Contact Energy takes a hit after SAP rollout

Extra costs have hit New Zealand utility Contact Energy's bottom line, but it says its new NZ$150 million billing system is stabilising and it is once again adding customers.

Energy generator and retailer Contact Energy is still recovering what it describes as "deferred billings" after teething troubles in an SAP customer service implementation.

Contact lost 6,500 customers in the six months of trading to December 31, due to a combination of increased competition and "reduced activity during new system stabilisation", it told investors on Monday.

"Following the go-live of our new retail customer billing and service system, we have made considerable progress in stabilising the system and the processes that support it. A system change of this size always creates challenges, and I am pleased with the way we have been able to manage this process and hold sales volumes stable during a period of continued intense competition and price discounting," chief executive Dennis Barnes said.

The company has also revealed the cost of the project, telling ZDNet it had invested around NZ$150 million in its retail SAP systems implementation, replacing 20 old IT systems.

"We are continuing to make good progress on the stabilisation of the billing and service system, are commencing the benefits realisation phase and expect to begin getting a return on our investment from FY16," a spokesman said.

Contact Energy was not prepared to disclose the original project budget, but one news report in 2010 said the company's board was understood to have approved NZ$60 million in spending to replace its core systems, plus NZ$20 million to cover cost overruns.

Contact reported statutory profit for the 6 months ended December 31, 2014, of $51 million, down 54 percent due to transition costs from its Retail Transformation project and unfavourable movement in the value of financial instruments.

Collection of the deferred billing has been slower than planned, and an extra $1 million has been added to the company's bad debt provisions.

As systems and processes have stabilised, Contact said it was able to reverse customer losses, adding 450 customers in January.

Since go-live, average time to answer customer calls is down 80 percent and call handling times down 33 percent.

It said the new customer service and billing system provides a platform for "efficiency and innovation" in a competitive market.

"In FY16, I expect a reduction in the cost to serve our customers that will provide a positive contribution to profits above the increase in interest and depreciation costs from the new system," Barnes said.

Australia's Origin Energy owns 52 percent of Contact Energy.