Vector’s interest in the new company Bluecurrent is accounted for as an investment, and its earnings are excluded from Vector’s adjusted Ebitda.
The Bluecurrent board has indicated shareholders could expect to receive between $80-100m of distributions for FY24, with Vector receiving 50 per cent of this.
Vector chief executive Simon Mackenzie said: “Vector’s financial performance for the six months to December reflects a solid result across our regulated networks and gas trading business segments, driven by higher revenues.”
Population growth in Auckland continued, with new connections up 9 per cent on the previous comparable period to 10,061.
Mackenzie said Auckland’s growth was expected to continue, and the company was on track to exceed 16,000 new electricity connections in FY24, up 2000 from the indication provided in August 23.
Connections and infrastructure activity remained elevated, resulting in significant capital expenditure (Capex).
Extreme weather increased spending
Gross Capex was up 6 per cent to $238m. Net Capex (after deducting contributions) was up 13 per cent to $145m. Contributions were down 4 per cent to $93m, largely attributable to lower residential subdivisions and relocation work.
The year-on-year increase was driven by an additional $31m of replacement Capex on the network.
This was in part due to work to improve resilience and restore the network following the extreme weather events last year (severe flooding in January 2023 and Cyclone Gabrielle in February 2023).
The company reported improved performance from the LPG business with higher revenue due to higher prices and lower cost of LPG input prices partially offset by higher cost of transportation.
The international CP price of LPG was lower compared to the prior period, which has improved profitability.
Overall, LPG volumes were up 8.3 per cent to 24,415 tonnes, with bulk and cylinder volumes both higher.
The natural gas business has been removed from the gas trading segment and classified as “discontinued operations” as the natural gas trading book has been conditionally sold, effective July 1, 2024, for $9.7m.
The company was on track towards the high end of the adjusted Ebitda guidance range of $350m-$365m.
An eye to the future
Mackenzie was very focused on future regulatory settings.
Vector is among the lines companies battling with the Commerce Commission as they seek to massively increase allowable revenue in the coming years to upgrade the electricity distribution network.
The Commerce Commission finalised its Input Methodologies Review in December and is now consulting on the next default price path, known as DPP4, covering 2025 to 2030.
“Our future revenue and the debt we can raise determines how much we can invest in the network. The commission’s decision later this year is therefore critical for our customers, shareholders, and for the future of the electricity network,” Mackenzie said.
“Globally, there’s recognition of the need to make these decisions with pace and urgency. The opportunity for the commission is to create the right environment for Vector and other lines companies to invest enough in energy infrastructure that we are not left playing catch-up years down the track when resilience, electrification and decarbonisation are even more critical, and the cost burden on customers could be prohibitive.”
The company will pay an unimputed interim dividend to shareholders of 9.25 cents per share.
With key regulatory decisions impacting future cash flow yet to be determined, the board has been unable to consider revisions to the dividend policy at this time.
Heartland Group’s profit slides
Heartland Group’s shares lifted despite a 22.7 per cent slide in net profit in the six months to December 31.
The company, which owns Heartland Bank and a separate reverse mortgage business in Australia, reported a $37.6 million net profit after tax versus $48.7m in the same period a year earlier.
Heartland’s preferred metric, underlying net profit after tax, which excludes one-off or non-cash technical items, was $52.7m, down 3.6 per cent.
The shares touched a high of $1.27 and were last trading up 3 per cent at $1.20.
Gross finance receivables rose 4.2 per cent while reverse mortgages in New Zealand and Australia grew 18.7 per cent and 20 per cent respectively.
On balance, the result is a little bit below expectations, said Hobson Wealth senior investment adviser Brad Gordon.
Heartland said it had growth in most of its core lending portfolios “with good pipelines for further growth and to expand market share”.
Light volume
Heartland’s share rise early was partially the result of a bounce-back from an abnormally low base, Gordon said.
The share price was weak going into the result, primarily because of liquidity issues and the company being delisted from the FTSE small cap index last week.
“There’s an estimated about 15 odd million shares have to be sold by the index trackers. So, that’s the reason,” Gordon said, adding the growth outlook over the next five years is strong.
Challenger Bank acquisition
In October 2022, Heartland announced it had purchased Challenger Bank from Challenger Ltd.
Once the deal is completed, Heartland’s existing Australian Reverse Mortgage and Livestock businesses will be folded into Challenger Bank.
The acquisition will be completed in the second half of the current financial year with the regulatory approval process now in the final stages, it said Tuesday.
“This is expected to transition quickly to a profit-making position as material deposit raising occurs,” Heartland said.
“Recent success achieved by Challenger Bank in the Australian deposit market has exceeded Heartland’s expectations. This will enable Heartland to optimise the advantage of a lower cost of funds post-acquisition completion.”
Looking ahead
The company said it expects the full-year net profit to be within the guidance range of $93m to $97m.
Excluding the impact of the (non-cash) increase in provisions for a subset of legacy lending, and Challenger Bank net profit, the underlying guidance range is $108m to $112m, it said.
