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 Half Year results, released 17 February 2025:

Financial performance

Contact Energy has reported net profit of $142m in 1H25, down 7 per cent ($11m) on the prior year, with market making and fair value movements in unhedged financial electricity contracts ($21m) impacting the current period. Operating earnings (EBITDAF) increased by $42m to $404m, up 12 per cent.

The improved operating result was driven by increased geothermal generation with Tauhara online, improved channel pricing from the commencement of long-term contracts and elevated Contracts for Difference (CFDs) in support of short-term supply conditions. This was partially offset by higher gas and acquired generation costs, losses on sale of excess gas and one-off costs of $10m associated with the proposed acquisition of Manawa.

Extreme hydro volatility characterised operating conditions throughout the period, with flow-on impacts to wholesale pricing as demand response calls and the cost of thermal generation reflected fuel scarcity. Contact supported the market by facilitating access to ~3.5PJ of gas from Methanex and increased generation at the Taranaki Combined Cycle (TCC) power station, while also delivering new geothermal generation into the market.

“The result has been a demonstration of the agility of Contact and the market to respond to challenging market conditions when unable to rely on the cheap and plentiful natural gas of the past.”

“Contact’s renewable generation profile has now expanded, with its two new geothermal plants online and already contributing generation in the first half,” says Chief Executive Mike Fuge. “We expect to deliver EBITDAF of $790m in FY25 (previously $770m) excluding the costs associated with the proposed acquisition of Manawa.”

Operating free cash flow of $138m was down 21% on the prior year with the improved operating result offset by relatively higher levels of working capital (due to higher value and levels of stored gas) together with higher interest paid following the completion of Tauhara and the related reduction in interest capitalisation.

The Board declared an interim dividend of 16 cents per share, up 2 cents per share or 14% on 1H24. Shareholders will have the opportunity to participate in Contact’s dividend reinvestment plan at a 2% discount.