Forum Archive Index - May 2004

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi fellow Sharechatters, 

For those who were wondering, my 'series' on CEN will resume 
eventually after the distractions of the WRI takeover are out of the 
way.

In the meantime, there was a comment on page 10 of the CEN interim 
report that I thought worthy of comment.  It was brought to my attention 
relativly recently that most companies create at least two sets of 
accounts.   One for you and me (that's what goes into the annual and 
half yearly reports) and another for the taxman.   This is significant in 
the context of the Contact Energy half year report.  I quote from page 
10.

"Tax expense for the period ended 31 March 2004 was $36.5m."

"This represents an effective tax rate of 40% for the half year, due 
primarily to Contact's tax depreciation charge being lower than its 
accounting depreciation charge.   The higher accounting depreciation 
charge results from the company's policy of revaluing property plant 
and equipment (upwards) every three years."

I had to read this paragraph several times before the implications of it 
sunk in.   Declared half year profit for CEN was $91.8m.

$36.5m/ $91.8m = 40% tax

But we know that the NZ company tax rate is 33%, not 40%.    That 
means the half year profit as declared to the NZ tax department was 

$36.5m/ 0.33= $110.6m.

Compare that to the interim dividend just paid, $40.4m, and you can 
see that Contact has quite a good supply of imputation credits 

Retained half year profit = ( $100.6- $40.4m )= $60.2m
Imputation credits earned on that = 0.33 x $60.2m= $19.9m

building up 'off the books'.   Why does that matter?

Because if Edison Mission sells their stake in Contact, management 
has stated on p7 of the interim report

"The board is considering options to ensure that shareholders can 
utilize accumulated imputation credits in the event of Edison Mission 
Energy sells its shareholding in Contact."

Up until now Contact has 'apparently' being paying out all of its profit 
as dividends, and that means no build up of imputation credits.   But by 
my calculations, $20m/600m shares= 3c credits per share built up in 
the last reported six months, plus whatever other credits CEN have 
built up before and since.

That amount won't make CEN shareholders rich, but it does translate 
to a nice little unexpected bonus coming shareholders way.

SNOOPY

discl: hold CEN




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