Profit rise likely for United

By Mark Reynolds

The 20,000 individual shareholders in electricity lines company United Networks can look forward to a rise in profits and dividends over the next couple of years as the company consolidates $1 billion of assets it bought last year.

But while earnings are forecast to rise, United Networks plans to keep a lid on prices for most of the 471,000 electricity consumers it now serves. In fact, the company has already reduced its overall line charges by 3.8 per cent this year, chief executive Don Bacon said yesterday.

United Networks was previously called Power New Zealand. It used to operate mainly on Auckland's North Shore, owning retail electricity and generation assets as well as power line operations. Following last year's electricity law changes, the company sold its retail divisions to TransAlta for $140 million, and its Rotokawa power station for $53 million.

United then bought TransAlta's power line network in the Wellington region for $590 million and paid $485 million for TrustPower's electricity line business in the Western Bay of Plenty and Taupo regions. It is now New Zealand's largest electricity network operator, supplying power to nearly a third on the nation's households and businesses over 23,678 kilometres of power lines.

Mr Bacon forecast yesterday that the company would have revenue of $428 million in the 12 months to the end of March next year, rising to $435 million the following year. That would actually be down on revenues of $447.3 million for the year to the end of this March, despite assets having doubled to $1.9 billion over the same period.

While the revenue would drop due to the sale of the retail customer base, United Network's expected earnings before interest and tax to more than double to $178.1 million in the current financial year and rise a further 4.3 per cent to $185.8 million in 2001.

When a host of extraordinary accounting items are washed through, United is forecasting an unchanged return on total capital of 5.2 per cent for the current financial year, rising to 5.6 per cent next year. That compares with a 6.7 per cent rate of return the Government expects from state-owned national grid operator TransPower this financial year.

Mr Bacon said the forecasts showed United was not gauging excessive profits from monopoly assets. They also showed the Government had been hasty in moving to impose price control on all lines companies.

"I don't think the Government has given [last year's] reforms an opportunity to work."

Mr Bacon said his company was an example of how economies of scale could benefit both shareholders and consumers. However, the Government had to somehow ensure retail electricity companies passed on lines savings to end consumers to make sure that happened, he added.

Mr Bacon said United was concerned about potential price controls on its lines network, especially because it had to meet ongoing costs to maintain its transmission network, including an upgrade early next century of its main North Auckland link.

Regardless of these concerns, the company was intent on becoming a much more efficient operator, he said.

During its 1998/1999 financial year United Networks increased its borrowing nearly ninefold to $1.03 billion, from just $123 million a year earlier.