Vector profit up 11.6pc on lower debt costs

Vector chief executive Simon Mackenzie. Photo / Brett Phibbs.

Vector, New Zealand's biggest gas and electricity distributor, posted an 11.6 per cent gain in first-half profit to $101.3 million as the company reduced debt, lowered expenses and its network revenues showed resilience to recessionary conditions.

Reduced debt following the sale in the same period a year earlier of Vector's Wellington electricity business, along with lower interest rates, saw debt repayments fall by $19 million, while total revenue from continuing operations grew $11 million, or 1.8 per cent, to $621 million.

"This is a good result and Vector is in sound shape," said the company's group chief executive Simon Mackenzie, who declared an unchanged interim dividend of 6.5 cents per share.

The result compared with $91 million net profit after a tax in the six months to December 2008, after removing $250.6 million of earnings attributable in that period to discontinued activities, primarily the Wellington electricity business.

On the same basis, earnings per share in the half under review rose from 9.1 cents to 10.2 cents. The result had no impact on the value of Vector shares, which remained at $1.94 after the announcement.

First half electricity revenues rose 4.8 per cent to $286 million, despite a 2 Gigawatt hour decline in electricity volumes, while gas transport revenue rose 5.4 per cent over the previous corresponding period to $103 million.

Wholesale gas sales took a 3.3 per cent hit in value at $216 million, but the impact of higher priced gas under new contracts lopped 24.9 per cent off segment earnings before interest, tax, depreciation and amortisation, which fell to $42 million.

This was "principally due to margin loss from the wind down in legacy gas contracts," said Mackenzie. "Natural gas volumes were up 5.1 per cent, gas liquids volumes down 16.9 per cent and Liquigas volumes down 15.8 per cent on the previous year."

The reduction in legacy gas entitlements remains a live issue, with Vector disputing Kapuni the view of oil and gas field joint operators Shell and Todd that there were only 954 Petajoules of remaining gas in the field. External consultants engaged by Vector believe Kapuni has recoverable reserves of more than 1150PJs.

Notes to the accounts disclose that a net decrease in borrowings since the end of the last financial year of $132.3 million is the result of $95 million of movements in the fair value of financial instruments and the repurchase of $40 million of floating rate notes.

The notes also disclose that New Zealand Windfarms, in which Vector has a 19.9 per cent holding, has drawn down $900,000 of a $6.5 million facility created for it by Vector last December, to assist the wind energy developer through a difficult trading period.