Contact set to report record profit

Contact Energy is forecast to make a record profit of $143 million, 20 per cent higher than the year before, when it releases the result on Tuesday.

It is the last of the five big retailers to report record profits and raises the question of how much restraint there is on retail electricity prices in New Zealand.

All five power companies have raised retail prices this year well above the rate of inflation - the range of their price rises is 9 to 15 per cent.

Contact's average price increase across its 500,000 electricity customers was 12 per cent in the September 2004 year.

The Government is acquiescing in the power price hikes, with state-owned power companies raising prices between 9 per cent and 15 per cent this year, allowing the two listed companies, Contact and TrustPower, to do the same.

At $143 million, Contact's profit has grown $25 million on the year before's $118 million profit.

Analysts say that is due to retail price rises and the expansion in Contact's generation assets with the addition of the Taranaki Combined Cycle plant. It is the plant's first full year of contribution. It was bought in early 2003.

Analysts said that, while wholesale prices were lower because of abundant rain, Contact would have been insulated from that by its higher retail prices.

Contact's retail customers account for about 70 per cent of its

electricity production. About another 15 per cent was accounted for in fixed-price, forward supply contracts to commercial and industrial customers.

Retail and supply contracts protect Contact from a fall in wholesale prices.

Macquarie analyst Steven Hudson said Contact's growth was not dependent on acquisition of power stations, even though acquiring TCC had contributed to growth this year.

He is forecasting 25 per cent growth in earnings before interest and tax. He expects ebit to be $381 million for the September 2005 year, compared with $306 million for the September 2004 year.

That was "fairly good growth" and was coming from rising wholesale and retail electricity prices, he said.

About 50 per cent of Contact's generation was renewables - hydro and geothermal - and those power stations were benefiting from rising prices without having the added costs of gas fuel.

It was not clear how Contact's new owners might affect the company's direction. Origin, an oil and gas explorer as well as electricity generator and retailer in Australia, had moved to calm any concerns that Contact might move into substantial exploration activity under Origin's influence.

The Grant Samuel appraisal report, issued last month in response to Origin's takeover offer, said Contact's earnings would keep rising because of rising power prices and its access to cheap Maui gas until late 2007. Its earnings would peak in the September 2007 year, after which its earnings would be hit by the carbon tax and more expensive gas bills.

- NZPA