Profit jump puts Vector in good shape

Auckland energy networks company Vector is rolling in the money as it prepares to partially privatise and list on the stock exchange.

Profits for the six months to December 31 jumped nearly 50 per cent from $29.3 million to $43.3 million, helped by higher energy use due to cold weather and cost control.

But in the second half, it faces higher interest costs to service an extra $880 million debt taken on to pay for its 66 per cent stake in gas pipelines group NGC. This and recent warm weather will knock profits below the gains of the most recent period.

Chief executive Mark Franklin also said a strong building sector meant more connections and more energy sold over its electricity and gas networks.

Even its telecommunications wing, downtown fibre-optic loops in Auckland and Wellington, inherited when it bought UnitedNetworks three years ago, had a good six months, with revenue up nearly 50 per cent.

Vector is being watched closely by the investment community as it prepares for a $500 million initial public offering (IPO) of shares and sharemarket listing to relieve debt burden.

It is now owned by Auckland power users, who get a yearly dividend through a credit on power bills. The float, which must happen by the end of the year, will put 24.9 per cent of the firm into private hands.

Vector must now decide whether to launch another takeover offer for the 33 per cent of NGC it does not already own. NGC's share price has this year risen from $3.03 to $3.20.

NGC, which owns a complementary network of gas transmission and distribution pipes, contributed to the latest Vector earnings for 18 days. The acquisition added an extra $1.7 billion of assets to Vector, which now has assets worth $4.7 billion.

But its dealing with monopoly businesses often attracts the unwelcome eye of regulators and Vector is currently in the midst of a another battle with the Commerce Commission.

It wants the Government to back off on a price control regime of its gas pipelines recommended by the commission late last year. Gas distribution accounts for about 9 per cent of Vector's annual profits.