Vector ups dividend despite earnings drop

At the announcement of energy network company Vector's 2008 annual result, from left, chairman Michael Stiassny and chief executive Simon Mackenzie. Photo / Brett Phibbs

Auckland electricity, gas and telecommunications network owner Vector saw net profit after tax fall 11.4 per cent to $104.6 million in the six months to December 31, reflecting the impact of price cuts ordered by the Commerce Commission and reduced gas sales.

However, directors raised the interim dividend by 0.25 cents to 7.5 cents per share, fully imputed, saying the New Zealand economy was "showing signs of a good recovery and in this environment Vector should continue to prosper."

For the full year, Vector "continues to target" earnings before interest, tax, depreciation and amortisation in line with market consensus estimates, "assisted by our focus on growth in our technology business and continued tight cost control."

"Vector has implemented and weathered regulatory price resets," said chief executive Simon Mackenzie said in a statement to the NZX. "These, along with production constraints at the Kapuni gas field and the end of our entitlements to Kapuni gas at legacy prices have weighed on our financial results in the last six months."

Revenue for the half year totalled $657.9 million, down 1.7 per cent on the same period last year, with the only area of revenue and earnings growth being the company's unregulated telecommunications segment.

Adjusted EBITDA, a measure that subtracts one-off items to allow better comparative performance figures, fell 5.5 per cent to $317.8 million, compared to the first six months of the previous financial year. Operating cashflows were 15.6 per cent lower at $225.9 million.

While Vector had implemented mandated cuts to its electricity and gas network charges, the company remained unhappy with both the uncertainty in the regulatory environment and its belief that consumers "do not appear to be benefitting from the price reductions Vector has made."

Meridian Energy and MightyRiver were the only electricity retailers to pass through the price cuts.

Mackenzie welcomed government plans and Productivity Commission recommendations to reform competition law.

Vector's loss in lasts year's High Court merits review challenge to the Commerce Commission's price-setting methodology had left an "unworkable" policy framework.

"The court said the alternative approaches proposed by Vector and others did not provide a 'materially better' outcome than the commission's approach," said Mackenzie. "It is now evident that the 'materially better' test is unworkable."

The ruling gave the commission "wide discretion over the conduct of New Zealand's critical infrastructure, but it gives no guidance to how the test of 'materially better' can be assessed robustly.

"The country's infrastructure providers are deprived of an effective process to challenge the regulator's determinations."

Now that the Major Electricity Users Group was planning to appeal elements of the High Court's findings, Vector was considering whether to cross-appeal, having previously decided not to initiate an appeal.

During the period, electricity network revenues fell 2.5 per cent to $326.4 million to render EBITDA 5.3 per cent lower than the prior comparable period, at $191.3 million.

Gas network revenues were off 7.8 per cent at $105.5 million and EBITDA in the segment fell 12.1 per cent to $78 million. Gas sales revenue of $184.7 million was down 5.5 per cent, with the impact of higher average gas prices pulled down EBITDA in the segment by 26.2 per cent to $25.1 million.

Technology revenues climbed 25.9 per cent to $66.5 million, yielding EBITDA of $48.1 million, a 31.3 per cent increase on the prior period.

"Over the long term, our focus on the opportunities emerging from the convergence of infrastructure management technology and information technology will position us well," said Mackenzie.

"The balance of power is shifting from utility service providers to consumers as technology allows customers to switch suppliers, switch energy solutions and switch from the grid."

Increasing uptake of off-grid alternative power sources was increasing, and if trends such as rooftop solar electricity production grew strongly, Vector may have to invest in managing two-way power flows.