Clyde dam owner Contact Energy reports lower-than-expected profit. Photo by Lynda van Kempen.
Contact Energy, which has hydro assets on the Clutha River,
produced a result which was a ''little disappointing'', in
the six months ended December, Forsyth Barr broker Andrew
Rooney said yesterday.
Operating profit was up 4.3% to $264 million in the period
but Mr Rooney was expecting operating earnings of $269
The energy business segment of the earnings was $9 million
lower at $244 million, less than expected but partially
offset by the ''other segment'' product a $20 million
operating earnings result - $4 million better than expected.
''We are somewhat surprised at the underperformance of the
energy business segment as Contact's monthly operating
statistics effectively provide the monthly operating result.
It appears there has been a late adjustment which has not
been explained in the materials provided,'' he said.
Although the result was disappointing, there did not appear
to be any issues affecting long-term thinking on the company,
Mr Rooney said.
''Our full-year forecast is likely to be pulled back slightly
but we do not expect a material change to our target price
following further analysis of the result.''
The interim dividend was unchanged at 11 cents per share, or
83% of earnings after tax of $92 million. While Contact had
talked in the past about increased capital returns, it was
Mr Rooney said he expected Contact to delay increasing
capital returns until after the election. The Labour and
Green parties were proposing to establish a single pricing
authority for the electricity energy if they formed the next
Contact chief executive Dennis Barnes said it was important
Contact operated in a stable regulatory environment, given
the long-term nature of the industry.
''Consumers are seeing clear evidence the current market is
working with high levels of competition leading to lower
prices. In the past six months alone we have seen customers
continue to take up a range of discounted products in the
market with overall savings of up to 22% on their electricity
Contact had committed to not increasing the energy component
of its customers bills and believed the existing market
structure, with improvements and transparency, would continue
to serve New Zealand well, Mr Barnes said.
The company's earnings had become more predictable with the
reduction in gas take-or-pay commitments, the upgrade of the
interisland transmission link and investment in thermal plant
Higher-than-normal inflows to hydro schemes avoided the need
to run expensive thermal generation and reduced energy costs.
''With more customers on discounted prices, Contact
maintained sales volumes and customer numbers in what remains
a highly competitive retail market.''
Contact was continuing to hold market share in one of the
most competitive retail electricity markets in the world, Mr
Strong competition and lower wholesale prices increased the
number of electricity and gas customers on discounted
products, resulting in reduced margins.
Warmer weather and lower usage per customer resulted in a
reduction in residential demand but that was more than offset
by increased sales in the commercial and industrial business.
Contact yesterday registered a five-year retail bond offer
expected to raise up to $250 million with an interest rate of
between 5.8% and 6%, based on investor demand, he said.
Contact was approaching the end of its refinancing programme
with new funding secured through a wholesale bond, a private
placement with United States institutional investors and
additional bank facilities.
The refinancing programme aimed to increase the duration and
maintain the diversity of Contact's funding sources.
In an environment of low growth, Contact would target further
efficiencies, while significantly reduced capital expenditure
would generate greater free cash flow, Mr Barnes said.
For the remainder of the financial year, Contact would focus
on completing the Te Mihi geothermal power station and
implementing the retail transformation programme.
Those two projects would provide lower cost generation and
new capabilities to offer products and solutions that better
met customer needs, he said.
Meridian Energy reports its interim result this morning.