Vector Earnings Call Highlights Strong EBITDA, Heavy Capex

Vector ((VETTF)) has held its Q2 earnings call. Read on for the main highlights of the call.

Vector’s latest earnings call painted a cautiously upbeat picture, with strong top-line and EBITDA growth outweighing pockets of weakness in profit and costs. Management struck a confident tone around electricity earnings and long-term infrastructure investment, while acknowledging short-term profit pressure from lower capital contributions, higher operating costs and a one-off loss on a business sale.

Group Revenue Growth

Vector reported a 14% year-on-year rise in group revenue for the half, underpinned by a strong performance in its core networks business. The main driver was higher electricity revenue as the new DPP4 regulatory period took effect, supporting more robust returns from the regulated asset base.

Adjusted EBITDA Expansion

Adjusted EBITDA climbed 19% to $240 million, signaling healthy underlying earnings momentum despite sector headwinds. Management highlighted stronger electricity segment performance and better pass-through recovery of transmission charges as the key contributors to the margin uplift.

Electricity Segment Lift

Electricity adjusted EBITDA increased by about $48 million versus the prior year, as DPP4 settings provided a meaningful step-up from DPP3. Total electricity connection numbers rose roughly 1.3%, showing steady network growth in Vector’s Auckland footprint and supporting long-term earnings visibility.

Bluecurrent Performing and Distributions Increasing

Vector’s Bluecurrent metering joint venture delivered revenue and EBITDA growth in line with expectations, reinforcing its role as an important earnings stream. Distributions to Vector climbed to $26.6 million from $23.4 million, while recent metering refinancing cut interest costs and improved underlying cash flow.

Guidance Maintained and CapEx Commitment

Management reaffirmed full-year adjusted EBITDA guidance of $470–$490 million, signaling confidence in the earnings trajectory. Gross capital expenditure guidance was increased and tightened to $500–$540 million, underscoring Vector’s commitment to invest about NZ$0.5 billion in Auckland’s energy infrastructure.

Stable Balance Sheet Metrics

Vector’s balance sheet remained steady, with group debt broadly flat over the half and gearing at 37%. This stable leverage profile provides financial flexibility to pursue the elevated capex program while continuing to support dividends and withstand regulatory and market uncertainty.

Reliability Within Regulatory Limits

Network reliability stayed within the Commerce Commission’s regulatory thresholds, with SAIDI metrics currently below the limit for the regulatory year. Maintaining reliability within allowed levels is crucial for protecting returns under the regulatory regime and avoiding potential penalties or revenue adjustments.

Interim Dividend Declared

The board declared an interim dividend of $0.125 per share, albeit without imputation, returning cash to shareholders despite softer net profit. This payout signals confidence in cash generation and may appeal to income-focused investors watching Vector’s capex-heavy investment phase.

Net Profit Decline

Net profit after tax eased 4% to $113 million, a $5 million drop compared with the prior period, even as EBITDA moved higher. The decline reflected lower capital contributions, fair value movements on financial instruments and tax impacts, masking the strength in operating earnings.

Lower Capital Contributions and Net CapEx

Capital contributions fell to $97 million, reducing immediate cash recoveries from new customer connections and weighing on NPAT. Net capex after contributions also declined to $126 million, reflecting a different mix and pace of projects, and helping temper near-term funding needs.

Gross Capital Expenditure Weakened in H1

Gross capital expenditure came in at $223 million, down 15% year-on-year, mainly due to timing shifts in large customer-driven projects. Management expects these “lumpy” projects to pick up in the second half, implying a heavier spend profile ahead as the capex program ramps.

One-Off Loss on Sale of HRV

Earnings were also hit by a $9.3 million loss on the sale of the HRV business, booked in Other. While non-recurring, this disposal loss further compressed reported profitability in the half and partly offsets the positive EBITDA narrative.

Higher Operating Costs in Electricity

Electricity operating costs increased as Vector stepped up maintenance activities and faced higher digital expenses, some now expensed under new accounting rules. Management signaled that maintenance spend and certain digital costs will remain elevated as projects are delivered, putting some pressure on future margins.

Gas Volume Decline and Flat EBITDA

Gas distribution remained under pressure, with adjusted EBITDA flat at $24 million despite a 4.5% fall in volumes across residential, industrial and commercial customers. Gas connection growth was marginal at 0.4%, highlighting subdued demand and raising questions about the long-term growth prospects of the gas network.

Regulatory and Market Uncertainty for Gas

Vector flagged ongoing uncertainty around the Commerce Commission’s DPP4 draft decision for gas, with the final call not expected until May 2026. The company advocated accelerated depreciation and less rigid price caps to better share volume risk, reflecting concern over gas’s evolving role in the energy transition.

Execution and Competitive Risks in Meter Rollout

In metering, Bluecurrent faces intense competition for large rollout contracts in Australia, typically involving 200,000–300,000 meters per package. Management highlighted that future success will hinge on field service capacity and flawless contract execution, underlining operational risk alongside the growth opportunity.

Uncertainty Around Vector Fibre Strategic Review

The strategic review of the fibre business remains underway and may or may not lead to a sale, with a decision targeted by around 30 June. Timing and potential terms are still unclear, adding another layer of strategic uncertainty that investors will watch closely for valuation implications.

Forward-Looking Guidance and Outlook

Looking ahead to FY26, Vector reiterated adjusted EBITDA guidance of $470–$490 million and gross capex of $500–$540 million, along with capital contributions of $180–$215 million. Management said ranges were tightened thanks to improved project visibility and expects gross capex to be higher in the second half, reinforcing the message of sustained investment-led growth.

Vector’s earnings call ultimately balanced strong operational momentum with clear acknowledgement of headwinds in profit, costs and regulatory risk, especially in gas. For investors, the story is one of solid EBITDA growth, a protected balance sheet and a sizable capex pipeline, tempered by execution risks, sector uncertainties and softer reported net profit in the near term.