Dividends back on cards for NGC

By Phil Boeyen, ShareChat Business News Editor

Tuesday 30th October 2001

Natural Gas Corporation (NZSE: NCH) has apologised to its shareholders for losing hundreds of millions of dollars but is promising an early return to dividend payouts.

The company was badly burned by the high wholesale electricity prices during the winter and eventually exited the retail electricity business.

Chairman, Greg Martin, told shareholders at the company's AGM on Tuesday that the results fell for the year ended June well short of expectations.

"A $300 million loss is a serious financial blow by any measure, and it has given us all cause for deep reflection. The board sincerely regrets this loss and the consequent impact on shareholder value."

Mr Martin says although the electricity market is supposed to offer competitive hedging it is now generally accepted that the hedge market in New Zealand is a thin one, and has been compounded by large generators aggressively building their own retail business.

"This put net retailers, like NGC, in the position of having to negotiate hedge contracts with the very generators that were chasing their customers.

"There were few incentives for net generators to offer hedges and, when they did, to do so on a competitive basis. Crucially, when we went out to tender for hedge cover we received no offers for the winter period."

A lack of hedging left the company exposed to high spot wholesale rates and Mr Martin says in June the company incurred abnormal losses on electricity retailing of $48.7 million.

"It is deeply regretted that as a result of the decision to exit electricity retailing many staff have left, or will leave NGC over the coming months.

"However, the directors were not prepared to see any further erosion in shareholder value and elected to halt the losses by selling the electricity retailing business."

Despite selling its power customers the company continues to be an energy retailer with around 100,000 gas customers in the North Island and is also negotiating a strategic marketing alliance with Genesis to promote competitive dual fuel electricity and gas supply packages.

Mr Martin says the value of the TransAlta acquisition has also been substantially retained through the considerable generating, gas and metering assets.

"Our focus is now firmly on achieving positive earnings growth and improving cash flows. I expect that the achievement of these objectives will lead, in turn, to an improvement in shareholder value."

Although the company's year-end result was awash with red ink the chairman has pointed out that continuing business, excluding electricity retailing, performed very well and produced net earnings for the year of $55.6 million compared with $43.5 million last year.

Performance this financial year also bodes well for a return to dividend payouts.

"Given the substantial improvements in the company's trading performance in this financial year and the continuing strength of NGC's portfolio of businesses, the directors expect an early return to dividend payments," Mr Martin says.

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