KEY POINTS:
Although its first-half result was hit by rising gas prices, Contact Energy is forecasting a 4 per cent increase in earnings for the full year, underpinned by its ability to exploit the tight electricity market.
Contact yesterday posted a December half-year net profit of $117.4 million against $122.9
million a year ago. Adjusted for one-offs, the company's underlying after tax earnings were down 1 per cent at $116.1 million. Operating revenue was up 12 per cent at $1.12 billion, but expenses rose 16 per cent to $834.6 million.
Excluding the inclusion of the Rockgas business in Contact's accounts for the first time, the primary driver of rising costs expenses was a 20 per cent increase in price of the gas Contact burns in its thermal power plants which added about $45 million to expenses.
Other drivers of the company's result included a 6.3 per cent increase in electricity revenue to $722.6 million aided by a 3 per cent increase in retail tariffs and a 5 per cent increase in electricity generation volumes.
Operating earnings, or those before interest, tax, depreciation, amortisation and fair value of financial instruments, were 2 per cent up on a year earlier at $281.9 million.
Contact expects that line of its financials to close the full year 4 per cent ahead of last year.
Wholesale electricity prices are riding high, at about $150 a megawatt hour (Mwh), due to low hydro lake inflows and the price curve on the Energy Hedge forward electricity market suggests wholesale prices well north of $100/Mwh for much of the balance of the year.
Contact's board increased its interim dividend by 1c to 11c and while chief executive David Baldwin would not indicate whether the full year distribution would be increased as well, he said the company's board "wants to signal to the investor community that the direction is to try and increase returns to shareholders over time".
Baldwin said he was comfortable that aim could be balanced with the company's plans to invest heavily in renewables and peaking thermal generation which will lift capital expenditure from around $140 million per annum in recent years to $300 million for the current financial year and $400 million to $500 million a year thereafter.
Baldwin said to support the Governments' New Zealand Energy Strategy, average wholesale electricity prices would have to rise over the next three to five years from around $70 per gigawatt hour to the long run marginal cost of wind generation which is around $90/Mwh. If fully passed on to retail consumers that would add about 2c per unit to power bills.
Contact shares closed 10c higher at $7.65.
CONTACT ENERGY
Six months to December 31
2007 2006
Operating revenue $1.117b $995m
Operating expenses $834.6m $719.7m
Operating earnings* $281.9m $275.4m
Net profit: $117.4m $122.9m
*Earnings before interest, tax, depreciation, amortisation and fair value of financial instruments