Contact cools on overseas generator investments

By RICHARD BRADDELL

Contact Energy's enthusiasm for Australia has waned after it assessed the enormous risk for the company in a potential $A450 million ($570 million) investment in a South Australian generator and pulled out of negotiations.

Announcing a 38 per cent September year profit slump to a net $97 million, the company's acting managing director, Steve Barrett, said a more structured approach to managing risk had been adopted after the board was confronted with the detailed risk assessment involved in the purchase.

Mr Barrett's tone contrasted with his predecessor's, Paul Anthony, whose bullish view of Australian prospects when the mid-year profit was announced in May raised the question of when the company would transfer its head office there.

But while Mr Anthony was eloquent on the ability of Contact's balance sheet to support new investments worth up to $2 billion, Mr Barrett said the proposal to invest in the Flinders coal-fired station in South Australia was the first time a detailed risk assessment had been put before Contact's board, and that had been sufficiently thought-provoking to evoke a more cautious and systematic approach to risk assessment.

Hitherto, Contact's opportunistic approach has served it well, both in the expansion of its retail base and generation assets, which include the recently acquired 25 per cent stake in Victoria's Oakey power station.

Mr Barrett said Contact's Australian ambitions were now modest, with the main possibility an investment in a Queensland power station under construction that will serve the sugar refinery at Bundaberg.

While the better definition of Contact's acceptable risk profile did not mean there was an actual constraint on investments, it did imply that there were fewer opportunities, Mr Barrett said.

Mr Barrett is from Contact's main shareholder, Edison Mission Energy, which on Wednesday boosted its 40 per cent stake with another 0.7 per cent.

Mr Barrett said the appointment of a permanent chief executive was a matter for the board.

The soft result reported yesterday was blamed on a warm wet winter and the resultant high levels of hydro lakes and weak spot electricity prices.

Again, the result contrasted with Mr Anthony's ebullience at mid-year when he predicted a strong second half on the expectation of higher winter prices.

Mr Barrett said that the lower profit had been expected and was still ahead of the $78 million forecast in Contact's prospectus.

A final dividend of 12.36c per share, making 17.36c for the year, has been declared.

The dividend is 10 per cent up on last year.

Quality customer service was a priority in the present year as Contact wanted to maintain its customer base and its below-average churn rate, he said.

Contact acquired 37,000 electricity customers in the second half through the takeover of Empower.

A pilot programme in which gas and electricity were sold in one package had been an overwhelming success since accompanying savings on billing and back office costs were shared between the company and customers.

It will be introduced across the country.