Contact posts little changed full-year earnings, sees demand lifting

Contact Energy, the electricity and gas provider, posted little-changed full-year operating earnings amid signs that electricity demand is starting to grow after a long period of decline and that its investment in technology to gain and retain customers is starting to show returns.

Earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments (ebitdaf) were $523 million, down 0.4%  on the previous year's result, on revenue of $1.51 billion, a 5% reduction on the previous year.

Chief executive Dennis Barnes said  improvements in operational performance in the current financial year "will be largely offset by increased carbon costs and the commencement of our 80MW Tiwai (aluminium smelter) supply contract."

Electricity retailers had managed the "first market-wide lift in energy and other component" retail tariffs since 2013 in the first quarter of 2016.

"With new products in market and retail price changes we expect to see increasing value in our retail offering but, ultimately, our performance will be influenced by our need to be competitive," Mr Barnes said.

A final dividend of 15c  per share, unchanged from the previous year, will be paid on September 23, with 7c imputed. Combined with an 11c interim dividend, Contact is paying out 120% of underlying profit, which it calculated at $157 million, down 2.5% from the previous year's $161 million.

The underlying profit figure excludes a net $204 million of impairments related to the closure of the company's Otahuhu-B gas-fired power station, abandonment of its interest in the undeveloped Taheke geothermal steam field and losses on gas inventories. Those writedowns, all announced at the half-year earnings result, saw Contact turn in a statutory loss for the year of $66 million for the year.

Reflecting the fact that several years of major capital expenditure have now ended, free cashflow improved 17% to $403 million. Some $100 million of Contact shares were bought back during the year at an average price of $4.83. The shares closed last Friday at $5.26.

The result was achieved mainly under independent ownership, following the sale last August by Australia's Origin Energy of the controlling stake it had held in Contact since the early 2000s and coincided with the implementation of new customer service technology that Contact says is starting to yield gains in a retail market that remains highly competitive.

The company is claiming "lowest cost-to-serve" in the industry at $106 per customer, down from $124 a year earlier and said customer churn rates were now 1.3 percentage points below the market average and Contact had gained a net 5380 customers in the second half of the financial year, compared with a net loss of 9800 in the first-half. Late bill payments have plummeted compared to the previous year and bad debts have fallen to 0.52% as a proportion of retail revenue, compared to 0.7% at the end of the second half of the previous year.

Some 82% of Contact customers are now on plans that offer discounts of 10% of more, a quarter (24%) are on fixed term products, and 22% are taking more than one fuel – electricity, gas, or LPG – in a bundled offering.

The company produced a matrix of customer initiatives planned in the near future, including "new products" to "rebase the way the market prices," refreshment of its online services and increased use of cloud computing and customer self-service.

In the wholesale market, the cost of energy improved by $4 per megawatt hour; with 82% of the company's electricity coming from renewable generation, up from 76% from the previous year.

(BusinessDesk)