First-half profit tips bonus for Contact holders

By Mark Reynolds

Contact Energy's 225,000 new shareholders are in for a windfall gain at the end of this year, after the electricity company yesterday announced much higher than expected profits for the first half of its financial year.

Contact's profit nearly trebled to $54.4 million for the six months to the end of March, from $19.9 million a year earlier. Contact was owned by the Government during the half year, but it is the recently-privatised company's new shareholders who will benefit from the growth in earnings.

That is because the Government was paid a predetermined half-year dividend, based on an expectation that the interim profit would be about $36 million.

Contact has a stated policy to pay 80 per cent of its profits to shareholders, so it now has extra money in the kitty to pay a final dividend that is much higher than the 3.9 cents a share forecast in its prospectus. If the company's directors stick to that 80 per cent payout policy, they have an extra 2.4 cents a share from first-half earnings to bolster the full-year payout. That would equate to an extra $11.60 each for investors who bought the minimum 483 shares sold to people who priority registered in the company's privatisation.

Contact chief executive Paul Anthony said yesterday that the better first-half result meant the company was on track to record a significant rise in full-year earnings compared with the prospectus forecasts of $65.5 million.

The earnings for the full financial year would be ahead of forecast provided prices for electricity on the wholesale markets stayed within a range predicted by the company at the beginning of the year, Mr Anthony said. So far that has been the case, even through prices had fallen sharply since the split of ECNZ at the beginning of April.

Contact had been able to benefit in recent weeks from big spikes in prices in the Auckland region. These were caused by relatively low lake levels at Lake Taupo, which feeds hydro power stations on the Waikato River. Outages at gas-fired plants at Huntly and Stratford had also benefited Contact.

Another outage that had benefited the company was the delay in the commissioning of its new Otahuhu B facility in South Auckland. Contact was paid damages equal to $23 million in extra profits in the first half-year because the plant was supposed to be ready by last November. It expected a further $20 million in extra earnings from damages payments before the plant is finally completed in September.

As well as receiving the damages payments, Contact has been able to continue to sell power from its old New Plymouth power plant. That was expected to have been replaced by Otahuhu B production by now.

Contact gained 6c to $3.45 yesterday.