Contact Energy may struggle to achieve forecast, sheds customers

Friday 24th April 2009

Contact Energy, the largest listed power company, may struggle to achieve its full-year profit forecast after shedding 8% of its customers since a peak in September, losing the best part of seven years of customer growth.

Contact predicted it would achieve a full-year underlying profit of between $182.5 million and $189.6 million in January as transmission constraints and extreme weather conditions weighed on its bottom line. The company shed more than 45,000 customers across its electricity, gas and LPG sectors since electricity customers peaked at 529,106 at September 30, and lost 3,000 gas customers to its competitors in the first quarter.

"They would have to do very well to achieve their January outlook," said Andrew Harvey-Green, an analyst at Forsyth Barr. Dual-fuel customers are moving away to Contact's competitors."

Contact's electricity customers fell to 487,000 as at March 31 from 517,000 at the same time last year, more than the 497,000 forecast in the latest Electricity Commission survey. The company's electricity customer base fell to its lowest level since 2002 when it recorded 442,000.

Contact's gas customer base suffered an even worse drop proportionally, down 10.7% to 67,000 from a peak of 75,000 in June last year.

LPG was the only bright spot, with customers, including franchisees, rising to 55,000 from 52,000 in the first quarter.The utility company reduced total generation 6.4% to 2,236 gigawatts per hour.

The stock fell 0.7% to $5.56 in trading on the NZX 50 Index today, and slumped 22% in the year-to-date.

The power company backed down on its proposal to nearly double its directors' fees pool to $1.5 million after strong opposition by its shareholders. The move coincided with Contact raising South Island and Wellington electricity prices 10% within weeks of the 2008 general election and just as the global financial crisis took hold.

The retailer posted a 79% slump in half-year profit to $25.1 million from the previous year, reflecting the volatile impact of new accounting standards, difficult weather conditions, and the removal of pole one of the Cook Strait cable in November.

Earlier this month Contact increased its sale of five-year bonds to $550 million from the $300 million sought as investors were attracted by the 8% interest rate.

Businesswire.co.nz

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