Energy infrastructure company Vector faced a challenging year
ahead because of regulatory price cuts that had taken effect,
Forsyth Barr broker Peter Young said yesterday.
Also, the legacy Kapuni gas would be ending. Offsetting that
drop in earnings would be a lift from the metering business,
as more smart meters were introduced, and the purchase of
Contact's gas-metering business that took effect on July 1.
The Auckland-based company reported operating earnings of
$630.5 million for the year ended June, up 0.5% on the $627.4
million reported in the previous corresponding period.
Revenue was up 2.1% to $1.28 billion from $1.25 billion and
reported profit was up 2.3% to $203.3 million from $198.8
million. The total dividend was 15c a share, up 3.4%.
Mr Young said the make-up of the result was different than
Electricity revenue and operating profit contribution was
lighter than expected.
That was more than offset by better performances across all
of the other divisions. Strong cost control appeared to have
been a factor in the better-than-expected performance.
Vector chief executive Simon Mackenzie said it had made
significant productivity gains through ongoing operational
and process changes across the business.
''We are one of the lowest-cost providers of electricity
distribution services on measures such as the cost of
delivering power lines services to our customers and the
average operating cost per customer.
''Unfortunately, customers' wallets are yet to benefit from
these initiatives as regulation intended.''
From April, the company reduced prices on its residential
electricity network by 9% or the equivalent of $60 per
residential customer per year, he said.
However, only in the case of a small minority of energy
retailers had those savings been passed on.
The goal of regulation was to create efficiencies in the
business and Mr Mackenzie expected the gains made to flow
through to customers as regulation intended.
Mr Young said Forsyth Barr had a price target of $2.57 a
share on Vector and a recommendation of hold on the shares.
''At this stage, it is hard to see a material change to that
The shares last traded at $2.65.