Monday 1st July 2019
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Orion New Zealand, the country’s third-largest power distributor, says full-year profit was about $2.5 million lower than target due to mild weather and a tough year for the firm’s Connetics contracting arm.
The company, owned by the Christchurch city and Selwyn district councils, reported a net profit of $47.8 million for the year ended March 31, from $53.3 million the year before. Earnings before interest and tax fell to $80.6 million from $84.1 million. Revenue increased 1 percent to $325.6 million, including $256.5 million from power distribution.
Orion has operated for the past five years under a customised price path approved by the Commerce Commission in 2013 to help the firm recover costs from the 2011 earthquakes and fund the rebuild of the rest of its network.
The firm had been targeting network revenue of about $260.5 million – including Transpower charges – and a net profit of $50.4 million. Network revenue was about $2.3 million below target and earnings from Connetics were about $800,000 behind target, the company noted in its annual report.
Orion supplies about 204,000 homes and businesses in Canterbury.
Chief executive Rob Jamieson noted that, despite adding more than 3,000 new connections for a fourth year in a row, electricity delivered was only marginally higher than the year before at 3,317 gigawatt-hours. Peak network demand fell by 46 MW to 587 MW.
“Last year’s mild winter meant people weren’t heating their homes as much and revenues were lower than expected,” he said in a statement.
“A wet spring also meant less power used for irrigation in rural areas.”
“The fine mild winter resulted in us spending less than usual on emergency work responding to extreme weather events such as storms. That meant we had more time to spend on maintaining and upgrading our network.”
Despite the weaker than planned earnings, the company paid out $53 million in dividends – down from $55 million the year before, but in line with the firm’s target.
Orion has paid out more in dividends than its tax-paid profit for the past four years. In 2016 it also bought back $90 million of shares as part of a capital return to help its major shareholder continue to fund the rebuild of its city.
Orion’s capital expenditure fell to $78 million in the latest period, from $80 million the year before. Total assets climbed to $1.21 billion from $1.18 billion the year before, and term debt increased to $301.6 million from $221.2 million.
In October, the firm raised $140 million of debt in the US private placement market, to repay $100 million of maturing bank debt, provide $40 million for future capex, and extend the term of its borrowings.
Falling interest rates mean that, like all regulated lines companies, Orion will face lower revenue in coming years. Distribution revenue, excluding Transpower costs, rose to $186 million in the March year from $182 million the year before.
In April, the firm forecast its network revenue including Transpower charges would fall to $244 million this year before rising to $258 million out to 2022.
Net profit would fall to $42 million this year and to $35 million by 2022. Dividends will fall to $47 million this year and to $38 million by 2022.
In May, the Commerce Commission published its draft default price paths for 15 of the country’s power distributors.
Orion was one of the few firms that had its capex plan for the five years from April 2020 fully accepted.
The commission estimated Orion’s maximum allowable revenue – a regulatory subset of distribution revenue - would fall to about $161 million in the year ended starting April 2020, about $6 million less than in the current year.
The draft findings will be finalised later this year after the commission considers submissions from firms and consumers.
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