Contact Energy looks to move on from hard year

Water flowing at Contact Energy's Clyde Dam on the Clutha river.

Seeking to move on from a hard year, Contact Energy says it has started to increase customer numbers again after losing some support in a row over directors' fees.

The company today reported a 50.4 per cent fall in net profit to $117.5 million for the year to the end of June.

Underlying earnings after tax for the year dropped 31 per cent to $160.6m, while operating revenue was down 19.4 per cent to $2.22 billion.

Contact was left ruing transmission constraints that meant it had to buy power at high prices to meet customer demand in the South Island during last winter's drought.

Then when southern hydro lakes filled quickly in spring it had to spill large amounts of water because the system could not take additional generation.

On top of that, a shift to stringent take-or-pay gas contracts limited the ability to reduce higher-priced thermal generation during periods of high hydro inflows.

Meanwhile, the company attracted unwanted attention when it decided to increase the amount of money available to pay its directors.

In October shareholders gave the go ahead to near-double the fee pool to $1.5 million, but in the face of widespread criticism the company backed down on increasing base directors' fees at the time.

Contact managing director David Baldwin said customers had perceived a link between price increases and the increase to the fee pool.

The company, which had about 600,000 customers, lost about 40,000 customers as a result of the issue but was now back to a position where it was gaining hundreds of customers a week, said Baldwin.

Income lost as a result of the drop in customers was not a material amount of money, but the brand implications were more significant.

Contact was focused on rebuilding the trust and confidence of its customers and other stakeholders, he said.

The return to customer growth came at a time when the competition for customers was intense, having stepped up during the past six to eight months.

Around 22,000 consumers a month were now shifting retailers, compared to 14,00-15,000 a year ago.

State owned enterprise power companies were offering several hundred dollars worth of incentives to obtain or retain customers, said Baldwin.

"We would struggle with matching that level of incentive for people to come ... It's driven more on a near term idea as opposed to something that's more fundamental."

Contact sometimes struggled with the economic logic of what its competitors were doing, he said.

"The cost of acquisition, and the cost of retaining customers is going up, a lot, and ultimately someone has to pay for that."

Baldwin suggested that if it could be made easier and cheaper for people to switch companies, the logic for changing might be less driven by a near term incentive and more by long term value.

Contact had no immediate tariff increases in mind, but ultimately tariffs would need to rise to support investment in new generation.

Contact is paying an unchanged final dividend of 17c per share, with Baldwin saying the decision to maintain the distribution level was based on the expectation that the company's financial performance would return to normal trends.

But he also warned, "any reoccurrence of extreme hydrology, transmission constraints, adverse government policy changes, or a prolonging of the recession could impact Contact's financial performance in the near-to-medium term".

"To the extent such impacts do occur, the company would be unlikely to maintain distributions at this year's level."

Around mid-afternoon Contact Energy shares were down 2c to $6.27, having been down as much as 19c earlier in the day after the result was published.