Meridian Energy shares closed up almost 3 per cent yesterday after the company delivered better-than-expected earnings and foreshadowed a long-term return of capital to shareholders.

Meridian, which generates about a third of the country's power, lifted annual earnings 5.6 per cent, beating its prospectus forecast, and plans to pay a second special 3.95c dividend after asset sales helped to boost the company's cashflow.

The company is embarking on a five-year capital management programme in which it intends to return some $625 million to shareholders.

Meridian's shares closed up 6c at $2.25 yesterday.

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Chief executive Mark Binns said the company was now devising the method of returning capital and would consider share buybacks or special dividends. The payment would be made assuming thatthere was not a sharp downturnin trading conditions and no major capital spending.

"We're not going to do it all at once. We are a renewables-only business so we get a bit more volatility."

Meridian and Contact Energy have both said they do not expect retail prices to rise over the next year. About 19 per cent of customers switch suppliers every year which forces companies to keep energy price rises down.

However, the looming withdrawal of a large chunk of coal and gas generation could lead to power price increases in the longer term.

Contact Energy is shutting its 400MW gas-fired station in Auckland this year and Genesis plans to take its 500MW coal-fired units out of commission in 2018. But Binns said that pressure on supply could disappear quickly if the Tiwai Pt aluminium smelter opted to close, which could happen in 2018.

Earnings before interest, tax, depreciation, amortisation and fair value adjustments rose to $618 million in the 12 months ended June 30, from $585 million a year earlier, and were 5 per cent above the company's prospectus forecast.

The board declared a final dividend of 8.08c a share in addition to the special dividend. That takes the total payout for the year to 18.23c a share, with a special dividend of 2.44c a share having already been paid this year. Additional reporting BusinessDesk