12 Feb 2014

Govt says profit drop won't affect float

9:21 pm on 12 February 2014

A drop in Genesis Energy's profit will have no effect on the New Zealand Government's decision to float up to 49 percent of the company.

The state-owned electricity generator and retailer's first-half net profit has plummeted 72 percent, but it has raised the dividend it pays the Government to $64 million.

The Government is expected to announce plans to sell up to 49 percent of Genesis this year.

The company posted a $19.7 million net profit for the six months to December, down from $70.8 million in the same six months a year earlier.

A spokesperson said revenues fell as competition intensified from new, smaller players in the market. As well, demand for electricity had also dropped because of above-average temperatures and difficult wholesale market conditions.

The company had also faced one-off costs of $20 million for exiting a coal supply contract, and $2.4 million for preparing the company for listing on the stockmarket.

Despite the profit slump, Genesis would still pay the Government a $64 million dividend - 13 percent more than it paid the previous year - which it said was because it had more cash in hand.

Finance Minister Bill English said on Wednesday he is not worried by the drop in profit.

"If you look at Genesis' public statements they give explanations as to why the earnings are lower this year, and their future path for the earnings will all be set out in the investment document. But we don't see the result today having an impact on our decision to proceed or not."

Mr English said details about the company's plans for the future would be included in the offer document when it goes out to the public.

Prime Minister John Key isn't concerned either. "Profits go up and down with these companies. Our long-term view is if it's part of the mixed ownership model programme, it'll be more efficient, more profitable company - but let's see."

Mr Key said the Treasury is currently providing advice on the float.

But the Green Party says a sharp drop in Genesis Energy's profit suggests it will sell for an extremely cut price. Co-leader Russel Norman said the fall indicates serious problems.

"Clearly, Genesis has some challenges - no question about it. What it suggests to me is that if they're going to sell it, they're going to get an extremely cut price - not only because of the results today, but also the broader range of problems that they've got."

Genesis Energy's Huntly Power Station.

Genesis Energy's Huntly Power Station. Photo: Genesis Energy