Financial highlights

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 1.9% to $323.6 million reflecting increases in Electricity, Gas Wholesale and Technology, partially offset by declines in Gas Transportation and Shared Services. Customer contributions fell $3.1 million to $11.7 million reflecting a reduced level of major relocation activity.

A larger asset base and accelerated depreciation on certain asset classes impacted depreciation and amortisation which increased by $2.6 million.

Share of associate earnings was impacted by a $3.9 million write down of the 25% shareholding in Energy Intellect Limited (EI), a company that develops advanced metering and energy development solutions. This investment has been reclassified as held for sale based on the proposed sale of the company’s operations.

Net interest costs were down $6.0 million reflecting lower interest rates on the floating portion of Vector’s debt portfolio and the replacement of the $250 million Credit Wrapped Medium Term Notes in April 2011, with lower cost funds from the US private placement in December 2010.

Tax expense in the first half of the year amounted to $42.9 million, representing an effective tax rate of 28.7% (H1 2011: 30.9%).

Overall NPAT* increased 6.9% from $98.5 million to $105.3 million reflecting good operational performance, effective capital management and tax rate changes.

Growth capital expenditure increased 8.7% to $58.8 million for the period reflecting the deployment of smart meters. Replacement capital expenditure increased 12.8% reflecting increases in Electricity and Gas Transportation segments.

Segmental Performance
 

Electricity
Electricity revenues increased by 4.1% and EBITDA increased by 1.2%. Total electricity connections increased by 0.8% and volumes increased by 1.4%, reflecting growth in business and residential customer segments.

Gas Transportation
Gas transportation revenue fell $4.4 million to $107.1 million reflecting the release of provision for contractual indemnity in the prior period, lower capital contributions and the Maui pipeline outage. Gas transmission volumes were broadly flat at 65.0 PJ. Gas distribution connections increased by 1.6% to 153,576 and volumes increased by 1.7% to 11.7 PJ. EBITDA declined by 6.2% to $81.6 million.

Gas Wholesale
EBITDA improved 14.8% to $36.4 million, reflecting increases in natural gas and the Kapuni Gas Treatment Plant which were partly offset by Liquigas and LPG.

Technology
Technology revenue increased by 14.0% to reach $48.1 million. EBITDA increased by 23.1% to $34.6 million. Metering benefited from an uplift in the installed number of smart meters to 316,531 as at 31 December 2011.

Shared Services
EBITDA fell $2.2 million, reflecting a gain on sale of surplus land in the prior period.

Cash Flow
Operating Cash Flow fell slightly to $242.4 million (H1 2011: $248.1 million) reflecting movements in working capital and the effect of tax payments. As scheduled the $25.0 million second installment of the Transpower agreement is expected in June 2012 and will be treated as an investing cash flow.

Capital Structure
Vector’s capital structure remains strong with gearing of 52.8% and net interest cover of 2.8 times. In February, the expired $50 million senior credit facility was successfully replaced with $150 million of new senior credit facilities which will expire February 2015. Plans are well under way for the $307 million capital bonds which are coming up to an election date in June 2012.

* Net profit after taxation attributable to owners of the parent