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Contact Energy's 'solid' result follows job cuts

Published: 10:02AM Tuesday February 19, 2013 Source: ONE News

Contact Energy has announced a "solid" half year performance, reporting a half year profit of $88 million, up 29% on the same period last year.

The Wellington-based power company said that operating earnings for the six months to December 31 were $253 million, up 10% from $231 million in the first half of the 2012 financial year.

The result comes as Contact announces it is laying off 100 employees in a cost-cutting initiative.

Chief Executive Dennis Barnes said that the company had "achieved an acceptable result" despite weakness in the wholesale electricity market and sustained competition in the retail market.

In a statement to the NZX, Barnes said that Contact's results show the benefits of investment in diverse fuel and asset portfolio as well as competitive customer offers.

Last week, Contact who employees more than 1000 people, confirmed plans to cut 10% of its workforce by June this year, as part of a $40 million cost cutting plan.

Today, Contact said the restructuring plan was one of a number of initiatives underway across the business to control costs.

"We have announced to staff that we will be restructuring the business. We recognise that workforce changes are unsettling, particularly for any of our people who are affected and we will support them through this transition.

"The proposed changes will control our costs and help us to remain competitive for customers and shareholders," Barnes said.

Earnings Before Net Interest Expense, Tax, Depreciation, Amortisation, Change in Fair Value of Financial Instruments and Other Significant Items (EBITDAF) were $253 million, up 10% from $231 million in the first half of the 2012 financial year.

Underlying earnings after tax (profit for the period adjusted for significant items that do not reflect the ongoing performance of the Group) were $92 million, up $16 million (21%).

With regard to Contact's retail business, Barnes said that despite the market continuing to experience high levels of customer switching, Contact's customer numbers saw a modest increase.

However, sales volumes were 1% lower than the first half of the 2012 financial year, and margins decreased for electricity sales by $1 per megawatt hour, reflecting the competition for customers in an oversupplied market.

Contact also said that work on the Te Mihi project made good progress and, combined with the expiry of the Huntly swaption contract, will make a significant contribution to earnings from the middle of 2013.

"The completion of Te Mihi will bring to an end a greater than $2 billion investment programme, adding lower-cost geothermal, and flexible thermal generation capacity and New Zealand's first gas storage facility," said Barnes.

The company will pay out a dividend of 11 cents a share.