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Contact Energy expects to report flat operating earnings of around $530 million for the current financial year to June, but chief executive officer Mike Fuge remains bullish about the future once more renewable energy projects come on stream.
The company reported a bottom line first-half loss of $7m due toone-off factors, while its operating profit fell by 24 per cent from last year’s record first half, to $246m.
Contact’s forecast of operating earnings before interest, tax, depreciation, amortisation and financial instruments (Ebitdaf) for 2023 would compare with last year’s Ebitdaf of $527m.
The half-year’s net loss came after Contact recognised an onerous contract provision of $120m ($86m after tax) following a review of the estimated available capacity of the Ahuroa Gas Storage facility (AGS) in Taranaki.
Excluding AGS, the underlying net profit was $79m.
The company declared a 14 cents a share dividend, unchanged from the previous first-half payout.
“The underlying ebitdaf was down 24 per cent on the record result of in the first half of 2022, with lower wholesale prices, lower renewable and thermal generation and increased operating costs to deliver on strategic growth priorities and reflecting inflationary conditions,” the company said.
Fuge told the Herald that it had been a “tough” six months.
“It’s good to have it behind us, and to have clarity around the situation with Ahuroa.”
Contact Energy CEO Mike Fuge. Photo / Supplied.
Contact’s financial performance reflected the soft short-term wholesale market conditions - driven by high rainfall - experienced in the half year, Fuge said.
“We saw unprecedented hydro inflows which depressed market prices and saw greater price separation between the North and South Islands,” he said.
Contact responded by running less thermal generation and positioned its portfolio to benefit from expected improved market conditions in the second half, he said.
Global energy and supply concerns continued to impact commodity markets, with international energy prices including for coal holding at unprecedented levels, he added.
Demand for renewable electricity remained strong.
Fuge said Contact is focused on five key areas for demand growth, being large-scale data centres, industrial process heat, major industrial energy users, road transport and “green” chemicals.
“We are looking forward to [geothermal projects] Tauhara and Te Huka 3, and the wind and solar that we have managed to bring into the development pipeline,” Fuge said.
Contact’s new renewables projects will produce six terawatt hours over the next 10 years - equal to about 15 per cent of New Zealand’s total current consumption.
The company has forecast Ebitdaf of $720m for the 2025 financial year once Tauhara and Te Huka come on stream.
“So we do have future growth, and it’s important that people understand that we have investments that will provide a very healthy return,” he said.
Fuge downplayed talk that the Government’s Lake Onslow pumped hydro proposal may dampen the investment case for new renewable projects.
“We have heard various views. It’s a huge, multi-year project that will require bi-partisan support, and the Nats [National] have said that it’s not a good idea,” Fuge said.
“It sounds like it might go the way of user pays for medical care in the 1990s - a bright idea that did not quite come off.”
Fuge said the possibility - however remote - of Onslow being built was not holding back Contact’s investment intentions.
However, chief financial officer Dorian Devers said the project would worry elements of the capital markets if it ever looked like becoming a reality.
“The concern there is that if it does feed through into less capital being available, that would make building more renewables more expensive, which would then feed through into high prices for consumers,” Devers said.
Contact Energy has in the past proposed rolling the country’s fossil-fuel burning thermal assets into one entity, first dubbed “Thermalco” and now dubbed “TransitionCo”.
Fure said the proposal was still a live issue.
“In the background, we are still having discussions with a variety of parties,” Fuge said.
“Watch this space.
“The important thing for us this year is to make sure that our thermal assets are in good shape and ready for winter and that we are ready for Tauhara,” he said.
Grant Swanepoel, Jarden director equity research, said the company’s $530m earnings forecast for the current year was better than expected.
“All in all, it was a well-received results presentation from the company,” he said.
Contact’s shares last traded at $7.67, down 11 cents from Friday’s close, in a broadly weaker market.
