Contact Energy Annual Meeting

Contact Energy Annual Meeting

Contact this morning released its unaudited earnings results for the three months ending 31 December 2003, reporting a $27.5 million after tax profit, compared with $18.4 million for the corresponding period the previous year.

Key factors in the result included: the addition of Taranaki Combined Cycle power station to Contact’s generation portfolio (acquired during the second quarter of the last financial year); higher average wholesale prices during the period ($ 41.83 per megawatt hour versus $32.01 in the first quarter of the previous year); and strong retail sales growth.

“Overall, the first quarter profit illustrates the benefits Contact continues to derive from investments made in previous years in new customer acquisition and generation assets,” said Mr Barrett.

“While this is a pleasing result, it primarily reflects the growth in Contact’s total business size.” Earnings before interest, tax, depreciation and amortisation (EBITDA) of $101.5 million in the period ($68.1 million in the quarter ended 31 December 2002) also largely reflected the substantial growth of the business between the two quarters under review.

Total electricity and gas revenue at $296.7 million was 20 per cent higher than in the first quarter of the previous financial year.

Total electricity generated rose by 31 per cent during the quarter, in part reflecting relatively low use and unavailability of the Otahuhu-B plant for a significant part of the same quarter a year earlier, as well as load growth. This was combined with higher average wholesale prices, a 15 per cent increase in retail electricity sales volume, and the gradual impact of tariff adjustments that reflect more appropriately the full cost of serving retail customers.

Total revenue from external gas sales continued to fall, reflecting the impact of reclassifying sales to Taranaki Combined Cycle power station from external wholesale sales to internal generation, and increased competition in the gas market with further reductions in retail gas sales.

Contact was also experiencing significant competitor activity in the retail electricity market, Mr Barrett said.

While retail sales volumes for the quarter increased as compared with the same period a year earlier, Contact experienced a loss of approximately 6,000 electricity customers between 30 September 2003 and 31 December 2003. The company had 515,000 electricity customers at the end of the quarter.

“In pursuing its strategy of growing generation capacity and retail demand in balance, Contact has been refocusing its marketing activities from active acquisition campaigns and is currently placing more emphasis on retention and loyalty related programmes,” said Mr Barrett.

Contact Energy Unveils Australian Retail Plans

Contact Energy Ltd today announced plans to enter the Victorian retail electricity market, using the same balanced strategy for growth that has served the company well in New Zealand.

Speaking at the company’s Annual Meeting in Dunedin this morning, the Contact chief executive, Mr Steve Barrett, said the move was in line with Contact’s long-held strategic intentions for investment in Australia.

“As is well known, Contact has been looking at opportunities for growth in Australia for more than three years,” said Mr Barrett. “For the last 12 months, we have been working quietly on a retail initiative that in many ways is designed to replicate our success with Empower, the brand that has driven our New Zealand retail customer growth over the last two to three years.”

Contact added 65,000 new customers last year, with the majority of that growth occurring through Empower’s competitive electricity offers to households and small and medium sized businesses.

Mr Barrett said that the new retail venture had recently secured a long term energy supply from a major Australian electricity generator.

“This supply agreement is a key prerequisite to launching a retail offering to Victorian householders later this year because it allows us to service the growth of our customer base in a market where we currently have no dedicated baseload generation.

“We are now in the process of obtaining the necessary consents from Australian regulatory authorities. We have been given every reason to expect that those consents will be granted, and have taken the view that we should inform shareholders of our plans at this point.

With a population base similar to New Zealand’s and a recently deregulated electricity market, Victoria appeared the most attractive venue for entering the Australian retail electricity market.

“We are thoroughly looking forward to bringing new competition, pricing and product offers to the consumers of Victoria,” said Mr Barrett. “Our plans are ambitious, but realistic. We are not trying to take over the town, but believe after careful analysis that there is a strong niche opportunity for us in this market.

“Contact continues to investigate options for other investments in Australia, in line with its preference to identify opportunities that will allow the creation of an integrated energy business on a similar basis to the successful strategy employed in New Zealand,” said Mr Barrett.

Independent Directors Committee Formed

Contact’s chairman, Mr Phil Pryke, also told the Annual Meeting that the board had established an Independent Directors’ Committee to deal with issues relating to the announced intention by Edison Mission Energy (EME) to sell some or all of its international assets. This includes the possible sale of its 51 per cent shareholding in Contact Energy.

“The board is very aware that shareholders have numerous questions relating to the EME announcement,” said Mr Pryke. “Likewise, we are aware that there are likely to be implications for the company that flow from whatever EME ultimately decides to do.

“Whilst public attention has tended to focus on EME’s stake in Contact, I would also observe that EME has other assets in this part of the world,” said Mr Pryke. “We see a prospect that EME’s wider divestment process may create an opportunity to further Contact’s goal of building an integrated energy business in Australasia.”

Any major acquisition of EME assets would require approval by minority shareholders, and we would want to ensure the necessary support at an early stage.

Mr Pryke also stressed the highly disciplined approach that Contact had taken to investment in Australia.

“We have put a lot of time and effort into understanding a number of other Australian opportunities that have arisen over the last three years or so,” he said. “However, we have had no hesitation in backing away when they failed to meet our rigorous investment criteria. Our approach to EME’s Australian assets, should an acquisition opportunity crystallise, would be no different.

“While it is too early to judge whether any of these issues will arise, I want to assure shareholders that Contact is taking a responsible and proactive stance on these matters.”

The members of the Independent Directors’ Committee are Mr Pryke (chair), Mr Tim Saunders, Mr John Milne and Dr Patrick Strange.

Hawea Gates Mini-Hydro Option Under Exploration

Also under consideration at present is the potential to add new generation capability at the existing control gates that Contact operates at Lake Hawea. Between 8 and16 Megawatts of hydro production is considered possible by installing a mini-hydro plant using the head created by the dam at Lake Hawea.

“This would use the existing river flows and could be achieved at a cost of between $15 million and $30 million, depending on which of the two options we chose,” said Mr Barrett.

“If we were to proceed with a development at Hawea, this new generation capacity could be commissioned as early as winter 2006, dependant on resource consent requirements.

“The project would be a useful addition to generating capacity and could be achieved with minimal impact on the way that Contact currently manages the lake levels and river flows from Hawea.”

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