Contact Energy books slightly improved profit

By NZPA

Monday 10th February 2003

Electricity and gas company Contact Energy has booked a first quarter net profit of $18.4 milllion, a slight improvement on the same period last year.

The company said the result was driven by continued strong growth in retail electricity sales, offsetting lower wholesale electricity revenues.

Contact said the net surplus declined by 9 percent on an adjusted basis, but a direct comparison was affected by a higher depreciation charge this quarter arising from a revaluation of fixed assets.

Its retail business saw electricity sales grow by 50 percent compared with the first quarter last year, and its customer base was up 15 percent. Contact said the growth was organic, with the addition of more business customers.

Chief executive officer Steve Barrett said the result was pleasing, particularly given the lower wholesale electricity revenues earned during the quarter.

"The result confirms the value of Contact's long-standing strategy to build a balanced, integrated energy business," he said.

One brokerage had an estimate of just over $20 million net profit for the quarter, but noted it was difficult to make comparisons because this was the first time the company had reported quarterly.

Chris Stone, executive director of McDouall Stuart Securities, felt the adjusted 9 percent decline in profit was a more realistic measure of performance, although there were several one-offs to be considered.

In the December 2001 quarter, power prices were still coming off the highs of that winter's power crisis.

This year there was the temporary closure of Contact's Otahuhu B station which sliced about 5 percent off its total generation and meant it had to run more expensive plant.

But more importantly, he said, Contact's rising customer base meant it had to buy much more wholesale electricity on the spot market -- albeit at a lower price than in 2001.

"The retail sales were 112 percent of its generation whereas in the previous equivalent quarter they were 72 percent. So that means... they are vulnerable to the wholesale price because they had to go into the wholesale market to buy the extra electricity."

However, investors were still viewing Contact favourably because of predictions of higher power and gas prices as a result of the Maui gas field having a shorter lifespan than first predicted.

Contact owns both geothermal and hydro-driven stations, and prior to the recent acquisition of the Taranaki Combined Cycle station, 70 percent of its generation was from renewable sources.

"So they're certainly going to stand to benefit from higher electricity prices."

Mr Stone also noted the upward revision of Contact's asset backing by $843 million, which was a "huge increase" and would affect a significant impact on future depreciation charges.

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