Genesis is pleased to announce the continuation of its dividend reinvestment plan introduced at the half year
FY18 to provide shareholders a cost-effective way to reinvest in Genesis’ growth strategy. The New Zealand
government has committed to participate to the extent required to retain its 51% holding. Shareholders will
have until 5 October 2018 to opt into the dividend reinvestment plan.
1
Earnings before net finance expense, income tax, depreciation, depletion, amortisation, impairment, fair value changes and other gains
and losses
2
Free Cash Flow is EBITDAF, less finance expense, cash taxes paid and stay in business capital expenditure
FY2019 guidance
EBITDAF guidance for the full year ended 30 June 2019 is in a range of between $350 million to $370 million.
This assumes average hydrological conditions, and includes the forecast impact from the planned Huntly Unit 5
mid-life outage estimated at a 50 day duration. Capital expenditure guidance for FY19 is up to $85 million.
Further information on the company’s operations and financing can be found in the investor presentation of
the full year results at nzx.com/markets/NZSX/securities/GNE and www.genesisenergy.co.nz/presentations.
ENDS
For media enquiries, please contact:
Emma-Kate Greer
Group Manager Corporate Relations
M: 027 655 4499
For investor relations enquiries, please contact:
Wendy Jenkins
Group Manager Planning and Investor Relations
Genesis Energy
P: 09 951 9355
M: 027 471 2377
About Genesis Energy
Genesis Energy (NZX: GNE, ASX: GNE) is a diversified New Zealand energy company. It sells electricity, reticulated
natural gas and LPG through its retail brands of Genesis Energy and Energy Online. It is New Zealand’s largest
energy retailer with around 500,000 customers. The Company generates electricity from a diverse portfolio of
thermal and renewable generation assets located in different parts of the country. Genesis Energy also has a
46% interest in the Kupe Joint Venture, which owns the Kupe Oil and Gas Field offshore of Taranaki, New
Zealand. Genesis Energy had revenue of $NZ2.3bn during the 12 months ended 30 June 2018. More information
can be found at www.genesisenergy.co.nz
---
G E N E S I S E N E R G Y L I M I T E D
FY18 Result
Presentation
29 August 2018
Marc England –CHIEF EXECUTIVE
Chris Jewell –CHIEF FINANCIAL OFFICER
AGENDA
Year in
Review
Financial
Performance
Strategic Update
and Outlook
FY18
RESULT PRESENTATION2
Supplementary
Information
1. Year in Review
Results at
a glance
EBITDAF
FY17 $333m
m
$
m
$
due to generation
revaluations
FY17 $119m
$
Operating cashflow
FY17 $249m
FY18 total dividend
FY17 16.6c
Imputation 80%
cps
billing platform servicing
EOL & Genesis brands.
100,000+ EOL customers
successfully migrated.
Kupe gas production
PJ
Record
m
integrated operations
centre delivering
operational
efficiencies, digital
interactions up 46%.
integratedLPG
distribution platform.
Genesis now servicing
around 60,000 LPG
customers.
Energy IQ
launched with
over 100,000
unique users
engaged
Brand revitalised
“With You,
For you”
New Zealand’s 2018 # 1
energy utility (Colmar
Brunton & Reptrak)
GWh
supports volatile market
,
Up
5%
Up
11%
Total generation
NPAT
Our VISION is to be customers’ first choice for energy management
Excellence in execution on foundational investment
Up
8%
Down
83%
Up
2%
Up
33%
308
345
335
333
361
FY14FY15FY16FY17FY18
$ MILLIONS
EBITDAF
RESULT PRESENTATION5
Earnings growth
—EBITDAF growth of 8%, and continuedgrowth in FY18 dividends at a 6.9% net yield
1
Average of 4% growth per annum since
FY2014
FY18
DIVIDEND CENTS PER SHARE& PAYOUT HISTORY
13.0
16.0
16.4
16.6
16.9
70%
74%
87%
91%
92%
-10%
10%
30%
50%
70%
90%
110%
130%
0
FY14FY15FY16FY17FY18
Dividends (CPS)% of Free Cash Flow
Full year dividend of 16.9 cps declared (up 1.8%), with
80% imputation, representing a 6.9% net yield. DRP
offer remains in place with 2.5% discount.
1. Net yield based on closing share price as at 29 June 2018, $2.44.
2. Free cash flow represents EBITDAF less tax paid, net interest and stay in business capital expenditure
2
15%
17%
19%
21%
23%
25%
27%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
GenesisMarket (excl Genesis)
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
NPS - Genesis 3 Month RollingPromoter - Genesis 3 Month Rolling
RESULT PRESENTATION6
Brand performance
—afocus on brand and loyalty initiatives is shifting perceptions and reducing churn versus market
FY18
RESIDENTIAL ELECTRICITY CHURN (EXCL EOL, ROLLING 3 MONTH)
GENESIS NPS AND PROMOTER SCORE
+10 ppt
+5 ppt
CORPORATE REPUTATION RANKINGS
20172018
Genesis vs
Competitors
20
th
13
th
1
st
13
th
5
th
1
st
New Zealand’s 2018 # 1 ranked energy utility
2.6 ppt
2.1 ppt
BRAND METRIC
SOURCE: Campaign Tracking, The Purpose Business
Genesis
May 17
Genesis
May 18
Genesis vs
Competitors
First to market with new technology14%29%
+14 ppt
Puts people in control of their energy use15%23%
+11 ppt
Market leader21%33%
+15 ppt
Knows you and understands what you
need
60%67%
+8 ppt
RESULT PRESENTATION7
Product innovation
—providing knowledge and insight to customers to help them manage their bills
FY18
DAILY ENERGY IQ USERS / NEW USERS SINCE LAUNCH (MAY 2018)
DUAL FUEL CUSTOMER GROWTH (UP 5%) AND CHURN (ROLLING 3 MONTH)
↑30 % on pcp
Customers linked to Fly
Buys, >150,000
> 100,000
Total unique users for
My Account/Energy IQ
> 280,000
Power Shouts
redeemed
1
0%
5%
10%
15%
20%
25%
30%
Churn at July1712 Mth Avg Customer ChurnChurn at June 18
Fly Buys Customer ChurnNon Fly Buys Customer Churn
FLYBUY CHURN IMPACT (EXCL EOL)
“Hi. Your app is the best -it helps
me to keep my power bill down as I
now know exactly which appliances
use the most electricity. “
0%
5%
10%
15%
20%
25%
30%
102,000
104,000
106,000
108,000
110,000
112,000
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Dual Fuel Customers (LHS)Single Fuel ChurnMulti-fuel Churn
1. Power Shouts redeemed from March to August 2018
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
5,000
10,000
15,000
20,000
25,000
Daily Unique IQ Users (LHS)New Energy IQ Users (RHS)
System migration/outage
RESULT PRESENTATION8
Customer service efficiency
—digital transformation gaining momentum, focus on customer service and efficiency
FY18
CUSTOMER INTERACTIONS
CALL CENTRE SERVICE METRICS (GENESIS & EOL)
DIGITAL INTERACTION BREAKDOWN
↑46 %
1.3m total digital self
serve interactions
100,000 +
EOL customers migrated onto
Genesis’ single billing platform
↓13 %
$1m reduction in bad
debt expense
0%
20%
40%
60%
80%
AbandonmentGrade of Service
FY17FY18
6 ppt improvement
17 ppt improvement
80 % ↑10 ppt
$1.3m field services
costs recovered
38%
42%
51%
13%
13%
14%
49%
45%
35%
0%10%20%30%40%50%60%70%80%90%100%
FY18
FY17
FY16
PhoneEmailDigital
41%
43%
51%
21%
19%
14%
36%
38%
35%
0%10%20%30%40%50%60%70%80%90%100%
FY18
FY17
FY16
Web & App Self ServeCredit Extension Self ServeBottle Order Self Serve
Credit Card Self ServeChat Bot
RESULT PRESENTATION9
B2B growth
—building momentum with stable netback while growing electricity volumes 19% and gas volumes 6%
FY18
SME GAS
C&I GAS
SME ELECTRICITYC&I ELECTRICITY
1,244
1,330
1,811
$80.18
$77.60
$79.88
$70
$75
$80
$85
$90
-
500
1,000
1,500
2,000
FY16FY17FY18
Netback ($/MWh)
Electricity Volume (GWh)
Electricity VolumeElectricity Netback
1,154
1,096
1,081
$104.55
$100.28
$99.46
$90
$95
$100
$105
$110
-
500
1,000
1,500
2,000
FY16FY17FY18
Netback ($/MWh)
Electricity Volume (GWh)
Electricity VolumeElectricity Netback
3,203
3,143
3,362
$7.21
$7.21
$6.89
$-
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
3,000
3,050
3,100
3,150
3,200
3,250
3,300
3,350
3,400
FY16FY17FY18
Netback ($/GJ)
Gas Volume (TJ)
Gas VolumeGas Netback
1,365
1,396
1,446
$8.51
$9.02
$9.12
$0
$2
$4
$6
$8
$10
$12
1,320
1,340
1,360
1,380
1,400
1,420
1,440
1,460
FY16FY17FY18
Netback ($/GJ)
Gas Volume (TJ)
Gas VolumeGas Netback
-250
-150
-50
50
150
250
20132014201520162017
Supply / Demand (kt)
DemandExport
SupplyImport
Linear (Supply Decline)Linear (Demand Increase)
FY18
RESULT PRESENTATION10
Value through integration
—integrated Kupe position driving value through Wholesale flexibility and LPG Customer growth potential
MASS MARKET LPG CUSTOMERS & CHURN
GENESIS CUSTOMER LPG DEMAND
KUPE PRODUCTION (GENESIS SHARE, PJe)
NEW ZEALAND LPG SUPPLY/DEMAND (BY CALENDAR YEAR)
0
2
4
6
8
10
12
14
16
18
FY14FY15FY16FY17FY18
PJe
GasOilLPG
0%
5%
10%
15%
20%
25%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Monthly Churn
LPG Customer Numers
LPG Dual Fuel LPG Only
Post-migration LPG Only ChurnPost-migration LPG Dual Fuel Churn
SOURCE: LPGA
Residential
Commercial
Bulk
0
5
10
15
20
25
30
35
40
45
50
FY14FY15FY16FY17FY18
Thousand tonnes (kt)
Kupe
Supply
*-5% pa
*+6% pa
* Average annual supply/demand decline/increase since 2014
RESULT PRESENTATION11
Generation flexibility
—flexibleassets and fuels portfolio delivers value in volatile hydro conditions
FY18
NEW ZEALAND HYDRO CONDITIONS
RANKINE UNIT DEMAND (MONTHLY GWh)
0
50
100
150
200
250
300
350
400
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
GWh
Genesis Retail & Huntly Outage SupportOther Retailers / Spot CustomersSwaptions
0.5
0.7
0.9
1.1
1.3
1.5
National Storage as % of
Average
FY18
Normal Storage BandNational Storage as % of Average
3 fuels
An integrated portfolio
means flexibility and security
7,105 GWh
Generation up 11% to
support volatile market
88 %
of Rankine demand
coming from market
GENERATION BY FUEL TYPE (GWh)
0
1,000
2,000
3,000
4,000
5,000
FY10FY11FY12FY13FY14FY15FY16FY17FY18
CoalGasRenewable
‘normal’ conditions
only 1/3
rd
of year
$92 ↑ 51%
Average price received for
generation (GWAP)
2. Financial Performance
333
119
74
284
249
182
47
166
1,212
361
20
58
305
331
184
80
170
1,183
EBITDAFNPATUnderlying EarningsOperating CostsOperating CashflowFree Cash FlowCapital ExpenditureDividendNet Debt
$ MILLIONS
FY17FY18
1
2
—EBITDAF up 8%, investment in operating and capital expenditure up, free cash flow up 1%, net debt down $29m
FINANCIAL HIGHLIGHTS
RESULT PRESENTATION13
FY18 financial highlights
FY18
+ 8%
-83%
-22%
+ 7%
+ 71%+ 1%+ 2%
-2%
1.Net Debt is shown on a separate scale to other financial comparisons
2.Impacted by $100.3m non-cash fair value asset adjustments on Huntly Rankine units, FY18 $48.8m decrease against a FY17 $51.5m gain.
+ 33%
UNDERLYING EARNINGS BRIDGE
RESULT PRESENTATION14
Underlying earnings
—investing in foundation systems and growth
FavourableUnfavourable
Change in underlying earnings reflects investment in growth and additional
depreciation, depletion and amortisation (DDA)
$ MILLIONS
FY18
74
58
7
5
4
FY17 Underlying EarningsBrand and marketing
investment
Staff investmentOther movementsFY18 Underlying Earnings
1
3
1.Approximately half is one off investment in the brand refresh
2.Primarily sales teams and technology support
3.Net acquisitions and other EBITDAF movements, additional depreciation from asset revaluations and shorter life assets from technology investment and associated tax impacts
2
FY18 vs FY17 EBITDAF
$ MILLIONS
RESULT PRESENTATION15
—EBITDAF growth of 8% driven by record Kupe gas production, strong thermal generation and acquisitions
FY18 EBITDAF waterfall
FY18
333
364
361
13
5
32
2
12
FY17 EBITDAF Acquisitions FY18 Baseline
EBITDAF
Customer Wholesale Kupe CorporateFY18 EBITDAF
FavourableUnfavourable
84
115
1
19
7
3
3
FY17 EBITDAFAcquisition Higher volume
and prices
Crown royalty
refund
FY17 M&A costs OtherFY18 EBITDAF
RESULT PRESENTATION16
—stable performance in Customer and Wholesale, strong Kupe outcome
Segment EBITDAF
FY18
KUPE EBITDAF FY17 TO FY18
CUSTOMEREBITDAF FY17 TO FY18
WHOLESALE EBITDAF FY17 TO FY18
110110110
9
4
7
4
13
11
FY17 EBITDAFOne-Offs LPG acquisition Volumes
(temperature
driven)
FY18 Baseline
EBITDAF
Margin
expansion
Investment in
growth opex
Volumes (ICP
driven)
FY18 EBITDAF
176
178
4
5
6
13
4
FY17 EBITDAFGeneration
margin
Lower Tekapo
volumes
Tekapo
insurance
Operating costs EmissionsFY18 EBITDAF
1
1.One-offs includes FY17 and FY18 related items and $3m of one-off investment in brand refresh
2.Based on increased carbon prices and change to ETS
FavourableUnfavourable
2
328
289
294
284
305
FY14FY15FY16FY17FY18
$ MILLIONS
OPERATING EXPENSES
1
OPERATING EXPENSE BRIDGE
RESULT PRESENTATION17
Operating expenses
—up 7%, following acquisitions and investment in growth
$12 million of additional investment to support
growth, largely in brand, and sales and technology
staff costs
FavourableUnfavourable
Reflects acquisitions and investment in
growth, as per previous guidance
$ MILLIONS
1. Operating costs refers to “other operating expenses and employee benefits”.
FY18
284
305
11
7
5
5
7
FY17
operating
expenses
LPG
acquisition
Brand
investment
Staff
investment
FY17
Transaction
costs
Other
movements
FY18
operating
expenses
172
198
186
182
184
FY14FY15FY16FY17FY18
$ MILLIONS
OPERATINGCASH FLOW
304
319
325
249
331
FY14FY15FY16FY17FY18
$ MILLIONS
FREECASH FLOW
1
RESULT PRESENTATION18
Cash flow
—operating cash flow up 33% and free cash flow up $2m
Higher operating cash flow reflects growth
in EBITDAF, and timing differences in
working capital.
Free cash flow has increased $2m on FY17,
reflecting higher EBITDAF offset by higher
interest expense and stay in business capital
1. Free cash flow represents EBITDAF less tax paid, net interest and stay in business
capital expenditure. This is a change in methodology from FY17 with tax paid
replacing an adjusted tax calculation. All historical information has been restated to
the new measure.
FY18
RESULT PRESENTATION19
Capital expenditure
—increase reflects a year of investment in integration of LPG operations and platform investment in Customer
Growth capex coupled with stay in business
requirements
CAPITAL EXPENDITURE
1
•Stay in business capex (SIB) includes ($51m, FY18
guidance issued was $50-60m):
₋TekapoG3 refurbishment, EOL billing migration,
Tuaigenerator refurbishments, TokaanuU4
turbine maintenance, Rangipofire protection
upgrade, and other generation asset useful life
extensions and Kupe
•Other capex includes ($26m):
₋LPG integration costs, the Local Energy Project,
Technology and Digital development projects; and
₋Early exit of third party LPG distribution contract
related capex i.e. trucks, cylinders and depots
•Corporate capex includes the fit-out for the new Kenehi
regional operations office in Hamilton, $3.6m, where
60% of Genesis’ staff work.
1. Capital expenditure excludes M&A activities.
FY14FY15FY16FY17FY18
WholesaleCustomerLPG Operations
KupeTechnology & DigitalCorporate
$ MILLIONS
82
44
40
47
80
FY18
NET DEBT AND NET DEBT/EBITDAF RATIO
1
966
905
833
1,212
1,183
2.9
2.5
2.6
3.3
3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
200
400
600
800
1000
1200
FY14FY15FY16FY17FY18
Net debtNet debt/EBITDAFTarget debt ratio band (2.4 to 3.0)
RESULT PRESENTATION20
Capital structure
—net debt has reduced by $29m, debt/EBITDAF down 0.3 to 3.0
Net debt to EBITDAF metric improving,
average debt tenor at 11.4 years
FY18
•S&P reaffirmed BBB+ credit rating post acquisitions
in January 2018
•Dividend reinvestment plan (DRP) announced at
HY18. A 23% uptake delivered $19m of new capital
•$240m of Capital Bonds maturing in FY 2049 were
issued on 16 July 2018 at a favourable coupon rate
of 4.65%. $200m of existing Capital Bonds with a
coupon rate of 6.19% were redeemed at the same
time.
•Continuation of DRP and increased Capital Bond
issuance demonstrates commitment to maintain
BBB+ credit rating
1.Standard and Poor’s make a number of adjustments to Net Debt and EBITDAF for
the purpose of calculating credit metrics. The most significant of these is the 50%
equity treatment attributed to the Capital Bonds.
3. Strategy Update and Outlook
Delivery of priority strategic actions
—significant progress made towards strategic goals –more work to do in FY19
22
FY18
Results Presentation
FY18 ActionsStatus
Deliver operational
excellence and value
optimisation
•Simplifyoperating model –billing system amalgamation/ back-office
•Grow self and assisted service through digitisation
•Pursuing initiativesto increase earnings in wholesale
Ongoing
Ongoing
Complete
Increase value share of
residential category
•Brand launchand loyalty retention initiatives
•Retail sales team established for Residential
•Improved customer experience link with loyalty
Complete
Complete
Ongoing
Targeted growth in
business category
•Additionalfield sales teams targeting dual fuel
•New industry specific products developed
•Targeted priceincreases
•Commercialised first new value propositions
Complete
Complete
Complete
Ongoing
Grow LPG category
•Integration of LPG distribution business and accelerated contract exit
•Weigh scales prototype certified, customer tested and in market
•Targeted growth in commercial markets
Complete
Complete
Ongoing
Build energy services
•Increased service co-creation via Local Energy Project
•Development of digital energy use services e.g. Energy IQ
•Continued growth in emerging markets e.g. solar, storage & EVs
Complete
Ongoing
Ongoing
1
1.Trials continue with further activity dependant on reaching inflexion point for investment
Strategy: We are Performing while Transforming
23
FY18
RESULT PRESENTATION
—an update to be provided at Genesis’ Investor Day 7
th
November 2018, in Hamilton
Our VISION is to reimagine energy to be customers’ first choice for energy management
Our PURPOSE is to put control in our customers’ hands
PERFORMING: Operational proficiency and efficiency today
TRANSFORMING: Innovation for long-term value creation and success
Increase # of customers using
energy management tools and
increase digital interactions
Grow our earnings and deliver
top quartile shareholder returns
Be #1 or #2 in every
product market
Energise our people and
improve engagement
Keep our people
healthy and safe
Maximise the value of our
assets, products and businesses
Embrace diversity
of thought
Employees are engaged advocates
for our brands and products
Move toward a
lower carbon future
Be New Zealand’s
most loved brand
Our STRATEGY is to use our integration to fuel innovation
Generation, fuels& wholesale
•Our integrated fuel position minimises costs for us and our customers.
•Our generation mix gives us flexibility tomaximise valuein theenergy markets.
•We are leading the way to transition the NZ energy sectorsuccessfully to a more
renewable future.
Customer & energy management
•We offer a full three fuel (electricity, gas and LPG) solution for our customers.
•We aim to differentiate our products with seamless service,useful insights and digital tools.
•Our ambition is to change how consumers engage with their energy.
RESULT PRESENTATION24
Outlook and guidance
—guidance for FY19 EBITDAF is$350 to $370 million
•FY19 EBITDAF guidance range is$350to $370million subject to hydrologicalconditions, any material events,
one-off expenses or other unforeseeable circumstances. Key assumptions include:
•$10 million negative impact from Huntly Unit 5 mid-life inspection
•Return to normal hydrology
•Increase in emissions costs through higher carbon prices (average of $6/tCO2 achieved FY18) and change to ETS
1
•Growth in Customer segment
•FY19 capital expenditure guidance of up $85 million. Key assumptions include:
•$11 million for Huntly Unit 5 mid-life inspection excluding plant parts included in Long-term Maintenance Agreement
•Replacement of turbine runners at Tekapo, Unit 1 Rankine cold survey
•Ongoing investment for LPG business expansion
•$10 million Kupe BAU investment plus development studies for inlet compressor and subsurface studies for wells. If the
Kupe JV commits to proceeding with the inlet compressor project further capital of up to $30 million is expected over the
period FY20 to FY21
2
•FY20 EBITDAF to be impacted by planned Kupe 25-30 day outage and increased emissions costs
•FY21 target remains to deliver $400+ million EBITDAF
FY18
1.Reflects change to the Emissions Trading Scheme to move to a one-for-one unit obligation from 1 January 2019
2.FY19 development studies incorporates (Front End Engineering Design) FEED to the value of $3 to $4 million. Kupe capex guidance estimates are Genesis Energy’s assessment of an incomplete
proposal. No development study (incorporating FEED) has been completed for the inlet compressor project and the joint venture has not agreed a settled estimate of the timing or cost. No
capital estimate beyond FY19 is provided for additional wells as part of phase two expansion.
4. Supplementary Information
Balance SheetFY18
($m)
FY17
($m)
Variance
Cash and Cash Equivalents49.327.8
Other Current Assets343.8344.5
Non-Current Assets3,841.93,847.0
Total Assets4,235.04,219.30.4%
Total Borrowings1,255.41,259.8
Other Liabilities1,018.1977.6
Total Equity1,961.51,981.9(1.0%)
AdjustedNet Debt1,182.91,211.5
Gearing per bank Covenants32.4%32.3%
EBITDAF InterestCover6.4x6.6x
Net Debt/EBITDAF3.0x3.3x
Income StatementFY18
($m)
FY17
($m)
Variance
Revenue2,304.51,951.118.1%
Total Operating Expenses(1,944.0)(1,618.6)20.1%
EBITDAF360.5332.58.4%
Depreciation, Depletion & Amortisation(205.7)(174.6)
Impairment of Non-Current Assets(0.4)(2.4)
Revaluation of Generation Assets(48.8)51.5
FairValue Change(3.1)22.6
Other Gains (Losses)(0.7)(1.6)
Earnings Before Interest & Tax101.8228.0(55.4%)
Interest(74.3)(60.5)
Tax(7.7)(48.8)
Net Profit After Tax19.8118.7(83.3%)
Earnings Per Share (cps)1.9811.88
Stay inBusiness Capital Expenditure50.839.428.9%
Free Cash Flow
1
183.7181.61.2%
Dividends Per Share (cps)16.916.61.8%
Dividends Declared as a % ofFCF92.4%91.4%1 ppt
Cash Flow SummaryFY18
($m)
HY17
($m)
Variance
($m)
Net Operating Cash Flow330.6248.5
Net Investing Cash Flow(82.2)(409.6)
Net FinancingCash Flow(226.9)154.0
Net Increase (Decrease)in Cash21.5(7.1)403%
RESULT PRESENTATION26
Financial statements
FY18
1. Free cash flow represents EBITDAF less cash tax paid, net interest and stay in business capital
expenditure. This is a change in methodology from FY17 with tax paid replacing an adjusted tax
calculation. All historical information has been restated to the new measure.
Debt InformationFY18
($m)
FY17
($m)
Variance
Total Debt$1,255.41,259.8
Cash and Cash Equivalents$ 49.327.8
Headline Net Debt$1,206.11,232.0(2.1%)
USPPFX and FV Adjustments$23.220.5
AdjustedNet Debt
1
$1,182.91,211.5(2.4%)
Headline Gearing39.0%38.9%+0.1ppts
AdjustedGearing38.6%38.5%+0.1ppts
Covenant Gearing32.4%32.3%+0.1ppts
Net Debt/EBITDAF
2
3.0x3.3x
Interest Cover6.4x6.6x
Average InterestRate5.8%5.7%
Average Debt Tenure11.4 yrs11.0 yrs
1.Net debt has been adjusted for foreign currency translation and fair value movements
related to USD denominated borrowings which have been fully hedged with cross
currency swaps
2.Standard and Poor’s make a number of adjustments to Net Debt and EBITDAF for the
purpose of calculating credit metrics. The most significant of these is the 50% equity
treatment attributed to the Capital Bonds.
GENESIS DEBT PROFILE
RESULT PRESENTATION27
Diversified funding profile
FY18
The $240m of Capital Bonds maturing in FY 2049 were issued on 16 July 2018 following a successful
capital raising in June 2018. $200m of existing Capital Bonds were redeemed at the same time.
$0
$50
$100
$150
$200
$250
$300
$350
$400
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2047
FY
2049
$m
Retailable BondsWholesale DomesticDrawn BankUndrawn Bank
Capital Bonds 2047Capital Bonds 2049USPP
Customer Key InformationFY18FY17Variance
EBITDAF ($ millions)109.8109.6+0.2%
Electricity Netback ($/MWh)$97.84$102.84(4.9%)
Gas Netback ($/GJ)$8.31$8.65(3.9%)
LPG Netback ($/t)$727.17N/A
ElectricityOnly Customers341,545357,900
Gas Only Customers18,44419,134
LPG Only Customers34,37032,166
Customers with > 1 Fuel109,767104,586
Total Customers504,126513,786(1.9%)
Total Electricity and Gas ICP’s609,316620,634(1.8%)
VolumeWeighted Average Electricity
Selling Price –Resi($/MWh)
$252.26$251.44+0.3%
VolumeWeighted Average Electricity
Selling Price –SME ($/MWh)
$216.66$215.38+0.6%
VolumeWeighted Average Electricity
Selling Price –C&I ($/MWh)
$121.46$120.04+1.2%
Volume WeightedAverage Gas Selling
Price ($/GJ)
$27.12$27.14(0.1%)
CustomerElectricitySales (GWh)5,9805,653+5.8%
Customer Gas Sales (PJ)7.57.4+1.4%
Customer LPG Sales (tonnes)35,0058,287+322.4%
WholesaleKey InformationFY18FY17Variance
EBITDAF ($ millions)178.0176.1+1.1%
Renewable Generation (GWh)3,0563,154(3.1%)
Thermal Generation (GWh)4,0493,268+23.9%
Total Generation (GWh)7,1056,422+10.6%
GWAP ($/MWh)91.5960.63+51.1%
LWAP/GWAP Ratio101%100%+1 ppts
Weighted AverageFuel Cost ($/MWh)37.9132.54+16.5%
Coal/GasMix (Rankinesonly)63/3741/59
KupeKey InformationFY18FY17Variance
EBITDAF ($m)115.384.4+36.6%
Gas Sales (PJ)12.19.3+30.1%
Oil Production (kbbl)533476+12.0%
Oil Sales (kbbl)533507+5.1%
LPG Sales (kt)46.132.1+43.6
Remaining Kupe Reserves (2P, Pje)
1
351.1373.1+14.2
AverageBrent Crude Oil (USD/bbl)6450+28.0%
Average Hedged Price(USD/bbl)5857+1.8%
RESULT PRESENTATION28
Operational highlights
FY18
1.FY18 remaining reserves include FY18 production of 36.2 Pje, and represent a 4%
increase in total reserves in FY18 (14 PJe).
RESULT PRESENTATION29
Key metrics
FY18
Operational excellence & value
optimisation
FY16FY17FY18
Customer cost to serve (per ICP)$165$161$158
Customer assistedinteractions (per ICP)2.282.252.67
GenerationOpexsavings (year on year)$4.7m$4.3m$3.9m
Equivalent availability factor89.0%92.5%91.1%
Increase value share of residential
category
FY16FY17FY18
% of residential customer with > 1 fuel
product
21.3%21.5%22.9%
Electricity gross margin per customer$377$414$404
Gas gross margin per customer$314$332$336
Net promotorscore-5%1%10%
Target growth in business categoryFY16FY17FY18
Total B2B electricity volume sold
(excluding TOU) GWh
1,1541,0961,081
% of business customers with >1 fuel
product
8.6%7.7%9.2%
Electricity gross margin ($/MWh)$23.9$27.5$33.0
Gas gross margin ($/GJ)$2.53$3.79$3.79
Grow LPG categoryFY16FY17FY18
Total LPG customers15,89051,17959,169
LPG volume in tonnes3,9498,28735,005
% of LPG customers with > 1 Product75%37%42%
Build energy servicesFY16FY17FY18
#MVP deliveredNA56
#services launchedNA14
#customers engaging with an energy
services product
NA7,70040 –80k
(est)
# unique Energy IQ usersN/AN/A>100,00
0
Customer netback by segmentFY171H182H18FY18
Residential -Electricity ($/MWh)$114.1$106.6$109.2$107.8
Residential -Gas ($/GJ)$10.1$9.6$9.8$9.7
Residential -LPG ($/tonne)N/A$533.7$590.2$559.9
SME -Electricity ($/MWh)$100.3$97.5$101.5$99.5
SME -Gas ($/GJ)$9.0$9.3$9.0$9.1
SME -LPG ($/tonne)N/A$1,006.9$868.2$941.5
C&I -Electricity ($/MWh)$77.6$79.4$80.2$79.9
C&I -Gas ($/GJ)$7.2$7.2$6.6$6.9
C&I -LPG ($/tonne)N/A$588.6$594.0$591.4
RESULT PRESENTATION30
Additional disclosures
FY18
0
5
10
15
20
25
30
35
40
FY19FY20FY21FY22FY23FY24FY25FY26
PJ
TAKE-OR-PAY FORWARD GAS PURCHASES
1
1. Represents gas contracts under which Genesis is required to take the product
or pay a penalty. Includes Kupe and Producer Price Index adjustments
CARBON HEDGE POSITION
$8.00 -
$9.00
$8.00 -
$9.00
$8.00 -
$9.00
$8.50 -
$9.50
$8.50 -
$9.50
$8.50 -
$9.50
$7.50 -
$8.50
FY18FY19FY20FY21FY22FY23FY24FY25
NZUnits
as % of potential exposure
Hedged EmissionUnhedged Volume
$6
$9-14
$15-20$17-22
$17-22
$19-24
$20-25
$20-25
Estimated price per unit (NZD/NZU)
LPG VOLUME GROWTH
RESULT PRESENTATION31
LPG integration and growth
—16% growth in customers and lower churn metrics support strategic rationale of acquisition
FY18
RESIDENTIAL CUSTOMER CHURN (EXCL EOL, ROLLING 3 MONTHS)
ActivityStatus
Staff•>75 staff migrated
•74% employee engagement rating
•LPG Operations TRIFR down from 12.93 (Sep17) to 5.3
by 30 June 2018
Systems•Billing and distribution fully migrated
Customers•90% migrated onto Genesis billing platform
•LPG customer churn in line with forecast
•LPG dual fuel customer increased 30% over the year
•Self-service ordering of bottles up from 60% to 81%
Call Centre•160,000 calls handled p.a. down to 120,000
•Call centre LPG services and sales team established
Brand•27 depots, 99 Genesis-branded vehicles
•Over 100,000 Genesis branded cylinders
3
rd
Party LPG
Distribution
Exit
•Exit of Elgas LPG distribution contract servicing GE/EOL
customers 8 months early (March 2018).
•Approximately 60,000 customers now serviced from a
Genesis controlled / branded delivery network
INTEGRATION UPDATE
0%
5%
10%
15%
20%
25%
30%
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Electricity OnlyElectricity & GasElectricity & LPG
-
5,000
10,000
15,000
20,000
ResidentialB2B
LPG volume (tonnes)
FY17
FY18
---
Genesis Energy Limited
Appendix 1
GENESIS ENERGY LIMITED
INCORPORATED IN NEW ZEALAND
FULL YEAR REPORT
Reporting period twelve months to 30 June 2018
Previous reporting period twelve months to 30 June 2017
RESULTS FOR ANNOUNCEMENT TO THE MARKET – 29 AUGUST 2018
Revenue and Net Profit
30 June 2018
Amount
($NZ million)
30 June 2017
Amount
($NZ million)
Percentage
change
Revenues from ordinary activities 2,304.5 1,951.1 15.3%
Profit (loss) from ordinary activities
after tax attributable to security holder. 19.8 118.7 -83.3%
Net profit (loss) attributable to
security holders 19.8 118.7 -83.3%
Dividends – Ordinary Shares
30 June 2018
Amount per
security
(NZ cents)
30 June 2017
Amount per
security
(NZ cents)
Percentage
change
Final dividend 8.6 8.4 2%
Final dividend - imputed amount 2.68 2.61 2%
Record date: 05 October 2018
Payment date: 19 October 2018
COMMENTARY ON RESULTS FOR THE PERIOD
For commentary on the results please refer to the results presentation attached.
FINANCIAL INFORMATION
The Appendix 1 form should be read in conjunction with the consolidated financial statements
for the year ended 30 June 2018 as attached.
Net Tangible Assets – Ordinary Shares
30 June 2018
Amount per
security
(NZ cents)
30 June 2017
Amount per
security
(NZ cents)
Percentage
change
Net Tangible Asset 156.9 161 -2.56%
---
APPENDIX 7 – NZSX Listing Rules
Number of pages including this one
(Please provide any other relevant
NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10. details on additional pages)
For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required.
Full name
of Issuer
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
Contact fax
numbernumberDate
Nature of event
BonusIf ticked,Rights Issue
Tick as appropriateIssuestate whether:Taxable/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
X
whether:
InterimYear
X
SpecialDRP Applies
X
EXISTING securities affected by this
If more than one security is affected by the event, use a separate form.
Description of theISI
N
class of securities
If unknown, contact NZX
Details of securities issued pursuant to this eventIf more than one class of security is to be issued, use a separate form for each class.
Description of theISI
N
class of securities
If unknown, contact NZX
Number of Securities toMinimum
Ratio, e.g
be issued following eventEntitlemen
t
1 for 2 for
Conversion, Maturity, Call
Treatment of Fractions
Payable or Exercise Date
Tick i
f
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
Strike Price available.
ranking
Monies Associated with Event
Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money.
Source of
Amount per securityPayment
(does not include any excluded income)
Excluded income per security
(only applicable to listed PIEs)
SupplementaryAmount per security
Currencydividendin dollars and cents
details -
NZSX Listing Rule 7.12.7
Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
Imputation Credits
issue state strike priceWithholding Tax(Give details)
Foreign
FDP Credits
Withholding Tax(Give details)
Timing
(Refer Appendix 8 in the NZSX Listing Rules)
Record Date 5pmApplication Date
For calculation of entitlements -
Also, Call Payable, Dividend /
Interest Payable, Exercise Date,
Conversion Date. In the case
of applications this must be the
last business day of the week.
Notice DateAllotment Date
Entitlement letters, call notices,For the issue of new securities.
conversion notices mailedMust be within 5 business days
of application closing date.
OFFICE USE ONLY
Ex Date:
Commence Quoting RightsSecurity Code:
Cease Quoting Rights 5pm:
Commence Quoting New SecuritiesSecurity Code:
Cease Quoting Old Security 5pm:
5 October 201819 October 2018
Not ApplicableNot Applicable
NZ Dollars$0.012141 per share
$86,684,058
Date Payable
19 October, 2018
$$0.010453 per share$0.026756 per share
$0.000000$0.000000
Not Applicable
Enter N/A if not
applicable
Ordinary SharesNZGNEE0001S7
In dollars and cents
Retained Earnings
$0.086 per share
EMAIL: announce@nzx.com
Notice of event affecting securities
Genesis Energy Limited
Matthew Osborne, General Counsel and
Company Secretary
Directors' resolutions
09 951 929429082018
---
GENESIS ENERGY
annual report 2018
1
GENESIS ANNUAL REPORT 2018
It has been an exhilarating and
rewarding nine years as your Chairman
and it has been my privilege to lead
the Company during this period. There
have been many highlights. Several that
stand out for me include the acquisition
in 2011 of the Tekapo hydro assets
establishing Genesis as a major national
operator.
In 2014, we listed on the New Zealand
and Australian stock exchanges, taking
Genesis to a new level. Today, Genesis
pays a significantly higher dividend
to the New Zealand Government, its
majority shareholder, than it ever did
under full State ownership. This is great
for all shareholders, most of whom are
New Zealanders.
Last year we became the first of the
mixed ownership crown companies to
successfully complete a merger and
acquisition, achieving vertical
integration of our LPG business
with the acquisition of a new LPG
distribution business and the expansion
of Genesis’ stake in the Kupe gas field.
These acquisitions successfully position
the Company as the only energy retailer
in New Zealand able to provide three
fuels (electricity, natural gas and bottled
gas) to customers on one invoice.
I believe Genesis’ many achievements
have been rewarding for its
stakeholders. We focus on performing
while innovating for the future. We care
for people and the environment. We are
committed to providing our customers
with energy management services and
tools that truly add value to their lives
so they can understand, track and act
on their energy use.
In conjunction with this, operating a
diverse range of assets gives our fuel
book flexibility and strength to benefit
customers, shareholders and the
environment.
I am proud to leave this Company
as one that has achieved genuine
diversity of skills and experience
Dame Jenny Shipley
DNZM
Dear
Shareholder,
around the Board table. I’m also very
proud of Genesis’ new, agile approach
to leadership. The Company is full of
fresh, different ideas and is committed
to working alongside its customers
to deliver energy management and a
brighter future for New Zealanders.
So now it is time for others to take
the lead. I am delighted that Barbara
Chapman will succeed me as Chairman
and support Marc England and the
executive team. It’s an important
transition. We have key relationships
to maintain and commercial outcomes
to deliver. Be assured that Barbara
is exceptionally capable and has the
support of a very talented Board, all of
whom will ensure Genesis is ready to
meet the opportunities and demands
that are ahead.
Thank you for the chance to work
with you and for you. I have every
confidence in the future performance
of Genesis.
Results at a glance
Kenehi on
Bryce highlights
Chairman and Chief
Executive’s joint letter
Transforming
business
Building residential
customer loyalty
LPG and Kupe
deliver scale
and strength
Generation
- responsive in all
conditions
Investing in a brighter
future
Genesis Sustainability
Framework FY19
Our people
- enabling an
innovation culture
Your Board of
Directors
Consolidated
financial
statements
Independent
auditor’s report
Corporate
governance
Remuneration
report
Statutory
disclosures
GENESIS ANNUAL REPORT 2018
1
GENESIS ANNUAL REPORT 2018
3
GENESIS ANNUAL REPORT 2018
2
GENESIS ANNUAL REPORT 2018
Dear Shareholder,
Your Board and Executive team have
spent the last year putting in place a
customer-centric platform that will act
as a spring board to where we want the
Company to be in the early 2020s. In
tandem, we have challenged ourselves
on our environmental, community and
sustainability goals as we determine
our role in helping New Zealand build a
brighter future.
We are actively transforming Genesis
by putting the customer at the centre
of what we do. Our vision is ‘to be
customers’ first choice for energy
management’. FY18 has seen us
launch a number of New Zealand-first
innovations that bring this to life for our
customers.
This transformation has not been at the
expense of performance. FY18 has seen
Genesis deliver a strong and sustainable
uplift in Earnings before Interest, Tax,
Depreciation, Amortisation and Fair
Value Adjustments (EBITDAF) from
the prior year to $361 million. Our
dividend remains world class. We have
put the foundations in place that will
see Genesis achieve over $400 million
EBITDAF by the early 2020s.
Growing our customer platform
Through our refreshed branding, the
integration of our new LPG operation,
the migration of our Energy Online
customers onto the Genesis billing
system and the move to a state-of-
the-art building in Hamilton, we are
delivering on our plans to build a
customer-centric business.
We are now the only energy retailer
in New Zealand with three fuels
(electricity, natural gas and bottled gas)
on one technology platform. Energy
retailing in New Zealand has never
been more competitive than it is today.
There are over 40 retailers in the market
needing to find new ways to reward
customer loyalty and service customers
more holistically. That energises us to
try harder, find points of differentiation
and continually work to give our
customers more reasons to stay with
Genesis, such as our Energy IQ app,
Power Shouts, Electricity Insights for
business and Bottled Gas Monitoring.
Customers are increasingly recognising
value in their relationship with Genesis,
with customer churn two percentage
points below the market average in the
last three months of the year.
Brand builds reputation
Genesis’ revitalised brand has
supported this shift. Sharing our energy
management story with
New Zealanders in ways that engage,
connect and delight them is essential
in ensuring consideration in an industry
characterised by heavy consumer
switching.
Our challenger brand, Energy Online,
concentrates on no-frills service,
simplicity and great value. It has
experienced significant growth, with its
total number of connections surpassing
the 100,000 mark in January 2018.
Looking ahead, expect to see Genesis
continuing to concentrate on product
innovation, technology integration and
loyalty initiatives as we seek new ways
to retain and attract customers beyond
Chairman and Chief Executive’s
joint letter
CHAIR AND CEO JOINT LETTERCHAIR AND CEO JOINT LETTER
price alone. Instead, we’ll grow by
reimagining the energy experience to
put control in our customers’ hands.
Reimagining the energy transition
This report also shares our new
Sustainability Framework, which
includes an outline of the investments
and commitments Genesis is making to
ensure a brighter, more sustainable and
future-focused New Zealand.
Genesis supports New Zealand’s
transition to a low emissions economy.
We have challenged ourselves to
consider what our contribution can be.
Having already reduced our coal use
by 80 per cent in the past decade, in
February we outlined our commitment
to remove coal from the generation mix
at Huntly by 2025 under normal market
conditions. Our intent is to remove coal
altogether by 2030.
New Zealand’s electricity market is the
third highest renewable market in the
OECD. To date, coal and gas have been
necessary generation options, ensuring
security of supply when poor rainfall
means the sector cannot meet national
electricity demand via renewable
sources. Today, Genesis is working
closely with both the market and the
wider energy industry to identify a path
forward that does not compromise
national electricity supply or consumer
choice.
Sourcing and generating energy
Our highly flexible generation
and fuel portfolio demonstrated
resilience in all market conditions
during FY18. Renewable generation
was characterised by a game of four
quarters, cycling between wet and
dry conditions. Our mix of North
and South Island hydro, coupled
with North Island wind and thermal
production, helps enable sustainable
returns for shareholders across all
market conditions. Kupe performed
exceptionally well with record
production and rising commodity
prices.
Diversity continues to drive us
Our strong internal culture has
concentrated on supporting more
employees to connect with our
direction and focus on innovation.
We are harnessing the diversity of our
workplace to help us move ahead.
Important new flexibility and wellbeing
initiatives have launched across the
year to support Genesis people in
meeting both work and personal
commitments.
Keeping people safe a priority
Safety and wellbeing is part of the
Genesis DNA. Our own workforce
achieved a total recordable injury
frequency rate (TRIFR) of 1.25. Zero
harm remains our constant goal and
commitment toward our people,
contractors and the public.
Performing while transforming
Performing well and transforming well
are equal priorities. Genesis continues
to offer a stable dividend yield plus
growth opportunity. In the past year,
the benefits of the Company’s portfolio
of three different businesses have
shone through. Genesis has achieved
strong vertical integration, through
its Kupe joint venture, all the way to a
customer’s home.
All three segments of our business
(Customer, Wholesale and Kupe)
operate different commercial models
that play into a stable but growing
business. We’re increasingly giving
customers the knowledge and advice
they need to take control of their
energy in ways that have not been
possible before. In doing so Genesis is
delivering for customers, its community
partners, for its people and its
shareholders.
The Board and Executive thank you
for your support and interest in the
Company across the financial year
ended 30 June 2018.
Dame Jenny Shipley, DNZM
Chairman
Marc England
Chief Executive
CHIEF EXECUTIVE OFFICER
Marc England
CHAIRMAN
Dame Jenny Shipley
DNZM
In Colmar Brunton’s
Corporate Reputation Index
and Reptrak’s New Zealand
Corporate Reputation Index,
Genesis was perceived
as New Zealand’s leading
energy company.
Community matters
Our School-gen
programme was
refreshed and relaunched
in FY18 to help engage
young New Zealanders
in science, engineering,
technology and maths
(STEM). In particular,
learning is focused on
energy – how it’s made,
how it works and how it
can be managed.
This year, more than
20 per cent of
New Zealand’s schools
connected with School-
gen and we gave a total of
$50,000 to three schools
to support their students’
STEM learning journeys.
This is an important
building block in fostering
both the engagement
and curious young minds
needed to help
New Zealand develop
a strong innovation
pipeline.
Wesley Intermediate students
carrying out School-gen
experiments
5
GENESIS ANNUAL REPORT 2018
4
GENESIS ANNUAL REPORT 2018
EBITDAF
m
FY17 $333m
net profit after tax
(NPAT)
FY17 $119m
m
$
revenue
FY17 $2.0b
b
total dividend
relating to FY18 result
FY17 16.6cps
cps
Results at
a glance
Results at
a glance
$
$
EBITDAF growth was at the upper end of our expectations, which is primarily
the result of our integrated Kupe asset and Generation portfolio working
together in volatile market conditions. We have continued to invest in the
Customer segment to build a strong single operational platform in our customer
operational centre and LPG distribution platform and enhance our capabilities in
business sales teams.
Following a year of acquisitions we have focused on re-building our balance
sheet in FY18. Total Net Debt is down $29 million, supported by strong
operational cash flow and the launch of the dividend reinvestment plan. NPAT is
down, largely driven by non-cash fair value adjustments on our Huntly Rankine
units.
CHIEF FINANCIAL
OFFICER
Chris Jewell
BE (Hons), MEM, CIMA
FY18
7,1 0 5 GWh
Total generationRecord Kupe gas production
FY18
25.5 PJ
Residential electricity
churn relative to market
(excludes Energy Online)
below market
using rolling
three month
average
residential
customers now
have FlyBuys
linked to their
accounts
4
5
GENESIS ANNUAL REPORT 2018
4
GENESIS ANNUAL REPORT 2018
$
29m
Decrease in Total
Net Debt¹
FY18 $1,183m /
FY17 $1,212m
$
82m
Increase in
operating cash flow
FY18 total operating
cash flow - $331m
$
19m
new share capital
via dividend
reinvestment plan
$
240m
successful issue
of hybrid bonds
to investors on
16 July 2018
¹USPP translated using CCIRS fixed rate
7
GENESIS ANNUAL REPORT 2018
6
GENESIS ANNUAL REPORT 2018
Kenehi
on Bryce
highlights
Kenehi on Bryce is our
newest building and the
nerve centre of Genesis’
Hamilton operations. Using
leading workplace design,
our new building is open plan
and flexible. The dedicated
collaboration and social spaces
have increased our innovation
agility and enhanced internal
information flows and decision
making. Less than a year into
having six functional areas
co-located under one roof,
we’re seeing outstanding
performance gains. We've
literally and figuratively
brought the walls down to
increase productivity and
support Genesis employees
to work in a whole new way.
Engagement has lifted and
our digital transformation
has real momentum. The
new environment is helping
us better meet customer
needs and it’s supporting our
people in being more creative,
innovative and collaborative.
Kenehi’s helping maximise
value creation for Genesis.
EXECUTIVE GENERAL
MANAGER CUSTOMER
OPERATIONS
Nigel Clark
BBus (Acc),
Dip Treasury Management, FCPA,
FAICD, CFTP (Snr)
Best
in class
disaster recovery
capability via self-
healing fibre feed
‘fibre
to desk’
enabled
building in NZ
st
solar array
installed
kW
Winner
Interior
Architecture,
2018 Waikato / Bay of Plenty
Architecture Awards
digital self-service
transactions in FY18,
up 46% on FY17
calls handled p.a
down 15% on FY17
lift in employee
engagement for
Customer Operations
Live Chat
Customer online help
via Genesis website
launched July 2018
Energy Online
customers successfully
migrated to Genesis
billing system. Both
brands on one billing
platform from July 2018
100,000
m
employees
under one roof
+
m
point
9
GENESIS ANNUAL REPORT 2018
8
GENESIS ANNUAL REPORT 2018
The past 12 months have seen Genesis
give its customers specific electricity
insights that let them understand and
act on their home’s energy use. This,
together with our revitalised brand and
commitment to rewarding loyalty, has
seen Genesis reset the relationship our
residential customers have with us.
Genesis brand powers ahead
In October 2017, we relaunched
our brand. Its new ‘With You. For
You.’ positioning focuses on putting
customers first.
We’re doing this by rewarding the
loyalty of our existing customers
through Power Shouts and FlyBuys and
engaging these customers around their
home’s energy use through Energy IQ,
our energy management app.
This commitment has seen us build
trust, credibility and loyalty in a
notoriously fickle and price focused
consumer electricity market.
Control in customers’ hands
Using best-of-breed technology,
unique algorithms and data to deliver
customers a truly tailored experience,
Genesis has created Energy IQ. It’s
an unprecedented web and mobile
insights tool that unlocks customers’
personal energy use, giving them the
ability to understand and act on it.
Our challenge in FY18: making
energy management real for
customers.
Our solution: putting customers
first by rewarding their loyalty and
giving them the power to manage,
monitor and control their energy
at the touch of a button.
Power Shouts
Loyalty matters. At
Genesis we understand
that rewards must
be simple to access,
relevant and appealing
to today’s digital
consumer. That’s why
we’ve introduced Power
Shouts.
A Power Shout is a short
period of free power we
gift to long-term Genesis
customers. They get to
choose when and how they
use it within a specified
timeframe.
Building residential
customer loyalty
to co-create new energy services by
gathering data, insights and feedback
to create tools like Energy IQ that
truly add value to their lives so they
can understand, track and act on their
energy use.
The project has attracted international
attention. During November, 60
delegates from the APEC EWG (Asia
Pacific Economic Cooperation Energy
Working Group) joined officials from
the Ministry of Business, Innovation and
Employment to tour the project.
Energy Online
Energy Online is our brand targeting
price-sensitive customers wanting
simplified, no frills services. Net
connections for Energy Online
grew strongly across the first half of
FY18 across all three fuel categories
(electricity, gas and bottled gas) and
have surpassed the 100,000 mark
in January this year. It has been an
impressive full-year performance,
driven primarily by investment in new
brand positioning for Energy Online.
Through the advanced unique insights
available via Energy IQ, Genesis is
providing customers with energy
management capability that no other
energy retailer in New Zealand offers.
The app’s features give customers daily
electricity forecasts, showing the cost
of electricity they are likely to use that
day, usage break-downs showing their
home’s heating, hot water and ‘always
on’ costs. Home comparison shows
their home’s energy consumption
compared with properties of a similar
age and size. These insights help give
our customers greater control over their
energy use and costs.
Local Energy Project
Our Local Energy Project marked its
one-year anniversary during FY18.
The project has seen solar panels,
monitoring, batteries or electric vehicle
chargers installed in over 100 homes
and businesses across Greytown,
Featherston and Martinborough.
Genesis has partnered with customers
Energy Online’s winter 2018 campaign
Our Energy IQ app shows customers how they
are using energy at their place
With the launch of Energy
IQ, Genesis customers have
gained energy management
insights unmatched by other
players in the market. The
launch of Power Shouts has
also proven to be popular
with our customers, with
more than 280,000 Power
Shouts redeemed in 2018.
This commitment to
rewarding existing customers
together with our revitalised
brand has driven a ten per
cent increase in our brand
promoter score and a below
market churn result.
EXECUTIVE
GENERAL MANAGER
PRODUCT MARKETING
James Magill
BSc (Hons), Dip Corp Finance,
MBA (Madrid/Melbourne)
The response has exceeded
expectations, as has positive
customer feedback, and
the number of customers
engaging via our app to
choose when they wanted
to use their reward.
The reward is working,
helping lift brand promoter
scores and giving customers
another reason to stay with
Genesis.
Since March 2018,
more than
Power Shouts have been
redeemed by Genesis
electricity customers.
Since launching in early May 2018, more than
users have
accessed Energy IQ.
Genesis brand Net Promoter Score (NPS) and
brand promoter score
Brand NPS - Genesis 3 Month Rolling
Brand Promoter - Genesis 3 Month Rolling
Jun - 17
40%
-5%
10%
20%
30%
Jun - 18Sep - 17
0%
Customer churn stabilising
We have fostered loyalty and
deepened customer engagement
around their home energy use.
The approach is working. Genesis’
residential customer electrical churn
is now below that of the market, and
our Net Promoter Score (NPS) is
growing. Our customers are staying
with us, promoting us, enabling
profitable relationships over the long
term.
Residential electricity churn
(excludes Energy Online)
Jan - 17
Jun - 18
15%
21%
27%
Sep - 17
Genesis
Market (excludes Genesis)
19%
17%
23%
25%
2.1%
higher than
market
Jun-17
2.6%
lower than
market
Jun-18
+5 ppt
+10 ppt
11
GENESIS ANNUAL REPORT 2018
10
GENESIS ANNUAL REPORT 2018
We start work at 4:45am and
the first thing we do is turn
on the vacuum pumps and
all the lights. With Genesis,
we get everything broken
down on the one account.
We can differentiate
between what the house
uses, what the cowshed uses
and what’s private.”
Mike, dairy farmer and Genesis
customer, Helensville
Our insights and data have
been designed to be both
accessible and actionable
for our customers – they
shouldn’t need a PhD in
mathematics to work out
their energy bill. With Energy
IQ, we wanted to deliver a
product that truly adds value
to our customers' lives and
makes others say, “I want
that”. That’s why Energy IQ
is leaps and bounds ahead
of the standard ‘one size
fits all’ digital approach our
competitors take.
EXECUTIVE GENERAL
MANAGER TECHNOLOGY
AND DIGITAL
Jennifer (Jen)
Cherrington-Mowat
BCom, MBA
Transforming
business
Our challenge in FY18: resetting
the conversation we have with
our business customers to show
energy management gives them
the convenience and control they
need.
Our solution: expanding our
sales channels, sharing the
benefits of Electricity Insights and
refreshing the Genesis Customer
Value Proposition for business
customers.
Increasingly, businesses are expecting
more from Genesis than just energy.
Across FY18 we have shifted
conversations ‘beyond the electron
and joule’ to show we partner with our
business customers to deliver energy
savings, energy resilience and build
greater efficiency into their business’
energy use.
Our energy, your business
Being with Genesis means much more
than a reliable supply of energy. We
don’t just put electricity or gas into our
customers’ businesses. We put all of
our energy into it. We have defined our
business customer value proposition
following a collaborative interview and
workshop process with our business
customers.
‘We put our energy into your business’
is Genesis’ business customer value
proposition. Three proof points
bring our business customer value
proposition to life:
Simplicity –
• We promise to make energy simple
by providing multiple fuels at
multiple sites on one bill.
Service –
• We promise to health check your
business plan at least once a year. If
we can move you to a better one, or
apply our latest offers, we will.
Energy Management –
• We promise to give you the best
tools to help you monitor, control
and be more efficient with energy.
We launched the Genesis business
customer value proposition in June
2018 and are promoting it via traditional
and digital media channels from the
beginning of FY19.
Electricity Insights
Having real-time visibility of energy
assets creates benefits beyond the
standard customer / energy supplier
relationship. That’s why we’ve actively
encouraged our Commercial and
Industrial customers to experience
Electricity Insights, an energy
management solution exclusive to
Genesis, for themselves this year.
Electricity Insights gives Genesis
customers their very own energy
dashboard. This charts real-time
energy consumption levels and delivers
sophisticated reports, statistical
analysis and alerts that capture
potential energy savings. It can also
immediately notify customers of
electrical equipment failure and identify
energy consumption by site. Uptake of
Electricity Insights has grown strongly
across FY18. We expect this product to
become a key differentiator for Genesis'
business segment, with a significant
number of our largest customers using
the solution.
Expanding our sales footprint
Business owners are busy, so we’re
making sure we’re available in ways
that work for them. We can offer
three fuels invoiced on one bill and
energy management options to help
businesses gain greater value from their
energy spend. We complemented our
hardworking business field sales team
with the establishment of our small
and medium enterprise (SME) telesales
team during January 2018. Both teams
are focused on growing the SME
portfolio through customer acquisition
and managing retention and cross-
selling to current business customers.
The results have been impressive. The
SME portfolio churn rate sat at 19.7 per
cent during H1 FY18. By comparison, the
H2 FY18 churn rate was 15.2 per cent,
a drop of four and a half percentage
points.
Brooke Sadler, Genesis Trade Connections
team member
1010
GENESIS ANNUAL REPORT 2018
13
GENESIS ANNUAL REPORT 2018
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GENESIS ANNUAL REPORT 2018
LPG and Kupe
deliver scale and strength
Current LPG depots
New LPG delivery locations
Key
Genesis share of
Kupe Revenue (46%)
$121.8m
$158.6m
FY17
FY18
Kupe Revenue ($)/Genesis EBITDAF ($)
FY17
37%
FY18
44%
Total Gas field production
23,965 TJ
24,282 TJ
25,549 TJ
FY16
FY17
FY18
KUPE KEY METRICS
Our challenge in FY18: complete
the integration of our new LPG
distribution operation and confirm
our leadership position within
New Zealand’s LPG market.
Our solution: 35,000 new LPG
sites on-boarded, more than
doubling Genesis’ LPG base.
27 depots are now operating
nationwide. We have established
a high-performing Commercial
& Bulk LPG sales team and have
signed 15 important new key
accounts across multiple business
sectors.
Building new capabilities
During March 2018 Genesis began
servicing every one of its 59,169 LPG
customers directly. Prior to acquiring
its own distribution operation Genesis
deliveries were managed by a third-
party supplier. Exiting this relationship
and taking ownership of the delivery
process was an essential step in
better meeting the needs of our LPG
customers and ensuring an outstanding
experience for them from the moment
they order their gas right through to the
Genesis-branded bottle delivered to
their door.
Our LPG distribution capability now
includes a fleet of 99 Genesis-branded
delivery vehicles and experienced LPG
delivery employees proudly wearing
Genesis uniforms. We have worked
hard across the year to implement a
standardised delivery process that has
improved operational responsiveness
and increased customer service levels.
Importantly, health and safety results
for our new LPG operations team have
improved significantly since integration
into Genesis, with the total recordable
injury frequency rate (TRIFR) for these
teams falling by more than 50 per cent
in the FY18 period.
These enhancements will provide a
sound platform for future growth.
Having control over the entire
delivery network will allow Genesis to
demonstrate its strength in innovation.
Transforming for the future
Across FY18 we have reimagined
key moments of the customer LPG
experience. In a New Zealand first,
Genesis has launched its Bottled Gas
Monitoring solution.
The proposition for customers is simple.
Working with our partner Sensys,
Genesis has taken a key customer
pain point – knowing when their
45-kilogram gas cylinder is out of gas
– and leveraged energy management
principles to shape what is a unique and
valuable solution.
We’ve developed sensor devices that
measure the gas in the bottle and
alert the customer when it's time to
reorder. The sensors have successfully
completed rigorous in-field testing this
year and will launch to residential and
business customers across FY19.
Kupe underpins LPG strategy
Genesis’ share in the Kupe Oil and
Gas field is a significant enabler of our
LPG strategy. FY18 was the first full
year of Genesis’ 46 per cent interest
in the field. Total field gas production
is up five per cent on FY17. This is a
new record on the back of higher
than expected thermal generation
and growing consumer and business
demand for gas. Plant availability
continued to be high at 99 per cent,
demonstrating the quality of the asset.
Kupe’s operations fall outside the
New Zealand Government’s decision in
April to halt new permits for offshore oil
and gas exploration via the Block Offer
programme. Kupe holds a protected
permit so its position as a key player in
supplying gas and LPG to New Zealand
homes and businesses is unaffected.
The field has several exploration
prospects within its permitted area,
providing potential future reserves
that are also outside the Government’s
decision to freeze new permits.
Kupe maintains its position as a key
contributor to Genesis’ EBITDAF,
delivering $115 million, or 32 per cent,
of total EBITDAF in FY18. These strong
earnings are enabling Genesis to invest
in key strategic projects, including the
expansion of our LPG delivery network,
new monitoring technology for LPG
customers and ongoing development of
our energy management technology.
LPG Truck
Kupe
LPG depots
nationwide
LPG market
share by
volume
%
LPG
customers
15
GENESIS ANNUAL REPORT 2018
14
GENESIS ANNUAL REPORT 2018
Generation
- responsive in all conditions
Our challenge in FY18: respond
to volatile hydrology and weather
conditions to maximise value.
Our response: strategies around
plant operations, trading and
hedging have flexed rapidly
to meet changing conditions,
delivering positive outcomes for
Genesis, regardless of market
conditions.
Making volatility a virtue
Two sustained dry periods during
FY18 resulted in the market calling
on Genesis’ thermal plant to support
low inflows into Southern hydro
catchments. Despite very challenging
production conditions, and the
unexpected Tekapo outage, overall
generation production was up on FY17.
Volatile market conditions, cycling
wet and dry on a quarterly basis, saw
Genesis respond by buying from the
market at lower prices than thermal
running costs during wet periods, then
supporting the market via its thermal
production during dry periods.
Concurrently, our carbon hedging
strategy has saved us over $20 million
this financial year and will provide an
ongoing buffer against carbon price
volatility in the coming years. Genesis
has also entered into long-term
forestry offtake agreements for the
first time and is investigating further
opportunities in this space.
Over the past decade Genesis has
provided the greatest reduction in
emissions from within the electricity
sector. Genesis’ share of electricity-
related emissions has dropped from
59 per cent in 2008 to 44 per cent
in 2017. We have reduced the coal
stockpile by around 80 per cent within
the last decade and have retired half
of Huntly's 1,000 megawatt coal-fired
capacity.
During FY18, 88 per cent of all Huntly’s
flexible on demand power generated
by the Rankine units was bought by
other electricity generators. We are
proud of the important role Genesis has
played in supporting New Zealand’s
energy generation but as our 2025
commitment around coal use indicates,
we are making it clear that the way
we fulfill that supporting role needs to
change.
Strength in diverse portfolio
In December 2017 we notified the
market of a fault on one of the Tekapo
Power Scheme’s generating units. The
fault happened when the unit was
being returned to service following
a planned outage. During the repair
process, we concurrently upgraded the
generator's components, returning the
unit to service in early June 2018 in an
improved overall condition.
The outage at Tekapo was offset by
the strength and flexibility of Genesis’
generation assets. Generation from
our hydro lakes in our North Island
catchment balanced out electricity
production, demonstrating the
resilience of the portfolio and the
benefits of having hydro assets in
both the North and South Islands.
The combination of Genesis’ diverse
generating portfolio, our wholesale
position and insurance have mitigated
effects of the outage.
Reimagining generation
In what we believe to be an industry
first, our Generation and Wholesale
team held its first Hackathon during
FY18. Over 130 staff came together
to meet a 48-hour challenge to find
new, innovative ways of gaining even
greater value from our generation and
fuel assets. Digital technology was
leveraged to produce solutions that
included: machine learning to drive
predictive maintenance, augmented
reality, field mobility, thermal efficiency
and internet of things instrumentation
to enhance decision-making.
The outcomes of the Hackathon
have formed a core part of the Digital
Strategy and several of the concepts
produced during the Hackathon are
now being prototyped. To further
leverage this thinking and combine it
with our strong ongoing commitment
to safety, we are continually reviewing
where emerging technologies can help
reduce risks across the generation sites.
For instance, during the Huntly Unit 5
outage in November 2017, new drone
technologies were used to inspect
areas of the plant that previously
required people to work from an
elevated platform. Introducing the new
tech-led approach has eliminated a
significant working-at-heights risk for
our people.
Tekapo
The Generation & Wholesale Hackathon
The strength of Genesis'
highly diverse generation
portfolio of renewable
and thermal assets in
both islands, as well as
its commercial contracts,
shone through in FY18.
We've delivered above
market expectations. We
are actively looking to the
future around the use of
our assets. We continue to
work on shared workstreams
with iwi, including on-
marae energy management
partnerships and Connected
Flows. As part of Genesis'
Sustainability Framework, we
look forward to partnering
with iwi on a project focused
on improving the quality and
mauri of water.
EXECUTIVE GENERAL
MANAGER GENERATION
AND WHOLESALE
Tracey Hickman
MA (Hons)
At the Tongariro Power Scheme,
Genesis employees are piloting an
innovative new communication device
that operates in a range of remote
locations where traditional technologies
are inadequate. The Scheme covers a
land area of 2,600 square kilometres.
The new device allows team members
working in remote locations to
easily contact the control centre for
assistance.
This is an important safety
enhancement for team members
working alone. Continually reviewing
our safety risks and seeking innovative
new ways to reduce these remains a
key focus area for FY19.
AT A GLANCE
Carbon Dioxide Emissions (kt CO₂) and Gas/Coal Use (PJs) at Huntly
(ktCO₂)Coal BurnGas Burn
FY00
7000
3000
4000
5000
6000
2000
1000
FY02FY04FY06FY08FY10FY12FY14FY16FY18
60
20
30
40
50
10
0
CO₂PJs
Carbon Intensity Profile of Genesis Energy's Generation Portfolio
ThermalTotal
Tones CO₂/GWh
FY00
600
800
1000
400
200
FY02FY04FY06FY08FY10FY12FY14FY16FY18
FY18 Rankine Unit Load
Jul 17
200
300
400
100
0
Nov 18Jun 18Sep 18Aug 17Oct 18Jan 18Mar 18Feb 18Apr 18May 18Dec 18
Genesis Retail & Huntly Outage Support
Other Retailers / Spot Customers
Swaptions
GWh
Generation trend (GWh) by Fuel Type
RenewableGasCoal
FY10
2000
3000
4000
1000
0
FY11FY12FY13FY14FY15FY16FY17FY18
GWh
17
GENESIS ANNUAL REPORT 2018
16
GENESIS ANNUAL REPORT 2018
Investing in a brighter future
- With you. For you.
Sustainability at Genesis means
caring for the environment,
supporting our people to succeed
and building strong communities
while powering New Zealand
towards a positive, sustainable
future. We’re proud to be
launching a new Sustainability
Statement, explaining what
sustainability means to us.
Underpinning that is our new
Sustainability Framework (see
pages 18-19), which is designed
to be an iterative document we
develop year-on-year.
Our environment
Caring for the environment isn’t new
for Genesis. We have made significant
progress over the past decade with very
solid results. We have reduced coal
use by around 80 per cent and have
halved carbon emissions in the past ten
years. We are very aware of the part the
energy sector plays in New Zealand’s
transition to a low-carbon economy,
and we are committed to doing
more. To that end, we have set goals
around no coal use after 2025, under
normal market conditions. Our intent
is to remove coal from our generation
production by 2030.
Supporting this, we are also putting
in place new goals around our non-
generation emissions, our electric
vehicle fleet and how we help
customers understand the carbon
impacts of their energy decisions.
Our people, our communities
We also know our people are
fundamental to our success as a
business. We’re proud of what we have
done around diversity and equal pay –
such as our ‘Mind the Gap’ pay equity
policy, our work with
Global Women and our partnership
with the TupuToa internship
programme which seeks to provide
pathways for Māori and Pasifika
students into professional careers. But
again, we can and should go further
– which is why we’re focused on
improving gender and ethnic diversity,
to ensure our workforce better reflects
our customers and communities. We
are also working towards becoming an
accredited Living Wage employer.
Genesis continually strives to achieve
positive, enduring and meaningful
relationships with the communities in
which it operates. In particular, we develop
and maintain robust, long-term relationships
with tangata whenua, recognising their
role as kaitiaki of the natural resources and
taonga within their rohe.
Tongariro Power Scheme
Whio
AT A GLANCE
Genesis is committed to
caring for the environment and
building strong communities,
while powering New Zealand
towards a positive, sustainable
future.
Curtain Banks
families received curtains
from curtain banks in Auckland,
Wellington and Christchurch
School-gen
schools entered into the
Energising Young Minds
competition
Milford School
Our children
Helping young New Zealanders learn
about energy was the driving principle
behind the transformation of Genesis’
flagship community investment activity
in FY18. We expanded our School-gen
programme to reach teachers, children
and families nationwide, moving from
a focus on printed material to video,
gamification and hands-on activities
to make learning about science,
technology, engineering and maths
(STEM) exciting and fun.
This new direction aligns with Genesis’
strategic focus on reimagining energy.
We want to encourage tomorrow’s
energy innovators by helping them
build the skills and knowledge they
need for the jobs of the future,
whatever they will be.
In the months following the launch
of the new School-gen website, over
20 per cent of all schools nationwide
have connected with the School-gen
programme. School-gen's website
has had an 800 per cent increase in
traffic compared to the same time last
year, with more than 247,000 visits
since February. Our Energising Young
Minds competition, delivering $50,000
worth of STEM investment to schools,
has featured on kids' TV show 'What
Now' and attracted nationwide media
attention.
Our whio
Our Whio Forever Programme
has doubled the population of
whio (blue duck) breeding pairs in
protected sites since its beginnings
in 2011. The whio population is an
important indicator of the health
of our high country river systems,
and the programme aims to secure
endangered whio in their natural
habitat. We’ve placed huge focus
on predator control activity. Genesis
began its support for whio in 2011.
Since then the number of whio
in trapline protected zones has
doubled to 652 breeding pairs.
During the last year, 763 ducklings
hatched, with 492 birds successfully
fledging. We’re very proud of the
success of our partnership with
Department of Conservation, local
communities and iwi in restoring
whio populations.
Our commitment
Genesis is entering an important
new phase of its sustainability
journey. We’re looking forward
to meeting the targets we’ve set
ourselves, engaging with employees,
customers and other stakeholders,
then reporting back regularly on
progress – while setting new more
ambitious targets for the years
ahead. We also look forward to
continuing – and enhancing – our
already successful community
investment programmes, which
make our people proud to work here
and our customers more engaged.
For more on our sustainability
strategy: www.genesisenergy.co.nz/
about/sustainability
Number of Whio Pairs Protected
(National Recovery Programme)
201120092018
400
300
200
100
0
2013201520172010201220162014
500
600
700
19
GENESIS ANNUAL REPORT 2018
18
GENESIS ANNUAL REPORT 2018
Focus areasWhy it matters to us
Emissions
Reducing emissions is good for the
environment and good for business.
Actively participating in the creation of a
pathway to a low-carbon future is positive
for all New Zealanders.
Water and
wildlife
Water is essential to our country, our
business and the communities we operate
in. We believe that every drop counts
and we support multiple uses of water
while ensuring cultural and ecological
requirements are met.
Our Communities
Strong communities and relationships are
essential to our success as a business and
the success of New Zealand.
Our People
We are committed to energising and
keeping safe our people and communities.
It is important that our workforce reflects
the diversity of the communities we serve.
Delivering
New Zealand’s
energy future
To support a more sustainable
New Zealand, we need to inspire the
energy innovators of tomorrow and
constantly test and innovate.
Putting
control in our
customers’
hands
We enable customers to make informed
energy choices by providing meaningful
advice and knowledge that results in
tangible action.
Genesis Sustainability Framework FY19
Caring for our
environment
Building strong
communities
Powering
New Zealand
Where we’re atOur ambitions for the future
Sustainable
Development Goals
-Committed to not use any coal after 2025 in normal
market conditions. Intention to phase out coal use
completely by 2030
-Reduce and offset non-generation carbon emissions
-Supported by: transition 100% of light vehicles to EV/
hybrid by 2020 and 50% of trucks by 2025
-Provide transparency of emissions information for our
customers through energy monitoring tools, so they
can see the impact of their energy choices on their
carbon footprint.
-Work in partnership with iwi on at least one project
each year, with a focus on improving the quality and
mauri of water
-Increase our focus on predator control using digital
innovation to deliver improved outcomes for New
Zealand’s native bird population.
-School-gen website used in more than half of
New Zealand schools by 2020
Supported by: increase in employee volunteering.
-To become an Accredited Living Wage employer by
2020
-Ambition to have 40:40:20 gender split at leadership
level (40% male, 40% female, 20% either) and improve
ethnic diversity at all levels to better reflect our
communities and customers.
-Create at least two new products that help customers
make sustainable choices by 2020
-Ensuring those material suppliers that help us
to innovate are also committed to operating in a
sustainable way.
-40% of customers using information and insight via
our digital tools to make active choices about their
day-to-day energy use by 2025
-200,000 customers actively providing more
information about their homes to access advanced
energy services by 2021.
With you. For you.
-Mapping a pathway to exit coal
(we’ve reduced coal use by 80% in the last decade)
-Carbon emissions are down 50% in last decade
-Transitioning our fleet to electric and hybrid vehicles
(and announcing free EV charging for employees)
-Generating energy from primarily renewable
resources (60% of our generation is from hydro
and wind)
-Educating kids about energy efficiency through
School-gen.
-Fostering robust, long-term relationships with
tangata whenua, communities and key stakeholders
where we operate
-Expanding the School-gen programme
(currently available to schools nationwide)
-Investing in a range of community initiatives, including:
Duffy Books in Homes, curtain banks, Graeme Dingle
Foundation.
-Partnering with the Department of Conservation in
the Whio Forever programme, which has doubled
the number of breeding Whio (blue duck) pairs in
protected sites since 2011
-Managing Tuna (eel) population in collaboration
with local hapu at Lake Otamangakau
-Focusing on the efficiency of our hydro schemes
-Investing in our catchment communities
(e.g., Taupo for Tomorrow)
-Ensuring environmental compliance.
-Encouraging gender diversity (50/50 gender split on
Board, 3/8 members of executive team female, Global
Women partner, supporter of Girls with Hi-Vis)
-Committing to addressing pay inequity where it exists
(introduced the ‘Minding the Gap’ policy)
-Prioritising mentorship (e.g., TupuToa internships)
-Focusing on health and wellbeing for staff and public
(e.g., R U Okay initiative).
-Working with local communities to test renewable
energy options and energy monitoring
(Local Energy Project)
-Rolling out energy monitoring tools and apps to
customers, making it easier for them to control their
energy impacts
-Innovating in new ways to give customers greater
transparency (e.g., Bottled Gas Monitoring to show
customers when they need to reorder).
-Working on solutions to the energy challenge around
balancing security of supply, affordability and
environmental impact
-Leading the conversation around how our sector can
help New Zealand move to a more sustainable energy
future
-Developing the energy innovators of tomorrow through
our School-gen programme.
21
GENESIS ANNUAL REPORT 2018
20
GENESIS ANNUAL REPORT 2018
This was achieved through executive-
sponsored communications, videos
of employees sharing their stories,
workshops and presentations. Over
600 employees have engaged with
'RUOK?' activities to date. We believe
this focus is an important part of
Genesis’ ongoing commitment
to inclusion and wellbeing in the
workplace.
Partnering with TupuToa
Genesis’ culture is one that fosters a
strong sense of belonging and inclusion
for all. During FY18 we were proud to
again host four TupuToa interns. These
interns are Māori and Pasifika youth
identified as future leaders. Genesis
first offered internships in FY17 through
our relationship with Global Women, of
which we are a major partner. We were
pleased to offer a role to a TupuToa
participant following her internship with
us during FY18.
Flexibility and parental leave
Genesis employees are supported to
reach their potential. How this happens
is different for everyone. What matters
is having options that help our people
reach their career and life goals. That’s
why Genesis now provides more
choice around how our people choose
to approach work, parenting and life
outside of work. We’re implementing
enhanced flexibility options, including
Our people
– enabling an innovation culture
Our performance culture
During FY18 Genesis employees
have been supported in discovering,
defining, activating and embedding
refreshed ways of working at Genesis.
This has involved engaging every team
member in understanding how Genesis’
culture directly impacts business
performance.
Through participation in highly
interactive sessions, teams have
concentrated on understanding where
culture comes from and how it forms
and have connected their actions
strongly with our strategy.
We now have a comprehensive
understanding of the strengths of our
culture, what motivates our people and
how to best connect with them to build
our innovation goals. The success of the
Company’s reinvigorated culture has
translated into a three per cent lift in
engagement and a 10 per cent increase
in employees recommending Genesis
as a great place to work.
We are particularly proud of the
engagement score of our new LPG
Operations employees. This new team
has achieved a 74 per cent engagement
score less than 12 months into joining
the Genesis family.
Going the extra mile for safety
Keeping Genesis people safe and well
is an essential part of meeting our
business goals. Commitment to health
and safety continues as a core strength,
with 76 per cent of employees believing
Genesis is committed to wellbeing
in the workplace and 81 per cent of
employees agreeing that their direct
leader genuinely cares about their
wellbeing, an increase of three per cent
from 2017.
Total recordable injury frequency rates
(TRIFR), including contractors, are
at 1.25 versus 0.78 for same period in
FY17. All injuries were low severity. The
addition of the new LPG Operations
team members and a focus on
capturing all contractor injuries has
driven the increase.
Over the past year, a new post-incident
(or significant near miss) investigation
process has been trialled. We are
achieving greater efficiencies around
capturing and embedding incident
learnings as a result. Our ongoing
participation in key industry safety
forums, such as Staylive, Metering
Group and New Zealand’s Zero Harm
Business Leaders Forum Steering
Group, are part of our commitment
to strengthening safety performance
across the energy industry.
Mental wellness
During FY18 Genesis extended
its health, safety and wellbeing
programme to include support
structures for mental wellness in
the workplace. We implemented
our campaign ‘RUOK?’ to bring
conversations about mental wellness
to the fore, making this element of
employee wellbeing something we can
all talk about.
OUR PEOPLE – ENABLING AN INNOVATION CULTURE
Vicky Law, People and Culture Business
Partner and a TupuToa intern
Members of Genesis’ Customer Tribe
career breaks, phased retirement,
activity-based working and buyable
leave. New parents are being supported
by ease-back-to-work options, salary
top-ups and paid partner leave.
Growing capability
Unleashing the full potential of our
people is essential as we transform
to meet future opportunities. In FY18,
Genesis people have been supported
in developing a sense of ownership and
responsibility for moving the business
forward.
Our goal is to encourage diverse,
customer-centric and healthy ways
of thinking and working. We have
achieved this via Business Forums
for Leaders, capability development
workshops, career conversations and
online development planning tools
for employees, operating at all levels
across Genesis.
Minding the Gap
Genesis launched ‘Minding the Gap’
policy in FY17 to govern and improve
fairness of gender pay equality. The
initiatives provided good insights
into how gender equity principles
are embedded into Genesis’ people
systems of performance, rewards
and development. Importantly, the
policy has allowed Genesis to identify
any inequities and enable choices on
how to close them. In this financial
year corrective actions were taken
consistent with our commitment to the
policy. These changes have positioned
Genesis as a market leader in its
commitment to gender pay parity.
Welcoming new starters
To enable a seamless start to working
life at Genesis, we’ve introduced a
new onboarding framework for all new
starters.
Our Ngā Mihi, or Welcome Aboard,
series has been designed specifically to
help new team members understand
the different parts of our business,
using face-to-face presentations,
including the option to Skype in.
The result is induction opportunities
that are practical, informative and build
team member awareness of our culture
and operations fast.
OUR PEOPLE – ENABLING AN INNOVATION CULTURE
Emma Burrows and Junia Ang, members of
Genesis’ Customer Tribe
This year, we’ve brought
our people together with
strong purpose. We’ve paid
close attention to growing
our culture and we’re
building great engagement.
At Genesis, everyone is
valued, everyone grows and
everyone is passionate about
what we do and the success
we can achieve together.
EXECUTIVE GENERAL
MANAGER PEOPLE
AND CULTURE
Nicola Richardson
BA (Hons)
AT A GLANCE
Gender diversity
44
Female Male
43
29
28
Executive
Officers
BoardSenior
Management
100%
75%
50%
25%
0%
Inclusion and flexibility are
key at Genesis. We need the
experience and insights of the
best and brightest people to
innovate and develop great
customer solutions. Our ability
to maximise the diversity and
talents of all our people is key
to our commercial success. Our
intellectual capital needs to be
as diverse as the communities
where we live and work.
Marc England, Chief Executive, Genesis
Gender diversity - Age, gender profiles of workforce
MFMFMFMFMFMF
Under 2525-3434-4445-5455-6465+
New Permanent
Employee Recruits
(in reporting period)
Total Permanent
Employees
(less new recruits)
Departed
Permanent
Employees
200
0
-50
50
100
150
Number of employees
Grand Total: 1,198
Ethnicities represented - Across Genesis
300
450
150
0
NZ EuropeanUndisclosed
Other (European)
Asian
M
ā
ori
Other
Pasifika Peoples
African
Latin American
75
Number of employees
23
GENESIS ANNUAL REPORT 2018
22
GENESIS ANNUAL REPORT 2018
Yo u r
- Board of Directors
Mark Cross
BBS, CA, CMInstD
Mark Cross joined the Genesis Board in 2014
and is a member of the Company’s Audit
and Risk Committee. Mark, a professional
Director, is currently Chairman of Milford
Asset Management Limited, MFL Mutual Fund
Limited/Superannuation Investments Limited
and a Director of listed companies Z Energy,
Chorus and Argosy Property, as well as other
private companies in which he is an investor. In
his nearly 20-year investment banking career,
Mark provided corporate finance advice to
companies and governments in Australia, the
United Kingdom (UK) and Europe. Mark held
senior positions at Deutsche Bank in London
and prior to that in Australia.
(Mark Cross resigned from the Genesis Board
effective 27 August 2018)
Joanna Perry
MNZM, MA Econ (Cantab), FCA, CFInstD
Joanna Perry joined the Genesis Board in
2007 and is Chairman of the Company’s Audit
and Risk Committee. Joanna is a professional
Director whose Board appointments include
Oyster Group Limited (Chairman), Trade Me
Group Limited, Partners Life Limited and
Regional Facilities Auckland (Deputy Chair).
Joanna is Chairman of the International
Financial Reporting Standards (IFRS) Advisory
Council. She was previously a partner in the
international accountancy and consultancy firm
KPMG, Chairman of the New Zealand Financial
Reporting Standards Board and a member of
the Securities Commission.
OUR BOARD
CONTACT THE BOARD
If you have a comment or question, please email the Board on:
board@genesisenergy.co.nz
Barbara Chapman
BCom, CMInstD
Barbara joined the Genesis Board in May 2018
and is a member of the Company's Audit and
Risk Committee. Barbara is Director of The New
Zealand Initiative and a non-executive Director
of New Zealand Media and Entertainment
(NZME). She has a wealth of governance
experience, and is a former member of the
Board of Supervisors of Oxfam International.
Barbara was also an inaugural Trustee of the
New Zealand Equal Opportunities Trust and
was its Chair for several years. Barbara brings
extensive and diverse trans-Tasman executive
experience to the Board having served as
Chief Executive and Managing Director of
ASB Bank for seven years and having held a
number of senior executive roles responsible for
marketing, communications, human resources,
life insurance and retail banking in New Zealand
and Australia. Barbara has an extensive list
of professional achievements to her credit,
including being named New Zealand Herald’s
2017 Business Leader of the Year and was
awarded New Zealand’s inaugural Marketer of
the Year in 1997. Barbara has also been named
the inaugural INFINZ Diversity and Inclusion
Leader.
Doug McKay
ONZM, BA, AMP (Harvard), CMInstD
Doug McKay joined the Genesis Board in 2014
and is Chairman of the Company’s Human
Resources and Remuneration Committee and
is a member of the Company’s Nominations
Committee. Doug is Chairman of the Bank of
New Zealand and Eden Park Trust Board and
has directorships with National Australia Bank
(NAB) and IAG. He is a Director and shareholder
of Tourism Transport Limited. Doug began
his career with Procter & Gamble, working in
a number of roles both in New Zealand and
overseas and subsequently worked in Managing
Director and Chief Executive roles with Lion
Nathan, Carter Holt Harvey, Goodman Fielder,
Sealord and Independent Liquor, where he
was also Chairman. Doug was the inaugural
Chief Executive of the amalgamated Auckland
Council until the end of 2013.
Tim Miles
BA
Tim Miles joined the Genesis Board in
November 2016 and is a member of
the Company’s Human Resources and
Remuneration Committee and the Nominations
Committee. Tim began his career with IBM
and later joined Data General Corporation,
rising to Director of Marketing – Asia Pacific.
He then joined Unisys Corporation in various
senior executive roles before taking up roles
as the Chief Executive Officer of Vodafone
New Zealand, the Chief Executive Officer of
Vodafone UK and the Vodafone Group Chief
Technology Officer. Upon returning to New
Zealand, Tim was Managing Director of listed
agricultural group PGG Wrightson before
taking up a role as Chief Executive Officer of
Spark Digital, playing a key role in the transition
of Spark to become New Zealand’s leading
digital services provider. Tim has also served as
Chair on the Advisory Boards of Revera Limited
and the CCL Group.
Paul Zealand
MBA, BSc Mech. Eng (Hons), CMInstD
Paul Zealand joined the Genesis Board
in October 2016 and is a member of
the Company’s Human Resources and
Remuneration Committee and the Nominations
Committee. Paul is currently a non-executive
Director of New Zealand Refining Company
Limited and Lochard Energy. Paul has over
40 years’ experience in the oil and gas sector,
where he started with Shell in the UK as a
refinery engineer. He later became Chairman
of Shell New Zealand and Chief Executive
Officer of the upstream oil and gas business
of Origin Energy. Through these roles Paul
developed skills in governance, strategic
business management, people leadership
and the operational risk, health, safety and
environmental and commercial management of
complex assets.
Maury Leyland
BE (Hons), FIPENZ, CMInstD
Maury Leyland joined the Genesis Board in
2016 and is a member of the Company’s Audit
and Risk Committee. Maury is the Chair of
The Education Hub, a non-profit organisation
focused on bridging the gap between research
and practice in school-level education, and on
the steering committee of Te Hono Movement,
a major primary sector leadership initiative.
She has been a Director of Spark New Zealand
and Transpower New Zealand. She is a Fellow
of the Institution of Professional Engineers of
New Zealand and a Chartered Member of
the Institute of Directors. Maury worked at
Fonterra from 2005 until 2016, most recently
as a member of the executive team in the role
of Managing Director for People, Culture and
Strategy. She has also held leadership roles
in risk and crisis management, supply chain
management and for the listing of the Fonterra
Shareholders’ Fund. Earlier in her career
Maury worked as a consultant with the Boston
Consulting Group, where she provided strategic
and operational advice across many industries.
She was with Team New Zealand as a member
of the design team during the successful 1995
America’s Cup campaign.
OUR BOARD
Your Directors have again made a very
significant contribution to the success
the Company has achieved this year
and I am grateful for their efforts.
You will note that in addition to their
governance and leadership capability,
they bring an impressive and diverse
range of skills and experience to their
roles in your Company.
We are particularly proud of gender
balance on our Board. Genesis is one of
a handful of NZX-listed companies that
has achieved 50:50 gender diversity on
its Board. This is well ahead of the NZX
average, which currently sits at 20 per
cent.
In the last 12 months, Board Directors
have actively sought to interact directly
with the Boards of iwi and will continue
to progress these important governance
relationships.
This year was one of change for your
Board. We wish to acknowledge and
thank John Leuchars for his six years of
dedicated service, which he completed
in May. The Board then welcomed
Barbara Chapman, who brings valuable
skills to the Genesis Board around
disruptive innovation, marketing, digital
transformation, consumer technologies
and knowledge around building and
driving leading brands.
I will retire at the Annual Shareholder
Meeting after nine years leading the
Company as your Chairman. I am
delighted to again confirm that Barbara
Chapman has the unanimous support of
the Board to succeed me as Chairman,
subject to securing shareholder support
at the Annual Shareholder Meeting.
The Directors present the Annual
Financial Statements of Genesis Energy
Limited and its consolidated entities,
being Genesis and its controlled entities,
for the year ended 30 June 2018 and the
Independent Auditor’s Report following.
Dame Jenny Shipley, DNZM
Chairman
CHAIRMAN
Rt Hon Dame Jenny Shipley
DNZM
Dame Jenny Shipley has been Chairman
of Genesis since 2009. During this period
she has overseen both the reshaping of the
Company’s strategic direction and the move
into a listed environment. She is Chairman of
the Company’s Nominations Committee and
is also a member of the Company’s Human
Resources and Remuneration Committee.
Dame Jenny is Chairman of Oravida Limited,
Oravida Waters Limited and Oravida
NZ Limited. She is Chairman of China
Construction Bank (New Zealand) Limited,
having sat on the Hong Kong and Shanghai-
listed parent Board for six years. She runs
her own consulting and advisory company,
Jenny Shipley New Zealand Limited, and
speaks around the world on a wide range
of topics. She is a Board member of the
BOAO Forum for Asia and the International
Finance Forum (IFF), Beijing. She is co-chair
of New Zealand Champions for Change
and an executive Board member of the New
Zealand China Council. She is also a Trustee
of the Heart Health Research Trust and
Patron of a number of organisations. Dame
Jenny was Prime Minister of New Zealand
from 1997 to 1999. In the preceding seven
years she held a number of ministerial roles,
where she drove a wide range of reforms.
These included New Zealand’s State-
owned Enterprise (SOE), airport and energy
sector corporatisation and privatisation
programmes.
25
GENESIS ANNUAL REPORT 2018
GENESIS ANNUAL REPORT 2018
GENESIS ANNUAL REPORT 2018
CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
25
24
Consolidated comprehensive income statement
For the year ended 30 June 2018
Note
2018
$ million
2017
$ million
Operating revenue
4
2,304.5 1,951.1
Operating expenses
4
(1,944.0)(1,618.6)
Earnings before net finance expense, income tax, depreciation, depletion,
amortisation, impairment, fair value changes and other gains and losses (EBITDAF)
360.5 332.5
Depreciation, depletion and amortisation
6
(205.7)(174.6)
Impairment of non-current assets
16
(0.4)(2.4)
Revaluation of generation assets
16
(48.8)51.5
Change in fair value of financial instruments
7
( 3 .1 )22.6
Other gains (losses)
(0.7)(1.6)
Profit before net finance expense and income tax
101.8 228.0
Finance revenue
1.0 1.6
Finance expense
8
(75.3)(62.1)
Profit before income tax
27.5 167.5
Income tax expense
9
( 7. 7 )(48.8)
Net profit for the year
19.8 118.7
Other comprehensive income
Change in cash flow hedge reserve
26
(28.8)29.4
Income tax credit (expense) relating to items that may be reclassified
9
8 .1 (8.2)
Total items that may be reclassified subsequently to profit or loss
(20.7)21.2
Change in asset revaluation reserve
16
178.7 19.8
Income tax credit (expense) relating to items that will not be reclassified
9
(50.0)(5.5)
Total items that will not be reclassified subsequently to profit or loss
1 2 8 .7 14.3
Total other comprehensive income for the year
108.0 35.5
Total comprehensive income for the year
1 2 7.8 154.2
Earnings per share from operations attributable to shareholders of the Parent
Basic and diluted earnings per share (cents)
10
1.98 11.88
The above statements should be read in conjunction with the accompanying notes.
for the year ended
30 June 2018
Contents
Consolidated comprehensive
income statement 25
Consolidated statement
of changes in equity 26
Consolidated balance sheet 27
Consolidated cash flow statement 28
Notes to the consolidated financial statements
1 General information 30
2 Basis of accounting 30
3 Underlying EBITDAF and underlying earnings 3 3
4 Segment reporting 34
5 Other operating expenses and employee benefits 36
6 Depreciation, depletion and amortisation 36
7 Change in fair value of financial instruments 36
8 Finance expense 37
9 Income tax 37
10 Earnings per share 38
11 Dividends 38
12 Share capital 38
13 Share-based payments 39
14 Receivables and prepayments 40
15 Inventories 40
16 Property, plant and equipment 4 1 .
17 Oil and gas assets 4 3
18 Intangible assets 45
19 Business acquisitions 47
20 Investments in subsidiaries 49
21 Joint operations 49
22 Related party transactions 50
23 Payables and accruals 50
24 Borrowings 5 1 .
25 Provisions 5 3
26 Derivatives 54
27 Financial instruments and financial risk management 56
28 Fair value 62
29 Commitments 64
30 Contingent assets and liabilities 65
31 Events occurring after balance date 65
Consolidated financial
statements
27
GENESIS ANNUAL REPORT 2018
GENESIS ANNUAL REPORT 2018
GENESIS ANNUAL REPORT 2018
CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
27
26
The above statements should be read in conjunction with the accompanying notes.
Consolidated balance sheet
As at 30 June 2018
Note
2018
$ million
Restated*
2017
$ million
Cash and cash equivalents
49.3 2 7. 8
Receivables and prepayments
14
229.1 225.2
Inventories
15
70.3 79.8
Intangible assets
18
14.7 6.7
Tax receivable
4.9 6.4
Derivatives
26
24.8 26.4
Total current assets
3 9 3 .1 372.3
Receivables and prepayments
14
4.8 3.5
Inventories
15
5.3 –
Property, plant and equipment
16
3,051.6 3,004.0
Oil and gas assets
17
378.4 434.8
Intangible assets
18
364.3 364.8
Derivatives
26
3 7. 5 39.9
Total non-current assets
3,841.9 3,847.0
Total assets
4,235.0 4,219.3
Payables and accruals
23
205.7 180.3
Borrowings
24
210.0 11.0
Provisions
25
1 0.1 13.7
Derivatives
26
36.8 23.2
Total current liabilities
462.6 228.2
Payables and accruals
23
0.8 0.7
Borrowings
24
1,045.4 1,248.8
Provisions
25
156.0 158.9
Deferred tax liability
9
571.8 5 75.1
Derivatives
26
36.9 25.7
Total non-current liabilities
1,810.9 2,009.2
Total liabilities
2,273.5 2,237.4
Share capital
12
5 5 7. 7 539.7
Reserves
1,403.8 1,442.2
Total equity
1,961.5 1,981.9
Total equity and liabilities
4,235.0 4,219.3
The Directors of Genesis Energy Limited authorise these financial statements for issue on behalf of the Board.
Rt Hon Dame Jenny Shipley, DNZM Joanna Perry, MNZM
Chairman of the Board Chairman of the Audit and Risk Committee
28 August 2018 28 August 2018
The above statements should be read in conjunction with the accompanying notes.
* The 2017 numbers have been restated to reflect the final fair values for the LPG business assets acquired on 1 June 2017.
Refer to note 19 for more information.
Consolidated statement of changes in equity
For the year ended 30 June 2018
Note
Share
capital
$ million
Share -based
payments
reserve
$ million
Asset
revaluation
reserve
$ million
Cash flow
hedge
reserve
$ million
Retained
earnings
$ million
Total
$ million
Balance as at 1 July 2016
539.7 0.5972.9 (43.8)52 1.9 1,991.2
Net profit for the year
– – – – 1 18.7 1 18.7
Other comprehensive income
Change in cash flow hedge reserve
26
– – – 29.4 – 29.4
Change in asset revaluation reserve
16
– – 19.8 – – 1 9.8
Income tax expense relating to other
comprehensive income
9
– – (5.5)(8.2) – ( 13.7)
Total comprehensive income for the year
– – 14.3 21.2 1 18.7 154.2
Share -based payments
– 0.5 – – – 0.5
Dividends
11
– – – – (164.0)(164.0)
Balance as at 30 June 2017
539.7 1 .0987.2 (22.6)476.6 1,981.9
Net profit for the year
– – – – 19.8 19.8
Other comprehensive income
Change in cash flow hedge reserve
26
– – – (28.8) – (28.8)
Change in asset revaluation reserve
16
– – 1 78.7 – – 1 78.7
Income tax (expense)/credit relating to other
comprehensive income
9
– – (50.0)8. 1 – (4 1 .9)
Total comprehensive income (expense) for the year
– – 128.7 (20.7)19.8 1 27.8
Revaluation reserve reclassified to retained earnings
on disposal of assets
– – (0.6) – 0.6 –
Share-based payments
– 0.6 – – – 0.6
Shares issued under dividend reinvestment plan
12
19.1 – – – – 19. 1
Acquisition of treasury shares
12
( 1 .1) – – – – (1.1)
Dividends
11
– – – – (166.8)(166.8)
Balance as at 30 June 2018
5 5 7. 7 1 .6 1 ,1 1 5.3 (4 3.3)330.2 1,961.5
29
GENESIS ANNUAL REPORT 2018
GENESIS ANNUAL REPORT 2018
GENESIS ANNUAL REPORT 2018
CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED FINANCIAL STATEMENTS
29
28
Consolidated cash flow statement
For the year ended 30 June 2018
Note
2018
$ million
2017
$ million
Receipts from customers
2,301.0 1,909.9
Interest received
1.0 1.6
Payments to suppliers and related parties
(1,831.0)(1,534.3)
Payments to employees
(88.7)(77 .7)
Tax paid
(51.7)(51.0)
Operating cash flows
330.6 248.5
Proceeds from disposal of property, plant and equipment
0.3 0.2
Purchase of property, plant and equipment
(43.7)(26.3)
Purchase of oil and gas assets
(6.4)(5.9)
Purchase of intangibles (excluding emission units and deferred customer acquisition costs)
(32.4)(22.6)
Purchase of business acquisitions
19
– (355.0)
Investing cash flows
(82.2)(409.6)
Proceeds from borrowings
– 501.0
Repayment of borrowings
(9.0)(125.0)
Interest paid and other finance charges
(6 9.1 )(58.0)
Dividends
( 1 4 7. 7 )(164.0)
Acquisition of treasury shares
12
(1 .1) –
Financing cash flows
(226.9)154.0
Net increase (decrease) in cash and cash equivalents
21.5 (7. 1 )
Cash and cash equivalents at 1 July
2 7. 8 34.9
Cash and cash equivalents at 30 June
49.3 2 7. 8
Consolidated cash flow statement (continued)
For the year ended 30 June 2018
Reconciliation of net profit to net cash inflow from operating activitiesNote
2018
$ million
2017
$ million
Net profit for the year
19.8 118.7
Net (gain)/loss on disposal of property, plant and equipment
1.0 (0.2)
Working capital items acquired through business acquisitions
– (35.6)
Interest and other finance charges paid
69.4 56.7
Items classified as investing/financing activities
70.4 20.9
Depreciation, depletion and amortisation expense
6
205.7 174.6
Revaluation of generation assets
16
48.8 (51.5)
Impairment of non-current assets
16
0.4 2.4
Change in fair value of financial instruments
7
3 .1 (22.6)
Deferred tax expense
9
(45.2)0.8
Change in capital expenditure accruals
(1.7)5.4
Change in rehabilitation and contractual arrangement provisions
10.3 (2. 1)
Other non-cash items
1 .1 (3.2)
Non-cash items
222.5 103.8
Change in receivables and prepayments
(5.2)(35.4)
Change in inventories
4.2 (0.5)
Change in emission units on hand
(1.2)(2.8)
Change in deferred customer acquisition costs
(0.4)(1.3)
Change in payables and accruals
25.5 13.3
Change in tax receivable/payable
1.5 (2.3)
Change in provisions
(6.5)34.1
Movements in working capital
1 7. 9 5.1
Net cash inflow from operating activities
330.6 248.5
The above statements should be read in conjunction with the accompanying notes.The above statements should be read in conjunction with the accompanying notes.
31
GENESIS ANNUAL REPORT 2018
30
GENESIS ANNUAL REPORT 2018
31
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Genesis Energy Limited (the ‘Parent’) is a
company registered under the Companies
Act 1993. The Parent is majority owned
by Her Majesty the Queen in Right of
New Zealand (the ‘Crown’) and is listed
on the NZSX, NZDX and ASX. The Parent,
as a mixed ownership model company,
is bound by the requirements of the
Public Finance Act 1989. The liabilities
of the Parent are not guaranteed in any
way by the Crown. The Parent is an FMC
Reporting Entity under the Financial
Markets Conduct Act 2013 and the
Financial Reporting Act 2013.
The consolidated financial statements
comprise the Parent, its subsidiaries and
the Group’s interests in joint operations
(together, the ‘Group’). The Group is
designated as a profit-oriented entity for
financial reporting purposes.
The Group’s core business is located in
New Zealand and involves the generation
of electricity, retailing and trading of
energy (electricity, gas and LPG), and
the development and procurement
of fuel sources. To support these
functions, the Group’s scope of business
includes retailing and trading of related
complementary products designed to
support its key energy business.
2. Basis of accounting
Basis of preparation
The financial statements have been
prepared in accordance with, and comply
with, New Zealand Generally Accepted
Accounting Practice (‘NZ GAAP’),
New Zealand Equivalents to International
Financial Reporting Standards
(‘NZ IFRS’) and other applicable
New Zealand Financial Reporting
Standards. These financial statements
comply with International Financial
Reporting Standards (‘IFRS’).
The financial statements have been
prepared in accordance with the Financial
Markets Conduct Act 2013, the Financial
Reporting Act 2013 and the Companies
Act 1993 and are presented in
New Zealand dollars rounded to the
nearest 100,000. The accounting
policies adopted in the preparation of
these financial statements are set out
below and in the relevant notes to the
financial statements. These policies have
been applied consistently to all years
presented, unless otherwise stated.
The financial statements have been
prepared under the historical-cost
convention, modified by the revaluation of
derivatives, emission units held for trading
and generation assets.
The financial statements are prepared on
a Goods and Services Tax (‘GST’) exclusive
basis with the exception of receivables
and payables, which include GST where
GST has been invoiced.
Basis of consolidation
Subsidiaries
Subsidiaries are all those entities
(including structured entities) controlled
by the Group. Control is achieved when
the Parent has exposure or rights to
variable returns and has the power to
affect those returns. Subsidiaries are
consolidated from the date control is
acquired. They are de-consolidated from
the date control ceases. The acquisition
method of accounting is used to account
for the acquisition of subsidiaries.
Joint operations
Where the Group invests in joint
operations, the Group’s share of revenue,
expenditure, assets and liabilities is
included in the appropriate categories
within the Group financial statements on
a proportionate line-by-line basis.
Transactions and balances eliminated
on consolidation
Intercompany transactions, balances,
revenue and expenditure between
Group companies are eliminated on
consolidation.
Critical accounting estimates
and judgements
The preparation of financial statements
requires Management to make estimates
and assumptions that affect the
application of policies and the reported
amounts of assets, liabilities, revenues
and expenses.
The estimates and associated
assumptions are based on historical
experience and various other factors that
are reasonable under the circumstances.
Actual results may differ from these
estimates.
The estimates and underlying
assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates
are recognised in the period in which the
estimate is revised if the revision affects
only that period or in the period of the
revision and future periods if the revision
affects both current and future periods.
Significant areas of estimation in these
financial statements are as follows:
Valuation of generation assets
The Group’s generation assets are carried
at fair value. The fair value is based
on the present value of the estimated
future cash flows of the assets. The key
assumptions used in the valuation and the
carrying value of generation assets are
disclosed in note 16.
Depletion of oil and gas producing assets
Depletion of oil and gas producing assets
is based on the proved reserves to which
the assets relate. Proved reserve estimates
can change over time. The proved reserve
estimates used to deplete oil and gas
producing assets and the carrying value of
the assets are disclosed in note 17.
Valuation of rehabilitation and
restoration provision
The financial statements include an
estimate of the liability in relation to
the abandonment and restoration of
generation and oil and gas production
sites. Such estimates are measured
at the present value of the cash flows
estimated to settle the obligation. The key
assumptions used in the calculation and
the carrying value of the rehabilitation
and restoration provision are disclosed in
note 25.
Valuation of electricity derivatives
The valuation of electricity derivatives
classified as level three financial
instruments is based on an average of
the internally and externally generated
electricity price paths, which incorporate
a number of assumptions. The key
assumptions used in the valuation and the
carrying value of electricity derivatives
classified as level three financial
instruments are disclosed in note 28.
Notes to the consolidated financial statements
For the year ended 30 June 2018
2. Basis of accounting (continued)
Impairment of assets
Assets that have indefinite useful lives are
not subject to amortisation and are tested
annually for impairment. Assets that are
subject to depletion, depreciation or
amortisation are reviewed for impairment
annually or whenever events or changes
in circumstances indicate that the
carrying amount may not be recoverable.
If an asset’s carrying value exceeds its
recoverable amount, the difference is
recognised as an impairment loss in profit
or loss, except where the asset is carried
at a revalued amount then it is treated as a
revaluation decrease.
The recoverable amount is the higher of
an asset’s fair value less costs to sell, and
the asset’s value in use. In assessing value
in use, the estimated future cash flows are
discounted to their present value at a rate
that reflects current market assessments
of the time value of money. This discount
rate is adjusted for the risks specific to
the asset where the estimated cash flows
have not been adjusted.
For the purposes of assessing impairment,
assets are grouped at the lowest levels
for which there are separately identifiable
cash flows (cash-generating units). Non-
financial assets, other than goodwill,
that have been impaired are reviewed
for possible reversal of the impairment at
each reporting date.
Where an impairment loss subsequently
reverses, the carrying amount of the asset
is increased to the revised estimate of
its recoverable amount but only to the
extent the carrying amount of the asset at
the date the impairment is reversed does
not exceed what the carrying amount
would have been had the impairment
not been recognised. A reversal of an
impairment loss is recognised in profit or
loss immediately, unless the relevant asset
is carried at fair value in which case the
reversal of the impairment loss is treated
as a revaluation increase. Impairment of
goodwill is not reversed.
Foreign currency transactions
Transactions denominated in a foreign
currency are converted at the exchange
rate in effect at the date of the
transaction. At balance date monetary
assets and liabilities denominated in
foreign currencies are translated at the
closing rate. Exchange gains and losses
arising from these translations and the
settlement of these items are recognised
in profit or loss, except when deferred in
equity where cash flow hedging is applied
(refer to the derivatives accounting policy
disclosed in note 26).
Statement of cash flows
The following definitions are used in the
statement of cash flows:
Operating activities
Operating activities include all
transactions and other events that are
not investing or financing activities.
Investing activities
Investing activities are those activities
relating to the acquisition, holding
and disposal of property, plant and
equipment, oil and gas assets, intangible
assets (excluding emission units and
deferred customer acquisition costs) and
investments.
Financing activities
Financing activities are those activities
that result in changes to the size and
composition of the capital structure of the
Group. They include both equity and debt
not falling within the definition of cash.
Dividends and interest paid in relation
to the capital structure are included in
financing activities.
Payments to suppliers and related parties
disclosed in operating activities include
the net amount of GST paid/received
during the year. GST is disclosed on a net
basis as the gross amounts do not provide
meaningful information for financial
statement purposes.
Capital and reserves
Asset revaluation reserve
The asset revaluation reserve is used to
record movements in the fair value of
generation assets in accordance with the
property, plant and equipment accounting
policy disclosed in note 16.
Cash flow hedge reserve
The cash flow hedge reserve comprises
the effective portion of the cumulative
net change in the fair value of cash flow
hedging instruments related to hedge
transactions that have not yet occurred.
Share-based payments reserve
The share-based payments reserve is
used to recognise the value of equity-
settled share-based payments provided
to employees, including key management
personnel, as part of their remuneration.
Restatement of comparatives
The 2017 numbers have been restated
to reflect the final fair values for the LPG
business assets acquired on 1 June 2017.
Refer to note 19 for more information.
Adoption of new and revised
accounting standards, interpretations
and amendments
There have been no new and revised
accounting standards, interpretations or
amendments effective during the year
that have a material impact on the Group’s
accounting policies or disclosures.
Accounting standards, interpretations
and amendments in issue not yet
effective
NZ IFRS 9 Financial Instruments
NZ IFRS 9 introduces new requirements
for the classification and measurement
of financial instruments, including a new
expected credit loss methodology for
calculating impairment of financial assets
and changes to general hedge accounting
requirements. The standard is mandatory
for reporting periods beginning on or
after 1 January 2018. This standard will
be adopted by the Group for the financial
year ending 30 June 2019.
A project team has been established
to determine the impact the new
requirements have on the Group’s
reported results and accounting and
reporting systems. Based on an analysis
of the Group’s financial assets and
liabilities as at 30 June 2017 and
30 June 2018 and based on the facts and
circumstances that exist at those dates,
Management has assessed the impact of
NZ IFRS 9 as follows:
– All financial assets and financial
liabilities will continue to be measured
on the same basis as currently
reported.
– The Group will adopt the simplified
approach to provide for impairment
of receivables. Under the simplified
approach an impairment provision
is recognised when the receivable is
recognised. The provision is based on
the lifetime credit loss expected to be
incurred, whereas the current model is
based on incurred losses. This change
will result in earlier recognition of credit
losses. A preliminary assessment has
been completed, which has indicated
that the provision will increase by
$2.0 million on transition to the new
standard, owing to an impairment
provision being recognised on
unbilled receivables. The $2.0 million
adjustment will be recognised in the
comprehensive income statement
for the year ended 30 June 2018 on
transition. While the standard is to
be applied retrospectively, it is not
to be applied to any receivable that
has been derecognised prior to the
initial application date, which is 1 July
2018 for the Group. No adjustment
is expected to be made to opening
equity at 1 July 2017 on transition as
unbilled receivables at 30 June 2017
are expected to be either collected or
derecognised prior to 1 July 2018.
– The Group has determined that all
existing effective hedging relationships
will continue to qualify for hedge
accounting under NZ IFRS 9. Hedging
documentation has been updated to
comply with the new requirements.
The change is not expected to have a
material impact on previous reported
results, however, it will enable the
Group to use a combination of
instruments in a hedge relationship to
manage risk going forward.
– A number of disclosure changes are
also required under the new standard,
the impact of which is still being
determined.
33
GENESIS ANNUAL REPORT 2018
32
GENESIS ANNUAL REPORT 2018
33
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NZ IFRS 15 Revenue from Contracts with
Customers
NZ IFRS 15 replaces all existing revenue
requirements and applies to all revenue
from contracts with customers. The core
principle of NZ IFRS 15 is that an entity
recognises revenue when a customer
obtains control of promised goods or
services. The amount recognised is based
on an amount that the entity expects to
be entitled to in exchange for the goods
or services. The standard introduces a
five-step model to determine when and
how much revenue should be recognised.
The standard is mandatory for reporting
periods beginning on or after 1 January
2018. This standard will be adopted by the
Group for the financial year ending
30 June 2019.
A project team has been established
to determine the impact the new
requirements will have on the Group’s
reported results and accounting and
reporting systems. The project team has
focused on the Group’s material revenue
streams outlined in note 4. The majority
of revenue from contracts with retail
customers are based on standard terms
and conditions. The standard retail terms
and conditions were reviewed as part of
the transition work. In addition to this all
individual retail customer contracts with
estimated revenue over $1.0 million, and
a representative sample of smaller retail
customer contracts, were reviewed. The
majority of revenue for the wholesale
segment is based on revenue generated
from the grid, which is governed by
one contract. The generation revenue
contract and all wholesale and Kupe gas
and petroleum contracts were reviewed
as part of the transition work, as well as
a representative sample of emission unit
revenue contracts from trading.
The transition work is largely complete.
The only adjustments identified from the
work performed to date were as follows:
– The period over which consideration
payable to a customer (account credits)
should be allocated. The current policy
is to spread account credits over
the length of the average customer
tenure where there is evidence that
the return from the customer over
amortisation period is positive. Taking
into consideration recent guidance and
interpretations issued since the initial
application of the current policy the
project team has interpreted that the
appropriate amortisation period is the
length of the current contract and as a
result will not take into consideration
future contracts that may be entered
into when the current contract
has expired when determining the
amortisation period for account credits.
The project team is in the process of
calculating the change in amortisation
period. As at 30 June 2018 there was
$11.4 million (2017: $8.4 million) of
unamortised account credits.
– FlyBuy points issued through the
Group’s loyalty programme are
considered to represent a separate
performance obligation under the
contract and, as a result, a portion of
the transaction price is allocated to
this obligation. The cost of the
programme is currently recognised in
other operating expenses.
Under NZ IFRS 15 the Group is
considered to act as an agent, given
the Group’s principal responsibility is
to arrange for the goods or services
to be provided by Loyalty NZ, that
administers the loyalty programme.
Under NZ IFRS 15, where an entity
acting as an agent satisfies a
performance obligation, the entity
recognises revenue based on the
amount of any fee or commission
to which it expects to be entitled
to in exchange for arranging for
the specified good or service to be
provided by the other party. As agent,
the Group recognises revenue for
the net amount of the consideration
retained in relation to the points
(being the difference between the
consideration allocated to the points
and the amount paid to Loyalty NZ
for the points). Revenue and other
operating expenses are expected to
decrease by approximately $3.7 million
for the year ended 30 June 2018 on
transition to the new standard.
– A number of disclosure changes are
also required under the new standard,
the impact of which is still being
determined.
NZ IFRS 16 Leases
NZ IFRS 16 specifies how to recognise,
measure and disclose leases. The
standard provides a single lessee
accounting model, requiring lessees to
recognise right-of-use assets and lease
liabilities for almost all leases. Lessor
accounting remains similar to the current
standard. The standard is mandatory for
reporting periods beginning on or after
1 January 2019. This standard will be
adopted by the Group for the financial
year ending 30 June 2020 unless the
Group decides to early adopt.
A project team has been established
to determine the impact the new
requirements will have on the Group’s
reported results and accounting and
reporting systems. The work completed
to date has mainly focused around
developing a detailed understanding
of material lease arrangements. Note
29 provides a summary of the existing
operating leases as at 30 June 2018.
These leases primarily relate to land
and building leases for offices and
generation and distribution sites. Based
on preliminary work to date the majority
of the leases disclosed in note 29 meet
the definition of a lease and therefore
will be impacted by the new accounting
requirements.
The new accounting standard is expected
to have a material impact on the Group’s
financial statements, as currently
operating leases are only disclosed in
the notes to the financial statements (‘off
balance sheet’) whereas under the new
standard a right-of-use asset and a lease
liability will be recognised unless the
lease qualifies as a low-value or short-
term lease. This change will increase the
value of assets and liabilities recorded
on the balance sheet. The new standard
will also impact the income statement,
as operating lease expenses currently
disclosed in ‘other operating expenses’
(refer to note 5) will be replaced with
depreciation on the right-of-use assets
and interest expense on the lease
liabilities. The changes will also impact
the cash flow statement, resulting in an
increase in cash flows from operating and
a reduction in cash flows from investing
and financing activities. One of the key
judgement areas in applying the new
requirements relates to the assessment of
whether an option to extend or terminate
a lease contract will be exercised. This
is expected to have a material impact
on some of the leases. Until the analysis
is completed by the project team, the
impact of the new requirements is
unable to be reasonably estimated and
quantified.
All other standards, interpretations
and amendments approved but not
yet effective in the current year are not
applicable to the Group and, therefore,
have not been discussed.
2. Basis of accounting (continued)
3. Underlying EBITDAF and underlying earnings
Underlying EBITDAF and underlying
earnings are performance measures
that are not defined in New Zealand
Equivalents to International Financial
Reporting Standards (‘NZ IFRS’) and
therefore are considered to be non-
GAAP (Generally Accepted Accounting
Practice) performance measures. These
performance measures are used internally
to provide more insight into the operating
performance of the Group by adjusting
for items that are outside Management’s
control or items that relate to strategic
rather than operational decisions. These
measures should not be viewed in
isolation nor considered a substitute for
measures reported in accordance with
NZ IFRS. Underlying EBITDAF and
underlying earnings are used by many
companies, however, because these
measures are not defined by NZ IFRS
they may not be uniformly defined or
calculated by all companies. Accordingly,
these measures may not be comparable
with similarly titled measures used by
other companies.
The table below provides a reconciliation
of reported EBITDAF to underlying
EBITDAF, and reported net profit for the
period to underlying earnings for the
period. Significant items are excluded
from underlying EBITDAF and underlying
earnings when they meet the criteria
outlined in the Group’s non-GAAP
financial information policy.
Note
2018
$ million
2017
$ million
Earnings before net finance expense, income tax, depreciation, depletion,
amortisation, impairment, fair value changes and other gains and losses (EBITDAF)
360.5 332.5
Business acquisition costs
19
– 6.9
Adjustments before tax expense
– 6.9
Underlying EBITDAF
360.5 339.4
Business acquisition costs – the costs incurred to acquire an additional 15.0 per cent share of Kupe and Nova Energy’s retail LPG
business have been removed, as the costs relate specifically to the acquisition rather than the ongoing operations of the businesses
acquired.
Note
2018
$ million
2017
$ million
Net profit for the year
19.8 118.7
EBITDAF adjustments before tax outlined above
– 6.9
Change in fair value of financial instruments
7
3 .1 (22.6)
Revaluation of generation assets
16
48.8 (51.5)
Impairment of non-current assets
16
0.4 2.4
Adjustments before tax expense
52.3 (64.8)
Tax expense on adjustments
(14.6)20.1
Adjustments after tax expense
3 7. 7 (44.7)
Underlying earnings
5 7. 574.0
Underlying earnings per share (cents)
5.747.4 0
Change in fair value of financial instruments – these changes are excluded as the change in fair value often relates to circumstances
outside Management’s control and does not necessarily reflect the cash flows that will be received or paid when the arrangement is
settled.
Revaluation of generation assets – changes in generation assets are primarily driven by changes in future wholesale electricity prices
and volumes and changes in the discount rate. These changes are excluded as they relate to changes in future cash flows expected to
be obtained from the assets that are outside Management’s control. Changes in the fair value of generation assets is either recorded in
net profit or directly in the revaluation reserve depending on the carrying value of the assets. To provide a comparable basis of financial
performance over time, changes recognised in net profit are excluded from underlying earnings.
Impairment of non-current assets – impairment of non-current assets has been removed from underlying earnings on the basis that
impairments occur infrequently and usually relate to strategic decisions rather than operating activities.
Tax expense on adjustments – the tax impact of the adjustments noted above is adjusted to determine the underlying earnings for the
business excluding these transactions.
35
GENESIS ANNUAL REPORT 2018
34
GENESIS ANNUAL REPORT 2018
35
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Segment reporting
The Group is currently organised into four segments as follows:
SegmentActivity
CustomerSupply of energy (electricity, gas and LPG) and related services to end -users.
Wholesale
Supply of electricity to the wholesale electricity market and supply of gas, LPG and coal to wholesale
customers and the Customer segment and the sale and purchase of derivatives to fix the price of electricity.
Kupe
Exploration, development and production of gas and petroleum products. Supply of gas and LPG to the
Wholesale segment and supply of light oil.
Corporate
Head -office functions, including new generation investigation and development, fuel management,
information systems, human resources, finance, corporate relations, property management, legal and
corporate governance. Corporate revenue is made up of property rental and miscellaneous income.
The segments are based on the different products and services offered by the Group. No operating segments have been aggregated.
Year ended 30 June 2018
Note
Customer
$ million
Wholesale
$ million
Kupe
$ million
Corporate
$ million
Inter -segment
items
$ million
Total
$ million
Electricity revenue
1,232.8 1,147.9 – – (497.6)1,883. 1
Gas revenue
145.5 1 24.0 88.9 – ( 1 36.2)222.2
Petroleum revenue (including LPG)
63. 1 26.3 69.1 – ( 3 3.4)1 25. 1
Emission unit revenue from trading
– 43.7 – – – 43.7
Other revenue
12.2 1 6.8 0.6 0.8 – 30.4
Operating revenue
1 ,453.6 1,358.7 1 58.6 0.8 (667.2)2,304.5
Electricity purchase, transmission and distribution
(1 ,022. 1 )(603. 1 )– – 497.6 (1 ,1 27.6)
Gas purchase, transmission and distribution
(1 1 4.8)(1 58.3)– – 47.2 (225.9)
Petroleum production, marketing and distribution
(33.6)(26.3)( 38.7) – 3 3.4 (65.2)
Fuel consumed
– (267.6) – – 89.0 (1 78.6)
Employee benefits
5
(40.8)(27.8)(0. 1 )( 2 3 .1 ) – (9 1 .8)
Emission unit expenses from trading
– (42.0) – – – (42.0)
Other operating expenses
5
(1 32.5)( 55.6)(4.5)(20.3) – (2 1 2.9)
Operating expenses
(1,343.8)(1 ,1 80.7 )(43.3)(43.4)667.2 (1,944.0)
Earnings before net finance expense, income tax,
depreciation, depletion, amortisation, impairment, fair
value changes and other gains and losses (EBITDAF)
109.8 1 7 8.0 1 15.3 (42.6) – 360.5
Depreciation, depletion and amortisation
(14.9)(111.9)(66.6)( 1 2.3) – (205.7)
Impairment of non -current assets
(0.1 )( 0.3) – – – (0.4)
Revaluation of generation assets
– (48.8) – – – (48.8)
Change in fair value of financial instruments
– ( 2.2)( 1.5)0.6 – ( 3 .1 )
Other gains (losses)
(0.1 )( 0.6)0.3 (0.3) – (0.7)
Profit (loss) before net finance expense
and income tax
94.7 1 4.2 47.5 (54.6) – 101.8
Finance revenue
0.1 – 0. 1 0.8 – 1.0
Finance expense
(0.3)( 2.3)( 3.5)(69.2) – (75.3)
Profit (loss) before income tax
94.5 1 1 .9 44.1 (1 2 3.0) – 27.5
Other segment information
Capital expenditure
35.8 2 2.0 6.8 1 5.8 – 80.4
4. Segment reporting (continued)
Year ended 30 June 2017
Note
Customer
$ million
Wholesale
$ million
Kupe
$ million
Corporate
$ million
Inter-segment
items
$ million
Total
$ million
Electricity revenue
1,207.1 895.3 – – (486.6)1,615.8
Gas revenue
1 4 7. 6 129.8 68.7 – (113.3)232.8
Petroleum revenue (including LPG)
16.0 1 2.1 52.9 – (12.6)68.4
Emission unit revenue from trading
– 16.9 – – – 16.9
Other revenue
11.2 4.8 0.2 1.0 – 1 7. 2
Operating revenue
1,381.9 1,058.9 121.8 1.0 (612.5)1,951.1
Electricity purchase, transmission and distribution
(996.9)(385.3) – – 486.6 (895.6)
Gas purchase, transmission and distribution
(115.7)(175.3) – – 44.6 (246.4)
Petroleum production, marketing and distribution
(9.8)(1 0.1)(29.4) – 12.6 (36.7)
Fuel consumed
– (208.5) – – 68.7 (139.8)
Employee benefits
5
(28.6)(28.4)(0.2)(20.4) – ( 7 7. 6 )
Emission unit expenses from trading
– (16.3) – – – (16.3)
Other operating expenses
5
(121.3)(58.9)( 7. 8 )(18.2) – (206.2)
Operating expenses
(1,272.3)(882.8)(37.4)(38.6)612.5 (1,618.6)
Earnings before net finance expense, income tax,
depreciation, depletion, amortisation, impairment, fair
value changes and other gains and losses (EBITDAF)
109.6 1 76.1 84.4 (37.6) – 332.5
Depreciation, depletion and amortisation
(5.7)(110.5)(47.6)(10.8) – (174.6)
Impairment of non-current assets
(2.1)(0.2) – (0.1) – (2.4)
Revaluation of generation assets
– 51.5 – – – 51.5
Change in fair value of financial instruments
– 18.4 0.6 3.6 – 22.6
Other gains (losses)
– (0.7)(0.6)(0.3) – (1.6)
Profit (loss) before net finance expense
and income tax
101.8 134.6 36.8 (45.2) – 228.0
Finance revenue
0.2 – 0.1 1.3 – 1.6
Finance expense
(0.2)(2.5)(2.9)(56.5) – (62.1)
Profit (loss) before income tax
101.8 132.1 34.0 (100.4) – 167.5
Other segment information
Capital expenditure
16.6 16.6 5.4 8.2 – 46.8
Inter-segment revenue
Sales between segments is based on transfer prices developed in the context of long-term contracts. The electricity transfer price per
MWh charged between Wholesale and Customer was $78.97 (2017: $81.76). Inter-segment gas and petroleum revenue includes the
Group’s share of Kupe gas and LPG sales to Wholesale and gas and LPG on-sold from Wholesale to Customer.
Geographic information
All business segments operate within New Zealand.
Major customer information
The Group has no individual customers that account for 10.0 per cent or more of the Group’s external revenue (2017: none).
Other revenue
Other revenue for the Wholesale segment includes an amount in relation to the insurance claim for Tekapo B power station outage.
A portion of the insurance claim, $4.4 million, was received prior to year end.
37
GENESIS ANNUAL REPORT 2018
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GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Other operating expenses and employee benefits
Note
2018
$ million
2017
$ million
Operating expenses include:
Auditor's remuneration – audit of financial statements
Review fees for interim financial statements (Deloitte)
0. 1 0. 1
Audit fees for annual financial statements (Deloitte)
0.5 0.5
Directors' fees
0.9 0.9
Bad debts
8.0 8.4
Operating lease costs
8.7 7.8
Onerous contracts
(0.1 )1 .3
Business acquisition costs
19
– 6.9
Other operating expenses
194.8 1 80.3
Total other operating expenses
212.9 206.2
Employee benefits include:
Employee benefits expense – defined contributions
3.2 2.7
Employee termination expense
0.9 2.4
Other employee benefits
8 7. 7 72.5
Total employee benefits
91.8 7 7. 6
In addition to the services disclosed above, Deloitte completed the following work during the year: provision of secretarial services for
the Corporate Taxpayer Group (of which Genesis Energy is a member), scrutineers notice, trustee reporting and whistle blower hotline
service (2017: provision of secretarial services for the Corporate Taxpayer Group (of which Genesis Energy is a member), integration
support, scrutineers notice and trustee reporting). Total fees relating to other services was $0.031 million (2017: $0.090 million).
6. Depreciation, depletion and amortisation
Note
2018
$ million
2017
$ million
Depreciation of property, plant and equipment
16
118.3 114.3
Depreciation and depletion of oil and gas assets
17
61.5 45.1
Amortisation of intangibles (excluding amortisation of deferred customer acquisition costs)
18
25.9 15.2
205.7 174.6
Depreciation, depletion and amortisation has increased by $31.1 million in comparison to 2017. The increase is primarily driven by having
a full year’s depreciation on the assets acquired in the business acquisitions last year. For details of the assets acquired in the business
acquisitions refer to note 19.
7. Change in fair value of financial instruments
Note
2018
$ million
2017
$ million
Change in fair value of derivatives – gain (loss)
26
(16.4)3.5
Fair value interest rate risk adjustment on borrowings – gain (loss)
24
13.3 19.1
( 3 .1 )22.6
The change in the fair value of derivatives for the year mainly relates to the movement in the fair value of cross-currency interest
rate swaps (‘CCIRS’) ($14.4 million loss) and the movement in the fair value of electricity swaps and options ($2.2 million loss). The
movement in the fair value of the CCIRS relates to movements in interest and foreign exchange rates between 30 June 2017 and
balance date. The movement in the fair value of the CCIRS was offset by the change in the fair value interest rate risk adjustment on
the United States Private Placement (‘USPP’) ($14.1 million gain). The net impact on net profit of the CCIRS and USPP was $0.3 million
loss. The movement in the fair value of electricity swaps and options primarily reflects movements in the electricity price path between
either the date the contract was entered into, if it was a new contract in the current year, or 30 June 2017 and balance date.
8. Finance expense
Note
2018
$ million
2017
$ million
Interest on borrowings (excluding capital bonds)
43.5 43.2
Interest on capital bonds
25.8 13.4
Total interest on borrowings
69.3 56.6
Other interest and finance charges
0.6 0.4
Time value of money adjustments on provisions
25
5.9 5.4
75.8 62.4
Capitalised finance expenses
16
(0.5)(0.3)
75.3 62.1
Weighted average capitalisation rate
5.7%5.7%
Interest on borrowings, bank and facility fees and transaction costs are recognised in profit or loss over the period of the borrowings,
using the effective interest rate method, unless such costs relate to funding capital work in progress. Time value of money adjustments
on provisions are recognised in profit or loss up to the point the provision is used or released.
Finance expense on capital work in progress (qualifying assets) is capitalised during the construction period. The capitalisation rate
used to determine the amount of finance expense to be capitalised is based on the weighted average finance expenses incurred by the
Group.
9. Income tax
2018
$ million
2017
$ million
Current year
51.8 48.3
Under (over) provided in prior periods
1 .1 (0.3)
Total current tax
52.9 48.0
Current year
(43.5)0.6
Under (over) provided in prior periods
(1.7)0.2
Total deferred tax
(45.2)0.8
Income tax expense
7. 7 48.8
Reconciliation of income tax expense on pre-tax accounting profit to income tax expense
Profit before income tax
27.5 167.5
Income tax at 28%
7. 7 46.9
Tax effect of adjustments:
Under (over) provided in prior periods
(0.6)(0.1)
Non-deductible expenditure and other adjustments
0.6 2.0
Income tax expense
7. 7 48.8
Income tax is recognised in profit or loss unless it relates to other comprehensive income.
Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the end of
the reporting period, together with any unpaid tax or adjustment to tax payable in respect of previous years.
Deferred tax liabilityNote
Restated
property, plant
and equipment
$ million
Oil and gas
assets
$ million
Provisions
$ million
Restated
intangibles
$ million
Other
$ million
Restated
total
$ million
Balance as at 1 July 2016
479.0 66.3 (36.0)1.1 (26.1)484.3
Amount recognised in profit or loss
4.9 (9.1)(1.6)(1.0)7. 6 0.8
Amount recognised in other comprehensive income
5.5 – – – 8.2 13.7
Amount recognised through business acquisitions
19
5.5 52.4 (8.5)26.9 – 76.3
Balance as at 30 June 2017
494.9 109.6 (46.1)2 7. 0 (10.3)5 75.1
Amount recognised in profit or loss
(26.7)(16.6)1.2 (2.9)(0.2)(45.2)
Amount recognised in other comprehensive income
50.0 – – – (8.1)41.9
Balance as at 30 June 2018
518.2 93.0 (44.9)2 4 .1 (18.6)571.8
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GENESIS ANNUAL REPORT 2018
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39
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates
enacted or substantively enacted at the end of the reporting period.
10. Earnings per share
20182017
Numerator
Net profit for the year attributable to shareholders ($ million)
19.8 118.7
Denominator
Weighted average number of ordinary shares (million units)
1,001.7 1,000.0
Less weighted average number of Treasury shares (million units)
(0.8)(0.5)
Weighted average number of ordinary shares for basic
and diluted earnings per share calculation (million units)
1,000.9 999.5
Basic and diluted earnings per share (cents)
1.98 11.88
11. Dividends
20182017
Imputation$ million
Cents
per shareImputation$ million
Cents
per share
Dividends declared during the year
Previous year's final dividend
80%84.0 8.40 80%82.0 8.20
Current year's interim dividend
80%82.8 8.30 80%82.0 8.20
166.8 16.70 164.0 16.40
Dividends declared subsequent to balance date
Final dividend
80%86.7 8.60 80%84.0 8.40
Imputation credits
There are no imputation credits available for use as at 30 June 2018 (2017: nil), as the imputation account has a debit balance as of that
date. The Parent will fund the deficiency in its imputation credit account as is required by 31 March 2019.
12. Share capital
2018 2017
No. of shares
million$ million
No. of shares
million$ million
Issued capital
Balance as at 1 July
1,000.0 540.6 1,000.0 540.6
Shares issued under dividend reinvestment plan
8.5 1 9.1 – –
Balance as at 30 June
1,008.5 559.7 1,000.0 540.6
Treasury shares
Balance as at 1 July
(0.5)(0.9)(0.5)(0.9)
Shares acquired for long-term incentive
and talent retention plans
(0.4)(1 .1 ) – –
Balance as at 30 June
(0.9)(2.0)(0.5)(0.9)
Total share capital
1,007.6 5 5 7. 7 999.5 539.7
All shares are ordinary authorised, issued and fully paid shares. They all have equal voting rights and share equally in dividends and
any surplus on winding up. Treasury shares relate to shares held in trust for the long-term incentive plan (‘LTI’) and the employee talent
retention plan (‘TRP’) (refer to note 13).
In February 2018 the Parent established a dividend reinvestment plan (‘DRP’). Under the DRP shareholders can elect to receive the value
of their dividends, or a portion thereof, in additional shares. The price of the shares under the DRP are based on the average market
price prior to the issue date. The Board may choose to offer the shares to shareholders at a discounted price. If a discount is applied, it
will be announced at the same time as details of the dividend are announced.
Long-term incentive plan$
Number of
Options
The Group operates an LTI plan for senior executives. Under the
plan senior executives purchase shares at market value, funded by
interest-free loans from the Parent. The shares are held on trust
by the Trustee until the end of the vesting period. Dividends on
the shares during the vesting period are deducted from the loan
balance. If the shares vest, each executive is entitled to a cash
amount which, after deduction for tax, is equal to the outstanding
loan balance on day one for the shares that have vested. That cash
amount must be applied towards repayment of their loan balance
and the corresponding shares and dividends on the shares during
the vesting period are released to the executive.
Vesting of shares is dependent on continued employment
throughout the vesting period and achievement of certain
performance targets relating to total shareholder return ('TSR') in
comparison to the NZX50.
In the current financial year an updated plan commenced, with
an additional performance hurdle introduced to further enhance
alignment with shareholder interests. In the updated plan the
performance hurdles are a relative TSR hurdle compared against
industry peers, and an absolute TSR hurdle where the absolute
total shareholder return compares against the NZX and ASX.
In the event the performance targets are not met or if the
participant ceases to be employed by the Group other than for
qualifying reasons, no shares will vest and the shares will be
forfeited to the Trustee without compensation and the relevant
executive will receive no benefits under the plan (unless the Board
exercises its discretion to allow some or all of the shares to vest).
Balance at 1 July 2016
311,025
Granted during the year
638,850 312,118
Forfeited during the year
(221,043) (129,937)
Balance as at 30 June 2017
493,206
Granted during the year
874,340 363,010
Forfeited during the year
(113,980) (55,153)
Balance at 30 June 2018
801,063
2018
$ million
2017
$ million
Expense for the year
0.60.2
Grant datePerformance period
FY16*1 June 2015 - 30 June 2018
FY171 June 2016 - 30 June 2019
FY181 June 2017 - 30 June 2020
* The FY16 grant is 100 per cent vesting.
Talent Retention Plan$
Number of
Options
During the year the Group established the TRP. Under the plan the
Trust purchases shares that it holds on trust for the participants
until the end of the vesting period. Vesting of shares is dependent
on continued employment through the vesting period. There are
two different vesting periods, tranche one vests after two years
and tranche two after three years of continued employment from
the commencement date of the offer.
Balance as at 30 June 2017
–
Granted during the year
353,110 142,182
Balance at 30 June 2018
142,182
2018
$ million
2017
$ million
Expense for the year
0.1–
Employee share scheme$
Number of
Options
The Group operates an employee share scheme (‘ESS’). The ESS
allows employees to purchase shares and, subject to certain
conditions, receive award shares at no additional cost. Each year,
each eligible employee can choose an annual amount (from a
minimum of $250 to a maximum of $5,000) they wish to invest
from their after-tax pay. If the eligible employee remains employed
by Genesis Energy for the applicable qualification period (three
years), they will receive one free share (award share) for every
three purchased shares (for schemes up to 30 June 2017 one free
award share is given for every two purchased shares).
Granted during 2017
476,254 202,834
Granted during 2018
333,928 142,949
Vested during 2018
346,239 139,528
2018
$ million
2017
$ million
Expense for the year
0.3 0.3
The cost of the plans are recognised, together with a corresponding increase to the share-based payments reserve within equity,
over the period in which the performance and/or service conditions are fulfilled. The total amount to be expensed is based on the
Group’s best estimate of the number of equity instruments that will ultimately vest, taking into consideration the likelihood that service
conditions will be met, multiplied by the initial fair value of each option.
9. Income tax (continued)
13. Share-based payments
41
GENESIS ANNUAL REPORT 2018
40
GENESIS ANNUAL REPORT 2018
41
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Receivables and prepayments
2018
$ million
Restated
2017
$ million
Trade receivables
104.8 126.2
Accrued revenue
94.3 81.4
Allowance for doubtful receivables
(6.0)(7.1)
Deferred customer account credits
11.4 8.4
204.5 208.9
Emission units receivable
2.7 2.8
Other receivables
13.6 4.3
Prepayments
1 3 .1 12.7
To t a l
233.9 228.7
Current
229.1 225.2
Non-current
4.8 3.5
To t a l
233.9 228.7
Revenue is measured at the fair value of the consideration received or receivable net of prompt-payment discounts. Revenue is
recognised when the significant risks and rewards of ownership have passed or when the service has been rendered to the customer.
Trade receivables and accrued revenue are initially recognised at fair value and are subsequently measured at amortised cost less any
allowance for doubtful receivables. Trade receivables and accrued revenue, which are known to be uncollectable, are written off. An
allowance for doubtful receivables is established when there is objective evidence that the Group will not be able to collect amounts due.
The allowance for doubtful receivables is the difference between the carrying value and the estimated recoverable amount.
Account credits given to customers as incentives are included in the measurement of revenue and are spread over the length of the
average customer tenure where there is evidence that the return from the customer over the amortisation period is positive.
Emission units receivable from the sale of gas and LPG are accounted for in the period in which the sale is recognised.
15. Inventories
2018
$ million
2017
$ million
Fuel
39.7 42.3
Petroleum products
1 .1 1.1
Consumables and spare parts
27.5 2 7.1
Emission units held for trading
7. 3 9.3
To t a l
75.6 79.8
Current
70.3 79.8
Non-current
5.3 –
To t a l
75.6 79.8
Fuel, petroleum, consumables and spare parts are recognised at the lower of cost and net realisable value. Cost is determined using the
weighted average cost basis, which includes expenditure incurred in bringing the inventories to their present location and condition,
including shipping and handling. Net realisable value is the estimated selling price in the ordinary course of business less the estimated
costs necessary to make the sale.
Fuel inventories mainly consist of coal used in electricity production. The amount of fuel inventories (excluding natural gas) expensed
during the year was $43.6 million (2017: $15.5 million).
Petroleum products consist of LPG and light crude oil held for resale produced from the Kupe production facility. The amount of
petroleum products expensed during the year was $26.0 million (2017: $20.8 million).
Consumables and spare parts are held to service or repair generating assets. Consumables and spare parts relating to Huntly unit 6 are
impaired when incurred, as the fair value of this unit is nil.
Emission units held for trading purposes are initially measured at cost and are subsequently remeasured to their fair value. Changes in
the fair value are recognised immediately in profit or loss within other gains (losses).
16. Property, plant and equipment
Note
Generation
assets
$ million
Buildings and
improvements
$ million
Restated
other property,
plant and
equipment
$ million
Capital work
in progress
$ million
Restated
total
$ million
Carrying value at 1 July 2016
2,923.5 1.6 28.3 34.6 2,988.0
Additions
– – – 41.1 41.1
Additions acquired through business acquisitions
19
– – 34.9 4.3 39.2
Revaluation of generation assets
Increase taken to revaluation reserve
19.8–––19.8
Increase taken to profit or loss
51.5–––51.5
Capitalised finance expenses
8
– – – 0.3 0.3
Change in rehabilitation and contractual
arrangement assets
– – – 3.0 3.0
Transfer to (from) capital work in progress
16.4 (0.1)4.7 (2 1 .0) –
Transfer to intangible assets
18
– – – (22.2)(22.2)
Impairment
– – – (2.4)(2.4)
Depreciation expense
6
(107.3)(0.1)(6.9) – (1 14.3)
Carrying value at 30 June 2017
2,903.9 1.4 61.0 37.7 3,004.0
Additions
– – – 55.9 55.9
Revaluation of generation assets
Increase taken to revaluation reserve
178.7–––178.7
Decrease taken to profit or loss
(48.8)–––(48.8)
Capitalised finance expenses
8
– – – 0.5 0.5
Change in rehabilitation and contractual
arrangement assets
– – – (4.5)(4.5)
Transfer to (from) capital work in progress
5.5 – 12.7 ( 18.2) –
Transfer between categories
(2.6) – 2.6 – –
Transfer to intangible assets
18
– – – (14.2)(14.2)
Disposals
(0.8)(0.2)(0.3) – ( 1 .3)
Impairment
– – – (0.4)(0.4)
Depreciation expense
6
(109.0) – (9.3) – ( 1 1 8.3)
Carrying value at 30 June 2018
2,926.9 1.2 66.7 56.8 3,05 1.6
Summary of cost and accumulated depreciation
and impairment
Cost
– 2.1 150.4 40.1 192.6
Fair value
2,903.9 – – – 2,903.9
Accumulated depreciation and impairment
– (0.7)(89.4)(2.4)(92.5)
Carrying value at 30 June 2017
2,903.9 1.4 61.0 37.7 3,004.0
Cost
– 1.9 160.5 59.5 221.9
Fair value
2,926.9 – – – 2,926.9
Accumulated depreciation and impairment
– (0.7)(93.8)(2.7)(97.2)
Carrying value at 30 June 2018
2,926.9 1.2 66.7 56.8 3,051.6
Generation assets
Generation assets include land, buildings and plant and equipment associated with generation assets. Generation assets are recognised
in the balance sheet at their revalued amounts, being the fair value at the date of their revaluation, less any subsequent accumulated
depreciation and impairment losses. The underlying assumptions used in the revaluation are reviewed annually and revaluations are
performed with sufficient regularity, not exceeding five yearly, to ensure the carrying amount does not differ materially from that which
would be determined using fair values at the balance date.
43
GENESIS ANNUAL REPORT 2018
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GENESIS ANNUAL REPORT 2018
43
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. Property, plant and equipment (continued)
Any increase in the revaluation of individual generation assets is recognised in other comprehensive income, unless it reverses a
revaluation decrease for the same asset previously recognised in profit or loss, in which case it is recognised in profit or loss to the
extent of the decrease previously recognised in profit or loss. A decrease in carrying amount arising on the revaluation of individual
generation assets is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the asset revaluation reserve
relating to a previous revaluation of that asset. Any accumulated depreciation at the date of the revaluation is eliminated against the
gross carrying value of the asset so that the gross carrying amount after revaluation equals the revalued amount.
Subsequent additions to generation assets are recognised at cost. Cost includes the consideration given to acquire the asset plus
any other costs incurred in bringing the asset to the location and condition necessary for its intended use, including major inspection
costs, resource consent and relationship agreement costs. The cost of assets constructed includes the cost of all materials and direct
labour used in construction, resource consent costs, finance expenses and an appropriate proportion of applicable variable and fixed
overheads.
Total generation assets were revalued at 30 June 2018 to $2,926.9 million (2017: $2,903.9 million) resulting in a net gain on revaluation
of $129.9 million (2017: $71.3 million gain). The revaluation gain recognised in the revaluation reserve was principally driven by updated
long-term hydrology assumptions and updates in wholesale electricity prices. The revaluation decrease recognised in profit or loss was
primarily driven by lower wholesale electricity prices and generation volumes for Huntly units 1 to 4 offset by an assumed extension to
the operating life to 2030. The revaluation decrease was recognised in profit or loss, as there is no revaluation reserve on these assets.
Fair value of generation assets was determined using a discounted cash flow model. The valuation was based on the present value
of the estimated future cash flows of the assets. The valuation was prepared by Management. The valuation was determined by
generating scheme except for the Huntly site where it was calculated by type of unit (units 1 to 4, unit 5 and unit 6). Valuation of
generation assets requires significant judgement and therefore there is a range of reasonably possible assumptions that could be used
in estimating the fair value of these assets.
The wholesale electricity price path is the key driver of changes in the valuation of generation assets. Changes in the wholesale
electricity price path have a direct impact on generation volumes and operating costs. The wholesale electricity price path used in
the valuation model is an average of the internally and externally generated price paths. The price path is influenced by changes in
electricity demand, hydrology and new generation build. A material change in any one of these factors could result in a material change
to the price path and, therefore, the fair value of generation assets. The internally generated price path assumes national demand
growth based on the latest available industry information and Genesis Energy’s view of growth within various sectors of the economy.
Forecast hydrology is based on 83 years of historical hydrological inflow data, and new generation build assumptions are based
on public announcements made by market participants and an assessment on the wholesale electricity prices required to support
new generation build. The internally generated price path also assumes the ongoing operation of New Zealand Aluminium Smelters
Limited at Tiwai Point. Other key assumptions in the valuation include: the current regulatory environment (including the New Zealand
Emissions Trading Scheme) being maintained, projected operational and capital expenditure, generation capacity and estimates of the
lives of the assets. These factors are reviewed for reasonableness by management who are responsible for the price path used by the
business.
The significant unobservable inputs in the valuation model were:
Significant
unobservable inputsMethod of determinationSensitivity range
Impact on fair value
of generation assets
Interrelationships between
unobservable inputs
Wholesale electricity
price path
The wholesale electricity price path is
an average of the internally generated
price path and price paths published by
independent third parties. The wholesale
electricity price paths used to value
generation assets range from $75 per MWh
to $103 per MWh over the period from July
2018 to June 2027.
Plus/(minus) 10%$537 million to
($497 million)
Hydrological inflows
affect generation
volumes, as well as
wholesale electricity
prices.
Generation volumesIn-house modelling of the wholesale
electricity market. The generation volumes
used in the valuation range between 6,363
GWh and 7,035 GWh per annum over the
period from July 2018 to June 2027.
Plus/(minus) 10%$376 million to
($376 million)
Wholesale electricity
prices affect the amount
of generation.
Discount ratePre-tax equivalent discount rate of
10.4%.
Plus/(minus) 1%$541 million to
($400 million)
Discount rate is
independent of wholesale
electricity prices and
generation volumes.
The table below presents the carrying value of generation assets as if they were recognised on the historical cost basis:
Generation assets carried at historical cost
2018
$ million
2017
$ million
Cost
2,696.5 2,692.2
Accumulated depreciation and impairment
(1,111.0)(988.4)
Carrying value at 30 June
1,585.5 1,703.8
All other categories of property, plant and equipment
All other categories of property, plant and equipment, with the exception of land and capital work in progress, are recognised at cost
less accumulated depreciation and any accumulated impairment losses. Land and capital work in progress are not depreciated.
16. Property, plant and equipment (continued)
Impairment
Impairment of work in progress relates to a variety of small projects. Refer to note 4 for disclosure of impairment by segment. The
impairment in the prior year related to a variety of projects, the most significant being a partial impairment of the Energy Online billing
system.
Depreciation
For generation assets carried at fair value, their fair value, less any estimated residual value, is charged to profit or loss on a straight-line
basis over their estimated remaining useful lives. Where a generation asset’s remaining useful life changes, the depreciation charge
is adjusted prospectively. The estimated remaining useful lives of generation assets used in the depreciation calculation was up to 80
years.
For all other property, plant and equipment carried at cost, their cost, less any estimated residual value, is charged to profit or loss on a
straight-line basis over their estimated useful lives. The estimated useful lives of different classes of property, plant and equipment are
as follows:
Estimated useful lives
Buildings and improvements
10 to 50 years
Other plant and equipment
3 to 15 years
The estimated useful lives of assets are reviewed annually. An asset’s carrying amount is written down immediately to its recoverable
amount if the carrying amount is greater than its estimated recoverable amount.
The gain or loss on the disposal or retirement of an item of property, plant and equipment is determined as the difference between
the sale proceeds and the carrying amount of the asset. The gain or loss is recognised in profit or loss. Any balance attributable to the
disposed asset in the asset revaluation reserve is transferred to retained earnings.
17. Oil and gas assets
Note
Exploration
and evaluation
expenditure
$ million
Oil and gas
producing
assets
$ million
Other oil
and gas
assets
$ million
Capital work
in progress
$ million
Total
$ million
Carrying value at 1 July 2016
3.8 246.5 13.5 3.7 267.5
Additions
0.7 1.5 – 3.2 5.4
Additions acquired through business acquisitions
19
7. 7 188.2 6.4 2.8 205.1
Transfer to (from) capital work in progress
– 6.9 – (6.9) –
Change in rehabilitation asset
– 1.9 – – 1.9
Depreciation and depletion expense
6
– (44.2)(0.9) – (45.1)
Carrying value at 30 June 2017
12.2 400.8 19.0 2.8 434.8
Additions
0.2 2.1 – 4.5 6.8
Transfer to (from) capital work in progress
– 1.2 – (1.2) –
Change in rehabilitation asset
– (1.7) – – (1.7)
Depreciation and depletion expense
6
– (60.4)(1.1) – (61.5)
Carrying value at 30 June 2018
12.4 342.0 1 7. 9 6 .1 378.4
Summary of cost and accumulated depreciation,
depletion and impairment
Cost
30.7 755.1 25.1 2.8 813.7
Accumulated depreciation, depletion and impairment
(18.5)(354.3)(6.1) – (378.9)
Carrying value at 30 June 2017
12.2 400.8 19.0 2.8 434.8
Cost
30.9 756.7 25.1 6.1 818.8
Accumulated depreciation, depletion and impairment
(18.5)(414.7)(7.2) – (440.4)
Carrying value at 30 June 2018
12.4 342.0 1 7. 9 6 .1 378.4
Exploration and evaluation expenditure
All exploration and evaluation costs, including directly attributable overheads, general permit activity and geological and geophysical
costs, are expensed as incurred except for the costs of drilling exploration wells and the costs of acquiring new interests. The costs of
drilling exploration wells are initially capitalised pending the determination of the success of the wells. Costs are expensed immediately
where a well does not result in a successful discovery. Costs incurred before the Group has obtained the legal rights to explore an area
are expensed as incurred.
Exploration and evaluation expenditure assets are not amortised; instead, they are assessed annually for indicators of impairment.
Any impairment is recognised in profit or loss. Once commercial approval has been obtained for the development of a project, the
accumulated expenditure in relation to the project is transferred to oil and gas producing assets.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. Oil and gas assets (continued)
Oil and gas producing assets
Oil and gas producing assets include costs associated with the production station, platform and pipeline transferred from development
expenditure, mining licences and major inspection costs. Depletion of oil and gas producing assets, excluding major inspection costs,
is calculated on a unit-of-production basis using proved remaining reserves ('1P') estimated to be obtained from, or processed by, the
specific asset. The remaining reserves used to deplete oil and gas assets in the current year was based on the prior year reserves.
The change in reserve estimate disclosed in the table below for the current year relates to the change in reserve as at 30 June 2018,
whereas the change in reserve estimate for the prior year relates to the reserve as at 30 June 2016. As the change in reserves for the
current year was as at 30 June 2018 it impacts depletion expense in future years rather than in the current year, in accordance with
NZ IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which requires changes in estimates to be accounted for
prospectively.
Proved reserves ('1P') are the estimated quantities of oil and gas that geological and engineering data demonstrates with reasonable
certainty to be recoverable in future years from known reservoirs, under existing economic and operating conditions. Proved reserves
('1P') are defined as those that have a 90 per cent likelihood of being delivered. The proved reserves used to deplete the oil and gas
producing assets are reviewed annually. Because the geology of the Kupe oil and gas field subsurface cannot be examined directly, an
indirect technique, known as volumetrics, has been used to estimate the size and recoverability of the reserve. Reserve estimates are
reviewed annually. There are high levels of uncertainty in terms of accessibility of reserves through sealing faults and pressure support.
A reduction of 10 per cent in these reserves would impact depletion charges going forward by approximately $6.4 million per annum at
current production rates.
The table below presents the remaining Kupe oil and gas field reserves in peta joule equivalents ('PJe') of which the Group has a
46.0 per cent interest (2017: 46.0 per cent).
Proved reserves ('1P')
Proved and
probable reserves ('2P')
2018
PJe
2017
PJe
2018
PJe
2017
PJe
Opening remaining field reserves at 1 July
250.5 288.5 3 7 3 .1 387.9
Change in reserve estimate
(4.5)(2.9)14.2 20.3
Production
(36.2)(35.1)(36.2)(35.1)
Closing remaining field reserves at 30 June
209.8 250.5 3 5 1 .1 373.1
Developed
126.9 1 60.1 163.8 199.5
Undeveloped
82.9 90.4 187.3 173.6
Closing remaining field reserves at 30 June
209.8 250.5 3 5 1 .1 373.1
Total remaining field reserves by product type
Gas
148.5 175.6 255.9 269.6
LPG
31.9 37.1 55.3 56.5
Light oil
29.4 37.8 39.9 4 7. 0
Closing remaining field reserves at 30 June
209.8 250.5 3 5 1 .1 373.1
Further investment will be required to access the undeveloped field reserves disclosed above.
Other oil and gas assets
Other oil and gas assets include land, buildings, storage facilities, sales pipeline, motor vehicles and the ongoing costs of continuing to
develop reserves for production. The cost of other oil and gas assets, less any estimated residual value, is charged to profit or loss on a
straight-line basis over their estimated useful lives. The estimated useful lives of other oil and gas assets are as follows:
Estimated useful lives
Buildings
50 years
Storage facilities
25 years
Sales pipeline
25 years
Motor vehicles
5 years
18. Intangible assets
Note
Restated
goodwill
$ million
Software
$ million
Emission
units held
for own use
$ million
Restated
contractual
arrangements
$ million
Deferred
customer
acquisition
costs
$ million
Restated
total
$ million
Carrying value at 1 July 2016
102.6 1 7.4 10.7 3.9 3.9 138.5
Additions
– – 9.3 – 3.9 13.2
Transfer from property, plant and equipment
16
– 22.2 – – – 22.2
Disposed of or surrendered
– – (6.5)(0.5) – (7.0)
Amortisation expense
6
– (11.3) – (3.9) – (15.2)
Amortisation expense included in other
operating expenditure
– – – – (2.6)(2.6)
Additions acquired through business acquisitions
19
125.8 – – 96.6 – 222.4
Carrying value at 30 June 2017
228.4 28.3 13.5 96.1 5.2 371.5
Additions
– 1 7. 2 14.8 0.4 5.5 37.9
Transfer from property, plant and equipment
16
– 14.2 – – – 14.2
Disposed of or surrendered
– – (13.6) – (0.5)(14.1)
Amortisation expense
6
– (15.3) – (10.6) – (25.9)
Amortisation expense included in other
operating expenditure
– – – – (4.6)(4.6)
Carrying value at 30 June 2018
228.4 44.4 14.7 85.9 5.6 379.0
Summary of cost and accumulated
amortisation and impairment
Cost
228.4 163.2 13.5 110.5 8.7 524.3
Accumulated amortisation and impairment
– (134.9) – (14.4)(3.5)(152.8)
Carrying value at 30 June 2017
228.4 28.3 13.5 96.1 5.2 371.5
Current
– – 6.7 – – 6.7
Non-current
228.4 28.3 6.8 96.1 5.2 364.8
Carrying value at 30 June 2017
228.4 28.3 13.5 96.1 5.2 371.5
Cost
228.4 193.9 14.7 110.9 13.7 561.6
Accumulated amortisation and impairment
– (149.5) – (25.0)(8.1)(182.6)
Carrying value at 30 June 2018
228.4 44.4 14.7 85.9 5.6 379.0
Current
– – 14.7 – – 14.7
Non-current
228.4 44.4 – 85.9 5.6 364.3
Carrying value at 30 June 2018
228.4 44.4 14.7 85.9 5.6 379.0
Goodwill
Goodwill represents the excess of the cost of a business acquisition over the fair value of the Group’s share of the net identifiable
assets, liabilities and contingent liabilities at the date of acquisition. Goodwill is assessed as having an indefinite useful life and is not
amortised but is subject to impairment testing at each reporting date or whenever there are indications of impairment.
For the purpose of impairment testing, goodwill has been allocated to the following cash-generating units (‘CGU’):
Note
2018
$ million
Restated
2017
$ million
Customer – electricity and gas
102.6 102.6
Customer – LPG
19
112.6 112.6
Kupe
19
13.2 13.2
Total goodwill
228.4 228.4
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Customer – electricity and gas
The goodwill associated with the electricity and gas business was recognised in 2002 and 2003. The impairment test is based on
an estimated discounted cash flow analysis (value in use). Estimated future cash flow projections are based on the Group’s five-year
business plan for the CGU. Cash flows beyond the five-year business plan are extrapolated using a 1.0 per cent year-on-year growth
rate (2017: 1.0 per cent). The estimated future cash flow projections are discounted using a pre-tax equivalent discount rate of
10.4 per cent (2017: 10.4 per cent). Any reasonably possible change in key assumptions on which the recoverable amount is based is not
expected to cause the carrying value of the goodwill to exceed its recoverable amount.
Customer – LPG
The goodwill associated with LPG relates to the acquisition of the LPG business from Nova Energy on 1 June 2017 (refer to note
19). The impairment test is based on an estimated discounted cash flow analysis (fair value less disposal costs) using five years of
forecast information. Cash flows beyond the forecast period are based on an EBITDAF multiple of 7.5x. The estimated future cash
flow projections are discounted using a pre-tax equivalent discount rate of 10.4 per cent (2017: 10.6 per cent). The forecast takes into
consideration both the acquired business and the existing LPG business, as the assets of the acquired business are used to service the
pre-acquisition LPG customers. Any reasonably possible change in key assumptions on which the recoverable amount is based is not
expected to cause the carrying value of the goodwill to exceed its recoverable amount.
Key assumptions in the calculation were:
AssumptionsMethod of determination
Customer numbers and customer
churn
Review of actual customer numbers and historical data regarding movements in customer
numbers (the historical analysis is considered against expected market trends and
competition for customers).
Gross margin (electricity and gas)Review of actual gross margins and consideration of expected market movements and
impacts.
EBITDAF (LPG)Review of actual EBITDAF and consideration of expected market movements and impacts.
Cost to serve Review of actual costs to serve and consideration of expected future costs.
Kupe
The goodwill associated with Kupe relates to the acquisition of the Kupe subsidiaries from New Zealand Oil and Gas Limited (‘NZOG’)
on 1 January 2017 (refer to note 19). The impairment test is based on an estimated discounted cash flow analysis (value in use). The
estimated future cash flow projections are based on proved and probable reserve ('2P') estimate, as disclosed in note 17. The pre-tax
equivalent discount rate was 10.4 per cent (2017: 10.4 per cent). Any reasonably possible change in key assumptions on which the
recoverable amount is based is not expected to cause the carrying value of the goodwill to exceed its recoverable amount.
Software
Software are assets with finite lives. These assets are recognised at cost less accumulated amortisation and impairment losses.
Amortisation is charged to profit or loss on a straight-line basis over the estimated useful life of the asset from the date it is available for
use. The estimated useful life is between one and four years.
Emission units held for own use
Emission units held for own use are initially recognised at fair value. Fair value is cost, in the case of purchased units or the initial market
value, in the case of government-granted units. Emission units held for own use are used to settle the Group’s emission obligation and
are not revalued subsequent to initial recognition. They are assessed as having indefinite useful lives, as the units do not have an expiry
date. As a result there is no foreseeable limit to the period over which the units will be used. The units are not amortised but are subject
to annual impairment testing or whenever there are indicators of impairment.
Contractual arrangements
Contractual arrangements include customer contracts and relationships acquired through business acquisitions and sponsorship
contracts.
Customer contracts and relationships
Customer contracts and relationships are assets with finite lives. These assets are recognised at cost less accumulated amortisation
and impairment losses.
Amortisation of customer contracts and relationships related to Kupe are charged to profit or loss on a units-of-use basis, using proved
remaining reserves ('1P') expected to be obtained over the contract period. Remaining reserves used in the calculations range from
183.3 to 213.8 PJe (2017: 220.1 to 250.5 PJe). Refer to note 17 for further information on the reserves estimate.
Amortisation of customer contracts and relationships related to the LPG business are charged to profit or loss on a diminishing-value
basis over the estimated life of the contract or relationship. The useful life ranges between five and 50 years.
Sponsorship contracts
Sponsorship contracts are assets with finite lives. These assets are recognised at cost less accumulated amortisation and impairment
losses. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful life of the asset from the date it is
available for use. The useful life is based on the contract period, which ranges between one and eight years.
Deferred customer acquisition costs
Customer acquisition costs that are directly attributable to securing a particular customer contract, and meet the definition of an
intangible asset, are capitalised and amortised over the average customer tenure (30 months). Amortisation of the customer acquisition
costs is included within operating expenditure.
18. Intangible assets (continued)
The acquisition of a business is accounted for using the acquisition method. The consideration transferred is measured at fair value.
Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except for deferred
tax assets or liabilities and assets or liabilities related to employee benefit arrangements, which are recognised and measured in
accordance with the respective accounting standards for these balances.
If the initial accounting for a business acquisition during the period is incomplete at the reporting date, the Group reports provisional
amounts for the incomplete items. The provisional amounts are adjusted during the measurement period (no later than one year
from the acquisition date), or additional assets or liabilities are recognised, to reflect new information obtained about facts and
circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.
Kupe subsidiaries acquired
On 1 January 2017 Genesis Power Investments Limited acquired 100.0 per cent of the shares of three subsidiaries from NZOG that in
combination held a 15.0 per cent stake in the Kupe Joint Venture and 100.0 per cent of a subsidiary that has rights to royalty payments
associated with the Kupe field. The acquisition increased the Group’s holdings in the Kupe Joint Venture from 31.0 per cent to
46.0 per cent. The entities were acquired as a result of the Group’s strategy to create value by linking upstream fuel supply with
electricity generation and consumer energy needs. Refer to note 20 for a list of the entities acquired.
LPG business acquired
On 1 June 2017 the Parent acquired Nova Energy Limited’s LPG business. The business was acquired as a result of the Group’s strategy
to grow its LPG capability.
The accounting for the acquisition of the LPG business was prepared on a provisional basis at 30 June 2017. Owing to the timing of the
acquisition, the calculations of the fair values of property, plant and equipment, customer contracts and relationships and goodwill
were finalised during the six months ended 31 December 2017. A comparison between the provisional values assigned at 30 June 2017
and final values is provided below. The 30 June 2017 numbers within these financial statements have been restated to reflect the final
fair values. The changes below had no material impact to the income statement, as a result no change has been made to the net profit
reported for 30 June 2017.
Assets acquired and liabilities recognised
at the date of acquisition Note
Kupe
subsidiaries
$ million
Provisional
LPG
business
$ million
Total
provisional
value
$ million
Change to
LPG values
$ million
Final value
$ million
Cash and cash equivalents
6.3 – 6.3 – 6.3
Receivables
4.8 – 4.8 0.3 5.1
Inventories
2.2 0.3 2.5 – 2.5
Total current assets
13.3 0.3 13.6 0.3 13.9
Property, plant and equipment
16
– 31.9 31.9 7. 3 39.2
Oil and gas assets
17
205.1 – 205.1 – 205.1
Intangible assets
18
34.4 6 7. 9 102.3 (5.7)96.6
Total non-current assets
239.5 99.8 339.3 1.6 340.9
Total assets
252.8 1 00.1 352.9 1.9 354.8
Payables and accruals
10.3 2.0 12.3 0.1 12.4
Tax payable
0.3 – 0.3 – 0.3
Total current liabilities
10.6 2.0 12.6 0.1 12.7
Provisions
25
30.3 – 30.3 – 30.3
Deferred tax liability
9
53.4 22.5 75.9 0.4 76.3
Total non-current liabilities
83.7 22.5 106.2 0.4 106.6
Total liabilities
94.3 24.5 118.8 0.5 119.3
Net identifiable assets acquired
158.5 75.6 234.1 1.4 235.5
The fair value of the receivables acquired as a result of the acquisition has been disclosed above. The gross contracted amounts
receivable are the same as the fair values.
19. Business acquisitions
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Kupe subsidiaries
The fair value of the oil and gas assets associated with the Kupe subsidiaries was determined using a discounted cash flow model. The
valuation required significant judgement and therefore there was a range of reasonably possible assumptions that could have been
used in estimating the fair value of the assets.
The estimated field reserves and the gas price are the key inputs that have a material impact on the fair value. The estimated field
reserves used in the model were based on the Joint Venture Operator’s remaining proved and probable reserve (2P) estimate as at
1 January 2017. The gas price was based on the contracted gas price to 2024 and the estimated gas price from 2024 to the end of the
field life. Other inputs are based on past experience and best estimates of future expectations. The pre-tax equivalent discount rate
was 10.4 per cent.
LPG business
The fair value of the intangible assets associated with the LPG business was determined using a discounted cash flow model. The
valuation required significant judgement and therefore there was a range of reasonably possible assumptions that could have been
used in estimating the fair value of these assets.
Customer volume, customer churn and EBITDAF per tonne are the key factors that have a material impact on the fair value. Customer
volume was based on estimated volumes at the acquisition date, reduced by historical churn rates over a 50-year period. EBITDAF
per tonne was based on revenue and expenditure that was inflated using a constant inflation rate of 2.0 per cent. Key revenue and
expenditure inputs were the estimated volume and price of LPG purchased and sold, cost to deliver and cost to serve. The model was
based on a 50-year period using a pre-tax equivalent discount rate of 10.6 per cent.
Goodwill arising on acquisition
Note
Kupe
subsidiaries
$ million
Provisional
LPG
business
$ million
Total
provisional
value
$ million
Change to
LPG values
$ million
Final value
$ million
Purchase price
171.7 189.6 361.3 – 361.3
Less fair value of identifiable net assets acquired
(158.5)(75.6)(234.1)(1.4)(235.5)
18
13.2 114.0 127.2 (1.4)125.8
Kupe subsidiaries
Goodwill on the acquisition of the Kupe subsidiaries relates to strategic benefits that were unable to be separately recognised under
the current accounting requirements. The purchase price of the Kupe subsidiaries included amounts in relation to the benefits
expected to be obtained from having greater influence within the Joint Venture. The benefits were not recognised separately from
goodwill because they do not meet the recognition criteria for identifiable intangible assets.
LPG business
Goodwill on the acquisition of the LPG business relates to strategic benefits that were unable to be separately recognised under the
current accounting requirements. The purchase price of the LPG business included amounts in relation to the benefits expected to be
obtained from an integrated distribution network, which will result in a lower cost to serve, the ability to deliver LPG to a geographically
spread customer base and the ability to improve customer experience. The benefits were not recognised separately from goodwill
because they do not meet the recognition criteria for identifiable intangible assets.
None of the goodwill arising on acquisition will be deductible for tax purposes.
Net cash outflow on acquisition
Kupe
subsidiaries
$ million
Provisional
LPG
business
$ million
Total
provisional
value
$ million
Change to
LPG values
$ million
Final value
$ million
Consideration paid in cash
171.7 189.6 361.3 – 361.3
Less cash and cash equivalents acquired
(6.3) – (6.3) – (6.3)
165.4 189.6 355.0 – 355.0
19. Business acquisitions (continued)
Impact of the acquisition
on the prior year result
Pro-forma impact of the acquisition had it
taken place on 1 July 2016
Kupe
subsidiaries
$ million
LPG
business
$ million
Total
$ million
Kupe
subsidiaries
$ million
LPG
business
$ million
Total
$ million
Revenue
26.4 5.0 31.4 46.2 50.2 96.4
Earnings before net finance expense, income tax,
depreciation, depletion, amortisation, impairment, fair
value changes and other gains and losses (EBITDAF)
15.1 (2.2)12.9 36.3 14.7 51.0
Depreciation, depletion and amortisation
(15.4)(0.5)(15.9)(30.4)(5.9)(36.3)
Finance revenue
– – – 0.4 – 0.4
Finance expense
(4.2)(0.9)(5.1)(9.7)(11.6)(21.3)
Profit before income tax for the year
(4.5)(3.6)(8.1)(3.4)(2.8)(6.2)
Acquisition-related costs included in EBITDAF above2.7 4.2 6.9 2.7 4.2 6.9
In determining the ‘pro-forma’ revenue, EBITDAF and profit before income tax had the businesses been acquired at the beginning of the
year ended 30 June 2017, Management has:
– calculated depletion, depreciation and amortisation on the basis of the fair values arising in the initial accounting for the
business acquisition;
– calculated borrowing costs based on the interest rate of the loan taken as a result of the acquisition;
– included inter-segment sales and costs associated with these sales; and
– included acquisition-related costs expensed in profit or loss.
19. Business acquisitions (continued)
20. Investments in subsidiaries
During the year the Group established the Genesis Energy Talent Retention Plan Trust (the ‘Trust’) to administer the TRP plan. The Trust
has been consolidated into the Group on the basis that the Parent has determined how the Trust is designed and operated, the Parent
controls the financing and investing activities of the Trust and the Trust is dependent on funding from the Parent.
On 28 February 2018 Genesis Power Investments Limited, Kupe Holdings Limited, GP No. 5 Limited, National Petroleum Limited,
Petroleum Equities Limited, Nephrite Enterprises Limited and Kupe Royalties Limited were amalgamated into GP No. 2 Limited and
GP No. 2 Limited changed its name to Kupe Venture Limited.
Interest held
Name of entityPrincipal activityPlace of incorporation
2018
%
2017
%
Genesis Power Investments LimitedHolding company
New Zealand
-100
Kupe Holdings LimitedJoint venture holding company
New Zealand
-100
Kupe Venture Limited (previously GP No. 2 Limited)Joint venture holding company
New Zealand
100100
GP No. 5 LimitedJoint venture holding company
New Zealand
-100
National Petroleum Limited*Joint venture holding company
New Zealand
-100
Petroleum Equities Limited*Joint venture holding company
New Zealand
-100
Nephrite Enterprises Limited*Joint venture holding company
New Zealand
-100
Kupe Royalties Limited*Royalty holding company
New Zealand
-100
Genesis Energy Insurance Pte LimitedCaptive insurance company
Singapore
100100
Genesis Energy Talent Retention Plan TrustTrust
New Zealand
--
Genesis Energy Limited Executive Long-term
Incentive Plan Trust
Trust
New Zealand
--
All subsidiaries have 30 June balance dates.
* Subsidiaries acquired 1 January 2017. Refer to note 19.
21. Joint operations
The Group has a 46.0 per cent interest in the Kupe production facility and Petroleum Mining Permit 38146 held by the Kupe Joint
Venture (2017: 46.0 per cent). The principal activity of the Kupe Joint Venture is petroleum production and sales. The Joint Venture is
unincorporated and operates in New Zealand. The Group is considered to share joint control, based on the contractual arrangements
between the Group and other joint operators that state unanimous decision-making is required for relevant activities that most
significantly impact the returns of the joint operation.
The Joint Venture is classified as a joint operation under NZ IFRS 11 Joint Arrangements. The operating results of the Kupe Joint Venture
are included in the Kupe segment in note 4 and the Group’s share of capital expenditure commitments relating to joint operations is
disclosed in note 29. .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. Related party transactions
Majority shareholder and entities controlled by, and related to, the majority shareholder
The majority shareholder of the Parent is the Crown. The Parent and Group transact with Crown-controlled and related entities
independently and on an arm’s-length basis for the following goods and services: emission activities, including emission unit purchases
and sales, royalties, scientific consultancy services, electricity transmission, postal services and energy-related products (including
electricity derivatives). All transactions with Crown-controlled and related entities are based on commercial terms and conditions and
relevant market drivers.
The Group has five significant electricity swap and option contracts with Meridian Energy, a Crown-controlled entity. The electricity
swap and option contracts period and profile vary between the range of 12.5MW and 150MW, from the period 1 January 2011 to 31
December 2025.
During the year the Crown received $85.6 million dividends of which $75.8 million was paid in cash (2017: $84.0 million) and $9.8 million
was paid in shares (2017: $ nil). There were no other individually significant transactions with the Crown and Crown-controlled and
related entities during the year (2017: nil).
Other transactions with Crown-controlled and related entities, which are collectively but not individually significant, relate to the sale
of electricity derivatives. Approximately 51.9 per cent of the value of electricity derivative assets and approximately 40.9 per cent of the
value of electricity derivative liabilities held by the Group at year end are held with Crown-controlled and related entities (2017: 57.7 per
cent and 36.0 per cent respectively). The contracts expire at various times; the latest expiry date is June 2026.
Key management personnel compensation
The key management personnel of the Group consists of the Directors and the Executive Management team. Key management
personnel compensation is as follows:
Note
2018
$ million
2017
$ million
Short-term benefits
6.7 6.7
Post-employment benefits
0.2 0.2
Termination benefits
– 0.6
Share-based payments
13
0.6 0.2
Total key management personnel compensation
7. 5 7. 7
Other transactions with key management personnel or entities related to them
Key management personnel and their families may purchase gas, electricity and LPG from the Group on an arm’s-length basis and may
purchase shares in the Company. Key management personnel also participate in the LTI plan discussed in note 13. The total number
of shares held by key management personnel (excluding LTI shares) as at 30 June 2018 was 289,019 (2017: 275,556). During the year
dividends paid to key management personnel and their families was $48,967 (2017: $44,298). No other transactions took place between
key management personnel and the Group (2017: nil). As at 30 June 2018 the balance payable to key management personnel was nil
(2017: nil).
23. Payables and accruals
2018
$ million
Restated
2017
$ million
Trade payables and accruals
189.2 171.3
Employee benefits
7. 5 5.0
Emission obligations
9.8 4.7
To t a l
206.5 181.0
Current
205.7 180.3
Non-current
0.8 0.7
To t a l
206.5 181.0
Trade payables and accruals are recognised when the Group becomes obligated to make future payments resulting from the purchase
of goods or services, and are subsequently carried at amortised cost.
A liability for employee benefits (wages and salaries, annual and long-service leave and employee incentives) is recognised when
it is probable that settlement will be required and the amount is capable of being measured reliably. Provisions made in respect of
employee benefits are measured using the remuneration rate expected to apply at the time of settlement.
Emission obligations are recognised as a liability when the Group incurs the emission obligation. Emission units payable to third parties
are recognised at the average cost of emission units on hand up to the amount of emission units on hand at the recognition date. Where
the emission obligation exceeds the level of units on hand, the excess obligation over the units on hand is measured at the contract
price where forward contracts exist or the market price for any obligation not covered by units on hand or forward contracts.
24. Borrowings
2018
$ million
2017
$ million
Revolving credit and money market
187.5 196.7
Term loan facility
30.0 30.0
Wholesale term notes
292.8 292.8
Retail term notes
100.5 100.3
Capital bonds
426.0 424.4
USPP
218.6 215.6
To t a l
1,255.4 1,259.8
Current
210.0 11.0
Non-current
1,045.4 1,248.8
To t a l
1,255.4 1,259.8
The Group may redeem all or some of the capital bonds on a reset date or on any quarterly interest payment date after the first reset
date. The current portion of borrowings has increased by $199.0 million in comparison to the prior year due to the redemption of the
$200 million fixed rate subordinated capital bonds on 16 July 2018 which had an original maturity date of 15 July 2041. This debt was
replaced by $240 million of capital bonds issued on 16 July 2018, which mature in July 2048.
Reconciliation of change in liabilities arising from financing activitiesNote
2018
$ million
2017
$ million
Opening balance
1,259.8 912.2
Proceeds from borrowings
– 501.0
Repayment of borrowings
(9.0)(125.0)
Capitalised issue costs
– (4.1)
Non-cash changes
Change in foreign exchange on USPP
16.8 (5.5)
Change in fair value interest rate risk adjustment
7
(13.3)(19.1)
Amortisation of capitalised issue costs
1.0 0.3
Change in accrued interest
0.1 –
Closing balance
1,255.4 1,259.8
Borrowings are initially recognised at fair value, net of transaction costs incurred and are subsequently measured at amortised cost.
Borrowings designated in a hedge relationship are carried at amortised cost adjusted for the change in the fair value of the hedged
risk. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the
period of the borrowings, using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the balance date.
2018
$ million
2017
$ million
Revolving credit and money market
Revolving credit drawn down
1 8 7. 0 196.0
Accrued interest
0.5 0.7
Total revolving credit and money market
187.5 196.7
Revolving credit
Expiring FY18
– 1.0
Expiring FY19
– 65.0
Expiring FY20
220.0 155.0
Expiring FY21
110.0 110.0
Expiring FY22
50.0 50.0
Expiring FY23
75.0 75.0
Total available revolving credit facilities
455.0 456.0
Revolving credit drawn down (excluding accrued interest)
1 8 7. 0 196.0
Total undrawn revolving credit facilities
268.0 260.0
53
GENESIS ANNUAL REPORT 2018
52
GENESIS ANNUAL REPORT 2018
53
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2018
$ million
2017
$ million
Term loan facility
Expiring FY24
30.0 30.0
Total term loan facility
30.0 30.0
Wholesale term notes
Expiring FY20
120.0 120.0
Expiring FY23
70.0 70.0
Expiring FY25
100.0 100.0
Accrued interest
3.3 3.3
Capitalised issue costs
(0.5)(0.5)
Total wholesale term notes
292.8 292.8
Retail term notes
Expiring FY22
100.0 100.0
Accrued interest
1.2 1.2
Capitalised issue costs
(0.7)(0.9)
Total retail term notes
100.5 100.3
Capital bonds
Expiring FY19 (the expiry prior to the redemption notice being issued was FY42)
200.0 –
Expiring FY42
– 200.0
Expiring FY47
225.0 225.0
Fair value interest rate risk adjustment
0.8 –
Accrued interest
3.4 3.3
Capitalised issue costs
(3.2)(3.9)
Total capital bonds
426.0 424.4
On 9 June 2017 the Parent issued fixed rate subordinated capital bonds totalling $225.0 million. The capital bonds pay a quarterly
coupon of 5.7 per cent per annum, which is reset every five years. The interest rate, including amortisation of issue costs, is currently 6.1
per cent per annum. The bonds were issued through a public offer and mature on 9 June 2047.
On the first reset date and every five years thereafter, the interest rate resets to be the sum of the five-year swap rate on the relevant
reset date plus the step-up margin of 0.25 per cent per annum plus a margin of 2.75 per cent per annum for the June 2047 capital bonds
and 2.01 per cent per annum for the July 2048 capital bonds issued on 16 July 2018. The July 2048 bonds replaced the 15 July 2041
bonds. The first reset date for the June 2047 capital bonds is 9 June 2022 and the first reset date for the July 2048 capital bonds is 16
July 2023. Redemptions on a reset date are at par; redemptions on a quarterly interest payment date must be at the greater of par or
market value. Issue costs are amortised over five years to the first reset date.
2018
$ million
2017
$ million
USPP
Expiring FY26
73.9 68.3
Expiring FY27
1 4 7. 8 136.6
Fair value interest rate risk adjustment
(5.4)8.7
Accrued interest
3.0 2.8
Capitalised issue costs
(0.7)(0.8)
Total USPP
218.6 215.6
During the 2015 financial year the Group issued $150.0 million United States dollar-denominated unsecured notes to United States-
based institutional investors. A Note Purchase Agreement (‘NPA’) was signed on 25 November 2014. CCIRS have been used to manage
foreign exchange and interest rate risks on the notes (refer to note 26 for further information on CCIRS). The USPP is measured at
amortised cost adjusted for the change in fair value associated with the hedged risks, in accordance with the Group’s accounting
policy. While the New Zealand dollar amount required to repay the USPP in 2026 and 2027 is fixed as a result of the CCIRS, the USPP
is required to be translated to New Zealand dollars at the spot rate at the reporting date, in accordance with NZ IFRS. Any increase/
decrease in the carrying value of the USPP as a result of this translation is offset by the movement in the fair value of the CCIRS
disclosed in note 26.
Security
All of the Group’s borrowings are unsecured. The Group borrows under a negative pledge arrangement, which does not permit the
Group to grant any security interest over its assets, unless it is an exception permitted within the negative pledge.
24. Borrowings (continued)25. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that
the Group will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount
recognised as the provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting
period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Rehabilitation and restoration
The rehabilitation and restoration provision relates to a number of provisions for the rehabilitation of generation sites and Kupe. The
key provisions are the Huntly ash ponds and the Kupe production facility. These sites require remediation as a result of past and present
operations. Different methods and techniques can be used to remediate the sites. The provision represents the present value of the
Group’s best estimate of future expenditure to be incurred, based on the Group’s assessment of the most appropriate methods to
remediate the sites at balance date. Key assumptions include: an estimate of when the rehabilitation and restoration is likely to take
place, the possible remediation alternatives available, the expected expenditures attached to each alternative and the foreign currency
exchange rate at balance date.
There is no financial provision for the remediation of the Huntly generation site because the Group has the right to lease the site in
perpetuity. There is no fixed or planned termination date for the Huntly lease and the site remains a key electricity generation site
for the Group. The lease of the site is independent of decisions around the retirement of Huntly units 1 to 4, which are planned to be
available to the electricity market until such time they are uneconomic to run. There may be costs and recoveries associated with
retiring Huntly units 1 to 4 but these cannot be reliably estimated at this time.
The key assumption that could have a material impact on the Huntly ash ponds rehabilitation estimate relates to the extent of
rehabilitation work required. The current assumption is that all the ash would be removed from the ponds but if some of the ash were
capped in situ, the provision could decrease by $7.1 million. The rehabilitation work on the ash ponds is estimated to be completed
within the next 11 years.
The key assumptions that could have a material impact on the Kupe production facility rehabilitation estimate relates to foreign
exchange rates, scrap steel prices, labour rates, concrete removal costs, offshore supply vessel and jack-up rig rates and associated
mobilisation and demobilisation costs. The majority of costs are based in United States dollars and, therefore, are sensitive to
fluctuations in foreign exchange rates. Given the equipment required to complete the rehabilitation comes from overseas, the
mobilisation and demobilisation costs can fluctuate significantly depending on the volume of other work the contractor has at the time
the rehabilitation is required to be completed. If the foreign exchange rate were to decrease by 10 per cent and if the transportation
costs for the mobilisation and demobilisation were unable to be shared with other entities, the provision would increase by
$28.8 million. Also affecting the provision are regulations around the removal of the sub-sea pipeline. Currently, there are no regulations
around this and, as such, the provision assumes the sub-sea pipeline will be flushed and left in situ. The rehabilitation is estimated to be
completed in approximately 12 years.
Contractual arrangements
Contractual arrangements provisions relate to relationship and sponsorship agreements with various parties. The provision represents
the present value of the best estimate of cash flows required to settle the Group’s obligations under the agreements. The timing of the
outflows is expected to occur over the next 21 years.
Other provisions
Other provisions represent the onerous contracts provision associated with changes to contractual arrangements and other minor
provisions. The onerous contracts provision relates to onerous lease agreements associated with coal importation. The provision is
based on the cash flows associated with the contracts. The timing of the outflows is expected to occur over the next two years.
Note
Rehabilitation
and restoration
$ million
Contractual
arrangements
$ million
Other
provisions
$ million
Total
$ million
Balance at 1 July 2016
75.7 56.0 6.8 138.5
Provisions made during the year
5.5 2.0 1.2 8.7
Provisions reversed during the year
(2.2) – – (2.2)
Provisions used during the year
(2.3)(3.5)(2.3)(8.1)
Time value of money adjustment
8
3.3 1.9 0.2 5.4
Additional amounts acquired through business acquisitions
19
30.3 – – 30.3
Balance at 30 June 2017
110.3 56.4 5.9 172.6
Provisions made during the year
0.2 0.3 0.1 0.6
Provisions reversed during the year
(2.3)(3.3)(0.1)(5.7)
Provisions used during the year
(0.4)(5.1)(1.8)(7.3)
Time value of money adjustment
8
4.0 1.8 0.1 5.9
Balance at 30 June 2018
111.8 5 0.1 4.2 1 6 6 .1
Current
3.8 8.2 1.7 13.7
Non-current
106.5 48.2 4.2 158.9
As at 30 June 2017
110.3 56.4 5.9 172.6
Current
1.3 6.6 2.2 1 0.1
Non-current
110.5 43.5 2.0 156.0
As at 30 June 2018
111.8 5 0.1 4.2 1 6 6 .1
55
GENESIS ANNUAL REPORT 2018
54
GENESIS ANNUAL REPORT 2018
55
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26. Derivatives
The Group’s activities expose it to a variety of financial risks: market risk (including price risk, currency risk and interest rate risk), credit
risk and liquidity risk. The Group uses the following derivatives to hedge its financial risk exposures:
– Interest rate swaps
– Foreign exchange swaps
– Electricity swaps and options
– Oil swaps
– CCIRS
– Forward sale-and-purchase agreements of emission units held for trading.
The Group also enters into electricity derivatives with wholesale electricity market participants, which allows them to hedge wholesale
electricity market exposures.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to
their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged.
For the purpose of hedge accounting, hedges are classified as:
– cash flow hedges where the Group hedges the exposure to variability in cash flows that is attributable either to a particular risk
associated with a recognised asset or liability or to a highly probable forecast transaction; or
– fair value hedges where the Group hedges the exposure to changes in fair value of a recognised asset or liability.
The Group documents, at the inception of the transaction, the relationship between the hedging instruments and hedged items, as well
as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been, and will
continue to be, highly effective in offsetting changes in fair values or cash flows of hedged items.
Forward sale-and-purchase agreements in relation to emission units held for trading do not meet the ‘own use’ exemption and,
therefore, meet the definition of a derivative. These contracts are initially recognised at fair value on the date the contract is entered
into and are subsequently remeasured to their fair value. Changes in the fair value are recognised immediately in profit or loss.
Derivatives designated in a cash flow hedge relationship
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised
in other comprehensive income and accumulate in the cash flow hedge reserve. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss.
Amounts accumulated in other comprehensive income are reclassified to profit or loss in the period when the hedged item will affect
the profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example,
inventory) or liability, the gains and losses previously deferred in the cash flow hedge reserve are reclassified from the cash flow hedge
reserve and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, terminated or exercised, or when a hedge no longer meets the criteria for hedge
accounting, the cumulative gain or loss at that time remains in the cash flow hedge reserve and is reclassified to profit or loss when the
transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gain or loss recognised in the cash flow
hedge reserve is reclassified immediately to profit or loss.
The margin and basis component of the CCIRS is designated as a cash flow hedge of the margin and basis component of the USPP
notes. The interest rate risk associated with interest on New Zealand dollar borrowings is hedged using interest rate swaps. Foreign
currency risk associated with future foreign currency cash flows is hedged using forward exchange derivatives. Electricity and oil
derivatives are used to manage price risk associated with spot market exposures.
Derivatives designated in a fair value hedge relationship
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with
any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The USPP and a portion of the capital bonds are designated in a fair value hedge relationship. CCIRS are used to swap the United
States-dollar principal, and fixed coupon obligations related to the notes, to New Zealand-dollar floating rate exposure. Interest rate
swaps are used to convert the fixed coupons on capital bonds to floating rates.
Derivatives that do not qualify for hedge accounting
Changes in the fair value of any derivatives that do not qualify for hedge accounting are recognised immediately in profit or loss.
Net carrying value of derivatives
2018
$ million
2017
$ million
Derivatives designated in a cash flow hedge relationship
Foreign exchange swaps
(0.4)3.6
Interest rate swaps
(25.6)(22.0)
Electricity swaps
(15.9)(9.4)
Oil swaps
(16.6)5.3
CCIRS
25.7 7. 9
Derivatives designated in a fair value hedge relationship
Interest rate swaps
0.8 –
CCIRS
(5.3)5.6
Derivatives not designated as hedges
Interest rate swaps
( 2 .1 )(2.9)
Electricity swaps and options
27.2 29.2
Oil swaps
0.8 –
Forward sale-and-purchase agreements of emission units held for trading
(Forward 'S&P' agreements)
– 0.1
To t a l
(11.4)1 7.4
Carrying value of derivatives by balance sheet classification
Current assets
24.8 26.4
Non-current assets
3 7. 5 39.9
Current liabilities
(36.8)(23.2)
Non-current liabilities
(36.9)(25.7)
To t a l
(11.4)1 7.4
Derivatives that are settled within 12 months are treated as current.
Change in carrying value of derivativesNote
Other*
$ million
CCIRS
$ million
Oil swaps
$ million
Interest
rate swaps
$ million
Electricity
swaps and
options
$ million
Total
$ million
Balance as at 1 July 2016
3.2 35.4 3.9 (36. 1 )( 17.9)(1 1.5)
Total change recognised in revenue
– – (0.2) – 21.2 2 1.0
Net change in derivatives not designated as hedges0.1––1.618.019. 7
Net change in fair value hedges
– (17.7) – (0.5) –
(18.2)
Ineffective gain (loss) on cash flow hedges
0. 2 1.1 0.5 – 0.2
2.0
Total change recognised in the change in fair value
of financial instruments
7
0.3 (16.6)0.5 1.1 18.2
3.5
Gain (loss) recognised in other comprehensive income
0. 8 (6.5)(3. 1)16.4 28.2
35.8
Settlements
( 0.6 )1.24.0(6.3)(9.6)
( 1 1.3)
Sales (option fees)
–– – –(20.3)(20.3)
Purchases (option fees)
– – 0.2 – –
0.2
Balance as at 30 June 2017
3.7 13.5 5.3 (24.9) 19.8
1 7.4
Total change recognised in revenue
–– – –20.1
20. 1
Net change in derivatives not designated as hedges
– – 0.9 0.8 (2.0)(0.3)
Net change in fair value hedges
– ( 13.3) – 0.8 – (12.5)
Ineffective gain (loss) on cash flow hedges
(0.2)(1.1)(2. 1) – (0.2)(3.6)
Total change recognised in the change in fair value
of financial instruments
7
(0.2)(14.4)( 1.2)1.6 (2.2)(16.4)
Gain (loss) recognised in other comprehensive income
( 2.7 )20. 1 (14.0)2.9 29.8 36. 1
Settlements
( 1 .2)1.2 (5.9)(6.5)(36.2)(48.6)
Sales (option fees)
– – – – (20.0)(20.0)
Balance as at 30 June 2018
(0.4) 20.4 (15.8) (26.9)11.3 (1 1.4)
*Other includes Forward ‘S&P’ agreements, and foreign exchange swaps.
26. Derivatives (continued)
57
GENESIS ANNUAL REPORT 2018
56
GENESIS ANNUAL REPORT 2018
57
GENESIS ANNUAL REPORT 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of movements in the cash flow hedge reserve
Foreign
exchange
swaps
$ million
CCIRS
$ million
Oil swaps
$ million
Interest
rate swaps
$ million
Electricity
swaps
$ million
Total
$ million
Balance as at 1 July 2016
2.4 (5.3)2.6 (23.0)(20.5)(43.8)
Total reclassified from the cash flow hedge reserve to profit or loss
(1.2)6.7 4.0 (6.3)(9.6)(6.4)
Effective gain (loss) on cash flow hedges recognised directly in the
cash flow hedge reserve
0.8 (6.5)(3.1)16.4 28.2 35.8
Total change in cash flow hedge reserve
(0.4)0.2 0.9 1 0.1 18.6 29.4
Income tax on change in cash flow hedge reserve
0.1 (0.1)(0.3)(2.7)(5.2)(8.2)
Balance as at 30 June 2017
2.1 (5.2)3.2 (15.6)( 7.1 )(22.6)
Total reclassified from the cash flow hedge reserve to profit or loss
(0.5)(15.7)(5.9)(6.6)(36.2)(64.9)
Effective gain (loss) on cash flow hedges recognised directly in the
cash flow hedge reserve
(2.7)20.1 (14.0)2.9 29.8 36.1
Total change in cash flow hedge reserve
(3.2)4.4 (19.9)(3.7)(6.4)(28.8)
Income tax on change in cash flow hedge reserve
0.9 (1.2)5.6 1.0 1.8 8.1
Balance as at 30 June 2018
(0.2)(2.0)(1 1 .1 )(18.3)(11.7)(43.3)
The gain (loss) on interest rate swaps and CCIRS is recognised in finance expenses, the gain (loss) on foreign exchange swaps is
recognised in other operating expenses and gas revenue, the gain (loss) on electricity swaps and options is recognised in electricity
revenue and the gain (loss) on oil swaps is recognised in petroleum revenue in the profit or loss.
27. Financial instruments and financial risk management
Financial instruments
For financial reporting purposes the Group designates its financial instruments into the following categories:
Loans and receivables
– Cash and cash equivalents
– Receivables
Financial instruments in a hedge relationship
– Foreign exchange swaps
– Interest rate swaps
– Electricity swaps
– Oil swaps
– CCIRS
Financial instruments held for trading (derivatives not in a hedge relationship)
– Interest rate swaps
– Electricity swaps and options
– Oil swaps
– Forward sale-and-purchase agreements of emission units held for trading
Financial liabilities measured at amortised cost
– Payables
– Borrowings
Risk management
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise financial risk
to the Group. The Board has established policies that provide an overall risk management framework, as well as policies covering specific
areas, such as electricity and oil price risk, foreign exchange risk, interest rate risk, credit risk, use of derivatives and the investment of excess
liquidity. Interest rate, foreign exchange and oil price exposures are managed by the central Treasury function (‘Treasury’) and electricity
exposures are managed by the portfolio management function, with oversight by the risk management function (‘Risk’). Treasury and Risk
identify, evaluate and hedge financial risks in close cooperation with the Group’s operating units. Compliance with policies and exposure
limits is monitored by Risk and independently reviewed by the Group’s internal auditor.
Price risk
The Group is exposed to movements in the spot price of electricity arising through the sale and purchase of electricity to and from the
market. The Group is also exposed to movements in the spot price of light crude oil arising from sales of its share of oil from the Kupe
production facility. The Group has limited exposure to changes in the sale price for gas and LPG, as most of the volume is forward sold.
Electricity sales and purchases
The Group manages price risk in relation to electricity sales and purchases by entering into electricity swaps and options. Electricity
swaps and options are either traded on the ASX or negotiated bilaterally with other energy companies and major customers. Electricity
options are entered into as needs are identified and as counterparties seek to hedge their electricity purchase exposure. At balance
date the Group had electricity option contracts giving counterparties the right to exercise call options and electricity cap contracts.
The aggregate notional face value of the outstanding electricity swaps and options at balance date was $1,073.8 million (2017:
$1,213.2 million).
26. Derivatives (continued)
Light crude oil sales
The Group manages price risk in respect of oil sales by entering into price swap contracts that provide a fixed price for future oil sales.
The Group’s Treasury policy sets minimum and maximum control limits ranging from between 50 per cent and 90 per cent for the first
12 months to between 25 per cent and 75 per cent for months 13 to 24.
The aggregate notional value of the outstanding oil swaps at balance date was 37.8 million United States dollars (2017: 39.5 million
United States dollars).
The value of electricity and oil swaps are sensitive to changes in forward prices, and oil swaps are also sensitive to movements in
foreign exchange rates. The following table summarises the impact an increase/decrease in these forward-pricing assumptions would
have on the Group’s post-tax profit or loss for the year and on the Group’s cash flow hedge reserve using year-end exposures. The
sensitivity analysis is based on the assumption that the relevant market prices (future electricity and oil price paths) had increased/
decreased by 10 per cent with all other variables held constant. A positive number represents an increase in profit or the cash flow
hedge reserve.
There have been no changes in the methods and assumptions used in the sensitivity calculations from the previous year.
2018
$ million
2017
$ million
Electricity swaps and options
Post-tax impact on profit or loss
+10%
(6 .1 )(8.8)
–10%
4.2 3.6
Post-tax impact on cash flow hedge reserve (equity)
+10%
(2.9)(0.7)
–10%
2.9 0.6
Oil swaps
Post-tax impact on profit or loss
+10%
(0.1 )(0.9)
–10%
0.1 0.9
Post-tax impact on cash flow hedge reserve (equity)
+10%
(5.0)(2.5)
–10%
5.0 2.5
Foreign currency risk
The Group is exposed to foreign currency risk as a result of capital and operational transactions and borrowings denominated in a
currency other than the Group’s functional currency (including the purchase and maintenance of capital equipment and the sale of gas
and petroleum). The currencies giving rise to this risk are primarily the United States dollar and Japanese yen.
The Group uses foreign exchange swaps to manage foreign exchange risk on capital and operational transactions. All significant
capital project commitments and all capital purchase orders where exposure and currency levels are confirmed are hedged. All sales,
operational commitments and purchase orders denominated in foreign currency over the equivalent of $500,000 New Zealand dollars
are also hedged, in accordance with the Group’s Treasury policy. For ongoing operating commitments the equivalent of at least the
next 12 months’ exposure must be hedged. For the currency exposure arising from the sale of oil and gas, the policy sets minimum and
maximum control limits ranging between 50 per cent and 90 per cent for the first 12 months to between 25 per cent and 75 per cent for
months 13 to 24 and zero per cent to 50 per cent for months 25 to 36.
The Group uses CCIRS to manage foreign exchange risk on overseas borrowings. All interest and principal repayments are hedged.
The combination of the foreign-denominated debt and CCIRS results in a net exposure to New Zealand floating interest rates and
a fixed New Zealand-denominated principal repayment. The New Zealand floating interest rate risk is managed using the process
described in the interest rate risk section below.
The following table details the foreign exchange swaps outstanding at balance date. A positive number represents a buy contract and a
negative number represents a sell contract.
Foreign amount Face value Fair value
Currency of contract
2018
million
2017
million
2018
$ million
2017
$ million
2018
$ million
2017
$ million
Foreign exchange swaps
United States dollar
(29.9)(40.0)(43.4)(59.2)(0.6)4.1
Japanese yen
738.3 530.0 9.7 7. 0 0.3 (0.5)
CCIRS
United States dollar
150.0 150.0 193.2 193.2 20.3 13.5
159.5 141.0 20.0 1 7.1
27 . Financial instruments and financial risk management (continued)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The values of foreign exchange swaps and CCIRS are sensitive to changes in the forward prices of currencies. Foreign currency borrowings
are fully hedged against movements in foreign currencies. Any movements in the value of borrowings, or in the interest payable owing to a
movement in the exchange rate, are offset by equal and opposite movements in the value and cash flows applicable to the hedge.
The table below summarises the impact an increase/decrease in foreign exchange rates would have on the Group’s post-tax profit or loss for
the year and on the Group’s cash flow hedge reserve based on year-end exposures. The sensitivity analysis is based on the assumption that
the New Zealand dollar had weakened/strengthened by 10 per cent against the currencies with which the Group has foreign currency risk,
with all other variables held constant. A positive number represents an increase in profit or the cash flow hedge reserve.
There have been no changes in the methods and assumptions used in the sensitivity calculations from the previous year.
Currency of contract% change in rate
2018
$ million
2017
$ million
Post-tax impact on cash flow hedge reserve (equity)
United States dollar
+10%
2.8 3.5
–10%
(3.4)(4.3)
Japanese yen
+10%
(0.6)(0.4)
–10%
0.8 0.5
Total foreign exchange swaps
+10%
2.2 3.1
Total foreign exchange swaps
–10%
(2.6)(3.8)
Interest rate risk
The Group is exposed to interest rate risk because the Parent borrows funds at both fixed and floating interest rates. The Group uses interest
rate swaps to manage interest rate risk. The Group’s policy sets maximum and minimum control limits for fixed interest rate exposure. These
range from between 50 per cent and 100 per cent of projected debt with an age profile of less than one year to a maximum of 50 per cent for
projected debt with an age profile of greater than five years and a maximum of 20 per cent for projected debt with an age profile of greater
than 10 years. The Group’s exposures to interest rates on financial liabilities is disclosed in the liquidity risk section of this note.
The following table details the notional principal amounts and the remaining terms of interest rate swaps outstanding at balance date:
Average contracted
fixed interest rates
Notional principal
amountFair value
Receive floating, pay fixed swaps
2018
%
2017
%
2018
$ million
2017
$ million
2018
$ million
2017
$ million
Not later than one year
4.00 – 20.0 – – –
Later than one year and not later than two years
5.53 4.00 45.0 20.0 (1.6)(0.4)
Later than two years and not later than five years
5.47 5.49 90.0 135.0 (7.3)(11.5)
Later than five years
4.45 4.68 225.0 175.0 (19.0)(13.0)
4.80 4.97 380.0 330.0 ( 2 7. 9 )(24.9)
Average contracted
fixed interest rates
Notional principal
amountFair value
Receive fixed, pay floating swaps
2018
%
2017
%
2018
$ million
2017
$ million
2018
$ million
2017
$ million
Later than two years and not later than five years
2.59 – 25.0 – 0.2 –
Later than five years
2.61 – 240.0 – 0.8 –
2.61 – 265.0 – 1.0 –
27. Financial instruments and financial risk management (continued)
The values of interest rate swaps are sensitive to changes in forward interest rates. The table below summarises the impact an increase/
decrease in interest rates would have on the Group’s post-tax profit or loss for the year and on the Group’s cash flow hedge reserve. The
sensitivity analysis is based on the assumption that interest rates had been 100 basis points higher/lower with all other variables held
constant, based on year-end exposures. A positive number represents an increase in profit or the cash flow hedge reserve.
There have been no changes in the methods and assumptions used in the sensitivity calculations from the previous year.
2018
$ million
2017
$ million
Post-tax impact on profit
+1%
(0.6)0.3
–1%
0.7 (0.3)
Post-tax impact on cash flow hedge reserve (equity)
+1%
9.6 9.0
–1%
(10.3)(9.7)
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Group.
The Group is exposed to credit risk in the normal course of business arising from trade receivables and with banks and financial
institutions where short-term deposits are held. The Group is also exposed to credit risk arising from derivative counterparties
defaulting on their contractual obligations.
The Group is a producer and seller of electricity, gas, LPG and oil. In terms of wholesale sales to the national grid, credit risk is
significantly reduced, as the Group purchases from the grid for its retail customer base with credit risk being limited to the net position
on settlement. In addition, market security requirements in place ensure there is no significant credit risk for any one participant.
Market participants are required to provide letters of credit to the market-clearing agent (NZX Limited), which would be called upon
should any market participant default.
Credit risk exposure arising from the supply of electricity, gas, LPG and oil to the market is mitigated owing to the Group’s large
customer base and, in respect of its larger customers, the diverse range of industries they represent throughout New Zealand. The
Group has adopted a policy of only dealing with creditworthy trade counterparties and obtaining collateral, where appropriate, as a
means of mitigating the risk of financial loss from defaults. The Group also minimises its exposure to credit risk in this area through the
adoption of counterparty credit limits and active credit-management practices, such as monitoring the size and nature of exposures
and mitigating the risk deemed to be above acceptable levels.
A bond is held as collateral from any post-paid electricity customer whose credit profile does not meet the standard set by the Group.
The bond is managed in accordance with the terms and conditions outlined in the supply agreement with individual customers. The
bond is returned to the customer at cessation of supply. The value of collateral held at balance date was $0.1 million (2017: $0.2 million).
The carrying value of the bond is considered to approximate its fair value.
Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions and other organisations. The
Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions
concluded is spread amongst approved counterparties. The Group has no significant concentration of credit risk with any one financial
institution.
The carrying amounts of financial assets recognised in the balance sheet best represent the Group’s maximum exposure to credit risk at
the reporting date.
Liquidity risk
The Group’s ability to attract cost-effective funding is largely driven by its credit standing (Standard & Poor’s = BBB+). Prudent liquidity
risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount
of committed credit facilities and the spreading of debt maturities.
Liquidity risk is monitored by continuously forecasting cash flows and matching the maturity profiles of financial assets and liabilities.
The following table details the Group’s liquidity analysis for its financial liabilities and derivatives. The table has been drawn up based on
the undiscounted cash inflows (outflows) for all financial liabilities and derivatives. Where the amount payable or receivable is not fixed,
the amount disclosed has been determined by reference to the internally generated forward price curves existing at balance date. As
the amounts included in the table are contractual undiscounted cash flows, these amounts will not reconcile to the amounts disclosed
in the balance sheet.
27 . Financial instruments and financial risk management (continued)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at 30 June 2018
Weighted
average effective
interest rate %
Less than
1 year
$ million
1 to 2 years
$ million
2 to 5 years
$ million
More than
5 years
$ million
Total contractual
cash flows
$ million
Non-derivative financial liabilities
Trade and other payables
Non-bearing(196.7) – – – (196.7)
Revolving credit and money market
5.9 (11.0)(104.5)(98.3) – (213.8)
Term loan facility
4.6 (1.4)(1.4)(4 .1 )(31.7)(38.6)
Wholesale term notes
6.1 ( 1 7. 5 )(136.2)(97.2)(110.0)(360.9)
Retail term notes
4.3 (4 .1 )(4 .1 )(112.4) – (120.6)
Capital bonds
6.1 (215.9)(12.8)(38.5)(532.8)(800.0)
USPP
3.9 (8 .1 )(8 .1 )(24.4)(250.7)(291.3)
(454.7)( 2 6 7.1 )( 3 74.9)(925.2)(2,021.9)
Derivative assets (liabilities)
Net-settled derivatives
Interest rate swaps (cash flow hedges)
( 7. 2 )(7.0)(11.9)(2.2)(28.3)
Interest rate swaps (not designated as hedges)
(1 .1 )(0.6)(0.7) – (2.4)
Interest rate swaps (fair value hedges)
1.0 1 .0 ( 1 .0)(0.3)0.7
Electricity swaps (cash flow hedges)
(7.3)(4.5)(3.5)(0.9)(16.2)
Electricity swaps and options (not designated as hedges)
12.0 5.8 9.6 – 2 7. 4
Oil swaps (cash flow hedges)
(9.4)(6.3)(1.4) – (1 7.1 )
Oil swaps (not designated as hedges)
0.9 – – – 0.9
Gross-settled derivatives
Foreign exchange swaps (cash flow hedges)
Inflows
0.8 – – – 0.8
Outflows
(0.9)(0.5)(0.1 ) – (1.5)
CCIRS
Inflows
8 .1 8 .1 24.5 250.7 291.4
Outflows
(7.3)( 7. 5 )(25.8)(226.7)(267.3)
(10.4)(11.5)(10.3)20.6 (11.6)
27. Financial instruments and financial risk management (continued)
As at 30 June 2017
Weighted
average effective
interest rate %
Less than
1 year
$ million
1 to 2 years
$ million
2 to 5 years
$ million
More than
5 years
$ million
Total contractual
cash flows
$ million
Non-derivative financial liabilities
Trade and other payables
Non-bearing (176.2) – – – (176.2)
Revolving credit and money market
5.7 (12.2)(11.2)(216.8) – (240.2)
Term loan facility
4.6 (1.4)(1.4)(4.1)(31.7)(38.6)
Wholesale term notes
6.1 (17.5)(17.5)(154.3)(189.1)(378.4)
Retail term notes
4.3 (4.1)(4.1)(112.4) – (120.6)
Capital bonds
6.1 (25.2)(25.2)(75.6)(983.9)(1,109.9)
USPP
3.8 (7.5)(7.5)(22.6)(239.2)(276.8)
(244.1)(66.9)(585.8)(1,443.9)(2,340.7)
Derivative assets (liabilities)
Net-settled derivatives
Interest rate swaps (cash flow hedges)
(4.7)(6.1)(11.0)(2.7)(24.5)
Interest rate swaps (not designated as
hedges)
(1.2)(1.0)(1.0) – (3.2)
Electricity swaps (cash flow hedges)
(5.6)(4.4)0.4 (0.1)(9.7)
Electricity swaps and options (not
designated as hedges)
8.9 9.6 18.4 1.8 38.7
Oil swaps (cash flow hedges)
3.4 1.5 0.4 – 5.3
Forward sale-and-purchase agreements of
emission units held for trading
0.1 – – – 0.1
Gross-settled derivatives
Foreign exchange swaps (cash flow hedges)
Inflows
3.1 1.1 0.5 – 4.7
Outflows
(0.7)(0.1) – – (0.8)
CCIRS
Inflows
7. 5 7. 5 22.6 239.1 276.7
Outflows
(7.3)(8.1)(28.5)(240.0)(283.9)
3.5 – 1.8 (1.9)3.4
Capital risk management
The Group manages its capital in a prudent manner to ensure that each entity in the Group will be able to continue as a going concern
while maximising the return to shareholders through the appropriate balance of debt and equity. This is achieved by ensuring that the
level and timing of its capital investment programmes, equity raisings and dividend distributions are consistent with the Group’s capital
structure strategy. This strategy remains unchanged from previous years. The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 24, cash and cash equivalents and equity attributable to the shareholders of the Parent,
comprising issued capital, reserves and retained earnings, as disclosed in the balance sheet.
Under the Group’s debt funding facilities, the Group has given undertakings that the ratio of debt to equity will not exceed a prescribed
level and the interest cover will not be below a prescribed level. For the purpose of these undertakings, the capital bonds and related
interest costs are treated as 50 per cent equity. The covenants are monitored on a regular basis to ensure they are complied with.
There were no breaches in covenants during the year (2017: nil).
27 . Financial instruments and financial risk management (continued)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. Fair value
Fair value hierarchy
The Group’s assets and liabilities measured at fair value are categorised into one of three levels as follows:
Level one – the fair value is determined using unadjusted quoted prices from an active market for identical assets and liabilities.
A market is regarded as active if quoted prices are readily and regularly available from an exchange, a dealer, a broker, an industry
group, a pricing service or a regulatory agency and those prices represent actual and regularly occurring market transactions on an
arm’s-length basis.
Level two – the fair value is derived from inputs other than quoted prices included within level one that are observable for the asset
or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Financial instruments in this level include interest rate
swaps, foreign exchange swaps, oil swaps and electricity derivatives, which are valued using wholesale electricity price paths.
Level three – the fair value is derived from inputs that are not based on observable market data. Financial instruments included in this
level include electricity derivatives, which are valued using the wholesale electricity price path.
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels at the date of the event or change in
circumstances that caused the transfer. There were no transfers between levels one, two and three during the year (2017: nil).
Level two items carried at fair value
Recurring fair value measurements
2018
$ million
2017
$ million
Level two
Derivatives
Interest rate swaps
(26.9)(24.9)
Foreign exchange swaps
(0.4)3.6
Oil swaps
(15.8)5.3
Electricity swaps (cash flow hedges)
– 0.3
Electricity swaps and options (not designated as hedges)
0.6(1.7)
CCIRS
20.4 13.5
Forward sale-and-purchase agreements of emission units held for trading
– 0.1
(22.1)(3.8)
Inventory
Emission units held for trading
7. 3 9.3
Valuation of level two items carried at fair value
The fair values of level two derivatives and emission units held for trading carried at fair value are determined using discounted cash
flow models. The key inputs in the valuation models were:
ItemValuation input
Interest rate swapsForward interest rate price curve
Foreign exchange swapsForward foreign exchange rate curves
Oil swapsForward oil price and foreign exchange rate curves
Electricity swaps and optionsASX forward price curve
CCIRSForward interest rate price curve and foreign exchange rate curves
Forward sale-and-purchase agreements of emission
units held for trading
OM Financial forward curve
Emission units held for tradingOM Financial forward curve
Level three items carried at fair value
Recurring fair value measurementsNote
2018
$ million
2017
$ million
Level three
Derivatives
Electricity swaps (cash flow hedges)
(15.9)(9.7)
Electricity swaps and options (not designated as hedges)
26.6 30.9
10.7 21.2
Property, plant and equipment
Generation assets
16
2,926.9 2,903.9
28. Fair value (continued)
Valuation of level three items carried at fair value
Valuation processes of the Group
The Group’s finance department includes a team that perform the valuations of level three fair values for generation assets and
derivatives. This team reports directly to the Chief Financial Officer. Discussions of valuation processes and results are held between
the Chief Financial Officer and the valuation team at least six monthly for generation assets and monthly for derivatives. As part of
these discussions the team presents analysis to explain the reasons for changes in fair value measurements. The Chief Financial Officer
reports key changes in fair value to the Board in the monthly finance report and any changes to the valuation methodology are reported
to the Audit and Risk Committee through update papers when any changes are anticipated or have been made owing to changes in the
business.
Valuation of electricity swaps and options
The valuation of electricity swaps and options in level three is based on a discounted cash flow model over the life of the agreement.
The key inputs and assumptions in the model are: the callable volumes, strike price and option fees outlined in the agreement,
the wholesale electricity price path (‘price path’), ‘day one’ gains and losses, emission credits and the discount rate. The wholesale
electricity price path used is an average of the internally and externally generated price paths. The options are deemed to be called
when the price path is higher than the strike prices after taking into account obligations relating to the specific terms of each contract.
No calling is required for the swaps and there are no option fees. The key assumptions are consistent with those used in 2017.
The selection of variables used within the price path requires significant judgement and, therefore, there is a range of reasonable
assumptions that could be used in estimating the price path. The key unobservable inputs driving potential changes to the price path
are changes in electricity demand, hydrology and new generation build. A material change in any one of these factors could result
in a material change to the price path and, therefore, the fair value of electricity swaps and options within level three. The internally
generated price path assumes national demand growth, based on the latest available industry information and Genesis Energy’s view of
growth within various sectors of the economy. Forecast hydrology is based on 83 years of historical hydrological inflow data, and new
generation build assumptions are based on public announcements made by market participants and an assessment on the wholesale
electricity prices required to support new generation build. The internally generated price path also assumes the ongoing operation
of New Zealand Aluminium Smelters Limited at Tiwai Point. These factors are reviewed for reasonableness by senior management
personnel who are responsible for the price path used by the business.
The key unobservable inputs, range of assumptions and third-party inputs combine to determine the wholesale electricity
price path. The wholesale electricity price paths used to value level three electricity swaps and options ranged from
$74 per MWh to $103 per MWh over the period from 1 July 2018 to 31 December 2027 (2017: $74 per MWh to $101 per MWh over the
period from 1 July 2017 to 31 December 2025). The discount rate used in the model ranged from 2.0 per cent to 5.4 per cent
(2017: 2.0 per cent to 2.8 per cent) and the emission credit price used ranged between $21.25 and $25.00 (2017: $17.50 and $23.50).
If the price path increased by 10 per cent while holding the discount rate constant, this would result in the carrying value of the
electricity derivatives decreasing to $2.7 million liability (2017: $6.4 million asset). If the price path decreased by 10 per cent while
holding the discount rate constant, the carrying value would increase to $21.7 million asset (2017: $28.8 million asset).
Reconciliation of level three electricity swaps and options
2018
$ million
2017
$ million
Balance as at 1 July
21.2 (16.0)
Total gain (loss)
Electricity revenue
2 0.1 21.2
Change in fair value of financial instruments
(6 .1 )1 7. 8
Total gain (loss) in profit or loss
14.0 39.0
Total gain (loss) recognised in other comprehensive income
20.4 15.4
Settlements (gain) loss
(24.9)3.1
Sales
(20.0)(20.3)
Balance as at 30 June
10.7 21.2
The change in fair value of financial instruments disclosed above includes an unrealised loss of $6.1 million (2017: $17.8 million gain) on
level three derivatives held at balance date.
Valuation of generation assets
Refer to note 16 for the valuation and reconciliation of movements in generation assets.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred ‘day one’ gains (losses)
There is a presumption that when derivative contracts are entered into on an arm’s-length basis, and no payment is received or paid
on day one, the fair value at inception would be nil. The contract price of non-exchange traded electricity derivative contracts are
agreed on a bilateral basis, the pricing for which may differ from the prevailing derived market price for a variety of reasons. In these
circumstances, an adjustment is made to bring the initial fair value of the contract to zero at inception. The adjustment is called a ‘day
one’ gain (loss) and is deferred and amortised, based on expected call volumes over the term of the contract. The ‘day one’ adjustment
below is included in the level three electricity swaps and options carrying value at balance date.
The following table details the movements and amounts of deferred ‘day one’ gains (losses) included in the fair value of level three
electricity swaps and options held at balance date:
2018
$ million
2017
$ million
Balance as at 1 July
71.6 72.7
Deferred 'day one' gains (losses) on new derivatives
3.5 1.7
Deferred 'day one' gains (losses) realised during the year
(5.7)(2.8)
Balance as at 30 June
69.4 71.6
Carrying value Fair value
Items disclosed at fair value
2018
$ million
2017
$ million
2018
$ million
2017
$ million
Level one
Retail term notes
(100.5)(100.3)(103.4)(102.2)
Capital bonds
(426.0)(424.4)(439.3)(436.2)
Level two
Wholesale term notes
(292.8)(292.8)(311.3)(320.3)
USPP
(218.6)(215.6)(220.8)(215.3)
The carrying value of all other financial assets and liabilities in the balance sheet approximates their fair values.
Valuation of wholesale term notes
The valuation of wholesale term notes is based on estimated discounted cash flow analyses, using applicable market yield curves
adjusted for the Group’s credit rating. Market yield curves at balance date used in the valuation ranged from 2.9 per cent to
4.3 per cent (2017: 3.2 per cent to 3.9 per cent).
Valuation of USPP
The valuation of USPP is based on estimated discounted cash flow analyses, using applicable United States market yield curves
adjusted for the Group’s credit rating. The credit-adjusted market yield at balance date used in the valuation was 3.9 per cent (2017:
3.2 per cent).
29. Commitments
Capital commitments
2018
$ million
2017
$ million
Not later than one year
25.4 1.7
Later than one year but not later than five years
7. 9 20.9
Later than five years
2.0 2.0
Total capital commitments
35.3 24.6
The capital commitments disclosed above include no amounts relating to the Kupe Joint Venture (2017: nil).
28. Fair value (continued)29. Commitments (continued)
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases. When an asset is leased under a finance lease, the present value of the
minimum lease payment is recognised as either a payable or a receivable in the balance sheet. Repayments are allocated between the
capital and interest over the term of the lease to reflect a constant periodic rate of return on the net investment outstanding in respect
of the lease. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a
straight-line basis over the lease terms. Receipts from operating leases are recognised in profit or loss on a straight-line basis over the
lease terms.
Operating lease commitments
Where the Group is lessee
The Group leases building accommodation for its offices and land for its generation sites and LPG depots. The Group also leases
vehicles and certain office equipment. These leases are of a rental nature and are on normal commercial terms and conditions. These
leases have varying lease periods of up to 20 years. In some cases renewal rights exist with market review clauses. The Group does not
have any options to purchase the leased assets at the expiry of the lease periods.
2018
$ million
2017
$ million
Not later than one year
8.3 5.9
Later than one year but not later than five years
28.7 26.3
Later than five years
27.5 29.3
Total operating lease commitments
64.5 61.5
Lease commitments are disclosed exclusive of GST.
30. Contingent assets and liabilities
The Group had contingent assets and liabilities at 30 June 2018 in respect of:
Land claims, law suits and other claims
The Parent acquired interests in land and leases from Electricity Corporation of New Zealand Limited (‘ECNZ’) on 1 April 1999. These
interests in land and leases may be subject to claims to the Waitangi Tribunal and may be resumed by the Crown. The Parent would
expect to negotiate with the new Māori owners for occupancy and usage rights of any sites resumed by the Crown. Certain claims have
been brought to, or are pending against, the Parent, ECNZ and the Crown under the Treaty of Waitangi Act 1975. Some of these claims
may affect land and leases purchased by the Parent or its subsidiaries from ECNZ. In the event that land is resumed by the Crown, the
resumption would be effected by the Crown under the Public Works Act 1981 and compensation would be payable to the Parent.
The Board cannot reasonably estimate the adverse effect (if any) on the Parent if any of the foregoing claims are ultimately resolved
against it or if any contingent or currently unknown costs or liabilities crystallise. There can be no assurances that these claims will not
have a material adverse effect on the Group’s business, financial condition or results of operations.
There are no other known material contingent assets or liabilities (2017: nil).
31. Events occurring after balance date
Subsequent to balance date the Parent declared a final dividend of $86.7 million (8.6 cents per share).
On 16 July 2018 the Group exercised its right to redeem $200 million of fixed rate subordinated capital bonds with an original maturity
date of 15 July 2041. The redeemed capital bonds were replaced by a new $240 million public issue of capital bonds with a maturity
date of 16 July 2048. The new issue pays a quarterly coupon of 4.65 per cent per annum. On the first reset date and every five years
thereafter, the interest rate will reset to be the sum of the five-year swap rate on the relevant reset date plus the margin of 2.01 per cent
per annum plus the step-up margin of 0.25 per cent per annum. Refer to note 24 for further information.
There have been no other significant events subsequent to balance date.
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Key audit mattersHow our audit addressed the key audit matters and results
Valuation of Generation Assets
Generation assets were revalued at 30 June 2018 as set out in note
16 of the consolidated financial statements to $2,926.9 million.
The fair value of generation assets is estimated using an internally
generated discounted cash flow model which is prepared by
management. The significant inputs used to calculate the fair
value of the generation assets are the wholesale electricity price
path, generation volumes, and the discount rate. The wholesale
electricity price path is estimated by Genesis Energy as described
in note 16 of the consolidated financial statements.
The estimate of the wholesale electricity price path is the most
significant input in estimating the fair values determined for the
generation assets and affects the estimated generation volumes
which are also used in the fair value calculation. Changes to the
forecast of the wholesale electricity price path could significantly
change the estimated fair value of the generation assets.
The treatment of the gain on revaluation estimated by Genesis
Energy is described in note 16 of the consolidated financial
statements.
We included the valuation of generation assets as a key audit
matter due to the level of judgement required in forecasting the
wholesale electricity price path.
Our audit procedures included assessing the key inputs to
the model used to estimate the fair value of the generation
assets. Our procedures, which included the use of our internal
valuation experts, were primarily focused on evaluating the
process undertaken by Genesis Energy in forecasting the
wholesale electricity price path and assessing whether the
forecast was consistent with internal and external data.
We assessed the professional competence of the Genesis
Energy valuers involved in the forecasting of the electricity
price path and valuation of the generation assets.
We also compared budgeted performance information from
prior periods to actual data to assess the accuracy of the
forecasting process.
We assessed the forecast wholesale electricity price path
which included externally derived data. We also evaluated the
assumptions used in forecasting the electricity price path to
determine whether they were consistent with assumptions
used across the business, including management budgets
and valuations of other assets including certain electricity
derivatives.
We performed sensitivity analysis on the key assumptions
applied in determining the fair value of the generation assets
and considered the adequacy of the Group’s disclosures.
We have found the assumptions and resulting valuation to be
reasonable.
Valuation of Electricity Derivatives and Cross Currency Interest
Rate Swaps
The Group’s activities expose it to electricity and gas market price,
oil price, currency and interest rate risk which are managed using
derivative financial instruments. At 30 June 2018 derivative assets
totalled $62.3 million and derivative liabilities were $73.7 million as
set out in notes 26 and 28 of the consolidated financial statements.
The valuations of the oil swaps, interest rate swaps, foreign
exchange swaps, and some electricity derivatives which are
prepared by Genesis Energy valuers are based primarily on
observable inputs and are measured using standard valuation
techniques.
Cross-currency interest rate swaps and certain electricity swaps
and options are also valued using primarily observable inputs
but require more complex valuation models. Additionally, some
electricity swaps and options are valued using the wholesale
electricity price path forecast which is estimated by Genesis
Energy as described in note 16 of the consolidated financial
statements. As explained in the ‘Valuation of Generation Assets’
section above, the wholesale electricity price path forecast
requires significant judgement.
We have included the valuation of electricity derivatives and
cross currency interest rate swaps as a key audit matter due to
the complexity associated with their valuation and the judgement
involved in evaluating the inputs to the electricity derivative
valuation models.
We tested the design and operating effectiveness of key
controls related to the recording and valuation of electricity
derivative transactions.
We challenged key assumptions applied by management and
agreed underlying data to the contract terms on a sample
basis. We have independently recalculated the fair value of a
sample of electricity derivatives.
Our internal valuation experts have evaluated the
appropriateness of the methodology applied in valuation
models for the electricity derivatives.
We also performed audit work on the wholesale electricity
price path as explained above under the section entitled
‘Valuation of Generation Assets’.
Our internal valuation experts have independently recalculated
the value of a sample of cross-currency interest rate swaps
using specialist treasury management software.
We have found the assumptions and resulting valuations to be
reasonable.
Independent
auditor’s report
TO THE SHAREHOLDERS OF GENESIS ENERGY LIMITED
Auditor-General
The Auditor-General is the auditor of Genesis Energy Limited and its subsidiaries (‘the Group’). The Auditor-General has
appointed me, Andrew Dick, using the staff and resources of Deloitte Limited, to carry out the audit of the consolidated
financial statements of the Group on his behalf.
Opinion
We have audited the consolidated financial statements of the Group on pages 25-65, that comprise the consolidated balance
sheet as at 30 June 2018, the consolidated comprehensive income statement, statement of changes in equity and cash flow
statement for the year ended on that date, and the notes to the consolidated financial statements that include accounting
policies and other explanatory information.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of the Group as at 30 June 2018, and its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial
Reporting Standards.
Basis for Opinion
We conducted our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional
and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and
Assurance Standards Board. Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with
the Auditor-General’s Auditing Standards, which incorporate Professional and Ethical Standard 1 (Revised) Code of Ethics for
Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In addition to the audit we have carried out assignments in the areas of trustee reporting, scrutineer’s notice, secretarial services
for the corporate tax payer group, whistle blower hotline service and review of the interim report which are compatible with
those independence requirements. These services have not impaired our independence as auditor of the Group.
In addition to these assignments, principals and employees of our firm deal with the Group on normal terms within the ordinary
course of trading activities of the Group. Other than the audit and these assignments and trading activities, we have no
relationship with, or interests in the Group.
Audit Materiality
We consider materiality primarily in terms of the magnitude of misstatement in the consolidated financial statements of the
Group that in our judgement would make it probable that the economic decisions of a reasonably knowledgeable person
would be changed or influenced (the “quantitative” materiality). In addition, we also assess whether other matters that come
to our attention during the audit would in our judgement change or influence the decisions of such a person (the “qualitative”
materiality). We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
We determined the quantitative materiality for the Group financial statements as a whole to be $9 million.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
INDEPENDENT AUDITOR'S REPORTINDEPENDENT AUDITOR'S REPORT
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Other Information
The Directors are responsible on behalf of the Group for the other information. The other information comprises the information
included in the Annual Report, but does not include the consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
audit opinion or assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard.
Directors’ responsibilities for the consolidated financial statements
The Directors are responsible on behalf of the Group for the preparation and fair presentation of the consolidated financial
statements in accordance with New Zealand equivalents to International Financial Reporting Standards and International
Financial Reporting Standards, and for such internal control as the Directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible on behalf of the Group for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
The Directors’ responsibilities arise from the Financial Markets Conduct Act 2013.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the
Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of shareholders taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
> Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
> Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal
control.
> Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
> Conclude on the appropriateness of the use of the going concern basis of accounting by the directors and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or,
if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a
going concern.
> Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
> Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Our responsibilities arise from the Public Audit Act 2001.
Andrew Dick
Deloitte Limited
On behalf of the Auditor-General
Auckland, New Zealand
28 August 2018
INDEPENDENT AUDITOR'S REPORTINDEPENDENT AUDITOR'S REPORT
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Corporate governance information
This section of the Annual Report
provides information on Directors'
independence, committees, fees and
diversity and inclusion policies and
activities.
Genesis' governance framework is
guided by the recommendations set by
the NZX Corporate Governance Code.
Genesis considers it has followed
these recommendations in all material
respects during FY18. For detailed
information on Genesis’ corporate
governance policies, practices and
processes refer to Investors section on
the Genesis website (genesisenergy.
co.nz/about us/investors). This contains
the following documents:
Corporate
governance
CORPORATE GOVERNANCE AND DISCLOSURES 2018CORPORATE GOVERNANCE AND DISCLOSURES 2018
Director independence
The names of the current Directors,
together with a short biography of
each, are set out on pages 22 and
23. All of the Directors are currently
considered to be ‘independent’
Directors.
> Four out of eight Genesis
Energy Directors were women
(FY17=three out of eight).
> Three out of eight Officers¹ were
women (FY17=three out of eight).
Diagram 1 – FY18 Measurable objectives for diversity
OBJECTIVEPROGRESS AS AT 30 JUNE 2018
Strive for gender
balance
- Reduced the gender pay gap to 2.9 per cent
-Stepped up Genesis’ Parental Leave offering, including 12 weeks’ salary top up (in addition to Internal Revenue
Department Paid Parental Leave); two weeks paid partner leave, annual leave accrual at normal salaried rate and
a support for a gradual return to work (80 per cent worked for 100 per cent pay)
-Grew the Internal Women’s Network branching out to a Women in Operations network
-Continued development of women through Global Women and internal workshops on self talk
-Raised awareness and numbers of women working in trade and technical roles in the infrastructure industries
through the Girls with Hi-Vis & Energy Industry Career Pathways.
Build a workforce
that reflects
New Zealand’s multi-
cultural society and
customer base
Supported the Ma
-
ori and Pacific Island workforce through;
-Continuing Genesis’ commitment to Ma
-
ori Language Week
-Genesis continuing support of the TupuToa programme, an internship scheme aimed at creating pathways for
Ma
-
ori and Pasifika students into careers
-Huntly’s Internship Programme, supporting the Huntly community via the Ngaa Maramara O Raahui Pookeka
Agreement.
Increased awareness of ethnicity and inclusion by having over 78 per cent of employees data shared and reported
externally through Global Women’s Champion for Change reporting frameworks.
Lead flexible working
practices in the
energy sector
-Baseline flexibility options now offered to all employees, including career breaks, phased retirement, buyable
leave and activity-based working. Other options to support flexibility around location, schedule and role are
offered under individual-specific arrangements.
> Genesis’ Constitution
> Board Charter
> Audit and Risk Committee
Charter
> Human Resources and
Remuneration Committee
Charter
> Nominations Committee
Charter
> Code of Conduct and Ethics
> Diversity and Inclusion Policy
> Trading in Company Securities
Policy
> Market Disclosure Policy
> Audit Independence Policy
> Investor Communication Policy
> Board skills matrix
> Board tenure
Diversity and Inclusion Policy and
gender composition
Genesis’ Diversity and Inclusion Policy
and Minding the Gap Policy record the
Company’s commitment to an inclusive
workplace that embraces and promotes
diversity through a number of initiatives,
including a focus on equal opportunity.
Genesis has sought to establish
measurable objectives for achieving
diversity, including gender diversity, and
its annual assessment of its diversity
objectives for FY18 and the Company’s
progress towards achieving these
objectives are set out in Diagram 1.
As at 30 June 2018:
Directors’ fees
Directors’ remuneration is in the
form of Directors’ fees, approved by
shareholders. The Chair receives
a higher level of fees to reflect the
additional time and responsibilities that
this position involves.
A separate pool of fees, approved by
shareholders for sub-committee work,
is allocated to members of the various
Board committees.
In FY18 an additional pool of $25,000
was also set aside for allocation to
Directors for additional work and
attendances undertaken in respect
of special committees. No fees for
‘special committees’ were paid in
FY18. The pool allocation for ‘special
committees’ will only be allocated and
applied in respect of work undertaken
that is over the ‘ordinary course' of
business. No Director is entitled to any
remuneration from the Company other
than by way of Directors’ fees and the
reimbursement of reasonable travelling,
accommodation and other expenses
incurred in performing their duties
as Directors. Diagram 2 sets out the
remuneration paid to Directors during
the year to 30 June 2018.
Remuneration
report
Directors of subsidiary entities forming
part of the Genesis Energy Group, (a list
of subsidiary companies and Directors
is set out in the Statutory Disclosures
on page 73). Directors received no
remuneration or other benefits during
the period in relation to their duties as
Directors of a subsidiary, other than the
benefit of an indemnity from Genesis
and the benefit of Directors and
Officers liability insurance cover. This
Diagram 2 – Directors’ fees
DIRECTOR
1
BOARD FEES $
STANDING
COMMITTEE
FEES $
SPECIAL
COMMITTEE
FEES $
Dame Jenny Shipley (Chair)
2
177,000Nil Nil
Mark Cross 90,00011,333Nil
John Leuchars³75,0009,333Nil
Maury Leyland90,00011,333Nil
Joanna Perry90,00022,333Nil
Doug McKay90,000 18,667 Nil
Tim Miles 90,00011,833Nil
Paul Zealand90,00011,833Nil
Barbara Chapman15,0001,000Nil
1 Directors’ fees exclude GST and reimbursed costs directly associated with carrying out their duties – e.g., travel.
In accordance with resolution 4 passed at the annual shareholder meeting held on 19 October 2016, the annual
total pool for Directors’ fees increased to $915,000 (including Standing Committee Fees) with an unallocated
Committee Fee pool of $25,000.
2 From 1 November 2016 the Chair did not receive any fees for committee attendances.
3 John Leuchars ceased to be a Director on 1 May 2018.
cover extends to all liabilities to persons
(other than the Company and the
subsidiaries or related body corporate)
that arise out of the performance of
their normal duties as Directors, unless
the liability relates to conduct involving
a lack of good faith. Remuneration
of Company employees, including
those acting as Directors of subsidiary
companies, is disclosed in the relevant
banding on page 73.
1 The term ‘Officer’ is defined in the NZX Listing
Rules and aligned to the interpretation given
under the Financial Markets Conduct Act 2013
(relating to the definition of Senior Manager), i.e,
a person, however designated, who is concerned
or takes part in the management of the public
issuer’s business. Genesis deems this to be the
Chief Executive and the Chief Executive’s direct
reports.
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GENESIS ANNUAL REPORT 2018
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GENESIS ANNUAL REPORT 2018
CORPORATE GOVERNANCE AND DISCLOSURES 2018
Disclosures of interest
There were no declarations of interest
made pursuant to section 140(1) or
140(2) of the Companies Act, entered in
the Interests Register of Genesis or its
subsidiary companies.
Interests register entries
In accordance with section 211(1)(e)
of the Companies Act, particulars of
the entries in the Interests Register of
Genesis during the financial year to
30 June 2018 are set out in the table
below:
Statutory
disclosures
DIR.
1
POSITIONCOMPANY
Jenny Shipley (Chair)
Chair China Construction Bank
(New Zealand) Limited
ChairOravida Limited and subsidiaries
1
Co ChairChampions for Change
1
DirectorBOAO Forum for Asia
1
Director and Shareholder Jenny Shipley New Zealand Limited
Executive Board Member New Zealand China Council
TrusteeHeart Health Research Trust
TrusteeShipley Family Trust
Joanna Perry
ChairIFRS Advisory Council
Director Trade Me Group Limited
Director and ShareholderJMGP Limited
DirectorKiwi Property Group Limited
DirectorPartners Life Holding Limited
DirectorPartners Life Limited
Deputy ChairRegional Facilities Auckland
ChairmanOyster Property Group¹
John Leuchars
DirectorKiwiRail Holdings Limited – trading as
KiwiRail
DirectorWellington Gateway General Partner
No. 1 Limited
DirectorWellington Gateway General Partner
No. 2 Limited
Director and ShareholderLeuchars Holdings Limited
Director and ShareholderNuf Investments Pty Limited
Director and ShareholderNuf Superannuation Pty Limited
Director and ShareholderNuf Pty Limited
MemberSaint Kentigern Trust Board Subcommittee
Panel MemberAuckland City Council Value for Money
Review
Maury Leyland
DirectorOkuora Holdings Limited
1
Chair and TrusteeThe Education Hub
1
TrusteeArapito Trust
1
TrusteePolperro No. 2 Trust
1
DirectorWangapeka River Hops Limited
1 Entries added by notices given by Directors during the year ended 30 June 2018.
DIR.POSITIONCOMPANY
Mark Cross
Chair and ShareholderMFL Mutual Fund Limited
Chair and ShareholderSuperannuation Investments Limited
Chair and ShareholderMilford Asset Management Limited and
subsidiaries
Director and ShareholderVirsae Group Limited
Director and ShareholderEmcee Squared Limited
Director and ShareholderAspect Productivity Technology Limited
Director and ShareholderAlpha Investment Partners Limited
DirectorArgosy Property Limited
Board MemberTriathlon New Zealand Incorporated
DirectorZ Energy Limited and subsidiaries
Trustee Triathlon Youth Foundation New Zealand
TrusteeThe Cross Family Trust
DirectorChorus Limited
DirectorMilford Capital Investments Limited
DirectorMilford Private Equity Limited
DirectorMPE II GP Limited
Doug McKay
ChairEden Park Trust Board
ChairBank of New Zealand Group and subsidiaries
DirectorIAG New Zealand Limited and subsidiaries
DirectorWymac Consulting Limited
DirectorRyman Healthcare Limited
DirectorNational Australia Bank
Director and ShareholderTourism Transport Limited
Tim Miles
ChairAdvisory Board of Revera Limited
1
ChairAdvisory Board of Computer Concepts
Limited
1
Director and ShareholderJeffries Miles Consultancy Limited
1
Director and ShareholderJeffries Miles Property Limited
1
DirectorKhandallah Trust Limited
1
TrusteeMarshall Miles Family Trust
1
TrusteeBarbara Nel Miles Trust
1
Advisory TrusteeLeadership New Zealand
1
Paul Zealand
DirectorLochard Energy
1
Director
The New Zealand Refining Company
Limited
1
DirectorZoenergy Limited
1
TrusteeZealand Family Trust
1
Barbara Chapman
DirectorThe New Zealand Initiative
TrusteeFlinton Trust
Director and
Shareholder
Two Tin Pigs Limited
DirectorNZME
Patron
New Zealand Rainbow Tick Excellence
Awards
Remuneration of employees earning over $100,000 in the year ending 30 June 2018
There were 293 Genesis and subsidiary employees (or former employees) who received remuneration and benefits in excess of
$100,000 (not including Directors) in their capacity as employees during the year ended 30 June 2018, as set out in Diagram 3.
Diagram 3 – Remuneration of employees
REMUNERATION EMPLOYEESREMUNERATIONEMPLOYEESREMUNERATION EMPLOYEES
$1,620,000 - $1,630,0001$290,000 - $300,0001$190,000 - $200,0007
$670,000 - $680,0001$280,000 - $290,0002$180,000 - $190,0005
$560,000 - $570,0001$260,000 - $270,0003$170,000 - $180,0008
$520,000 - $530,0001$250,000 - $260,0002$160,000 - $170,00011
$490,000 - $500,0001$240,000 - $250,0003$150,000 - $160,00024
$480,000 - $490,0001$230,000 - $240,0002$140,000 - $150,00038
$450,000 - $460,0001$220,000 - $230,0006$130,000 - $140,00020
$410,000 - $420,0001$210,000 - $220,0002$120,000 - $130,00037
$310,000 - $320,0003$200,000 - $210,0001$110,000 - $120,00054
$100,000 - $110,00056
Total employees earning $100,000+293
Employees who are included but who are no longer at Genesis Energy as at 30 June 201813
This includes fixed remuneration, employer KiwiSaver contributions, short-term incentive payments, settlement payments and redundancy payments actually paid in
FY18 for all permanent employees but not any short-term incentive payments earned in FY18 and to be paid in FY19 or any Executive LTI payments.
MARC ENGLAND
Total remuneration¹$1,631,545
Fixed remuneration$1,086,338
Short Term Incentive $382,456
Executive Long Term Incentive
The cost of 150,033 ordinary shares in the Company acquired under the Executive LTI plan on 21 November 2017 was
$361,369. See page 39 for LTI detail.
KiwiSaver $62,751
Other payments²$100,000
1. Actual salary paid includes holiday pay paid as per New Zealand legislation. Excludes the FY18 Long-Term Incentive entitlement.
2. This payment was made in recognition of Mr England extinguishing rights to certain share entitlements in his previous employment.
Target area of
Company
Shared KPIs
FY18
Weighting
%
Financial EBITDAF50
Customer30
Health and Safety20
BREAK DOWN OF CHIEF EXECUTIVE PAY FOR PERFORMANCE (FY18)
FY18 Weighting %Performance measuresPercentage achieved %
STISet at 40% of fixed remuneration
and achieved through a combination
of financial and non financial
performance measures
60% based on Company Shared
Key Performance Indicators
124%
40% based on
individual measures
112%
LTIConditional awards of shares under
a Long Term Incentive Plan
100% weighting relative TSR
performance against NZX50
100% vesting
Chief Executive remuneration
The Chief Executive remuneration detail provided relates to payments made to Marc England during FY18 (but not any short-
term incentive payments earned or long-term incentives vested in FY18 and to be paid in FY19):
CORPORATE GOVERNANCE AND DISCLOSURES 2018
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GENESIS ANNUAL REPORT 2018
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CORPORATE GOVERNANCE AND DISCLOSURES 2018CORPORATE GOVERNANCE AND DISCLOSURES 2018
Directors of subsidiary companies
As at 30 June 2018:
> The Chair of Genesis, Dame
Jenny Shipley, the Chief
Executive of Genesis, Marc
England, and Chief Financial
Officer of Genesis, Chris
Jewell, were Directors of all
the subsidiary companies listed
in Note 20 of the financial
statements with the exception
of Genesis Energy’s captive
insurance company incorporated
in Singapore, Genesis Energy
Insurance Pte Limited.
> Chris Jewell, the Chief Financial
Officer (who was appointed on
1 July 2016), Warwick Williams,
the Group Risk and Analytics
Manager and George McGhie
(resident Singapore-based
Director and employed by the
Genesis Energy captive manager
Willis Management (Singapore)
Pte Limited) were Directors
of Genesis Energy’s captive
insurance company incorporated
in Singapore, Genesis Energy
Insurance Pte Limited.
Use of Company information
No notices have been received by the
Board of Genesis under section 145
of the Companies Act with regard
to the use of Company information
received by Directors in their capacities
as Directors of the Company or its
subsidiary companies.
Twenty largest registered shareholders as at 30 June 2018*
NAME
UNITS AT
30 JUNE 2018
% OF
UNITS
Her Majesty The Queen In Right Of New Zealand Acting By And Through
Her Minister Of Finance And Minister For SOE
516,673,28551 . 23
HSBC Nominees (New Zealand) Limited 36,276,313 3.60
HSBC Custody Nominees (Australia) Limited32,667,653 3.24
HSBC Nominees (New Zealand) Limited23,923,318 2.37
Citibank Nominees (New Zealand) Limited21,927,495 2.1 7
Accident Compensation Corporation 17,440,752 1.73
Forsyth Barr Custodians Limited14,314,449 1.42
JP Morgan Chase Bank Na NZ Branch11,422,809 1.1 3
FNZ Custodians Limited10,645,064 1.06
ANZ Wholesale Australasian Share Fund 9,554,0260.95
Custodial Services Limited8,829,493 0.88
BNP Paribas Nominees (NZ) Limited 7,836,522 0.78
JBWere (NZ) Nominees Limited 6,348,078 0.63
Investment Custodial Services Limited5,857,278 0.58
Custodial Services Limited5,614,010 0.56
Public Trust Class 10 Nominees Limited5,585,453 0.55
JP Morgan Nominees Australia Limited5,140,726 0.51
ANZ Custodial Services New Zealand Limited5,069,569 0.50
New Zealand Depository Nominee Limited 4,788,100 0.47
Citicorp Nominees Pty Limited4,756,927 0.47
Totals: Top 20 holders of Ordinary Shares754,671,320 74.83
* In the above table the shareholding of New Zealand Central Securities Depository Limited (NZSCD) has been allocated to the applicable members of NZSCD.
Directors’ interests in shares
Directors disclosed the following
relevant interests in Genesis Energy
shares as at 30 June 2018:
DIRECTOR
RELEVANT
INTEREST HELD
IN SHARES
Barbara ChapmanNil
Maury Leyland19,088
Doug McKay15,814
Tim Miles40,410
Joanna Perry28,195
Jenny Shipley14,693
Paul ZealandNil
Substantial security holders
The following information is given pursuant to sub-part 5 of part 5 of the Financial Markets Conduct Act 2013. According to
notices given to the Company, the substantial security holder in the Company and its relevant interests are noted below:
DATE OF
SUBSTANTIAL SECURITY NOTICE
RELEVANT INTEREST IN
THE NUMBER OF SHARES
% OF SHARES HELD AT
DATE OF NOTICE
Her Majesty The Queen
In Right Of New Zealand
6 July 2015519,723,78151.97
Waivers from the NZX
NZX has granted a waiver in relation
to NZX Rule 9.2.1 to permit the
Company to enter into transmission
agreements with Transpower, which
constitute material transactions with
a related party without obtaining
shareholder approval, where those
agreements are entered into to
comply with the Electricity Industry
Participation Code and the amounts
payable under those agreements are
determined in accordance with the
transmission pricing methodology
and regulated under the Electricity
Industry Participation Code and Part
4 of the Commerce Act 1986 (subject
to certain conditions). As a condition
of this waiver the Company is required
to disclose in its Annual Report the
total amount of fees payable by the
Company to Transpower under the
transmission agreements for the
relevant financial year. For the financial
year under review this amount is
$12,943,004.
Donations
In accordance with section 211(1)(h)
of the Companies Act 1993, Genesis
records that it made donations of
$44,866 during the year ended 30 June
2018. Genesis subsidiaries did not make
any donations.
Credit rating
As at the date of this Annual Report
Standard & Poor’s long-term credit
rating for Genesis was BBB+ Stable.
Exercise of NZX disciplinary powers
The NZX did not exercise any of its
powers under Listing Rule 5.4.2 in
relation to Genesis during FY18.
Auditor’s fees
Deloitte, on behalf of the Auditor-
General, has continued to act as
auditor for the Company and the
amounts payable by Genesis and its
subsidiaries to Deloitte, for audit fees
(including half year review) and non-
audit fees in FY18, were $560,500 and
$30,500 respectively.
Disclosures of Directors’ interests in
share transactions
During FY18, in relation to the
Company’s Directors, the following
disclosures were made in the Interests
Register as to dealing in Company
shares under section 148 of the
Companies Act:
Mark Cross made an ongoing
disclosure in relation to a beneficial
interest in the acquisition of 15,000
shares by Alpha Investment Partners
Limited as trustee for Alpha Investment
Trust.
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GENESIS ANNUAL REPORT 2018
Distribution of ordinary shares and shareholdings as at 30 June 2018
SIZE OF THE HOLDING
NUMBER OF
SHAREHOLDERS
% OF
SHAREHOLDERS
NUMBER OF
ORDINARY SHARES
% OF
ORDINARY SHARES
1 to 1,0004,423 9.692,837,796 0.28
1,000 – 4,99934,025 74.5676,373,414 7. 5 7
5,000 – 9,9993,322 7.2822,635,464 2.24
10,000 – 49,9993,417 7.4 963,389,404 6.29
50,000 – 99,999275 0.601 7,525,792 1 . 74
100,000 and over173 0.38825,737,153 81.88
Totals45,635 100.001,008,499,023 100.00
Debt listings
Genesis Energy’s subordinated, unsecured capital bonds are listed on the New Zealand Debt Market Exchange.
Distribution of holders of quoted securities
INVESTOR RANGES: 30 JUNE 2018
SECURITY CODE: GENE030
RANGEHOLDER% OF HOLDERSNUMBER OF BONDS% OF BONDS
5,000 to 9,99916622.93982,000 0.98
10,000 – 49,99940956.498,150,000 8.15
50,000 – 99,9998111.195,036,0005.04
100,000 – 499,999517. 0 49,1 7 2,000 9.1 7
500,000 – 999,99970.974,339,000 4.34
Greater than 100,001101.3872,321,000 72.32
Totals724100.00100,000,000100.00
INVESTOR RANGES: 30 JUNE 2018
SECURITY CODE: GENE040
RANGEHOLDER% OF HOLDERSNUMBER OF BONDS% OF BONDS
5,000 to 9,9991489.41861,000 0.38
10,000 – 49,9991,035 65.8022,702,000 10.09
50,000 – 99,999216 13.7312,605,000 5.60
100,000 – 499,999143 9.0923,868,000 10.61
500,000 – 999,999120.767,093,000 3.15
Greater than 100,001191.21157,871,000 70.1 6
Totals1,573 100.00225,000,000 100.00
INVESTOR RANGES: 30 JUNE 2018
SECURITY CODE: GPLFA
RANGEHOLDER% OF HOLDERSNUMBER OF BONDS
% OF ISSUED CAPITAL
% OF BONDS
5,000 to 9,999218 9.141,276,000 0.64
10,000 – 49,9991,622 68.0133,138,000 16.57
50,000 – 99,999332 13.9218,978,000 9.49
100,000 – 499,999190 7.9729,359,500 14.68
500,000 – 999,999110.467,512,000 3.76
Greater than 100,001120.50109,736,500 54.87
Totals2,385100.00200,000,000100.00
CORPORATE GOVERNANCE AND DISCLOSURES 2018
Head/Registered Office
Genesis Energy Building
660 Great South Road,
Greenlane, Auckland 1051
P: 64 9 580 2094
F: 64 9 580 4894
E: info@genesisenergy.co.nz
investor.relations@genesisenergy.co.nz
board@genesisenergy.co.nz
W: genesisenergy.co.nz
energyonline.co.nz
Hamilton
94 Bryce Street, Hamilton
Huntly Power Station
Cnr Te Ohaki and
Hetherington Roads, Huntly
Tokaanu Power Station
State Highway 47, Tokaanu
Waikaremoana Power Station
Main Road, Tuai RD5
Wairoa 4195
Tekapo Power Station
167 Tekapo Power House Road,
Tekapo 7999
Andrew Dick
of Deloitte Limited
has been appointed to
perform the audit on behalf
of the Auditor-General.
S O L I C I T O R S
Russell McVeagh
B A N K E R S
Westpac
PRINTED REPORT PAPER STOCK
Our Annual Report is printed on Tauro Offset
paper stock, which is FSC certified and
sources pulp from managed plantations and
responsible forests. The fibre used to produce
Tauro Offset is elemental chlorine free (ECF).
OFFICE LOCATIONSAUDITOR
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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