Contact Energy nine-month profit falls 7%, solid result

By NZPA

Thursday 1st August 2002

Contact Energy posted a solid nine-month result today, despite the power company's net profit falling 7 percent on last year's extraordinary result.

Contact's unaudited net profit of $70.41 million was about $5.5 million lower than last year's nine month profit, which was boosted by rising wholesale electricity prices because of dry hydro conditions.

Contact is a net generator of electricity with around 1900 MW of capacity from its nine power stations.

Ian Graham of Forsyth Barr Frater Williams said Contact's result was slightly ahead of expectations.

Contact's earnings before interest, tax, depreciation and amortisation for the nine months was static at $219.5 million, compared with $219.9 million for the equivalent period the previous year.

"On a divisional basis, the retail electricity business performed slightly ahead.

"That was offset by slightly lower than expected profitability from the generation area, largely as a result of increased thermal generation and the costs associated with running the thermal plants a bit harder than expected," Mr Graham said.

Contact had relied more on its gas-fired stations in New Plymouth and Otahuhu because inflows to the hydro dams in the first part of the year were fairly low, although they have picked up.

"The gas wholesale and retail sides were both in line with expectations, so all in all it was a good quarter.

"It was flat versus (the previous year), although last year was an exceptional year so it's a bit unfair to compare it," Mr Graham said.

"In the fourth quarter Contact will probably come under a bit of pressure, with wholesale prices back around the $30/$40 mark, as opposed to the $50 area they enjoyed in the third quarter."

Mr Graham picked a full year net profit of $101.8 million, slightly lower than analysts Multex Global which estimated Contact would post a net profit of $114.6 million.

Contact's net profit last year was $130.7 million.

Forsyth Barr Frater Williams lowered its valuation on the shares to $3.93 last week, as Contact Energy was likely to achieve slightly lower revenue next year.

Contact Energy shares were trading at $3.82 today, up 2c.

"We feel that the market seems to be behaving rationally at the moment, electricity prices seem to be behaving quite rationally, and storage levels are slightly above mean levels, so it looks like we're not going to have a water shortage problem this year," Mr Graham said.

"The high storage levels reduce electricity prices, and therefore generation income."

For the nine months ended June, Contact's retail sales volumes rose rapidly, growing by 20 percent for the period to 3852 gigawatt hours (GWh).

"The sales growth has also helped Contact to balance the impact of lower wholesale electricity revenue on the results for the first nine months of the financial year," Contact chief executive and managing director Stephen Barrett said in a statement.

Wholesale electricity prices averaged $45.93 per megawatt hour for the first nine months, compared with $61.90/MWh last year.

"This difference reflects the extremely dry, cold winter experienced in 2001. For the 2002 winter, storage levels are close to or above mean," he said.

"The resulting softer wholesale electricity prices are expected to persist through to the end of the financial year."

Wholesale electricity revenue was $293.7 million for the period, down 24 percent on the $386.0 million achieved the previous year.

However, total electricity revenue grew by 11 percent to $541.1 million thanks to growing retail customer numbers and sales volumes.

Total electricity customers topped 430,000, bringing its total gas and electricity customer base to a record high of 536,000. Contact's customer base grew by 17,000 during the third quarter.

Contact's average level of hedge cover from rose from around 60 percent in the nine months to 30 June 2001, to about 77 percent in the latest period.

Mr Barrett said the average level of hedging through to the end of the financial year was likely to be about 80 percent, depending on actual generation volumes as well as future growth in retail.

Comments from our readers

No comments yet