Contact Announces Nationwide Retail Coverage

Contact Energy Announces Nationwide Retail Coverage And Strong First Half Result

Contact Energy is to expand its reach so that it can offer service to every New Zealand household and business.

Announcing a net surplus of $55.3 million for the six months ended March 31, 2004, a gain of $21.3 million on the same period last year, Contact CEO Steve Barrett said that Contact was already able to offer service to nine out of 10 households and that full national coverage was a logical next step.

“We will be rolling out to the few remaining areas where Contact does not yet offer service over coming months,” said Mr Barrett. “That means we will be launching retail offers to people in King Country, Bay of Plenty, Marlborough, Waipa, central and southern Hawke's Bay, Wairoa, Buller and Westland.

“There are around 125,000 households and businesses in these parts of the country and we will be launching competitive offers to them all over coming months, including the ability to collect FlyBuys points on gas and electricity bills. Contact is the only energy company to offer FlyBuys.

“These moves will also make Contact Energy the second energy company to retail electricity throughout the entire country,” said Mr Barrett.

“As the country’s largest energy retailer, committed to a competitive market for electricity, we believe it is important to be present and seek customers in all parts of the country.”

Turning to the half year result, Mr Barrett said earnings before interest, taxation, depreciation and amortisation (EBITDA) for the first half was up 36% to $190.2 million.

The improved result reflected a variety of factors. These included higher electricity retail and generation revenues, arising from the Taranaki Combined Cycle plant, acquired last year, as well as on-going strength in retail volumes, tariff adjustments, and a strong performance from wholesale electricity sales.

“Wholesale trading conditions were reasonable through most of the period, although high inflows to the hydro lakes led to very low prices in February and March,” said Mr Barrett.

“Accordingly, the average wholesale electricity price received during the period was $40.4/MWh, well down on the $63.4/MWh received during the comparable period last year. However, Contact remains relatively highly hedged, providing a cushion for earnings at times when wholesale prices are low and, conversely, limiting the opportunity to profit from periods when wholesale prices are high.

“The relatively high inflows recorded during the period also resulted in lower than expected thermal fuel use.

“On top of this, enhanced management of the wholesale electricity business led to net receipts from the wholesale market rising significantly, despite total wholesale electricity revenue being 25% lower than for the same period last year,” said Mr Barrett.

”This reflected continued improvement in our capacity to respond to changing wholesale market conditions, managing spot price purchases more closely, actively managing the impact of transmission constraints, and the addition of TCC to the portfolio.

“TCC was the primary cause for an increase in generation volumes of 16%.”

Total retail electricity sales increased by 18% to $440.8 million reflecting significant growth in sales volumes and the impact of price adjustments.

“We experienced more than nine per cent growth in the total volume of retail sales to all segments of the economy from households to major industrial users, compared with the first six months of the last financial year. Average revenue per unit of electricity sold also improved by over seven per cent over the same period the previous year.

Total revenue for the half year was $567.0 million, compared to $500.8 million for the same period last year. Contact’s total number of electricity customers at 31 March 2004 fell by 9,000 compared with September 2003. Many of these customer losses occurred as a result of aggressive competitor activity towards the end of the period. Nonetheless, retail electricity sales volumes over the six months were still well up on the comparable period last year.

“Whilst we are always disappointed to lose customers to competitors, the tail off in customer number growth is not entirely unexpected,” Mr Barrett said.

“Contact experienced phenomenal growth in retail customer numbers over the past three years, from 482,000 to 608,000.

“We have always recognised that we need to maintain a reasonable balance between our generation output and our retail demand. For that reason we have shifted our priority over recent times from outright customer number growth to retention strategies.”

Meanwhile, Contact continues to pursue incremental increases in generation capacity by enhancing existing plant, with forward capital investment rising to $84.5 million (excluding the $20 million contribution to the proposed exploration fund) at the end of the period under review, compared with $5.5 million a year earlier.

The company also continues to explore alternative fuels strategies in order to allow large-scale investment in generation capacity to meet the energy gap looming for New Zealand over the next five to six years.

Contact’s retail gas business contracted during the past six months, with a decline in revenue and volumes. Wholesale gas revenue was $11.1 million, down from $43.6 million in the same period last year. Much of this was attributable to reclassifying gas sales to the Taranaki Combined Cycle plant as internal use.

Retail gas revenue for the half year was 11% down on the comparable period, largely as a result of the loss of some large customers where margins had been uneconomic. Contact had 95,000 gas customers at 31 March 2004, compared with 101,500 at the same time last year.

The Board has resolved to pay a fully imputed interim dividend of 7.0 cents per share which is a 27% increase on the interim dividend last year.

The interim dividend had been constant for the last three years, while the final dividend has been increased. The increase in the interim dividend for 2004 reflects the Board’s desire to rebalance the relative proportions of the interim and final dividends to better match the earnings track through the financial year.

Accordingly, the growth in the half year dividend should not be taken as an indication of likely growth in the final year dividend, which will be assessed at the time. Furthermore, the Board is considering options to ensure that shareholders can use accumulated imputation credits in the event that Edison Mission Energy sells its shareholding in Contact.

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