Transpower pays smaller dividend to government with reduced regulated earnings

Transpower New Zealand trimmed its dividend to the government as the state-owned company generates smaller regulated earnings from the national electricity grid it's tasked with operating.

The Wellington-based company declared a final dividend of $98.2 million, or 8c per share, to be paid on September 20, taking the annual return to the Crown to $163 million. That met Transpower's forecast in its statement of corporate intent but was down from the $188 million paid last year.

The government has been keen on squeezing cash from state-owned enterprises in recent years to get the books back in black, though Transpower's ability to generate earnings was reduced when the Commerce Commission lowered the grid operator's allowable rate of return from its cost of capital, changed its model for the amount of revenue required to meet costs and made a final decision on Transpower's operating expenditure allowance.

Transpower resumed paying dividends in the 2012 financial year once it passed the hump of an investment cycle upgrading the grid. Since then, the government has pulled out $1.11 billion, and Transpower expects to make annual dividend payments of $165 million between 2017 and 2019.

"We are pleased with our financial performance in the first year of our new five-year regulatory period (RCP2) which began on 1 April 2016," chairman Mark Verbiest said in a statement. "RCP2 has brought a more challenging operating environment for our transmission business – with a lower allowable rate of return, challenging efficiency targets and more comprehensive and complex incentive arrangements."

Earnings before interest, tax, depreciation, amortisation and fair value adjustments fell 0.8% to $749.4 million in the 12 months ended June 30 with transmission revenue down 1% to $974.1 million. Net profit rose to $181 million from $113.1 million in 2015 due to a smaller unrealised loss on the value of financial instruments used for hedging.

Transpower's operating cash flow fell 8.7% to $492.7 million, though reduced outflows in investment and financing activities meant the company generated a positive net cash flow of $46 million, leaving it with cash and equivalents of $79.9 million as at June 30.

(BusinessDesk)