TrustPower profit falls but customers improve

By Phil Boeyen, ShareChat Business News Editor

Thursday 31st May 2001

Dry weather and increased marketing costs have taken their toll on TrustPower's (NZSE: TPW) full-year profit.

For the year ended March the company made a tax-paid profit of $23.48 million, down 20% from the previous year's $29.53 million.

The lower profit was on the back of improved sales which reached $501.6 million compared with $423.9 million the year before.

Increased costs for TrustPower include a $5 million charge for buying power on the wholesale market.

The company says in a normal year its 33 hydro generation schemes and one wind farm would produce up to 1,750 gigawatt hours (GWh) of electricity, but the last financial year was notable for a widespread drought which dropped output to 1,612.5 GWh.

As a result an extra 137 GWh had to be acquired externally, and at higher than usual wholesale prices.

On the good news side of the ledger the number of customers increased a net 46,000 to a year-end total of 266,000. However the increased numbers have come at a cost.

"The significant increase in customer numbers resulted in an expense item of $6.4 million before tax which relates to external costs directly associated with the marketing campaigns to acquire the new domestic customers," says the company.

"This represents a cost of approximately $115 per new customer which compares very favourably with up to $800 per customer paid by other electricity retailers to acquire customers."

TrustPower says without the specific factors of the customer acquisition costs and the effect of drought it would have exceeded last year's result and its budget.

Overall the electricity company says its operating surplus fell 12.5% over last year.

"Although the directors are disappointed to report a result below last year, the increased customer base provides an opportunity for TrustPower to improve earnings in the short to medium term."

Looking ahead in the short term the company is warning of continuing strains on profit.

"The ongoing drought, particularly in the South Island, reducing generation output and competing generators using dominant regional positions, is likely to adversely effect the early part of the 2002 financial year."

However the company adds that its underlying strength provided by its portfolio of generation assets, using renewable energy sources, and its strong financial position will mean shareholders can continue to expect added value over the medium and longer term.

TrustPower is currently being courted by several groups - Alliant, Infratil (NZSE: IFT), Tauranga Energy Consumers Trust and Australian Gas Light Company - who are all keen to improve their holdings.

An appraisal report has valued TPW in a range between $3.23 and $3.62 per share.

A final dividend of 8 cents per share will be paid.

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