Vector Limited today announced its financial results for the year ended 30 June 2010. Group Chief Executive Officer Simon Mackenzie said the company was performing well, and had met expectations. 

“This is a positive result, given the economic conditions and subdued demand from customers. It is pleasing to see another year of growth. Alongside our financial performance, great teamwork from our employees and contractors has delivered improved network reliability and health and safety outcomes.”

The Board has declared a final dividend of 7.5 cents per share, bringing the full-year dividend to 14.0 cents compared to 13.75 cents for 2009. The final dividend will be paid on 13 September 2010 to shareholders registered on 03 September.

“We are well positioned in respect of the Government’s ultra-fast broadband initiative, and have worked hard to preserve earnings before interest, tax, depreciation and amortisation (EBITDA). Underlying net profit after tax (NPAT) has increased by 4.7% to $172.6 million*.”

Financial highlights (based on continuing operations**)

•    Revenue increased 1.1% to $1,187.4 million (2009: $1,174.2 million)
•    EBITDA declined 0.7% to $578.1 million (2009: $582.2 million)
•    Net profit after tax (NPAT) increased 17.3% to $193.5 million (2009: $164.9 million)
•    Underlying NPAT – excluding the impact of tax regime changes - increased 4.7% to $172.6 million (2009: $164.9 million)

EBITDA growth in the electricity and gas transportation segments was offset by an anticipated decline in the gas wholesale segment and shared services. Depreciation and amortisation increased by 7.5% to $156.3 million, reflecting the increased asset base.  Lower debt levels together with the restrained interest rate environment reduced net borrowing costs to $167.0 million, a decline of $22.5 million on the year before.

Regulation
Regulation continues to be a key area of focus and value driver for the company, said Mr Mackenzie.
 
“Investment in infrastructure is a cornerstone of economic growth. The right regulatory regime is critical to support the Government’s goals of higher economic growth and keeping pace with Australia. The challenge for the Commerce Commission is to create a regulatory environment for infrastructure that supports the country’s economic and regulatory objectives.

“Regulation must deliver certainty and be an appropriate mix of theory and commercial reality. The regulator must sense-check its theoretical views against commercial expectations, incentives, benchmarks and practice.

“For example, the Commission’s draft decision on weighted average cost of capital (WACC) can’t be on par or below the level set by Australian regulation given the need to attract international capital to New Zealand.

“Our submissions to the Commerce Commission clearly set out our views on these fundamental inputs, legislative and regulatory issues. We expect incentives to invest in our infrastructure networks. In particular, incentives to invest in developing energy efficient solutions that give customers more choice, incentives to underground more of our electricity network in response to customer demand and incentives to deliver even better service outcomes for our customers.

“The current direction of the Draft Determinations provides no such incentives and remains uncertain,” said Mr Mackenzie.

Segmental performance:

Electricity
Electricity revenue was up $20.3 million to reach $553.9 million, and EBITDA improved by 6.3% to $355.8 million. Connections to Vector’s electricity networks grew by 4,851 or 0.9% to reach 528,245. Consumption declined over the second half to end the year at 8,168 GWh, compared to 8,240 GWh for 2009.

“Unseasonably cold temperatures during April, May and June 2009 drove up consumption, whereas this year’s early winter temperatures were milder,” said Mr Mackenzie.

Gas Transportation
Gas transportation revenue improved by $4.2 million to reach $194.2 million, and EBITDA by $7.3 million to reach $159.7 million. Gas distribution volume was 21.1 petajoules compared to 21.3 PJ in 2009, and transmission volume was 2.4% ahead at 94.3 PJ. Distribution connections grew by 2,751 or 1.8%, to reach 152,267.

Gas Wholesale
Against the backdrop of lower natural gas prices, the continued wind down of legacy gas contracts, and reduced prices and volumes for LPG, gas wholesale revenue declined $10.5 million to $402.8 million, and EBITDA declined $16.6 million, to $64.1 million.

“Our gas book, however, is in a strong position; we have contracted a number of blue chip customers and acquired 4,641 LPG customers.”

Vector’s position in respect of the Kapuni gas field redetermination is unchanged, and there has been no further contact on this issue from the mining companies, noted Mr Mackenzie.

“The Kapuni Mining Companies’ latest disclosure of field reserves - to the Ministry of Economic Development – supports our view that there is plenty of gas remaining in the field. Publicly disclosed reserves have increased to 1,018 PJ.”

Technology
The company’s technology segment, comprising metering and communications, delivered 12.4% revenue growth, reaching $79.8 million for the year. EBITDA at $52.1 million was flat.

Smart meter deployment more than doubled to 114,272, with the installation rate accelerating considerably. Vector Communications won new corporate business, began delivering services in Christchurch for its Auckland customers, extended its high speed fibre optic network and launched a public awareness campaign to explain why high speed fibre to the door is the best solution for Auckland, said Mr Mackenzie.

Fibre
“We continue to participate in the Government’s process to deliver fibre to the door. Crown Fibre Holdings’ recommendation of preferred partner to Minister Joyce is scheduled for October, with deployment commencing before the end of the year. To keep pace with our trading partners, the fibre build has to happen quickly. Provided it makes commercial sense for our business, we are ready to expand our fibre network now.

“We have advocated for, and are already delivering, open access fibre to the door. We’ve got the best solution for Auckland and together with the New Zealand Regional Fibre Group have the best solution for New Zealand.  Our solution is locally owned, simple, clean, fast and ultimatum free.”

Outlook
“Looking ahead, our focus is on our growth opportunities and improving efficiency. We are comfortable with analysts’ current forecasts for our 2011 full year result.”
                                                                                                                                               
Ends
*Excludes $20.9 million one-off, non-cash benefit arising from changes in the tax regime announced in the 2010 budget

**All 2009 financial comparatives exclude the sale of Vector’s Wellington electricity network, sold in July 2008.
 

Operating Statistics