Underlying revenue growth despite dip in Vector profit

BUSINESSDESK: Auckland-based utilities network owner Vector has reported flat topline earnings after tax of $198.8 million for the year to June 30, down 1.3% on the 2011 financial year.

But when the impact of a $53 million one-off lease payment from Transpower for access to Vector's Hobson St tunnel the previous year is netted out, underlying revenues were up 5% and the underlying net profit increase was 16.1%, from $171.3 million the year before.

The strongest growth was in the company's two unregulated divisions, wholesale gas sales and technology, which showed increases in earnings before interest, tax, depreciation and amortisation of 10.4% and 16.8%, respectively, to contribute combined operating earnings of $133.3 million on revenue growth of almost $100 million.

Electricity segment ebitda rose 5.3% to $384.1 million, while gas transportation ebitda was up 2% at $157.3 million.

The result was also assisted by a significant reduction in interest costs, which fell from $178.2 million a year earlier to $166.2 million, mainly reflecting lower interest rates on floating debt, increased interest on deposits and the replacement of expiring debt with a $250 million private placement in the US.

Vector shares rose 0.7% to $2.72 in early trading on the NZX, with the company declaring a 7.5 cents per share final dividend, making total distributions for the year of 14.5 cents, compared with 14.25 cents the previous year, payable on September 17.

Electricity segment revenues were flat, but for the impact of lower average temperatures in the last 12 months, which pushed consumption up 1.3%, while gas transportation revenues benefited from a 4.4% increase in volume, despite weaker performance from its LPG business.

"This is due to large gas users turning to Vector as they recognise our willingness to configure gas supply to meet their specific needs and our ability to offer greater price certainty and supply security thanks to our multiple long-term contracts with diverse gas suppliers," chief executive Simon Mackenzie says.

However, the "stand-out" result was in the technology sector, which covers Vector's growing involvement in smart metering and is halfway through the installation of some 670,000 smart meters on electricity retailers' behalf.

With major regulatory issues to be tested in the courts before the end of the calendar year, Mr Mackenzie declined to give specific earnings guidance, but says the company's objective is "to maintain ebitda broadly in line with this year and market consensus, recognising these uncertainties".

He repeated Vector's contention that the Commerce Commission's approach to price-setting for regulated monopolies is "fundamentally flawed" and is "some way" from achieving the desired balance between "consumers' short-term desire for cheaper services" and network owners' need to make a return on "safe, secure and cost-effective ports, airports, and telecommunications and energy networks".