Busy Powerco's profit rises 45pc

By CHRIS DANIELS energy writer

Powerco, in the midst of merger talks with gas network company NGC, has unveiled a $55 million profit for the year ended March, up 45 per cent from 2003.

The second-largest power lines company in New Zealand had a busy year, with February's storms wreaking havoc across its network and last winter's power crisis leading to lower electricity loads.

The company's $55 million profit was slightly above its own forecasts.

With the profit announcement much as predicted, most Powerco watchers will now be closely monitoring its merger talks with NGC. The latter has also been talking to Auckland lines company Vector.

Powerco is 38 per cent owned by the New Plymouth District Council, which this week held an extraordinary meeting to discuss the NGC merger talks.

New Plymouth Mayor Peter Tennent said the council was likely to make a comment soon on the situation, but his glowing assessment of the Powerco investment left little doubt about his opinion on continued council ownership.

"Certainly Powerco is a superb investment and history has shown that every time they've grown the people of New Plymouth district smile and they smile with a very wide smile," he said.

Tennent said the council spent about $100 million a year, with the Powerco dividend earning it $19.3 million.

If the dividend income stopped and spending continued at the same level, rates would have to nearly double.

"It's a superb company, it's a superb investment, the directors of Powerco have done this district very proud."

Tennent said that to his knowledge no council or mayoral candidates had ever suggested during their election campaigns cashing up the Powerco investment.

Analysis of the NGC-Powerco-Vector talks by brokers ABN Amro suggests that NGC might be interested in the electricity lines sector for new investment.

"In a merger, the largest cost savings could come from the rationalisation of head-office costs," said analyst Benedict Slykerman.

"There is also some, albeit limited, geographic overlap between the networks of the businesses, which could give rise to a streamlining of operating and maintenance services."

Powerco had relatively high debt levels, said the report, so any merger could possibly mean lower dividends for NGC's shareholders.

If this yield was threatened, then NGC's share price could weaken. ABN Amro has a "hold" recommendation on NGC shares.

"There are clearly a number of paths the discussions of potential opportunities could take," Slykerman said. "These range from a full merger to a complete breakup of NGC's assets."

The success of Powerco's majority shareholder AGL in its pursuit of Edison Mission's Contact Energy stake could have a bearing on which path it took.