Contact Energy earnings fall amid high fuel, carbon costs

Contact Energy boss Dennis Barnes. Photo / Supplied

Contact Energy said first-half operating earnings fell 21 per cent amid tight gas supplies and reduced sales volumes to the firm's commercial and industrial customers.

Earnings before interest, tax, depreciation, amortisation and changes in financial instruments fell to $221 million in the six months ended December 31, from $278 million a year earlier on a continuing operations basis, as low lake levels reduced hydro generation and gas shortages increased fuel costs.

Earnings from the generation business fell to $204 million, down $39 million from a year earlier. Earnings from the customer business were $18 million lower at $30 million as increased electricity, gas, carbon and network costs were not recovered.

"The impact of the recent under-investment in New Zealand's ageing gas fields has been acutely felt over the past six months with the supply of natural gas proving unreliable, leading to thermal input costs increasing sharply," chief executive Dennis Barnes said in a statement.

"In this environment we took decisive action to limit our fixed priced sales commitments, conserve fuel for winter 2020 and explore innovative gas purchase arrangements."

Net profit for the six months fell to $59 million from a record $276 million in the same period a year earlier, which included gains from the sale of Contact's Rockgas LPG business and its Ahuroa gas storage facility.

Underlying profit – excluding significant one-off items - was $58 million from $97 million a year earlier on a continuing operations basis.

Contact operates a mix of hydro, geothermal and gas-fired generation and has been looking to expand its geothermal generation as part of a strategy to help its biggest industrial customers reduce their carbon emissions.

It has been carrying out test drilling at the Tauhara steam field near Taupo and noted that higher gas and carbon costs are accelerating the case for replacing its ageing gas-fired Taranaki Combined Cycle plant at Stratford.

While that transition to more renewables is underway, gas-fired generation remains an important component of the firm's portfolio, Barnes said. Separately, the company announced additional gas supply agreements from 2021 through to 2025.

The company will pay a 16 cent interim dividend on April 7 to shareholders registered at March 19. That is unchanged from a year earlier.

The shares closed Friday at $7.23 and are up 1.4 percent so far this year.

- BusinessDesk