Contact Energy earnings lift by $107m, seeks thermal asset consolidation

Contact Energy's Clyde Dam. Photo / Grant Bradley, NZ Herald.

Contact Energy lifted its operating earnings 24 per cent in the June year but cut its annual dividend slightly.

The company's EBITDAF - the industry's preferred measure, jumped by $107m to $553m in the year, partially offset by increased depreciation on thermal generation stations and higher tax to pay on the improved financial performance.

Contact's net profit jumped by 50 per cent to $187m.

The company's total dividend for the year came to 35 cents per share, down slightly from 39 cents per share in 2020.

In its results announcement, chief executive Mike Fuge said the company was engaging with a range of stakeholders about an option to consolidate New Zealand's thermal generation arrangements into one entity.

Contact said in February that it was targeting a payout ratio of between 80 per cent and 100 per cent of the average operating free cash flow of the preceding four financial years.

Chair Rob McDonald saw it as a "solid" financial result.

"Contact has performed ahead of expectations after successfully navigating the potential departure of major energy users, short-term issues around low rainfall in the hydro catchments, and ongoing challenges around reliable gas supply," he said.

McDonald said Contact had made significant moves to ensure the company is well-positioned for the future by spending $177m on capital investments during the year.

Fuge said there was "no doubt" flexible thermal generation would still be required as the New Zealand electricity sector moves toward the Government's goal of being 100 per cent renewable.

He said the industry would need to work together to expedite sensible decarbonisation, while maintaining security of supply and affordability.

"We believe consolidating thermal assets could optimise electricity generation from coal and gas-fired plants in ways that are aligned with New Zealand's emission reduction objectives, and also ensure affordable and stable electricity supply," Fuge said in a statement.

McDonald said the company had refreshed its strategy and was on a path to invest to meet the anticipated market growth for low-cost renewable generation.

"Contact is preparing for a time of significant change and is positioned for growth as we focus on leading New Zealand's decarbonisation," he said.

This included investigating the potential for hydrogen production in the lower South Island, the development of the world-class Tauhara geothermal power station in the central North Island, and the $400m equity raise for its capital investment programme.

Contact's shares last traded at $8.15, having gained 33 per cent over the last 12 months.