No decisions on Contact's growing cash pile before Feb, says chairman

Contact Energy shareholders will have to wait at least until the company's half-year result, due to be published in February, before learning of the board's approach to dealing with the growing cash pile the energy company will stack up into the future, now that it has finished investment in new power stations for the foreseeable future.

Speaking to BusinessDesk after today's annual meeting in Wellington, Contact chairman Grant King nominated higher dividends, share buybacks and a capital return as among the options that would be on the table, having earlier told the meeting "we don't envisage any new investment in new generation for quite some time."

The company has completed a seven-year $2 billion programme of investment that reoriented Contact away from its high dependence on natural gas-fired power stations to lower-cost renewable geothermal energy, with its $600 million Te Mihi geothermal power station commissioned earlier this year, and a so-called "retail transformation" project that has replaced the company's ageing customer relationship management systems.

King first raised the prospect of higher dividends or capital returns to shareholders at the 2012 annual meeting, and said today the Contact board would be "quite thoughtful about those matters and haven't seen fit today to signal we've made any particular decisions, which we haven't."

Asked when it would be reasonable for shareholders to expect announcements on capital management, King said: "Certainly, in February, when we announce the half year, the dividend decision will signal pretty much what the thinking of the board is.

"Clearly one choice is dividends, and that's informed a bit by earnings. I think it's fair to say that the increase in the amount of cashflow that Contact's got to work with will be greater than its movement in profits because we're not reinvesting in the business."

Contact increased its final dividend by 1 cent a share to bring payout to shareholders to 84 percent of net profit after tax, slightly above its target of 80 percent.

King is also managing director of Contact's 52.3 percent majority shareholder, Australia's Origin Energy, which failed in an attempt to merge with Contact in 2006. A share buyback scheme in which Origin did not take part might allow its shareholding to creep higher, although the company has given no indication it desires a larger shareholding in Contact.

Contact chief financial officer Graham Cockcroft said at the company's annual results briefing in August that the board was "considering it (a capital return) at the moment" after announcing a 17.6 percent increase in profit to $234 million for the year ended June 30, and a sharp decline in intended future capital expenditure.

Flat demand for electricity and over-supply have caused softening wholesale electricity prices.

King noted the impact of the general election result in removing investment uncertainty created by the Labour and Green parties' single buyer electricity market policy, which has pushed all electricity companies' share prices higher in recent weeks.

Speaking as Origin's managing director, King said Origin was "pleased with the repositioning of Contact", which gained urgency in 2008 when the Cook Strait cable linking the North and South Islands suffered failures that limited Contact's ability to send power north from its southern hydro lakes, effectively breaking the flexibility previously available in its generation fleet.

The company was now "in a robust position going forward."

Today's annual meeting was well attended by around 250 shareholders, who were remarkably passive by comparison with Contact annual meetings in the past. One shareholder raised questions about Contact's long-term business model, suggesting the board were "dinosaurs" because of the company's dependence on the national grid to distribute electricity from power stations when there was a global shift towards embedded generation, such as solar panels.

King said the board monitored those developments, noting that solar installations had been "heavily subsidised" in countries were uptake was strong and that in many of those countries, subsidies had been wound back in response to economic weakness.

In an unusually strong show of bi-culturalism, the meeting commenced with blessings and greetings in Maori by director Whaimutu Dewes and chief executive Dennis Barnes, while Contact staff sang a waiata gifted to the company by a central North Island hapu with which it worked on geothermal issues, prompting one elderly shareholder to seek translations into English at next year's event.

(BusinessDesk)