Announcement
INTERIM: VCT: Vector FY19 Interim Results
08:31am
VCT
26/02/2019 08:31
INTERIM
PRICE SENSITIVE
REL: 0831 HRS Vector Limited
INTERIM: VCT: Vector FY19 Interim Results
FINANCIAL RESULTS FOR THE HALF-YEAR TO 31 DECEMBER 2018
SOLID HALF-YEAR RESULTS FUELLED BY AUCKLAND GROWTH
Vector's financial results for the six-months to 31 December 2018
demonstrated growth across all business segments within the Group, with much
of this growth fuelled by the continued expansion of Auckland's city and
population. The six-month period also saw ongoing change as the macro trends
that Vector has long been anticipating, and in many cases leading, continue
to play out.
Auckland continues to grow relentlessly. Meanwhile, new digital and energy
technologies are disrupting sector economics and offering viable alternatives
to the old-fashioned 40-year infrastructure assets that in previous decades
would have been needed to accommodate this rapid Auckland growth. This will
help reduce the potential burden on future generations created by unnecessary
costs or obsolescent infrastructure.
Most importantly, consumers are demanding more empowerment over how, where
and when they use energy, and have ever-higher expectations around the
service they receive and the contributions that companies make to important
societal issues.
Vector has been taking a lead on sustainability for many years because it's
the right thing to do, because it is becoming more and more urgent to
address, and because increasingly our customers expect us to. We also believe
leadership in sustainability is good for business, providing us with better
visibility of the potential role of new and more sustainable energy
technologies in driving commercial benefit and material value.
These are the macro trends that have underpinned our strategic thinking
around diversification and investment, and these are the trends that have
contributed to our solid financial results for the six months to 31 December
2018.
Adjusted earnings before interest, tax, depreciation and amortisation
(Adjusted EBITDA) for the six months to 31 December 2018 were $264.7 million,
up $14.7 million (5.9%) on last year's result. The headline adjusted EBITDA
result included an uplift as a result of accounting changes (For more details
of these accounting changes, see page 21 of the Interim Report).
Excluding these accounting changes, adjusted EBITDA was up $10.0 million
(4.0%) on the previous corresponding period.
Each business segment recorded an uplift in adjusted EBITDA relative to the
previous corresponding period. Regulated business earnings were up $6.0
million (3.1%) largely due to higher electricity volumes because of continued
Auckland residential growth and a colder winter compared with the prior year.
Gas Trading earnings were up $2.3 million (12.5%) due to higher production
levels at the Kapuni gas treatment plant and cost efficiencies from the new
Bottle Swap plant in South Auckland.
Earnings in the Technology segment grew $8.2 million or 12.7% driven by
continued growth in smart meter deployments in New Zealand and Australia.
Within this segment, E-Co Group experienced some market and operational
headwinds, and as a result underperformed against expectations. To address
this, a new CEO and a new management team have been recruited, who have been
repositioning the business to meet the growing demand for heating,
ventilation and air-conditioning solutions.
Group net profit was up 5.4% to $83.3 million from $79.0 million in the prior
period. This was largely due to higher earnings and an increase in capital
contributions partially offset by an increase in depreciation and
amortisation as well as non-cash changes within costs of finance. Capital
expenditure increased 10.1% to $201.1 million from $182.7 million in the
prior period. This was driven by an increase in Australian smart meter
deployment and network capex to support the continued growth in Auckland.
The six months has also seen the commencement of the signalled Government
review of the electricity sector which, along with the pending Interim
Climate Change Commission report, will help guide New Zealand's transition to
100% renewable energy. Given the macro trends at play, it is timely the
Government has this once-in-a-decade opportunity to incentivise investment in
the new energy technologies that will help empower customers, help solve big
market challenges, and help promote more innovation and competition.
It can set new ground rules for the sector that will maximise benefits for
the next generation of energy consumers, promote equitable outcomes, as well
as help enable New Zealand's sustainability ambitions. We also believe it's
an opportunity to recognise the infrastructure demands of high growth areas
such as Auckland. We need the right policy settings and investment incentives
to ensure high growth and evolving energy needs are met.
The Electricity Pricing Review Panel's Options Discussion paper published
last week is largely encouraging. It favours options that reflect the
importance of new technology, greater resilience and improved customer
choice, as well as options that improve market transparency and address
practices that may stifle competition or unfairly penalise some consumers. As
the review is finalised, we also hope to see an even greater focus on options
that improve energy efficiency, and, most importantly, address problems
experienced in the wholesale market.
Just as importantly, we are nearing the next reset of regulated pricing and
quality standards for the electricity distribution sector, scheduled to take
place in 2020. What is increasingly clear is that, given the pace of change,
the existing regime for quality control, last reset in 2015, no longer
reflects the reality of the changed operating environment, particularly
related to health & safety legislation and the impact of Auckland growth.
Therefore, we will continue to work constructively with the Commerce
Commission on the new quality standards which will take effect on 1 April
2020 following the regulatory reset process.
Looking ahead to the remainder of FY19, the guidance given in August for
adjusted EBITDA remains appropriate. As noted at the time, this guidance did
not include the impact of adopting IFRS 15 & 16, which together with other
minor accounting changes, is expected to impact FY19 adjusted EBITDA by
approximately $10 million. Our guidance range adjusted for the impact of
accounting changes is therefore $480 - $490 million. Our result in the first
half of the year benefited particularly from strong electricity volumes.
Should this continue in the second half of the year, we would expect the FY19
result to be towards the top end of the guidance range.
Looking further ahead, Vector's future earnings and ability to pay ongoing
increasing dividends could be significantly influenced by the reset of our
electricity network revenues for the period 1 April 2020 to 31 March 2025,
which is known as Default Price Path (DPP3).
The Commerce Commission has now largely confirmed the methodology that will
apply to this reset - the key remaining variables are the 5 year NZ
Government bond rate during June, July and August 2019 (which is used to set
the regulated WACC for DPP3) and the network expenditure allowances and
quality targets that will apply to DPP3. The Commerce Commission expects to
announce its draft decision on 31 May 2019 with a final decision due on 28
November 2019. We will provide a further update when we release our full
year results.
In accordance with our dividend policy, we will review our dividend approach
once the parameters of the 2020 reset have been confirmed.
Regardless, Vector will need to continue its transformation and continue to
show leadership on technology, resilience and the provision of customer
choice. It is certain that the industry will continue to be disrupted and the
impacts of climate change will continue to be felt. Vector will need to not
only stay ahead of the curve, but to continue to balance the needs of
customers today with those of the next generation.
Our vision is for Vector to create a new energy future for New Zealand. A
future where customers are fully empowered and have control and choice over
where, when and how they use energy. A future where all consumers get the
benefits of new energy technologies, not just the more advantaged. We want
Vector to attract the best talent in New Zealand and contribute more than its
fair share to a more sustainable, more equitable energy system. We want all
our people and the public to be safe around energy.
About Vector
Vector is the country's largest distributor of electricity and gas, owning
the lines and pipes to households and businesses across Auckland. Vector is
also the country's largest provider of energy metering services, and has
installed advanced meters in almost 1.5 million premises across New Zealand,
and more recently, in Australia. Vector is working innovatively to create a
smarter and more affordable energy future. Vector is listed on the New
Zealand Stock Exchange with ticker symbol VCT. Our majority shareholder, with
voting rights of 75.1%, is Entrust.
For further information, visit www.vector.co.nz
ENDS
Contact
MEDIA QUERIES:
Richard Llewellyn
Head of Corporate Communications
Mobile 027 523 2362
ANALYST QUERIES:
Dan Molloy
Chief Financial Officer
64-9-213-5179 Mobile 021-441-311
End CA:00331087 For:VCT Type:INTERIM Time:2019-02-26 08:31:34
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