Contact Energy shareholders are getting a higher final dividend after the company boosted June year profits by 5 per cent to $199 million, despite what it called an "oversupplied" power market.
The company also announced a final dividend of 14 cents a share, up 2c on last year, taking the total for the year to 25c.
Market watchers expect Contact to boost dividends even further next year, possibly taking the next full year payout as high as 30c or more.
Contact has signalled it would review the dividend policy but is giving away little detail, as it comes to the end of a five-year multi-billion power generation expansion programme.
"But we don't want to declare victory too early. Te Mihi (power station) is not finished, and we want to see that cashflow come solidly into the business," Contact chief executive Dennis Barnes said when asked about future dividends.
The $750 million Te Mihi geothermal power station near Taupo should be providing electricity in a couple of months and its cheaper power will help cut costs.
Contact has also ditched plans to build a windfarm on the Waikato coast, and put plans for another windfarm near Dannevirke on the back burner, which will lower future capital costs.
Contact wrote off $67m on the two projects, mainly the losses on land bought for the Waikato windfarm. Wellington-based Contact also faced $8 million in restructuring costs, after laying off 120 staff in the city.
Contact posted a full-year profit of $199 million, up 4.7 per cent and bumped up its dividend, despite an "oversupplied and highly competitive market" with national demand down 1 per cent in the year.
Broadly, New Zealand used up to 40,000 gigawatt hours of electricity a year. But if all generation was used, it would be more like 45,000 GWh depending on whether it was a wet or dry year for hydro power production.
"Our projection is that the oversupply persists for at least five years," Barnes said. "Prices are flat, competition is strong and our (customer) discount levels have gone up, year on year."
Despite falling demand and an oversupply of power, Contact said the average residential market revenues rose 6 per cent in the year.
That translated into $13 a megawatt hour of extra revenue, but $7 of that was higher costs from Transpower and lines companies that Contact had just passed on. The balance of an extra $6 a megawatt hour in revenue came from improving the collection of power bills and shutting off power to sites where there was no customer.
Barnes said Contact's discount rate went up from 14 per cent last year, to 15 per cent for those who paid "on line and on time".
So the 6 per cent rise in revenue was not a result of rising prices imposed directly by Contact, Barnes said.
Meanwhile, Forsyth Barr energy analyst Andrew Harvey-Green said Contact's profit was a strong result compared with the past couple of years.
"It is good to see things moving in the right direction. It's a testament to investments they have been making in the past few years," he said.
Contact had a strong end to the year, which helped the company to better profits and a higher payout, and Harvey-Green expected a "reasonably significant lift" in future dividends.
"Comfortably more than 10 per cent," he said.
"The ability to increase their dividend payout is certainly there once they complete Te Mihi and rolling out SAP software (a new customer billing and service system)," he said.
"We are expecting a step change in earnings (from Te Mihi)," he said, but it would show up more in the second half of the new financial year.
Forsyth Barr has Contact as a "buy" recommendation.
Phillip Anderson, an energy analyst at Devon Funds, said the Contact result was a bit better than expected.
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