Ann: HALFYR: VCT: Half Year Preliminary Results f

• Release Date: 21/02/13 10:37
• Summary: HALFYR: VCT: Half Year Preliminary Results for period ended 31 Dec 2012
• Price Sensitive: No
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VCT
21/02/2013 08:37
HALFYR

REL: 0837 HRS Vector Limited

HALFYR: VCT: Half Year Preliminary Results for period ended 31 Dec 2012

Vector performs despite soft economy

HIGHLIGHTS:
- Revenue rises 5.0% to reach $669.4 million; energy demand subdued.
- Net profit rises 10.8% to $118.0 million as costs contained and growth in
technology operation continues.
- EBITDA  rises 3.9% to $336.3 million.
- Interim dividend rises 0.25 cents to 7.25 cents per share.

New Zealand's leading integrated energy infrastructure company, Vector
Limited today announced an improved result for the six months to 31 December,
despite the soft economy, as we benefited from growth across most of our
businesses, continuation of legacy pricing on our Kapuni gas entitlements and
a tight control on costs.

The Board has resolved to pay a fully-imputed interim dividend of 7.25 cents
per share for the year, up from last year's 7.0 cents per share interim
dividend.

Vector chairman Michael Stiassny said: "Vector and New Zealand is facing a
new economic norm. Economic growth is soft; our customers want to reduce the
amount they spend on energy and the amount they consume. Meanwhile, the
environment for value-enhancing acquisitions is challenging.

"As a provider of critical national infrastructure, Vector's progress is
tightly linked to these economic trends. Warmer weather across the Auckland
region also reduced demand.

"However, this result demonstrates how we have continued to grow, in spite of
the new economic environment. It also shows our success at optimising the
group's portfolio of businesses, lowering our risk profile in response to the
new environment and containing costs.

"Our balance sheet remains strong with gearing as measured by net debt to net
debt plus equity at 51.0%. We continue to seek regulatory certainty, a fairer
regulatory regime and our gas wholesale book is well balanced.

"Despite the challenges, our planned acquisition of the Contact Gas metering
business shows we are prudently investing for growth in a way that will not
only support the Auckland and national economies, but also deliver returns to
our shareholders.

"Vector, overwhelmingly owned by New Zealanders in a successful example of
the mixed-ownership model, has again delivered," he said.

FINANCIAL AND OPERATIONAL RESULTS:

Six months ended 31 December  2012
$M  2011
$M Change
(%)
Revenue  669.4      637.6 +5.0
EBITDA 336.3     323.6   +3.9
EBIT  250.1   237.5 +5.3
Net profit 118.0 106.5 +10.8
Operating cash flow  267.7  242.4 +10.4
Dividend per share  7.25   7.00 +3.6
Capital expenditure
 Growth 75.8    58.8 +28.9
 Replacement 53.0 52.8 +0.4

Revenue for the six months to 31 December 2012 increased 5.0% from $637.6
million to $669.4 million. The rise was due in part to regulated price
increases on our energy networks, and an increase in Transpower transmission
charges, which are passed through to customers. These increases masked the
soft trading environment.

Due to the warmer temperatures, the soft economy and reduced customer demand
electricity volume fell 0.9% from 4,359 GWh to 4,321 GWh. Gas transmission
volume fell 9.5% from 65.0 PJ to 58.8 PJ, due to reduced gas-fired generation
activity while gas distribution volumes were static.

Nevertheless, group EBITDA rose 3.9% from $323.6 million to $336.3 million,
due to continued cost containment across the energy infrastructure networks
and ongoing growth in our technology business. Net profit rose 10.8% from
$106.5 million to $118.0 million. During the period Vector also benefited
from the continuation of supply of Kapuni gas at legacy prices following
success in an arbitration to determine our entitlements. This is now subject
to an appeal, but we are confident of our position.

Vector Group Chief Executive Simon Mackenzie said: "Our focus remains on
seeking growth opportunities, continuing to control costs, optimising our
businesses for the new economic realities and continuing to provide quality
service to our customers. We also continue to seek better regulatory outcomes
for our energy networks.

"We are meeting these objectives. EBITDA of our electricity and gas
transportation networks increased by 2.2% and 8.7% respectively and on
measures such as the cost of delivering power to our customers and the
average operating cost per customer, Vector's electricity networks remain
among the best in the country.

"Vector's unregulated operations continue to perform well. Our technology
segment made a strong contribution to earnings, increasing its EBITDA by 6.1%
to $36.7 million. Our installed base of smart meters continues to grow rising
38.5% to 438,419 meters from 316,531.

"Vector's shareholders have again benefited from the group's portfolio of
operations, delivering on our core energy infrastructure networks, developing
innovative technology solutions and pursuing smart growth opportunities in
our unregulated operations.

Investment for growth:
"Vector is investing to support this growth, having spent $128.8 million
across our portfolio of businesses during the six month period. Of this
investment, $77.4 million was spent on our energy networks and most of the
remainder on our unregulated operations including investments in our smart
meter operations as well as new technologies such as solar power to give our
customers new choices," he said.

Mr Mackenzie said: "Solar panels, combined with highly-efficient batteries
and smart control technology will allow our customers to manage demand and
the cost of energy in the home. They represent the application of an exciting
new technology for Vector. In the period we completed the first residential
installation of a technology solution, which over the long term will lead to
greater use of renewable resources, but also help us optimise our network
investment.

"Vector continues to seek value-enhancing acquisitions. We have been working
with local and central government as well as private sector organisations to
explore opportunities to manage and invest in critical national
infrastructure and adjacent services by leveraging Vector's expertise and our
strong balance sheet.

"We await the Commerce Commission decision on our proposed acquisition of
Contact Energy's gas metering business as announced in October.

Regulation
"We are looking forward to the outcome of the Merits Review of the regulatory
regime, brought by Vector along with six other parties representing the
interests of New Zealand's largest infrastructure providers.

"Deliberations are drawing to a close and we expect a court judgement to be
delivered in the second quarter of this calendar year.

"Meanwhile, from April this year, Vector will reduce its electricity lines
charges in line with the Commerce Commission's determination released last
November forecasting an average 10% reduction.

"A price determination for our gas transmission and distribution assets is
due to be released later this month. In light of the pending Merits Review
judgement, it is too soon to say whether the Commerce Commission's draft
decision to reduce prices on our gas transmission and gas distribution
networks by 25% and 16% respectively will stand.

"We note that these reductions are based on different assumptions in respect
of operating and capital expenditure requirements over the next five years
than those that the business relies upon," said Mr Mackenzie.

OUTLOOK
Vector has made a good start to the 2013 financial year as we have managed
the business well.

The second-half however will present some headwinds. The regulator's mandated
price reductions on our electricity networks from 1 April will weigh on
second-half revenues, even if we receive a positive outcome from the Merits
Review of the regulatory regime. And notwithstanding the signs of a recovery
in the Auckland building and construction sector, the economy remains soft
and customer energy demand remains subdued.

Meanwhile our entitlements to Kapuni Gas at the legacy prices will continue
to reduce over the period and some gas already purchased during the period at
legacy prices is subject to appeal.

Nevertheless, we are pleased with growth in our technology business. The gas
wholesale operation continues to perform well and we continue to manage costs
tightly. We also continue to grow through investment in our core network
business as the economy grows, albeit slowly. In summary we are reaffirming
our earlier guidance that we expect EBITDA for the full year to 30 June 2013
to be in line with the result we achieved in the year to 30 June 2012.

SEGMENTAL PERFORMANCE

Six months ended 31 December  2012
$M 2011
$M Change (%)
Electricity
  Revenue 334.8 308.5 +8.5
  EBITDA 202.0 197.6 +2.2
Gas Transportation
  Revenue 114.4 110.4 +3.6
  EBITDA 88.7 81.6 +8.7
Gas Wholesale
  Revenue 195.6 195.4 +0.1
  EBITDA 34.0 36.4 -6.6
Technology
  Revenue 52.8 48.1 +9.8
  EBITDA 36.7 34.6 +6.1
Shared Services
  Revenue 0.4 0.5 -20.0
  EBITDA (25.1) (26.6) +5.6

Electricity
Electricity revenue increased 8.5% to $334.8 million from $308.5 million and
EBITDA increased 2.2% from $197.6 million to $202.0 million. An increase in
Transpower prices in the 2013 regulatory year lifted expenses by $19 million.
These charges were passed through to customers.

The volume of electricity transported across the network fell 0.9% from 4,359
GWh to 4,321 GWh, reflecting subdued customer demand, the unusually warm
weather in the second quarter of this financial year and the unusually cool
weather in the first quarter of the prior year. Revenue also benefited from
price increases.

Although household consumption is largely weather dependent, we have observed
a reduction in average consumption per household over the last few years.

Vector's research shows the majority of customers are trying to reduce their
usage, reflecting their desire to reduce their electricity bills and take
advantage of more energy-efficient and environmentally-friendly solutions. It
is for this reason we have been innovating and investing in technologies such
as solar power.

Vector is actively participating in the Electricity Authority's consultation
to revise Transpower's transmission pricing methodology. We are challenging
the proposed methodology, as it is likely to result in higher prices for
Auckland consumers.

This review is the third review by the Authority, and its predecessor the
Electricity Commission, in recent years. These reviews have focused on
shifting costs, such as those for the HVDC link from South Island generators
to North Island consumers.

Commercial and industrial customers have also continued to slow their
production and actively look to cut costs.

There was a step up in residential subdivisions. This growth supports other
anecdotal evidence of a pickup in the building and construction sectors in
Auckland.

Electricity customer numbers grew 0.6% from 534,305 to 537,268. Net customer
additions grew 20.1% from 1,698 to 2,040. Over the last few years
disconnections have been unusually high as inactive meters were disconnected.
 This had the effect of depressing reported net connection growth, but the
market is now returning to equilibrium.

Apart from higher Transpower charges, direct and indirect costs were
relatively stable as cost reductions offset higher professional fees related
to regulatory appeals.

SAIDI increased 4.2% from 69.4 to 72.3 minutes, but we consider the increase
was due entirely to the natural random variance from year to year.

Gas Transportation
Gas Transportation revenue rose from $110.4 million to $114.4 million.

EBITDA rose from $81.6 million to $88.7 million as the business continued to
demonstrate tight cost control.

Gas distribution volumes were unchanged on the prior year at 11.7 PJ. Gas
transmission volumes fell from 65.0 PJ to 58.8 PJ primarily due to a
slow-down in gas-fired electricity production. These lower volumes had only a
marginal impact on revenue as the customers concerned were largely on fixed
prices.

Distribution customers rose 1.5% from 153,576 to 155,863 and net customer
additions rose 13.7% from 1,068 to 1,214. This was due to lower
disconnections as a major gas retailer completed its programme of
decommissioning unused gas ICPs.

Gas Wholesale
Despite lower volumes from the Kapuni field, Gas Wholesale revenue rose
slightly from $195.4 million to $195.6 million. EBITDA fell from $36.4
million to $34.0 million. The continuation of supply of Kapuni gas at legacy
prices underpinned Gas Wholesale earnings.

Sales, excluding recoveries associated with the emission trading scheme
(ETS), were lifted by growth in the LPG business and particularly the bottle
swap operation as well as a 20.0% increase in tolling volumes to 73,369
tonnes through Liquigas.

Liquigas growth was largely due to growth in the South Island, reflecting the
recovery in Christchurch following the earthquakes and an increase in
exports.

Natural gas sales fell 2.8% from 14.3 PJ to 13.9 PJ. Meanwhile, gas liquid
sales were down 6.8% from 41,850 tonnes to 39,000 tonnes. The gas wholesale
book, however, remains well balanced.

The Gas Wholesale business continues to develop attractive opportunities. Our
gas bottle swap operations posted six months of particularly strong growth,
reinforcing the strategic benefit of the Kwik Swap acquisition in 2011.

Costs, excluding costs associated with the emissions trading scheme, fell at
the Kapuni Gas Treatment Plant (KGTP) and at our natural gas operation in
line with lower production volumes. However, these gains were partially
offset by increased expenditure at Liquigas aligned with increased tolling
volumes and expenditure to support the growth of the bottle swap operation.
ETS recoveries and costs were $2 million lower than the prior year, due to
lower emission unit prices.

Technology
Revenue rose from $48.1 million to $52.8 million due to a rise in revenue
from both the metering and telecommunications businesses. Metering revenue
reflected the increase in the number of smart meters replacing legacy meters,
as well as additional recoveries from retailers for field services work.

The installed base of smart meters continues to grow, rising 38.5% to 438,419
meters from 316,531 at the same time last year. Vector is now two thirds of
the way through our contracted installation of 670,000 smart meters and we
deployed at a rate of 11,504 meters per month during the period. We expect to
maintain a rate of 10,000 to 12,000 a month depending on installation
conditions for the next 12 months.

The technology segment's EBITDA rose from $34.6 million to $36.7 million.

Cash flow and capital expenditure
Vector continues to invest in its network to maintain our high levels of
service and performance. Supported by our strong operating cash flow, up
10.4% to $267.7 million, we invested $128.8 million across our portfolio of
businesses. This investment represented a 15.4% increase on the prior year.

Of this sum $77.4 million was invested in our core electricity and gas
networks to support growth and maintain the high level of service to which
our customers are accustomed. The major growth projects are the continued
development of the grid exit point at Hobson Street and investment to support
increasing residential subdivision activity.

A further $43.7 million was invested in our technology segment to support its
rapid growth, particularly in the metering business.

Capital Structure
Our balance sheet remains strong. Net debt fell from $2,373.8 million at 30
June 2012 to $2,286.4 million. Gearing as measured by net debt to net debt
plus equity, fell to 51.0%, an improvement to the 52.5% recorded at 30 June
2012. Net finance costs are covered by EBIT 3.0 times compared with 2.7 times
for the year ended 30 June 2012.

-Ends-

Contact:

Media: Sandy Hodge, External Communications Manager
Tel: +64 9 978 7638 Mob: +64 21 579 522

Investors:  Daniel Kieser Group Manager Corporate Development Tel: +64 978
7780 Mob: +64 21 775 028

About Vector: (www.vector.co.nz)
Vector is New Zealand's leading multi-network infrastructure company which
delivers energy and communication services to more than one million homes and
businesses across the country. The company owns and manages a unique
portfolio which consists of electricity distribution, gas transmission and
distribution, electricity and gas metering installations and data management
services, natural gas and LPG and fibre optic networks. Vector is listed on
the New Zealand Stock Exchange with ticker symbol VCT. Our majority
shareholder, with voting rights of 75.4%, is the Auckland Energy Consumer
Trust (AECT).

APPENDIX:
Non-GAAP profit reporting measures
Vector's standard profit measure prepared under New Zealand GAAP is net
profit. Vector has used non-GAAP profit measures when discussing financial
performance in this document. The directors and management believe that these
measures provide useful information as they are used internally to evaluate
performance of business units, to establish operational goals and to allocate
resources.  For a more comprehensive discussion on the use of non-GAAP profit
measures, please refer to the policy 'Reporting non-GAAP profit measures'
available on our website (vector.co.nz)

Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New
Zealand International Financial Reporting Standards) and are not uniformly
defined, therefore the non-GAAP profit measures reported in this document may
not be comparable with those that other companies report and should not be
viewed in isolation or considered as a substitute for measures reported by
Vector in accordance with NZ IFRS.
Vector's definition of non-GAAP profit measures used in this document:

EBITDA: Earnings before net finance costs, tax expense, depreciation,
amortisation,       share of net profit or loss from
associates and impairments.
EBIT: Earnings before net finance costs, tax expense, share of net profit or
loss from associates and impairments.
GAAP to non-GAAP reconciliation:

 2012
$M 2011
$M
Net profit for the period (GAAP) 118.0 106.5
Add back: income tax expense1 47.5 42.9
Add back: impairment of investment in associate1 2.3 3.9
(Deduct)/add back: share of net (profit)/loss from associates1 (0.7) 0.1
Add back: net finance costs1 83.0 84.1
EBIT 250.1 237.5
Add back: depreciation and amortisation1 86.2 86.1
EBITDA 336.3 323.6

1 Extracted from reviewed financial statements.
End CA:00233217 For:VCT    Type:HALFYR     Time:2013-02-21 08:37:58