Vector, the Auckland-based electricity, gas and telecommunications network operator, turned in a 10.8 percent improvement in tax-paid profit for the six months to December 31, earning $118 million, but expects a tougher second half as mandated price cuts take effect.
Vector chairman Michael Stiassny cast the result as evidence that Vector is capable of improved performance despite a flat economy, reduced load growth on its Auckland networks owing to warm weather and cost-conscious consumers, and its ongoing battles with the government over regulation in the monopoly parts of its business.
"This result demonstrates how we have continued to grow, in spite of the new economic environment," he says. "It also shows our success at optimising the group's portfolio of businesses, lowering our risk profile in response to the new environment and containing costs."
Vector shares were up 0.7 percent in trading on the NZX this morning to $2.85.
Total revenue for the half was up 5 percent to $669.4 million, earnings before interest, tax, depreciation and amortisation rose 3.9 percent to $336.3 million, and the company raised its interim dividend by 0.25 cents to 7.25 cents a share.
Balance sheet gearing remained "strong", Mr Stiassny says, with a net debt to net debt plus equity ratio of 51 percent.
While it was challenging identifying new value-creating investments, Vector has been "working with local and central government as well as private sector organisations to explore opportunities to manage and invest in critical national infrastructure and adjacent services".
Vector's technology segment continued to show the strongest growth, with revenue up 9.8 percent to $52.8 million compared with the same period a year earlier and ebitda of $36.7 million, up 6.1 percent.
The company is two-thirds of the way into installing 617,000 smart meters into customers' premises, is also purchasing Contact Energy's metering business and is moving into installation of solar power units and batteries.
While electricity revenues rose 8.5 percent to $334.8 million, that reflected mandated increases in regulated network charges, which will be somewhat unwound in the second half after a Commerce Commission determination requiring cuts in line charges.
While Vector continues to challenge the methodology used to determine the price cuts, it does not expect outcomes from the High Court "merits review" process before the middle of the year. Hearings on the review finished in Wellington last week.
"We note that these reductions are based on different assumptions in respect of operating and capital expenditure requirements over the next five years than those that the business relies on," chief executive Simon Mackenzie says.
"The regulator's mandated price reductions on our electricity networks from April 1 will weigh on second-half revenues," he says, while the soft economic conditions were likely to continue, despite signs of a pick-up in residential construction in Auckland.
He reaffirmed earlier guidance to expect ebitda in line with last year's.
In its gas business, Vector reported a rise in gas transportation revenues of 3.6 percent to $114.4 million and ebitda of $88.7 million, an 8.7 percent improvement.
Its wholesale gas business continued to benefit from access to lower-priced "legacy" gas from the Kapuni field, although that is starting to reduce. The wholesale business revenues were flat at $195.6 million and ebitda fell 6.6 percent to $36.7 million.
Like Contact Energy earlier this week, Vector reported an improved performance from its LPG business as demand picks up on the reticulated LPG network in Christchurch, where sales fell dramatically after the 2010 and 2011 earthquakes.
Vector also echoed comments by Mighty River Power in its half-year result, also released this morning, expressing concern at the Electricity Authority's plans for redistributing the costs of the national grid.
"This is the third review by the authority, and its predecessor the Electricity Commission, in recent years" and all had sought to shift some of the transmission costs borne by South Island consumers to the North Island.
"We are challenging the proposed methodology as it is likely to result in higher prices for Auckland consumers."
MRP chief executive Doug Heffernan criticised the proposed new approach as "extremely complex" and "retrospective".
Research commissioned from the international Consulting Engineers Group had concluded the proposals were "inconsistent with international practice", and would create "disputations, reduced wholesale market efficiency and systemic risk through the supply chain".
It also risked increasing costs for consumers and of having a negative impact on electricity retail market competition.