Genesis Energy Limited (GNE) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Barbara Chapman, Chair of the Board of Genesis Energy. On behalf of my fellow directors, our Chief Executive and his team and all of the Genesis employees around New Zealand, welcome to our 2024 Annual Shareholder Meeting. We continue to hold this meeting in a hybrid form and thank those shareholders who have made the effort to be here in person today. It's great to be back in Wellington for the first time in a number of years. Our online streaming facility is available for those unable to attend in person, and we thank them for taking the time to be present virtually. Just some quick housekeeping for those here in the room before we start. The bathrooms and fire exits are out the door behind you, if we hear a fire alarm and a request to evacuate. So there's some seats down here if you're looking for one. Please use the stairs and assemble on Grey Street opposite the hotel. For those joining us online, today's meeting is held via the Computershare online meetings platform. This enables you to read the company documents associated with the meeting and ask questions through the platform. [Operator Instructions] Alternatively, you can call Computershare on 0800-650-034. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on the same topic, they may be amalgamated. Due to time constraints, we may run out of time to answer all your questions. If that happens, we will answer them in due course via an e-mail back to you. For those present in person during question time, simply please raise your hand and one of our attendants will bring a microphone to you. Two directors require reelection this year under the NZX director rotation rules, myself and James Moulder. You will be able to vote on today's resolutions either in person or for those online using the Computershare platform. I will refer to the instructions on how to vote when we get to that point in the meeting today. With us today are members of our executive team, including our Chief Corporate Affairs Officer, Matthew Osborne, who will fulfill the role of Secretary for this year's meeting. Silvio Bruinsma is here representing our external auditor, Deloitte. Welcome, Silvio. Notice of Meeting has been duly given to shareholders, and we have the required quorum. I now declare the 2024 Annual Shareholder Meeting of Genesis Energy Limited officially open. Thank you for joining us here today. I will quickly run through the agenda for this afternoon. Firstly, I will provide a brief overview of the Board's key highlights for the year. Chief Executive, Malcolm Johns, will then provide you with a more detailed overview of the company's performance and priorities. There will then be an opportunity for you to ask questions of the Board and the executive arising from those 2 presentations. Finally, we will move to the formal business of today's meeting. And at that point, I will outline the process for the discussion and voting on the 2 resolutions in the agenda. Following voting, you will be provided with an opportunity to raise any items of general business that you may lawfully put to this meeting. If there are any additional discussion points that you feel haven't been covered in today's meeting, please reach out to our Investor Relations team at the e-mail address investor.relations@genesisenergy.co.nz. To begin, let me introduce your Board of Directors. Hinerangi Raumati-Tu’ua. Hinerangi joined the Board in March 2022. She's a member of the Audit and Risk Committee. Hinerangi is Chair of Tainui Group Holdings and brings extensive governance experience, having chaired and served on Iwi boards and those in varied sectors, including water, fisheries, local government, public trust and the Reserve Bank of New Zealand. In addition to her strong commercial Hinerangi was named Maori Business Women Leader of the Year in 2016 and served on the Cullen Tax Working Group in 2019. This year, she won the Maori Leadership Finance Award at the Institute of Finance Professionals Awards. Thank you, Hinerangi. Warwick Hunt. Warwick joined the Board in October 2022. He is a member of the Audit and Risk Committee. Warwick brings over 30 years leadership and governance experience. As a partner and the managing partner of PwC, New Zealand, Europe, Middle East, Africa and U.K., Warwick has worked across a range of sectors, including energy, professional services, financial services, agribusiness and aviation. He is Chair of the Bank of New Zealand and Executive Fellow of Kings College London Business School. He's a Fellow of Chartered Accountants Australia and New Zealand and an Honorary Fellow of Kings College London. Thanks, Warwick. Tim Miles, Tim joined our Board in 2016, coming to us from his previous role as Chief Executive of Spark Digital. He is Chairman of the Human Resources and Remuneration Committee and a member of the Nominations Committee. Tim has had a long career in customer and technology-focused roles at the most senior levels, both in New Zealand and internationally. He is Chair of FortySouth Limited and a Director of ASX listed oOh! media Limited. Tim has served as a Director of companies in the fields of technology, finance and property. Thanks, Tim. Paul Zealand. Paul joined our Board in 2016. He is a member of the company's Human Resources and Remuneration Committee and Nominations Committee. Paul has over 40 years' experience in the oil and gas sector, including senior executive and chief executive roles at Shell and Origin Energy. In particular, he brings strong expertise around health and safety and environmental management and advice around operational risk and commercial management of complex assets. He's currently Chairman of Port Nelson Limited and Channel Infrastructure Limited and a Director of Lockhard Energy. Thanks, Paul. Catherine Drayton. Catherine joined the Genesis Board in March 2019 and is Chair of the company's Audit and Risk Committee. Catherine is a former senior partner at PwC, specializing in mergers and acquisitions, culminating in her leading the insurance and advisory divisions in Central and Eastern Europe. Her extensive cross-sector governance experience includes multiple directorships across EV organizations in the energy, health care and infrastructure sectors. She is a former Chair of the Guardians of New Zealand Superannuation. She's currently Chair of Mint Innovation Limited and Connexa Limited and a Director of IAG New Zealand Limited and Warren and Mahoney Limited. Catherine is a Fellow of Chartered Accountants New Zealand and Australia. Thanks, Catherine. James Moulder. James joined the Board in 2018 and is a member of the company's Audit and Risk Committee. James has strong governance experience, having held a number of nonexecutive board and advisory board positions in the electricity and carbon industries. He has previously held executive management positions at Mighty River Power, now known as Mercury. Ma'am, there are some seats down the front here if you're brave enough to come down. You're right down there. Okay. Prior to joining the Genesis Board, James advised the Singaporean government on the development of electricity hedging trading markets. More recently, he's been involved in the development of carbon and environmental markets in Asia. James' background advising the New Zealand electricity sector's regulatory bodies also strengthens our governance. Thanks very much, James. Behind me is an image of our Board's skills matrix. A summary of the skills necessary for the company's success and an assessment of the skills held by directors. The matrix shows an excellent spread of expertise and secondary skills amongst our directors. This year, we enhanced the skills matrix to highlight climate change risk and opportunity management as a key skill, recognizing that understanding climate-related risks and opportunities and how they may impact business outcomes in the near, medium and long term is key to good governance. We are determined to be transparent about our opportunities, targets, strategy and progress and also about our challenges, the impacts we have and how we are addressing those. Our reporting strives to present a balanced view of how we create value in the short, medium and long term. Our annual reporting suite now includes a fully integrated report in which environmental, social and governance metrics are integrated with financial and performance updates, a climate statement and a sustainable finance report. They can be found in the Investor Centre on our website. Establishing a good working relationship with the company's Chief Executive is one of the Board's most important roles. And it's pleasing to see the progress Malcolm Johns has made in launching a new strategy, structuring an executive team to support its execution in starting delivery of value-enhancing strategic objectives. The Board looks forward to supporting the executive team into action to action the strategy over the coming years, in particular, our 8 by '28. The 8 objectives we intend to deliver by FY '28. Malcolm will speak more on these soon. A Board must continually assess itself. And this year, we had an external party undertake a robust review of our members' skills, experience and our ability to work as a team for the benefit of the company. While there are always areas in which to improve, the results overall were extremely positive. Directors' remuneration was reviewed this year as part of the previously communicated biennial review cycle with the support of Korn Ferry. Directors' fees were last increased in 2021. No increase in the director fee pools have been sought this year, rather, the company has sought to achieve a modest increase in directors' fees through reallocating the current fee pools among the existing 7 directors. As this reallocation of fees is within the envelope of the current fee pools, shareholder approval is not required. Revised directors' fees have been published through the Investors section on the Genesis website, together with a copy of the supporting Korn Ferry benchmark report. I'm proud to lead a strong and capable Board of Directors who provide their extensive experience and specialist skills for the benefit of the company, our stakeholders, the wider community, and you, our shareholders. Our results this year are compared against a year of record hydrology in FY '23 and were affected by 3 major impacts: the loss of Unit 5 for 7 months; the decline in gas supply nationally; and low hydrology, especially in the South Island storage lakes. The impact of Unit 5's unplanned outage could have been more significant, if not for the expertise and commitment of the team that returned the unit to service 4 months earlier than anticipated, and I want to thank the Huntly team for their fantastic efforts in doing so. Lower-than-forecast national gas supply, coupled with lower hydro inflows, saw generation fuel costs rise by over $100 million during FY '24. This meant FY '24 EBITDAF was $407 million, down 22% on FY '23; and net profit after-tax was $131 million, down 33%. As previously guided, the Board chose to pay a reset dividend of $0.14 per share over the year as we transition Genesis towards maintaining sector-leading yields while increasing our capital program to deliver long-term earnings growth, and I'll speak more on this shortly. Looking ahead, our FY '25 EBITDAF is expected to increase to around $460 million, subject to hydro inflows, plant availability and any other unforeseen events. FY '24 was a watershed year for Genesis with the launch of our Gen35 growth strategy, Gen35 is focused on 3 things: cost control, deploying capital to drive earnings growth and maintaining our sector-leading yield. Gen35 capitalizes on Genesis' unique position in the sector. We have a large customer base to help transition to electrification. We have the ability to expand our renewables generation fleet to increase our margin, and Huntly Power Station is front and center and our plans to drive value from energy security and flexibility in a high renewables grid. Huntly proved its worth once again this winter in providing security of supply when hydro lakes were low, wind did not arrive at the wind farms and the gas supply declined markedly. We have moved quickly to start delivering Gen35. First up, we achieved final investment decision for the Lauriston solar farm. Construction is well underway, and the facility is on track to begin generation in December this year. The swift delivery of generation assets to the market is a tribute to how we've built development and delivery capability quickly within the Genesis team over the past year. We've also secured our next solar site near Edgecumbe in the Bay of Plenty while adding enough development opportunities to our pipeline to be confident of achieving our target of 500 megawatts of solar by FY '28. We're delivering on the transformation of Huntly Power Station, a 1,200-megawatt grid connection located in the heart of New Zealand's growth region of Auckland, Hamilton and Tauranga. The transformation began by reaching financial close on the first stage of the site's grid scale battery project. The 100-megawatt battery is expected to be operational in the middle of 2026. It will play an important role in driving enhanced margin from our existing portfolio and accessing new revenue and margin from the market. We continue to advance displacing coal with biomass and expect to have more to say about this project later in FY '25. We're well into delivering our retail transformation, a journey towards a simplified lower cost model while focusing on new value pools in demand-side flexibility and EVs. Our new approach will result in a reduction of around 200 FTEs, so 200 people across FY '24 and FY '25. We thank our people for their professionalism in working through this difficult process with us. We advanced the delivery of our digital program this year, which consists of 3 key upgrade projects for our billing and CRM platform, our finance management platform and our wholesale trading toolkit. The Board and executive are focused on managing delivery risk and ensuring these projects have the earnings impact that we seek. And our work this year also included starting to deploy productivity-enhancing technology like AI, and we'll have more to say on that over the coming year. At Investor Day last November, we outlined a $1.1 billion capital program to build renewables and drive earnings growth. We indicated we would aim to maintain a credit rating debt-to-EBITDAF ratio in a multiple between 2 and 3 over the long term. This would include dedicating the free cash flows from our share of the Kupe gas field to this program. The current unfavorable outcome at Kupe's KS-9 well, means we may be at the upper end of our credit rating range while we deploy capital, moving back towards the middle of the range as earnings growth from new initiatives bid in. We remain committed to our BBB+ credit rating long term. We indicated at Investor Day that we could build earnings using power purchase agreements, or PPAs, partnered capital at asset level with PPAs and using our own capital on balance sheet. In the past year, Genesis' share price has not performed at the level of our competitors. We acknowledge that as we transition to a new setting of yield and growth, it will take time to build earnings and for our share price to follow. Genesis is in a transition within the energy transition and we're focusing on the things we can deliver to grow shareholder value, such as setting our new strategy, good governance of key investment decisions, maintaining a strong and capable executive team and upholding the reputation of Genesis. The Board carefully considers dividend policy to provide shareholders returns while balancing investment for long-term growth and maintaining an appropriate balance sheet setting. The reset of the dividend to $0.14 per share was an important decision for the Board as we chose to direct increased free cash flows into new renewable generation to deliver Genesis' transition to an earnings growth outlook. While the outcome of the KS-9 well intervention has proven there is some gas there. There is a blockage in the well that is preventing that gas from flowing. The joint venture is reviewing options for further intervention, and we will remain engaged in that process. The KS-9 outcome reinforces the importance of transitioning Genesis under Gen35, and Genesis remains committed to delivering our strategic objectives. The next phase of this transition will occur over the next 4 years as we deliver Horizon 2 of Gen35, our 8 by '28 program targeted to lift earnings to the mid-$500 million by FY '28 and drive shareholder value. Our business is nothing without the commitment of our people. FY '24 saw a major restructure of the business and the introduction of a new strategy, a survey conducted after the restructure delivered an overall team engagement score of 81%, which is an outstanding result considering the difficult period our people had just been through. Most agreed their work gave them a feeling of personal accomplishment and that they would recommend Genesis as a great place to work. Our focus on safety and wellness is key to this result. This year, we continued to see a significant reduction in injury severity with the number of total lost and restricted days due to injury reduced by 42% compared to FY '23. Our ongoing LPG Delivery Injury Reduction Program maintained its momentum with a 31% reduction in the LPG injury rate since the program launched in FY '22. Our Genesis Wellbeing Program continued its success with widespread use of resources in a portal called My Everyday Wellbeing. We're working towards an international standard for workplace health and safety systems. In conclusion, along with my fellow directors and our Genesis Energy team, I would like to thank you for your ongoing support of our company. FY '24 has been a challenging year in what is a dynamic decade for the energy sector. The year's events have underlined a long-held view that a renewable transition must also deliver energy security and reliability. We will continue to engage constructively with regulators to help ensure a workable pathway for new renewable generation while helping ensure security of electricity supply and affordability for our customers. I have every confidence that your Board, overseeing our strong executive team, will maintain the company's position as an essential and profitable part of New Zealand's energy future while, at the same time, living up to the company's purpose and vision. Finally, I do want to acknowledge the awards that Genesis has been recognized for in the past year across our wholesale, retail and corporate segments. We're pleased that our integrated report, that I mentioned earlier, was recognized as best overall at the 2023 Internal Annual Reports Awards. It's now my pleasure to invite your Chief Executive, Malcolm Johns, to address our shareholders. Welcome, Malcolm.

Hello everyone. Thank you, Barbara, for providing an overview of some of the challenges and opportunities the company has navigated in what has been a demanding but rewarding year in which we defended our earnings and delivered on strategy. While we were challenged by major unplanned outages and New Zealand's gas shortage, the big impact was mother nature failing to show up during winter 2024. The country experienced 30%, 3-0 percent, less generation from major hydro and wind operators over the past winter. Despite these challenges, our generation portfolio showed its resilience. We delivered for our customers from our own generation assets, avoiding the volatile spot market. This meant we defended our earnings while also delivering on key strategic projects. Horizon 1 of our Gen35 strategy was about getting the business future fit to return to growing earnings, and we delivered on that. We have reshaped Genesis into 6 business units, realigned the executive team and commenced a major repositioning of our retail business into a lighter touch, lower cost model. As part of this, we farewelled 130 of what will ultimately be 200 fewer staff in our retail business. I want to thank everybody for the professional way and this was handled. In addition to strengthening our executive team, we have also built depth into our leadership bench with a more impactful senior leadership team who are laser-focused on delivering cost control, our earnings enhancing capital program and maintaining our sector-leading yield position. I'd like to introduce the executive team to you now. Tracey Hickman has been on the Genesis executive for more than 12 years and in the energy sector for 3 decades. In FY '24, Tracey was appointed Chief Wholesale Officer, overseeing our wholesale operations, electricity trading and our fuels portfolio as well as our renewables asset development team. She has also been a Chief Customer Officer and, prior to this, was Executive General Manager for Wholesale. Matthew Osborne has been with Genesis since 2018, and as our Chief Corporate Affairs Officer, is responsible for legal, regulatory, government relations, sustainability, community investment, communications and company secretarial functions. Claire Walker joined the team last year as Chief People Officer. Claire has deeply experienced in people and culture. She understands how structures best serve strategy and how to build high-performing cultures. Stephen England-Hall joined us as our Chief Retail Officer. He is a market strategy specialist who understands value-creating brands, customer loyalty, proactive channel management and high-value, low-cost customer service models. Ed Hyde came onboard as our Chief Transformation and Technology Officer. Ed has deep experience in introducing new technology platforms data and AI into businesses to drive productivity growth. This year, we farewelled our Chief Financial Officer, James Spence, and we are now looking forward to welcoming our new Chief Financial Officer, Julie Amey, in November. Julie joins us with a wealth of experience in both the energy sector and listed entities. We are grateful to Emma Oettli, who's with us here today. Emma, you can stand up, for taking on the role of interim CFO until Julie joins us. Emma is an excellent example of the strength in our senior leadership team. She will move on to a new but critical role of General Manager portfolio where she will lead our work on growing group gross margin over the next 4 years. As Barbara mentioned, the launch of our Gen35 strategy kick-started Genesis' transition to a growth stock with sector yielding -- sector-leading yields, focusing on deploying capital to return our earnings outlook to growth. For New Zealand to reach net zero by 2050, 60% of New Zealand's energy needs to come from electricity, up from 38% today; at least 95% of that electricity needs to be renewable, up from 80% today, and it will need to be practically available 100% of the time. This includes winter peaks, periods of low wind and New Zealand's regular dry years. This is the first principle of our operating context for the next 25 years. 60, 95, 100 are numbers that we will repeat regularly. The challenging elements of the 60/95/100 scenario will be advancing demand-side transition to electrification or electrifying our homes and businesses, while maintaining 100% energy security as we do so. If we look back over the past decade, we can see from this slide that demand for electricity has been flat. However, the sector has been investing in new renewable generation, lifting from around 70% a decade ago to 80% today. What this graph shows is, while the electricity generators have been investing in New Zealand's energy transition, the broader New Zealand economy has not. We are no more electrified today than we were a decade ago, yet electricity is much, much more renewable. New Zealand has chosen a market-based approach to the energy transition. Markets, by their very nature, foster the rational deployment of capital, and that is exactly what we have seen in the electricity sector over the last decade of no demand growth. Countries, which have transitioned over the past decade without subsidies, have seen customer demand growth and strong demand side policy settings, sending clear signals that have triggered rational investment in new generation. It is time for New Zealand, as a whole, to invest in both electrifying our country and new generation. New Zealand relies on foreign investment to fund our economy and our standard of living. The challenge is not just to attract that capital but to have a long-term stable market settings and capital structures that make it easy for that capital to land in New Zealand and build things in a meaningful way, driving investment in both electricity demand and electricity supply. Under our new strategy, we are committed to playing our role deliver the 60/95/100 scenario to net zero 2050 for New Zealand and growing shareholder value as we do. Our recent investment in taking a majority position in ChargeNet, New Zealand's fastest-growing EV charging infrastructure provider, complements our existing investment in Ecotricity, New Zealand's largest distributed energy retailer, through scale deployment of household rooftop solar and battery systems. These partnerships enable us to support our 500,000 customers in electrifying their homes and businesses while we create new value pools to build shareholder returns from in the future. We are committed to investing around $1 billion in new renewables by FY '30 as we develop our generation portfolio to be 95% baseload renewable by FY '35, producing long-term earnings growth profiles. As we build new renewables, we will free up around 1,400 megawatts of energy security generation in the Huntly portfolio which we intend to sell into the short- and long-term energy security market, which as winter '24 has shown, is not fully covered by other participants in the market. Despite the operational challenges of FY '24, we delivered all the Gen35 Horizon 1 strategic objectives we said we would. We delivered on the first stages of moving to a lower-cost lighter touch retail model focused on value share over volume share in the market. The challenges resulted in a reduction -- the changes resulted in a reduction of 130 full-time equivalent employees in our core retail and technology teams. By FY '26, we will be operating retail with a total of 200 fewer full-time equivalent employees. At the same time, we invested in growing our teams and skills across renewables development, adding specialist skills and subject matter experts in grid-scale batteries, solar development and wind development. We also increased the capability in our trading and fuels teams. The change process we navigated during the past year was one of the best I have been part of during my 30-year executive career. Over 90% of the team members at Genesis have been through some form of change process in the last 12 months. And the evidence of how well this was handled came in the follow-up survey of our people. Despite the major restructures, 81% of our team are engaged in the business and believe in our strategy. That is 6% above the national benchmark and reflects the quality and capability we now have in both our executive and senior leadership teams to navigate large-scale change and transition while maintaining strong staff engagement. We also maintained our high customer satisfaction rating. The Genesis brand improved its customer satisfaction score while going through those changes by 6 points. Frank won the Consumer New Zealand People's Choice Award for the second year in a row. And our Power Shout program won the best overall loyalty program in our industry category at the Asia Pacific Loyalty awards. Our billing and CRM platform upgrade is on track and on budget. We're planning for a late FY '25 go live across our Frank brand and full implementation across all brands by FY '27. Our wholesale program gathered momentum. The Lauriston solar farm is under construction with our joint venture partner, FRV Australia, and is due for first generation in December this year. A 10-year renewable energy supply partnership agreed with Spark, supported by the Lauriston development, is an example of how agreements can support the development of new renewable capacity as well as deliver our partners' sustainability commitments. We've secured another solar site near Edgecumbe in the Bay of Plenty and final investment decision is due in the coming months with first generation in the first half of 2026. We are on target to deliver our objective of 500 megawatts of solar generation by FY '28. We reached final investment decision on the first stage of our grid scale battery program at Huntly Power Station. Installation of the first 100-megawatt battery will start this year with operation planned mid-2026. Using the new battery at Huntly, we will be able to move solar generation from the middle of the day into the valuable evening peaks. Gas storage will allow our summer gas to be displaced by our solar generation, shifting summer gas into the more valuable winter period. Winter 2024 highlighted the need for New Zealand to be able to store energy at scale to cover dry year needs. We also learned that the same weather patterns that bring us dry years also produce wind droughts. Mother Nature didn't show up in 2021, she didn't again in 2024, and there will be years in the future when she won't show up again. During winter '24, hydro and wind generated 30% less electricity than the year before. The system as a whole didn't have this covered, and as a result, the country was short of stored energy reserves, with the result being a volatile wholesale electricity market. Genesis can be proud of 2 things from this past winter. Firstly, our 500,000 customers across the entire country were not exposed to the prices quoted in the media. We backed every one of our customers through this winter. Secondly, at short notice, Genesis was called on to deliver 25% more generation than the winter before despite having less gas to do so. New Zealand was simply lucky that the Huntly coal stockpile was at 800,000 tonnes at the start of autumn. This was materially above the 350,000-tonne operational stockpile Genesis would expect to have at that time of the year. The current New Zealand wholesale electricity market rules require generators to carry a generation reserve but not an energy reserve. During winter '24, we were not at risk of running out of generation, we were at risk of running out of energy. This slide shows where New Zealand stores energy at scale for electricity. As you can see, hydro storage is around 4 terawatt hours. Gas is around 1 terawatt hour. Coal is around 2 terawatt hours. But New Zealand's biggest energy reserves lie in our forests. If we take low-value logs, we can produce around 4 terawatt hours of electricity each year. High-value logs, we could produce about 10 terawatt hours or 25% of all of the electricity that New Zealand uses. New Zealand's largest, cheapest, most sustainable and reliable energy storage for electricity sits in our exotic forests. Biomass through the Rankine units at Huntly offers the country as much as 4.5 terawatt hours, more than all the hydro storage in New Zealand of energy cover for dry years and low wind periods. Biomass, used in the Rankine units, produces competitive electricity prices, as can be seen on the slide. New Zealand has the opportunity to not only secure dry year cover using biomass from domestic forests without disrupting log exports or construction, the potential supply is also large enough to ultimately displace all of the coal and all of the gas in the system at the moment. Under our new strategy, Genesis is pursuing biomass at speed, investing in a dedicated team to deliver real outcomes and volumes by FY '28. While biomass as a fuel is important, we also need to secure a commercial pathway for at least 2 Rankines with 1 reserve out to 2035 to '40. In dry years, the Rankines become critical to New Zealand's electricity system. A commercial pathway for the Rankines beyond FY '28 will require an adequate return on capital for Genesis. This year, we launched a new product into the market, Huntly Firming Options, or HFOs, to test how we might deliver both energy security and earning security beyond FY '28. A key feature of HFOs is they sell fixed capacity options to the market, with fuel reserves and costs sitting with the HFO holder rather than with Genesis. We were very pleased with the market response. While this round of HFOs was a limited volume of only 2 years duration, we are working on how we deliver greater volumes with 10-year duration. 10-year HFOs will be critical to triggering the investment in Rankine capacity to secure New Zealand's energy storage needs on biomass out to 2035 to '40. There will need to be sector support to deliver both and to secure the electricity system during years of low hydro and low wind. As we add more renewable generation to our portfolio, we will be able to offer more capacity at Huntly 2 HFOs to support the nation's energy security. Our financial performance in FY '24 had 3 significant impacts. First was the loss of Unit 5, our 400-megawatt combined cycle gas turbine at Huntly Power Station. For 7 months following a fault, we were without this critical asset. Much of the direct impact was insurable. However, the indirect impacts were not. We had to run Rankines for longer, burn more coal than we planned. and delay some of our planned outages in our hydro generation fleet. The second major impact of the year was the decline in gas supply nationally, down 29%, almost 30%, in a year. Less gas means more coal for New Zealand at this point in time, and coal is a more expensive way to generate electricity than gases. The third impact was low hydrology and lack of wind. In normal dry years, the country has been able to rely on gas generation to back up the grid. However, the national gas shortage meant that once Unit 5 was back online, we could not run it at full capacity. In fact, 50% of New Zealand's gas generation sat idle through the winter. Our team responded well to these challenges to minimize their financial effect and ensure there was no impact on our customers. The challenges have, however, created a drag on our financial outcomes. OpEx was on budget but up 10% on the prior year. The main restructures I mentioned occurred in the second half of the financial year, so the full effects are expected to flow through into FY '25 and beyond. We've previously signaled higher time-limited OpEx driven by investments in critical digital projects. This OpEx will peak in FY '25 and '26 before falling back to normal businesses usual levels from '27 and '28 onwards. The next 2 years will be focused on controlling OpEx, completing the technology program and deploying growth capital to drive earnings growth. We have major CapEx being deployed across the next 2 financial years, and we expect to see the impact on earnings of this flow into FY '27 and '28. Until we secure a reliable supply of biomass, less gas does mean more coal for the electricity system. Combined with the Unit 5 outage and the low hydro levels, FY '24 saw us burn a lot more coal, with the resulting increase in emissions of around 1.2 million tonnes of CO2. This means we will likely miss our FY '25 Science Based Targets for emissions reduction despite all our scopes of emissions being lower than our base year FY '20. We have always said that our emissions reduction journey will not be a straight line but a trend over time. We now intend to extend that time line to be net zero by 2040. And this year, we will apply to the Science Based Targets Initiative for verification of this target and our journey to it in support of New Zealand's goal of reaching net zero by 2050. We have spent FY '24 getting the team and the business future-fit. We are in delivery mode and we have a growth mindset. Our mission is to deliver 8 earnings growth initiatives by 2028, our 8 by '28. These are the 8 deliverables that will drive earnings from where they are now into the mid-500s by FY '28, equating to around a 35% earnings growth over the coming years. As you can see from this slide, each of the 8 strategic items aligns with 1 of the 3 COGS in our Gen35 strategy: our customer COG, our company COG and our country COG. We currently believe the long-run cost of electricity in today's dollars will be around $115 a megawatt, and this underpins the modeling that we've done. We are well into delivery mode of each item on this list, and we will report our progress against it every 6 months. FY '24 has been a transition year for our shareholders as well as our team, and we acknowledge that. The earnings outlook, pre the Gen35 strategy, was flat then declining. That was because renewables would displace thermal and we weren't building renewables. Horizon 2 of Gen35 focuses on the 8 by '28 program, transitioning Genesis within New Zealand's energy transition and returning the company to an earnings growth outlook. Our focus for the next 4 years is on driving cost control, deploying capital to grow earnings and maintaining our sector-leading yields for our shareholders. We are confident our strategy and the team we have in place can deliver this for our shareholders. Thank you very much for your support over the past year. I look forward to speaking on progress on the 8 by '28 over the coming periods. Thank you.

Thanks very much, Malcolm. We now are at a point to take questions on these 2 presentations. And I think to begin with, we've had a couple of questions e-mailed into us prior to this meeting. And so I might ask Matt, if you don't mind, to read out the first of those, and I will respond to those. And once I've got through these questions, we'll take questions from the floor.

Thanks, Barbara. We have a first question here from a shareholder, Mr. John Blundell. In November 2023, the Genesis Board updated dividend policy to maintain in real terms and grow as appropriate. Mercury Energy has grown its dividend every year since listing in 2014, whilst Genesis cut the dividend in 2023. This means a 30% cut in real terms since listing, and Genesis shares have since underperformed. Will the Board commit to maintain dividends in real terms and adjust them by CPI or more each year going forward?

Well, thank you very much to Mr. Blundell for that question. The Board reset and announced a new dividend policy in November last year as part of our strategy reset under Gen35. Prior to that, our earnings forecast were to be in decline. We reset our dividend to $0.14 per share. While this did represent a change for Genesis, the dividend yield for Genesis remains higher than our competitors at around 9%. We know that earnings growth will drive share price growth. And so that's our focus. We're mindful that Genesis as a company needs investment to transform and grow longer-term shareholder value. The Board carefully considers the appropriate use of capital across long-term investments, maintaining a strong balance sheet and returning value to shareholders as dividends. The dividend reset will support Genesis to transform by investing in renewables, flexibility and electrification. We are also committed to maintaining our BBB+ credit rating for the long term. We see long-term value in these opportunities and these require capital. I want to stress that each decision to invest is one where the expected returns exceed our risk-adjusted cost of capital and, as such, will drive earnings growth through to FY '28 and beyond. With long-term earnings growth, we can deliver long-term dividend growth. It wouldn't be appropriate for me to permanently commit Genesis to a dividend policy, but the current dividend policy maintains unchanged, which states we will maintain dividend levels in real terms and grow where appropriate. Thanks, Matt.

Thank you. Next question, Mr. Tristram Snowden. He submitted two questions. The first question, the KS-9 well was an unmitigated disaster, which effectively gambled and lost $80 million of shareholder capital. What work is being done to recover this lost capital? And when will shareholders receive benefit from this, such as a special dividend?

Mr. Snowden is referring to Genesis' investment alongside our joint venture partners, Beach and NZOG, into an additional well at the Kupe field. The investment decision was made in consultation with our JV partners and external advisers. Yes, we acknowledge the result was disappointing and that this has resulted in a decline in gas production and earnings. The entire electricity sector in the country is undergoing a gas shortage, and this has resulted in higher energy costs for those not on fixed price contracts. The joint venture is reviewing options to restart the well, but I would note that the reserves were downgraded, indicating that there is less potential gas in reserves. Our focus now is on Gen35 investments, such as the Huntly Battery and we'll return capital to shareholders aligned to our current dividend policy.

Second question, Genesis Energy dividends have been significantly reduced under the guise of investing capital into future developments. In contrast, other [ Gen-tailers ] have not required this diversion of dividends to fund their future developments and, in one case, have increased shareholder dividend payout. What is Genesis Energy doing that requires this drastically different capital management? And when will shareholders receive a benefit from it by way of increasing share price and increasing dividend?

Genesis has paid stable and growing dividends since listing in 2014 through to 2024. We made the decision to reduce the dividend to invest to transform our portfolio through our Gen35 strategy. As I said in my answer to Mr. Blundell, earnings were forecast to decline, so we chose to invest in a new strategy. Genesis chose to distribute a higher level of earnings over the past decade, and we're now at a point where we need to reinvest for our business. The Board carefully considers Genesis capital position, balancing the requirements of investing for growth, maintaining an appropriate balance sheet setting and returning capital to shareholders. And as I said, it's also our intention to retain a BBB+ credit rating in the long term. The Board and management are mindful that all investments made do need to return value to shareholders in the long run. Decisions to invest are tested against a risk-adjusted rate of return so that we can deliver long-term earnings and continue to return capital to shareholders. As an example, our recent investment in ChargeNet is a long-term investment in infrastructure with strong long-term returns. We expect an internal rate of return above 15%. We need to note that Genesis is different to our competitors with different assets and a broader transition challenge. Huntly will need to evolve as we've demonstrated with our battery and biomass plants, and that's going to require investment. So those are the questions that we received ahead of this meeting. Questions from the floor are now open. If you have a question, please indicate by popping your hand up. Remember, this meeting is being webcast, so you'll need to be heard by a remote audience, so please wait for the microphone to arrive before speaking. Those shareholders attending online today may also submit questions and I will address those after we have had questions from the floor. So before asking your question, can you please state your name, if you're a shareholder, proxy holder or a shareholder representative shareholder.

Shareholder. Why is it you can't get a commercial gas count with Genesis?

I beg your pardon.

Why is it you can't get a commercial new gas count with Genesis?

I might pass that one to Malcolm.

Because if you want to grow customers, you've got to sort of maybe be able associate to them.

We can't grow gas customers [ if don't have gas ], short of that. So at the moment, we are not taking new gas customers. We are working hard to honor existing contracts. But the reality is New Zealand has 30% less gas today than it had a year ago. And you have to balance supply and demand. You can't sell something you haven't got. We haven't got the gas to sell.

So did you now estimate how much gas you had last year?

Well, no. I think if you listen to what Barbara said, we banked KS-9 into our forecast, and that hasn't produced gas. So it will be irresponsible to go and sell new gas connections if we couldn't supply the gas.

Thanks, Malcolm. Any more questions from the floor? Yes.

You mentioned biomass. Can you just give us a little bit more elaboration on biomass in itself and where you're extracting this from, the sort of efficiency that will provide versus our hydro scheme as it so stands?

I think you need to think of biomass as a substitute for coal rather than a substitute for hydro because of the cost of production, obviously. Biomass, the trial that we did, it might be a year or more or so ago, proved that biomass pellets, the black torrefied pellets, can run through the Rankines and can be used in substitution for coal or along with coal. The next challenge is to find enough for it to be a viable replacement of coal over time. And that's what we're working towards. There is good demand for biomass globally. And obviously, as you saw from Malcolm's slide, there's a lot of forestry in New Zealand that could be used for biomass for creating the pellets. The industry needs to stand up to make that happen, and we're hoping to be a driving force and around that. So it's a pretty exciting future for us with the use of biomass.

Tim, a shareholder. Probably a reflection of my age, but been working over seasoned data centers are quite at forefront of everyone's minds overseas. And I'm just wondering the potential for Genesis Energy's consumption.

There's no doubt that data centers do drive up demand for electricity. And so as we sort of forecast out how much electricity is going to be needed across New Zealand, particularly with the build of these data centers, which are very energy hungry, as you know, those sorts of things are being factored in. There was a joint industry study done by BCG, one of the consulting firms, that factored those kinds of things in to give the industry a sense of what that demand is going forward. So yes, as we're going through this transition and as there's a lot of volatility in the sector, and the rain doesn't come and the wind doesn't blow, the demand is going up at the same time. And so we're all very conscious.

[indiscernible]

Yes, that's right. Yes. So it's an exciting sort of time to be in the sector.

Good afternoon, [ Peter Musburger ], shareholder. Biomass, coal, gas, can you give us an idea of what the pollution settings are for each of those fuels to generate electricity?

I don't have the numbers in my head. Malcolm, do you? Coal's worse.

Yes. So on a gross basis, gas is roughly half the emissions of coal. If the gas is imported, that changes quite significantly. In terms of the comparison to biomass to coal, I don't have that at hand. But if you are replanting the fiber, at the same time you're harvesting it, you do go into a 0 carbon cycle in terms of that. But I'm sorry, I don't have that comparison at hand.

[indiscernible] can you give a mic to Tracey, who might be able to answer it, please.

Thank you. Assuming that we are able to produce the biomass locally through sustainable forests, then biomass represents about a 90% reduction in emissions than coal. So that's what we're going after.

Thanks, Tracey. So it's meaningful. Thanks for the question. Any more questions from...

[indiscernible] or...

Would might just grab that on the mic so that the people online can hear you.

So are you just going to convert Huntly from burning coal to biomass and steam?

I believe we'll be able to have flexibility in and around its fuels. And so ideally, if we have gas, we can run gas. If we have coal, we can run coal. When biomass comes on stream, we can run biomass. There's also a diesel unit at Huntly, and we're also going to have batteries at Huntly. So for us, there's a preference towards biomass, obviously, because of the emissions. There's a preference away from coal because of those emissions that are high. But we want to have the flexibility and continue to have the flexibility at that facility because I think New Zealand needs that kind of fuel flexibility going forward. But it's very much a strong preference to biomass. There's a question down the back. Jump in if anybody have got anything to add.

[ Alan Bennett ], a shareholder. While we're talking about biomass, I mean we've heard a lot in the last couple of years about slash out of the forests. Would that be included? Or is that just too an expensive thing to -- mean I'm trying to -- is there a win-win here somewhere where we can use something which is rubbish and still get production out of it?

I think Tracey wants to take that question, too. I'm not sure she wants to, but she's going to.

Thank you. Yes. Look, one of the options that we are pursuing is modular biomass production units that you could effectively take into where forest waste material is available. And that includes a sort of slash that we've learned about, particularly since Cyclone Gabrielle. So that's one of our objectives and what we're working on at the moment.

Thank you. Another question?

Peter again. Lauriston Solar expected to be operational by quarter 2 next year, does that have battery storage?

The question of Lauriston Solar Farm, which will be commissioned and operational at the end of this year, so producing electricity for the grid in the first quarter of next calendar year. It doesn't, at this stage. It has the opportunity of down the track. But we're focusing on the grid scale battery at Huntly. Huntly is our battery focus at the moment. But all of our solar developments will have the ability to have batteries at it at a later date.

Thank you. Any more questions before I take one from online, one more down here.

I was over at Meridian this morning, and they were incentivizing Fonterra, Vulcan Steel to come over to electricity as well, away from diesel. Are we working with them as well, like Fonterra, to come on to electrical?

Yes.

And incentivizing them or just...

We live in a commercial world. We compete.

You can't hear the question through the mic?

[indiscernible]

Sure. Let me explain that. So Fonterra, like Genesis, uses coal for industrial heat, and Meridian are offering incentives to move off coal and on to electricity. And the question was, is Genesis having similar conversations with customers? And the answer is yes. So part of the electrification is not just Genesis looking at how it gets off coal. But anywhere that you have industrial heat for manufacturing milk powder or steel or whatever that's using coal, that has to move to another lower carbon fuel source. So the question was, are we engaging with our customers? And the answer is yes, we are.

One more question here. Matt, are there questions online?

[indiscernible]

[ Von ], shareholder. Training of staff, and in particular, young folk coming through the likes of apprenticeships and into the technician training field, I wonder how many you might have currently under training. And the other part of the question, I noticed the Board is very, very heavily qualified with BAs. What is the situation with those that have got BEs in engineering and electrical and mechanical?

Look, I can answer that one in the sense that probably a degree isn't the thing that we're most looking for when we're looking at our skills matrix on the Board. We've got people on our Board like Catherine and James and Paul who have worked for a very long time in and around the energy sector. And so those people bring the right governance skills to the Board to help us with the decisions that we have. The first part of your question, sorry, I just lost sight of it -- oh, the apprenticeships. Actually, it's interesting. I was at the Tekapo -- I'll pass to you in a minute, Claire. I was at the Tekapo, our facility down there, last week or the week before, and they were asking the questions about apprenticeships, too, because they're very aware of the fact they need to pass the baton off to new people to work in these generation facilities. So it's a very live discussion, but we do have an apprenticeship training program, but I'll just pass over to Tracey again.

Yes. Thank you. So look, really share that we have a strong interest in ensuring that we have highly capable people in that we have succession coming into the business. Over the last few years, we've invested in a program we call Nga Ara Pathways, and that starts with bringing in young people as interns, into summer interns as -- whilst they're doing their degrees and then as tertiary graduates and as apprentices through the trades. So I can't tell you precisely how many apprentices we have at the moment. It's a handful. And as our aging workforce, of course, retires, will obviously increase that number over time.

There's quite a good section in our annual report on what we're doing around apprenticeships, around supporting schools, around STEM. So if you take the time to find a copy of that, you might find it interesting. Okay. Good. thank you. Are there any more questions from the floor? One on the back.

[ Neville Phillips ], shareholder. The world is full of plastics, which everybody has a responsibility of doing something about. Most of it these days seems to go into the rivers and the sea or perhaps gets buried. Is there any way that, that plastic can be converted to produce electricity, or some means of converting it?

There are facilities, and I went and visited one in Denmark, that have very big waste-to-energy conversion facilities that burn a whole lot of rubbish and then reticulate that around places like Copenhagen for heat and households and things like that. We've had a look at that in New Zealand. The strange reality of it is that we probably don't have enough rubbish to burn to make that commercially viable. But I think over time, these facilities will get more compact, and these kinds of conversations need to be kicked alive because there is a lot of rubbish around, as you say, and turning that into fuel is definitely something that we see overseas but at a much, much larger scale than we can see commercially viable in New Zealand at the moment.

[ Ross Choi ], shareholder. Was there any merit in the Lake Onslow proposal at all?

Look, I don't want to get political about Lake Onslow. But what I will say is now that a decision has been made on Onslow, the benefit to the sector is that we've got certainty. So while Onslow was hanging around as an idea that may or may not progress, it's very hard for a company like Genesis to think about how do we invest in our renewables program because if that comes online, then we get left with these stranded assets because that will take over. So whether or not it was a good idea, I think it's academic for us. It's a good idea to have more certainty as we go through our renewables program. Thank you. I might take some questions online?

Yes. So we do have some online questions. Just for those listening online, I've taken the liberty of paraphrasing some of the more lengthy questions that we've received. So if you feel that I have missed your question or not reflect it correctly, apologies in advance. And obviously, you can contact us at the Investor Relations website also. So first question from [ Stephen Mayne ]. In 2019, ASX-listed Treasury Wine Estates voluntarily moved to annual elections for directors in line with best practice in the U.S. and the U.K. Can the Chair and all the directors that are up for reelection today comment on whether Genesis will follow this lead and voluntarily move to annual elections of directors at the 2025 AGM in order to lift shareholder accountability?

Look, thank you very much for the question. I'm aware that there is a trend towards this, but it is not building in this part of the world. And so I don't think it's a necessary requirement for Genesis to take the lead on annual shareholder elections at this point. So I will say no to that one.

Next question, also from Stephen Mayne. The ASX is currently in the midst of an unprecedented deluge of takeovers that has contributed to listed entities falling by 170 or 7.4% to 2,124 since June 2022. There is a clear mispricing between public markets and private markets. Why are public markets not valuing ASX and NZSE listed companies like ours more highly? And adjunct to that, what special protections do we have to avoid being taken over?

Well, I think the special protection to avoid being taken over at this point is 51% Crown ownership, which many of the -- 3 of them, face that. So I don't see that as a major threat to Genesis at the moment. In terms of share price and what's happening, I think we've adequately covered the overhang in our share price in this presentation. There is a switch, we can all see it, there was a switch to private. It's happening in some sectors more specifically than others. But I don't really have anything to add on that, unless you do, Malcolm.

I attended a seminar in Australia earlier this year on exactly this, the switch to private and public capital markets versus private direct investment. And certainly, as super funds and retirement funds grow, the speed with which they want to move at isn't adequately accommodated in public capital markets, and that appeared from that conversation to be the biggest issue. And -- but in terms of why the valuations are different between the 2, I wouldn't be an expert to comment on that.

Next question also from Mr. Mayne. Mr. Mayne notes that the Prime Minister as a former public company CEO, understands the challenges we face as a public company, and it's clearly taking a more pro-business policy approach. What has the change of government meant for our business? And separate to that, he notes that the Australian opposition is pushing for Australia to develop a government-supported nuclear power industry. What do we think of that?

I think there might be one of those political things that I'm not going to get into about nuclear power. Obviously, I don't think it's on the agenda for New Zealand. Look, simple things that are coming out of this government that we didn't see in the prior government are things like certainty around Onslow, for example, and things like streamlining the Resource Management Act to make it simpler for an organization like ours to go through reconsenting processes in and around our hydro schemes, for example. So there have been some things that coming along are helpful. I think the change in the government stance on oil and gas potentially is also helpful. But whether or not companies will invest in oil and gas exploration, it's difficult to know because, obviously, there's a sovereign risk if the government changes and people have invested in that kind of exploration. So there have been some good things come along that we can certainly see us hold off that just make things a little bit better for companies like ours.

A couple of questions from [ Oliver and Hildegard Colman ]. First of that is, what different kinds of fossil fuel and biofuels can be burned in your thermal units at Huntly?

It might be a Tracey question. Malcolm?

I'll take it. In essence, the Rankines can use any form of solid fuel like coal and biomass or anything that can be gasified. So if you think about waste into energy, it goes through a torrefaction process, produces a gas, we burn the gas in the gas turbines the same way we would natural gas. And so it really, if it can be -- if it's liquid, gas or solid in the right form, we can put it through one of the machines at Huntly.

Second question, please describe in more detail your relationship with the electricity retailer, Ecotricity.

We own currently 70% of Ecotricity, and we have a contractual obligation to buy out the final 30% at a point in time, and we'll execute that. And so ultimately, we're a majority shareholder at this point in time, but it becomes part of Genesis at some point in time in the future.