The first half of the 2016 financial year was a period of significant activity for electricity generator Contact, chief executive Dennis Barnes said yesterday.
Releasing the company's profit to the market, Mr Barnes said during the period, ownership of Contact changed as a result of Origin selling its majority shareholding.
"We played an important role in the ongoing operation of the Tiwai aluminium smelter as we executed an 80 megawatt financial agreement with Meridian Energy and we completed the closure and sale of our Otahuhu thermal power station.''
Contact reported an operating profit of $254million for the six months ended December, down 1% on the $257million reported in the previous corresponding period.
The company reported a statutory loss for the six months of $116million, $167million lower than the pcp.
The loss was primarily due to $257million of impairments relating to the closure of the Otahuhu power station and an assessment the Taheke geothermal resource was unlikely to be developed in the foreseeable future.
The underlying profit of $73million, down 4%, and the operating profit, were "reasonably stable'' and free cash flow improved 24% as a result of a lower tax expense and a reduction in transition costs relating to the implementation of Contact's customer billing and service system, Mr Barnes said.
The interim dividend would remain stable at 11c a share, partly imputed to 7cps and representing payout ratio of 111% of Contact's underlying profit.
The board also confirmed the $100million share buyback for the 2016 financial year would continue and was likely to be completed during the second-half of the financial year, he said.
Forsyth Barr broker Suzanne Kinnaird said the operating profit was "very much'' in line with expectations.
The key announcement related to the sale of the Otahuhu land.
Contact would receive $30million for the land.
In addition, Contact and the buyer, Euroclass Design, would share the profits from the sale of the plant.
"The sale price is lower than expected - we had assumed $75million - and the obvious explanation is the remediation costs of the land is greater than we had been led to believe.''
The lower price would have a 6cps impact on the valuation, she said.
While the headline operating profit was only $3million lower than the pcp, in reality it was $11million lower because of the $8million of liquidated damages received in the secondhalf of the year but which related to first-half 2015 operations.
Mr Barnes remained confident Contact's focus on becoming a customer-inspired business would deliver improvements in the next months and years ahead.
As announced in December, Contact did not expect its operating and underlying profits for the full financial year to be materially different to 2015, but continued to expect a marked increase in operating cash flow.
"I do, however, expect we will see further improvements across our customer metrics as we launch new products, correct historical pricing anomalies and improve the efficiency of our operations.''
Ms Kinnaird said with Contact delivering a result in line with expectations, she did not anticipate material changes to the current operating profit of $528million for the 2016 financial year.
"We believe Contact is undervalued in the market, partly due to the market being sceptical on future earnings and partly due to continued selling.''
Forsyth Barr had an outperform rating on Contact and a share target price of $5.45.
