Contact Energy Limited Analysis

Overview

Contact Energy was formed in February 1996 when it acquired electricity generation and gas assets from state-owned electricity generator ECNZ. Subsequent expansion put the company in the forefront of electricity generators in NZ. It is strongly positioned in wholesale gas distribution, gas retailing and electricity retailing.

Performance

The following information was extracted from Contact Energy Limited's Full Year results, released 19 August 2024:

Financial performance

Contact Energy has reported net profit of $235m in FY24 and operating earnings (EBITDAF) of $675m. Reported figures include a net movement in the onerous contract provision relating to the Ahuroa Gas Storage facility (AGS) of $12m within EBITDAF ($5m within net profit after tax and interest). Excluding the movement in the provision, underlying net profit was up 9% on FY23 to $230m and EBITDAF was up 16% to $663m.

The improved operating result was driven by closer alignment of channel pricing to the wholesale market and greater thermal efficiency, partially offset by lower hydro generation, and reduced steam revenue following the closure of Te Rapa. Net profit was impacted by one-off write-offs of $36m after tax relating to damage to peaker assets, remediation work required at the Tauhara geothermal plant and software projects not continuing as planned.

Hydro volatility characterised operating conditions throughout the period and gas supply tightened, with flow-on impacts to wholesale pricing from more thermal generation. Contact increased contracted sales volumes in anticipation of Tauhara coming online and with its delay to mid-2024 met this sales position through a balance of additional thermal and acquired generation. At the same time, Contact has executed well on its channel mix and pricing strategies.

“The result has been a demonstration of strength in our underlying performance as we managed through market volatility, while keeping the momentum to deliver existing and new renewable developments,” says Chief Executive Mike Fuge.

Operating free cash flow of $470m was up 67% on the prior year on the improved operating result, relatively lower levels of working capital due to higher thermal generation and reflecting the continued capitalisation of interest on Tauhara borrowings. In FY24, growth capital expenditure was $470 million as Contact invested twice its net profit for the year into renewable development.

The Board declared a final dividend of 23 cents per share, taking the annual dividend declared for FY24 to 37 cents per share. Shareholders will have the option to participate in Contact’s dividend reinvestment plan at a 2% discount.