Gas prices expected to flatten Contact profit growth

Contact Energy expects earnings growth to flatten off this financial year, chairman Grant King told shareholders today.

Higher gas costs would be a major challenge for the company over the next three to four years, he told the annual meeting in Auckland.

"While wholesale electricity prices are likely to continue to rise over this period, it is not expected that these prices will keep pace with the increase in Contact's fuel costs, and there will be significant pressure on the company's trading margins," Mr King said.

"In response to these pressures, Contact will be putting an increased emphasis on measures to optimise revenue and make efficiency gains across the business."

Mr King said Contact would identify and secure new development opportunities, to ensure the company captures its share of market growth.

Contact maintained a strong balance sheet to take advantage of these opportunities.

New chief executive David Hunt said new thermal fuel sources -- whether domestic or imported -- would be more expensive than Maui gas.

The effect of this was already being felt in higher electricity and gas prices.

"We are now well and truly in the post-Maui era," he said.

"A key area of focus will be striking the appropriate balance between cost containment, margin management, and investment in the business.

"Significant competition in the generation market is emerging as energy companies bring previously uneconomic generation options to market."

Mr Hunt said development of Contact's Otahuhu-C site would help security of supply to the Auckland region.

"Otahuhu-C is the logical next major thermal station for New Zealand. Equally importantly, it is already consented," he said.

Contact recorded an annual profit of $138 million in the year to June 30, which because of a change in balance date covered a nine-month period and compared with a $100.6 million profit for the previous corresponding period.

- NZPA