"The confluence of severe drought in the South Island in the 2008 winter, high hydro inflows in the spring and summer, transmission constraints and the effects of economic recession on energy demand growth significantly impacted Contact's profit this year," managing director David Baldwin said when releasing the result to the market.
Net profit for the period was $117.5 million, down 50% on the $237.1 million reported in the previous corresponding period.
Operating earnings were reported as $445.3 million, down 21% on the $567.2 million reported last year.
Total revenue fell 19% to $2.2 billion.
The board maintained its final dividend at 17c per share under the company's profit distribution plan.
Mr Baldwin acknowledged that the company had recognised the customer dissatisfaction and was working hard to turn around the loss of retail customers.
"Last year, our customers made it quite clear they perceived a link between price increases and an increase to the fee pool from which directors are paid, which was not acceptable to them. The result was a loss of customers, a drop in our favourability ratings and a bruise to our brand."
The message was loud and clear and Contact had been intensely focused on rebuilding the trust and confidence of its customers and other stake-holders, he said.
While there had been no increase in base directors' fees, the increase in the fee pool had enabled the company to implement changes in the Contact board, he said.
Forsyth Barr broker Peter Young said the result was slightly lower than expected but not significantly.
"While revenue was higher than expected, in most cases the operating earnings contribution was in line with expectations. The main area of variance was the large step up in doubt and bad debts [$5.5 million] and an increase in maintenance costs when TCC and Otahuhu were refurbished."
There were some important points to take out of the Contact briefing, he said.
They included:
• The operating profit would have been $60 million higher if the gas peak-er and storage had been operational.
• The profit distribution plan was an important consideration in keeping the dividend flat. There was a risk of a dividend cut if the plan was shelved and if earnings did not recover significantly.
• Transpower was working to relieve some of the key transmission constraints, with 150MW more capacity going into lines out of Southland and Otago in September.
• Tiwai would be back in near-full production by mid-September.
"At this stage, there is nothing here that changes our view that Contact is a strong, long-term prospect. The potential of the gas peaker and gas storage plant is one area that could easily surprise the market on the upside," Mr Young said.
Mr Baldwin said that in respect of the 2010 financial year, he expected the extreme weather events which affected the business in July and August 2008 would not recur given current hydrological conditions.
However, wholesale prices were now below both the variable costs of operating thermal plant and the price required to support investment in new generation.
In addition, current economic conditions are expected to continue to dampen demand growth and consequently, tariff movements.
"With the range of market and operating uncertainties, it is not appropriate to provide quantitative guidance for the 2010 full-year financial performance at this time."
