Contact Energy Reports 16% Increase in Annual Underlying Profit

Contact Energy, a power generator and retailer in New Zealand, has announced a 16% rise in its annual underlying profit. This impressive result comes on the back of a record period of hydro inflows.

The company, which operates various types of power stations including hydro, geothermal, and natural gas-fired, has also signaled the possibility of increasing its dividend in the 2024 fiscal year. While in previous years Contact has provided a specific dividend figure, this time it is forecasting a minimum payout of at least 35 New Zealand cents (21 U.S. cents) for the 12 months through June 2024.

Contact Energy plans to confirm its dividend guidance no later than its interim result in February. This decision will depend on the outcome of its ongoing negotiations with the Tiwai smelter, which currently consumes a significant portion of New Zealand's electricity output.

With operating conditions greatly improved, analysts had anticipated a strong fiscal 2023 result and positive guidance from Contact Energy. In fact, Forsyth Barr noted in a recent client update that the company had a "stunning second half" compared to the previous year, thanks to favorable hydro conditions and rising retail yields.

For the 12 months through June, Contact Energy reported a net profit of NZ$127 million, down 31% from the preceding year. However, the company's underlying profit increased by 16% to NZ$211 million compared to NZ$182 million achieved in the same period last year.

Moreover, underlying earnings before interest, tax, depreciation, amortization, and fair value adjustments to financial instruments (Ebitdaf) saw a 5% rise to NZ$573 million.

Contact Energy's Chief Executive, Mike Fuge, highlighted that they experienced the highest nationwide hydro inflows in post-market history, with North Island rainfall reaching record levels. "This not only depressed spot market prices but also created greater price separation between the North and South Islands," Fuge added. "In response, we took advantage of the excess renewable electricity available in the wholesale spot market and reduced our thermal generation to its lowest level ever."