KEY POINTS:
Regulatory uncertainty means energy network company Vector pays a premium for credit, the company says.
Chief executive Simon Mackenzie said the cost of Commerce Commission regulation was at least $7 million a year, excluding the undoubted premium embedded in the cost of funds from the markets due to
uncertainty.
"It was the biggest concern of the financiers we recently visited in the UK," he said in releasing the company's full year results.
Vector wants to see the Commerce Amendment Bill passed before the election to give it more certainty in setting prices and reviews and is optimistic this will happen or that it will be picked up quickly by the incoming government.
The electricity and gas distributor yesterday reported a 29.5 per cent fall in full year net profit to $164.4 million.
Prior year earnings were boosted by a $40 million tax benefit and that profit figure was required to be adjusted under international accounting rules.
The result excluded proceeds from the $785 million sale of Vector's Wellington network to Cheung Kong Infrastructure Holdings. Vector expects to net $200 million from the sale.
The increase in total revenue to $1.33 billion was due mainly to increases in electricity volumes and connections in Auckland, as well as a Consumer Price Index price increase.
Growth in electricity earnings, increased gas transmission volumes, firmer LPG prices and continued growth in technology revenue over the past year all contributed.
The cost efficiency programme during the year contributed to a reduction on 2007 in operating expenditure of $15 million before one-off redundancy costs, Vector said. That was also helped by a reduction in gas purchases and associated costs of sales of $15.9 million.
Operating cash flows decreased by 7.4 per cent to $331 million, driven mainly by increased net interest paid and an increased level of cash tax payments.
The weakening Auckland residential building market has resulted in new power connection growth falling by up to 50 per cent. Although a small portion of revenue, about $10 million was lost in the past year.
Some lost revenue from new subdivision connections had been made up by relocations for motorway and rail corridor building.
Mackenzie said the fallout from the credit crunch had increased debt costs. However, the business had a strong and stable asset base, it was permitted to pass on price increases at the rate of inflation and there was still gas and electricity volume growth.
Early winter had been warmer in Wellington than usual but volume growth would be further helped by a return to "normal" weather conditions.
He said the financial markets were challenging and the company was operating in a deteriorating domestic economy but it was optimistic next year's profit would be "above where we have been this year".
Vector was "assessing options" in regard to the sale of half of Powerco, the country's next biggest energy network company. Troubled Australian investor Babcock & Brown is selling its stake which two years ago was valued at just under $700 million.
Mackenzie said the company was well placed to expand its fibre optic network which now covered most of the central Auckland business district, a loop around west Auckland and parts of the North Shore.
Vector, with Genesis Energy, plans to roll out advanced metering services to 500,000 homes and businesses over the next five years, under which Vector would provide metering infrastructure.
Vector's shares closed up 6c at $2.36 yesterday.
POWER POINTS
* Vector could spend up to $1 billion on fibre optic network if the business case stacks up and fits the Government broadband strategy.
* It is assessing options over the purchase of Babcock and Brown's share of lines company Powerco.
* Vector is spending up to $200m over five years on smart meter project for 500,000 Genesis Energy customers.
* The growth rate of Auckland residential connections has fallen off.
* Share buy-back details have been revealed.
PROFIT DROP
Year to June 30
Revenue
2008 - $1.33b
2007 - $1.31b
Ebitda
2008 - $640m
2007 - $605m
Net profit
2008 - $164m
2007 - $233m
Dividend
2008 - 13.25c
2007 - 13c
