Lower-than-expected Kapuni gas costs and a spike in smart-meter revenues have helped Vector's interim net profit exceed analysts' forecasts, in a result otherwise described as "steady".
The Auckland-based gas and electricity distribution firm, which operates in both the regulated and unregulated sides of the energy market, reported a net profit of $118 million for the six months ended December 31.
That compares to a profit of $106.5m in the same period the previous year, and beat forecasts of $109.5m from Forsyth Barr and $113.9m from First NZ Capital.
Forsyth Barr energy analyst Andrew Harvey-Green said the result was mostly down to cheaper contract prices at the firm's gas wholesale business, which has come into effect sooner than the market had been anticipating.
Vector owns a stake in the Kapuni natural gas field and plant, and is entitled to a portion of production, which the firm managed to secure at a lower price, boosting the wholesale margin when it onsold the gas.
That helped underpin the division's pre-tax earnings (ebit) of $25.9m, although that was still 9.4 per cent lower than the previous year due to higher operation costs at the Liquigas and Kwik Swap subsidiaries.
The bottom line was boosted by a 37 per cent increase in ebit to $17.9m from Vector's technology business, which installs and operates smart meters.
Earnings from the electricity network, the regulated business which generates most of Vector's revenues, showed modest growth of 3 per cent to $161.7m, while gas transportation ebit rose 8 per cent to $7.97m.
That left the firm with total ebit of $250m, up from $237m a year ago.
Vector chief executive Simon McKenzie said he was pleased with the result, particularly as the firm's earnings were closely tied to economic growth in the Auckland region, which had remained mostly moribund.
"We're not seeing new manufacturing or productivity increases, with growth coming through housing activity increases," he said.
Investors appeared to look through the result, and instead focus on the Commerce Commission- enforced 10 per cent price reduction on Auckland electricity distribution charges, which kick in from April 1.
Vector shares closed 2 cents lower at $2.85, although they are trading about 10 per cent higher than they were a year ago.
The mandatory price change is being challenged in the Supreme Court with a ruling due towards the middle of the year.
However, McKenzie said even if the changes are reversed, implementation delays mean they won't be felt on the balance sheet this financial year.
That should be offset by further growth at Vector's technology business and gas wholesale business, although the positive effects of lower Kapuni gas pricing are expected to fade in the second half of the year.
- © Fairfax NZ News
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