Vector posts 2.8% gain in full-year earnings

Vector [NZX: VCT], the Auckland gas and electricity distribution company, posted a 2.8% gain in pre-tax earnings, beating its guidance, as acquisitions helped drive growth in its smart metering business. It sees further gains in 2016.

Adjusted earnings before interest, tax, depreciation and amortisation rose to $596.9 million in the 12 months ended June 30, from $580.7 million a year earlier and ahead of its February guidance of $588 million, the Auckland-based company said in a statement. Net profit fell about 13% to $149 million, on mark-to-market accounting charges and higher interest costs. Sales rose 2.8% to $1.29 billion.

Last year, the company bought Meridian Energy's Arc Innovations electricity metering business, helping make Vector's technology division its fastest growing by revenue and earnings. The company has been diversifying its operations as a buffer to restrictions on its electricity lines business, where prices are regulated. Strong growth in Auckland means Vector expects to invest about $1.8 billion in the city's energy networks over the next 10 years, it said.

"Vector continues to benefit from its position as a provider of essential infrastructure to Auckland, the country's economic powerhouse," said chairman Michael Stiassny. "We expect capital expenditure in Auckland to increase in the coming year, in line with the significant increase we are seeing in new electricity connections."

The company expects 2016 adjusted Ebitda to be in a range of $605 million to $620 million. Today it declared a final 2015 dividend of 8 cents a share, fully imputed, with a record date of September 14, payable on September 21. That brings payments for the year to 15.5 cents, up from 15.25 cents a year earlier, and is the ninth year of increases.

Regulated Ebitda rose 2.6% in the year as growth in connections, higher capital contributions and higher volumes offset regulated price cuts. Revenue from its electricity business rose 6.3% to $670.8 and Ebitda edged up 0.8% to $348.8 million. Still, about $28 million of the revenue growth was due to an increase in costs passed directly through to customers, including Transpower charges, rates and regulatory levies.

"We believe the current regulatory regime does not adequately recognise the rising risks – due to advances in technology – that new investments could be made redundant before they have delivered a return to investors," said chief executive Simon Mackenzie.

"Most distribution companies do not earn the returns allowed by the regulator, since actual energy volume growth and the rate of inflation have been consistently and significantly below the forecasts used by the Commerce Commission to set our revenue. In the past three years alone, these forecasting differences have cost Vector $175 million in lost electricity revenue.

“We are also firmly of the view that the regulatory environment needs to recognise that Auckland is a special case." he said. "The region is growing strongly, it has the highest demands for capital and it drives the growth of the national economy."

Gas transportation sales gained 3.4% to $193.4 million and earnings rose 7.3% to $143.2 million on increased volumes, the company said.

Gas wholesaling revenue dropped 10% to $314.2 million and Ebitda slipped 7.9% to $46.9 million, which the company said reflected falling demand from major power generators and lower oil and gas prices. The result also reflected higher maintenance costs and costs relating to arbitration over the price Vector must pay for the next tranche of Kapuni gas.

Technology sales jumped about 16% to $158.4 million and Ebitda rose 8.2% to $108.2 million. Smart meters rose to 958,146 from 675,555 in the prior year, including those from Arc Innovations and the deployment of meters for the SmartCo consortium of electricity distribution companies.

Vector deployed 130,000 meters in the 2015 financial year, down from 170,000 a year earlier, excluding almost 140,000 meters acquired with Arc and 13,609 deployed for SmartCo. It is contracted to install more than 1.2 million smart meters this year, up from 889,000.

Vector shares last traded at $3.16 and have gained 13% this year.

(BusinessDesk)