Origin might miss 25% gain in profit on dim Contact guidance

Tuesday 9th June 2009

Origin Energy, the Australian company that owns 51.4% of Contact Energy, warns it will struggle to meet previous forecasts that would have seen it increase its underlying profit by as much as a quarter.

Contact’s reduced earnings forecast make its previous prediction of a 20% to 25% increase in full-year underlying profit “unlikely to be more than 20% than last year,” Origin managing director Grant King said in a statement. Origin made an underlying profit of A$443 million last financial year.

The shares sank 2.7% to A$14.59 on the S&P/ASX 200 today.

Surplus capacity in Contact’s South Island hydro lakes dragged wholesale prices down, and the company predicts cheaper electricity for the rest of the financial year. The biggest energy utility on the NZX 50 Index expects underlying after tax earnings will be 30% to 33% below last year’s $232.8 million.

Contact Energy has had a torrid year shedding the best part of seven years of customer growth, which fell 8% to 487,000 at March 31, after it backed down on its proposal to nearly double its directors’ fees pool to $1.5 million and prompted then-Prime Minister Helen Clark to lend her support to shareholders’ strong opposition to the move.

This coincided with the company increasing South Island and Wellington electricity prices 10% within weeks of the 2008 general election and just as the global financial crisis took hold.

Contact’s shares gained 0.5% to $5.70 on the NZX 50 Index today.

Origin also said Queensland Competition Authority decided the benchmark tariff increase between 2007/08 and 2008/09 should have been 9.06% rather than 5.38%.

The company welcomed the revised decision, but said its Queensland retail business wasn’t in a position to recover the forgone margin of some A$40 million this year.

The Australian company will announce its full-year results on August 19.

Businesswire.co.nz

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