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Compensation boosts Contact's profit

MATT NIPPERT
Last updated 05:00 19/08/2014

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The election looms as the dominant force unsettling Contact Energy, despite the electricity retailer announcing the conclusion of major capital expenditure and a focus on dividends, analysts say.

Contact reported yesterday a profit after tax of $234 million for the year to June 30, a 17.6 per cent increase on last year.

Chief executive Dennis Barnes said the result was bolstered by a $43m compensation payment from the firm responsible for building its delayed Te Mihi power station near Taupo.

The commissioning of the $623m project marked the end of a $2b capital expenditure programme.

"We're very much a business focused on cashflow. Capital expenditure has been decreasing over time. We don't expect to be spending more than $100m on our assets, which will create cashflow for distribution to shareholders in due course," Barnes told analysts.

Contact announced it would pay a final dividend of 15 cents, up 1c on last year, representing 95 per cent of free cashflow for the year.

Hamilton Hindin Greene director James Smalley said the result was better than expected, but the markets were cautious.

"It's basically done what they said they would do, and it's a good result operationally, but the market's still taking it with a grain of salt and will be looking past that to the election to get some certainty," he said.

The Green and Labour parties are campaigning on reforming the market with a centrally managed bulk power buyer, which they say will reduce electricity prices.

Smalley said such regulatory changes would have a significant negative effect on Contact, and other electricity companies' share prices.

Barnes said he believed the status quo was working.

"I believe the current market structure is delivering competition. It's delivering flat to declining prices, and it's delivering new renewable generation," he said.

Smalley said the company had signalled its intent to hold steady with its generating capacity earlier this year. "Electricity demand in New Zealand has been pretty flat, and the need for additional generation is pretty minimal. In the absence of capex, they'll be returning excess cash to shareholders," he said.

Barnes said Te Mihi station, near Taupo's Wairakei power station, was due to open last July but its opening had been pushed out by 10 months.

"The contract protected us. Although it was physically late, it's not economically late for us."

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- The Dominion Post

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