Contact Energy's profit up as it dashes capital return hopes

Contact Energy today posted a 50 per cent spike in its December quarter profit of $41.3 million and at the same time dashed hopes of a capital return.

In the December 2003 quarter, Contact returned a profit of $27.5m.

Today, Contact told the sharemarket it had no plans to return capital to shareholders, but had instead allocated $130m for capital expenditure.

The $130m would be spent on new generation projects, and increasing output from existing stations by 100 megawatts.

Contact's revenue for the three months ended December 31 was $324.7m, up 9 per cent on the previous same period's $296.7m.

Its operating surplus before tax was $66.9m, up 47 per cent from the previous December quarter's $45.7m.

Earnings per share was 7.16c, against 4.77c.

Chairman Grant King said energy market dynamics had changed significantly in the past year.

"New generation proposals are leading to a far more secure outlook for electricity supplies for the next three to four years, when annual demand growth of more than two per cent is forecast," he said.

"This is a direct result of electricity prices rising in response to tightening supply and these prices stimulating investment in new generation from both renewable and thermal sources," he said in a statement.

"However, while smaller, near term generation projects are proceeding on normal commercial terms, the most important questions for longer term secure electricity supplies remain unanswered."

Mr King said a substantial increase in natural gas exploration was needed to provide certainty of domestic supply, and Contact was investigating a backstop option of importing liquefied natural gas (LNG).

Contact would also consider "direct investment in domestic gas production should this be necessary to secure its future".

Mr King also said it was important the Government address concerns that there was a lack of investment in the national grid, which was "increasing risk to security of supply".

Meanwhile, he said the $130m would be spent on increasing generation at its Wairakei, Poihipi, Ohaaki, Hawea Gates, Otahuhu-B and Taranaki Combined Cycle operations.

"However, Contact's most significant future generation options are the new, large scale combined cycle gas turbine (CCGT) plants that could be built on sites at Otahuhu and Stratford, and for which the company already holds resource consents," Mr King said.

"Each of these plants is equivalent to between two and three years' electricity demand growth," he said.

"If gas sources were identified and regulatory and transmission concerns allayed, Contact could realistically complete one of these options by the end of the decade."


Looking ahead, Contact would be "well-placed" to pursue investment opportunities as they arose, Mr King said.


The company was soon to change to a June financial year, and the board would consider a new dividend payment date with a view to maintaining fully imputed dividends.


"The board has no current intention for a capital return to shareholders," Mr King said.


During the December quarter, Contact had experienced significant competition for retail customers, and it was moving to retain and increase its customer base.


Contact gained a net 1000 new customers in the December quarter, and at balance day had 509,000 electricity customers.


- NZPA