Pulse Energy sinks deeper into the red as old electricity derivatives weigh

Pulse Energy, the electricity retailer controlled by lines company Buller Electricity, sank deeper into the red in the first half as historical electricity derivatives tied the company to substantially higher than expected wholesale prices and chewed up revenue growth.

The Auckland-based company reported a net loss of $9.99 million, or 2.9 cents per share, in the six months ended Sept. 30, widening the loss of $3.41 million, or 1.3 cents, a year earlier, it said in a statement. Of this, $6.3 million was unrealised losses on electricity derivatives, used by electricity retailers to create certainty over their costs, but which have moved against Pulse as wholesale electricity prices have fallen in recent months.

On an operating earnings (earnings before interest, tax, depreciation, amortisation and fair value adjustments), the firm's preferred measure of profitability, Pulse reported a loss of $2.6 million in the period, compared to a loss of $900,000 a year earlier. Revenue grew 44 percent to $55.4 million as the retailer added almost 7,000 new clients in the half, taking its customer numbers to 54,247. The business was now at a "sustainable scale", the company said.

"The winter period is usually expected to have lower margins for retailers as customer prices are the same throughout the year but higher winter demand usually results in higher wholesale market prices," the company said. "The winter of the current financial year was expected to be particularly financially challenging as Pulse was still tied in to electricity derivatives put in place in previous years which were at prices substantially above the expected wholesale prices."

In October, Pulse raised $3.9 million in a convertible note offer to sophisticated investors to ensure it had a big enough cash buffer to prop up its growth, and last month entered into a new peak funding agreement with shareholder Buller Electricity to give it more headroom.

The company ceded a controlling stake to Buller Electricity in 2011 to repay debt and provide capital for expansion after the minnow retailer ran out of cash and leaned on the shareholder to get it through.

Pulse today affirmed guidance that it expects to be profitable on an Ebitdaf basis in the second half of the 2015 financial year due to lower hedge costs, a bigger customer base and changes in its cost structure.

It also reached an out of court settlement for $250,000 with Pulse Utilities International, a non-related party, over a High Court claim which is now being withdrawn.

The NZAX-listed shares last traded at 8 cents, and have gained 14 percent this year.