Vector posts 4.7% gain in adjusted full-year earnings

Vector [NZX: VCT], the electricity and telecommunications infrastructure company, posted a 4.7% gain in adjusted full-year earnings on growth in Auckland and the expansion of its smart meter fleet while signalling earnings growth may stall in 2017.

Adjusted earnings before interest, tax, depreciation and amortisation were $473 million in the 12 months ended June 30, from $451.9 million a year earlier, the Auckland-based company said in a statement. It forecast earnings on that basis to be between $460-475 million in 2017.

Net profit rose 84% to $274.4 million, which it attributed to increased operating earnings, lower interest costs, favourable derivative movements and the $164 million gain on the sale of Vector Gas, partly offset by a $64 million writedown in the value of its gas trading business. Revenue from continuing operations fell to $1.14 billion from $1.15 billion.

"We signalled in February a review of the carrying value of the gas trading business," said chairman Michael Stiassny. "We have now written down this value to reflect the steady decline in the output from the Kapuni field, the diminishing prospects of further field development due to continuing disputes, and weak international hydrocarbon prices."

The sale "has further strengthened our balance sheet," he said. "The proceeds from the sale of Vector Gas will be applied initially to debt reduction, before redeployment to support growth in Auckland, smart metering and new energy technologies."

The company sold Vector Gas for $952.5 million and the proceeds were used to repay $610 million of debt, reducing gearing to 43.7% and net debt to $1.9 billion, from 53.4% and $2.7 billion respectively a year earlier.

Vector said its rollout of smart meters in New Zealand will be largely complete in 2017. In the 2016 year, smart meters rose about 18% to 1.1 million. It aims to target Australia for future growth of the meters. Auckland electricity connections rose 1% to 550,053 and Auckland gas connections gained 2.7% to 104,322. New network connections rose 11% to 11,849.

The company declared an unchanged final dividend of eight cents a share, making 15.75 cents fully imputed for the year, up from 15.5c a year earlier. The increase marks the 10th straight year of dividend gains.

The shares fell 0.3% to $3.52 and have gained 11% this year, lagging behind the NZX 50 index's 18% increase. The stock is rated a 'sell' based on the consensus of five analysts polled by Reuters with a median price target of $3.15.

Vector reported a 16% lift in first-half profit to $100.1 million.

The result reflected gains across its portfolio, with the exception of its gas trading division, which faces the prospect of a writedown in the second-half unless performance improves. The profit was achieved on total revenue for the half of $663 million, a 3.5% fall from the same period last year, driven by lower volumes of traded gas.

Adjusted earnings before interest, tax, depreciation and amortisation, a measure of underlying performance, rose to $305.9 million from $287.9 million.

"Adjusted ebitda across our regulated businesses rose 6.2% to $248.8 million supported by growth in connections and energy volumes in Auckland, regulated price increases in the gas transportation business and a strong focus on cost control," Mr Stiassny said.

Adjusted ebitda in the company's unregulated businesses, including telecommunications services, metering and gas trading, rose 3.9% to $82.2 million and included costs of establishing in the Australian metering market.

"These gains have been diluted by the challenges for the gas trading business. "Should the trading outlook for this business continue to weaken, we will carefully review the carrying value of the gas trading assets and goodwill at year-end," Stiassny said.

Sale of the company's gas transmission and non-Auckland gas distribution businesses was approved by shareholders before Christmas.

"Absent the sale, the business is performing in line with August guidance for the year to 30 June 2016 of adjusted ebitda, excluding capital contributions, of $550 million to $565 million," Mr Stiassny said.

The Vector gas sale remains subject to regulatory approvals and may have a bearing on the full year result. The $952 million proceeds will be used for debt repayment and investment in higher value opportunities.

(BusinessDesk)

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