CONTACT ENERGY 2008 ANNUAL RESULTS
Name of Listed Issuer: Contact Energy Limited
For the year ended: 30 June 2008
This report has been prepared in a manner which complies with generally
accepted accounting practice and gives a true and fair view of the matters to
which the report relates and is based on audited accounts.
The amounts as presented have been prepared in a manner which complies with
New Zealand accounting standards which comply with International Financial
Reporting Standards (IFRS).
CONSOLIDATED INCOME STATEMENT
Current Year NZ$M; Up/Down %; Previous Corresponding Year NZ$M
EBITDAF (Earnings Before Net Interest Expense, Income Tax, Depreciation,
Amortisation, Financial Instruments and Other Significant Items): $567.2M; up
4%; $543.7M
UNDERLYING EARNINGS AFTER TAX (excludes one off items and Change in Fair
Value of Financial Instruments net of tax): $232.8M; up 1%; $231.2M
UNDERLYING EARNINGS PER SHARE: 40.37 CPS; up 1%; 40.09 CPS
ITEMS FOR SEPARATE DISCLOSURE: ($4.3M); down 50%; ($8.5M)
PROFIT FOR THE YEAR: $237.1M; down 1%; $239.6M
EARNINGS PER SHARE: 41.11 CPS; down 1%; 41.56 CPS
FINAL DIVIDEND (FULLY IMPUTED): 17.0 CPS
Imputed amount per security: 8.4 CPS
Record date: 9/09/2008
Payment date: 23/09/2008
BALANCED BUSINESS DELIVERS PLEASING FULL YEAR RESULT
Contact Energy Limited has delivered a pleasing full year result for the
financial year ended 30 June 2008, and has made significant progress on
executing the company''s growth strategy.
Underlying earnings after tax for the year were $232.8 million, 0.7 per cent
higher than for the previous year. Earnings before Interest, Taxation,
Depreciation, Amortisation, Financial Instruments and Other Significant Items
(EBITDAF) for the year were $567 million, four per cent higher than for the
previous year.
Contact Chief Executive, David Baldwin, said the result had been delivered
under challenging and somewhat unique conditions.
Drought conditions over the second half of the financial year placed
considerable pressure on national hydro storage, resulting in an average
wholesale price for the year for Contact''s generation of $107 per megawatt
hour (MWh), almost double the average wholesale price for the prior
corresponding period. However, in addition to the low hydro conditions,
transmission constraints in the lower North Island and across the interisland
HVDC link resulted in periods where Contact was unable to supply its South
Island demand, and was required to purchase electricity from the spot market
at a significant loss.
"The circumstances of the last year have led to a shift in relative
performance between the company''s retail and generation segments, reinforcing
the value of Contact''s integrated business model," Mr Baldwin said.
Mr Baldwin said the full year result was good for the company''s shareholders,
particularly given the conditions, while at the same time the company
continued to build long-term value by investing in new geothermal, wind,
hydro and gas-fired projects.
Generation development
Mr Baldwin said while the electricity market robustly managed a period of
very dry hydrological conditions over the course of the year, the period of
tight supply reinforced the importance of a diverse generation mix to a
secure supply of electricity.
Contact is making pleasing progress on executing a plan to invest up to $3
billion in approximately 1,400 megawatts of new generation projects across
the key fuel types.
Mr Baldwin said that "the implementation of Contact''s strategy will
contribute both to shareholder value and a secure supply of electricity for
New Zealand based increasingly on renewables".
The status of Contact''s generation development plan is as follows:
Project; Capacity; Location; Status
Te Mihi geothermal power station; 220 MW; Taupo; Called in by Environment
Minister, consent hearings complete, decision pending
Hau?uru m? raki wind farm; 540 MW; Waikato; Consent applications filed
Waitahora wind farm; 177 MW; Dannevirke; Resource consent application being
developed
Gas peaking project; 200 MW; Stratford; Consented, in operation mid 2010
Tauhara geothermal binary plant; 23 MW; Taupo; Under construction, in
operation in 2010
Hawea Gates hydro; 17 MW; Hawea; Consented, final investment decision pending
Tauhara geothermal; 240 MW; Taupo; Preparation underway to file consent
application in the 2009 financial year
"If New Zealand is to move increasingly towards greater renewables, we need
to be able to consent these projects without undue delay. In this respect we
are particularly pleased with the decision from Government to call in our Te
Mihi geothermal project, and with the indications that greater use of call in
powers are likely," he said.
Mr Baldwin said the company also held resource consents for the country''s
best thermal generation options - a combined-cycle gas-fired power station at
Otahuhu in Auckland, and another at Stratford - which could be quickly
developed if required.
Emissions Trading Scheme
Mr Baldwin said Contact''s renewable generation development plan positioned
the company well to manage the possible introduction of an emissions trading
scheme.
"Contact believes a price on carbon is inevitable and supports the
introduction of an emissions trading scheme as a market-based mechanism
through which to price carbon," said Mr Baldwin.
"Contact has developed a robust business strategy that will enable the
company to grow and deliver strong returns to shareholders in an environment
in which carbon emissions are priced."
Transmission
Over the course of the year, Contact publicly raised the issue of a
constrained national transmission grid and the need for investment in
transmission capacity to keep pace with new generation development.
"The value of New Zealand''s electricity generation assets, the vision of an
increasingly renewable future and the ability to ensure a secure supply of
electricity all depend on a modern, robust transmission network that is able
to reliably deliver generation to consumers.
"Ensuring that sufficient investment in new transmission is made at the right
times will continue to be an issue of the highest importance to Contact, and
one that we will work with the rest of the electricity industry to advance
over the coming year," he said.
Retail
Mr Baldwin said Contact''s strong retail customer base was a key driver of the
company''s annual result and an area of focus for the company on an ongoing
basis.
"Over the year, we have focused on demonstrating Contact''s value proposition
to our customers across the country through the delivery of outstanding
customer service.
"It is particularly pleasing that in what is a highly competitive retail
electricity market, Contact has increased its retail electricity customer
base by 6,500 new customers over the year, taking total electricity customer
numbers to 520,000.
"LPG customers also increased by 3,500 over the year, taking total LPG
customer numbers to 52,500 which is also a very good result. The acquisition
of Rockgas in 2007 continues to exceed our initial expectations and the LPG
side of the business looks set to continue to grow."
Contact''s retail reticulated natural gas customer numbers remained flat at
75,000.
Mr Baldwin said upward pressure on electricity prices was likely to continue
as prices continued to trend towards an entry price for wind generation.
Natural gas and LPG
Contact continues to manage the impact of rising natural gas prices, with the
underlying per unit price for natural gas increasing by 20 per cent over the
year and gas transmission costs associated with generation increasing by 18
per cent.
In June 2008, Contact and Origin Energy completed the purchase of Swift
Energy''s New Zealand oil and gas assets. As part of this purchase Contact
secured rights to develop the mostly depleted Ahuroa gas field into an
underground gas storage facility, which is expected to be operational by
2010.
Mr Baldwin said the Ahuroa gas storage facility will, when developed, be a
key strategic asset that will enable a flexible supply of gas to power the
company''s Stratford peaking project, and its other gas-fired plants, in
addition to enabling the company to optimise the value of its contracted gas
supplies.
Dividend
The Board has declared a fully imputed final dividend of 17 cents per share.
Payment will be made on 23 September. This takes the total fully imputed
dividends to 28 cents per share for the full financial year - an increase of
four per cent from the 2007 financial year.
Origin Energy / BG
During the period, BG Group plc made a takeover offer for Origin Energy Ltd,
Contact''s majority shareholder. At this stage it is not possible to assess
the probability of the success of the offer. However, should the offer be
successful, BG Group may be required to make a follow on offer to Contact''s
shareholders. Despite the potential uncertainty associated with the
ownership of Origin Energy, and the consequential uncertainty for Contact,
the company remains focused on the execution of its strategy.
Outlook
The wholesale electricity market continues to be impacted by the combination
of low hydro inflows in the South Island, high inflows and storage in the
North Island, and transmission constraints limiting the amount of North
Island generation flowing to the lower North Island and on to the South
Island. These conditions are continuing to result in wholesale prices north
of the transmission constraints being significantly lower than prices south
of the constraints.
With the majority of Contact''s generation being situated in the North Island
and a significant portion of that capacity being unable to flow to the lower
North Island and on to the South Island, the company''s South Island load
(which is about 50 per cent of Contact''s total load) is, from time to time,
being met through electricity purchases from the spot market at a loss. This
has resulted in performance for the first two months of the current financial
year being well below expectations.
"We expect these conditions to improve once either transmission constraints
ease, South Island demand eases as temperatures rise, or South Island hydro
inflows increase. Contact is undertaking further work to assess the possible
medium-term implications on the market of continued transmission
constraints," said Mr Baldwin.
These conditions are having a significant impact on Contact''s current
performance. It is too early to accurately assess the impacts of these
conditions on the 2009 financial year results; however, Contact''s current
mid-point of expected outcomes for the year does not see the company
significantly outperforming the 2008 financial year result.
"Despite the challenging short-term conditions, Contact continues to leverage
its comparative advantages, particularly in geothermal energy, and remains
tightly focussed on executing its unrivalled strategic initiatives to build
long-term shareholder value," said Mr Baldwin.
Jonathan Hill
Communications Manager
04 462 1285
021 440 090
Copies of Contact''s financial statements, investor presentation slides and
Quarterly Operational Data are available from the "Investor" section on
Contact''s website (www.contactenergy.co.nz).
End CA:00169099 For:CEN Type:FLLYR Time:2008-08-26:08:42:03