Power generator and energy retailer Contact Energy needs some dry weather if its earnings are to improve.
The company earlier blamed the rain for a 6% fall in its underlying net earnings to $150 million for the June 2010 year.
Contact said its earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) for the year were $427 million, down 4% from $445 million in 2008-9.
Analysts said it would take ebitdaf of around $500 million for the company to be back on a solid earnings track and much of this would yet again be up to climatic conditions.
Wet weather in 2009/10 came at a time when Contact was contractually obligated to pay for gas that it was unable to use in its gas-fired power stations, because of the greater amount of hydro generation available.
Contact announced a dividend of 14c a share, resulting in a total distribution of 25c per share – down 3c from the prior financial year.
Retail competition continued to intensify during the year, with the number of customers switching retailers increasing from an average of 20,000 per month in July 2009 to around 25,000 per month in July 2010.
Managing director David Baldwin said that Contact had largely maintained its customer numbers over the year, in spite of the increasing competition.
Sales to commercial and industrial customers rose by 7% over the year.
Contact’s gas strategy
At its first half, Contact reported construction of the company’s $100 million, 23 megawatt Tauhara 1 geothermal plant was on track, with commissioning expected around mid 2010.
Construction of Contact’s $250 million gas-fired peaking project also made good progress. The project is currently being commissioned and is expected to be fully operational late this year.
Looking ahead, Mr Baldwin said the 2010-11 financial year would be “a year of two halves.”
“Continuing high levels of take-or-pay gas and high hydro inflows will likely result in the first half being broadly similar to the first half of the 2010 financial year,” he said.
He said ebitdaf in the second half of 2010-11 is expected to benefit from increased operational flexibility as the Ahuroa gas storage and Stratford peaker plant are brought into commercial operation, and as take-or-pay gas levels reduce from January 2011.
Andrew Harvey-Green at Forsyth Barr said the result was a little disappointing and below market expectations.
“It was a continuing story of the last couple of years being very wet, which has not helped Contact’s position at all,” he said.
Analysts said Contact had also been struggling with the inflexibility of its take or pay gas contracts.
“So I guess they are really looking forward to a more normal period with hydro conditions and then seeing where earnings go after that,” Mr Harvey-Green.
“If they end up with another wet year, as we’ve had with the last two, then the results are not going to be significantly different from what we have seen,” he said.
But once Contact gets its gas strategy – its peaker plant and the gas storage facility – up and running, it will assist the company’s earnings.
“Even with those things happening it does require the rain to stop falling to some extent for Contact to really move forward,” he said.
Contact shares last traded at $5.78, down 4c. The stock has traded in a $5.60 to $6.50 range over the last year. The company is 51.2% owned by Australian energy utility Origin Energy.
Fri, 20 Aug 2010