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Contact CEO bonus up despite performance fall

Tuesday 28th September 2010

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Contact Energy's managing director, David Baldwin, saw his cash bonus bounce back to the second highest since his appointment in 2006, despite the NZX-listed electricity generator-retailer showing the second-lowest return on equity in its sector.

The Contact annual report for the year to June 30, 2010, also shows the utility is paying 297 of its approximately 1,050 staff more than $100,000 a year, up from 115 in the 12 months to June 2007, Baldwin's first full year with the company.   

Baldwin's cash bonus rose to $364,000 in the 2010 financial year, from $246,000 in 2009, giving the head of New Zealand's third-largest listed company a take-home pay packet of $1.2 million, up from $1.1 million. Including restricted shares and options in the latest year, his package was worth $1.34 million, a little over half the $2.5 million available if he achieved exceptional performance. 

Contact achieved an underlying return on shareholders' equity of 5.4% in the last financial year, compared with 9.7% for MightyRiverPower and 5.6% for Meridian Energy, both of which are government-owned, while the only other NZX-listed electricity sector player, TrustPower, recorded an 8.3% return on equity. 

Only Genesis Energy, with a 4.9% return on equity employed, had a lower performance, although it out-performed its target for the year of a 1.9% return. 

The 2010 financial year was difficult for Contact, which recorded its lowest earnings before interest, tax, depreciation, amortisation and financial instruments since 2003, at $427 million, while underlying earnings of $149.8 million was the lowest since 2004.     

Contact's long-standing strategy to achieve stable earnings by balancing its generation and retail businesses broke down in the past two years along with normal service on the Cook Strait cable, which lost its usual capacity to transfer electricity between the North and South Islands. Wet weather sank wholesale electricity prices in 2010 and much higher gas prices for thermal generation also dragged the result down in the last year. 

The company has been building a gas storage facility and new gas-fired peaker plant, along with advancing its geothermal generation plans, to return the company to greater profitability, which is expected to start showing through in the second half of the current financial year. 

A comparison between the 2007 and 2010 annual reports shows a ten-fold increase, from six to 60, in the number of employees earning salaries in a band between $100,000 and $110,000 a year.  Highly-valued workers are eligible for incentive payments, which are included in the totals. 

While the company has since acquired the Rockgas LPG business and is developing several new power stations and a gas storage project, its customer numbers have declined by 47,000 since they peaked in 1998 at 646,000. The shares fell 1.2% to $5.74 today and have declined 7% this year. 

The fixed component of Baldwin's salary remained at $838,856, the first time it has not risen since 2007. However, the value of bonus options and restricted shares issued was $139,037, down slightly on last year's $143,030. 

The restricted shares and options are not immediately able to be traded or exercised, and only become available over the next five years if performance hurdles continue to be met.

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