Unison reports sound financial result and improved service reliability

Unison Networks Limited today announced a pre-tax Operating Surplus of $16.8 million for the past financial year along with significant gains in network system performance. Brian Martin, Chairman of the Hastings-based electricity distribution company, whose powerlines networks cover the Hawke’s Bay, Taupo and Rotorua regions, said the board was particularly pleased with the improvement in supply reliability despite testing environmental conditions during the year.

“This is a direct result of the significantly increased investment the company has made in recent years to maintain and improve the network system,” said Mr Martin.

However, he also cautioned that the challenge for the lines network industry was to continue to maintain the investment in networks while working within the current regulatory regime.

The operating surplus of $16.8 million (last year $19.2 million) flowed from operating revenues of $91.8 million ($92.0 million).  “Although both of these figures were down on the previous financial year, when you examined the detail the overall results were very satisfactory,” Mr Martin said.

Some of the key factors influencing the result included:

• The effect of a $5 million increase in the depreciation charge following on from the $135 million revaluation in assets last year;

• The planned increase in system maintenance costs and vegetation control programmes;

• The revenue reduction resulting from tariff realignment undertakings agreed under the administrative settlement entered into with the Commerce Commission; and

• The slowing in property development activities in the regions, resulting in lower receipts from capital contributions.

The capital expenditure programme resulted in $29.1 million being invested back into the network, up from $24.8 million the previous year.

Mr Martin reported that debt had been reduced by $4 million, while overall interest costs were stable and amortisation was significantly lower.  Taxation increased from $1.5 million to $2.4 million.

Shareholder equity had improved to $322 million at the end of the financial year, compared with $305 million at the end of March 2006.

Dividend
The Directors have declared a dividend of $7.2 million (fully imputed) to the shareholder, the Hawke’s Bay Power Consumers’ Trust, in respect of the year ended 31 March 2007. This represents a distribution of approximately 50% of the net surplus after current tax.

A $4.5 million dividend, declared in March 2006, was paid in April 2006 to the shareholder in respect of the 2005-06 financial year.

Investment payback
Mr Martin said that the enhanced resilience of the network following a programme of investment was reflected in the fact that, despite some severe weather events, both the duration and frequency of disruptions to electricity supply had shown improvement.

The system interruption frequency dropped to an average 2.1 interruptions for the year, while the duration of outages on average were 140 minutes. Both of these figures were well inside the Commerce Commission’s targets for Unison.

Mr Martin attributed the improvements to:

• The increased emphasis in recent years on asset renewal, development and maintenance; 

• A comprehensive programme of vegetation control; and

• The application of smart technology which had been invaluable in the detection and repair of potential problems before they highlighted themselves as faults and interruptions.

Regulatory matters
Commenting on regulatory development, Mr Martin said that the company now had some certainty through the period until the regulations are reset in March 2009, following the conclusion of a satisfactory agreement with the Commerce Commission on pricing.

Unison remained concerned regarding the overall industry regulatory environment prevailing through to the reset. “Our general view is that while pricing and reliability of supply measures are important, they should not compromise the key investment drivers that underpin the continued flow of capital into vital infrastructure,” said Mr Martin. “Investment capital is a scarce resource in New Zealand and unless the sector can demonstrate it can continue to earn an adequate return on its inputs, sufficient investment will simply not be made.”

He said a workable regulatory regime would need to sit within an overall national energy strategy that was timely and pragmatic if it was to deliver the benefits needed on a regional and national level.

“For its part, Unison is willing to constructively contribute to the way forward.”