BUSINESSDESK: Contact Energy, the country's biggest listed electricity generator and retailer, beat expectations as it lifted annual profit 27% as low rainfall in hydro catchments saw it run its gas-fired generation units harder to meet national demand.

Net profit rose to $190.4 million, or 26.9 cents per share, in the year ended June 30 from $150.9 million from 23.9 cents per share, a year earlier, the Wellington-based company says.

Earnings before interest, tax, depreciation, amortisation and unrealised fair value movements climbed 15% to $508.7 million, with a 21% jump in sales to $2.7 billion.

That beat Forsyth Barr analyst Andrew Harvey-Green's forecast of $496.4 million for underlying earnings.

"Our results show substantial improvement in our underlying business performance as we have utilised our flexible fuel and generation profile and responded decisively to increased activity in the retail sector," chief executive Dennis Barnes says.

"The second half of FY12 was characterised by low hydrology and our thermal assets, including the Stratford peaker plant, were drawn on as lower hydro generation was replaced with thermal generation." 

The board declared a final dividend of 12 cents per share, taking the total distribution to 23 cents a share, unchanged from 2011 and in line with Harvey-Green's forecast. The company did not give any guidance for the 2013 financial year.

Mr Barnes says Contact faced significant decisions in the next 18 months about how much gas it contracts in the future and its impact on how it runs its baseload combined-cycle gas-fired power stations at Otahuhu and Stratford.

"The current high level of upstream exploration and development activity gives me confidence that Contact will markedly improve its contracted position."

Chairman Grant King says the final dividend, representing 93% of underlying earnings, will use the Profit Distribution Plan for the last time, and the the company will "revert to a cash distribution in 2013" once its investment programme ends.

Contact expects to complete its 166 megawatt Te Mihi geothermal power station next year, ending the current investment programme.

Contact's electricity segment boosted underlying earnings 16% to $468.2 million on a 26% lift in revenue to $2.47 billion. Wholesale electricity sales almost doubled to $970.5 million, outpacing the cost of electricity purchases, which rose 77% to $861.2 million.

The company's electricity customer numbers slipped 1% to 443,000.

Contact's gas segment earnings rose 12% to $40.5 million, with an 11% decline in revenue to $257.8 million.

The shares rose 0.4% to $4.85 in trading yesterday and have shed 8.4% this year.