Contact payout up but profit drops

By Phil Boeyen, ShareChat Business News Editor

Thursday 3rd May 2001

Contact Energy (NZSE: CEN) has kept its promise of increasing dividends despite posting a lower interim profit.

The energy company's profit for the six months ended March was $35.65 million compared with last year's $38.2 million.

A fully imputed dividend of 5.5 cents per share has been declared - a 10% increase on last year's interim payout reflecting what the company says are strong operating cashflows and solid financial performance.

During the period the final unit from the Whirinaki power station was sold and the proceeds are included in the interim result. After adjusting for material non-recurring items the adjusted net profit was $26 million.

Contact's total revenue for the period was $444 million, up from $419 million for the same period last year.

Acting CEO Steve Barrett says although wholesale electricity prices have on average been about 40% higher than the corresponding period last year, the benefits of the additional revenue have been offset by other influences.

These include lower gas margins, an increase in the volume of the company's retail hedge, a reduction in retail electricity margins, and an increase in interest costs.

Mr Barrett says margins on gas sales fell due to Methanex's purchase of large volumes of gas, which in the previous period had been sold to higher margin users. However margins in the second half are forecast to improve.

Total gross revenue from retail electricity grew 14% to $221.7 million but retail gross margins have fallen due to competition.

"Recent restructuring of Contact's tariffs will make the company more competitive in this area of our business, and afford greater protection of our customer base.

"In addition, the cost of purchase of energy for the retail business has increased significantly."

Contact pays around 6% more for electricity it buys on-market to cover its retail load than its average generation price.

"This price gap, when combined with other factors such as the increased customer load in the upper North Island where purchase costs are on average higher, and Otahuhu B being out of service, contributed to the lower retail electricity margin," says Mr Barrett.

Increased competition in the electricity market also took a toll on the company's customer numbers, which have fallen by 6,000 to 375,000 since the end of the financial year.

However the company claims the rate of customer loss is below the national average and growth from Empower has largely compensated for the losses.

Depreciation and amortisation also increased in the period, from $36.5 million to $39 million, as a result of new power station assets and the amortisation of Empower customers.

Mr Barrett is confident the company is on the right track to improve returns to shareholders and says the remainder of the financial year should see the benefits of consolidating its retail and generation businesses.

Comments from our readers

No comments yet