Future too uncertain for earnings guidance from Contact Energy

Thursday 22nd October 2009

Contact Energy is giving shareholders no guidance about earnings in the year ahead, with chairman Grant King warning that dividends will only be retained at current levels if profitability returns to "more normal levels".

In speech notes for the company's Annual Meeting in Wellington, King said the board was "realistic about the market conditions Contact faces".

"The economic conditions currently impacting New Zealand are expected to continue to dampen demand growth, and a range of market and operating uncertainties remain," he said, referring to ongoing constraints in the national grid which last year undid Contact's long term strategy of balancing its retail customer load with its generation capacity to hedge wholesale and retail earnings.

Instead, in the 2008/09 financial year, hydrological conditions swung wildly from severe drought to a deluge in Contact's southern hydro catchments, sinking wholesale market prices, while transmission constraints made it impossible to send as much hydro power to the North Island as usual.

The result was a 31% decrease in underlying earnings to $160.6 million, exacerbated by the loss of almost 10% of the company's customer base when competitors exploited public anger at the company's doubling of the directors' fee pool at last year's Annual Meeting, and raising its tariffs just ahead of the last election as the world economy plunged in the credit crunch.

Managing director David Baldwin dwelt briefly on last year's public relations nightmare, saying Contact had "worked hard over the year to rebuild our relationships with customers and other stakeholders".

"While in recent years we had been successfully building our retail customer base, following last year's AGM, customers made it clear that we were out of step with them."

Customer losses peaked in February, and Contact was now experiencing net customer growth, said Baldwin, although its monthly operational statistics released last week show total customers flat-lining in recent months at 479,000, still the lowest total since 2002, and down from a peak in September 2008 of 529,106.

King emphasised that the increased directors' fee pool had not been used to increase fees, but to pay the expanded board, and to allow the appointment of new directors.

The company would shortly announce the appointment of a further new independent director to complement Christchurch-based professional director Sue Sheldon, who replaced Tim Saunders on the Contact board during the year. The other two independent directors are the deputy chairman, Phil Pryke, and John Milne.

Contact shares were down 1.1% to $6.20 as the annual meeting started.

Businesswire.co.nz

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