Wellington, Oct 29 NZPA - The state-owned Metservice weather bureau says the fact that it derives half of its income from one big Ministry of Transport contract for weather forecasts is both a risk and a boon.

"That's always a risk -- but for us it also provides a really stable platform for the business to grow, when you know you have got a really large anchor customer there," MetService chief executive Paul Reid told the commerce select committee at Parliament today.

There were still three years to run on the contract, Mr Reid told National list MP Katrina Shanks, who asked during a financial review of the MetService what risks attached to having so much business tied to one client.

"If the MOT wished to go to market with it, they could, but there would have to be a compelling reason for it," he said.

The contract would be too big for domestic rivals such as the Christchurch company Blue Skies, but there were big meteorology agencies overseas which could undertake the MOT work, he said.

In the past financial year, the MOT extended its contract to provide the public with severe convection warnings, extended-range mountain weather forecasts and additional coastal marine forecasts.

It now provides thunderstorm warnings for specific areas a few hours ahead of the event.

Mr Reid said that to mitigate its business risk, the MetService had to grow internationally, because the domestic market was too small. The entire NZ market for weather forecasts in the energy sector was equivalent to just one customer in Europe.

But in Europe and the United States, the forecasting markets were very competitive.

In the energy sector, the US market had been severely affected by recession because of the effects on hedge funds which were key investors, but the same industry had improved in Europe.

In television and other markets the effect had been different. All media companies were hurting, and some were having to actively market advertising for the first time -- which meant they needed improved weather presentations to attract viewers.

The MetService sells its Weatherscape graphics -- which can produce the "fly-over" effect on weather programmes -- to TV broadcasters around the world, including the BBC.

In NZ, it supplies the software to TV3, and has a new contract with TVNZ.

MetService chairwoman Sarah Astor told the committee that longterm sustainability of the business had been ensured with increased spending on infrastructure.

But she said the extra spend on software, computers, new weather radar, and automatic weather stations, had boosted depreciation costs from $3.04 million a year to $3.7m, and slowed growth in terms of earnings before tax.

The lift in property, plant and equipment values by $2.2m in the past year -- and $5.5m in the past three years -- had led to increased borrowing: by $1.2m in the past year to a total of $6m.

In spite of this the debt-to-equity ratio had dropped from an average 65 percent over three years to 53 percent in 2009. The ratio of debt to debt-plus-equity was 35 percent, below the average of 39 percent in the previous three year.

She predicted the current year would bring increased revenue, and productivity gains, but these benefits would be eroded by the higher depreciation costs.

"These trends result in the net profit after tax remaining below 2009 levels," she said.