Contact says lower power prices drove 2020 profit down 11 %

NZ Herald

9 Aug, 2020 08:16 PM2 mins to read

Contact's Clyde Dam. Photo / File

Contact Energy said its net profit fell by 26 per cent to $125m in the year to June, due in part to lower wholesale power prices.

The previous year's profit was inflated by a $170m gain from the sale of Rockgas and the Ahuroa gas storage facility.

At the operating level, Contact's earnings before interest, tax, deprecation, amortisation and financial instruments (EBITDAF) fell by 11 per cent to $451m due to a combination of lower renewable generation, lower wholesale prices and the impact of rising costs of thermal generation and restricted gas supply.

Market consensus was for EBITDAF of $459m.

Chief executive Mike Fuge said income from electricity market making was also down $10m on the prior year following "volatile swings" in the wholesale market during the large inter-island transmission outage early in 2020.

Market "headwinds" were partially offset by strong cost control with fixed costs down by $13m.

Fuge said the increasing cost of gas and carbon was "accelerating the case" for the substitution of Contact's Taranaki Combined Cycle thermal plant at Stratford with new renewables.

Contact declared a final ordinary dividend of 23 cents per share, on top of an interim dividend of 16c, taking the total to 39 cents per share.

Separately, Contact said it would take full ownership of Simply Energy, a Wellington-based business that delivers energy solutions for generators, distributors, retailers and commercial customers.

In June 2019, Contact acquired a 49.9 per cent shareholding in Simply Energy for $10.7m. The transaction included an option for Contact to buy the remaining shares in Simply Energy for $7.3m.

The Tiwai Point aluminium Smelter's majority owner, Rio Tinto, plans to close the facility next August. The smelter uses 13 per cent of New Zealand's power output and its departure is expected to cause major disruption to the energy market.

Contact chief executive David Fuge said there was a focus on last month's announcement from Rio.

"We've made no secret of our view that we were disappointed about this – we believe the best interests of NZ Inc are served by the smelter remaining operational for at least the next five years," he said.