Higher South Island rainfall boosted hydro generation for
Contact Energy. Pictured is Contact's Clyde dam spilling in
early January. Photo by Lynda van Kempen.
Contact Energy's almost 30% profit boost to $88 million
for its second half-year was in part due to overflowing
southern hydro lakes and Contact's expanding portfolio of
Despite falling wholesale prices, only a ''modest'' retail
customer increase, a decline in retail sales volumes and
tightened margins, Contact's use of different energy
generation sources offset those negatives.
Contact's after-tax profit for the half-year to December of
$88 million was $20 million, or 29% up on a year ago, while
earnings before net interest expense, tax, depreciation,
amortisation and change in fair value of financial
instruments (Ebitdaf) was $253 million, up 10% from $231
million in the first half of the 2012 financial year.
Shares in Contact, which will repeat its 11c dividend,
climbed 2.5%, or 13c, to 5.21% after the announcement.
Contact chief executive, Dennis Barnes, said the generator
had delivered a ''solid half-year performance'' despite
weakness in the wholesale electricity market and sustained
competition in the retail market.
''Higher rainfall in the South Island resulted in increased
hydro generation, displacing more expensive thermal
generation,'' he said in a statement yesterday. Contact was
able to respond by reducing thermal generation and purchase a
larger proportion of its generation from the spot market,
while prices were lower, he said.
''I'm pleased ... we have been able to flex the portfolio
over the past six months to deliver good results in both wet
and dry conditions,'' Mr Barnes said. Craigs Investment
Partners broker, Chris Timms, described the result as ''very
good'', being almost 30% ahead of last year and ahead of the
overall consensus of various analysts' expectations.
''We remain confident in their [financial] guidance of Ebitda
of $520 million, which is above Craig's expectations,'' he
Forsyth Barr broker, Suzanne Kinnaird, said it was a ''good
result'' for Contact, being more than 9.5% ahead of the
first-half result, the profit of $88 million and underlying
earnings of $92 million, both slightly ahead of the
She said the proceeds from asset sales during full year 2013
were expected to be more than $100 million, the bulk coming
from the sale of the gas-metering business, and proceeds from
the sale of land at Clutha and New Plymouth.
Mr Timms cautioned that competition in the commercial arena;
a historically strong sector for Contact, was increasing, in
line with the already ''highly competitive'' retail market.
While coming to the end of more than $2 billion in capital
expenditure, and with expectations of earnings growth, much
of that growth would come from future cost reductions, he
Last week, as part of a plan to cut costs by up to $40
million, Contact announced plans to lay off up to 100 of 1100
staff, those jobs saving up to $9.4 million.
Mr Barnes yesterday said ''controlling costs was a
Contact had achieved an ''acceptable result'' in its retail
business, despite high levels of customers switching,
averaging about 30,000 a month. Sales dropped 1% and
electricity sales margins fell by $1 per megawatt hour,
reflecting ''competition for customers in an oversupplied
He highlighted the Te Mihi power station was progressing to
final the stages of development, with the first stages of
power station commissioning started.
''The completion of Te Mihi will bring to an end a greater
than $2 billion investment programme, adding lower-cost
geothermal, and flexible thermal generation capacity and New
Zealand's first gas storage facility,'' Mr Barnes said.