Contact Energy, hit by contractual obligations to buy gas during the year that it could not use because of buoyant hydro-generation, has posted a 6% decline in after-tax profit at $150 million.
Brokers from Forsyth Barr and Craigs Investment Partners both logged the result as "disappointing", highlighting the disparity between market expectations of Contact's operating profit forecasts; being lower by as much as $26 million.
Following the announcement, Contact shares were down 2.6% at $5.70.
Contact managing director David Baldwin saw some positive developments from the gas issue, saying additional gas had been stored by Contact and could in the future save the company "tens of millions of dollars".
Because of wet conditions during the year, Contact could not use the gas it bought because of the amount of hydro-generation it had available, Mr Baldwin said yesterday.
"Contact's efforts to accelerate the development of the Ahuroa gas storage project resulted in the injection of about 10% of Contact's gas requirements during the year, saving the company tens of millions of dollars.
"It shows how important the Ahuroa gas storage project is to Contact in re-establishing gas supply flexibility and the gains that are possible by the company being able to turn off its gas-fired power stations and store the gas for use when it is most required," Mr Baldwin said.
For the year ended June, Craigs Investment Partners broker Peter McIntyre said there was potential for the gas purchase obligation "to have blown out considerably worse" than its actual cost to Contact.
Because of Contact's Ahuroa gas storage project, the same situation of having to buy gas and not use again in the future was "unlikely" , he said.
"The positive is that Contact has a suite of blue chip assets, with pipeline developments of geo-thermal and wind [generation] under way.
Combined with gas storage, there is long-term value here," Mr McIntyre said.
Forsyth Barr broker Peter Young said Contact's operating profit of $427 million was more than $14 million below Forsyth Barr's forecast - and $17 million below the overall market consensus.
"While it is disappointing, in some ways it is not too surprising.
Contact has been disappointing market for some time now," Mr Young said.
He said it had to be remembered that during the past two years it was significantly wetter than normal, meaning Contact's results have been at the bottom end of the range, but given the disappointing result, the Forsyth Barr forecast for full-year 2011 would likely be pulled back"However, I'm not sure how much patience the market has left," he said.
Mr Baldwin said Contact had made significant progress in generation projects started in 2007, which were expected to be finished this year.
"Contact's strategy for growth remains focused on pursuing a range of options across the major fuel types; thermal, geothermal, wind and hydro, that the company can execute at the right time to suit the changing operating environment," Mr Baldwin said.
Contact's full-year dividend was down from 17c the previous year to 14c.
