Vector underlying FY earnings flat in tilt from regulated business; sees more of the same in 2018

Vector net profit dropped 38 per cent to $168.9m. Photo / File

Vector posted a 0.3 per cent increase in annual underlying earnings and says next year's result will be largely the same as the electricity, gas and telecommunications utility continues to branch out from its regulated network business.

Earnings before interest, tax, depreciation and amortisation from continuing operations increased to $474.4 million in the 12 months ended June 30 from $473m a year earlier, a level the Auckland-based in 2018, it said in a statement.

Vector has been on the prowl for new revenue streams as its dominant regulated electricity and gas distribution unit faces smaller returns, which has seen it branch out into telecommunications, smart meters, battery storage, solar and home ventilation.

"Vector is a business under pressure through a combination of consumer trends, a low interest rate environment and regulatory settings," chairman Michael Stiassny said.

"The downward movements in our regulated networks' financial results may be small, but they are noticeable: electricity connections may be up, but throughput is down; gas volumes are up, but prices are about to be reset down."

Net profit dropped 38 per cent to $168.9m, or 16.7 cents per share, although the prior year included a $164m gain on the sale of Vector Gas offset by a $64m impairment charge on the value of its gas trading business. Revenue rose 7.2 per cent ot $1.23 billion.

The board declared a final dividend of 8 cents per share, payable on September 15 with a September 8 record date, taking the annual return to 16 cents, up from 15.75 cents a year earlier. Stiassny said that was the company's 11th straight year of hiking the dividend payment, however the changing trends in energy consumption were disrupting the entire sector, and Vector's changes were essential to its survival.

"Long-term dividend growth is untenable without a radically different business paradigm," he said.

Vector is targeting Australia for its next tranche of growth in its metering business and said it's "currently involved in competitive procurement processes with major Australian retailers with a view to securing contracts for deployment from 1 December 2017."

Earlier this month, the Australian Financial Review's Street Talk column reported Vector missed out on making the cut for a second round of bidding for AGL Energy's Smart Meter auction.

The company's technology division boosted earnings 7.9 per cent to $122.5m on a 19 per cent gain in revenue to $214m, which it said was underpinned by the deployment of smart meters on both sides of the Tasman and the acquisition of E-Co Products Group, better known as HRV and EES, and PowerSmart. Today's accounts show it paid $91m for the home ventilation and solar businesses.

Vector's gas trading division posted a 9.1 per cent decline in earnings to $36.9m on a 1.7 per cent increase in revenue to $281.8m as margins were squeezed by a competitive market and lower production and processing fees at the Kapuni Gas Treatment Plant. The regulated lines business reported a 2.2 per cent decline in earnings to $361.2m on a 2.2 per cent increase in revenue to $741.9m. Electricity connections increased 0.9 per cent to 555,100 and gas connections gained 2.3 per cent to 106,670, although higher maintenance costs pushed down earnings.

Vector said a Commerce Commission decision earlier this year on regulated gas pricing will reduce 2018 ebitda by about $6m, and it reiterated Auckland electricity customers that were overcharged in 2015/15 will have $13.9m returned over the next three years, which will reduce earnings by $900,000 in 2018.

The lines company complained about some of the assumptions made by the regulator, saying "errors in the Commerce Commission's electricity growth forecasts have contributed to Vector under-recovering by more than $60 million over the past five years" and that "persistent over-forecasting of revaluation rates has resulted in Vector missing out on additional revenue of more than $130m over the same period.

Capital expenditure rose 14 per cent to $367.4m, largely due to growth in Auckland, metering and spending on a bottle swap plant in South Auckland. Vector forecasts capex will be about $305m in 2018 if Australian metering doesn't go ahead. The shares last traded at $3.46 and have gained 6.8 per cent so far this year.