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Contact Energy Net Surplus Of $118.3 Million

Contact Energy Net Surplus Of $118.3 Million

Contact Energy Ltd achieved a tax-paid profit of $118.3 million for the 12 months to 30 September 2003, the company’s chief executive and managing director, Steve Barrett, announced today.

“This result represents a pleasing improvement on the previous year’s $107.0 million, but it reflects far more than another year of solid performance,” said Mr Barrett.

“Contact Energy reached a new maturity in the 2003 financial year, and the result reflects a quite different company than in previous years.

“We are now demonstrating the value of our strategy of integrated growth of our generation and retail businesses to establish a new platform for stability of earnings going forward,” Mr Barrett said.

Key factors were the $500 million purchase of the Taranaki Combined Cycle Plant at Stratford, which increased Contact’s total generation capacity by around 20 per cent. This underpinned 24 per cent retail electricity sales volume growth over the year.

“In the past two years, Contact has added 135,000 new retail electricity customers and increased retail electricity sales volumes by almost 60 per cent,” said Mr Barrett.

“This has consolidated Contact’s position as New Zealand’s largest energy retailer, with total customers numbering 620,000 (522,000 electricity and 97,500 gas) as at 30 September 2003.

This more than offset the inevitable constraint on Contact’s gas business, which was affected by internalising sales to TCC, reduced Maui gas entitlements, and the loss of some customers to competitors.The strength of Contact’s strategy to grow its retail and generation businesses in parallel could be seen in the strong EBITDA result, at $376.6 million ($299 million in the previous year), reflecting a combination of growth in our customer base growth and the addition of TCC, said Mr Barrett.

“During the year, around 90 per cent of our generation was committed to servicing our retail customers or to long term contracts on fixed prices. This provided certainty of earnings and left the company less exposed to the price volatility of the wholesale electricity market.

“Whereas our annual earnings were previously something of a roller-coaster ride, depending on the path of wholesale prices during wet and dry winters, we are now much less exposed to weather induced wholesale price volatility.”

The strategy also set clear parameters for growth.

“Any future growth will be on the same basis – namely, by ensuring our generation and retail businesses grow in parallel,” Mr Barrett said. Strong parallel growth in both areas was the primary driver for a 27 per cent increase in total electricity revenue last year, at $967.3 million.

“I do not expect recent levels of customer growth to be repeated until we are in a position to significantly expand our generation portfolio.”

Around half of Contact’s generation portfolio is fired by natural gas, with the remainder mainly generated from hydro or geothermal sources. The rundown of the Maui gas field means that Contact continued its quest for replacement gas to fuel its plants.

“In the absence of a major gas discovery, we have taken the prudent step of considering LNG (liquefied natural gas) as one option for supplementing local natural gas supplies.

“We have commenced a joint feasibility study with Genesis Power Limited to assess LNG as an alternative fuel.”

Mr Barrett said early indications were that LNG would be no more expensive than other competing fuel sources, including renewable energy sources such as new hydro or wind power.

“Certainly, LNG would cost more than natural gas costs us currently, but that is true of virtually any fuel source we are considering to replace Maui gas, assuming that the Government follows through with the proposed carbon charge.

“New Zealand has enjoyed relatively low prices for Maui gas for more than two decades. The rundown of the field means that any replacement fuel sources will he considerably more expensive and this will be reflected in electricity prices.

“That is the reality of the post Maui era.”

Total gas revenue was down by 20 per cent to $217.6 million, largely due to a reduction in wholesale gas sales and retail gas revenue, which was down by 8 per cent due to lower demand and the non-renewal of sales contracts with some large customers.

Mr Barrett said that the net surplus of $118.3 million was in line with last year’s core net surplus of $116.8 million.

The result was affected by a higher depreciation charge of $100.4 million, up 46 per cent on the prior year largely due to the revaluation of the company’s assets and the inclusion of the Taranaki Combined Cycle plant in the asset base.

The final dividend for the year is 17.5 cents, taking the total fully imputed dividend for the year to 23 cents per share. This is a 10 per cent increase over the dividend paid in the prior year.

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