Contact positioned for sustainable growth

26 October 2007

Contact positioned for sustainable growth

Contact Energy’s Chairman, Grant King, today told Contact Energy’s annual meeting that despite a good result for the 2007 financial year, rising gas prices represented an ongoing challenge for the company.

Mr King said that a 20 per cent increase in natural gas costs over the 2007 financial year was likely to be repeated in the 2008 year, with per unit gas prices continuing to rise as Contact’s Maui 367 gas entitlements are fully utilised by June 2009.

“Significant increases in the per unit cost of natural gas will continue to be a factor for Contact until the company has fully transitioned to current market gas supply arrangements,” he said.

Mr King said that softer wholesale trading conditions over the 2007 financial year had continued into the 2008 financial year. He said while it was not easy to accurately predict the near-term wholesale market impacts on Contact, and setting aside any one-off impacts on profit, the company does not expect underlying EBITDA to be materially different from last year’s result. However, Mr King said Contact’s depreciation and interest expense will increase as previously signalled in the company’s annual result announcement, primarily as a result of increased investment in geothermal and the revaluation of Contact’s assets in June 2007.

“Contact has demonstrated over the last year that it can deliver very good results to shareholders, despite challenging market conditions. The company is well balanced in terms of its generation and retail businesses, and in terms of its diverse generation portfolio.”

“The company has a sound strategy that positions the company well both in retail, through its acquisition of Rockgas, and in generation, through the company’s $2 billion renewable investment programme in wind and geothermal.”

Contact Chief Executive, David Baldwin, said while Contact faces some challenges, these have been anticipated and are outweighed by the opportunities the company is currently developing.

“Contact has opportunities that are unique in New Zealand’s energy market. In particular, these opportunities are in developing significant renewable geothermal generation capacity, and maximising our advantage as the only energy company that can now deliver electricity and gas products across the whole country.”

Mr Baldwin said Contact was well placed to lead New Zealand towards an increasingly renewable energy generation sector.

“We are making very good progress towards developing our new 225 MW Te Mihi geothermal power station north of Taupo which, alongside a similar power station we propose to build at Tauhara, will provide New Zealand with valuable renewable, baseload energy,” he said.

“Geothermal energy has a vital role to play in helping New Zealand towards the target of a 90 per cent renewable energy sector by 2025. If renewable projects can be quickly consented and constructed, then we believe that target can be met.”

Mr Baldwin said the company’s proposed wind development in the Waikato would also play a critical role in helping to advance this target.

“This is a strategically significant wind project in that it is located close to major demand centres of Hamilton and Auckland and, in producing enough renewable energy to power up to 250,000 houses, can make a real difference to New Zealand’s generation mix,” he said.

“The site is ideal for a wind farm in that it is very lightly populated and enjoys a good wind resource. Additionally, there will be strong benefits for farmers that are participating in the project and for the region more generally.”

Mr Baldwin reiterated that in order for New Zealand to meet a target of 90 per cent of electricity coming from renewable sources, major renewable projects needed to be called in under the Resource Management Act and consented without undue delay.

“Government and regulatory agencies now have a vital role to play in ensuring that New Zealand’s renewable generation options are able to be developed in a timely fashion. If this does not happen, the target of 90 per cent of the country’s electricity coming from renewable sources will not be realised.

“Contact is in growth mode and has the vision, the strategy and the execution capability to accomplish its goals.”

Grant King and David Baldwin’s speeches to the Contact annual meeting have been posted at www.contactenergy.co.nz/annualmeeting

ENDS

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