Vector’s annual result on target
19 August 2005
Vector’s annual result on target
Vector Limited (Vector) today announced an after-tax net surplus of $40.77 million for the 12 month period to 30 June 2005, slightly ahead of its prospectus forecast of $40.73 million. Normalised profit (NPATA) of $104.3 million was in line with prospectus expectations.
The financial result included just over six months’ operations from NGC Holdings Limited (NGC), in which Vector acquired a majority stake in December 2004. Vector increased its stake in NGC to 92.75% as a result of its latest offer and is now in the process of completing the compulsory acquisition of the remaining 7.25% of NGC.
Vector Chairman Michael Stiassny said that the board was very satisfied with the group’s performance in a challenging year.
"This has been a year of significant progress for Vector, both strategically and operationally. The acquisition of NGC has enabled us to reach the next stage of our strategic growth path, considerably broadening our energy infrastructure portfolio. We are also in the process of completing a major financial restructuring programme, which has included the issue of 24.9% of the company’s shares, and the listing on the NZSX earlier this week. Despite the potential distractions created by such major strategic events, management and staff have retained their focus and have delivered on some challenging operational targets."
Mr Stiassny said that Vector’s financial performance would bring no surprises, being very close to that forecast in its prospectus, registered on 27 June 2005. While the year-on-year results were not directly comparable due to the inclusion of NGC for part of the year, he said the board was pleased with the company’s progress.
"The group’s operating performance has been very positive. Our key indicators of EBITDA (earnings before interest, tax, depreciation and amortisation) and NPATA (net surplus before intangible asset amortisation) are showing solid growth. EBITDA, at $466.1 million, was 36.7% higher than the same period last year, and despite significant increases in interest and tax expenses, NPATA increased by 7.9% over the previous period. We also recorded strong operating net cashflows of $239.5 million, up $59.4 million on last year."
Vector’s total assets increased over the period from $3.07 billion to $4.85 billion largely due to the acquisition of NGC.
Mr Stiassny noted that while the after-tax net surplus met the prospectus target, it was slightly lower than Vector’s half-year result, and significantly lower than the $57.84 million result posted in 2004.
"This was due to a combination of factors. Last year’s result included a one-off tax credit of $14.0 million. Following the acquisition of the NGC stake in December 2004, goodwill amortisation increased by $18.8 million, and we also have a substantially higher interest expense as the result of the NGC acquisition."
A combination of acquisition-related borrowings (including existing NGC debt) and increased levels of growth and replacement-related capital expenditure increased Vector’s total debt by $1.36 billion during the financial year, bringing total debt at year-end to $3.15 billion. This included the PIPEs equity bridge entered into last December as part of the NGC acquisition. The PIPEs were repaid on the 15th August 2005 from the proceeds of the IPO. Interest costs increased by $57.3 million to $197.0 million for the 12 month period.
"With the PIPEs equity bridge, Vector was able to complete a $1.36 billion acquisition and effectively maintain its net debt to debt plus equity ratio at 66.6%. Vector has also maintained its credit rating at BBB+ from Standard & Poor’s following completion of the IPO and NGC takeover process. This is an outstanding achievement," said Mr Stiassny.
On 10 August, Vector’s board announced a dividend of $53.6 million, being the amount forecast in the prospectus, and payable to the company’s sole shareholder at 30 June 2005, the Auckland Energy Consumer Trust.
Vector’s chief executive Mark Franklin said that both Vector and NGC had contributed solid operating performances, despite increasing cost pressures.
"All of the group’s businesses recorded revenue growth, and I am particularly pleased to report strong contributions from some of our non-regulated businesses. Revenue growth overall was due to a combination of connections growth in our infrastructure businesses, higher average product selling prices and a generally buoyant economy.
We are, however, also experiencing continued margin pressure across many of our businesses due to increased supplier costs. For the year to 30 June 2005, these included a 15% increase in electricity transmission costs and increased costs of sales of 8% for natural gas and LPG. Electricity maintenance costs were also 33% higher, however this was due mainly to the introduction of accelerated maintenance programmes and $2.4 million (50% over previous corresponding period) of new costs associated with the tree trimming programme required under the Electricity (Hazards from Trees) Regulations 2003."
Mr Franklin noted that while such increases are becoming more frequent, the company was continuing to focus on operating in a cost-effective manner in order to keep price increases to a minimum.
"Operational efficiency has become a core competency of our organisation, however this is not at the expense of operational performance or customer service. In fact, Vector’s electricity business had a very good year in terms of service performance with a 27% improvement in average reliability across its entire network. This is due, in large part, to the maintenance and capital enhancement programmes we are continuing to roll-out. Similarly, improvements were recorded in the performance of Vector’s and NGC’s gas assets, and Vector Communications’ broadband network."
Looking ahead, Mr Franklin said that the immediate task for Vector was to integrate the operations of NGC with its own organisation.
"There is a lot to do, and we expect that it will take a few months. We are aiming to keep the transition as smooth as possible with particular focus on continuing to deliver customer service and shareholder value. Another key focus will involve working closely with relevant government and regulatory bodies in regards to various industry developments, including the new gas pipelines regime.
We are also looking forward to being able to create and capitalise on further opportunities that neither organisation would have been able to achieve individually. We have a very exciting future."