MetService expects FY earnings to drop on delay in inking new MoT contract

Meteorological Service of New Zealand, the state-owned weather bureau, says annual earnings will be $2 million less than estimated because of delays finalising its largest contract.

Wellington-based MetService lowered its forecast for earnings before interest and tax to $3.05 million in the 12 months ending June 30, from the $5.05 million originally forecast. The bureau is finalising funding for a new four-year contract negotiated with the Ministry of Transport, Chair Sarah Smith said in MetService's first-half report. The company earned Ebit of $5.096 million last year.

MetService, which became a state-owned enterprise in 1992, wants to reduce its reliance on the MoT contract to provide public weather forecasts and warnings, by winning more sales outside of New Zealand. Last year it bought a stake in MetOcean Solutions, a New Zealand-based oceanographic business, to further its international commercial subsidiary MetraWeather. The MoT contract currently accounts for 42 percent of revenue, down from 63 percent in 1993.

"Growth in New Zealand revenues and profitability are constrained by a small domestic market and the high proportion of revenue coming from a single contract with the Ministry of Transport, both of which represent challenges to the company's operating margins," MetService said in its Statement of Corporate Intent for the 2015-17 financial years. "MetService is therefore accelerating its growth initiatives in key international markets to drive greater returns."

The weather bureau expects export revenue to rise to $17.4 million by its 2017 financial year, representing 29.8 percent of total revenue, from $7.6 million in the 2014 year when it accounted for just 16.7 percent of revenue.

A three-year investment of $9.3 million in the company's growth strategy means earnings growth will be modest over the period, MetService said.

In the first half of the current year, covering the six months through December 2014, profit dropped by almost two thirds to $443,000 from $1.25 million in the year earlier period. Revenue was little changed at $22.3 million, although non-MoT contract revenue increased 6.2 percent. Costs increased 5.6 percent to $21.2 million.

The MoT contract is expected to be in place at the start of the new financial year from July 1, MetService said. It declined to provide revenue details of the new contract, citing commercial confidentiality.