Contact Energy cancels international geothermal plans

Contact Energy cancels international geothermal plans Te Mihi geothermal plant, New Zealand (source: Contact Energy)
Alexander Richter 25 May 2015

Following strategy work, Contact Energy decides against international geothermal plans and for dividend payments for shareholders

As announced in February 2015, Contact Energy Limited (Contact) has been examining growth opportunities in renewable energy, the company’s capital structure and the capacity to increase distributions to shareholders.

Contact has concluded that there are no material investment opportunities available at this time that would sufficiently reward shareholders and that the company can support increased distributions to shareholders. 

Or as 3News from New Zealand reports:”Contact Energy has dropped any immediate plans to invest in offshore geothermal energy projects in favour of paying a 50 cents per share special dividend to shareholders.

In an interview with ThinkGeoEnergy, Contact Energy CEO Dennis Barns in April 2015 talked about the difficulties in these time of low yields for investors and the challenges of listed companies such as Contact Energy to have to share profits directly with shareholders rather than being able to invest into future growth. So it is maybe not surprising to read these news today.

The Contact Board of Directors has revised the company’s distribution policy to reflect the expectation that Contact will have limited capital requirements in the near term. Contact’s amended dividend policy will be to target an average ordinary dividend equivalent to approximately 100 per cent of Underlying Earnings after Tax[1].

To the extent free cash flow exceeds the distributions outlined above, and absent new domestic growth opportunities or adverse market events, additional distributions will be made and are likely to take the form of share buybacks. 

As the company has accumulated a significant balance of imputation credits from capital raisings over recent years the company has determined to return $367 million (50.0 cents per share) to shareholders through a fully imputed special dividend to be paid on 23 June 2015. 

Contact remains committed to maintaining an efficient capital structure and to an investment grade credit rating. Standard and Poor’s has recently re-confirmed Contact’s BBB credit rating. 

“As a result of the capital investments made with the support of our shareholders, Contact is a strongly cash generative business which can support the change in distribution policy announced today. We value the flexibility provided by an investment grade credit rating which enables the company to withstand variable market conditions. 

Contact believes that we have a strong capability in renewable energy, in particular geothermal, and we will continue to explore how we may leverage these skills to grow earnings over the long term. 

Contact is focused on creating long-term value for our shareholders and will do this through the safe operation of our business, a focus on costs and efficiency and providing customers with the quality of service and products they expect”, said Mr Barnes.

Source: Official company release and 3News New Zealand