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Electricity and gas distributor Vector is not out of the woods yet and is expecting tough economic conditions this year, chairman Michael Stiassny told shareholders today.
The NZX-listed company had maintained its investment grade credit ratings and had funds available for growth despite the credit crunch, he said.
Net profit increased by 16.3% in the 2009-year and the company was distributing 83% of net profit after tax as dividends.
“By anyone’s measure we have done well and the business is in good shape. But – we’re not out of the woods yet.
“Despite recent media coverage of improved sentiment and green shoots, we expect conditions will be tough in this current financial year and growth in our core business of electricity and has will remain subdued.”
Mr Stiassny said regulation was a key driver and cost savings from efficiencies made in 2009 could not be replicated.
Regulation and review
The government’s electricity market review paper and subsequent recommendations failed to adequately address the wholesale gas market and the “challenge” of emissions trading, said chief executive Simon Mackenzie.
“The wholesale gas business is still rolling off gas entitlements. The volatility of the gas liquids market is clearly linked to what is happening with Kupe and to international oil prices,” he said.
While renewable technology was available now, it was not commercially viable. But he said innovation was becoming more sophisticated and there would be opportunities for Vector.
“In the future, it’s more than possible that every home will have some kind of energy generation device that would enable consumers to generate part of their energy requirements.”
Regulation was a “key issue” for the business, he said. “The setting of the input methodologies will have a far reaching impact on our gas and electricity businesses. Regulatory certainty remains a vital element in supporting investment and funding of critical infrastructure to enable productivity.”
Input methodologies determined the prices distributors could charge customers and set performance criteria and the next phase of regulatory debate would cover asset valuation, tax treatment, weighted average cost of capital and cost allocation.
“It is important to get the balance right between consumer protection and creating an environment that fosters rather than stifles productivity, innovation and incentives to invest.”
Regulated by the Commerce Commission, Vector’s revenues were dependent on regulated prices, volumes, new connections and cost control, he said.
Mr Mackenzie said Vector had made no secret of its ambition to provide a high speed fibre network and was a strong contender for the government contract, but it would have to stack up commercially.
“New Zealand cannot find itself in seven years still relying on legacy networks when the rest of the world has moved on to fibre.”
He said a fully transparent, open access network was the right solution for New Zealand.
Vector’s fibre network was available to 10,000 Auckland businesses and growing, he said. It had completed the Vodafone fibre build project on time and budget and secured a contract with Transpower to supply fibre to its critical substations in Auckland.