Western Power profit hit by rising costs

Western Power has announced a net profit of $69.4 million for the year to June 2007, which it said was lower than expected as a result of rising materials costs and the tight labour market.

A Western Power statement is pasted below:

WA's booming economy impacts Western Power's first full financial year Annual Report

The effects of WA's strong economic growth, a jump in the cost of commodities, and the current tight labour market contributed to a lower than expected financial result for Western Power in its first full year of operation.

Western Power Managing Director Doug Aberle said rising costs and the increase in demand for power impacted Western Power's financial results.

"Western Power's work program has doubled in the past two years in a time of rising costs for materials and labour.

"Copper for example has jumped 41% in average price in the past year and Aluminium jumped 20%, increases that far exceeded expectations.

"Such increases significantly impact Western Power, because they affect the cost of materials, such as electrical cable, and we purchased approximately 5000kms of power line cable in 06 / 07.

"The average cost of all materials, driven by the jump in commodities, was 21% higher in 06 / 07 than in the 05 / 06 year, although the result was partially offset by a 5% appreciation in the average value of the $AUD against the $USD.

"In addition we are working in a very tight labour market, with unprecedented rises in the cost of labour, due to WA experiencing the lowest unemployment levels in the past 32 years," he said.

During the past twelve months Western Power has adopted a range of alternative resourcing strategies to minimise labour costs.

"Western Power is a labour intensive business. While we have a large skilled labour force and are training at capacity levels the business also engages external contractors and in doing so is exposed to the exponential level of escalating costs for labour being experienced in WA," he said.

In the past year Western Power's internal workforce grew to more than 2200 staff to meet growing demand for power. Internal labour costs grew by 10% compared to estimates of 6%.

"The increased requirement for skilled labour is being driven by a significant increase in demand for power which has doubled Western Power's work program in the past two years," Mr Aberle said.

Western Power's capital expenditure grew from $521m (05/06) to $727m (06/07) reflecting escalating costs and the rapidly increasing work program driven by growing customer demand.

Western Power is upgrading as well as expanding the electricity network in WA's southwest.

ECONOMIC PERFORMANCE
Despite challenging operating conditions, revenues remained in line with Access Arrangement forecasts but overall, financial performance fell short of expectations due to cost inflation.

Western Power gained $19.3 million in cumulative savings from its 'One Step Ahead' business improvement program that have offset, to an extent, higher costs within its work program.

For the 12 months to 30 June 2007, Western Power announced:
- Profit before tax of $99.3 million;
- Net profit after tax of $69.4 million;
- Revenue of $802.2 million;
- Interim dividend of $17.1 million and an expected final dividend of $17.6 million; and
- Capital investment of $727.4 million.

2006/07 HIGHLIGHTS INCLUDE:
- A decrease in Western Power's Lost Time Injury Frequency Rate from 4.7 in 2005/06 to 3.7 (against a target of <5) with the All Medical Frequency Rate, also improved from 19 in 2005/06 to 14.5 in 2006/07 (against a target of <20), which are the lowest levels ever.
- Reaching the milestone of 45 per cent of properties undergrounded in the Perth metropolitan area, through the continued support of the State Underground Power Program and the compulsory undergrounding of new developments.
- An improved complaint and enquiry handling system with reduced waiting times, simplified quotes, flexible payment options and the implementation of online invoices and application forms.
- Enhancements to the stakeholder management of projects, focusing on more detailed community consultation and involvement in choosing new transmission line corridors.
- Planting 93,000 native seedlings to offset carbon emissions produced by Western Power's fleet vehicles and mobile generators through the Carbon Neutral Program.
- The successful launch of the 'Beat the Peak' campaign, initiated by Western Power, and supported by Synergy, Verve Energy and the Office of Energy to raise awareness about peak electricity use patterns.