Contact Energy expects flat earnings in the coming year due to higher natural gas costs and weak wholesale prices.
Company chairman Grant King said the outlook was "challenging" because last year's 20 per cent increase in gas prices was likely to be repeated this year as low-cost Mauigas contracts were replaced with current market-priced gas supply arrangements.
"We just have to be realistic in terms of our ability to absorb these higher gas costs and get the balance right between what we pay for the fuel we burn and the prices we charge customers," he said after the company's annual meeting in Christchurch yesterday.
This year's result would be hit by higher depreciation and interest expenses, as it revalues assets and invests heavily in geothermal generation in the central North Island.
"We expect our net profit to be a bit lower given a similar level of earnings," he told about 250 shareholders.
He said while it wasn't easy to accurately predict the near-term wholesale market impacts on the company, it was not expected operating profit to be materially different from last year's of $543.7 million in the year to June 30.
Contact's shares closed down 19c at $9.05 yesterday.
A Reuters poll of analysts said the company was expected to post underlying earnings of $571.8 million in the year to June 2008.
Contact's adjusted profit for the 2007 year of $231 million was in spite of a 42 per cent decrease in wholesale electricity prices and a 20 per cent increase in natural gas prices.
King said two key issues would need a specific focus from the company this year. Climate change would have a significant long-term impact, especially given the release last month of the Government's Energy Strategy and its intention to introduce an Emissions Trading Scheme for greenhouse gases.
"In anticipating and responding to these policy announcements, Contact has announced a $2 billion investment programme on renewable energy with a focus on wind and geothermal sources of energy."
A second key issue for the board would be to ensure that these growth opportunities were managed in a timely and cost-effective manner.
