Vector's after-tax profit has taken a hit after it took a non-cash impairment from its E-co Products Group, which trades as HRV.

The lines company declared a net profit after tax of $84 million in the year to June 30, 2019 after the $46.6 million impairment. That was down from the previous year's profit of $149.8m which included a one-off tax gain of $16.7m.

Excluding the impairment, the company said its net profit of $130.6m was down slightly on the previous year.

Vector's adjusted earnings before interest, tax, depreciation and amortisation was $485.8m, which was up on the previous year's $470.1m.


But its revenue fell slightly from $1.328 billion to $1.319b.

Vector chair Dame Alison Paterson said: "While our revenues continued to benefit from strong connection growth across our networks and the further expansion of the metering business in New Zealand and Australia, gains were partially offset by increased maintenance expenditure to improve electricity network reliability and the underperformance of E-Co Products Group, trading as HRV."

Patterson said as result of the disappointing performance of E-co Products Group, it had new leadership in place and had repositioned the business with its other technology solutions, through Vector PowerSmart.

Vector Group chief executive Simon Mackenzie said there had been a number of highlights for the business in the past year including continued network and smart meter connection growth, ongoing leadership in health and safety, and the successful integration of network management software co-developed with technology firm, mPrest.

But it had also been dealing with the regulator, the Commerce Commission, over its electricity network service performance.

"As part of this process, earlier this year Vector and the commission agreed to recommend to the court a penalty of $3.6m in recognition of Vector's breaches of the electricity network quality standards in 2015 and 2016.

"This year we have strengthened our focus on improving network reliability and we remain committed to meeting our regulatory compliance requirements."

Mackenzie said Vector was facing a significant, ongoing requirement to invest in its networks not just to support growing consumer demand, but also local and central policy objectives of enabling Auckland growth, keeping energy affordable and enabling the transition to a low carbon world through the accelerated electrification of transport.


The Commerce Commission is also in the process of resetting the limits for electricity network revenues and quality standards over the next five years which will start from April 2020.

Mackenzie said it was in talks with the commission over how it set the network revenue and was questioning the sustainability of two regulatory settings.

"The first is the indexation of asset values, which are heavily reliant on inflation forecasts and have been significantly over-forecasted for a decade - resulting in major revenue impacts to electricity distributors, without correction.

"Secondly, the current ultra-low interest rate environment underscores the urgent need for the Commerce Commission to amend the way it derives the cost of debt in its Weighted Average Cost of Capital (WACC) determinations. Currently this is determined from a narrow window around the time of reset.

"Within the broader regulatory regime, there are avenues for Vector and the Commerce Commission to work together to correct these anomalies, and better align cashflows with investment needs.

"We remain committed to working openly and collaboratively with the Commerce Commission - both within the current reset process and beyond - to explore all options to address these two challenges."

Paterson said while it acknowledged the challenges ahead it remained committed to Vector's vision to create a new energy future for New Zealanders.

"We remain confident in our plan to rise to the challenges of Auckland's growth and increasing electrification of transport.

"We will continue target investment as efficiently as we can by supporting traditional network assets with digital and new energy solutions for the long-term benefit of energy consumers. However, changes to regulatory settings which enable this investment will be critical."

Vector boosted its final dividend to 8.25 cents per share taking its full-year dividend to 16.5c per share - an increase on the 16.25c it paid out in 2018.

Paterson said it would be reviewing its future dividend policy and providing guidance on its 2020 financial year once it had the commission's final reset decision, which was expected in late November.