Financial Results for the year to 30 June 2018
FINANCIAL RESULTS FOR THE YEAR TO 30 JUNE 2018
FY18 RESULT SLIGHTLY BELOW LAST YEAR’S,
WITH APRIL STORM COSTS A FACTOR
Vector Chairman, Michael Stiassny, said, “Reflecting on the last twelve months, and indeed
on the past decade, we’ve made solid progress on our mission to create a new energy
future. We are continuing to take the lead on developing new energy technologies, customer-
focused innovation and on the sustainability of our sector.
“We’ve continued to diversify into areas like metering, ‘Internet of Energy’, data analytics,
solar and batteries. This diversification is essential to the future of Vector and the customers
we serve.
“Shareholders will receive a fully-imputed final dividend of 8.0 cents, taking the final dividend
to 16.25 cents per share, up from 16.0 cents per share in 2017. Despite delivering 12
consecutive years of dividend growth, as signalled last year Vector is a business operating in
a challenging environment and responding to change does come at a cost.
“In particular, our ability to pay ongoing increasing dividends could also be significantly
impacted by the reset of our electricity network revenues in 2020, which is largely a function
of interest rates prevailing at the time, and of expenditure allowances set by the Commerce
Commission.
“For the FY18 financial year, adjusted EBITDA was $470.1 million – slightly below last year’s
result
1
. Notably, the fierce storm in April 2018 caused widespread damage across Auckland
and significant inconvenience for customers, as well as drove an additional $4 million in
unexpected network repair costs.”
While revenue was up across all business areas, group net profit was down 11.3% to $149.8
million, primarily due to a significant increase in depreciation and amortisation in the period.
1
FY18 guidance “at or around last year’s result” of $474m
MARKET RELEASE
24 August 2018
MARKET RELEASE
24 August 2018
Adjusted EBITDA (excluding capital contributions) generated by our Regulated Networks fell
0.7% to $358.6 million due largely to increased maintenance costs. In addition to the costs of
the April storm, Vector spent an additional $4m on network maintenance in FY18, particularly
to address additional vegetation and tree management needs in Auckland.
Gas Trading adjusted EBITDA fell 6.8% to $34.4 million from $36.9 million a year earlier. The
prior year’s result included an insurance settlement of $5.3 million in relation to damage to
the Liquigas facilities at Lyttelton during the 2012 earthquake. Excluding this one-off,
underlying Gas Trading EBITDA was up 8.9% with strong volumes and higher production at
the Kapuni Gas Treatment Plant being offset by lower natural gas margins.
Adjusted EBITDA in the Technology business rose 6.5% to $130.5 million with further gains
on smart metering following the Power of Choice reforms in Australia and continued meter
deployment in New Zealand. That said, we are disappointed that growth in our Technology
business was not higher. This can largely be attributed to lower than expected heat-pump
business performance by E-Co Products Group, and by the investment in launching HRV
Solar. The underlying E-Co Products Group business is well positioned to play a role
supporting Government initiatives for energy efficient and healthy homes.
Capital expenditure (capex) rose 3.8% to $381.2 million from $367.4 million in the prior
period. This was driven by Auckland growth, higher network replacement capital expenditure
and an increase in Australian meter deployments. This was partially offset by lower Gas
Trading capex (the prior period included investment in the Bottle Swap processing plant) and
a slow-down in meter deployment rates in New Zealand.
Our balance sheet remains healthy, with gearing as at 30 June 2018 at 48.8%, up from
47.1% a year earlier, and 47.3% as at 31 December 2017.
Solid Operational Progress
Vector Group Chief Executive Simon Mackenzie said, “The twelve months saw a number of
operational highlights, including a record number of new electricity connections, continued
expansion of our metering business, a solid performance in Gas Trading, the repositioning of
E-Co Products Group, the launch of Vector Lights, continued leadership on sustainability and
becoming the first large New Zealand corporate to be Living Wage accredited.
MARKET RELEASE
24 August 2018
“However, while the underlying operational performance was sound, the slower than
expected growth in Technology and significant additional tree management and April storm
related costs have dragged on the financial result.
“As well as the physical impact, the April storm also saw our outage app fail, resulting in a
poor customer experience and causing other customer channels to be impacted. Since the
storm, Vector has reviewed its storm response procedures, has engaged with a wide range
of industry and Government stakeholders, and a number of corrective actions based on
lessons from the storm are well underway. These include an overhaul of outage
management systems, processes and tools to improve the customer experience.
“The storm review also highlighted shortfalls in tree management regulation. The thousands
of trees that damaged lines in April were not owned by Vector and under current regulations
we have restricted abilities to manage them. Undergrounding is not necessarily a panacea.
While 55% of the electricity network is underground, the cost to underground the remaining
45% of the network in Auckland is enormous (we estimate over $5 billion), and we believe
there is little consumer or political appetite for the large energy price increases that would be
required to fund this.
“Strong connection growth and an increase in replacement capex has resulted in a significant
increase in regulated capex, up to $245.8 million from $210.6 million in the prior year. Given
the size of the investment required to support the ongoing anticipated growth of Auckland's
energy networks, it is of significant concern that our regulated electricity network is not
earning its regulatory cost of capital. Vector's electricity network ROI
2
for the 2018 regulatory
year was only 5.49% - significantly lower than the regulatory WACC
3
of 7.19%.
“This is largely due to Commerce Commission forecast errors in the current regulatory
parameters. Absent these errors, Vector's electricity revenues for the 2018 regulatory year
would have been almost $28 million higher. Whilst we anticipate the majority of these errors
will be corrected at the next reset (April 2020), they will continue to significantly impact
network returns until then.
“Although the regulatory environment is otherwise relatively stable, balancing safety, price,
service quality, and future investment is challenging for network operators and regulators
2
Return on Investment, as defined by the Commerce Commission
3
Weighted Average Cost of Capital
MARKET RELEASE
24 August 2018
alike. In that regard, we are working closely with the Commission on penalties for breaches
of the quality thresholds. The reality is the current Commerce Commission price and quality
regime may not adequately account for Auckland growth, changes to health and safety best-
practice, or more extreme weather events. As a result, meeting quality targets will be a
significant challenge for Vector and the wider industry. It is crucial that this issue is
addressed no later than at the 2020 reset of regulatory parameters.
“A political review of the New Zealand electricity sector is currently underway. We welcome
the review, because distribution companies are already fully transparent through regulation
and we hope to see greater transparency across the sector. The New Zealand generation
and retail market has not been looked at in earnest for around a decade and it is right to
question whether consumers are receiving the benefits of competition. Recent reviews in
similar markets such as the United Kingdom and Australia have identified genuine market
concerns at both the retail and generation levels of the market.”
Looking ahead
Mr Stiassny said, “When I joined the Board of Vector in 2002, the New Zealand electricity
sector was in a state of flux on the back of the Bradford reforms and Commerce Commission
intervention. Today, the electricity sector is once again transforming as new energy
technology emerges, consumers take the driver’s seat and the regulatory environment
struggles to keep pace with what are extraordinary changes and times.
“Over the past 12 months, we have continued to accommodate Auckland’s relentless and
rapid growth through smart investment in quality network infrastructure, adding more than
14,000 new electricity and gas connections to our network. This is our responsibility, but we
do so with an eye on the future and what’s coming down the track to ensure that we avoid
unnecessary expenditure on obsolete technologies or traditional assets that load
unnecessary costs on consumers. While we have a projected $2 billion investment spend to
meet growth over the next 10 years, it can only be spent once. Vector can’t afford to get it
wrong, so investment and technology decisions are not made lightly.
MARKET RELEASE
24 August 2018
“Looking ahead we expect largely flat Regulated Network earnings through to the next
electricity reset in 2020, and continued growth in our Technology business. We expect
adjusted EBITDA for FY19 to be between $470 - $480 million
4
. Looking even further ahead,
to the next decade and beyond, Vector will need to continue its transformation. 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 balance the needs of
customers today with those of the next generation.”
Results Table
12 months ended 30 June FY18 $m FY17 $m Change %
Revenue 1,328.4 1,226.7 +8.3%
Adjusted EBITDA 470.1 474.4 -0.9%
Net Profit after tax 149.8 168.9 -11.3%
Operating cash flow 389.9 335.7 +16.1%
Dividend per share (cents) 16.25 16.00 +1.6%
About Vector
Vector is the country’s largest distributor of electricity and gas, owning the lines and pipes to
households and businesses across Auckland. It 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
4
This excludes any impact from the adoption of IFRS 16 Leases.
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
---
FINANCIAL &
OPERATIONAL
RESULTS
24 August 2018
FULL YEAR ENDED 30 JUNE 2018
Insert new artwork
2
This presentation contains forward-looking statements.
Forward-looking statements often include words such as "anticipates", "estimates", "expects", "intends", "plans",
"believes“ and similar words in connection with discussions of future operating or financial performance.
The forward-looking statements are based on management's and directors’ current expectations and
assumptions regarding Vector’s businesses and performance, the economy and other future conditions,
circumstances and results.
As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and
changes in circumstances. Vector’s actual results may vary materially from those expressed or implied in its
forward-looking statements.
DISCLAIMER
3
•Dividend
•FY18 Snapshot
•Financial Performance
•Segment Performance
•Outlook
•Q & A
AGENDA
4
DIVIDEND
5
12 CONSECUTIVE YEARS OF DIVIDEND GROWTH
6.00
6.506.506.506.50
6.75
7.00
7.25
7.507.50
7.75
8.00
8.25
6.00
6.50
6.75
7.25
7.50
7.50
7.50
7.75
7.75
8.00
8.00
8.00
8.00
FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18
Dividend growth (cents per share)
InterimFinal
•FY18 Adjusted EBITDA of $470.1m
−FY18 Guidance “at or around last year’s result”
of $474m
−April storm & under-performance of E-Co’s
heat pump division weighed on result
•Full year dividend 16.25 cents per share
−Up 0.25 cents per share on prior year
−Fully imputed
•Dividend policy post 2020 will depend
on the next electricity reset (1 April
2020)
−Network revenues from 1 April 2020 to 31
March 2025 significantly impacted by 5 year
Govt bond rate in June-August 2019 &
network expenditure allowance for DPP3
6
FY2018 SNAPSHOT
7
FY2018 OPERATIONAL SNAPSHOT
Vector Lights launched
January 2018
Continuing to support Auckland
growth
•New electricity & gas connections
up 13% to 14,300
•Regulated capex up 17% to
$245.8m
Metering growth continues
•Deployed 85k advanced meters
in NZ to effectively complete NZ
mass market deployment
•Deployed 40k meters in Australia
for five leading retailers
Solid performance from Gas
Trading
•Volumes up across all business
lines
•New LPG bottling plant
commissioned in South Auckland
Creating a new energy future
•PowerSmartsolar and battery
projects in South Pacific and New
Zealand
•HRV launched residential solar
offering
April storm saw 200 kmph
winds cut power to over
150,000 homes
8
•Announced target to be Net Zero Carbon by
2030
•1
st
accepted Safety Case in NZ for new
BottleSwapplant in South Auckland
•LTIFR reduced by 9%
•TRIFR result for FY18 higher at 12.54 due to
improved reporting, remain optimistic of
achieving longer-term goal of <6
•Maintained certification to AS/NZS 4801 and
ISO 14001 for our Health Safety & Environment
Management System
•First large NZ corporate to be living wage
accredited
•Females now make up 34% of direct reports to
the executive, up from 21% in FY17
CONTINUED LEADERSHIP IN SUSTAINABILITY
14.04
12.95
7.45
8.04
8.18
12.54
FY13FY14FY15FY16FY17FY18
Total Recordable Injury Frequency Rate (TRIFR)
Number of recordable injuries per million hours worked, including contractors
2.76
2.80
2.90
2.96
2.52
2.30
FY13FY14FY15FY16FY17FY18
Total Lost Time Injury Frequency Rate (LTIFR)
Number of lost time injuries per million hours worked, including contractors
‹#›
FINANCIAL
PERFORMANCE
10
1,226.7
474.4
367.4
168.9
335.7
159.3
1,328.4
470.1
381.2
149.8
389.9
162.1
RevenueAdjusted EBITDACapital ExpenditureNet ProfitOperating Cash FlowFull Year Dividend
FY17FY18
3, 4
OVERVIEW OF FINANCIAL PERFORMANCE
Adjusted EBITDA is not a GAAP measure of profit. For a reconciliation of adjusted EBITDA to EBITDA and net profit refer to page33 of this presentation.
+8.3%
-0.9%-11.3%
+16.1%
+3.8%
+1.8%
11
EARNINGS GROWTH IN TECHNOLOGY OFFSET BY OTHER SEGMENTS
474.4
470.1
-2.6
-2.5
+8.0
-6.5
-0.7
FY2017Regulated
Networks
Gas TradingTechnologyCorporateGroup
Eliminations*
FY2018
2018 ADJUSTED EBITDA MOVEMENT ($M)
* Group elimination of ($0.7m) is in relation to margin earned by the Technology segment in the delivery of solutions to the Regulated Networks
Underlying cost
increase of $1.5m.
YoY change driven by
one-off revenue in
prior year ($3.8m)
(see slide 24)
Driven by smart
meter growth
(see slide 22)
Prior year included
insurance settlement of
$5.3m (see slide 23)
April storm cost
$4.4m
(see slide 19)
12
NET PROFIT DOWN 11% DUE PRIMARILY TO HIGHER
DEPRECIATION & AMORTISATION EXPENSE
168.9
149.8
-3.1
-15.0
+16.7
+4.8
-18.9
+6.6
-10.1
FY2017Earnings
(net of tax)
Tunnel tax gain
(prior period)
One off tax gain
in this period
Interest
(net of tax)
Depreciation &
Amortisation
(net of tax)
Capital
Contributions
(net of tax)
OtherFY2018
MOVEMENT IN NET PROFIT AFTER TAX ($M)
1
MEL Network Limited was removed from the NZ companies register in March 2018. The intercompany loan between Vector Limited and MEL Network Limited was written off
following the removal, resulting in an income tax benefit of $16.7m for the group
1
Increase is driven by
growth in asset base,
amortisation of
intangible (E-Co), and
a revision to the asset
lives for some assets;
Other includes
prior period tax
washup,
associates and
fair value change
on financial
instruments
13
NET CAPEX UP 1.5%, WITH GROWTH IN REGULATED CAPEX
OFFSETTING A DECLINE IN GAS TRADING & METERING
57%
9%
28%
6%
64%
5%
25%
6%
GROSS CAPEX BY SEGMENT
Regulated Networks
Gas Trading
Technology
Corporate
FY2017
FY2018
305.2
309.7
62.3
71.5
0
50
100
150
200
250
300
350
FY2017FY2018
GROSS CAPITAL EXPENDITURE ($m)
Net capexCapital contributions
•Gross capex up 3.8% to $381.2m. Net capex (after contributions) up 1.5% at $309.7m
•Growth capex up 0.4% to $229.3m. Replacement capex up 9.2% to $151.9m
14
$858 MILLION OF REFINANCING COMPLETED IN FY2018
2,6252,6822,7452,7411,9331,9682,2202,2532,378
52.5%
52.9%
53.6%
53.4%
43.7%
43.9%
47.1%
47.3%
48.8%
Jun 14Dec 14Jun 15Dec 15Jun 16Dec 16Jun 17Dec 17Jun 18
NET ECONOMIC DEBT & GEARING ($m)
Net economic debt ($m)Gearing
•Gearing now 48.8%
•Sufficient headroom in place to cover debt maturing in Jan 2019
350
297
150
251
277
138
286
355
300
240
307
FY18FY19FY20FY21FY22FY23FY24FY25FY26FY27FY28FY29FY30
GROUP DEBT MATURITY ($M)
Credit Wrapped Floating Rate NotesUSPP
Sterling 7.625% BondsBank Facilities
NZ Wholesale Bond5.7% Hybrid Capital Bonds
15
SEGMENT PERFORMANCE
16
AUCKLAND GROWTH CONTINUES WITH RECORD
CONNECTION NUMBERS & CAPITAL INVESTMENT
5,408
6,202
7,813
8,526
9,138
11,135
2,464
3,107
2,821
3,323
3,515
3,165
FY13FY14FY15FY16FY17FY18
NEW CONNECTIONS
Electricity ConnectionsGas Connections
Regulated
Networks
Segment
•New electricity and gas connections up 13.0%
to 14,300
–563,076 electricity connections (up 1.4%)
–109,229 gas connections (up 2.4%)
•Capex up 16.7% due to Auckland growth and
higher replacement spend
•Capital Contributions up 14.7% to $70.2m
driven by connection growth & infrastructure
development
•Electricity Regulated Asset Base (RAB) as at
31 March is $3.0b. Gas RAB is c$405m
164.4
183.7
170.4
201.0
210.6
245.8
FY13FY14FY15FY16FY17FY18
REGULATED NETWORK CAPEX $M
ReplacementGrowth
82%
increase
in 5
years
17
ELECTRICITY NETWORK NOT EARNING EXPECTED RETURN
DUE TO FORECAST ERRORS IN REGULATORY PARAMETERS
Regulated
Networks
Segment
•Electricity operating expenditure expected to be
broadly in line with regulatory allowance over 5 years
of DPP2 (1 April 2015 to 31 March 2020)
•Electricity capital expenditure expected to be slightly
higher than regulatory allowance over DPP2
•Electricity revenue over DPP2 expected to be
significantly less than regulatory allowance
–CPI has been consistently lower than 2% assumption used by
Commission in setting DPP2 revenues. Same issue in DPP1
–Commission set DPP2 revenues on basis that volume growth
would be 1.1% pa. Vector has seen minimal volume growth
over DPP2. Average consumption has been falling for past
decade
–Absent the various forecast errors, RY18 electricity revenue
would have been c$28m higher
7.19%
5.49%
DPP2 Expected ROIActual ROI
RY18 Electricity ROI
Gap of
1.70%
417
389
-10
-12
-6
RY18 DPP
Revenue
Lower Forecast
CPI
Lower Volume
Growth
Forecast ErrorRY18 Actual
Revenue
ELECTRICITY DPP REVENUE VARIANCE ($M)
1
1
Return on Investment as defined by the Commerce
Commission, comparable to a vanilla WACC
These should no
longer be a factor from
the next reset (1 April
2020), but will
continue to drag on
EDB returns until then
18
QUALITY THRESHOLDS ARE CHALLENGING GIVEN CURRENT
INDUSTRY AND ENVIRONMENTAL FACTORS
Regulated
Networks
Segment
•Quality targets in current DPP (DPP2) are 18% (SAIDI) and
25% (SAIFI) lower than DPP1
•SAIDI breaches in 2015 & 2016 regulatory years.
•SAIDI and SAIFI breaches in 2017 & 2018 largely as a
result of shift to de-energised work practices in order to
provide a safer environment for our lines staff and the
general public
•From 1 April 2018 quality breaches will see regulated
revenue reduced by ~$4m pa
•Commission has indicated it will take action in respect of
2015/16 breaches. Penalty regime unclear and untested at
this time. Maximum possible fine is $5m per breach but we
anticipate a materially lower final result
•We have applied to the Commission to re-open the DPP
and reset our quality targets on the basis of changes to
HSE practices
1.24
1.12
1.01
1.45
1.84
1.11
1.85
2.14
RY11RY12RY13RY14RY15RY16RY17RY18
SAIFI
System Average Interruption Frequency Index
SAIFISAIFI Limit
114
96
96
141
155
117
174
226
RY11RY12RY13RY14RY15RY16RY17RY18
SAIDI
System Average Interruption Duration Index (minutes)
SAIDISAIDI Limit
19
SEVERAL FACTORS WEIGHING ON REGULATED EARNINGS
•Growth in electricity revenues (largely due to growth in
connections) largely offset by gas reset in October 2017,
which saw prices reduce by 14%
•April storm resulted in additional operating cost of
$4.4m and a further $2.4m in capex
•Maintenance & vegetation expenditure up $4.0m to
improve reliability. Further increases in FY19
•Networks EBITDA expected to be largely flat to next
reset (1 April 2020)
–Continued under-recovery of revenue due to Commerce
Commission forecast errors
–Settlement with Commission for LUFC adjustment will
impact revenue by $4.5m in FY19 and $4.9m in FY20
–Missing SAIDI/SAIFI targets to reduce revenue by c$4m
pa from 1 April 2018 onwards
–Penalty likely for 2015 and 2016 breaches, and potentially
thereafter until new targets are set (either via DPP re-
opener or in DPP3)
Regulated
Networks
Segment
1
There is an corresponding decrease in the Technology segment
361.2
358.6
-4.7
+5.4
-4.4
-4.0
+5.4
-0.3
FY2017Gas RevenueElectricity
revenue
(net of
passthrough)
April StormHigher other
maintenance
Restructure of
internal
comms
charges
OtherFY2018
ADJUSTED EBITDA MOVEMENT ($M)
1
20
AUSSMART METER DEPLOYMENTS TO EXCEED NZ IN FY19
Technology
Segment
•Deployed 84,878 smart meters in NZ in FY18
–NZ mass market rollout now complete. Fleet now 1.34m
–Weighted average contracted life remaining > 7 years
1
•Deployed 40,169 smart meters in Australia in FY18
–Smart meter installations stalled in the lead up to Power of
Choice, which went live on 1 December
–Now installing more than 7,000 meters per month for five
leading retailers across 3 states (QLD, NSW & SA)
–64,370 meters installed as at 30 June 2018; net book
value of $44 million
–Expect to deploy 80-100,000 smart meters in Australia in
FY19 at capital cost of ~$50 million
2
–Contracts characterised by strong counter-parties, terms of
12 years+ per meter & indexation for CPI
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
MONTHLY SMART METER DEPLOYMENT
Australia Smart Meters DeployedNZ Smart Meters Deployed
Power of Choice
reforms took
effect
Planned
trajectory
1
Excludes Arc meters and meters not owned by Vector
2
Includes meter cost, install cost, and the cost of Vector’s deployment team
21
E-CO HAS FACED CHALLENGES IN FY18,
BUT UNDERLYING BUSINESS WELL POSITIONED
Technology
Segment
•E-Co Products faced several challenges in FY18:
–Margin pressure in EES (heat pumps)
–Closure of retrofit windows business unit
–Significant upfront investment in launching HRV Solar
–Transition from private equity ownership together with
investment in HSE and staff post acquisition
•Ventilation and water filtration businesses
performing well
–Excluding one-off costs above, underlying EBITDA ~$7m
•E-Co Products is well positioned to support the
Government’s healthy and energy efficient homes
agenda
1,400
10,803
1,592
11,497
Water SystemsVentilation Systems
HRV (unit sales)
FY17FY18
22
TECHNOLOGY RESULT DRIVEN BY SMART METER ROLLOUT
122.5
130.5
+8.4
+2.9
-5.4
+2.1
FY2017Additional Smart
Meters in NZ
Additional Smart
Meters in Australia
Restructure of
internal comms
charges
OtherFY2018
ADJUSTED EBITDA MOVEMENT ($M)
Technology
Segment
•Technology segment result includes E-Co
Products Group & PowerSmart from 1 April
2017
•FY18 Technology adjusted EBITDA up 6.5%
characterised by:
–Smart meter gains offset by reduction in internal
communications revenues
–Lower than expected result from E-Co Products due
primarily to under-performance in its heat pumps
division
1
There is an corresponding reduction in cost in the Regulated Networks segment
1
23
GAS TRADING VOLUMES UP ACROSS ALL SEGMENTS
36.9
34.4
-5.3
-3.4
+4.9
+0.9
+0.4
FY2017Liquigas
earthquake
settlement
(prior year)
Natural gas
margins
Higher Kapuni
production
Higher Liquigas
throughput
OtherFY2018
ADJUSTED EBITDA MOVEMENT ($M)
Gas Trading
Segment
•Strong volumes across all areas underpinned by
increased production at Kapuni
•Absent prior year one off (insurance proceeds),
underlying segment earnings up 8.9%
•Natural Gas margins continue to be impacted by
strong competition
•LPG operations occupy strong market position with
volume increases across all categories
352
320
302
266
229
203
158
301
284
248
240
200
185
155
FY18FY17FY16FY15FY14FY13FY12
BOTTLE SWAP VOLUMES (‘000 cylinders)
H1H2
24
CORPORATE RESULT PRIMARILY IMPACTED BY ONE OFF
REVENUE IN PRIOR PERIOD
Corporate
Segment
(46.2)
(53.4)
-3.8
-1.2
-0.7
-1.2
-0.3
FY2017One off revenue
Centralisation
of costs
Group
eliminations
Digital
CapabilityOtherFY2018
ADJUSTED EBITDA MOVEMENT ($M)
•Corporate result impacted by:
–One off revenue in prior period
–Centralisation of some costs previously accounted for in
Regulated Networks ($1.2m)
–Cost increase of $1.5m (3.2%) primarily due to building
capability in Digital
–Elimination of the margin earned by PowerSmartdelivering
solutions to Regulated Networks ($0.7m)
•Tidied up balance sheet
–Sold stake in NZ Windfarms ($6.4m)
–Divested treasury shares ($14.0m)
–Removed legacy subsidiaries and wrote-off associated
intercompany loan (dating to last century), realising tax gain
of $16.7m
1
1
MEL Network Limited was removed from the NZ companies register in March 2018. The
intercompany loan between Vector Limited and MEL Network Limited was written off following
the removal, resulting in an income tax benefit of $16.7m for the group
25
OUTLOOK
26
•Expect largely flat Network earnings through to 2020
–Auckland growth to continue. Expect circa 11,000 new electricity connections in FY19
–LUFC settlement, exceeding SAIDI/SAIFI targets & Commerce Commission forecast errors counteracting impact of growth and
leading to under-recovery on regulated revenue by ~$30m pa
–At this stage we are expecting an uplift in Electricity revenue from the next reset on 1 April 2020 due primarily to the correction of
current under-recovery (although this is very sensitive to numerous assumptions, especially the risk free rate prevailing in late 2019)
–Current interest rate forecasts would result in a regulated WACC of c5.8% for DPP3, 140bp below the regulated WACC of 7.2% for
DPP2
•Technology segment will continue to deliver EBITDA growth
–Expect to install 70k smart meters in NZ & 80-100k smart meters in Australia
–New energy technologies via PowerSmart & E-Co Products Group
•Expect adjusted EBITDA for FY19 between $470-$480m
1
•Expect net capex in FY19 to be c$340m
OUTLOOK
1
Guidance range does not include impact of adopting IFRS 16, which will see EBITDA increase due to the reclassification of leases from operating expense to
finance expense. We will provide a further update with our FY19 interim results.
27
Q&A
ANY QUESTIONS?
28
APPENDICES
29
5 YEAR ADJUSTED EBITDA PERFORMANCE BY SEGMENT
FY2014FY2015FY2016FY2017FY2018
Regulated Networks
351.1349.7368.5361.2358.6
Gas Trading
50.946.940.636.934.4
Technology
94.0105.5113.5122.5130.5
Corporate
(49.6)(50.2)(49.6)(46.2)(53.4)
Total Group
446.5451.9473.0474.4470.1
446.5
451.9
473.0
474.4
470.1
Adjusted EBITDA (Continuing Operations Only)
$million
For the year ended 30 June
30
GROUP PROFIT STATEMENT
YEAR ENDED 30JUNE($M)
INCOME STATEMENT
2018
$m
2017
$m
Change
%
Revenue (excluding capitalcontributions)
1,256.91,164.4+7.9
Operatingexpenditure(786.8)(690.0)-14.0
AdjustedEBITDA470.1474.4-0.9
CapitalContributions71.562.3+14.8
Depreciationandamortisation(225.9)(199.6)-13.2
Netinterestcosts(130.7)(137.3)+4.8
Fairvaluechangeonfinancialinstruments3.11.6+93.8
Associates(shareofnetprofit/(loss))(1.5)1.6-193.8
Tax(36.8)(34.1)-7.9
Netprofitfortheperiod149.8168.9-11.3
31
GROUP CASH FLOW
YEAR ENDED30 JUNE($M)
CASH FLOW
2018
$m
2017
$m
Operating cash flow
389.9335.7
Replacement capex
(152.7)(137.0)
Dividendspaid
(163.9)(161.0)
Cashavailableforgrowthanddebtrepayment
73.337.7
Growthcapex
(234.1)(217.3)
Acquisitions
(3.1)(91.0)
Proceedsfromsaleofinvestments
7.8-
Otherinvestmentactivities
(13.6)0.4
Predebtfinancingcash(outflow)/inflow
(169.7)(270.2)
Increase/(decrease)inborrowings
170.8(33.6)
Otherfinancingactivities
11.9(2.7)
Increase/(decrease)incash
13.0(306.5)
32
SEGMENT RESULTS
YEAR ENDED 30 JUNE($M)
REGULATED NETWORKSTECHNOLOGYGAS TRADINGCORPORATE
20182017Change %20182017Change %20182017Change %20182017Change %
Revenue excluding
CapitalContributions
706.0680.7+3.7272.3212.9+27.9290.3281.8+3.00.94.9-81.6
Operating expenditure(347.4)(319.5)-8.7(141.8)(90.4)-56.9(255.9)(244.9)-4.5(54.3)*(51.1)-6.3
Segment Adjusted
EBITDA
358.6361.2-0.7130.5122.5+6.534.436.9-6.8(53.4)(46.2)-15.6
CAPEX
Replacement 123.8102.6+20.711.311.8-4.26.16.4-4.710.718.3-41.5
Growth 122.0108.0+13.082.492.5-10.911.026.3-58.213.91.5+826.7
Total capex245.8210.6+16.793.7104.3-10.217.132.7-47.724.619.8+24.2
* Corporate includes a group elimination of ($0.7m) in relation to margin earned by the Technology segment in the delivery of
solutions to the Regulated Networks.
33
GAAP TO NON-GAAP RECONCILIATION
Vector’s standard profit measure prepared under New Zealand GAAP is net profit.
Vector has used non-GAAP profit measures when discussing financial performance
in this document. The directors and management believe that these measures
provide useful information as they are used internally to evaluate performance of
business units, to establish operational goals and to allocate resources. For a more
comprehensive discussion on the use of non-GAAP profit measures, please refer to
the policy ‘Reporting non-GAAP profit measures’ available on our website
(vector.co.nz).
Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New
Zealand International Financial Reporting Standards) and are not uniformly defined,
therefore the non-GAAP profit measures reported in this document may not be
comparable with those that other companies report and should not be viewed in
isolation or considered as a substitute for measures reported by Vector in
accordance with NZ IFRS.
Definitions
EBITDA
Earnings before interest, taxation, depreciation and amortisation.
Adjusted EBITDA
EBITDA adjusted for fair value changes, capital contributions, associates,
impairments and significant one-off gains, losses, revenues and/or expenses.
1
Extracted from audited financial statements
GAAP toNon-GAAP reconciliation
EBITDA and Adjusted EBITDA
Year ended 30 June
2018
$M
2017
$M
Reportednet profit for the period (GAAP)
149.8168.9
Addback:netinterestcosts
1
130.7137.3
Addback:tax(benefit)/expense
1
36.834.1
Addback:depreciationandamortisation
1
225.9199.6
EBITDA543.2539.9
Adjustedfor:
Associates(shareofnet(profit)/loss)
1
1.5(1.6)
Fairvaluechangeonfinancialinstruments
1
(3.1)(1.6)
CapitalContributions
1
(71.5)(62.3)
Impairment
1
--
AdjustedEBITDA470.1474.4
34
SEGMENT ADJUSTED EBITDA
SEGMENTADJUSTED EBITDA ($m)
20182017
Yearended 30 June
Reported
segment EBITDA
less capital
contributions
Segment
adjusted EBITDA
Reported
segment EBITDA
less capital
contributions
Segment
adjusted EBITDA
Technology
131.8(1.3)130.5123.6(1.1)122.5
Gas Trading
34.40.034.436.90.036.9
Unregulated Segments
166.2(1.3)164.9160.5(1.1)159.4
Regulated Segments
428.8(70.2)358.6422.4(61.2)361.2
Corporate
(53.4)0.0(53.4)(46.2)0.0(46.2)
TOTAL
541.6(71.5)470.1536.7(62.3)474.4
---
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ORDINARY SHARESNZVCTE0001S7
EMAIL: announce@nzx.com
Notice of event affecting securities
Vector Limited
John RodgerDIRECTORS RESOLUTION
09 978 78522382018
Enter N/A if not
applicable
In dollars and cents
Retained Earnings
$0.08000
$0.00000
NZD$0.014118
$80,000,000
Date Payable
$$0.005556$0.031111
$
7 September, 201814 September, 2018
---
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---
EMPOWERING
AR 2018
VECTOR
://
for new zealand’s
energy
consumer
revolution.
2Vector://AR 18
01/05:
VECTOR.CO.NZ
EMPOWERING
YOU.
POWERFUL
TODAY
FORCES
ARE SHAPING
NEW ENERGY TECHNOLOGIES ARE IMPROVING. CONSUMERS
ARE EXPECTING MORE AND MORE CHOICE AND CONTROL.
THE ECONOMY IS PROGRESSIVELY ELECTRIFYING – STARTING
WITH TRANSPORT. USE OF SOLAR, WIND, AND BATTERY IS ON
THE WAY UP. CLIMATE CHANGE IS INCREASINGLY BEING FELT.
VECTOR IS EMBRACING ALL THESE FORCES – TO PUT MORE
POWER IN YOUR HANDS.
ENERGY USE.
3Vector://AR 18
Vector://AR 184
WE BELIEVE IT’S ABOUT SHOWING LEADERSHIP, TECHNOLOG-
ICALLY, CONNECTIVELY AND SUSTAINABLY. LEADERSHIP ON
ENERGISING YOUR LIFE, HOME, AND BUSINESS. LEADERSHIP
ON DIVERSIFYING INTO NEW BUSINESSES AND NEW ENERGY
TECHNOLOGIES TO CREATE FRESH CUSTOMER SOLUTIONS.
LEADERSHIP ON CREATING CHANGE TO BENEFIT CONSUMERS.
LEADERSHIP ON ADDRESSING CLIMATE CHANGE AND EXTREME
WEATHER EVENTS. LEADERSHIP ON SAFETY, DIVERSITY, AND
THE THINGS THAT MATTER MOST.
STAYING AHEAD
OF THE
CURVE.
4Vector://AR 18
02/05:
Vector://AR 1755Vector://AR 18
6Vector://AR 18
03/05:
CHANGE
VECTOR HAS COME A LONG WAY OVER THE YEARS. WE’VE
STRENGTHENED OUR CONNECTION TO AUCKLAND, AND
REPOSITIONED FOR THE FUTURE. WE’RE THINKING BEYOND
TODAY, AND LEARNING FAST AS WE GO. NEW ZEALAND’S ENERGY
FUTURE WILL BE EVEN MORE DISRUPTIVE, MORE CONSUMER
ORIENTED, MORE TECHNOLOGY-ENABLED, MORE RESILIENT,
MORE DEMOCRATIC, MORE SUSTAINABLE AND, ULTIMATELY,
MORE ABOUT CHOICE. YOUR CHOICE.
WILL ONLY
ACCELERATE.
7Vector://AR 18
COMMITTED
TO THE
LONG GAME.
ACCELERATING CHANGE MAKES OUR VISION MORE VITAL
THAN EVER. WE HAVE TO KEEP MOVING AND STAY COMMITTED
TO PLAYING THE LONG GAME, BEING RESILIENT AND BEING
RESPONSIVE TO THE POWERFUL FORCES THAT ARE SHAPING
ENERGY USE. WE ARE UNDERPINNING NEW ZEALAND’S ENERGY
CONSUMER REVOLUTION FOR HOWEVER YOU CHOOSE TO
POWER YOUR LIFE.
04/05:
8Vector://AR 18
04/05:
BECAUSE IT’S THE RIGHT THING TO DO.
TO EMPOWER YOU.
WHY?WHY?
9Vector://AR 18
TAKING
VECTOR HAS ALWAYS LOOKED TO THE FUTURE, TO STAY READY FOR
ENERGY CHANGE.
THE LEAD.
05/05:
10Vector://AR 18
- A lines company 100% owned
by Auckland Energy Consumer
Trust (AECT)
- Michael Stiassny appointed
to Vector’s Board
- Acquired UnitedNetworks
(including Northern Auckland
and Wellington electricity
networks, plus gas distribution
in Auckland and broadband in
Wellington and Auckland)
2002
- Acquired majority stake in
NGC Holdings Ltd to continue
diversifying
2004://
- In partnership with Auckland
Council, Vector Lights’
illuminated Auckland’s
Harbour Bridge with 90,000
LED bulbs, showcasing
the potential of solar and
battery technology to light
New Zealand’s energy future.
- Founding member of Climate
Leaders Coalition Group
2018+
- AECT floated 25% of Vector
on NZX to raise capital for
further diversification into new
energy solutions and to
complete full takeover of NGC
Holdings Ltd
2005://
- Began trialling micro wind
turbine technology
- Invested in advanced metering
technology to better manage
infrastructure and give more
transparency over power bills
2007://
- Divested Wellington electricity
network to focus on Auckland
2008://
- Supported the introduction of
one of the first bottle swap
programmes in New Zealand
2009://
- Bought Kwik-Swap (that then
became Bottle Swap)
2011://
- Deployed solar and battery
arrays for Department of
Conservation on Hauraki
Gulf islands
- First photovoltaic solar and
battery storage system installed
at Quay Street substation
2012://
- Connected first residential
customer to solar power and
battery technology
- Completed the acquisition
of Contact Energy’s gas
metering business
- Outage Manager app
launched
2013://
- Joined the ’25% group’ of
corporates having at least
25% female representation
on its board
- Acquired Arc Innovations
from Meridian Energy, further
expanding advanced metering
2014://
- Announced a new vision for
the company: Creating a
New Energy Future’
- Switched on our first electric
vehicle charging station, the
first of many across Auckland
- Advanced metering business
continued to grow, now
supplying more than one
million meters
- Implemented a new policy
requiring lines work to be
undertaken in a de-energised
state wherever possible, putting
the health and safety of its
people first
2015://
- Switched on New Zealand’s
first Tesla Powerwall battery
- Installed a state-of-the-art
grid-sized battery in Glen
Innes substation to strengthen
network resilience
- Collaborated with Ng ti Wh tua
r kei to demonstrate future
community energy solutions
- Sold national gas transmission
and non-Auckland distribution
businesses to focus on
Auckland
- Awarded Rainbow Tick’ for
efforts to create an open and
inclusive workplace
- First Australian advanced
meters went live in Sydney
- Major shareholder, AECT,
rebranded to become Entrust
2016://
- Invested in E-Co Products Group
and PowerSmart to help enable
distributed generation, energy
democracy and more
consumer choice
- mPrest machine learning
introduced to help identify
failure risks before they happen.
Vector acquired stake in mPrest
- Committed to the United
Nations Sustainable
Development Goals, initially
focusing on seven that
specifically support our
strategic focus on
decarbonisation and climate
action and social inequalities
- New state-of-the-art bottle
swap plant in Papakura
commissioned, with first
accepted Major Hazard Facility
Safety Case in New Zealand
- Commenced a digital
transformation by establishing
a strategy to drive new levels of
efficiencies
- First large New Zealand
corporate to be Living Wage
accredited
- Vector committed to be Net
Zero Carbon by 2030
2017://
- Partnered to trial New Zealand’s
largest installation of solar
panels
- Acquired Siemens’ 50%
shareholding in Advanced
Metering Services Limited
(AMS) to become 100% owner
2010://
Vector://AR 1811
About this report://
This report, dated 23 August 2018, is a review of
Vector’s economic, social, and environmental performance
for the financial year ended 30 June 2018.
The financial information has been prepared in accordance
with appropriate accounting standards, and has been
independently audited by KPMG.
The social, economic and sustainability information has
been compiled in line with NZX rules and recommendations
for investor reporting, as well as Vector’s commitments
to the United Nations Sustainable Development Goals.
Our greenhouse gas (GHG) emissions as reported on
page 51 were also independently assured by KPMG
in accordance with ISAE3410. The approach is also
consistent with GHG protocol.
The report has drawn from a wide range of information
sources. These include: our stakeholders, our customers,
our communities, our sustainability framework, our value
drivers, our risk register, our Board reports, our asset
management plan, our financial accounts, and
our operational reports.
Throughout the report, we have focused on what matters
most to our stakeholders and our business.
Care has been taken to ensure all information in this
report is accurate, including internal assurance and
verification processes and Board approval.
Forward-looking statements in this report are based on best
available information and assumptions regarding Vector’s
businesses and performance, the economy and other
future conditions, circumstances and results. As with any
forecast, forward-looking statements are subject to
uncertainty. Vector’s actual results may vary from those
expressed or implied in these forward-looking statements.
SECTION:
New Zealand’s energy
consumer revolution://
01.
Vector
today://
02.
14 — 27
28 — 35
We’ve been playing the long game, to help empower you
for the energy consumer revolution that is coming.
14 ————— Chairman’s Statement
16 ————— Board tribute to the Chairman
18 ————— Group Chief Executive’s Report
22 ————— Case study: Electrification of the economy
24 ————— Case study: Internet of Energy
26 ————— Case study: Vector Lights
A more integrated look at how Vector strives
to create long-term value.
30 ————— Performance snapshot
32 ————— About Vector: Our business model
34 ————— Creating long-term value
Vector://AR 1812
Operations, leadership and
sustainable business://
03.
Statutory
report://
04.
36 — 6162 — 134
A closer look at the Vector Group and operations.
38 ————— Business Unit Reports
38 —————— Regulated networks
40 —————— Gas trading
42 —————— Technology
44 —————— People, safety and risk
52 ————— Our Board
54 ————— Our management team
5 6 ————— En t r u s t
57 ————— Joint ventures and investments
58 ————— Operating statistics
59 ————— Non-GAAP financial information
60 ————— Financial performance trends
All the statutory numbers and information.
64 ————— Financial statements
108 ————— Independent auditors report
115 ————— Statutory information
125 ————— Risk management
128 ————— Corporate governance
132 ————— Remuneration and performance
134 ————— Financial calendar and directory
CONTENTS
Vector
Vector://AR 1813
2018
—
MICHAEL STIASSNY
CHAIRMAN
Benjamin Franklin missed one vital point when he noted that
nothing is certain in life except death and taxes – he should
have added a third, change.
When I joined the Board of Vector in 2002, the New Zealand
electricity sector was in a state of flux on the back of the
Bradford reforms and Commerce Commission intervention.
Today, the electricity sector is once again transforming as new
energy technology emerges, consumers take the driver’s seat
and the regulatory environment struggles to keep pace with
what are extraordinary changes and times.
Change has been a constant. Increasingly, consumers have
sought greater control and choice of the services they rely on to
live their lives. Energy has not been immune. Vector’s response
has been to determine how best to meet that desire for control
and choice.
Over the past 16 years, we have worked to transform our network
from a traditional, one-way grid to an intelligent, connected,
open and innovative platform. Vector is now at the centre of the
‘Internet of Energy’, the ultimate enabler for innovative retailers,
both domestic and international, to create exciting new products
and services to directly benefit consumers.
What has set Vector apart has been our ability to identify those
new trends, to pivot and to evolve to meet the future. We have
chosen to lead, not to follow; to embrace change and to shake
off the shackles of a traditional network business focused
solely on electricity distribution. Today, Vector is a diversified,
sustainable energy group; change has been hardwired into our
DNA and as a result, we are well positioned to create and deliver
a new energy future.
Vector continues to play the long game for the best interests
of consumers. We sold out of natural gas transmission in
anticipation of the inevitable move away from fossil fuels; we
have invested in intelligent network capabilities, advanced
metering, batteries and the ‘Internet of Energy’, fully aware that
energy democratisation was on its way. We have stopped ‘live
lines’ work wherever possible, in the knowledge that while it
might affect our regulated operating performance measures,
putting lives at risk is simply wrong.
Over the past 12 months, we have also continued to
accommodate Auckland’s relentless and rapid growth through
smart investment in quality network infrastructure, adding more
than 14,000 new electricity and gas connections to our network.
This is our responsibility, but we do so with an eye on the future
and what’s coming down the track to ensure that we avoid
unnecessary expenditure on obsolete technologies or traditional
assets that load unnecessary costs on consumers.
There are newer and better ways to grow and improve the
network to meet Auckland’s needs. And while we have
a projected $2 billion investment spend to meet growth
over the next 10 years, it can only be spent once. Vector
can’t afford to get it wrong, so investment and technology
decisions are not made lightly.
Vector is committed to contributing to a decarbonising economy,
and as New Zealand’s largest energy distributor we can, and will,
lead by example. We are championing the adoption of clean
Increasingly, consumers
have sought greater control
and choice of the services
they rely on to live their
lives. Energy has not been
immune.
—
POWERING THE
EMPOWERING
CONSUMERS.
FUTURE;
2018
Vector://AR 1814
CHAIRMAN’S STATEMENT
energy technology to not only improve the network, but also to
reduce Auckland’s carbon footprint and ensure the region can
grow sustainably. Swimming against the status quo tide is never
easy, but it was and remains the right thing to do.
Shareholders will receive a fully imputed final dividend of
8.0 cents, taking the full year dividend to 16.25 cents per share,
up from 16.0 cents per share in 2017.
Despite delivering 12 consecutive years of dividend growth,
as signalled last year, Vector is a business operating in a
challenging environment and responding to change therefore
does come at a cost. Adjusted EBITDA of $470.1 million
– slightly below last year’s result – underscores the need
for Vector to continue to strategically diversify to ensure
long-term profitability.
Our ability to pay ongoing increasing dividends could also be
significantly impacted by the reset of our electricity network
revenues in 2020, which is largely a function of interest rates
prevailing at the time, and expenditure allowances set by the
Commerce Commission.
Looking ahead, to the next decade and beyond, Vector will need
to continue our transformation. Change within the sector and
wider environment will continue unabated and while the business
has increasingly taken a customer-focused path, there is much
work still to do to be considered a market leader in this regard.
It is certain that the industry will continue to be disrupted
and Vector will need to not only stay ahead of the curve,
but also to balance the needs of customers today with those
of the next generation.
From where I sit, it is clear that electrification of the economy
will continue to accelerate, driven by the downward cost curves
in technology, the convergence of transport and energy, and
the need to respond to the imperative of climate change.
There are significant risks and opportunities for Vector’s
businesses as a consequence.
In May I announced I would not be seeking re-election, and will
be standing down at this year’s annual shareholders meeting.
I leave Vector knowing that it is in the best possible position
to mitigate the risks and capitalise on the opportunities that
lie ahead.
Earlier this year, Vector welcomed David Bartholomew and
Sibylle Krieger to the Board, both of whom have significant
industry and Australian experience. I am confident that as my
tenure comes to an end, Vector has the necessary governance
expertise in place to continue to successfully navigate energy
sector disruption and the change that will always be a constant.
It has been a pleasure to serve Vector’s shareholders and
the people of Auckland. I will view Vector Lights on Auckland
Harbour Bridge as a constant reminder of what the new energy
future is capable of achieving.
Michael Stiassny
Chairman
2018
Vector://AR 1815
CHAIRMAN’S STATEMENT
A TREE A LONG TIME AGO.”
BECAUSE SOMEONE PLANTED
IN THE SHADE TODAY
“SOMEONE’S
SITTING
WARREN BUFFETT
AFTER 16 YEARS OF SERVICE TO VECTOR’S SHAREHOLDERS
AND THE PEOPLE OF AUCKLAND, MICHAEL STIASSNY’S
LEGACY IS HAVING SECURED A SUSTAINABLE FUTURE
PATH FOR VECTOR. —————————————————————————————
BOARD TRIBUTE TO THE CHAIRMAN
BOARD TRIBUTE
To the Chairman
2018
Vector://AR 1816
Michael’s leadership has been instrumental in achieving a
successful public listing on the NZX; ensuring Aucklanders
retained ownership of their energy assets; and in making sure
that Vector could both maintain and invest in our traditional
network, while at the same time exploring solutions for very
different future possibilities.
Michael has been unafraid to challenge those around him to
think laterally, to grasp the issues of today and navigate the
technological solutions of the future. As a result, his influence
has seen Vector lead innovation in the electricity sector through
early adoption of disruptive technologies in production, storage,
delivery and management, and in doing so, clearly empower
consumers. On the global stage, Vector is acknowledged as
being at the forefront of energy democratisation.
Under Michael’s stewardship, the Vector Board and management
team have delivered 12 consecutive years of dividend growth,
75% of which was delivered directly to the people of Auckland
by way of the Entrust dividend. However, he has also been
outspoken in his belief that Vector’s continued financial health
requires further diversification, rejection of the industry status
quo and a sharp eye on macro-trends.
A genuine advocate for diversity both within the organisation
and at the boardroom table, Michael has championed Vector’s
diversity and Rainbow Tick initiatives, the Living Wage
accreditation, our sustainability leadership and introduced the
Future Directors’ programme. He has also been unequivocal in
his support for Vector’s strong health and safety policies that
has seen the company cease ‘live lines’ work wherever possible
to protect maintenance crew’s lives.
Never one to shy away from controversy or making tough calls,
Michael Stiassny has led Vector with unswerving dedication to
improve Auckland’s energy future by planning today for what
will happen tomorrow.
BOARD TRIBUTE
To the Chairman
2018
Vector://AR 1817
A CLIMATE OF
CHANGE.
OPERATING IN
RESULTS REFLECT THE CHANGING
WORLD AROUND US.
Vector’s financial and operational results for FY18 reflect the
relentless and continual changes to our operating environment.
These include ongoing changes to the sector, consumer
preferences, technology, and even to New Zealand’s climate.
The Vector team, across our entire group, continue to embrace
change and lead responses to these forces on behalf of our
customers and Auckland.
Despite challenging circumstances, our FY18 financial results
were broadly on-target, with adjusted EBITDA of $470.1 million
slightly below last year’s result of $474.4 million. While revenue
was up across all business areas, group net profit was down
11.3% to $149.8 million, primarily due to a significant increase
in depreciation and amortisation in the period.
Adjusted EBITDA (excluding capital contributions) in our
Regulated Networks segment of Vector fell 0.7% to $358.6
million, with higher maintenance costs of $7.5 million required
to address additional vegetation and tree management needs
in Auckland and costs associated with the April 2018 storm.
The ferocious wind-storm in April caused widespread damage
across Auckland and caused significant inconvenience for
many customers, as well as drove an additional $4 million in
unexpected network repair costs.
Climate change modelling indicates extreme weather will likely
become more common. The impact on physical infrastructure
may be felt in many ways, including increased erosion, flooding,
and, as we saw in April, increased wind damage to trees.
As well as the massive impact, the storm saw our outage app
fail, resulting in a poor customer experience and causing other
customer channels to be impacted. Following the storm, the
Vector outage app was hacked, resulting in some users of the
app having their contact details accessed by a third party.
Vector took this matter extremely seriously and took immediate
steps to contain the breach and protect the customers
information to the full extent possible.
Since the storm, Vector has reviewed its storm procedures and
response, has undertaken extensive engagement with a wide
range of industry and Government stakeholders, and a number
of corrective actions based on lessons from the storm are well
underway. These include an overhaul of outage management
systems, processes and tools to improve the customer experience.
The storm review also highlighted shortfalls in tree management
regulation. The thousands of trees that damaged lines in April
were not owned by Vector and under current regulations we
have restricted abilities to manage them.
—
SIMON MACKENZIE
GROUP CHIEF EXECUTIVE
GROUP CHIEF EXECUTIVE’S REPORT
2018
Vector://AR 1818
Undergrounding is not necessarily a panacea. While 55% of
the electricity network is underground, the cost to underground
the remaining 45% of the network with overhead lines in Auckland
is enormous (we estimate over $5 billion), and we believe there
is little consumer or political appetite for the large energy price
increases that would be required to fund this.
Gas Trading adjusted EBITDA fell 6.8% to $34.4 million from
$36.9 million a year earlier. The prior year’s result included an
insurance settlement of $5.3 million in relation to damage to
the Liquigas facilities at Lyttelton during the 2012 earthquake.
Excluding this one-off, underlying Gas Trading EBITDA was up
8.9% with strong volumes and higher production at the Kapuni
Gas Treatment Plant being offset by lower natural gas margins.
Adjusted EBITDA in the Technology business rose 6.5% to
$130.5 million with further gains on smart metering following
the Power of Choice reforms in Australia and continued meter
deployment in New Zealand. That said, we are disappointed
that growth in our Technology business area was not higher.
This can largely be attributed to a lower than expected
heat-pump business performance by E-Co Products Group,
and by the investment in launching HRV Solar. The underlying
E-Co Products Group business is well positioned to play a role
supporting Government initiatives for energy efficient and
healthy homes.
Capital expenditure (capex) rose 3.8% to $381.2 million from
$367.4 million in the prior period. This was driven by Auckland
growth, higher network replacement capital expenditure and
an increase in Australian meter deployments. This was partially
offset by lower Gas Trading capex (the prior period included
investment in the Bottle Swap processing plant) and a slow-
down in meter deployment rates in New Zealand.
Our balance sheet remains healthy, with gearing as at
30 June 2018 at 48.8%, up from 47.1% a year earlier, and
47.3% as at 31 December 2017.
SOLID OPERATIONAL PROGRESS.
Reflecting on the past 12 months, and indeed on the past
decade, we’ve made solid progress on our mission to create
a new energy future. We are continuing to take the lead on
developing new energy technologies, customer-focused
innovation and on the sustainability of our sector. We’ve
continued to diversify into areas like metering, ‘Internet of
Energy’, data analytics, solar and batteries.
Central to Vector’s business is our responsibility to ensure we
continue to deliver reliable energy to Auckland. Every year we
spend significant amounts on vegetation management and
network maintenance to pre-empt problems for customers
before they occur.
We invest in network upgrades to reflect the ways in which
energy use is changing. The development, integration, and
use of new energy technologies like solar panels, storage
batteries, and electric vehicle (EV) chargers on our power
network is trending upwards. Peer-to-peer capabilities are
opening up multi-directional energy flows.
GROUP CHIEF EXECUTIVE’S REPORT
2018
Vector://AR 1819
The city we serve is rapidly changing also. As one of the fastest
growing developed cities in the world, about a quarter of
New Zealanders now call Auckland home. No other developed
nation has such a concentration of its population in a single
urban area. Auckland’s population is expected to hit two million
by 2028 according to Auckland Council. Growth is a resilience
challenge, as infrastructure must accommodate it smartly,
reliably, and cost-effectively. One consequence of this growth is
traffic congestion, which hampers response times for Vector’s
field crews seeking to restore critical services each time the
network is damaged and power is cut.
Vector must provide the platform for new technologies while
at the same time keeping the lights on for more and more
people. We must continue to execute on our network and
customer strategies to proactively respond to emerging
technologies and the expectations of customers, now and
into the future. To help this, Vector has, alongside tech
start-up company mPrest, developed a ‘system of systems’
energy platform solution called DERMS (or Distributed
Energy Resource Management System). This is allowing
Vector to build an ‘Internet of Energy’ platform for the future,
enabling a flexible and dynamic environment that responds
quicker to new technologies and consumer preferences.
In July 2018 Vector announced it will distribute more than
$16 million of Loss Rental Rebate (LRR) surpluses directly to
Auckland electricity account holders as an annual payment.
LRRs are the surplus created once the costs in New Zealand’s
electricity wholesale market have been calculated and they vary
year by year. While historically Vector has provided LRRs to
retailers, our concern has been that for retailers whose customer
base extends beyond the Auckland area, it is difficult to ensure
that the rebates are returned solely to Auckland customers.
We believe direct distribution is fairer and more transparent.
Gas Trading saw a growth in revenue on the back of increased
Kapuni field production and higher LPG and Bottle Swap
volumes, with the state-of-the-art new bottling plant opened
in Papakura significantly increasing bottle fill and refurbishment
capacity. Bottle Swap volumes were up 8% on the previous year,
and the new plant is delivering significant efficiencies and safety
benefits, as well as being the first Major Hazard Facility in
New Zealand to have an accepted Safety Case.
Our technology and unregulated businesses continue to develop.
Vector Advanced Metering Services Australia (VAMSA), our
Australian smart meter business, is successfully deploying smart
meters for most of the major Australian electricity retailers
following the Power of Choice market reforms in 2017. Vector
has built a strong track-record of meter deployment in both
Australia and New Zealand.
Vector is putting the finishing touches on a large 5MW battery
for Territory Generation in Alice Springs in the Northern Territory,
while a similar PowerSmart project in Niue in the South Pacific
is well underway.
Strong connection growth and an increase in replacement
capex has resulted in a significant increase in regulated capex,
up to $245.8 million from $210.6 million in the prior year.
RECENT AWARDS
2018 DELOITTE ENERGY
EXCELLENCE AWARDS
Our OnGas Bottle Swap
Plant in Papakura won the
Health and Safety Initiative
of the Year.
Our project with Dominion
Salt to design and build a
new, innovative system
integrating battery power
with wind energy was a
finalist in the Large Energy
User Initiative of the Year.
2018 PUBLIC RELATIONS
INSTITUTE OF
NEW ZEALAND AWARDS
Vector Lights won the
Marketing Communication
Award for Public Relations.
2018 RESPONSIBLE
BUSINESS NETWORK
AWARDS
Finalist in the Communications
Campaign of the year for
Vector Lights.
2017 SUSTAINABLE
BUSINESS NETWORK
AWARDS
Our project with Ngāti
Whātua Ōrākei property
investment arm Whai Rawa
to install a networked system
of solar panels and battery
storage on the 30 home
Kāinga Tuatahi housing
development won the
Revolutionising Energy award
at the Sustainable Business
Network Awards.
2017 NEW ZEALAND
INNOVATION AWARDS
Our Glen Innes network-tied
battery was highly commended
in the Technology Solutions
category.
GROUP CHIEF EXECUTIVE’S REPORT
2018
Vector://AR 1820
continued
Given the size of the investment required to support the
ongoing anticipated growth of Auckland’s energy networks, it
is of significant concern that our regulated electricity network
is not earning its regulatory cost of capital. Vector’s electricity
network ROI for the 2018 regulatory year was only 5.49% -
significantly lower than the regulatory WACC of 7.19%. This is
largely due to Commerce Commission forecast errors in the
current regulatory parameters. Absent these errors, Vector’s
electricity revenues for the 2018 regulatory year would have
been almost $28 million higher. We anticipate the majority of
these errors will be corrected at the next reset (April 2020), but
will continue to significantly impact network returns until then.
Although the regulatory environment is relatively stable,
balancing safety, price, service quality, and investing in the future
can be challenging for network operators and regulators alike.
In that regard, we are working closely with the Commerce
Commission on penalties for breaches of quality thresholds.
The reality is the Commerce Commission’s current regime
may not adequately account for congested Auckland traffic,
changes to health and safety best-practice, and more extreme
weather events. As a result, meeting quality targets will be a
significant challenge for Vector and the wider industry. It is
crucial that this issue is addressed no later than at the 2020
reset of regulatory parameters.
Our approach to health and safety is informed by the founding
principle that nothing matters more than people. This is true
also of our approach to our own people. Vector is proud to have
been the first large corporate in New Zealand to become an
accredited Living Wage employer. Alongside this, we are taking
steps to proactively identify and address any pay equity issues
within our business.
The year also saw changes to the Vector management
team with Rod Snodgrass joining us in November 2017 as
Chief Customer Officer, and Brian Ryan, our GM for Emerging
Technologies, departing in July 2018 after four years with Vector
to take up a role in the United Kingdom.
In July 2018 Vector was also proud to be one of the founding
companies of the Climate Leaders Coalition, a collective of
business leaders who have committed to act on climate change,
a move consistent with our commitment to be Net Zero Carbon
by 2030.
LOOKING AHEAD.
We have many reasons to be confident about the future. As
the economy continues to progressively electrify, trends such
as widespread EV adoption must be planned for at an industry,
network and community level to ensure those who can afford
new energy technologies are not being, in effect, subsidised
by those who cannot, in the form of costly upgrades to, or cost
impositions from, generation, transmission or distribution assets.
With the pace of change rapidly increasing, Vector must invest
dynamically to ensure good optionality, and have the flexibility
to pivot as and when scenarios emerge. This will help avoid poor
investment decisions as well as maximise the benefits to
consumers of new energy technologies. More dynamic investment
also requires us to better understand customers energy use.
Right now, a significant challenge is that distribution companies
do not have ready access to smart meter data held by retailers.
This impedes the ability of networks to adequately respond to
storms as they cannot ‘see’ faults at the household level. As a
collective industry, it is clear there needs to be better sharing of
secure real-time information to deliver improved customer service.
A political review of the New Zealand electricity sector is
currently underway. We welcome the review, because distribution
companies are already fully transparent through regulation and
we hope to see greater transparency across the sector. The
New Zealand generation and retail market has not been looked
at in earnest for around a decade and it is right to question
whether consumers are receiving the benefits of competition.
Recent reviews in similar markets such as the United Kingdom
and Australia have identified genuine market concerns at both
the retail and generation levels of the market.
Technology has an ever more powerful role to play in New Zealand’s
future – as an enabler, it will unlock greater choice, increased
resilience, lower costs, and a reduction in carbon. Regardless
of what we or others wish, industry disruption will march on, so
Vector must stay ahead of the technology curve and meet the
needs of customers, tomorrow as well as today.
Looking ahead we expect largely flat Regulated Network earnings
through to the next electricity reset in 2020, and continued
growth in our Technology business. We expect adjusted EBITDA
for FY19 to be between $470 - $480 million.
1
Simon Mackenzie
Group Chief Executive
———
1 This excludes any impact from the adoption of IFRS 16 Leases.
GROUP CHIEF EXECUTIVE’S REPORT
continued
2018
Vector://AR 1821
PREPARING THE MARKET FOR AN EV REVOLUTION.
Next generation EVs will have bigger batteries, which will mean
longer charges. By today’s standards, one slow EV charger
(7kW) adds the equivalent of 2.8 houses to the grid. Every fast
charger (22kW) adds 8.8 houses and a rapid charger (50kW)
adds 20 houses.
This level of demand is expected to put unprecedented pressure
on the network, which will ultimately require significant
technology upgrades.
Under the current market and regulatory settings, these
upgrade costs will compete with other demands for network
expansion and investment. They will need to be spread out
evenly across all electricity users – regardless of whether they
are in the position to upgrade to an EV.
For these reasons, Vector is working to raise awareness of the
expected (and unexpected) consequences of energy and
transport convergence.
Our goal is to ensure the next set of policy and regulatory
decisions gives us the certainty we need to make smart
investment decisions that more equitably benefit all Aucklanders
now and in the future.
There is no denying that the threat of climate change has
turned the world of energy on its head.
Under the Paris climate accord, ambitious carbon targets have
been set, and businesses around the globe have been
challenged to step up and help deliver.
As more industries move away from fossil fuels and towards
cleaner electricity, Vector is firmly focused on preparing
Auckland for a new energy future.
A key area of focus for us is the growing convergence of the
energy and transport sectors.
It’s clear that the popularity of EVs is on the rise and that the
reign of the internal combustion engine (ICE) is on the decline.
What is less obvious is the impact these trends will have on our
network, and our place in the new energy ecosystem.
THE RISE OF ELECTRIC VEHICLES IN NEW ZEALAND.
New Zealand’s mostly clean energy supply puts us in a unique
position to transition swiftly to an EV nation. Consumer appetite
for EVs is already evident, with 4,363 EVs registered on
Auckland roads as at January this year compared to just
600 in 2016.
When respected futurist Tony Seba visited New Zealand last
year, he boldly predicted EVs will be cheaper than petrol cars
within a decade.
This is all good news for the environment and the air we breathe,
but the rapid rise of EVs is going to bring its own set of
challenges, including to network management.
If we don’t work collectively to solve these challenges, it could
hold New Zealand back from reaching its target of net zero
carbon emissions by 2050.
WHEN ENERGY AND TRANSPORT
CONVERGE.
SDG://
CASE
STUDY://
CASE STUDY:
Electrification of the economy
2018
Vector://AR 1822
OPPORTUNITY, INNOVATION AND NEW TECHNOLOGY.
Recently Vector introduced a two-way EV charger that transforms
EVs into mobile power sources.
When connected to a Vehicle-to-Grid charger at home or work,
charge from an EV can be used as a power boost for the
building, as a cheaper power source when electricity prices are
at their peak, and will eventually be able to power homes during
electricity outages.
This type of technology has the potential to smooth out the
growing impact EVs will have on our peak electricity demand,
while also giving people energy reserves on demand, greater
flexibility and an alternative to using energy from the grid.
When you add solar and battery systems into the home along
with emerging home energy management systems, you’ve got
a truly future-ready smart energy home that diversifies energy
supply, lowers carbon emissions and reduces consumer
energy costs.
EVS COULD BE THE ANSWER.
Although there will be speed bumps along the way, the reality
is that, ready or not, the EV revolution is coming – transforming
the energy world in the process. It’s just a matter of when.
Beyond clearing the air and achieving our carbon neutral
targets, Vector believes EVs could assist the resilience of power
networks – particularly as the frequency of extreme weather
events increases and demands we diversify supply as much
as possible.
As a leading voice in the new energy future discussion, Vector is
committed to understanding these trends and providing solutions
for consumers. n
CONVERGENCE //
Although there will
be speed bumps
along the way,
the reality is that,
ready or not, the
EV revolution is
coming. It’s just a
matter of when.”
—
CASE STUDY:
Electrification of the economy
2018
Vector://AR 1823
All of this is occurring while, at the same time, Vector’s network
control has full visibility of when and where spikes in the
demand for energy will occur, so that we can better plan for and
control the network, and manage energy load to lessen stress
on infrastructure. It also means that as the city grows and
evolves we can seamlessly upgrade and future-proof Auckland’s
energy platform to help ‘plug-in to the grid’, whatever the future
has in store.
In this way, our network can provide you with the freedom to
take up energy alternatives, as well as sell energy back to the
network, trade energy via peer-to-peer trading, or store energy
via batteries. It sounds futuristic. But it wasn’t that long ago that
the idea of solar panels powering homes was scoffed at – now
they’re going to be compulsory in all new homes in California
from 2020.
DERMS.
Today, across Vector’s energy network, there are thousands
of solar panel and storage battery connections on the network.
In the past five years, the number of EVs in New Zealand has
skyrocketed from just 192 in January 2013 to 9,241 in July 2018
– a 4,713% increase. This spike in EVs and other distributed
The world of energy is rapidly becoming more complex, and
transitioning from ‘hardware driven’ to ‘hardware and
software driven’.
How you receive, use and store your energy in 10 years’ time will
be significantly different to now. Can you remember how your
day played out before the iPhone was launched in 2007? How
you had to physically go to the bank or sit at a desktop to
transfer money? Or how you got around in a new town before
clicking to open Google maps? Ten years is not that long.
Vector is doing everything it can to help you stay ahead of the
curve by investing in an intelligent, connected, open and
innovative platform that will allow smarter network management
and enable innovative retailers to create exciting new products
and services for consumers.
HOW YOU MIGHT USE ENERGY IN THE FUTURE.
Picture this: you’ve just arrived home in your EV. It’s been a
sunny day, so the HRV solar panels on your roof have generated
enough energy to fully charge your home battery. The family is
turning on the heater, the television, and appliances in the
kitchen in preparation for dinner.
The price of using power may have changed from earlier in the
day. But it’s all good – you’ve got a full storage battery, so you
can use that to power your home. And while that’s happening,
you’ve plugged your EV into the wall to discharge energy left in
your car’s battery to sell onto the Auckland energy network and
make a little bit of money. As you’re getting ready for bed, you
reverse the charge of your car battery to fill it up for the
commute to work tomorrow – either from what’s left in your
storage battery, or directly from the power grid now that the
price of electricity has changed again. The next day you repeat
the cycle.
THE INTERNET OF
ENERGY.
SDG://
CASE
STUDY://
CASE STUDY:
The Internet of Energy
2018
Vector://AR 1824
energy resources (DERs) is in line with our projections for tens
of thousands of these DERs to be connected to the grid by
2020. This prompted Vector to develop and introduce a
sophisticated management and control ‘system of systems’
energy platform solution called DERMS (Distributed Energy
Resource Management System).
In development for 12 months, the first DERMS product release
in April 2018 gave us the ability to monitor batteries on
substations such as in Glen Innes. Later this year, an additional
release will allow integration of EV chargers and home batteries
onto DERMS. When fully operational, it will connect traditional
infrastructure (like electricity lines and substations) with new
energy generation and storage (like solar and battery energy
solutions) onto one platform. It will allow Vector to integrate,
oversee, manage, and optimally power more than half a million
homes and businesses in real-time. Or to put it another way,
the ’Internet of Energy’.
The potential benefits are enormous. For example, we will be
able to better predict potential transformer overloads and draw
from other energy sources to avoid outages. We will be able to
dynamically shift loads in response to sudden changes in
demand or during significant weather events such as the storm
in April 2018. We will be able to easily move energy around
the network and to and from homes. We also see it as a way to
help democratise energy and address energy poverty through
greater network control and by providing a platform for choice
and innovation. We can help enable consumers to make the
most of any distributed technology, including solar, battery and
peer-to-peer trading.
In introducing the Internet of Energy, we have had to develop a
hybrid delivery model. Alongside traditional network engineering
we’ve had to work with relatively new IT concepts such as an
open micro-service architecture, and exponential technologies
such as artificial intelligence, machine learning, and cloud
storage and management.
It’s a new and exciting prospect for the energy sector – not just
for New Zealand but even globally there has been significant
interest in this emerging network technology. n
RAPID TRANSITION //
How you receive,
use, and store
your energy in
10 years time will
be significantly
different to now.”
—
CASE STUDY:
The Internet of Energy
2018
Vector://AR 1825
lightbulbs instead of LED’s, not only would the installation give
off a disconcerting warmth while driving across the Auckland
Harbour Bridge, but it would also burn five times as much
energy. To light the bridge with old-school light bulbs would
have required 1,240 solar panels – compared with 248 currently
– which would need the equivalent of more than 100 household
rooftops to accommodate.
Vector Lights is also an example of how new and exciting
technology can come together to provide innovative energy
solutions. Solar power, storage batteries, and peer-to-peer
capabilities virtualise the connection between battery to bridge
and power a massive lighting structure in a completely
renewable and sustainable way which doesn’t put added
pressure on our network or cost the earth in carbon emissions.
There is no reason why the same thinking which led to Vector
Lights being supported by a ‘micro-grid’ of sorts, such as the
ones being developed by PowerSmart in the Pacific Islands,
couldn’t be applied to more remote areas of Auckland. These
areas are often connected by lines traversing many kilometres
of rugged bush or coastline. In this way, Vector Lights is a real-
world example of the exciting new energy solutions Vector can
tap into for the benefit of Aucklanders.
Globally, the energy sector is being transformed through
innovation and new technology. It’s one of the most exciting
times to be involved in the industry, but it is also one of the
most unpredictable.
As New Zealand’s biggest energy distributor, Vector must lead
the adoption of clean energy technology to improve the
network, reduce Auckland’s carbon footprint, and to ensure
the region’s infrastructure can keep pace.
In this age of technology steamrolling over traditional business
operating models it’s about making the right choices and
providing customers with options to support Auckland’s long-
term interests. Investing in the network is about ensuring
resilience as the city grows, and doing what we can to make
sure the lights stay on for Aucklanders – especially during
major weather events outside of our control, like the storm
in April 2018.
Vector Lights on Auckland Harbour Bridge, part of a 10 year smart
energy partnership with Auckland Council, has become a symbol
of new energy. It has its lighting needs met by solar and battery
technology, with almost 3km of LED pixels (over 90,000)
installed. It serves as a reminder to us and our customers in
Auckland that times are changing.
To get an idea of the pace of change in energy technology,
it’s worth trying to imagine retrofitting old technology in place
of new. If Vector Lights consisted of over 90,000 filament
A BEACON FOR THE FUTURE
OF ENERGY.
SDG://
CASE
STUDY://
CASE STUDY:
Vector Lights
2018
Vector://AR 1826
Vector Lights is
an example of how
new and exciting
technology can come
together to provide
innovative energy
solutions.”
—
FUTURE PROOF //
As well as transforming the Waitematā Harbour as a guiding
light toward a smart energy future, Vector Lights has also
become an experience and a destination, giving Aucklanders
a f ocal point for celebration and recognition.
Since its launch on Auckland Anniversary Weekend in January
2018, Vector Lights has played host to light and sound shows
celebrating a breadth of diversity. From Māori history to Chinese
New Year, Auckland Pride, Pasifika Festival, and Matariki
celebrations, Vector Lights has quickly become a cultural
destination in Auckland.
Vector Lights on Auckland Harbour Bridge enhances an icon
of the city, adding vibrancy and interest to Aucklanders and
visitors from around the world. As an energy company owned
by Aucklanders, it is Vector’s responsibility to contribute to
our city’s shared future. Vector Lights is the highlight of that
commitment and our work to prepare the region for the new
energy future. n
CASE STUDY:
Vector Lights
2018
Vector://AR 1827
2018
Vector://AR 1828
2018
Vector://AR 1829
VECTOR.CO.NZ
EMPOWERING
YOU.
VECTOR TODAY.
02.
EMPOWERING
358.6
$
MILLION
470.1
$
MILLION
Group Net Profit
Full year dividendCapital expenditure
Net electricity connections
up 7,976 (1.4%)
Regulated Networks
Adjusted EBITDA
Group Adjusted EBITDA
Net gas connections up
2,559 (2.4%)
Smart meters (cumulative)
149.8
109,229563,076
1,405,936
1
$
MILLION
Unregulated business
Adjusted EBITDA
164.9
$
MILLIONGAS
CONNECTIONS
ELECTRICITY
CONNECTIONS
381.2
$
MILLIONCENTS PER SHARE
16.25
SMART METERS
1 Includes meters managed not owned.
PERFORMANCE SNAPSHOT
2018
Vector://AR 1830
Announced return of Loss
Rental Rebates directly to
consumers
Announced target to be
Net Zero Carbon by 2030
Internet of Energy ‘system
of systems’ DERMS in
production
First large New Zealand
corporate to be Living Wage
accredited
PowerSmart projects
underway in South Pacific
and New Zealand
Vector Lights launched
January 2018
Opened new OnGas Bottle
Swap plant in Papakura,
with first accepted Safety
Case for a Major Hazard
Facility in New Zealand
April’s storm saw 200 km/h
plus winds cut power to over
150,000 homes
Now deploying smart
meters across three
Australian states
HRV Solar launchedIncrease in percentage of
women directly reporting to
the management team, up
from 21% to 34%
Record number of new
electricity connections in
Auckland (11,135)
PERFORMANCE SNAPSHOT
2018
Vector://AR 1831
INPUTS
(RESOURCES)
VECTOR FOUNDATION AND
ENABLERS//:
— To create a new energy future, all parts of the Vector Group
need to focus on customer choice and control.
— In doing this, we will encounter opportunity and risk.
— At a macro level, these opportunities and risks are all
filtered through the lens of climate change, financial
prudence, technological change, and changes to
consumer expectations.
— In response to these forces, and to create value, we have
built a portfolio of energy businesses and/or brands, with
varying degrees of maturity.
— We take a long-term view with our portfolio.
— Each business has its own strategy to create new
customer solutions.
— They are all supported by active consideration of our
portfolio mix and potential partnerships and collaborations
with like-minded others, and by a foundation of enabling
qualities such as leadership, innovation, sound governance
and customer focus.
– Our targeted outcomes are consistent with the United
Nations Sustainable Development Goals (SDG’s), in
particular SDG 3, 7, 9, 10, 11, 13 and 17.
HOW VECTOR THINKS ABOUT
CREATING VALUE //
THE WORLD IN WHICH VECTOR
STRIVES TO CREATE VALUE//:
Financial
- Cash and cash equivalents
- Debt
- Investment in infrastructure
Social & relationship
- Relationships with customers and suppliers
- Employees
- Collaboration with stakeholders
- Partnerships
Human
- Experienced and diverse workforce
- Responsible leadership
Natural
- Land: for infrastructure and operations
- Solar: for generation of solar power
- Gas: for processing and distribution
We have applied the international integrated
reporting framework to capture how we create value.
This framework allows us to show how we use our
resources or capital. We have represented our core
business activities and how our business outputs help
achieve our targeted outcomes. We also recognise the
important enabling activities that support our various
business activities.
Intellectual
- Vector and utility-specific skills
- Research and development
Manufactured
- Property, plant and equipment
- Buildings/facilities
- Network
ABOUT VECTOR
Our business model
2018
Vector://AR 1832
Vector’s core business activities are
facilitated through the following:
Regulated Networks:
- Delivery of sustainable, safe,
reliable and resilient electricity
and gas networks for Auckland
(Vector)
Gas Trading:
- Sale and distribution of
gas products to residential,
commercial and industrial
customers (OnGas)
- Processing of natural gas for
transmission and distribution
- Production of LPG and natural
gasoline
Technology:
- Design and provision of
residential and commercial energy
management solutions (E-Co
Products and PowerSmart)
- Provision of end-to-end metering
services to energy retailers and
distributors (AMS)
- Provision of fibre and
telecommunications services
(Vector Communications)
- Development of new energy
technologies for benefit of
consumers (Vector Group-wide)
Financial outputs
- Shareholder dividends
- Regulated and unregulated income
- Appropriate investment in
diversification
- Improved cost efficiencies
Operational outputs
- Number of electricity and gas
connections
- EV charging sessions
- MWh of installed solar energy
- Number of connected distributed
energy resources
- Volume of gas bottles filled,
refurbished and distributed
- Customer satisfaction measures
- Greenhouse gas emissions
- Number of meters deployed
- Regulated performance measures
Technological outputs
- Number of new energy customer
solutions
- Improved network and digital
capabilities
People outputs
- Strong talent development
programmes
- Effective stakeholder
engagement and collaboration
- Total recordable and lost time
injury rates
- Diversity statistics
- Strong and ongoing dividend flow
- Meet electricity and gas needs for
Auckland population growth
- Maintain optimal balance between
price and quality of service
- Maximise consumer benefits of
energy technology change
- Market leader in new energy
solutions
- Market leader in healthy home
and energy solutions
- Net zero carbon by 2030
- Continual reduction in Lost Time
Injury Frequency Rate (LTIFR) and
Total Recordable Injury Frequency
Rate (TRIFR)
- Preferred workplace for talent,
diversity and inclusiveness
- Brand recognised as trusted,
innovative and leading
SOUND GOVERNANCE (see pages 52-53, 128-131) // STRONG MANAGEMENT (see pages 54-55) //
SAFETY ALWAYS APPROACH
(see pages 44-51) // TECHNOLOGY LEADERSHIP (see pages 22-27, 38-43) //
ACTIVE COMMUNITY & STAKEHOLDER ENGAGEMENT
(see page 35) // PROTECTIVE RISK
MANAGEMENT
(see pages 125-127) // FAIR REMUNERATION (see pages 132-133)
BUSINESS
ACTIVITIES
OPERATIONAL
OUTPUTS
TARGETED
OUTCOMES
VECTOR IS OPERATING AMIDST A WIDE RANGE OF
ENVIRONMENTAL, TECHNOLOGICAL, ECONOMIC, SOCIETAL,
POLITICAL AND INDUSTRY FORCES//:
ABOUT VECTOR
Our business model
2018
Vector://AR 1833
Determining what matters involves identifying potentially
important matters using a range of sources, including
media articles, trend updates, business unit planning,
and stakeholder engagement. These matters are
assessed for importance, to Vector and our stakeholders.
The increasing frequency and
severity of storms impacts on
the reliability of our network,
as seen during the April
2018 storm. Extreme weather
events have the potential
to disrupt our network for
long periods, and we need
to understand how they will
impact us, and what we can
do about it.
EXTREME WEATHER
EVENTS
Ensuring pricing is fair and
transparent, particularly in the
face of increased distributed
energy, pricing reforms and
rising energy poverty. Our
customers want fair and
transparent pricing, and we
advocate on their behalf.
ENERGY AFFORDABILITY
The transition to electrification
and automation of all forms
of transport, from passenger
vehicles to public transport.
This will impact how
customers use and interact
with energy, shifting and
increasing demand.
ELECTRIFICATION
OF TRANSPORT
Inequality in society has
been increasing year on
year, especially in relation to
income and home ownership.
We support equitable
pay policies, including
the Living Wage, and we
advocate for equitable and
fair remuneration with our
supply chain.
SOCIAL INEQUALITY
We are seeing an increased
number of cyber threats on
our systems, including a data
breach of our outage app
in April 2018. Ensuring the
safety and security of these
systems is key to building
a resilient business. Our
network is critical for the
success of New Zealand, and
any cyber threats need to be
treated seriously. We need to
have the right tools in place to
mitigate any potential threats.
CYBER SECURITY
We support the low carbon
transition by decarbonising
our own operations through
efficiency and substitution
while assisting in the
global transition. We are
creating new products and
services that will reduce
carbon from the energy and
transportation sectors.
LOW CARBON
TRANSITION
Regulations control the way
our business operates and
interacts with our customers.
We must actively work with
political and regulatory
stakeholders on behalf of
consumers.
POLITICAL AND
REGULATORY
UNCERTAINTY
Vector’s working environment
has a number of potential
hazards, largely associated
with electricity and gas. Our
focus on health and safety
is critical to ensuring these
hazards are managed.
WORKER SAFETY
A number of sectors are
converging, including energy,
transport and information
technology. Sector
convergence will lead to more
competition, particularly
for talent, and will provide
customers with access
to easy and convenient
energy options.
SECTOR CONVERGENCE
Customers have more control
over how they use and
consume energy than ever
before. They are empowered
and want access to a range
of options. We need to
diversify and provide choice
for customers, so that we
have a role in how technology
and people interact with our
network in the future.
CUSTOMER CHOICE
Making sure our network
has the ability to meet the
demands of a growing
Auckland. Customers want
to have energy available at all
times, we need to ensure our
network is resilient to storms,
and can meet peak demands
of a growing population and
electrifying economy.
ENERGY RELIABILITY
CREATING LONG-TERM VALUE
2018
Vector://AR 1834
MATERIAL VALUE DRIVERS AND
KEY STAKEHOLDERS //
MATERIAL MATTERCUSTOMERSEMPLOYEESSUPPLIERSSHARE-
HOLDERS
REGULATORSENERGY
INDUSTRY
COMMUNITIESMEDIACENTRAL
GOVERN-
MENT
LOCAL
GOVERN-
MENT
IWI
Extreme weather events
Energy affordability
Energy reliability
Electrification of transport
Customer choice
Worker safety
Cyber security
Social inequality
Sector convergence
Political and regulatory
uncertainty
Low carbon transition
STAKEHOLDERHOW DO WE ENGAGE?
Customers
Websites / Media releases / Customer contact centres / Sales / Direct mail / Dividends
Employees
Staff events / Internal communications / Internal social media / Green papers
Suppliers
Contract negotiations / Supplier briefings / Tenders
Shareholders
Annual and half year reports / Investor presentations / Continuous disclosure through NZX /
Dividends
Regulators
Policy submissions / Thought leadership engagements / Green papers / Meetings / Participation
in workshops
Energy Industry
Participation in working groups / Open engagement / Membership of industry associations /
Green papers
Communities
Websites / Media releases / Social media / Sponsorships / Schools programme
Media
Media releases / Opinion-editorials / Partnerships
Central Government
Policy submissions / Participation in working groups / Thought leadership engagement
Local Government
Regular meetings / Policy submissions / Thought leadership engagements
Iwi
Regular meetings / Engagement on developments / Customer Advisory Board /
New technology developments
HOW WE ENGAGE WITH
OUR STAKEHOLDERS
ENGAGING WITH KEY
STAKEHOLDERS
CREATING LONG-TERM VALUE
2018
Vector://AR 1835
2018
Vector://AR 1836
VECTOR.CO.NZ
EMPOWERING
YOU.
OPERATIONS, LEADERSHIP AND SUSTAINABLE BUSINESS.
03.
EMPOWERING
2018
Vector://AR 1837
Revenue for our Regulated Networks business increased
4.6% to $776.2 million from $741.9 million the year before.
This was largely driven by the release of accumulated Loss
Rental Rebates
1
and an increase in capital contributions –
up 14.7% to $70.2 million – reflecting continued connection
growth and significant infrastructure development taking
place across Auckland.
Underlying revenue (net of contributions, loss rental rebates,
and pass-throughs) was flat, with growth in connections offset
by declining electricity consumption and lower gas revenue
following the regulatory reset of gas distribution prices from
1 October 2017 which resulted in a 14% reduction in prices.
From April 2018, our electricity revenue has also been impacted
by the settlement
2
with the Commerce Commission, which will
see $13.9 million returned to Auckland consumers by reducing
the amount of revenue we recover over two regulatory years.
The impact on the FY18 result is $1 million.
New electricity connections
rose 21.9% to 11,135
from 9,138 on the back
of continued Auckland
growth.”
—
New electricity connections rose 21.9% to 11,135 from 9,138 on
the back of continued Auckland growth. New gas connections
fell 10.0% to 3,165 from 3,515. Total connections to the
electricity network stood at 563,076 at year end, up 1.4% from
555,100 a year ago. Total gas connections were 109,229, up
2.4% from 106,670 a year ago.
Aided by the increase in connections and the colder
temperatures in the latter part of the year, volumes transported
across the electricity network rose 1.3% to 8,442GWh from
8,332GWh. Auckland gas distribution network volumes were
up slightly at 14.5PJ from 14.3PJ the previous year, due largely
to connection growth.
Adjusted EBITDA (which excludes capital contributions) fell
slightly (0.7%) on the prior year to $358.6 million from $361.2
million on the back of higher maintenance costs. The increase
in maintenance costs ($7.5 million) is driven by an increase in
vegetation maintenance targeting the worst performing feeders
and the April 2018 storm which resulted in additional costs of
$4 million.
Strong connection growth and an increase in replacement capex
has resulted in a significant increase in regulated capex, up to
$245.8 million in FY18 from $210.6 million in the prior year.
Given the size of the investment required to support the
ongoing anticipated growth of Auckland’s energy networks,
it is of significant concern that our regulated electricity network
is not earning its regulatory cost of capital. Vector’s electricity
network ROI
3
for the 2018 regulatory year was only 5.49% -
significantly lower than the regulatory WACC
4
of 7.19%. This is
largely due to Commerce Commission forecast errors in the
current regulatory parameters.
Absent these errors, Vector’s electricity revenues for the 2018
regulatory year would have been almost $28 million higher.
Whilst we anticipate the majority of these errors will be
corrected at the next reset (April 2020), they will continue
to significantly impact network returns until then.
Our Regulated Asset Base (RAB) now stands at $3.4 billion.
The electricity RAB amounts to $3.0 billion and the Auckland
gas distribution RAB is around $405 million.
Vector has been in ongoing discussions with the Commerce
Commission regarding penalties for historic breaches of its
regulated SAIDI performance quality targets. The challenge for
Vector, and indeed all line companies, is that the current regime
provides limited guidance for balancing price and quality. Lack of
precedent means it is difficult to predict the potential financial
impact. This makes meeting quality standards very challenging
in an environment of rapid technological change, increased
customer expectations, greater focus on health and safety,
increased dependence on electricity, and ongoing city growth. n
REGULATED NETWORKS
———
1 Vector will pass Loss Rental Rebate surpluses directly to Electricity account
holders. The accumulated Transpower receipts have been released to Other
Income and a provision for payment is reflected in Other Expenses.
2 In 2014/15 the assumptions we made around customers being placed by their
electricity retailer on the most suitable plan did not eventuate. As a result, we
unintentionally earnt more than allowed by the Commerce Commission.
3 Return on Investment, as defined by the Commerce Commission.
4 Weighted average cost of capital.
SDG://
BUSINESS UNIT REPORTS
Regulated Networks
2018
Vector://AR 1838
CASE STUDY: BATTLING THE ELEMENTS
To better understand the potential physical impact of climate
change on Auckland’s electricity and gas network, Vector
commissioned an assessment of how projected increases in
global warming might lead to physical impacts on assets. The
business was already acutely aware of the impact of high wind
events and a review of network fault and outage data against
historical wind speeds confirmed this correlation. However, less
was known about other climate parameters and how these,
along with wind, would be affected under climate change.
—
THE APRIL 2018
STORM SAW
MASSIVE DAMAGE
FROM TREES
DRAGGING DOWN
POWER LINES.
REGULATED NETWORKS //
CASE STUDY: PROTECTING THE CROWN JEWELS
At the heart of our regulated business is a control system that
manages the operation of the distribution network. Traditionally,
control systems were ‘air gapped’ (a network security measure)
from IT/Corporate systems to provide a layer of protection.
As more internet connected distributed energy resources (DER),
fault sensors and hot water load controllers become standard
components of a modern distribution network, relying only on
this type of defence is less effective as the potential attack and
risk of compromise of our control system increases.
—
STATE OF THE
ART TECHNOLOGY
HELPS CONTROL
AUCKLAND’S
NETWORK.
SDG://
To understand how the climate is expected to change, we chose
two different scenarios that relate to how the world’s greenhouse
gas emissions will track out to 2030 and 2050. The first
(RCP4.5) of these aligned to the world meeting the Paris
agreement and keeping warming to within two degrees. The
second (RCP8.5) was more closely aligned to the current rate
of emissions continuing with significantly more impact expected.
The modelling covered the climate variables of wind, precipitation
and temperature, and revealed that wind will continue to have
the most significant impact on Vector’s assets with the number
of hours with wind in the 70-80km/h range projected to
increase materially.
While not specifically modelled, flooding and landslides/erosion
were considered to pose a moderate risk, while both sea level
rise/storm surge and wildfires were projected to be low risk.
Although low lying areas of Vector’s network will be increasingly
vulnerable to high tides and coastal events as sea levels continue
to rise, key assets including substations and grid exit points are
generally not at elevations that will be affected by sea level rise
out to 2050.
SDG://
In response to this, we have deployed a solution which provides
real-time artificial intelligence-based threat detection. This
solution has visibility of connected network assets on the electricity
distribution control network to enable early visibility of any
potential attacks. This improves our responsiveness and limits
the potential impact of any breach.
This was largely driven by
the release of accumulated
Loss Rental Rebates
and an increase in capital
contributions – up 14.7%
to $70.2 million – reflecting
continued connection
growth and significant
infrastructure development
taking place across Auckland.
4.6%
Revenue for our Regulated
Networks business increased:
to
$776.2M
BUSINESS UNIT REPORTS
Regulated Networks
2018
Vector://AR 1839
GAS TRADING
Revenue for the Gas Trading business increased 3.0% to
$290.3 million from $281.8 million a year earlier. This is on the
back of higher field production at Kapuni up 11.9% to 9.4PJ,
natural gas volumes at 18.3PJ, and higher Liquigas, LPG and
Bottle Swap volumes.
Gas Trading adjusted EBITDA fell 6.8% to $34.4 million from
$36.9 million a year earlier. The prior year result included an
insurance settlement of $5.3 million in relation to damage to the
Liquigas facilities at Lyttelton during the 2012 earthquake.
Excluding this one-off, underlying Gas Trading EBITDA was up
8.9% with strong volumes across most segments and higher
production at the Kapuni Gas Treatment Plant being offset by
lower natural gas sales margins, due to strong competition in
the market.
Vector’s LPG operations continue to occupy a strong market
position. All segments of the LPG business saw increased
volumes. The new Bottle Swap plant in Papakura is fully
operational and is helping drive efficiencies and further growth
in our Bottle Swap operations. Bottle Swap 9kg volumes were
up 8.0% to 652,859 bottles from 604,391 a year earlier.
LPG tolling volumes were up 8.6% to 183,540 tonnes from
169,046 tonnes a year earlier.
Industry reaction to the Government’s ban on new offshore
block offers for oil and gas suggests that the decision will have
limited impact in the short to medium-term as this ban does not
affect existing exploration licences. That said, the change is an
important signal of the Government’s policy intentions for the
longer-term. n
SDG://
BUSINESS UNIT REPORTS
Gas Trading
2018
Vector://AR 1840
GAS TRADING //
3.0%
Revenue for the Gas Trading
business increased:
to
$290.3M
This is on the back of higher
field production at Kapuni
up 11.9% to 9.4PJ, natural
gas volumes at 18.3PJ and
higher Liquigas, LPG and
Bottle Swap volumes.
—
THE NEW ONGAS
BOTTLE SWAP PLANT
WAS THE FIRST
ACCEPTED SAFETY
CASE FOR MAJOR
HAZARD FACILITIES.
CASE STUDY: A FIRST IN NEW ZEALAND FOR VECTOR
Late last year Vector became the first organisation in
New Zealand to submit and gain acceptance of a Safety Case
by WorkSafe. Required for all upper-tier Major Hazard Facilities
in New Zealand since the Health and Safety at Work Act came
into force in April 2016, a Safety Case demonstrates that a
Major Hazard Facility’s owner has the ability and means to
control major incident hazards effectively.
The Safety Case was for our new OnGas Bottle Swap Plant in
Papakura, which started operating in August 2017. The plant
was officially opened by the Hon. Iain Lees-Galloway, Minister
for Workplace Relations and Safety, in February 2018.
Preparing the Safety Case required significant input from a wide
range of stakeholders over a 12 month period and was a key
milestone in ensuring effective health and safety controls were
in place for the new plant.
The first accepted Safety Case in New Zealand represents
a ‘step change’ in the management of facilities where there
is significant risk from hazardous substances to workers and
possibly the public. It’s only through acceptance of a safety
case by the regulator that an operator gains their license
to operate.
The first Major Hazard Facility to be built under the new Act, the
plant at Papakura will join our existing Kapuni Gas Treatment
Plant in Vector’s portfolio of Upper Tier Major Hazard Facilities.
SDG://
BUSINESS UNIT REPORTS
Gas Trading
2018
Vector://AR 1841
The Technology business unit revenue rose 27.9% to
$273.6 million from $214.0 million a year earlier, driven largely
by increased deployment of smart meters and the acquisition
of E-Co Products Group (trading as HRV) and PowerSmart
from 31 March 2017. Adjusted EBITDA for the Technology
division rose 6.5% to $130.5 million, with gains from the smart
meter roll-out diluted by a disappointing result from E-Co’s
heat pump division.
This year we installed 84,878 advanced meters in New Zealand
and approximately 40,000 advanced meters in Australia. Our
smart meter base grew 9.8% to 1.41 million
1
from 1.28 million
the year before. Vector has now largely completed our mass
smart meter roll-out in New Zealand, and we are now targeting
a reduced deployment of around 70,000 meters over the next
12 months by managing the existing electricity meter fleet and
installing new and replacement meters as required.
Australia remains our next phase of growth for the metering
business. The Power of Choice reforms took effect from
1 December 2017. This means metering has become competitive
across New South Wales, Queensland, and South Australia.
Vector has contracts with most major Australian electricity
retailers and is currently deploying more than 7,000 meters
a month.
Vector’s electricity business restructured its arrangements
with Vector Communications over the fibre used to provide
SCADA connectivity across its network. As a result, Vector
Communications’ revenue (and Regulated Networks operating
expenditure) has decreased by $5.4 million relative to the prior
year. Excluding this change, Vector Communications has
delivered a steady result in what is a highly competitive market.
As mentioned in the 2018 half year result, we have been
disappointed by the performance of E-Co’s heat pump division.
The E-Co result was also impacted by the closure of the retrofit
window business and a significant investment in developing
the HRV solar business. E-Co’s core ventilation products have
continued to perform strongly and we remain confident that
the business will remain a market leader for healthy and energy
efficient home solutions. n
TECHNOLOGY
Adjusted EBITDA
for the Technology
division rose to
$130.5 million from
$122.5 million.”
—
SDG://
———
1 Including 135,284 meters which are
managed, but not owned, by Vector.
BUSINESS UNIT REPORTS
Technology
2018
Vector://AR 1842
TECHNOLOGY //
—
NEW ENERGY
SOLUTIONS
WILL CONTINUE
TO PROVIDE
CONSUMERS WITH
MORE CONTROL
AND CHOICE.
2 7.9%
Revenue for the Technology
business increased:
to
$273.6M
Driven largely by increased
deployment of smart
meters in New Zealand
and Australia and the
acquisition of E-Co
Products Group (trading
as HRV) and PowerSmart
from 31 March 2017.
BUSINESS UNIT REPORTS
Technology
2018
Vector://AR 1843
Building resilience across our business, and empowering our
people is what our People, Safety and Risk team does best.
From implementing diversity and inclusion initiatives, investing
in our peoples learning and development, ensuring everyone
gets home healthy and safe, to guarding the future sustainability
of Vector, everything our team does is about creating and
protecting value. This enhances our reputation, making sure
that we attract and retain the best people, while keeping pace
with a constantly changing and challenging environment.
AN INCLUSIVE EMPLOYER//
We are determined to foster a culture of innovation and diversity
of thought as we see this as essential for future proofing our
business to be able to embrace disruption. This includes
targeting our demographic mix, tackling inequalities and
investing in our people.
Workforce demographics
We are starting to make traction on our goal to have a workforce
representative of New Zealand’s population – across gender,
ethnicity and age.
We have seen a slight improvement in the percentage of
women working in our business overall. However, for women in
leadership positions the change has been significant. Women
now make up 34% of our direct reports to the executive team,
up from 21% in FY17. At the governance level, an additional
female director has been appointed this year, resulting in
38% female representation.
Vector’s ethnicity demographics have recorded minor
movements since 2017 with employees identifying as Asian
increasing by 1.7% and Māori 0.6%. Despite respective 2.0%
increases since 2014, Māori and Pasifika are underrepresented
in our workforce. This is something we are actively addressing
through leadership initiatives such as Te Whakaterehia Māori
Acceleration Programme and Vector’s Growing Pasifika Niu
Leaders Programme.
The age of our employees hasn’t had any significant changes
from FY17. We remain under-represented in the 20 to 29 age
group. We are seeking to address this through several initiatives
to attract youth.
Each year we run direct programmes to bring young people into
the business including summer internships, graduate placement
and apprenticeships. In FY18 we enrolled 12 young people
across these programmes.
Women in STEM
As an engineering, technology and increasingly digital business
Vector has supported a range of initiatives that promote Science,
Technology, Engineering and Mathematics (STEM) to young
women to encourage them to choose a career in these fields.
Vector participated in ShadowTech, an initiative that provides
girls in Years 9 to 11 with an opportunity to experience what
working in the technology sector is like, hosting and mentoring
students. We also continue to sponsor the EPro8 Challenge
and were involved in Future in Tech’s Tiaki Programme.
These STEM focused programmes provided an opportunity to
meet and interact with some of our female engineers. Our
ongoing schools programme where we teach pupils about
energy safety and sustainability is another area where girls are
exposed to the industry. Our Kapuni facility also participated in
Girls with High Vis inviting young women to try jobs that
traditionally are more popular with men.
PEOPLE, SAFETY AND RISK
Women now make up
34% of our direct reports
to the executive team,
up from 21% in FY17.”
—
SDG://
BUSINESS UNIT REPORTS
People, Safety and Risk
2018
Vector://AR 1844
PEOPLE, SAFETY AND RISK //
VECTOR EMPLOYEES
BY AGE AND GENDER
AGEMALEFEMALE
GRAND
TOTAL
UNDER 20112
20-2425934
25-29503585
30-347849127
35-398437121
40-447741118
45-496541106
50-547534109
55-59551469
60+531063
GRAND TOTAL563271834
VECTOR LEADERSHIP GROUP
BY GENDER
VECTOR GENDER
BREAKDOWN
MALE
2018
FEMALE
2018
MALE
2017
FEMALE
2017
Directors5 (62%)3 (38%)5 (71%)2 (29%)
Executive team6 (86%)1 (14%)5 (83%)1 (17%)
Direct reports to
the executive team25 (66%)13 (34%)30 (79%)8 (21%)
Across Vector
Group563 (68%)271 (32%)548 (69%)244 (31%)
14.3%
7. 6%
26.9%
29.7%
21.3%
0.1%
VECTOR EMPLOYEES
BY AGE
UNDER 20
20 – 29
30 – 39
40 – 49
50 – 59
60+
32%
68%
VECTOR EMPLOYEES
BY GENDER
FEMALE
MALE
9.7%
6.5%
1.4%
37.5%
26.4%
3.0%
5.6%
9.8%
VECTOR EMPLOYEES
BY ETHNICITY
ASIAN
EUROPEAN
MELAA*
NZ EUROPEAN
NZ MĀORI
OTHER
PASIFIKA
UNKNOWN
*
Middle Eastern, Latin American, and African
Data in all charts and tables on
this page exclude statistics from
subsidiaries PowerSmart and
E-Co Products Group.
BUSINESS UNIT REPORTS
People, Safety and Risk
2018
Vector://AR 1845
Diversity and inclusion initiatives
One of the strengths of our diversity and inclusion programme
is that our people develop the initiatives themselves.
He Kete Harakeke, Vector’s Māori group, launched a Māori
cultural mobile phone app ‘Vector Te Kete’, with the aim to
increase awareness and interest in Te Reo and Tikanga.
Our Rainbow Committee designed, developed and organised
our involvement in the annual Auckland Pride Festival. Vector
Lights provided a rainbow hued light show for the duration of
the festival. For the Pride Parade itself over 80 Vector
employees and their family members walked the route. Vector
has been accredited with the Rainbow Tick since 2016 in
recognition of our ongoing commitment to the LGBTI+ community.
Members of our Diversity and Inclusion Committee also created
an event to support the anti-bullying campaign, Pink Shirt Day.
Pay Equity
This year we undertook our first pay equity audit to ensure our
employees were receiving fair remuneration. Based on average
remuneration, there is a 14.9% average pay gap between
females and males, which is close to the New Zealand average.
Following the audit we have updated our remuneration policy
and set up the framework to complete an annual pay equity
audit and to address any variances immediately.
Living Wage
Vector was the first large corporate organisation in New Zealand
to be accredited as a Living Wage Employer by the Living Wage
Movement. This accreditation affirms our pledge to fairness and
equity in our approach to remuneration. The commitment
extends beyond direct employees with Vector also encouraging
subsidiaries, contractors and suppliers to adopt the same
approach. Being part of this movement and helping to raise the
wages floor in New Zealand is one way Vector can contribute to
reducing inequality.
Learning and Development
We have a comprehensive learning and development
programme which blends e-learning, facilitator led workshops
and action learning syndicates all designed to grow skills and
behaviours aligned to our values. One of the highlights this year
has been the impact of the no nonsense and simple messages
from the workshops delivered by All Black Manager, Gilbert
Enoka, on leadership and driving high performance.
We continue to build on the leadership programmes that we
launched in 2017, with our second Women in Leadership and
Pasifika programmes now underway. Forty women have been
involved in the Women in Leadership programme. A key
strength of this initiative is that the participants learn by
undertaking real Vector projects.
Our second Pasifika Niu Leaders Programme has been launched,
and has expanded from 12 participants to 18 representing
12 organisations. The Growing Pasifika Niu Leaders Programme
was designed by Vector after we saw a gap in tailored leadership
programmes. We wanted to reach beyond Vector to other
corporates to create a network of leaders of Pasifika origin. The
programme provides Pasifika leaders an opportunity to explore
and develop their leadership potential through the lens of a
shared Pasifika heritage with leaders from other corporates to
build a strong support network.
We have now had more than 60 people complete our emerging
and first-time leader programme, Foundations of Leadership.
The initiative is building a strong pipeline of talent for our
business, and the understanding that everyone, not just those
who manage people, has a role as a leader.
We hosted a “career thinking” series at our Auckland, Wellington
and Christchurch offices. Inspirational speakers on the topics of
personal and professional development encouraged our people
to think about their careers.
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Vector://AR 1846
To help build capability around sustainable business practices
Vector sends directors, executives and a mix of both senior and
junior employees on courses run by the Cambridge Institute for
Sustainability Leadership. Our Chief Risk Officer is part of the
faculty sharing Vector’s experience with other businesses across
Australasia.
FUTURE WORKPLACE
Future proofing our business means identifying how our people
want to work, and creating a range of options that meet their
needs. We have started by considering how we redesign our
head office more effectively to create a modern work space
which is flexible, collaborative and responsive.
In May, we began a three-month trial of a concept called
Core Working Hours. This trial is aimed at providing options
for employees who wish to reduce time spent in peak
commuting times, as well as allowing flexibility for people
to drop off or pick up children or to provide care for others.
The concept builds upon a recent employee survey which
indicated that 67% of respondents are accessing informal
flexible working arrangements.
Hours of
training
completed
11,099
The key area for me is
going from a person
who enjoyed blending
into the background,
being invisible, to now
co-leading a Pasifika
Network within
Auckland Transport.”
—
—
2017 GRADUATE,
JO LEPUA,
AUCKLAND TRANSPORT
BUSINESS UNIT REPORTS
People, Safety and Risk continued
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Vector://AR 1847
FY16FY17
57%
50%
71%
70%
FY18
80% 80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
WELLBEING 360
PARTICIPANTS (%)
ACTUAL AMOUNT
TARGET AMOUNT
LOOKING AFTER OUR PEOPLE//
Our focus on worker safety and the wellbeing of our people
continues to mature. A culture of safety is leading to better
engagement and more robust reporting of incidents, and our
wellbeing initiatives continue to focus on wellbeing from a
physical, mental, social and work perspective, which has seen
our programmes become more holistic.
Managing Family Violence
This year, we introduced our Managing Family Violence policy
and training. Our policy details how employees who are
experiencing or escaping family violence can be supported and
to guide the response of managers to employees whose work
life is affected by family violence.
Awareness has been increased through the rollout across the
Vector group of a family violence e-learning module and training
workshops were facilitated by Women’s Refuge. This training
was further reinforced by the launch of an e-learning module
on preventing bullying and harassment.
Wellbeing Programme
FY18 was the second year that Vector has run a concentrated
and dedicated wellbeing programme. Over the past 12 months
Vector employees have been able to take part in a wide range of
wellbeing initiatives. One of our biggest successes this year was
the increase in participation for the monthly Resilience and
Wellbeing (RAW) challenges of 158%. The challenges target
four key areas of wellbeing – social, mental, physical, and work
wellbeing and encourage participants to undertake activities
over a month-long period. The Auckland HSE Committee also
organised and ran a Health, Safety and Environment (HSE)
Expo at the Head Office, highlighting a number of health,
environmental and safety topics and activities.
We have also seen a continued increase in participation in the
Wellbeing 360 survey – going from a 71% participation rate in
FY17 to 80% in FY18.
Our wellbeing programme is underpinned by the provision
of a range of free occupational health services and
wellness monitoring.
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Vector://AR 1848
AS/NZS
Certification maintained
for New Zealand and
Australia business
4801
NZS
Certification maintained
for Vector’s safety
management system for
Public Safety
7901
HSE Leadership
engagements
undertaken
195
Students attended Stay
Safe around Electricity
schools programme
3,218
HSE Training hours
completed
5,825
Ensuring we have competent and trained employees is key to our
ability to deliver our services and products safely and efficiently.
Our people have completed over 5,825 hours in HSE specific
training during FY18, covering topics such as lone worker
safety, management of fatigue, management of stress, and
carbon emissions.
HSE leadership engagements are a vital part of building on
our HSE culture as it allows senior management to interact
and engage with the wider workforce and develop strong HSE
conversations. A total of 195 leadership engagements took
place over FY18.
Safety Performance
In addition to lead indicators, we also track a number of lag
indicators which include Lost Time Injury Frequency Rate
(LTIFR), and Total Recordable Injury Frequency Rate (TRIFR).
Further, the severity of lost time indicators is measured by
tracking and counting the number of working days lost due
to the injury. Vector consolidates all contractor and direct
employee safety statistics to provide a holistic picture of safety
performance across our total business. We have made an
8.7%, improvement in our LTIFR over FY17. Our TRIFR has
increased by 53%, which we attribute to having a more open
and transparent reporting culture amongst our workforce.
0
02
04
06
08
10
12
14
16
FY14FY15FY16FY18
12.95
7.45
8.04
12.54
FY17
8.18
0
02
04
06
08
10
12
14
16
FY18FY14FY15FY16FY17
2.80
2.90
2.96
2.30
2.52
TOTAL RECORDABLE INJURY FREQUENCY RATE
Number of recordable cases per million hours
worked including contractors
LOST TIME INJURY FREQUENCY RATE
Number of lost-time injuries per million hours
worked including contractors
TRIFR – COMBINED LTIFR – COMBINED
BUSINESS UNIT REPORTS
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2018
Vector://AR 1849
ACTION ON CLIMATE CHANGE//
Climate change is being recognised as an economic issue with
real costs but also as opportunities for businesses that are
embracing a clean energy future.
Vector has taken a significant step forward by making an
ambitious commitment on reducing greenhouse gas emissions
and improving our understanding of climate change impacts as
part of our commitment to climate action.
In 2017 Vector announced a commitment to achieve net zero
carbon emissions by 2030. This acknowledges that while 2050
is the proposed target for the country, early action will avoid
significant costs in the future.
The commitment to net zero carbon has been supported by
a range of leadership action. Our Group Chief Executive has
co-led a leadership group from the business community on
climate action which culminated in the creation of a Climate
Leaders Coalition. The Coalition is committing to emissions
reduction in line with the Paris Agreement. Vector has also
brought two important thought leaders to New Zealand –
Professor Will Steffan and Simon Corbell, who spoke on the
science of climate change and the experience of the Australian
Capital Territory in tackling climate change.
To help spur practical action at a city level, Vector sponsored
and actively participated in Auckland’s first Climathon, hosted
by the University of Auckland. This 24-hour hackathon exposed
participants to design thinking processes and they emerged
with a number of concepts for reducing emissions.
Vector supported the inaugural New Zealand Sustainable
Development Goals (SDG) Summit this year through
sponsorship and by contributing to the business session.
In addition, over the last year Vector has also completed two
major pieces of work to understand the impacts of climate
change on the business.
The assessment of physical impacts was focused on the
Auckland electricity and gas networks and has been used to
inform the latest Asset Management Plans for both networks.
The modelling of transition impacts to a two degree world was
economy-wide, recognising Vector’s exposure to a range of
sectors and interdependence with a number of key areas of
decarbonisation such as EV and solar uptake.
There are clear financial implications for the business from both
the transition to a two degree economy and the physical
impacts on assets. Vector is following the recommendations of
the Task Force on Climate-related Financial Disclosures (TCFD)
to guide disclosure on how we are responding to climate
change. As part of this, Vector has submitted a climate response
to the Carbon Disclosure Project (CDP).
At a regulatory level, Vector has been actively engaged in the
Productivity Commission inquiry into the Low Emissions economy
and early consultation on the proposed Zero Carbon Bill.
ENVIRONMENTAL MANAGEMENT//
Vector has continued to achieve the milestones in our FY16 to
FY19 Environmental Strategy. In FY18 we successfully maintained
ISO14001 certification of our environmental management
system, expanded our GHG emissions reporting, completed
environmental monitoring plans in all our businesses, undertook
a review of our waste management activities and set our first
carbon reduction target.
We have continued to address gaps identified in our initial
environmental gap analysis with 97% of actions now complete.
We have also focused on raising environmental awareness
through delivery of carbon and environmental e-learning
modules to more than 80% of our people.
For the FY18 year we have expanded our reporting on GHG
emissions to include our most material scope 3 emissions
(generated from business travel and fuel consumption by our
network field service providers).
Our scope 1 emissions have increased by 9% from FY17. This
rise is the result of increased production volumes at the Kapuni
Gas Treatment Plant which we are unable to control. Scope 2
emissions have decreased by 8% due to lower electricity
transmission losses.
Successful initiatives undertaken during the year to reduce
greenhouse gas emissions included:
• Completing the transition of our corporate vehicle fleet to
100% electric or PHEV vehicles
• Completing an upgrade of our air-conditioning systems and
IT servers in our head office resulting in a 66% reduction in
electricity usage for this equipment
• Solar installation on two further substations.
To engage our people and signal the increasing importance of
climate action for our business we set a modest target of 10%
reduction in carbon intensity of our corporate carbon emissions
for the year. We achieved the target with a 14% reduction in
intensity (reduction in absolute emissions was 15% or 200.84
tonnes CO
2
-e). This covers business travel, fleet fuel use, and
electricity consumption across our offices – activities that all of
our people can influence in some way. This target is part of the
short term incentive for all employees creating a financial
imperative for action.
We received one environmental infringement notice from
Auckland Council during FY18. This occurred when a contractor,
while working on an excavation, inadvertently pumped sediment
laden water from a trench into the stormwater drain. A detailed
investigation was completed, which resulted in the contractor’s
environmental management procedures being updated and
employee awareness training undertaken. n
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Vector://AR 1850
CASE STUDY:// TWO DEGREE ECONOMIC MODELLING
During the year Vector commissioned a report on the economic
impacts of a transition to a two degree world with a particular
focus on the sectors of most relevance to the business. The
modelling used three scenarios for how New Zealand might
achieve net zero GHG emissions. These scenarios included one
to achieve the target by 2050; another with the same 2050
timeframe but with any real action delayed until after 2030;
and a third that sets an ambitious timeframe of 2040.
The exercise has provided Vector with valuable insights into the
key changes that would be required in the energy sector,
including transport, for New Zealand to be able to successfully
achieve net zero carbon. It has also enabled a level of optimism
that the transition can be completed while continuing with
modest economic growth.
Vector will utilise this information in our strategic assessment
of risks and opportunities that are likely to result from the
transition. n
FY17
FY18
195.64tCO
2
e
642.29tCO
2
e
CARBON AVOIDED THROUGH
VECTOR EV CHARGERS
FUTURE FOCUS AREAS//
Future of Work
We recognise that artificial intelligence and robotics are
significantly disrupting the way we work and we therefore need
to identify what will add value and how we can upskill employees
to ensure a fair transition into new roles. A cross functional
project team is investigating opportunities associated with
artificial intelligence and robotics and is collaborating with other
New Zealand corporate businesses to share ideas.
Circular Economy
We are beginning the process of reducing materials
consumption and waste to landfill by taking a circular economy
approach. This will incorporate not only the materials we use
directly but also consideration of products that are part of our
value chain including batteries and solar panels.
Safety 2
Safety 2 focuses on looking at what goes right 99% of the time
and why – rather than a retrospective view once something has
gone wrong. It is a new lens to safety but one that we are
confident in progressing with the business.
Mental Wellbeing
In recognition that mental health traverses both personal and
work lives we are seeing a need to provide a more formal
support network for our people. An initial step on this journey
will be the creation of mental health first aiders. n
CARBON BASELINE
FY18FY17% CHANGE
Scope 1*369,946 tCO
2
e340,176 tCO
2
e9%
Scope 2**29,069 tCO
2
e 31,597 tCO
2
e-8%
Scope 3***5,866 tCO
2
e––
* The majority (over 89.89%) of our scope 1 emissions relate to both the energy used to process gas at Vector’s Kapuni Gas
Treatment Plant and the fugitive carbon emitted as part of the Benfield process applied at the site. The volume of gas that
Vector is required to process at this site is determined by the gas field owner, who is the “miner” under the Climate Change
Response Act. Vector is unable to control this in any way and is required to process the gas under the Kapuni Gas
arrangements implemented by the New Zealand Government in the 1970’s when it was the Natural Gas Corporation of
New Zealand.
** Our scope 1 and 2 carbon data is inclusive of the cogeneration facility at Kapuni Gas Treatment Plant, which has been
apportioned 50% between the two joint venture parties, but excludes emissions from subsidiaries PowerSmart NZ Limited
and E-Co Products Group Limited.
*** Scope 3 emission sources include business travel, transmission and distribution loss for purchased electricity ex Auckland,
and fuel consumption for our Networks Field Service Providers.
SDG://
ISO
certified
14001
BUSINESS UNIT REPORTS
People, Safety and Risk continued
2018
Vector://AR 1851
—
SIBYLLE
KRIEGER
MICHAEL STIASSNY
BCom, LLB, CA, FInstD
CHAIRMAN, INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED ON 11 SEP 2002
Michael Stiassny is a fellow
of Chartered Accountants
Australia and New Zealand
and prominent strategic
adviser, specialising in issues
resolution. He is a director
of a number of public and
private companies, Chairman
of the NZ Transport Agency
and is Chairman of Ngāti
Whātua Ōrākei Whai Rawa
Limited and Tower Limited.
Michael is a fellow and former
president of the Institute of
Directors in New Zealand (Inc).
DAVID BARTHOLOMEW
BE (Hon), MBA
INDEPENDENT NON-EXECUTIVE
DIRECTOR
APPOINTED ON 28 FEB 2018
David Bartholomew is the
former Chief Executive of
DUET Group, an ASX-listed
utilities and energy company.
Aside from Vector, he is
a non-executive director
of Endeavour Energy, the
NSW electricity distributor;
Northern Territory Power &
Water Corporation; Dussur,
the Saudi Arabia Industrial
Investment Company; and
The Helmsman Project, a
not-for-profit organisation
providing coaching and
leadership development
programmes for Year 9
students in Western Sydney.
Before joining DUET, David
was Director of Infrastructure
at Hastings Funds Management.
His prior experience includes
roles with LendLease, The
Boston Consulting Group and
BHP Minerals.
JAMES CARMICHAEL
BE, FIPENZ, CMInstD
NON-INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED ON 23 OCT 2008
James Carmichael is a trustee
of Entrust and an executive of
Energy Trusts of New Zealand
Inc. His significant international
energy sector experience
included responsibility for
multi-billion-dollar energy
assets and acquisition
strategy for Power-Gen
International Limited and
thermal and hydro power
generation investment
decisions for Ranhill
Power Berhad.
SIBYLLE KRIEGER
LLB (Hons), LLM, FAICD, MBA
INDEPENDENT NON-EXECUTIVE
DIRECTOR
APPOINTED ON 1 MAY 2018
Sibylle Krieger is an
experienced non-executive
director and board chair, with
a focus on regulated sectors
and sectors undergoing rapid
change. She has over 35 years
of commercial experience.
Sibylle is the independent
Chair of Xenith IP Group
Limited, a publicly listed
company, and an independent
director of MyState Limited.
She is also an independent
non-executive director of the
Australian Energy Market
Operator Limited. In the past
Sibylle has served on a range
of boards of both for profit
and not-for-profit organisations.
From 2006 to 2012 Sibylle
spent two terms as a Tribunal
member of IPART, the principal
NSW economic regulator. In
her executive career, Sibylle
was a partner of two major
commercial law firms, and held
a number of management
roles in both firms.
—
MICHAEL
STIASSNY
—
DAVID
BARTHOLOMEW
—
JAMES
CARMICHAEL
Our experienced
directors hail from
diverse backgrounds
and lead Vector
on behalf of our
shareholders and
other stakeholders
OUR BOARD
2018
Vector://AR 1852
—
JONATHAN
MASON
STRONG GOVERNANCE //
—
BOB
THOMSON
—
KAREN
SHERRY
—
DAME
ALISON
PATERSO N
JONATHAN MASON
MBA, MA, BA
INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED ON 10 MAY 2013
Jonathan Mason has extensive
commercial experience.
He has worked in financial
management positions in the
oil and gas, chemicals, forest
products and dairy industries
in New Zealand and the USA
for International Paper,
ExxonMobil Corporation,
Carter Holt Harvey, Cabot
Corporation and Fonterra.
Jonathan also has experience
as a non-executive director on
boards in both New Zealand
and the USA and is currently
a director of Air New Zealand
Limited, New Zealand Assets
Management Limited (NZAM),
Westpac New Zealand
Limited and Zespri Group
Limited. He is also an Adjunct
Professor of Management at
the University of Auckland,
focusing on finance.
DAME ALISON PATERSON
DNZM, QSO, DCom(hc),
FCA, ADistFInstD
INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED ON 7 MAR 2007
Dame Alison Paterson
is Chair of the Forestry
Industry Safety Council, Kiwi
Wealth Group, Te Aupouri
Commercial Development
Limited and Te Aupouri
Fisheries Management
Limited. She is also a
member of the New Zealand
Markets Disciplinary Tribunal
and a member of the Health
Quality & Safety Commission
New Zealand.
KAREN SHERRY
QSM, BA, MA (Hons),
LLB (Hons), C.FInstD.
NON-INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED ON 24 JUL 2006
Karen Sherry is a director and
shareholder of the firm Bell-
Booth Sherry Limited where
she specialises in commercial
and trust law. She is a trustee
and former Chair of Entrust.
Karen is the Chair of Energy
Trusts of New Zealand Inc
and a director of the Energy
Efficiency and Conservation
Authority. She is also a
chartered fellow of the
Institute of Directors in
New Zealand.
BOB THOMSON
BEng (Electrical), DipBS
INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED ON 18 MAR 2005
Bob Thomson was chief
executive of Transpower
Limited and, since 2004,
has been an adviser to
Energy Trusts of New Zealand
Inc. Prior to his appointment
at Transpower, he held a
range of senior management
and engineering positions in
the New Zealand Electricity
Department and Electricity
Corporation of New Zealand
Limited. Bob was involved in
the reform of the electricity
industry, including as a board
member of the Electricity
Market Company Limited
from 1994 to 1998. He
is a fellow of Engineering
New Zealand (formerly the
Institution of Professional
Engineers New Zealand).
OUR BOARD
2018
Vector://AR 1853
KATE BEDDOE
BA, LLB
CHIEF RISK OFFICER
Kate Beddoe leads Vector’s
people, safety, sustainability
and risk teams to ensure
these areas are aligned and
support Vector’s strategy
and culture. Areas of her
responsibility include
enterprise risk management,
sustainability, business
continuity management,
internal audit, cyber security,
HSE and human resources.
Kate’s background includes
strategic and operational risk
management, business
continuity, OHSE, sustainability,
insurance and commercial
law. Prior to joining Vector in
July 2012, Kate was with
Amcor Limited where she
held the global position of
Vice-President, Risk and
Sustainability and has held
management roles with
Toyota and Bonlac Foods
(Fonterra).
Vector’s management
team are experts in
their field, committed
to delivering world-
class infrastructure
services, and attuned
to the rapidly evolving
demands of our
customers.
—
SIMON
MACKENZIE
—
ANDRE
BOTHA
—
DAN
MOLLOY
SIMON MACKENZIE
Grad DipBS (Dist), DipFin, NZCE
GROUP CHIEF EXECUTIVE
OFFICER
Simon Mackenzie is passionate
about the power of technology
to transform the energy
industry and consumers’ lives.
As Group Chief Executive
Officer, he has expanded and
driven Vector’s portfolio of
businesses to embrace
innovative technologies and
strategies to deliver efficient,
sustainable energy solutions
to consumers.
Simon was appointed
Vector’s Group Chief
Executive Officer in 2008.
His tertiary qualifications
include engineering, finance
and business studies, and
the Advanced Management
Programme at the
Wharton School, University
of Pennsylvania.
Kate is also a director and
Vice President of RIMS
(Risk Management Society)
Australasia and a faculty
member of the Cambridge
Institute for Sustainability
Leadership – Business and
Sustainability Executive
Leadership Programme
(Melbourne).
ANDRE BOTHA
BEng, MEng, PG DipBus
CHIEF NETWORKS OFFICER
Andre is Vector’s Chief
Networks Officer, accountable
for Vector’s regulated
electricity and gas businesses.
He brings 28 years’
experience in the energy
sector with a proven track
record at executive level,
initially as Chief Engineer with
Eskom in South Africa and
most recently as Chief
Operations Officer with
Western Power in Australia.
Andre holds an ME (Electrical)
degree from the University of
Pretoria and a PGDip
(Finance) from the University
of Auckland.
DAN MOLLOY
BSc
CHIEF FINANCIAL OFFICER
Dan Molloy leads Vector’s
finance team and is
responsible for financial
and management reporting,
corporate finance, procurement,
transaction processing,
investor relations, treasury
and tax. He has 15 years’
experience in the professional
services sector across a
range of disciplines, including
corporate finance, valuation,
insolvency, restructuring
and business turnaround.
Dan joined Vector from
Northpower, where he was
Chief Financial Officer.
—
K ATE
BEDDOE
OUR MANAGEMENT TEAM
2018
Vector://AR 1854
—
BRIAN
RYAN
EXPERIENCED LEADERSHIP //
—
NIKHIL
RAVISHANKAR
—
ROD
SNODGRASS
NIKHIL RAVISHANKAR
BSc BComm (Hons)
CHIEF DIGITAL OFFICER
Nikhil Ravishankar leads the
Vector Group Digital team
and is responsible for
managing Vector’s IT and
digital functions. He works
across the group to help
shape Vector’s response to
disruptive technologies and
evolve Vector’s customer
engagement, business
enablement, and Energy
Internet of Things capabilities.
Prior to joining Vector, Nikhil
was with Accenture where he
held the position of Managing
Director for New Zealand
operations and also sat on its
Global Advisory Council for
Telecommunications and
Media practice. Prior to his
role at Accenture, he was the
Head of Technology Strategy
for Spark and was part of their
group transformation office.
BRIAN RYAN
MBA (Hons), BTech
GROUP GENERAL MANAGER
EMERGING TECHNOLOGIES
Brian Ryan led the Emerging
Technologies team, focused
on the company’s growth and
development, through the
implementation of disruptive
customer solutions and new
technologies. He headed the
Vector Communications
business, having previously
held strategic and commercial
executive roles in both the
technology and manufacturing
environments. Brian was a
board member and Vector’s
representative for the
Elemental Excelerator, a not-
for-profit organisation with
offices in Palo Alto, California,
and Hawaii that helps start-
ups change the world, one
community at a time. Brian
left Vector on 6 July 2018.
ROD SNODGRASS
BCA, CA, MinstD
CHIEF CUSTOMER OFFICER
Rod Snodgrass joined Vector
in November 2017 as Chief
Customer Officer. His focus is
on delivering great customer
experiences and new products,
services and revenues through
the design and delivery of
new business models that
leverage innovative, renewable
and sustainable technologies.
Rod has over 20 years
experience in corporate
strategy, innovation, digital
growth and transformation in
the New Zealand telco, media,
internet and digital sectors.
Rod is currently on the board
of Metlife Care, Jucy and
SMX, and has sat on
numerous local and global
boards and is passionate
about building and executing
corporate, market, business
and product shaping
strategies and innovation.
Prior to that he was Chief
Executive of Spark Ventures,
leading from inception
Spark’s incubator and
innovation arm. n
OUR MANAGEMENT TEAM
2018
Vector://AR 1855
ENTRUST IS VECTOR’S MAJORITY SHAREHOLDER.
Entrust exists to ensure Aucklanders’ best interests remain
at the heart of Vector’s new energy future. For 25 years,
through strong and consistent ownership, Entrust has helped
Vector navigate new technology, economic disruption and
other challenges. As we look to the future, Entrust’s focus
remains locked on delivering outcomes for beneficiaries, and
energy consumers.
About Entrust
Entrust, which was formerly known as the Auckland Energy
Consumer Trust (AECT), was formed in 1993 as part of the
corporatisation of the Auckland Electric Power Board (AEPB).
Shares in the new company, which later became Vector, were
transferred to Entrust to hold on behalf of residential and
business consumers in the AEPB supply area.
Entrust’s role
Entrust’s mandate is to ensure Aucklanders get value from the
75.1% stake they hold in Vector. There are more than 325,000
households and businesses in the former AEPB supply area.
Entrust plays a key role in proposing and appointing directors to
the Vector Board, with two of Vector’s directors also Entrust
trustees. They approve all of Vector’s major financial
transactions and investment decisions.
Entrust is actively involved in regulatory and industry issues –
advocating for energy consumers throughout Auckland and
beyond. Recently Entrust has spoken out about a proposal to
increase Auckland’s transmission prices which they believe is
unfair and unnecessary.
Entrust also funds a proportion of the undergrounding of
overhead lines in the Entrust district, and promotes new
technologies such as solar, batteries, and community and
emergency generators.
Auckland benefits
Vector’s asset base has grown strongly in the 25 years Entrust
has been at the helm of Auckland’s shareholding stake. Entrust
has supported Vector to achieve this through diversification
into new sectors like energy metering, gas distribution and
new technologies.
Vector’s growth has allowed Entrust to distribute more than
$1.3 billion to its beneficiaries. In the past year alone it
distributed over $110 million.
Entrust trustees
Entrust has five trustees, who are elected every three years.
The trustees are: William Cairns (Chairman), Michael Buczkowski
(Deputy Chairman), Karen Sherry*, James Carmichael* and
Paul Hutchison. n
—
FROM LEFT TO RIGHT
—
SEATED: PAUL HUTCHISON,
KAREN SHERRY, AND
MICHAEL BUCZKOWSKI
(DEPUTY CHAIRMAN)
STANDING: WILLIAM CAIRNS
(CHAIRMAN) AND
JAMES CARMICHAEL.
—
* James Carmichael and
Karen Sherry sit on the
Vector Board.
ENTRUST ONLINE://
www.entrustnz.co.nz
www.facebook.com/entrustnz
0508 ENTRUST (0508 368 7878)
PO Box 109626, Auckland 1149
ENTRUST
2018
Vector://AR 1856
JOINT VENTURES AND INVESTMENTS //
Vector has investments in a number of businesses that
complement our network businesses and strengthen our
capabilities in the energy services field.
50%
50%
60.25%
7.7 7%
KAPUNI ENERGY
JOINT VENTURE
Vector Kapuni Limited (a wholly owned subsidiary of Vector)
holds a 50% interest in an unincorporated joint venture that
operates a cogeneration plant situated at the Kapuni Gas
Treatment Plant, producing electricity and steam for the gas
treatment plant and other customers.
TREESCAPE
Vector holds a 50% shareholding in Tree Scape Limited, one of
Australasia’s largest specialist tree and vegetation management
companies, with depots throughout New Zealand and in
Queensland and New South Wales. Treescape employs more
than 500 employees. Its customers include councils, utilities,
government agencies, construction companies and developers.
Treescape implements Vector’s planned vegetation management
programme, which plays a major role in minimising the impact of
severe weather on Vector’s electricity network.
www.treescape.co.nz
LIQUIGAS
NGC Holdings Limited (a wholly owned subsidiary of
Vector) holds a 60.25% shareholding in Liquigas Limited,
New Zealand’s leading company for tolling, storage and
distribution of bulk LPG. Liquigas has employees and depots
in Auckland, New Plymouth, Christchurch and Dunedin.
www.liquigas.co.nz
mPREST
Vector holds a 7.77% shareholding in mPrest Systems
(2003) Limited. The mPrest technology allows network
companies to better monitor, analyse, and control energy
networks and connect traditional infrastructure like
electricity lines and substations with new technology
like solar and battery energy solutions.
www.mprest.com
JOINT VENTURES AND INVESTMENTS
2018
Vector://AR 1857
1. As at 30 June.
2. Net number of customers added during the period, includes disconnected,
reconnected and decommissioned ICPs.
3.
Regulatory year - 12 months to 31 March (audited).
4. Billable ICPs.
5. The number of new connections in gas distribution for the year ended 30 June
2018 includes an adjustment for 341 ICPs following a data cleanse by one of the
retailers. The change was first applied in the 3 months ended 30 September
2017 and so has no impact on the comparative period.
6.
Excludes gas sold as gas liquids. These sales are included within the gas liquids
sales tonnages.
7.
Total of retail and wholesale LPG and natural gasoline.
8. Number of 9kg LPG bottles swapped and sold during the year.
9. Includes product tolled in Taranaki and further tolled in the South Island.
10. The number of smart meters deployed as at 30 June 2018 includes 135,284
meters managed but not owned by Vector (30 June 2017: 102,808).
VECTOR OPERATING
STATISTICS
YEAR ENDED 30 JUNE20182017
ELECTRICITY
Customers
1, 4
563,076555,100
New connections11,1359,138
Net movement in customers
2
7,9765,047
Volume distributed (GWh)8,4428,332
Networks length (km)
1
18,69418,503
SAIDI (minutes)
3
Normal operations
226.2173.3
Extreme events31.238.8
Total257.4212.1
GAS DISTRIBUTION
Customers
1, 4
109,229106,670
New connections
5
3,1653,515
Net movement in customers
2
2,5592,348
Volume distributed (PJ)
6
14.514.3
GAS TRADING
Natural gas sales (PJ)
6
18.317.8
Gas liquid sales (tonnes)
7
77,65673,119
9kg LPG bottles swapped
8
652,859604,391
Liquigas LPG tolling (tonnes)
9
183,540169,046
TECHNOLOGY
Electricity: smart meters
1, 10
1,405,9361,280,889
Electricity: legacy meters
1
86,50596,529
Electricity: prepay meters
1
623,555
Electricity: time-of-use meters
1
12,32712,134
Gas meters
1
224,770221,495
Data management and service connections
1
8,8108,823
OPERATING STATISTICS
2018
Vector://AR 1858
Vector’s standard profit measure prepared under New Zealand Generally Accepted Accounting
Practice (GAAP) is net profit. Vector has used non-GAAP profit measures when discussing
financial performance in this document. The directors and management believe that these
measures provide useful information as they are used internally to evaluate performance of
business units, to establish operational goals and to allocate resources. For a more comprehensive
discussion on the use of non-GAAP profit measures, please refer to the policy ‘Reporting non-
GAAP profit measures’ available on our website (vector.co.nz).
Non-GAAP profit measures are not prepared in accordance with New Zealand International
Reporting Standards (NZ IFRS) and are not uniformly defined; therefore, the non-GAAP profit
measures reported in this document may not be comparable with those that other companies
report and should not be viewed in isolation from or considered as a substitute for measures
reported by Vector in accordance with NZ IFRS.
DEFINITIONS
EBITDA: Earnings before interest, taxation, depreciation and amortisation from
continuing operations
Adjusted EBITDA:
EBITDA from continuing operations adjusted for fair value changes,
associates, impairments, capital contributions, and significant one-off gains,
losses, revenues and/or expenses.
GAAP TO NON-GAAP RECONCILIATION
YEAR ENDED 30 JUNE ($ MILLION)
Group EBITDA and adjusted EBITDA from continuing operations
20182017
Reported net profit for the period (GAAP)
149.8 168.9
Add back: net interest costs
1
130.7 137.3
Add back: tax (benefit)/expense
1
36.834.1
Add back: depreciation and amortisation
1
225.9 199.6
EBITDA543.2 539.9
Adjusted for:
Associates (share of net (profit)/loss)
1
1.5(1.6)
Capital contributions
1
(71.5)(62.3)
Fair value change on financial instruments
1
(3.1)(1.6)
Impairment
1
– –
Adjusted EBITDA
470.1 474.4
1. Extracted from audited financial statements
20182017
YEAR ENDED 30 JUNE ($ MILLION)
Segment adjusted EBITDA
REPORTED
SEGMENT
EBITDA
LESS CAPITAL
CONTRIBUTIONS
SEGMENT
ADJUSTED
EBITDA
REPORTED
SEGMENT
EBITDA
LESS CAPITAL
CONTRIBUTIONS
SEGMENT
ADJUSTED
EBITDA
Technology
131.8 (1.3)130.5 123.6 (1.1)122.5
Gas Trading
34.4 – 34.4 36.9 – 36.9
Unregulated segments
166.2 (1.3)164.9 160.5 (1.1)159.4
Regulated segment
428.8 (70.2)358.6 422.4 (61.2)361.2
Corporate
(53.4) – (53.4)(46.2) – (46.2)
TOTAL
541.6(71.5)470.1 536.7 (62.3)474.4
NON-GAAP FINANCIAL INFORMATION
2018
Vector://AR 1859
YEAR ENDED 30 JUNE ($ MILLION)20182017201620152014
PROFIT OR LOSS – CONTINUING OPERATIONS
1
Total income
1,328.41,226.71,144.61,153.41,122.3
Adjusted EBITDA
470.1474.4473.0451.9446.5
Depreciation and amortisation
(225.9)(199.6)(194.6)(179.0)(168.5)
Adjusted EBIT
244.2274.8278.4272.9278.0
Net profit – continuing operations
149.8168.958.988.3114.4
PROFIT OR LOSS – DISCONTINUED OPERATIONS
Total income
––110.7140.6136.6
Adjusted EBITDA
––75.388.590.5
Depreciation and amortisation
––(5.8)(16.2)(15.3)
Adjusted EBIT
––69.572.375.2
Net profit – including discontinued operations
149.8168.9274.4149.4171.3
BALANCE SHEET
Total equity
2,457.92,448.32,398.32,298.62,307.8
Total assets
5,808.05,574.65,603.06,123.05,839.1
Economic net debt (borrowings net of cash and deposits)
2,377.82,220.11,932.92,745.12,625.0
CASH FLOW
Operating cash flow
389.9335.7352.1369.2366.6
Capital expenditure
(386.8)(354.3)(340.1)(311.8)(327.4)
Dividends paid
(163.9)(161.0)(159.2)(155.4)(156.7)
KEY FINANCIAL MEASURES
Adjusted EBITDA/total income
35.4%38.7%41.3%39.2%39.8%
Adjusted EBIT/total income
18.4%22.4%24.3%23.7%24.8%
Equity/total assets
42.3%43.9%42.8%37.5%39.5%
Return on assets (adjusted EBITDA/assets)
8.1%8.5%8.4%7.4%7.6%
Gearing
2
48.8%47.1%43.7%53.6%52.5%
Net interest cover – continuing ops (adjusted EBIT/net finance costs) (times)
1.92.01.61.51.6
Earnings (NPAT) per share (cents) including discontinued activities
14.816.727.214.616.9
Dividends declared, cents per share (fully imputed)
16.2516.0015.7515.5015.25
1. Prepared on a continuing basis, excluding contribution from gas transmission and Non-Auckland gas distribution for all periods presented.
2. Gearing is defined as economic net debt to economic net debt plus adjusted equity. Adjusted equity means total equity adjusted for hedge reserves.
446.5473.0474.4470.1
FY14FY15FY16FY17FY18
0
100
-100
200
300
400
500
600
700
451.9
ADJUSTED EBITDA (CONTINUING OPERATIONS)
$ MILLION
REGULATED NETWORKS
GAS TRADING
TECHNOLOGY
CORPORATE
TOTAL GROUP
FIVE YEAR FINANCIAL PERFORMANCE
FINANCIAL PERFORMANCE TRENDS
2018
Vector://AR 1860
FY14FY15FY16FY17FY18
171.3
149.4
274.4
168.9
149.8
0
50
100
150
200
250
300
FY14FY15FY16FY17FY18
366.6
369.2
352.1
335.7
389.9
0
50
100
150
200
250
300
350
400
450
NET PROFIT
(INCLUDING DISCONTINUED OPERATIONS)
$ MILLION
OPERATING CASH FLOWS
(INCLUDING DISCONTINUED OPERATIONS)
$ MILLION
6%
65%
25%
4%
F
Y
1
8
F
Y
1
7
6%
28%
9%
57%
49%
51%
F
Y
1
8
F
Y
1
7
53%
47%
CAPITAL EXPENDITURE
SOURCE OF FUNDING – GEARING
As at 30 June
REGULATED NETWORKS
GAS TRADING
TECHNOLOGY
CORPORATE
REGULATED NETWORKS
GAS TRADING
TECHNOLOGY
CORPORATE
INTER-SEGMENT
ECONOMIC
NET DEBT
ADJUSTED EQUITY
-100
150
400
650
900
1150
1400
FY14FY15FY16FY17FY18
1,122.3
1,153.4
1,144.6
1,226.7
1,328.4
TOTAL INCOME
(CONTINUING OPERATIONS)
$ MILLION
STANDARD &
POOR’S RATING
/ S TAB LE
BBB
FIVE YEAR FINANCIAL PERFORMANCE //
FINANCIAL PERFORMANCE TRENDS
2018
Vector://AR 1861
Vector://AR 1862
2018
Vector://AR 1863
STATUTORY REPORT.
04.
PERFORMANCE
2018
VECTOR.CO.NZ
EMPOWERING
YOU.
Vector://AR 1864
2018
FINANCIAL STATEMENTS
Financial Statements
65 ————— Profit or Loss
66 ————— Other Comprehensive Income
67 ————— Balance Sheet
68 ————— Cash Flows
69 ————— Changes in Equity
70 ————— Notes to the Financial Statements
108 ————— Independent Auditor’s Report
2018 FINANCIAL STATEMENTS
These financial statements for the year ended 30 June 2018 are dated 23 August 2018,
and signed for and on behalf of Vector Limited by:
Director
23 August 2018
Director 23 August 2018
And management of Vector Limited by:
Group Chief Executive
23 August 2018
Chief Financial Officer 23 August 2018
Vector://AR 1865
2018
PROFIT OR LOSS
for the year ended 30 June
NOTE
2018
$M
2017
$M
Revenue51,328.41,226.7
Operating expenses6(786.8)(690.0)
Depreciation and amortisation(225.9)(199.6)
Interest costs (net) 7(130.7)(137.3)
Fair value change on financial instruments83.11.6
Associates (share of net profit/(loss))12.2(1.5)1.6
Profit/(loss) before income tax186.6203.0
Tax benefit/(expense)9(36.8)(34.1)
Net profit/(loss) for the period149.8168.9
Net profit/(loss) for the period attributable to
Non-controlling interests
1.63.1
Owners of the parent 148.2165.8
Basic and diluted earnings per share (cents) 22.314.816.7
Vector://AR 1866
2018
OTHER COMPREHENSIVE INCOME
for the year ended 30 June
NOTE
2018
$M
2017
$M
Net profit/(loss) for the period149.8168.9
Other comprehensive income net of tax
Items that may be re-classified subsequently to profit or loss:
Net change in fair value of hedge reserves
19.28.940.3
Translation of foreign operations(0.3)0.1
Items that will not be re-classified to profit or loss:
Fair value change on financial asset
121.11.8
Other comprehensive income for the period net of tax9.742.2
Total comprehensive income for the period net of tax159.5211.1
Total comprehensive income for the period attributable to
Non-controlling interests
1.63.1
Owners of the parent 157.9208.0
Vector://AR 1867
2018
BALANCE SHEET
as at 30 June
NOTE
2018
$M
2017
$M
CURRENT ASSETS
Cash and cash equivalents
21.327.914.9
Trade and other receivables11210.0206.3
Derivatives190.1–
Inventories11.611.3
Intangible assets1.02.4
Income tax84.751.1
Total current assets335.3286.0
NON-CURRENT ASSETS
Receivables
110.1–
Derivatives1956.538.0
Investment in associate12.28.19.6
Other investments12.415.06.2
Intangible assets131,397.21,397.2
Property, plant and equipment (PPE)143,995.73,837.5
Deferred tax100.10.1
Total non-current assets5,472.75,288.6
Total assets5,808.05,574.6
CURRENT LIABILITIES
Trade and other payables
16258.5250.0
Provisions1724.44.8
Borrowings18224.2399.7
Derivatives1965.86.6
Income tax0.70.5
Total current liabilities573.6661.6
NON-CURRENT LIABILITIES
Payables
1644.941.5
Provisions1722.620.4
Borrowings182,171.11,770.7
Derivatives1951.2156.5
Deferred tax 10486.7475.6
Total non-current liabilities2,776.52,464.7
Total liabilities3,350.13,126.3
EQUITY
Equity attributable to owners of the parent
2,440.42,430.6
Non-controlling interests in subsidiaries17.517.7
Total equity2,457.92,448.3
Total equity and liabilities5,808.05,574.6
Net tangible assets per share (cents)22.3104.2103.5
Gearing ratio (%)22.348.847.1
Vector://AR 1868
2018
CASH FLOWS
for the year ended 30 June
NOTE
2018
$M
2017
$M
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
1,312.21,224.2
Interest received 2.09.0
Dividends received 0.52.0
Payments to suppliers and employees(736.5)(686.6)
Interest paid(127.0)(151.7)
Income tax refunded–0.9
Income tax paid (61.3)(62.1)
Net cash flows from/(used in) operating activities21.1389.9335.7
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of PPE and software intangibles
0.40.4
Proceeds from sale of investments37.8–
Purchase and construction of PPE and software intangibles(386.8)(354.3)
Acquisition of businesses3(1.7)(91.0)
Post-completion payment for acquisition of businesses(1.4)–
Other investments3(14.0)–
Net cash flows from/(used in) investing activities(395.7)(444.9)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
21.2570.8239.6
Repayment of borrowings21.2(400.0)(273.2)
Dividends paid (163.9)(161.0)
Sale of treasury shares14.0–
Other financing cash flows21.2(2.1)(2.7)
Net cash flows from/(used in) financing activities21.218.8(197.3)
Net increase/(decrease) in cash and cash equivalents13.0(306.5)
Cash and cash equivalents at beginning of the period14.9321.4
Cash and cash equivalents at end of the period27.914.9
Cash and cash equivalents comprise:
Bank balances and on-call deposits
21.319.67.0
Short-term deposits 21.38.37.9
27.914.9
Vector://AR 1869
2018
CHANGES IN EQUITY
for the year ended 30 June
NOTE
ISSUED
SHARE
CAPITAL
$M
TREASURY
SHARES
$M
HEDGE
RESERVES
$M
OTHER
RESERVES
$M
RETAINED
EARNINGS
$M
NON-
CONTROLLING
INTERESTS
$M
TOTAL
EQUITY
$M
Balance at 1 July 2016875.0(9.2)(89.3)(1.1)1,606.516.32,398.2
Net profit/(loss) for the
period
– – – –165.83.1168.9
Other comprehensive
income
– – 40.31.9– – 42.2
Total comprehensive income– –40.31.9165.83.1211.1
Dividends – – ––(159.3)(1.7)(161.0)
Total transactions with
owners
– – ––(159.3)(1.7)(161.0)
Balance at 30 June 2017875.0(9.2)(49.0)0.81,613.017.72,448.3
Net profit/(loss) for the
period
––––148.21.6149.8
Other comprehensive
income
––8.90.8––9.7
Total comprehensive income––8.90.8148.21.6159.5
Dividends 3––––(162.1)(1.8)(163.9)
Sale of treasury shares35.09.0––––14.0
Total transactions with
owners
5.09.0––(162.1)(1.8)(149.9)
Reclassification on sale
of financial asset
–––(1.9)1.9––
Balance at 30 June 2018880.0(0.2)(40.1)(0.3)1,601.017.52,457.9
Vector://AR 1870
2018
NOTES TO THE FINANCIAL STATEMENTS
7 1 ————— No t e 1
Company information
7 1 ————— No t e 2
Summary of significant
accounting policies
7 2 ————— No t e 3
Significant transactions
and events
7 4 ————— No t e 4
Segment information
7 7 ————— No t e 5
Revenue
7 8 ————— No t e 6
Operating expenses
7 8 ————— No t e 7
Interest costs (net)
7 9 ————— No t e 8
Fair value change
on financial instruments
7 9 ————— No t e 9
Income tax expense/
(benefit)
8 0 ————— No t e 1 0
Deferred tax
8 1 ————— No t e 1 1
Trade and other receivables
8 3 ————— No t e 1 2
Investments
8 6 ————— No t e 1 3
Intangible assets
8 8 ————— No t e 1 4
Property, plant and
equipment (PPE)
9 0 ————— No t e 1 5
Operating leases
9 1 ————— No t e 1 6
Trade and other payables
9 1 ————— No t e 1 7
Provisions
9 2 ————— No t e 1 8
Borrowings
9 4 ————— No t e 1 9
Derivatives and hedge
accounting
9 9 ————— No t e 2 0
Financial risk management
1 0 2 ————— No t e 2 1
Cash flows
1 0 4 ————— No t e 2 2
Equity
1 0 6 ————— No t e 2 3
Related party transactions
1 0 7 ————— No t e 2 4
Contingent liabilities
1 0 7 ————— No t e 2 5
Business combinations
1 0 7 ————— No t e 2 6
Events after balance date
2018
Vector://AR 1871
NOTES TO THE FINANCIAL STATEMENTS
01. Company information://
Reporting entityVector Limited is a company incorporated and domiciled in New Zealand, registered under the
Companies Act 1993 and listed on the NZX Main Board (NZX). The company is an FMC reporting
entity for the purposes of Part 7 of the Financial Markets Conduct Act 2013. The financial
statements comply with this Act.
The financial statements presented are for Vector Limited Group (“Vector” or “the group”)
as at, and for the year ended 30 June 2018. The group comprises Vector Limited (“the parent”),
its subsidiaries, and its investments in associates, financial assets and joint arrangements.
In accordance with the Financial Markets Conduct Act 2013, where a reporting entity prepares
consolidated financial statements, parent company disclosures are not required.
Vector Limited is a 75.1% owned subsidiary of Entrust which is the ultimate parent entity
for the group.
The primary operations of the group are electricity and gas distribution, natural gas and LPG
sales, gas processing, metering, telecommunications and new energy solutions.
02. Summary of significant
accounting policies://
Statement of complianceThe financial statements comply with New Zealand equivalents to International Financial Reporting
Standards (NZ IFRS), and other applicable Financial Reporting Standards, as appropriate for Tier 1
for-profit entities. They also comply with International Financial Reporting Standards.
Basis of preparationThe financial statements have been prepared in accordance with New Zealand Generally Accepted
Accounting Practice (NZ GAAP) as appropriate to Tier 1 for-profit entities.
They are prepared on the historical cost basis except for the following items, which are measured
at fair value:
—the identifiable assets and liabilities acquired in a business combination; and
—certain financial instruments, as disclosed in the notes to the financial statements.
The presentation currency is New Zealand dollars ($). All financial information has been rounded
to the nearest 100,000, unless otherwise stated.
The statements of profit or loss, other comprehensive income, cash flows and changes in equity
are stated exclusive of GST. All items in the balance sheet are stated exclusive of GST except for
trade receivables and trade payables, which include GST.
Significant accounting policies,
estimates and judgements
Vector’s management is required to make judgements, estimates, and apply assumptions that
affect the amounts reported in the financial statements. They have based these on historical
experience and other factors they believe to be reasonable. Actual results may differ from these
estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised and in the
future periods affected.
Accounting policies, and information about judgements, estimations and assumptions that have
had a significant effect on the amounts recognised in the financial statements are disclosed in
the relevant notes as follows:
—Revenue recognition (Note 5)
—Consolidation basis and classification and valuation of investments (Note 12)
—Impairment and valuation of goodwill (Note 13)
—Property, plant and equipment: valuation and classification of expenses (Note 14)
—Provisions (Note 17)
—Borrowings: measurement bases (Note 18)
—Valuation of derivatives (Note 19)
—Financial risk management – impairment of financial instruments (Note 20)
—Business combinations (Note 25)
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
72
02. Summary of significant
accounting policies://
CONTINUED
New and amended accounting
standards adopted
—Disclosure Initiative (Amendments to IAS 7)
The group has adopted Disclosure Initiative (Amendments to IAS 7) in the current year.
The impact of the amendment is limited to disclosures only, requiring a disclosure of changes
in liabilities arising from financing activities. Refer to note 21.2.
03. Significant transactions
and events://
Significant transactions and events that have occurred during the year ending 30 June 2018:
Commerce Commission
settlement
On 7 July 2017, Vector and the Commerce Commission agreed the settlement of an over-
recovery of electricity revenue by Vector during the regulatory years ended 31 March 2014 and
31 March 2015.
The agreement was to effect the settlement through future price adjustments for the regulatory
years ending 31 March 2019 and 31 March 2020. Total value of the adjustments is approximately
$13.9 million, including accumulated interest of $3.8 million. Financially the adjustments will
impact the group’s reported revenues and interest costs over three financial years, commencing
in the current year ended 30 June 2018 (3 months), and subsequently in years ended 30 June
2019 (12 months) and 30 June 2020 (9 months).
InvestmentsmPrest Systems (2003) Limited
On 4 October 2017, Vector invested $14.0 million (US $10.0 million) into mPrest Systems (2003)
Limited (mPrest). The investment is accounted for as a financial asset on the Balance Sheet.
The mPrest technology allows utilities to better monitor, analyse, forecast and control energy
networks and connect traditional infrastructure like electricity lines and substations with new
technologies like solar and battery energy solutions. Vector is in the process of rolling out the
mPrest technology across its Auckland network to improve its services to its customers.
At 30 June 2018, Vector holds 7.8% of the issued capital in mPrest.
SolPho Limited
Vector Energy Solutions Limited acquired 100% of the shares in SolPho Limited for cash
consideration of $0.7 million on 1 November 2017. SolPho Limited owns one of the largest solar
arrays in New Zealand, and the power is sold via a long-term offtake agreement.
Aircon Direct Limited
E-Co Products Group Limited and its associated subsidiary acquired the business of Aircon Direct
Limited for cash consideration of $1.0 million on 22 September 2017. Aircon Direct Limited is a
provider of air conditioning and ventilation system services and represents a geographical
expansion to E-Co Products Group’s business.
Sale of investmentsNZ Windfarms Limited
On 23 February 2018, the group executed the unconditional sale of its 22.11% shareholding in NZ
Windfarms Limited, an NZX listed renewable power generation entity. The sale transaction settled
on 27 February 2018 for a total consideration of $6.4 million, representing the fair value of the
investment at the time of sale. No gains and losses arose from the sale.
Power Ledger Pty Limited
Vector purchased a 2.7% equity stake in Power Ledger Pty Limited (“PowerLedger”) for $0.4m
in the prior year and concurrently entered into a trial arrangement with the company to test its
blockchain peer-to-peer technology on Vector’s network. The equity stake was repurchased by
PowerLedger from Vector in the current year for a consideration of $1.4 million, giving rise to a gain
of $1.0 million. The trial arrangement between the two parties ended at the time of the repurchase.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
73
03. Significant transactions
and events://
CONTINUED
Sale of treasury sharesOn 9 November 2017, the group sold 4,244,923 treasury shares to various investors for a total
of $14.0 million, at $3.30 per share (a 2.9% discount to the closing price on 8 November 2017).
This resulted in a gain of $5.0 million which has been recorded within issued share capital in equity.
Debt programmeOn 25 October 2017, Vector issued a total of $415.8 million (US $300.0 million) of USD senior
notes maturing on 25 October 2027 and 25 October 2029 respectively.
On 26 October 2017, the group repaid $400.0 million of floating rate notes.
On 2 February 2018, Vector entered four new senior credit facilities to replace three facilities
maturing on 3 February 2018. The new facilities mature on 2 February 2021.
On 25 June 2018, Vector issued a further $140.0 million of fixed rate wholesale bonds. The bonds
have a fixed rate of 4.996% and mature on 14 March 2024.
DividendsVector Limited’s final dividend for the year ended 30 June 2017 of 8.00 cents per share was
paid on 15 September 2017, with a supplementary dividend of 1.41 cents per non-resident share.
The total dividend paid was $79.6 million.
Vector Limited’s interim dividend for the year ended 30 June 2018 of 8.25 cents per share
was paid on 11 April 2018, with a supplementary dividend of 1.46 cents per non-resident share.
The total dividend paid was $82.5 million.
Liquigas Limited, a subsidiary of the group, paid an interim dividend in December 2017 of
$0.6 million and a final dividend in June 2018 of $1.2 million to the company’s non-controlling
interests.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
74
04. Segment information://
SegmentsVector reports on three reportable segments in accordance with NZ IFRS 8 Operating Segments.
These segments are reported internally to the group chief executive and the board of directors.
This reporting is used to assess performance and make decisions about the allocation of resources.
The segments are unchanged from those reported in Vector’s Annual Report for the year ended
30 June 2017. The segments are:
Regulated Networks
Auckland electricity and gas distribution services.
Gas Trading Natural gas and LPG sales, storage and processing, and cogeneration.
Technology Metering services, telecommunications and new energy solutions.
Segment information is prepared and reported in accordance with Vector’s accounting policies.
Intersegment transactions included in the revenues and operating expenses for each segment are
on an arms’ length basis.
The Technology segment includes the financial performance of E-Co Products Group Limited,
SolPho Limited, PowerSmart NZ Limited and Aircon Direct Limited from the dates of acquisition.
Segment profitThe measures of segment profit reported to the group chief executive and the board of directors
are earnings before interest and tax and earnings before interest, tax, depreciation and
amortisation (EBITDA).
Corporate activitiesCorporate activities, comprising shared services and investments, earn revenues that are incidental
to Vector’s operations and do not meet the definition of an operating segment under NZ IFRS 8.
The results for corporate activities are reported in the reconciliations of segment information to
the group’s financial statements.
Interest costs (net), fair value change on financial instruments and associates (share of net profit/
(loss)) are reported as corporate activities and are not allocated to the segments.
Major customersVector engages with three major customers, each of which contribute greater than ten percent of
the group’s revenue. These customers are large energy retailers. For the year ended 30 June 2018,
the customers contributed $223.6 million (2017: $228.2 million), $177.2 million (2017: $177.6 million)
and $162.7 million (2017: $160.4 million) respectively, which is reported across all segments.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
75
04. Segment information://
CONTINUED
2018
REGULATED
NETWORKS
$M
GAS
TRADING
$M
TECHNOLOGY
$M
INTER-
SEGMENT
$M
TOTAL
$M
External revenue:
Sales
684.6290.3263.9–1,238.8
Third party contributions70.2–1.3–71.5
Other17.2–––17.2
Intersegment revenue4.2–8.4(12.6)–
Segment revenue776.2290.3273.6(12.6)1,327.5
External expenses:
Electricity transmission expenses
(220.6)–––(220.6)
Gas purchases and production expenses–(187.1)––(187.1)
Technology cost of sales––(78.5)–(78.5)
Network and asset maintenance(58.4)(16.9)(12.4)–(87.7)
Employee benefit expenses(15.1)(13.4)(31.4)–(59.9)
Other expenses(46.5)(33.5)(18.7)–(98.7)
Intersegment expenses(6.8)(5.0)(0.8)12.6–
Segment operating expenses(347.4)(255.9)(141.8)12.6(732.5)
Segment EBITDA428.834.4131.8–595.0
Depreciation and amortisation(115.0)(20.7)(76.2)–(211.9)
Segment profit/(loss)313.813.755.6–383.1
Segment capital expenditure245.817.193.7–356.6
During the year, the Technology segment delivered technology related network projects for Regulated Networks at a margin of
$0.7m. The assets are included in the segment capital expenditure for Regulated Networks. The $0.7m margin is included in the
segment information presented for Technology and has been eliminated in the reconciliation below.
Reconciliation to revenue, profit/(loss) before income tax and capital expenditure
reported in the financial statements:
2018
REVENUE
$M
PROFIT/(LOSS)
BEFORE
INCOME TAX
$M
CAPITAL
EXPENDITURE
$M
Reported in segment information1,327.5383.1356.6
Amounts not allocated to segments (corporate activities):
Revenue 0.90.9–
Employee benefit expenses– (28.6)–
Other operating expenses– (25.0)–
Elimination of margin on inter–segment transaction–(0.7)–
Depreciation and amortisation – (14.0)–
Interest costs (net)– (130.7)–
Fair value change on financial instruments– 3.1–
Associates (share of net profit/(loss))– (1.5)–
Capital expenditure– –24.6
Reported in the financial statements1,328.4186.6381.2
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
76
04. Segment information://
CONTINUED
2017
REGULATED
NETWORKS
$M
GAS
TRADING
$M
TECHNOLOGY
$M
INTER-
SEGMENT
$M
TOTAL
$M
External revenue:
Sales
674.8281.8202.9–1,159.5
Third party contributions61.2–1.1–62.3
Intersegment revenue5.9–10.0(15.9)–
Segment revenue741.9281.8214.0(15.9)1,221.8
External expenses:
Electricity transmission expenses
(212.6)–––(212.6)
Gas purchases and production expenses–(181.7)––(181.7)
Technology cost of sales––(35.7)–(35.7)
Network and asset maintenance(50.9)(20.0)(14.4)–(85.3)
Employee benefit expenses(16.0)(15.0)(26.0)–(57.0)
Other expenses(31.7)(21.9)(13.0)–(66.6)
Intersegment expenses(8.3)(6.3)(1.3)15.9–
Segment operating expenses(319.5)(244.9)(90.4)15.9(638.9)
Segment EBITDA422.436.9123.6–582.9
Depreciation and amortisation(103.5)(15.1)(68.9)–(187.5)
Segment profit/(loss)318.921.854.7–395.4
Segment capital expenditure210.632.7104.3–347.6
In March 2017, the Technology segment granted an indefeasible right of use (“IRU”) to the Regulated Networks segment for
the exclusive use of a network of fibre and fibre-associated telecommunications assets. The agreement is recognised as a finance
lease and replaces the previous telecommunications services agreement between the two segments. The impact is a reduction
in intersegment sales for the Technology segment and an equivalent reduction in intersegment expenses for the Regulated
Networks segment.
During the year, the Technology segment procured and sold $1.4 million of technology related network assets to Regulated Networks
at zero margin. The assets are included in the segment capital expenditure for Regulated Networks. The impact of the sale
transaction is not reflected in the segment information presented for Technology.
Reconciliation to revenue, profit/(loss) before income tax and capital expenditure
reported in the financial statements:
2017
REVENUE
$M
PROFIT/(LOSS)
BEFORE
INCOME TAX
$M
CAPITAL
EXPENDITURE
$M
Reported in segment information1,221.8395.4347.6
Amounts not allocated to segments (corporate activities):
Revenue
4.94.9–
Employee benefit expenses–(25.8)–
Other operating expenses–(25.3)–
Depreciation and amortisation –(12.1)–
Interest costs (net)–(137.3)–
Fair value change on financial instruments–1.6–
Associates (share of net profit/(loss))–1.6–
Capital expenditure––19.8
Reported in the financial statements1,226.7203.0367.4
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
77
05. Revenue://
NOTE
2018
$M
2017
$M
Sales 41,238.81,159.5
Third party contributions471.562.3
Other418.14.9
Total 1,328.41,226.7
PoliciesRevenue is measured at the fair value of consideration received, or receivable.
Revenue is recognised when:
—The amount of the revenue and the costs in respect of the transaction can be measured
reliably; and
—It is probable that the economic benefits of the transaction will flow to Vector.
Sales of goods are recognised when the risks and rewards of the goods have been transferred
to the buyer.
Sales of services are recognised as the services are delivered, or if applicable on a percentage
of completion basis.
Third party contributions towards the construction of property, plant and equipment are
recognised to reflect the percentage completion of the underlying construction activity.
JudgementsManagement must apply judgement where:
—The timing of customer payments for services does not coincide with the timing of delivery
of those services; and/or
—Multiple services are delivered under one contract.
New accounting standards
not yet adopted
NZ IFRS 15 Revenue from Contracts with Customers (including subsequent amendment)
NZ IFRS 15 applies to contracts to deliver goods and services to customers. Guiding principles
in the standard will affect when, how, and how much revenue is recognised in an entity’s financial
statements in any given reporting period. The standard and its subsequent amendment will
replace all existing IFRS guidance for revenue recognition. The most relevant to Vector are:
NZ IAS 18 Revenue, NZ IAS 11 Construction Contracts, and NZ IFRIC 18 Transfers of Assets
from Customers.
We approached our assessment of the impact of NZ IFRS 15 by analysing the key revenue
streams of each of the group’s three segments. Our findings have indicated the adoption of
NZ IFRS 15 will not have a material impact on the group financial statements.
Key considerations for each segment are as follows:
—Regulated Networks: timing and amount of third party contributions recognised each year.
—Gas Trading: pricing structures of gas contracts and determination of the appropriate
transaction price for a contract.
—Technology: identifying the performance obligations promised in metering services contracts
and determining the appropriate transaction price.
The group continues to assess the full impact of the standard, in anticipation of the standard
becoming mandatory for the group in financial year ended 30 June 2019.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
78
06. Operating expenses://
NOTE
2018
$M
2017
$M
Electricity transmission 4220.6212.6
Gas purchases and production 4187.1181.7
Technology cost of sales478.535.7
Network and asset maintenance487.785.3
Other direct expenses59.030.4
Employee benefit expenses488.582.8
Administration expenses20.016.1
Professional fees15.014.4
IT expenses15.014.4
Other indirect expenses 15.416.6
Total 786.8690.0
Fees paid to auditorsFees were paid to KPMG as follows:
—audit or review of financial statements: $506,000 (2017: $530,000);
—regulatory assurance: $366,000 (2017: $508,000);
—other audit fees: $50,000 (2017: $24,000)
Other audit fees include the audit of guaranteeing group financial statements, bond registers
and agreed upon procedures required by certain contractual arrangements.
There were no other services provided by KPMG during the year ended 30 June 2018
(2017: $16,000).
07. Interest costs (net)://
2018
$M
2017
$M
Interest expense133.0144.1
Capitalised interest(4.4)(4.8)
Interest income(2.2)(7.1)
Other4.35.1
Total 130.7137.3
PoliciesInterest costs (net) include interest expense on borrowings and interest income on funds invested
which are recognised using the effective interest rate method.
Capitalised interestVector has capitalised interest to PPE and software intangibles while under construction at an
average rate of 5.8% per annum (2017: 6.5%).
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
79
08. Fair value change on
financial instruments://
2018
$M
2017
$M
Fair value movement on hedging instruments 32.2(53.6)
Fair value movement on hedged items(29.1)56.3
Reclassification of investment in associate to financial asset–(1.1)
Total gains/(losses)3.11.6
09. Income tax expense/
(benefit)://
Reconciliation of income tax expense/(benefit)
2018
$M
2017
$M
Profit/(loss) before income tax186.6203.0
Tax at current rate of 28% 52.256.8
Current tax adjustments:
Non-deductible expenses
3.32.0
Relating to prior periods – depreciation method–17.2
Relating to prior periods – tax dispute settlement–(12.6)
Relating to prior periods – others1.9(6.1)
Relating to MEL Network Limited removal(16.7)–
Other(1.3)(3.1)
Deferred tax adjustments:
Relating to prior periods – depreciation method
–(17.2)
Relating to prior periods – tax dispute settlement–(2.5)
Relating to prior periods – others(2.6)(0.4)
Income tax expense/(benefit)36.834.1
Comprising:
Current tax
28.143.2
Deferred tax8.7(9.1)
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
80
09. Income tax expense/
(benefit)://
CONTINUED
Other adjustmentsMEL Network Limited removal
MEL Network Limited (MEL), a wholly owned subsidiary of Vector, was removed from the
Companies Office register on 27 March 2018. Following the removal, the related party advance
between MEL and Vector Limited was written off, resulting in an income tax benefit of $16.7m to
the group. A private binding ruling was obtained to confirm the tax benefit.
Prior period adjustmentsChange in depreciation method
The group recognised a $17.2 million income tax expense and an equivalent deferred income tax
credit in the prior year in relation to the group’s decision to change the tax depreciation method used
for property, plant and equipment from the diminishing value method to the straight-line method.
Tax dispute settlement
Vector recognised a $15.0 million income tax benefit as a prior period adjustment in the prior
year. The adjustment was made following a judgment made by the Court of Appeal in respect of
a tax dispute between Vector and the Inland Revenue. The dispute related to the tax treatment
of monies received from Transpower for various rights including access to Vector’s tunnel from
Penrose to Hobson and the transmission corridor on the North Shore. The Court of Appeal found
in favour of Vector.
PoliciesIncome tax expense/(benefit) comprises current and deferred tax and is calculated using rates
enacted or substantively enacted at balance date.
Current and deferred tax is recognised in profit or loss unless the tax relates to items in other
comprehensive income, in which case the tax is recognised as an adjustment in other
comprehensive income against the item to which it relates.
Imputation creditsThere are no imputation credits available for use as at 30 June 2018 (2017: nil), as the imputation
account has a debit balance as of that date.
10. Deferred tax://
Deferred tax liability/(asset)
NOTE
PPE AND
INTANGIBLES
$M
PROVISIONS
AND
ACCRUALS
$M
HEDGE
RESERVES
$M
OTHER
$M
TOTAL
$M
Balance at 1 July 2016493.2(10.2)(34.7)8.2456.5
Recognised in profit or loss(13.2)1.9–2.2(9.1)
Recognised in other comprehensive income––15.7–15.7
Recognised from business combinations12.4–––12.4
Balance at 30 June 2017492.4(8.3)(19.0)10.4475.5
Recognised in profit or loss23.5(11.3)–(3.5)8.7
Recognised in other comprehensive income––3.5–3.5
Recognised from business combinations25(1.1)–––(1.1)
Balance at 30 June 2018514.8(19.6)(15.5)6.9486.6
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
81
10. Deferred tax://
CONTINUED
The group’s deferred tax position is presented in the balance sheet as follows:
2018
$M
2017
$M
Deferred tax asset(0.1)(0.1)
Deferred tax liability486.7475.6
Total486.6475.5
PoliciesDeferred tax is:
—Recognised on temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
—Not recognised for the initial recognition of goodwill.
—Measured at tax rates that are expected to be applied to the temporary differences when
they reverse.
11. Trade and other receivables://
2018
$M
2017
$M
Current
Trade receivables
71.677.4
Accrued revenues105.5101.9
Interest receivable17.313.2
Prepayments11.79.9
Other3.93.9
Balance at 30 June210.0206.3
Non-current
Other
0.1–
Balance at 30 June0.1–
At 30 June, the exposure to credit risk for trade and other receivables by type of counterparty was
as follows.
2018
$M
2017
$M
NOT CREDIT
IMPAIRED
CREDIT
IMPAIRED
NOT CREDIT
IMPAIRED
CREDIT
IMPAIRED
Business customers60.10.756.10.1
Mass market customers4.4–11.20.1
Third party asset damages0.43.92.12.9
Residential and other5.2–7.70.3
Total gross carrying amount70.14.677.13.4
Loss allowance(0.1)(3.0)(0.2)(2.9)
70.01.676.90.5
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
82
11. Trade and other receivables://
CONTINUED
The following table provides information about the exposure to credit risk and expected credit
losses for trade receivables as at 30 June.
2018
$M
2017
$M
CARRYING
AMOUNT
LOSS
ALLOWANCE
CARRYING
AMOUNT
LOSS
ALLOWANCE
Not past due56.5–60.80.2
Past due 1 – 30 days7.2–6.0–
Past due 31 – 120 days4.10.13.60.3
Past due more than 120 days3.83.07.02.6
Balance at 30 June71.63.177.43.1
PoliciesReceivables are initially recognised at fair value. They are subsequently adjusted for credit
impairment losses.
Discounting is not applied to receivables where collection is expected to occur within the next
twelve months.
Credit riskIn assessing credit losses for trade receivables, the group applies the simplified approach and
records lifetime expected credit losses (“ECLs”) on trade receivables.
Lifetime ECLs result from all possible default events over the expected life of a trade receivable.
The group considers the probability of default upon initial recognition of the trade receivable,
based on reasonable and available information on the group’s customers and groups of
customers. The group’s trade receivables are monitored in two groups: business customers,
and mass market residential customers.
In assessing ECLs on trade receivables the group considers both quantitative and qualitative
inputs. Quantitative data includes past collection rates, industry statistics, ageing of receivables,
and trading outlook. Qualitative inputs include past trading history with the group.
The group’s customer acceptance process includes a check on credit history, profitability, and
the customer’s external credit rating if available. Different levels of sale limits are also imposed
on customer accounts by nature.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
83
12. Investments://
JudgementsClassifying investments as either subsidiaries, associates, financial assets or joint operations
requires management to judge the degree of influence which the group holds over the investee.
These judgements impact upon the basis of consolidation accounting which is used to recognise
the group’s investments in the consolidated financial statements.
12.1 Investments in subsidiaries
Trading subsidiariesSignificant trading entities and holding companies in the group are listed below.
PERCENTAGE HELD
PRINCIPAL ACTIVITY20182017
Subsidiaries with 30 June balance date
NGC Holdings LimitedHolding company
100%100%
Vector Gas Trading LimitedNatural gas trading and processing100%100%
Vector Kapuni LimitedJoint operator – cogeneration plant100%100%
Liquigas LimitedBulk LPG storage, distribution, and management 60%60%
On Gas LimitedLPG sales and distribution100%100%
Vector Metering Data Services LimitedHolding company 100%100%
Advanced Metering Assets LimitedMetering services 100%100%
Advanced Metering Services LimitedMetering services 100%100%
Vector Advanced Metering Services (Australia) Pty
LimitedMetering services
100%100%
Vector Advanced Metering Assets (Australia) LimitedMetering services 100%100%
Arc Innovations LimitedMetering services 100%100%
Vector Communications LimitedTelecommunications 100%100%
Vector Energy Solutions LimitedHolding company100%100%
PowerSmart NZ LimitedEnergy solutions services100%100%
Vector ESPS Trustee LimitedTrustee company100%100%
Vector Energy Solutions (Australia) Pty LimitedEnergy solutions services100%100%
E-Co Products Group LimitedHolding company100%100%
Cristal Air International LimitedVentilation systems assembler and brand
franchisor
100%100%
HRV Home Solutions LimitedVentilation systems, water systems and
parts sales
100%100%
Ventilation Australia Pty LimitedHolding company100%100%
HRV Australia Pty LimitedVentilation system and parts sales100%100%
Energy Efficient Solutions NZ (2016) LimitedHome heating solutions sales100%100%
HVAC Hero 2016 LimitedWholesaler of systems and parts 100%100%
SolPho LimitedEnergy solutions services100%–
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
84
12. Investments://
CONTINUED
12.1 Investments in subsidiaries
CONTINUED
PoliciesSubsidiaries are entities controlled directly or indirectly by the parent. Vector holds over 50% of
the voting rights in all entities reported as subsidiaries. There are currently no indicators that
Vector does not have control consistent with these voting rights.
The financial statements of subsidiaries are reported in the financial statements using the
acquisition method of consolidation.
Intra-group balances and transactions between group companies are eliminated on consolidation.
GeographyAll subsidiaries are incorporated in New Zealand, except for the following which are incorporated
in Australia:
—Vector Advanced Metering Services (Australia) Pty Limited;
—Vector Energy Solutions (Australia) Pty Limited;
—Ventilation Australia Pty Limited;
—HRV Australia Pty Limited.
12.2 Investment in associate
PERCENTAGE HELD
ASSOCIATEPRINCIPAL ACTIVITYBALANCE DATE
COUNTRY OF
INCORPORATION20182017
Tree Scape LimitedVegetation management31 MarchNew Zealand50%50%
2018
$M
2017
$M
Carrying amount of associates
Balance at 1 July
9.615.6
Reclassification of investment in NZ Windfarms Limited
to financial asset
–(5.6)
Share of net profit/(loss) of associate(1.5)1.6
Dividends received–(2.0)
Balance at 30 June8.19.6
Equity accounted earnings of associate
Profit/(loss) before income tax
(2.1)2.2
Income tax benefit/(expense)0.6(0.6)
Share of net profit/(loss) of associate(1.5)1.6
Total recognised revenues and expenses(1.5)1.6
PoliciesAssociates are entities in which Vector has significant influence, but not control or joint control,
over the operating and financial policies. Vector holds over 20%, but not more than half, of the
voting rights in all entities reported as associates, and has assessed that there are currently no
indicators that Vector does not have significant influence consistent with these voting rights.
Where Vector has 50% voting rights in an entity reported as an associate, we have determined
that this does not constitute joint control as there is more than one combination of parties that
can achieve majority voting rights and control through board voting.
Investments in associates are reported in the financial statements using the equity method.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
85
12. Investments://
CONTINUED
12.3 Interest in joint operation
INTEREST HELD
JOINT OPERATIONPRINCIPAL ACTIVITYBALANCE DATE20182017
Kapuni Energy Joint VentureCogeneration plant operator30 June50%50%
PoliciesA joint operation is where Vector is a party to a joint arrangement, and has rights to the assets and
obligations for the liabilities relating to the arrangement.
Vector has assessed that the contractual arrangement governing the Kapuni Energy Joint Venture,
of which Vector Kapuni Limited is a party, meets the criteria of a joint arrangement, and that the
rights and obligations conferred by that contract meet the classification of a joint operation.
The interest in the joint operation is reported in the financial statements using the proportionate
method.
12.4 Other investments
mPrest Systems (2003) Limited
On 4 October 2017, Vector invested $14.0 million (US $10.0 million) into mPrest Systems (2003)
Limited. The investment is accounted for as a financial asset at fair value through other
comprehensive income (“OCI”) on the Balance Sheet.
At 30 June 2018, Vector holds 7.8% of the issued shares in mPrest Systems (2003) Limited.
The group has determined the fair value of the asset as $15.0 million at 30 June 2018, with the
upward movement of $1.0 million recognised in OCI. There have been no purchases, disposals,
issues or settlements made during the year.
For fair value measurement purposes, the financial asset is classified as level 3 on the fair value
hierarchy (see Note 20 for explanations of various levels in the hierarchy). The table below provides
information on how the fair value of the asset is determined.
DESCRIPTION
FAIR VALUE
2018
$M
VALUATION
TECHNIQUE
SIGNIFICANT
UNOBSERVABLE INPUTRANGE
SENSITIVITY OF FAIR
VALUE TO CHANGES
IN INPUT
Offshore private equity
investment
$15.0
Market
comparable
companies
approach
Enterprise value /
revenue multiple – a
multiple inferred from
financial information
of comparable public
companies operating
in the same geography.
Enterprise value /
revenue multiple
(times)
3.2 - 4.0
A 10% change in
the multiple used
will result in a $1.6
million change in
the fair value.
The group’s team of valuation specialists is responsible for establishing the appropriate valuation
techniques and inputs into the valuation models, including an assessment of any inputs obtained
from third party or market sources.
The valuation team report to the chief financial officer, and any significant valuation issues are
reported to the group’s audit committee.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
86
13. Intangible assets://
NOTE
CUSTOMER
INTANGIBLES
$M
EASEMENTS
$M
SOFTWARE
$M
TRADE
NAMES
$M
GOODWILL
$M
TOTAL
$M
Carrying amount 1 July 201613.014.554.7–1,198.11,280.3
Cost21.714.5229.1–1,198.11,463.4
Accumulated amortisation(8.7)–(174.4)––(183.1)
Transfers from PPE–1.824.9––26.7
Acquisition of business28.2–2.116.867.9115.0
Amortisation for the period(2.8)–(21.8)(0.2)–(24.8)
Carrying amount 30 June 201738.416.359.916.61,266.01,397.2
Cost49.916.3252.516.81,266.01,601.5
Accumulated amortisation(11.5)–(192.6)(0.2)–(204.3)
Transfers from PPE–0.524.4––24.9
Acquisition of business25––––3.63.6
Disposals––(0.1)––(0.1)
Amortisation for the period(4.5)–(23.1)(0.8)–(28.4)
Carrying amount 30 June 201833.916.861.115.81,269.61,397.2
Cost49.916.8276.616.81,269.61,629.7
Accumulated amortisation(16.0)–(215.5)(1.0)–(232.5)
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
87
13. Intangible assets://
CONTINUED
13.1 Goodwill
Goodwill by reportable segment
2018
$M
2017
$M
Regulated Networks1,050.21,021.5
Gas Trading156.8156.8
Technology62.687.7
Total 1,269.61,266.0
PoliciesGoodwill represents the excess of the consideration transferred over the fair value of Vector’s
share of the net identifiable assets of an acquired subsidiary.
Goodwill is carried at cost less accumulated impairment losses.
AllocationGoodwill is monitored internally at a group level. However, it is allocated to operating segments for
impairment testing purposes as this is the highest level permissible under NZ IFRS.
During the year ended 30 June 2018, the group has allocated a total of $28.7 million of goodwill
recognised through the acquisitions of E-Co Products Group Limited and PowerSmart NZ Limited
to the electricity cash generating unit (CGU) within the Regulated Networks segment.
Impairment testingGoodwill is tested at least annually for impairment against the recoverable amount of the
operating segments to which it has been allocated.
For all segments the recoverable amount of each segment to which goodwill is allocated exceeds
the net assets plus goodwill allocated. Therefore the group has determined that no impairment to
goodwill has occurred during the period.
JudgementsTo assess impairment, management must estimate the future cash flows of operating segments
including the CGUs that make up those segments. This entails making judgements including:
—the expected rate of growth of revenues;
—margins expected to be achieved;
—the level of future maintenance expenditure required to support these outcomes; and
—the appropriate discount rate to apply when discounting future cash flows.
AssumptionsThe recoverable amounts attributed to the electricity, gas distribution, metering, gas trading and
communications CGUs are calculated on the basis of value-in-use using discounted cash flow
models. Future cash flows are forecast based on actual results and business plans.
For the electricity, gas distribution and metering CGUs, a ten year period has been used due to
the long-term nature of the group’s capital investment in these businesses and the predictable
nature of their cash flows. A five year period has been used for the gas trading and
communications CGUs.
Terminal growth rates in a range of 1.0% to 2.0% (2017: 1.0% to 2.0%) and post-tax discount rates
between 4.8% to 9.0% (2017: 4.8% and 7.6%) are applied. Rates vary for the specific segment
being valued.
Projected cash flows for regulated businesses are sensitive to regulatory uncertainty. Estimated
future regulated network revenues and the related supportable levels of capital expenditure are
based on default price-quality path determinations issued by the Commerce Commission and are
in line with estimates published in the asset management plans.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
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13. Intangible assets://
CONTINUED
13.2 Other intangible assets
PoliciesOther intangible assets are initially measured at cost, and subsequently stated at cost less any
accumulated amortisation and impairment losses.
Software, customer intangibles, and trade names have been assessed as having a finite life greater
than 12 months, and are amortised from the date the asset is ready for use on a straight line basis
over its estimated useful life. The estimated useful lives (years) are as follows:
Software 2 – 36
Customer intangibles 3 – 20
Trade names 20
Easements are not amortised, but are tested for impairment at least annually as part of the
assessment of the carrying values of assets against the recoverable amounts of the operating
segments to which they have been allocated.
14. Property, plant
and equipment (PPE)://
DISTRIBUTION
SYSTEMS
$M
ELECTRICITY
AND GAS
METERS
$M
LAND,
BUILDINGS
AND
IMPROVE-
MENTS
$M
COMPUTER
AND TELCO
EQUIPMENT
$M
OTHER
PLANT AND
EQUIPMENT
$M
CAPITAL
WORK IN
PROGRESS
$M
TOTAL
$M
Carrying amount 1 July 20162,752.1419.5167.2101.7114.6115.13,670.2
Cost3,609.9684.3195.2196.8200.7115.15,002.0
Accumulated depreciation (857.8)(264.8)(28.0)(95.1)(86.1)–(1,331.8)
Additions––––2.5367.4369.9
Acquisition of business––0.80.21.9–2.9
Transfers – Intangible assets–––––(26.6)(26.6)
Transfers – Other 221.973.08.417.324.0(344.6)–
Disposals(4.0)––(0.1)––(4.1)
Depreciation for the period(108.1)(43.6)(3.9)(11.2)(8.0)–(174.8)
Carrying amount 30 June 20172,861.9448.9172.5107.9135.0111.33,837.5
Cost3,818.4756.0204.7208.9229.0111.35,328.3
Accumulated depreciation(956.5)(307.1)(32.2)(101.0)(94.0)–(1,490.8)
Additions––––2.5381.2383.7
Acquisition of business0.6–––––0.6
Transfers – Intangible assets–––––(24.9)(24.9)
Transfers – Other 223.873.81.96.334.1(339.9)–
Disposals(3.7)–––––(3.7)
Depreciation for the period(120.3)(44.1)(3.7)(14.3)(15.1)–(197.5)
Carrying amount 30 June 20182,962.3478.6170.799.9156.5127.73,995.7
Cost4,028.1829.2206.6206.6265.6127.75,663.8
Accumulated depreciation(1,065.8)(350.6)(35.9)(106.7)(109.1)–(1,668.1)
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
89
14. Property, plant
and equipment (PPE)://
CONTINUED
PoliciesPPE is initially measured at cost, and subsequently stated at cost less depreciation and any
impairment losses. Cost may include:
—Consideration paid on acquisition
—Costs to bring the asset to working condition
—Materials used in construction
—Direct labour attributable to the item
—Interest costs attributable to the item
—A proportion of directly attributable overheads incurred
—If there is a future obligation to dismantle and/or remove the item, the costs of doing so
Capitalisation of costs stops when the asset is ready for use.
Subsequent expenditure that increases the economic benefits derived from the asset is capitalised.
Uninstalled assets are stated at the lower of cost and estimated recoverable amount.
Depreciation commences when an asset becomes available for use.
Depreciation of PPE, other than freehold land and capital work in progress, is calculated on a
straight line basis and expensed over the useful life of the asset. Useful lives are reviewed regularly
and adjusted as appropriate for the revised expectations.
Estimated useful lives (years) are as follows:
Buildings 40 – 100
Distribution systems 5 – 100
Leasehold improvements 5 – 20
Meters and meter inspections 2 – 40
Other plant and equipment 3 – 55
JudgementsManagement must apply judgement when evaluating:
—Whether costs relate to bringing the items to working condition
—The amount of overhead costs which can be reasonably directly attributed to the construction
or acquisition of an asset
—Whether subsequent expenditure on the asset increases the future economic benefits to be
obtained from that asset
—Whether any indicators of impairment have occurred which might require impairment testing
of the current carrying values
Capital commitmentsThe estimated capital expenditure for PPE and software intangibles contracted for at balance date
but not provided is $68.0 million for the group (2017: $52.6 million).
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
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15. Operating leases://
2018
$M
2017
$M
Aggregate minimum lease payments under non-cancellable
operating leases where Vector is the lessee
Within one year
9.18.9
One to five years16.622.7
Beyond five years14.516.5
Total40.248.1
PoliciesPayments made under operating leases, where the lessors effectively retain the risks and benefits
of ownership, are recognised in profit or loss on a straight-line basis over the lease term.
Lease incentives received are recognised as an integral part of the total lease expense over the
term of the lease.
Lease of premisesThe majority of the operating lease commitments relate to the group’s leases of premises.
These, in the main, give the group the right to renew the lease at the end of the current lease term.
New accounting standards
not yet adopted
NZ IFRS 16 Leases
NZ IFRS 16 will replace all existing guidance on leases. Under NZ IFRS 16, an entity’s right to
control the use of an asset (analogous to an operating lease under NZ IAS 17 Leases) meets the
definition of, and is recognised as, an asset on the balance sheet. A lease liability reflecting future
lease payments is also recognised. Vector is a lessee in predominantly property and land leases.
NZ IFRS 16 is mandatory for the group’s financial year ended 30 June 2020 with early adoption
permitted if NZ IFRS 15 is also adopted. The group has elected to early adopt NZ IFRS 16 for the
financial year ended 30 June 2019.
NZ IFRS 16 will not have a material impact on the group’s net profit before tax. However, NZ IFRS
16 will require that the group recognises additional depreciation and interest expense in respect of
its leased assets and lease liabilities, with a corresponding decrease in operating expenses.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
91
16. Trade and other payables://
2018
$M
2017
$M
Current
Trade payables
160.2164.0
Deferred payables8.510.4
Employee benefits 15.615.9
Deferred income34.325.6
Finance leases0.30.4
Interest payable39.633.7
Balance at 30 June258.5250.0
Non-current
Deferred income
8.910.6
Deferred payables35.830.0
Finance leases0.20.4
Other non-current payables–0.5
Balance at 30 June44.941.5
Other payablesVector accrues employee benefits which remain unused at balance date, and amounts expected
to be paid under short-term cash bonus plans.
Deferred income includes third party contributions received in excess of those recognised in profit
or loss.
Deferred payables include third party rebates payable in excess of those paid in cash.
17. Provisions://
PROVISION FOR
DISTRIBUTION
TO CUSTOMERS
DECOMMISSIONING
PROVISIONS
$M
OTHER
$M
TOTAL
$M
Balance 1 July 2017–20.44.825.2
Additions16.60.43.020.0
Unwinding of discount–1.8–1.8
Balance at 30 June 201816.622.67.847.0
Comprising:
Current
16.6–7.824.4
Non-current–22.6–22.6
PoliciesA provision is recognised where the likelihood of a resultant liability is more probable than not, and
the amount required to settle the liability can be reliably estimated.
Decommissioning The decommissioning provisions represent the present value of the future expected costs for
dismantling the group’s gas treatment and cogeneration plants situated at Kapuni and depot
assets situated at various regions in New Zealand. Timing of economic outflows represents
management’s best estimate of the end of the useful life of the plant and associated assets.
Other provisionsThese provisions comprise amounts that may be required to be utilised within one year or a longer
period dependent on ongoing negotiations with third parties involved. There are currently no
foreseeable uncertainties which would be reasonably expected to lead to material changes in the
amounts provided.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
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18. Borrowings://
2018CURRENCY
MATURITY
DAT E
FACE
VALUE
$M
UNAMORT-
ISED COSTS
$M
FAIR VALUE
ADJUSTMENT
ON HEDGED
RISK
$M
CARRYING
VALUE
$M
FAIR
VALUE
$M
Bank facilities – variable rateNZDMar 2020 – Feb 2021110.0(1.1)–108.9108.9
Capital bonds – 5.7% fixed rateNZD–307.2(1.3)–305.9324.9
Wholesale bonds – 4.996%
fixed rateNZDMar 2024
240.04.4–244.4244.1
Senior notes – fixed rateUSDSep 2019 – Sep 20291,112.9(2.6)52.61,162.91,150.7
Floating rate notes – variable rateNZDOct 2020350.0(1.0)–349.0342.4
Medium term notes – 7.625%
fixed rateGBPJan 2019
285.6(0.3)(61.1)224.2231.4
Balance at 30 June2,405.7(1.9)(8.5)2,395.32,402.4
2017CURRENCY
MATURITY
DAT E
FACE
VALUE
$M
UNAMORT-
ISED COSTS
$M
FAIR VALUE
ADJUSTMENT
ON HEDGED
RISK
$M
CARRYING
VALUE
$M
FAIR
VALUE
$M
Bank facilities – variable rateNZDFeb 2018 – Mar 202095.0(1.0)–94.094.1
Capital bonds – 5.7% fixed rateNZD–307.2(1.6)–305.6319.3
Wholesale bonds – 4.996%
fixed rateNZDMar 2024
100.0(0.3)–99.798.3
Senior notes – fixed rateUSDSep 2019 – Sep 2022697.2(1.4)23.5719.3711.3
Floating rate notes – variable rateNZDOct 2017 – Oct 2020750.0(1.6)–748.4736.0
Medium term notes – 7.625%
fixed rateGBPJan 2019
285.6(0.9)(81.3)203.4222.7
Balance at 30 June2,235.0(6.8)(57.8)2,170.42,181.7
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
93
18. Borrowings://
CONTINUED
PoliciesBorrowings are initially recorded at fair value, net of transaction costs. After initial recognition,
borrowings are measured at amortised cost with any difference between the initial recognised
amount and the redemption value being recognised in interest costs in profit or loss over the
period of the borrowing using the effective interest rate method.
The carrying value of borrowings includes the principal converted at contract rates (face value),
unamortised costs and a fair value adjustment for the component of the risk that is hedged. The
fair value is calculated by discounting the future contractual cash flows at current market interest
rates that are available for similar financial instruments. The fair value of all borrowings, calculated
for disclosure purposes, are classified as level 2 on the fair value hierarchy, explained further in
Note 20.
Bank facilitiesFour new floating rate bank facilities were added to replace the three facilities that matured in
February 2018. The new facilities mature in February 2021.
Capital bondsCapital bonds of $307.2 million are unsecured, subordinated bonds with the next election date set
as 15 June 2022. The interest rate was fixed at 5.7% at the previous election date of 15 June 2017.
Wholesale bondsIn June 2018, Vector issued a further $140.0 million of fixed rate wholesale bonds to the existing
$100.0 million wholesale bonds. The bonds have a fixed rate of 4.996% and mature in March 2024.
Senior notesIn October 2017, a total of $415.8 million (USD 300.0 million) of USD senior notes were issued.
$277.2 million (USD 200.0 million) matures in October 2027 and $138.6 million (USD 100.0
million) matures in October 2029.
Floating rate notesThe $350.0 million floating rate notes are credit wrapped by MBIA Insurance Corporation. In
October 2017, $400.0 million of floating rate notes were repaid and replaced by the October 2017
senior notes issue.
Medium term notesThe $285.6 million medium term notes are due to be repaid in January 2019. Vector has
sufficient undrawn facilities to provide liquidity cover for the refinancing.
CovenantsAll borrowings are unsecured and are subject to negative pledge arrangements and various lending
covenants. These have all been met for the years ended 30 June 2018 and 30 June 2017.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
94
19. Derivatives and
hedge accounting://
CASH FLOW HEDGESFAIR VALUE HEDGESCOST OF HEDGINGTOTAL
2018
$M
2017
$M
2018
$M
2017
$M
2018
$M
2017
$M
2018
$M
2017
$M
Derivative assets
Cross currency swaps––56.835.8(1.7)(3.7)55.132.1
Interest rate swaps1.45.9––––1.45.9
Forward exchange contracts0.1–––––0.1–
Total 1.55.956.835.8(1.7)(3.7)56.638.0
Derivative liabilities
Cross currency swaps
(65.9)(94.7)(0.4)(11.6)0.51.2(65.8)(105.1)
Interest rate swaps(51.0)(57.7)––––(51.0)(57.7)
Forward exchange contracts(0.2)(0.3)––––(0.2)(0.3)
Total (117.1)(152.7)(0.4)(11.6)0.51.2(117.0)(163.1)
Key observable market data for fair value measurement20182017
Foreign currency exchange (FX) rates as at 30 June
NZD-GBP FX rate
0.51230.5629
NZD-USD FX rate0.67660.7334
Interest rate swap rates
NZD1.89% to 3.03%1.85% to 3.36%
USD2.09% to 2.97%1.22% to 2.51%
GBP0.50% to 1.64%0.25% to 1.62%
Sensitivity to changes in market rates
2018
$M
2017
$M
Impact on comprehensive income:
Sensitivity to change in interest rates
-1% change in interest rates
(35.3)(42.6)
+1% change in interest rates33.939.0
Sensitivity to change in foreign exchange rates
-10% change in foreign exchange rates(8.0)(2.4)
+10% change in foreign exchange rates7.93.0
Impact on profit or loss:
Sensitivity to change in interest rates
-1% change in interest rates
(0.4)(1.4)
+1% change in interest rates0.31.2
Sensitivity to change in foreign exchange rates
-10% change in foreign exchange rates–2.8
+10% change in foreign exchange rates0.1(1.5)
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
95
19. Derivatives and
hedge accounting://
CONTINUED
PoliciesVector initially recognises derivatives at fair value on the date the derivative contract is entered into,
and subsequently they are re-measured to their fair value at each balance date. All derivatives are
classified as level 2 on the fair value hierarchy explained in Note 20.
Fair value is calculated as the present value of the estimated future cash flows based on observable
interest yield curves and/or foreign exchange market prices. The carrying values of the financial
instruments are the fair values excluding any interest receivable or payable, which is separately
presented in the balance sheet in other receivables or other payables.
The resulting gain or loss on re-measurement is recognised in profit or loss immediately, unless
the derivative is designated and effective as a hedging instrument, in which case the timing of
recognition in profit or loss depends on the nature of the designated hedge relationship.
Vector designates certain derivatives as either:
—Fair value hedges (of the fair value of recognised assets or liabilities or firm commitments); or
—Cash flow hedges (of highly probable forecast transactions).
At inception each transaction is documented, detailing:
—The economic relationship and the hedge ratio between hedging instruments and hedged items;
—The risk management objectives and strategy for undertaking the hedge transaction; and
—The assessment (initially and on an ongoing basis) of whether the derivatives that are used in
the hedging transaction are highly effective in offsetting changes in fair values or cash flows of
hedged items.
The underlying risk of the derivative contracts is identical to the hedged risk component (i.e. the
interest rate risk and the foreign exchange risk) therefore the group has established a one-to-one
hedge ratio.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated,
exercised, or no longer qualifies for hedge accounting.
Fair value hedgesVector has entered into cross currency interest rate swaps (the hedging instruments) to hedge the
interest rate risk and foreign currency risk (the hedged risk) arising in relation to its USD senior
notes (the hedged items). These transactions have been designated into fair value hedges.
The following are recognised in profit or loss:
—The change in fair value of the hedging instruments; and
—The change in fair value of the underlying hedged items attributable to the hedged risk.
Once hedging is discontinued, the fair value adjustment to the carrying amount of the hedged
item arising from the hedged risk is amortised through profit or loss from that date through to
maturity of the hedged item.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
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19. Derivatives and
hedge accounting://
CONTINUED
Cash flow hedgesVector has entered into interest rate swaps and cross currency interest rate swaps (the hedging
instruments) to hedge the variability in cash flows arising from interest rate and foreign currency
exchange rate movements in relation to its NZD floating rate notes, GBP medium term notes and
USD senior notes.
The effective portion of changes in the fair value of the hedging instruments are recognised in
other comprehensive income.
The following are recognised in profit or loss:
—any gain or loss relating to the ineffective portion of the hedging instrument; and
—fair value changes in the hedging instrument previously accumulated in other comprehensive
income, in the periods when the hedged item is recognised in profit or loss.
Once hedging is discontinued, any cumulative gain or loss previously recognised in other
comprehensive income is recognised in profit or loss either:
—at the same time as the forecast transaction; or
—immediately if the transaction is no longer expected to occur.
Market rate sensitivityAll derivatives are measured at fair value. A change in the market data used to determine fair
value will have an impact on Vector’s financial statements.
The table on the previous page shows the sensitivity of the financial statements to a range of
possible changes in the market data at balance date.
Rights to offsetVector enters into derivative transactions under International Swaps and Derivatives Association
(ISDA) master agreements. The ISDA agreements do not meet the criteria for offsetting in the
balance sheet for accounting purposes. This is because Vector does not have any currently legally
enforceable right to offset recognised amounts. Under the ISDA agreements the right to offset is
enforceable only on the occurrence of future events such as a default on the bank loans or other
credit events. The potential net impact of this offsetting is disclosed in column ‘amount after
applying rights of offset under ISDA agreements.’ Vector does not hold and is not required to post
collateral against its derivative positions.
2018
$M
2017
$M
DERIVATIVES
POSITION
AS PER
BALANCE
SHEET
AMOUNT
AFTER
APPLYING
RIGHTS OF
OFFSET
UNDER ISDA
AGREEMENTS
DERIVATIVES
POSITION
AS PER
BALANCE
SHEET
AMOUNT
AFTER
APPLYING
RIGHTS OF
OFFSET
UNDER ISDA
AGREEMENTS
Derivative assets56.610.638.0–
Derivative liabilities (117.0)(71.0)(163.1)(125.1)
Net amount(60.4)(60.4)(125.1)(125.1)
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
97
19. Derivatives and
hedge accounting://
CONTINUED
19.1 Effects of hedge accounting on the financial position and performance
The tables below demonstrate the impact of hedged items and the hedging instruments designated in hedging relationships:
Cash flow hedges
2018
FACE VALUE
$M
WEIGHTED
AVERAGE
RATE
CARRYING
AMOUNT
ASSETS/
(LIABILITIES)
$M
CHANGE IN
FAIR VALUE
USED FOR
MEASURING
INEFFECTIVE-
NESS
$M
HEDGING
(GAIN)
OR LOSS
RECOGNISED
IN CASH
FLOW HEDGE
RESERVE
$M
HEDGE
INEFFECTIVE-
NESS
RECOGNISED
IN PROFIT
OR LOSS
$M
(GAIN)
OR LOSS
RECOGNISED
IN COST OF
HEDGING
$M
Interest risk
Hedged item: NZD floating
rate exposure on borrowings
(790.0)(49.0)
Hedging instrument: Interest
rate swaps
(1,100.0)4.2%(49.6)(49.6)49.6––
Interest and exchange risk
Hedged item: GBP fixed rate
exposure on borrowings
(285.6)(66.2)
Hedging instrument: Cross
currency swaps
(285.6)10.8%(65.6)(65.9)4.8–(0.3)
Total–
Cash flow hedges
2017
FACE VALUE
$M
WEIGHTED
AVERAGE
RATE
CARRYING
AMOUNT
ASSETS/
(LIABILITIES)
$M
CHANGE IN
FAIR VALUE
USED FOR
MEASURING
INEFFECTIVE-
NESS
$M
HEDGING
(GAIN)
OR LOSS
RECOGNISED
IN CASH
FLOW HEDGE
RESERVE
$M
HEDGE
INEFFECTIVE-
NESS
RECOGNISED
IN PROFIT
OR LOSS
$M
(GAIN)
OR LOSS
RECOGNISED
IN COST OF
HEDGING
$M
Interest risk
Hedged item: NZD floating
rate exposure on borrowings
(1,000.0)(52.8)
Hedging instrument: Interest
rate swaps
(1,420.0)5.0%(51.9)(51.9)51.9––
Interest and exchange risk
Hedged item: GBP fixed rate
exposure on borrowings
(285.6)(96.3)
Hedging instrument: Cross
currency swaps
(285.6)10.8%(94.0)(94.7)13.4–(0.7)
Total–
The NZD floating rate exposure includes $350.0 million from the floating rate notes (2017: $750.0 million) and $440.0 million
arising from hedging the USD senior bonds (2017: $250.0 million), as allowable under NZ IFRS 9.
The interest rate swaps include $310.0 million of forward starting swaps (2017: $420.0 million).
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
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19. Derivatives and
hedge accounting://
CONTINUED
19.1 Effects of hedge accounting on the financial position and performance CONTINUED
Fair value hedges
2018
FACE VALUE
$M
WEIGHTED
AVERAGE
RATE
$M
ACCUMULATED
FAIR VALUE
HEDGE
ADJUSTMENTS
$M
CARRYING
AMOUNT
ASSETS/
(LIABILITIES)
$M
CHANGE IN
FAIR VALUE
OF THE
HEDGED
ITEM
$M
CHANGE IN
FAIR VALUE
OF THE
HEDGING
INSTRUMENT
$M
CHANGE IN
VALUE IN
COST OF
HEDGING
$M
Interest and exchange risk
Hedged item: USD fixed rate
exposure on borrowings
(1,112.9)(52.6)(1,162.9)(29.1)
Hedging instrument: Cross
currency swaps
(1,112.9)floating55.032.21.8
Total(29.1)32.2
Fair value hedges
2017
FACE VALUE
$M
WEIGHTED
AVERAGE
RATE
$M
ACCUMULATED
FAIR VALUE
HEDGE
ADJUSTMENTS
$M
CARRYING
AMOUNT
ASSETS/
(LIABILITIES)
$M
CHANGE IN
FAIR VALUE
OF THE
HEDGED
ITEM
$M
CHANGE IN
FAIR VALUE
OF THE
HEDGING
INSTRUMENT
$M
CHANGE IN
VALUE IN
COST OF
HEDGING
$M
Interest and exchange risk
Hedged item: USD fixed rate
exposure on borrowings
(697.1)(23.5)(719.3)56.3
Hedging instrument: Cross
currency swaps
(697.1)floating21.0(53.6)(1.0)
Total56.3(53.6)
Hedging instruments and hedged items are included in the line items “Derivatives” and “Borrowings” respectively in the balance
sheet. Ineffectiveness is the sum of the change in fair value of the hedged item and the change in fair value of the hedging
instrument. The source of ineffectiveness is largely due to counterparty credit risk on the derivative instruments. Hedge
ineffectiveness is included in the “Fair value change on financial instruments” in the profit or loss.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
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19. Derivatives and
hedge accounting://
CONTINUED
19.2 Reconciliation of
changes in hedge reserves
Hedge reserves
2018
CASHFLOW
HEDGE
RESERVE
$M
COST OF
HEDGING
$M
TOTAL
$M
Opening balance47.21.849.0
Hedging gains or losses recognised in OCI33.2(1.4)31.8
Transferred to profit or loss(44.4)–(44.4)
Recognised as basis adjustment to non-financial assets0.2–0.2
Deferred tax on change in reserves3.10.43.5
Closing balance39.30.840.1
Hedge reserves
2017
CASHFLOW
HEDGE
RESERVE
$M
COST OF
HEDGING
$M
TOTAL
$M
Opening balance89.00.489.4
Hedging gains or losses recognised in OCI1.62.03.6
Transferred to profit or loss(59.5)–(59.5)
Recognised as basis adjustment to non-financial assets(0.1)–(0.1)
Deferred tax on change in reserves16.2(0.6)15.6
Closing balance47.21.849.0
20. Financial risk
management://
PoliciesFair value measurement hierarchy
Financial instruments measured at fair value are classified according to the following levels:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; or
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset
or liability, either directly (prices) or indirectly (derived from prices); or
Level 3: Inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
Risk management framework
Vector has a comprehensive treasury policy, approved by the board of directors, to manage
financial risks arising from business activity. The policy outlines the objectives and approach that
the group applies to manage:
—Interest rate risk;
—Credit risk;
—Liquidity risk;
—Foreign exchange risk; and
—Funding risk.
For each risk type, any position outside the policy limits requires the prior approval of the board
of directors. Each risk is monitored on a regular basis and reported to the board.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
100
20. Financial risk
management://
CONTINUED
20.1 Interest rate risk
Interest rate exposure
2018
< 1 YEAR
$M
1 – 2 YEARS
$M
2 – 5 YEARS
$M
> 5 YEARS
$M
TOTAL
$M
Interest rate exposure: borrowings745.6296.6707.7655.82,405.7
Derivative contracts:
Interest rate swaps
(1,070.0)(30.0)790.0310.0–
Cross currency swaps1,112.9(296.6)(400.5)(415.8)–
Net interest rate exposure788.5(30.0)1,097.2550.02,405.7
Interest rate exposure
2017
< 1 YEAR
$M
1 – 2 YEARS
$M
2 – 5 YEARS
$M
> 5 YEARS
$M
TOTAL
$M
Interest rate exposure: borrowings845.0285.6753.8350.52,234.9
Derivative contracts:
Interest rate swaps
(790.0)(230.0)600.0420.0–
Cross currency swaps697.1–(446.6)(250.5)–
Net interest rate exposure752.155.6907.2520.02,234.9
PoliciesVector is exposed to interest rate risk through its borrowing activities.
Interest rate exposures are managed primarily by entering into derivative contracts. The main
objectives are to minimise the cost of total borrowings, control variations in the interest expense
of the borrowings from year to year, and where practicable to match the interest rate risk profile
of the borrowings with the risk profile of the group’s assets.
The board of directors has set and actively monitors maximum and minimum limits for the net
interest rate exposure profile.
20.2 Credit risk
PoliciesCredit risk represents the risk of cash flow losses arising from counterparty defaults. Vector is
exposed to credit risk in the normal course of business from:
—Trade receivable transactions with business and mass market residential customers; and
—Financial instruments transactions with financial institutions.
The carrying amounts of financial assets represent the group’s maximum exposure to credit risk.
The group has credit policies in place to minimise the impact of exposure to credit risk and
associated financial losses:
—The board of directors must approve placement of cash, short-term cash deposits or
derivatives with financial institutions whose credit rating is less than A+. As at 30 June 2018,
all financial instruments are held with financial institutions with credit rating above A+;
—The board of directors sets limits and monitors exposure to financial institutions; and
—Exposure is spread across a range of financial institutions. Where we deem there is credit
exposure to energy retailers and customers, the group minimises its risk by performing credit
evaluations and/or requiring a bond or other form of security.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
101
20. Financial risk
management://
CONTINUED
20.3 Liquidity risk
Contractual cash flows maturity profile
2018
PAYABLE
<1 YEAR
$M
PAYABLE
1 – 2 YEARS
$M
PAYABLE
2 – 5 YEARS
$M
PAYABLE
>5 YEARS
$M
TOTAL
CONTRACTUAL
CASH FLOWS
$M
Non-derivative financial liabilities
Trade payables
168.710.722.42.7204.5
Borrowings: interest109.182.6161.891.2444.7
Borrowings: principal334.5288.21,118.3683.42,424.4
Derivative financial (assets)/liabilities
Cross currency swaps: inflow
(291.7)(330.0)(546.2)(524.3)(1,692.2)
Cross currency swaps: outflow349.7332.2498.3530.91,711.1
Forward exchange contracts: inflow(8.4)–––(8.4)
Forward exchange contracts: outflow8.5–––8.5
Net settled derivatives
Interest rate swaps
21.022.113.3(0.8)55.6
Group contractual cash flows691.4405.81,267.9783.13,148.2
Contractual cash flows maturity profile
2017
PAYABLE
<1 YEAR
$M
PAYABLE
1 – 2 YEARS
$M
PAYABLE
2 – 5 YEARS
$M
PAYABLE
>5 YEARS
$M
TOTAL
CONTRACTUAL
CASH FLOWS
$M
Non-derivative financial liabilities
Trade payables
174.48.021.90.1204.4
Borrowings: interest 87.784.0142.115.3329.1
Borrowings: principal400.0204.31,195.4348.22,147.9
Derivative financial (assets)/liabilities
Cross currency swaps: inflow
(47.4)(251.7)(497.4)(253.4)(1,049.9)
Cross currency swaps: outflow55.5336.8508.1257.91,158.3
Forward exchange contracts: inflow(23.5)–––(23.5)
Forward exchange contracts: outflow23.8–––23.8
Net settled derivatives
Interest rate swaps
29.217.517.8(3.4)61.1
Group contractual cash flows699.7398.91,387.9364.72,851.2
The above table shows the timing of non-discounted cash flows for all financial instrument liabilities and derivatives.
The cash flows for capital bonds, included in borrowings, are disclosed as payable within 2 – 5 years as the next election date set for
the capital bonds is 15 June 2022 and the bonds have no contractual maturity date.
PoliciesVector is exposed to liquidity risk where there is a risk that the group may encounter difficulty in
meeting its day to day obligations due to the timing of cash receipts and payments.
The objective is to ensure that adequate liquid assets and funding sources are available at all times
to meet both short term and long term commitments. The board has set a minimum headroom
requirement for committed facilities over Vector’s anticipated 18 month peak borrowing requirement.
At balance date, in addition to short-term deposits, Vector has access to undrawn funds of
$545.0 million (2017: $530.0 million).
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
102
20. Financial risk
management://
CONTINUED
20.4 Foreign exchange risk
Policies Vector is exposed to foreign exchange risk through its borrowing activities, foreign currency
denominated expenditure, and through our Australian subsidiaries.
Foreign exchange exposure is primarily managed through entering into derivative contracts.
The board of directors requires that all significant foreign currency borrowings and expenditure
are hedged into NZD at the time of commitment to drawdown or when the exposure is highly
probable. Hence, at balance date there is no significant exposure to foreign currency risk.
20.5 Funding risk
PoliciesFunding risk is the risk that Vector will have difficulty refinancing or raising new debt on
comparable terms to existing facilities. The objective is to spread the concentration of risk
so that if an event occurs the overall cost of funding is not unnecessarily increased. Details
of borrowings are shown in Note 18.
The board of directors has set the maximum amount of debt that may mature in any one
financial year.
21. Cash flows://
21.1 Reconciliation of net profit/
(loss) to net cash flows from/
(used in) operating activities
Reconciliation of net profit/(loss) to net cash flows from/
(used in) operating activities
NOTE
2018
$M
2017
$M
Net profit/(loss) for the period149.8168.9
Items classified as investing activities
Net loss/(gain) on disposal of PPE and software intangibles
2.44.3
Net loss/(gain) on sale of investments(1.1)–
1.34.3
Non-cash items
Depreciation and amortisation
225.9199.6
Non-cash portion of interest costs (net)1.7(3.8)
Fair value change on financial instruments8(3.1)(1.6)
Associates (share of net (profit)/loss)12.21.5(1.6)
Increase/(decrease) in deferred tax 8.6(9.1)
Increase/(decrease) in provisions21.4(1.3)
Other non-cash items0.4–
256.4182.2
Cash items not impacting net profit/(loss)
Dividend received from associate
12.2–2.0
Changes in assets and liabilities
Trade and other payables
35.08.2
Inventories(1.2)(2.0)
Trade and other receivables(18.2)(11.2)
Income tax (33.2)(16.7)
(17.6)(21.7)
Net cash flows from/(used in) operating activities389.9335.7
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
103
21. Cash flows://
CONTINUED
21.2 Reconciliation of movement
of liabilities to cash flows arising
from financing activities
Reconciliation of movement of
liabilities to cash flows arising from
financing activities
FINANCE
LEASESBORROWINGSDERIVATIVESTOTAL
As at 1 July 20170.82,170.4125.12,296.3
Net draw downs–170.8–170.8
Other financing cash flows(0.4)(1.7)–(2.1)
Financing cash flows(0.4)169.1–168.7
Fair value changes–49.3(64.7)(15.4)
Premium received5.15.1
Borrowing fees paid–(3.7)–(3.7)
Amortisation of debt raising costs–5.1–5.1
New finance leases0.1––0.1
As at 30 June 20180.52,395.360.42,456.2
New accounting standard
adopted
The group has adopted the disclosure requirements in Disclosure Initiative (Amendments to
IAS 7). The table above provides an explanation of changes in the group’s liabilities for which
cash flows have been classified as financing activities in the cash flow statement.
21.3 Cash and cash equivalents
PoliciesCash and cash equivalents are carried at amortised cost less an allowance for expected
credit losses.
Cash and cash equivalents includes deposits that are on call.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
104
22. Equity://
22.1 Share Capital
SharesThe total number of authorised and issued shares is 1,000,000,000 (2017: 1,000,000,000).
All ordinary issued shares are fully paid, have no par value and carry equal voting rights and equal
rights to a surplus on winding up of the parent.
At balance date 86,148 shares (2017: 109,090) are allocated to the employee share purchase
scheme.
22.2 Capital Management
PoliciesVector’s objectives in managing capital are:
—To safeguard the ability of entities within the group to continue as a going concern;
—To provide an adequate return to shareholders by pricing products and services commensurate
with the level of risk; and
—Maintain an investment grade credit rating.
Vector manages and may adjust its capital structure in light of changes in economic conditions
and for the risk characteristics of the underlying assets. To achieve this Vector may:
—Adjust its dividend policy;
—Return capital to shareholders;
—Issue new shares; or
—Sell assets to reduce debt.
Vector primarily monitors capital on the basis of the gearing ratio.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
105
22. Equity://
CONTINUED
22.3 Financial ratios
Earnings per share
2018
$M
12 MONTHS
2017
$M
12 MONTHS
Net profit attributable to owners of the parent 148.265.8
Weighted average ordinary shares outstanding during the period
(number of shares)
998,370,185995,651,036
Total earnings per share14.8 cents16.7 cents
Net tangible assets per share
2018
$M
2017
$M
Net assets attributable to owners of the parent 2,440.42,430.6
Less total intangible assets (1,398.2)(1,399.6)
Total net tangible assets1,042.21,031.0
Ordinary shares outstanding (number of shares)999,913,852995,645,987
104.2 cents103.5 cents
Economic net debt to economic net debt plus adjusted equity
ratio (“gearing ratio”)
2018
$M
2017
$M
Face value of borrowings2,405.72,235.0
Less cash and cash equivalents(27.9)(14.9)
Economic net debt2,377.82,220.1
Total equity2,457.92,448.3
Adjusted for hedge reserves40.149.0
Adjusted equity 2,498.02,497.3
Economic net debt plus adjusted equity 4,875.84,717.4
48.8%47.1%
22.4 Reserves
Hedge reservesHedge reserves comprise the cash flow hedge reserve and cost of hedging.
The cash flow hedge reserve records the effective portion of changes in the fair value of
derivatives that are designated as cash flow hedges.
The gain or loss relating to the ineffective portion is recorded in profit or loss within interest
costs (net).
During the year, $44.4 million (2017: $59.5 million) was transferred from the cash flow hedge
reserve to interest expense.
Cost of hedging records the change in the fair value of the cost to convert foreign currency into
New Zealand dollars as required under NZ IFRS 9.
Other reservesOther reserves comprise:
—A share-based payment reserve relating to the employee share purchase scheme. When
shares are vested to the employee, the reserve is offset with a reduction in treasury shares.
—A foreign currency translation reserve to record exchange differences arising from the
translation of the group’s foreign operations.
—A reserve recording the group’s share of its associates other comprehensive income.
—A reserve to record the fair value movements in the group’s investments in financial assets.
2018
NOTES TO THE FINANCIAL STATEMENTS
continued
Vector://AR 18
106
23. Related party
transactions://
2018
$M
2017
$M
Transactions with Entrust
Dividends paid
122.0120.2
2018
$M
2017
$M
Transactions with associates and joint operations
Purchases of electricity and steam from KEJV
8.97.8
Sale of gas to KEJV9.48.3
Sales of operations and maintenance services to KEJV 1.71.9
Sales of administration and other services to KEJV0.10.1
Purchase of vegetation management services from
Tree Scape Limited
7.46.8
Dividends received from Tree Scape Limited–2.0
Directors’ fees received from Tree Scape Limited0.10.1
Transactions with key management personnel
Salary and other short-term employee benefits
5.45.5
Directors’ fees0.90.9
Related partiesRelated parties of the group include the associates and joint operations disclosed in Note 12, the
ultimate parent entity (Entrust) and key management personnel (directors and the executive team).
OtherThe group may transact on an arms’ length basis with companies in which directors have a
disclosed interest.
Receivables/ (Payables)
2018
$M
2017
$M
Tree Scape Limited–(0.7)
KEJV0.30.5
2018
Vector://AR 18107
NOTES TO THE FINANCIAL STATEMENTS
continued
24. Contingent liabilities://
DisclosuresThe directors are aware of claims that have been made against entities of the group and, where
appropriate, have recognised provisions for these within Note 17 of these financial statements.
No material contingent liabilities have been identified.
25. Business combinations://
In the prior year, Vector Energy Solutions Limited and its subsidiary, Vector Contracting Services
Limited acquired 100% of the voting shares in E-Co Products Group Limited (“E-Co Products”)
and the business and net assets of PowerSmart NZ Limited (“PowerSmart”) respectively.
In the prior year, goodwill was recognised based on provisional fair values of the assets and
liabilities acquired at the time of acquisition. On the date of acquisition, Vector repaid $15.4 million
of E-Co Products’ liabilities. The repayment was treated as a separate transaction.
The table below sets out the final fair values of assets and liabilities acquired. The measurement
period ended on 31 March 2018, 12 months after acquisition date.
2018
$M
2017
$M
Fair value of net assets acquired at acquisition date
Net working capital
(0.4)0.9
Property, plant and equipment (including software)5.05.0
Identifiable intangible assets 45.045.0
Deferred tax liability(11.3)(12.4)
Bank debt and other liabilities(17.9)(15.4)
Goodwill70.767.9
Net assets and liabilities acquired91.191.0
Cash paid 31 March 201792.092.0
Post-acquisition adjustment(0.9)(1.0)
Total consideration91.191.0
26. Events after balance date://
ApprovalThe financial statements were approved by the board of directors on 23 August 2018.
Final dividendOn 23 August 2018, the board declared a final and fully imputed dividend for the year ended
30 June 2018 of 8.0 cents per share.
No adjustment is required to these financial statements in respect of this event.
2018
Vector://AR 18108
INDEPENDENT AUDITOR’S REPORT
© 2018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Combined Independent Auditor’s and
Assurance Report
General
Our assurance procedures consisted of the audit of the consolidated financial statements of Vector Limited and
limited assurance procedures on Greenhouse Gas Baseline Totals presented in Vector Limited’s annual report for
the period ending 30 June 2018.
Independent Auditor’s Report
To the shareholders of Vector Limited
Report on the consolidated financial statements
Opinion
In our opinion, the accompanying consolidated
financial statements of Vector Limited and its
subsidiaries (the “Group”) on pages 65 to 107:
i. present fairly in all material respects the Group’s
financial position as at 30 June 2018
ii. its financial performance and cash flows for the
year ended on that date; and
iii. comply with New Zealand equivalents to
International Financial Reporting Standards (NZ
IFRS) and International Financial Reporting
Standards.
We have audited the accompanying consolidated
financial statements which comprise:
— the consolidated balance sheet as at 30 June
2018;
— the consolidated profit or loss and statement of
other comprehensive income, statement of
changes in equity, and statement of cash flows
for the year then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISA’s (NZ)”). We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for
Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our
other ethical responsibilities in accordance with these requirements and the IESBA Code.
Our responsibilities under International Standards on Auditing (New Zealand) are further described in the Auditor’s
Responsibilities for the audit of the consolidated financial statements section of our report.
Our firm has also provided other services to the Group in relation to regulatory and other assurance services. Subject to
certain restrictions, partners and employees of our firm may also deal with the Group on normal terms within the ordinary
course of trading activities of the business of the Group. These matters have not impaired our independence as auditor of
the Group. The firm has no other relationship with, or interest in, the Group.
2018
Vector://AR 18109
INDEPENDENT AUDITOR’S REPORT
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements
as a whole was set at $9 million. This was determined with reference to a benchmark of Group profit before
income tax. We chose profit before income tax as the benchmark as the Group is a profit oriented business and in
our view, this is a key measure of the of the Group’s performance.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the Group’s financial statements in the current period. We summarise below those matters and our key audit
procedures to address those matters in order that the shareholders as a body may better understand the process
by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the
purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express
discrete opinions on separate elements of the consolidated financial statements.
The key audit matter How the matter was addressed in our audit
1. Capitalisation and asset lives (Property, plant and equipment of $3,996 million, with additions during the
year of $384 million). Refer to Note 14 of the financial statements.
Capitalisation of costs and useful lives
assigned to these assets are a key audit
matter due to the significance of property,
plant and equipment to the Group’s
business, and due to the judgement
involved in determining the carrying value
of these assets, principally:
— the decision to capitalise or expense
costs relating to the electricity and
gas distribution networks. This
decision depends on whether the
expenditure is considered to enhance
the network (and therefore capital), or
to maintain the current operating
capability of the network (and
therefore an expense); and
— the estimation of the useful life of the
asset once the costs are capitalised.
Estimated lives range between 2 and
100 years, resulting from the diversity
of property, plant and equipment
across a portfolio of businesses.
There is also judgment when
estimating asset lives due to the
uncertainty of the impact of
technological change.
Our audit procedures in this area included, among others:
—
examining the operating effectiveness of controls related to the
approval of capital projects;
— assessing the nature of capitalised costs by checking a sample
of costs to invoice to determine whether the description of the
expenditure met the capitalisation criteria in the relevant
accounting standards;
— assessing the useful economic lives stated in the accounting
policies of the Group by comparing to industry benchmarks and
our knowledge of the business and its operations; and
— assessing whether the useful economic lives of each individual
asset capitalised in the current period was within the stated
policies.
We found no material errors in the amounts capitalised in the period
and that the estimated useful lives of assets were within an
acceptable range when compared to those used in the industry.
2018
Vector://AR 18110
INDEPENDENT AUDITOR’S REPORT
continued
The key audit matter How the matter was addressed in our audit
2. Impairment assessment of a) the Gas Trading and b) the Regulated Networks cash generating units
(inclusive of $1,207 million of goodwill). Refer to Note 13 of the financial statements
We considered the impairment
assessment of the Gas Trading cash
generating unit (CGU), including $ 157m of
goodwill, to be a key audit matter due to
the continued low margin trading
environment and also in the context of the
impairment of $64 million recorded in 30
June 2016 period.
We also considered the impairment
assessment of the Regulated Networks
CGUs to be a key audit matter due to the
significance of goodwill of $1,050 million
to the financial position of the Group and
the significant judgment used to estimate
future pricing of the regulated revenue
streams beyond the timeframe of the
current Commerce Commission
regulatory price paths.
The procedures we performed to evaluate the impairment
assessments included:
— assessing whether the methodology adopted in the discounted
cash flow models was consistent with accepted valuation
approaches within the energy industry;
— evaluating the significant future cash flow assumptions by
comparing to historical trends, customer contracts and supplier
agreements, Asset Management Plans, regulatory pricing
models and budgets;
— comparing the discount rates applied to the estimated future
cash flows and the terminal growth rates to relevant
benchmarks using our own valuation specialists;
— challenging the above assumptions and judgements by
performing sensitivity analysis, considering a range of likely
outcomes based on various scenarios; and
— comparing the Group’s total net assets as at 30 June 2018 of
$2,458 million to its market capitalisation of $3,390 million at 30
June 2018 which implied total headroom of $932 million.
For each CGU we found the methodology to be consistent with
industry norms. We found:
— the discount and terminal growth rates were in an acceptable
industry range;
— future cash flow assumptions to be supportable by comparison
to the sources we considered above; and
— the overall comparison of the Group’s net assets to market
capitalisation did not indicate an impairment.
3. Valuation of investments in new energy technologies and markets as part of the Group’s strategy to
‘Create a New Energy Future’
During the 18 months ending 30 June
2018 the Group has invested circa $210
million in new energy technologies and
markets as part of its strategy to ’Create a
New Energy Future’, including but not
limited to:
— acquisitions of E-Co Products Group
Limited and PowerSmart NZ Limited
(refer Note 25 of the financial
statements);
— investment in mPrest Systems (2003)
Limited in October 2017; and
The procedures we performed to conclude on the valuation
assessments included:
— understanding the sale and purchase agreement for the
acquisitions, critically assessing the approach and assumption
used to identify and value the respective intangible assets and
understanding the intrinsic value that is represented by the
resulting goodwill;
— evaluating the performance of the Australian metering business,
in particular understanding the status and critically challenging
the expected future outlook of the Group’s bids for meter data
and deployment contracts with Australian energy retailers
2018
Vector://AR 18111
INDEPENDENT AUDITOR’S REPORT
continued
The key audit matter How the matter was addressed in our audit
— continued investment in developing a
presence in the Australian electricity
metering market to coincide with
changes to the market regulation and
structure.
We consider the valuation of investments
in new energy technologies and markets
to be a key audit matter because of the
judgement involved whether through;
— valuing intangible assets and goodwill
acquired in a business or asset
purchase;
— assessing the fair value of
investments, when carried at fair
value, in absence of a listed-market
reference; or
— considering impairment in markets
where the future outcomes are more
uncertain than in the Group’s
established businesses.
relating to the “Power of Choice” regime that came into effect
from 1 December 2017;
— assessing whether there are indicators of impairment in respect
of any of these investments; and
— assessing the fair value of mPrest.
We did not identify any material errors in the valuations attributed to
the investments in the new non-regulated activities outlined
opposite.
Use of this Independent Auditor’s Report
This report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might
state to the shareholders those matters we are required to state to them in the Auditor’s Report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the shareholders as a body, for our audit work, this report or any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial
statements
The Directors, on behalf of Vector Limited, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally
accepted accounting practice in New Zealand (being NZ IFRS) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of consolidated financial statements that are
fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.
2018
Vector://AR 18112
INDEPENDENT AUDITOR’S REPORT
continued
Auditor’s Responsibilities for the Audit of the consolidated financial
statements
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error; and
— to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at the
External Reporting Board (XRB) website at:
https://www.xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Page1.aspx
This description forms part of our Independent Auditor’s Report.
Independent Limited Assurance Report
To the Directors of Vector Limited
Report on the Greenhouse Gas Baseline Totals
Conclusion
Based on our limited assurance engagement, which is not a reasonable assurance engagement or an audit,
we have not become aware of any matter that would lead us to believe that the Greenhouse Gas Baseline
Totals (“GHG Baseline”) presented in Vector’s Limited’s Greenhouse Gas Statement (“GHG Statement”)
has not, in all material respects, been prepared in accordance with the Greenhouse Gas Protocol (“the
Protocol”) for the period of 1 July 2017 to 30 June 2018.
Information subject to assurance
We have performed an engagement to provide limited assurance in relation to Vector Limited (“Vector”)
Greenhouse Gas Baseline Totals (“GHG Baseline”), presented in Vector’s Limited’s Greenhouse Gas Statement
(“GHG Statement”) that Vector has prepared, in all material respects, in accordance with the Greenhouse Gas
Protocol (“the Protocol”) for the period of 1 July 2017 to 30 June 2018 (“the reporting period”).
Criteria
The scope of our limited assurance services was Vector’s GHG Baseline, prepared in accordance with the Protocol
and presented in the GHG Statement for the period 1 July 2017 to 30 June 2018.
The operations included in the scope were those deemed by Vector to be within their current operational control
boundary. The scope of our services excluded greenhouse gas emissions outside of the reporting period and
outside of Vector’s designated control boundary.
2018
Vector://AR 18113
INDEPENDENT AUDITOR’S REPORT
continued
Standards we followed
We conducted our limited assurance engagement in accordance with International Standard on Assurance
Engagements (New Zealand) 3410 Assurance Engagements on Greenhouse Gas Statements (“ISAE (NZ) 3410”).
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
In accordance with this standard we have:
— used our professional judgement to plan and perform the engagement to obtain limited assurance that the
information subject to assurance is free from material misstatement, whether due to fraud or error
— considered relevant internal controls when designing our assurance procedures, however we do not express a
conclusion on the effectiveness of these controls; and
— ensured that the engagement team possess the appropriate knowledge, skills and professional competencies.
The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in
extent than for a reasonable assurance engagement. Consequently the level of assurance obtained in a limited
assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable
assurance engagement been performed.
Restriction of distribution and use
Our report should not be regarded as suitable to be used or relied on by any party s other than Vector for any
purpose or in any context. Any party other than Vector who obtains access to our report or a copy thereof and
chooses to rely on our report (or any part thereof) will do so at its own risk.
To the fullest extent permitted by law, we accept or assume no responsibility and deny any liability to any party
other than Vector for our work, for this independent limited assurance report, or for the conclusions we have
reached.
Our report is released to Vector on the basis that it shall not be copied, referred to or disclosed, in whole (save for
Vector’s own internal purposes) or in part, without our prior written consent.
Directors’ responsibility for the GHG Baseline Totals and GHG Statement
The Directors of Vector are responsible for the preparation and fair presentation of the GHG Baseline presented in
Vector’s GHG Statement in accordance with the Protocol. This responsibility includes such internal control as the
Directors determine is necessary to enable the preparation of the GHG Statement that is free from material
misstatement whether due to fraud or error.
Our responsibility
Our responsibility is to express a conclusion to the Directors on the preparation and presentation of the GHG
Baseline presented in Vector’s GHG Statement in accordance with the Protocol.
Our independence and quality control
We have complied with the independence and other ethical requirements of Professional and Ethical Standard 1
(Revised) issued by the New Zealand Auditing and Assurance Standards Board, which is founded on fundamental
principles of integrity, objectivity, professional competence and due care, confidentiality and professional
behaviour.
The firm applies Professional and Ethical Standard 3 (Amended) and accordingly maintains a comprehensive
system of quality control including documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable legal and regulatory requirements.
Our firm has also provided other services to Vector. Subject to certain restrictions, partners and employees of our
firm may also deal with Vector on normal terms within the ordinary course of trading activities of the business of
Vector. These matters have not impaired our independence as assurance providers of Vector for this engagement.
The firm has no other relationship with, or interest in, Vector.
2018
Vector://AR 18114
INDEPENDENT AUDITOR’S REPORT
continued
Other Information
The Directors, on behalf of the Group, are responsible for the other information included in the entity’s Annual
Report. Other information may include the Chairman and Chief Executive reports, the financial performance trends
and disclosures relating to corporate governance and statutory information. Our opinion on the consolidated
financial statements does not cover any other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Malcolm Downes – Audit Partner
David Sutton – Assurance Partner
For and on behalf of
KPMG
Auckland
23 August 2018
2018
STATUTORY INFORMATION
Vector://AR 18
115
Interests register
Each company in the group is required to maintain an interests register in which the particulars of
certain transactions and matters involving the directors must be recorded. The interests registers
for Vector Limited and its subsidiaries are available for inspection at their registered offices.
Particulars of entries in the interests registers made during the year ended 30 June 2018 are set
out in this Statutory Information section.
Information used by directors
During the financial year there were no notices from directors of Vector Limited, or any subsidiary,
requesting to use information received in their capacity as a director which would not otherwise
have been available to them.
Indemnification and insurance of directors and officers
As permitted by the constitution and the Companies Act 1993, Vector Limited has indemnified its
directors, and those directors who are directors of subsidiaries against potential liabilities and costs
they may incur for acts or omissions in their capacity as directors. In addition, Vector Limited has
indemnified certain senior employees against potential liabilities and costs they may incur for acts
or omissions in their capacity as employees of Vector Limited, or directors of Vector subsidiaries.
During the financial year, Vector Limited paid insurance premiums in respect of directors and
certain senior employees’ liability insurance which covers risks normally covered by such policies
arising out of acts or omissions of directors and employees in their capacity as such. Insurance is
not provided for criminal liability or liability or costs in respect of which an indemnity is prohibited
by law.
Donations
Vector Limited made donations of $6,850 during the year ended 30 June 2018. Subsidiaries of
Vector Limited made donations of $10,390 during the year ended 30 June 2018.
Credit rating
At 30 June 2018 Vector Limited had a Standard & Poor’s credit rating of BBB/stable, and a
Moody’s credit rating of Baa1/stable.
NZX regulation waivers and rulings
Vector Limited has been granted waivers from the requirements of various listing rules to allow the
constitution to contain certain provisions which are not ordinarily contained in the constitution of a
company listed on the NZX Main Board, including, in particular, provisions giving certain rights to
Entrust. Vector has been given a non-standard designation by NZX due to the inclusion of these
provisions in its constitution.
Exercise of NZX powers
NZX did not exercise any of its powers set out in Listing Rule 5.4.2 (relating to powers to cancel,
suspend or censure an issuer) with respect to Vector Limited.
Trustees of Entrust
During the year ended 30 June 2018, Vector Limited made payments to J Carmichael and
K Sherry, trustees of Entrust (Vector Limited’s majority shareholder) totalling $201,300 in respect
of their roles as directors on the Vector Limited board.
Subsidiaries and associates
A list of each of the Company’s subsidiaries and associates is contained on pages 116 and 117.
Other than Solpho Limited, which was acquired on 01 November 2017 and MEL Network Limited,
which was removed from the Companies Office register on 27 March 2018, the Company has not
gained or lost control of any entity during the year ended 30 June 2018.
STATUTORY INFORMATION //
2018
Vector://AR 18116
STATUTORY INFORMATION
continued
Directors
The following directors of Vector Limited and current group companies held office as at 30 June 2018 or resigned (R) as a director
during the year ended 30 June 2018. Directors marked (A) were appointed during the year.
PARENTDIRECTORS
Vector LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson,
D Bartholomew (A), S Krieger (A)
All of the above directors in office at 30 June 2018 are independent directors, except for J Carmichael and K Sherry who are
trustees of Entrust (Vector Limited’s majority shareholder).
SUBSIDIARIESDIRECTORS
Advanced Metering Assets LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Advanced Metering Services LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Arc Innovations LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Auckland Generation LimitedS Mackenzie, D Molloy
Cristal Air International LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
E-Co Products Group LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
Energy Efficient Solutions NZ
(2016) Limited
J Carmichael (R), B Gordon (R), S Mackenzie
HRV Australia Pty LimitedJ Carmichael (R), B Gordon (R), S Mackenzie, J Sheridan
HRV Clean WaterJ Carmichael (R), B Gordon (R), S Mackenzie
HRV Filters LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
HRV Home Solutions LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
HRV Marketing LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
HVAC Hero 2016 LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
Liquigas LimitedT Barstead (R), A Gilbert, D Molloy, G O’Brien, T Palmer (R), J Seymour, R Sharp,
A Smith (R), B Talacek, C Thompson (R), M Trigg, B Boswell (A), L Glover (A)
NGC LimitedS Mackenzie, D Molloy
NGC Holdings LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
On Gas LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
PowerSmart NZ LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
Safe Filters LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
Safe Windows LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
SolPho LimitedK Fagan (R), J Mowat (R), S Mackenzie (A), M Bassett-Smith (A) (R), S Robinson (R),
B Gordon (A) (R)
UnitedNetworks LimitedS Mackenzie, D Molloy
Vector Advanced Metering Assets
(Australia) Limited
J Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Vector Advanced Metering Services
(Australia) Pty Limited
S Mackenzie, J Sheridan
Vector Communications LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Vector ESPS Trustee LimitedS Mackenzie, D Molloy
Vector Gas Trading LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Vector Gas Investments LimitedS Mackenzie, D Molloy
Vector Kapuni LimitedS Mackenzie, D Molloy
Vector Management Services LimitedS Mackenzie, D Molloy
Vector Metering Data Services LimitedJ Carmichael, H Fletcher (R), J Mason, A Paterson, K Sherry, M Stiassny, R Thomson
Vector Energy Solutions (Australia)
Pty Limited
J Carmichael (R), B Gordon (R), S Mackenzie, J Sheridan
Vector Energy Solutions LimitedJ Carmichael (R), B Gordon (R), S Mackenzie
Ventilation Australia Pty LimitedJ Carmichael (R), B Gordon (R), S Mackenzie, J Sheridan
2018
Vector://AR 18117
STATUTORY INFORMATION
continued
Directors
CONTINUED
ASSOCIATESDIRECTORS
Tree Scape LimitedA Botha, E Chignell, S Mackenzie, D Molloy, K Smith, B Whiddett
Directors’ remuneration and value of other benefits received from Vector Limited and current group companies for the year ended
30 June 2018:
DIRECTORS OF VECTOR LIMITED
PAID BY
PARENT
$
PAID BY
SUBSIDIARIES
$
H Fletcher (R)25,163–
J Carmichael100,650–
J Mason100,650–
A Paterson100,650–
K Sherry100,650–
M Stiassny201,300–
R Thomson100,650–
D Bartholomew (A)33,987–
S Krieger (A)16,821–
780,521–
DIRECTORS OF SUBSIDIARIES
PAID BY
PARENT
$
PAID BY
SUBSIDIARIES
$
T Barstead (R)–6,015
D Molloy–5,000*
G O’Brien–6,250
J Seymour –5,000
R Sharp –5,000*
J Sheridan–17,029
B Talacek–5,000*
A Smith (R)–2,928
C Thompson (R)–3,743
L Glover (A)–1,257
B Boswell (A)–235
M Trigg–42,808
–100,265
* Directors’ fees relating to any Vector Limited employee are paid to the company.
2018
Vector://AR 18118
STATUTORY INFORMATION
continued
Directors
CONTINUED
Directors of Vector Limited
Entries in the interests register of Vector Limited during the year to 30 June 2018 that are not set out elsewhere in this annual report:
DIRECTORENTITYPOSITION
J CarmichaelAku Investments Limited
Energy Trusts of New Zealand
Entrust
Projectmax Limited
UniServices
Director
Executive member
Trustee
Director
Advisor
J MasonAir New Zealand Limited
Beloit College, Wisconsin, USA
New Zealand Assets Management Limited
University of Auckland
Westpac New Zealand Limited
Zespri Group Limited
Director
Trustee
Director
Trustee and Adjunct Professor of Management
Director
Director
A PatersonAM Paterson Trust
BJ Paterson Trust
Donny Charitable Trust
Forestry Industry Safety Council
Health Quality & Safety Commission
Kiwi Wealth Group
NZ Markets Disciplinary Tribunal
Te Aupouri Commercial Development Limited
Te Aupouri Fisheries Management Limited
Trustee
Trustee
Trustee
Chair
Member
Chair
Member
Chair
Chair
K SherryBell-Booth Sherry Limited
Energy Efficiency and Conservation Authority (EECA)
Energy Trusts of New Zealand
Entrust
Sasha & Otto Limited
Director and shareholder
Director
Chair
Trustee
Director and shareholder
2018
Vector://AR 18119
STATUTORY INFORMATION
continued
Directors
CONTINUED
Directors of Vector Limited
Entries in the interests register of Vector Limited during the year to 30 June 2018 that are not set out elsewhere in this annual report:
CONTINUED
DIRECTORENTITYPOSITION
M StiassnyAuckland Hebrew Congregation Trust Board
Bengadol Corporation Limited
Emerald Group Limited
Gadol Corporation Limited
Ngati Whatua Orakei Whai Rawa Limited
NZ Transport Agency
Plan B Limited
Stride Investment Management Limited
Stride Property Limited
Tower Insurance Limited
Tower Limited
Chairman
Director and shareholder
Director
Director and shareholder
Chairman
Chairman
Director
Director
Director
Director
Chairman
R ThomsonCalnan Holdings Limited
Energy Trusts of New Zealand
R & M Thomson Holdings Limited
Director and shareholder
Consultant
Director and shareholder
D BartholomewEndeavour Energy, NSW, Australia
Northern Territory Power & Water Corporation
Dussur
The Helmsman Project
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
S KriegerXenith IP Group Limited
MyState Limited
Australian Energy Market Operator Limited
Vesale Pty Limited
Non-executive Chair and shareholder
Non-executive Director and shareholder
Non-executive Director
Non-executive Director, Company Secretary
and shareholder
The entities listed above against each director may transact with Vector Limited and its subsidiaries in the normal course of
business. Auckland based directors (J Carmichael, J Mason, A Paterson, K Sherry and M Stiassny) are Vector Limited residential
electricity customers.
Directors of subsidiaries
There are no entries in the interests register of subsidiaries up to 30 June 2018 that are not set out elsewhere in this annual report.
2018
Vector://AR 18120
STATUTORY INFORMATION
continued
Employees
The number of current employees of the company and the group receiving remuneration and
benefits above $100,000 in the year ended 30 June 2018 are set out in the table below:
CURRENT EMPLOYEESGROUPCOMPANY
$100,001 – $110,0005342
$110,001 – $120,0006152
$120,001 – $130,0006352
$130,001 – $140,0004332
$140,001 – $150,0004633
$150,001 – $160,0002117
$160,001 – $170,0002017
$170,001 – $180,0002017
$180,001 – $190,0001512
$190,001 – $200,0001010
$200,001 – $210,0001413
$210,001 – $220,0001110
$220,001 – $230,00063
$230,001 – $240,000128
$240,001 – $250,00011
$250,001 – $260,00041
$260,001 – $270,00044
$270,001 – $280,00032
$280,001 – $290,00031
$290,001 – $300,00054
$310,001 – $320,00011
$320,001 – $330,00032
$330,001 – $340,00021
$340,001 – $350,0002–
$350,001 – $360,00022
$360,001 – $370,00022
$370,001 – $380,00011
$380,001 – $390,00022
$440,001 – $450,00011
$460,001 – $470,0001–
$490,001 – $500,00022
$540,001 – $550,00021
$560,001 – $570,00011
$750,001 – $760,00011
$790,001 – $800,00011
$850,001 – $860,00011
$1,690,001 – $1,700,00011
441351
2018
Vector://AR 18121
STATUTORY INFORMATION
continued
Employees
CONTINUED
The number of former employees of the company and the group receiving remuneration and
benefits above $100,000 in the year ended 30 June 2018 are set out in the table below:
FORMER EMPLOYEES (INCLUDING ANY TERMINATION PAYMENTS)GroupCompany
$100,001 – $110,00022
$110,001 – $120,00042
$120,001 – $130,00087
$130,001 – $140,00052
$140,001 – $130,00064
$170,001 – $180,00011
$190,001 – $200,00021
$200,001 – $210,00011
$210,001 – $220,00011
$220,001 – $230,00011
$270,001 – $280,00011
$280,001 – $290,00011
$290,001 – $300,00022
$360,001 – $370,00011
$490,000 – $500,0001–
3727
No employee of the group appointed as a director of a subsidiary or associate company receives
or retains any remuneration or benefits as a director. The remuneration and benefits of such
employees, received as employees, are included in the relevant bandings disclosed above, where
the annual remuneration and benefits exceed $100,000.
Bondholder statistics
NZDX debt securities distribution as at 30 June 2018:
5.70% capital bonds
RANGE
NUMBER OF
BONDHOLDERS
PERCENTAGE OF
BONDHOLDERS
NUMBER OF
SECURITIES
HELD
PERCENTAGE
OF SECURITIES
HELD
5,000 – 9,99965816.19%3,552,3001.16%
10,000 – 49,9992,56062.99%51,539,70016.78%
50,000 – 99,99952312.87%29,886,0009.73%
100,000 – 499,9992917.16%44,430,00014.46%
500,000 – 999,999120.30%6,801,0002.21%
1,000,000
plus200.49%170,996,00055.66%
4,064100.00%307,205,000100.00%
The following current directors of the parent are holders (either beneficially or non-beneficially) of
Vector Limited capital bonds as at 30 June 2018:
DIRECTOR
NUMBER
OF BONDS
M Stiassny150,000
2018
Vector://AR 18122
STATUTORY INFORMATION
continued
Shareholder statistics
Twenty largest registered shareholders as at 30 June 2018:
SHAREHOLDER
ORDINARY
SHARES HELD
PERCENTAGE
OF ORDINARY
SHARES HELD
Entrust751,000,00075.10%
New Zealand Central Securities Depository Limited*58,392,5185.84%
Custodial Services Limited <A/C 3>13,465,6281.35%
FNZ Custodians Limited9,799,7250.98%
Custodial Services Limited <A/C 4>8,816,3240.88%
Custodial Services Limited <A/C 2>7,506,6160.75%
Investment Custodial Services Limited <A/C C>4,793,3500.48%
Custodial Services Limited <A/C 18>4,310,2520.43%
JBWERE (NZ) Nominees Limited <NZ Resident A/C>4,035,1040.40%
New Zealand Depository Nominee Limited
<A/C 1 CASH ACCOUNT>
2,591,8350.26%
Forsyth Barr Custodians Limited <1-CUSTODY> 2,479,9640.25%
Custodial Services Limited <A/C 1>2,426,1280.24%
Custodial Services Limited <A/C 16>1,619,5200.16%
PT (Booster Investments) Nominees Limited1,048,8230.11%
FNZ Custodians Limited <DTZ Non Resident A/C>872,2540.09%
Investment Custodial Services Limited <A/C R>621,8120.06%
Anthony Ian Gibbs + Valerie Jane Gibbs + Joseph Michael
Windmeyer <Ruby Cove Legacy A/C>
552,4600.06%
Custodial Services Limited <A/C 6>533,3040.05%
Kershaw Investments Limited475,0000.05%
Rui Zhang441,1180.04%
875,781,73587.58%
* New Zealand Central Securities Depository Limited (NZCSD) provides a depository system which
allows electronic trading of Securities for its members. As at 30 June 2018, the 10 largest
shareholdings in Vector Limited held through NZCSD were:
SHAREHOLDER
ORDINARY
SHARES HELD
PERCENTAGE
OF ORDINARY
SHARES HELD
Citibank Nominees (New Zealand) Limited12,973,6571.30%
Accident Compensation Corporation8,572,8330.86%
HSBC Nominees (New Zealand) Limited A/C State Street6,874,4130.69%
HSBC Nominees (New Zealand) Limited6,698,0550.67%
HSBC Nominees A/C NZ Superannuation Fund Nominees Limited3,917,6760.39%
ANZ Custodial Services New Zealand Limited3,432,6060.34%
BNP Paribas Nominees (NZ) Limited3,395,9870.34%
National Nominees New Zealand3,330,6590.33%
BNP Paribas Nominees (NZ) Limited2,008,0290.20%
JP Morgan Chase Bank NA NZ Branch-Segregated Clients Acct1,304,1800.13%
2018
Vector://AR 18123
STATUTORY INFORMATION
continued
Shareholder statistics
CONTINUED
Substantial product holders as at 30 June 2018:
SHAREHOLDER
NUMBER OF
RELEVANT
INTEREST
VOTING
PRODUCTS
HELD
PERCENTAGE
OF VOTING
PRODUCTS
HELD
Entrust 751,000,00075.10%
Michael Buczkowski, James Carmichael, William Cairns, Paul Hutchison and Karen Sherry are the
registered holders of the shares held by Entrust.
As at 30 June 2018, voting products issued by Vector Limited totalled 1,000,000,000 ordinary
shares. Of these shares, 4,244,923 were sold by Vector Ltd to various investors on 09 November
2 0 1 7.
Ordinary shares distribution as at 30 June 2018:
RANGE
NUMBER OF
SHAREHOLDERS
PERCENTAGE OF
SHAREHOLDERS
NUMBER OF
SHARES HELD
PERCENTAGE
OF SHARES
HELD
1 – 4996,46120.39%2,025,0290.20%
500 – 9993,29610.40%2,576,6520.26%
1,000 – 4,99916,22251.22%29,521,3442.96%
5,000 – 9,9992,8388.96%19,101,3041.91%
10,000 – 49,9992,5938.18%46,318,7044.63%
50,000 – 99,9991660.52%10,626,7841.06%
100,000
plus1050.33%889,830,18388.98%
31,681100.00%1,000,000,000100.00%
Analysis of shareholders as at 30 June 2018:
SHAREHOLDER TYPE
NUMBER OF
SHAREHOLDERS
PERCENTAGE OF
SHAREHOLDERS
NUMBER OF
SHARES HELD
PERCENTAGE
OF SHARES
HELD
Entrust10.00%751,000,00075.10%
Companies9663.05%10,481,3131.05%
Individual Holders16,86453.23%56,455,4065.65%
Joint9,42329.74%43,840,7584.38%
Nominee Companies5761.82%131,881,85113.19%
Other3,85112.16%6,340,6720.63%
31,681100.00%1,000,000,000100.00%
2018
Vector://AR 18124
STATUTORY INFORMATION
continued
Shareholder statistics
CONTINUED
The following current directors of the parent are holders (either beneficially or non-beneficially) of
Vector Limited ordinary shares as at 30 June 2018:
DIRECTOR
NUMBER
OF SHARES
J Carmichael1,322
J Mason (as a trustee of the Trumbull Trust)18,500
A Paterson (as trustee of the A M Paterson Trust)10,000
A Paterson (as trustee of the B J Paterson Trust)10,700
K Sherry840
M Stiassny65,793
R Thomson45,000
Michael Buczkowski, James Carmichael, William Cairns, Paul Hutchison and Karen Sherry are the
registered holders of the 751,000,000 ordinary shares held by Entrust. James Carmichael and
Karen Sherry are directors of Vector Limited.
The following disclosures are made pursuant to section 148 of the Companies Act 1993, in
relation to dealings during the year ended 30 June 2018 by directors of Vector Limited in the
ordinary shares of Vector Limited.
There were no acquisitions or disposals of relevant interests.
2018
Vector://AR 18125
RISK MANAGEMENT
At Vector, we recognise that rigorous risk and opportunity
management is essential for corporate stability and
performance, and supports Vector in its pursuit to create a new
energy future – to drive sustainable growth and ensure business
resilience, we must anticipate risks to our operations while
capitalising on opportunities as they arise.
Vector’s enterprise risk management (ERM) framework provides
a flexible and purpose-built approach to the application of risk
management across Vector and is consistent with the Australian
/ New Zealand Risk Management Standard “AS/NZS ISO
31000:2009 Risk management – Principles and Guideline”.
Our risk management processes and tools are embedded within
our business operations to drive consistent, effective and
accountable decision making.
In line with the Three Lines of Defence principle, all Vector
People are responsible for applying Vector’s ERM framework
within their individual roles and are encouraged to proactively
identify, analyse, escalate and treat risks. This risk mindset has
been implemented through:
• Acknowledgement of risk management’s value at Executive
and Board level;
• Relatable and easily applied risk management policies,
processes and tools;
• Integration of risk champions throughout the business; and
• Continuous training and education, both formal and informal.
To further promote accountability and transparency, key
business areas formally present their material risks to the Board
Risk and Assurance Committee (BRAC) on an annual basis.
These material risks are assessed against a group-wide set of
criteria covering both consequence and likelihood, as defined in
Vector’s Group Risk Assessment Matrix.
To support the identification of emerging risks and
opportunities, Group Risk monitors the changing business
landscape, assessing the influence of macro-economic trends
on Vector’s operating environment. These perspectives, along
with the material risks from the individual business unit risk
profiles, inform the development of the Group Key Risk Profile
which provides both the Board and Executive team with a
consolidated view of:
1. The strategically-focused risks which could have a significant
impact on the long-term value and sustainability of Vector’s
business; and
2. The material operational risks facing Vector as part of its
business-as-usual activities which require significant
oversight and control.
Vector’s Group Internal Audit function provides independent
and objective assurance on the effectiveness of governance,
risk management and internal controls across all business
operations. The team follows a co-sourced model, drawing on
both in-house and external expertise, and has unrestricted
access to all Vector staff, records and third parties (as deemed
necessary). The team liaises closely with KPMG, as Vector’s
external auditor, to share the outcomes of the internal audit
programme to the extent that they are relevant to the
financial statements.
RISK MANAGEMENT
Creating value by driving sustainable growth
Protecting value by increasing business resilience
RISK MANAGEMENT //
2018
Vector://AR 18126
RISK MANAGEMENT
continued
Areas of Focus
We continue to focus on maturing and developing our risk
management practices to deliver tangible benefits to the
business and address emerging risk areas.
Over the past year, enhancements have included:
• A refresh of Vector’s risk appetite, as expressed through the
Group Risk Assessment Matrix, to capture broader
reputational aspects and encompass sustainability
considerations.
• The establishment of a formal supplier risk management
approach to identify, manage and mitigate risks arising from
across our supply network (in conjunction with Group
Procurement).
• A review of Vector’s risk management software Active Risks
Manager (ARM) to improve its ability to support and drive
data analysis, risk reporting and control assurance activities.
• The introduction of a new risk leadership measure for internal
audit engagements, designed to influence positive change in
management’s philosophy and operating style in relation to
audits and fostering greater ownership of findings and
actions.
• The creation of an Information Governance Council to provide
strategic direction on data governance reflecting the
heightened focus on how organisations access, manage,
utilise, protect and create value from data.
• Ongoing improvements to our crisis management and
business continuity practices through training, support tool
development, and industry benchmarking.
• The formation of a cross-functional project team and
corporate partnerships to consider the impacts and benefits
of AI, automation and robotics on Vector’s future workforce.
In addition, deep dives into targeted risk areas have been
undertaken and presented at governance forums to promote
awareness and discussion. Most notably, EY were commissioned
to undertake an in-depth look at the (i) potential physical
impacts of climate change on Vector’s network (refer Case
Study: Battling the elements), and (ii) likely implications of a
transition to a net zero emissions economy.
Cyber Security
With increasing evidence of targeted attacks on the energy
sector, coupled with Vector being at the forefront of deploying
new technologies (such as DERMs) to improve management of
the network and provide innovative energy solutions to our
customers, the threat of a significant cyber security breach
remains a key risk for the business.
Vector obviously takes this threat extremely seriously and in
2017 increased its investment in technology solutions and
resources in the form of a dedicated team of security experts.
Over the course of the year, our key areas of focus included:
• improving our threat intelligence capability to detect and
respond to potential security events
• user education and awareness
• new tools to help detect and prevent potential attacks on the
core control systems that manage the distribution network
and improve the security of our network perimeter (refer Case
Study: Protecting the crown jewels – on page 39)
• partnering with a recognised global security firm for security
testing and design
• improving incident response capabilities and processes
The threat to the broader energy sector has also seen us work
more closely with industry peers through our membership of
the Control Systems Security Information Exchange (CSSIE).
CSSIE is managed by the National Cyber Security Centre (NCSC).
Through CSSIE we have helped facilitate the development of
frameworks to improve collaboration and sharing of information
relating to threats and security incidents, and updated industry
security standards.
Despite this work, we must remain vigilant to the ever-growing
threat. In April 2018 the Vector Outage App was hacked by an
unknown person, accessing the contact details of some users
of the app. Vector took immediate steps to contain the incident,
protect the app and customer data, contact impacted customers,
inform privacy authorities, remediate and re-test our cyber
controls and recover the customer data.
The incident and changing threat landscape are constant
reminders of the need to continue to invest in improving our
cyber security resilience to ensure we are able to respond
quickly to threats, and minimise any potential damage
and disruption. n
2018
Vector://AR 18127
RISK MANAGEMENT
continued
KEY AND EMERGING RISKS
RISK AREASCONTEXT
STRATEGIC RISK
Business evolution
and adaptation
Vector’s business must continue to evolve to adapt to changing customer requirements and
expectations, and balance regulated and non-regulated revenues effectively.
Rapid digitalisation
and technology
changes
Vector must innovate and keep pace with technological advancements as they emerge to remain
relevant; however, to prevent operational vulnerabilities, this rapid uptake of technology must be
adopted appropriately.
Product/service
commercialisation
As Vector expands into new services and products, the commercial, environmental and social
benefits must be assessed and balanced to deliver long-term stakeholder value.
Australian
investment
Vector must carefully manage our continued expansion into the Australian energy market,
particularly within the metering industry, to ensure delivery of acceptable investment returns.
Political and
regulatory
uncertainty
Changes in the New Zealand and Australian political and regulatory landscape and the ability of the
regulatory environment to keep pace with technological and operational change remain key
influencers on Vector and its operations.
Labour market
dynamics
The ability for Vector and our key service providers to recruit and retain the necessary workforce is
challenged by skills shortages and Auckland affordability.
OPERATIONAL RISKS
Cyber securityThe potential threat of a compromise to Vector’s IT/OT environment resulting in disruption to
critical services or confidential information being released, modified or deleted remains of
heightened concern.
Significant HSE
incident
Because of the nature of our business, Safety Always is fundamental to the way Vector operates in
order to protect our people, our contractors and the wider public.
Core business
operational failure
As a major lifeline utility within Auckland, Vector maintains strong business continuity practices to
minimise disruption stemming from the unlikely event of a significant operational incident at a
critical site.
Reputational
damage
The use, speed and hyper-transparency of social media, coupled with our increasing engagement
with customers, requires careful and appropriate management to protect Vector’s reputation in the
marketplace.
EMERGING RISKS
Accelerated climate
change adaptation
Climate change has multiple ramifications for Vector; our network assets are exposed to potential
changes in weather trends and increased severe weather events, while a transition to a net zero
emissions economy presents both risks and opportunities for the business.
Trust and ethical
conduct
perceptions
The heightened focus and public perception on organisational trust, transparency and conduct
reinforces the importance of continuing to operate in a manner that reflects the values, ethics and
expectations of our stakeholders and the wider community.
Environmental risks
Technological risks
Economic risks
Societal risks
Operational risks
2018
Vector://AR 18128
CORPORATE GOVERNANCE
GUIDING PRINCIPLES
Vector’s Board is committed to maintaining high standards of
corporate governance, ensuring transparency and fairness, and
recognising the interests of our shareholders and other
stakeholders.
Vector strives to maintain a framework of corporate governance
that reflects this commitment.
This section provides an overview of Vector’s main corporate
governance policies, practices and processes which have been
adopted and are followed by Vector’s Board. More information
can be found at: www.vector.co.nz/investors/governance.
Vector’s ordinary shares are quoted on the NZX Limited’s Main
Board and our capital bonds are quoted on the NZX Debt
Market. Consequently, Vector’s governance practices are
informed by the listing rules, principles, guidelines and
recommendations of NZX Limited’s Main Board Listing Rules
and the October 2017 Edition of the NZX Corporate
Governance Code.
During the financial year ended 30 June 2018, the October
2017 Edition of the NZX Corporate Governance Code
commenced for Vector. Vector has recently reviewed its
corporate governance practices in light of the Code. Further
changes are expected to apply from 1 July 2019 as a result of
an NZX review of the listing rules.
As at the date of the Annual Report, Vector believes that the
governance practices it has opted to follow generally align with
these principles, guidelines and recommendations with one
material exception. The NZX Corporate Governance Code
recommends that protocols be established for dealing with
takeovers. Given the Entrust’s Trust Deed, it is not practically
possible for a takeover offer to be made in respect of Vector
otherwise than by Entrust, so Vector has not adopted
takeover protocols.
PROMOTION OF ETHICAL AND RESPONSIBLE
DECISION-MAKING
Vector expects our directors and employees to act legally,
ethically, responsibly and with integrity in a manner consistent
with Vector’s policies, procedures and values.
The following policies have been put in place to assist with this.
• Code of Conduct and Ethics
Sets out the ethical standards expected from Vector’s
directors, employees and anyone acting on Vector’s behalf.
The Code of Conduct and Ethics is made available to all
employees. Vector monitors compliance with the Code
through our normal performance management processes
and our Whistleblower Policy.
• Continuous Disclosure Policy
Affirms Vector’s commitment to provide accurate, timely,
orderly and consistent disclosure and compliance with our
continuous disclosure obligations.
• Director and Executive Remuneration Policy
Sets out Vector’s policy on director and executive
remuneration.
• Directors’ Code of Practice
Sets out additional standards expected from Vector’s
directors when carrying out their duties as directors of Vector.
• Diversity and Inclusion Policy
Recognises Vector’s commitment to diversity and inclusion
and sets out measurable objectives in relation to diversity
and inclusion.
• Environmental Policy
Sets out Vector’s overarching commitment for managing the
environmental aspects of our businesses.
• Fraud Control Policy
Sets out Vector’s commitment to achieving effective fraud
control supporting an honest and ethical culture.
• Health and Safety Policy
Sets out Vector’s overarching commitments and
requirements for health, safety and well-being.
• Insider Trading Policy
Details Vector’s policy on, and rules for, dealing in Vector’s or
our subsidiaries’ quoted financial products (including
ordinary shares and bonds).
• Reporting Non-GAAP Profit Measures Policy
Sets out Vector’s position in relation to reporting profit
measures to the market other than those calculated in
accordance with GAAP.
• Risk Management Policy
Provides a framework for maximising opportunities and
managing risk (creating and protecting organisational value)
by supporting effective decision-making and robust
commercial outcomes.
• Shareholder Relations Policy
Recognises the rights of Vector’s shareholders as the owners
of the company, and encourages their ongoing active interest
in the company’s affairs.
• Stakeholder Relations Policy
Recognises the interests of stakeholders, and demonstrates
Vector’s commitment to treat all stakeholders fairly and with
respect.
• Sustainability Policy
Sets out Vector’s overarching commitment to sustainability.
• Interests Register
Vector maintains an interests register in which relevant
transactions and matters involving the directors are recorded.
See the ‘Statutory Information’ section of this Annual Report
for details of directors’ interests.
• Whistleblower Policy
Recognises Vector’s commitment to the principles of
whistleblower protection, demonstrates Vector’s commitment
to encouraging our people to speak up about serious
misconduct or serious wrongdoing and details the protection
offered if this occurs.
2018
Vector://AR 18129
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE //
PROMOTING A COMPANY CULTURE WHICH EMBRACES
DIVERSITY AND INCLUSION
Vector is committed to:
• Adding to, nurturing and developing the collective relevant
skills, and diverse experience and attributes of Vector people
• Ensuring that Vector’s culture and management systems are
aligned with and promote the attainment of diversity and
inclusion
• Providing an environment in which all people are treated with
fairness and respect, and have equal opportunities available
at work
• Being recognised as an organisation that exemplifies diversity
and inclusion in action.
LAYING SOLID FOUNDATIONS FOR MANAGEMENT
Vector’s governance practices are designed to:
• Enable the board to provide strategic guidance for the
company and effective oversight of management
• Clarify the roles and responsibilities of Vector’s directors and
senior executives in order to facilitate board and management
accountability to both the company and our shareholders
• Ensure a balance of authority so that no single individual has
unfettered powers.
Each director has a duty to act in the best interests of the
company and the directors are aware of their collective and
individual responsibilities to stakeholders for the manner in
which Vector’s affairs are managed, controlled and operated.
The Board's primary objective is to protect and enhance the
value of the company while acting in the interests of the
company and our shareholders and, in that context, to have
due regard to the interests of other stakeholders. The Board
exercises this obligation through the approval of appropriate
corporate strategies, practices and processes. These include
the approval of transactions and commitments not within the
authorities delegated by the Board to management and the
review of company performance against strategic objectives.
Vector achieves board and management accountability through
its board charter, which sets out (amongst other things) matters
reserved for the board and responsibilities delegated to the
Group Chief Executive, and a formal delegation of authority
framework. The effect of this framework is that, whilst the board
has statutory responsibility for the activities of the company, this
is exercised through the delegation to the Group Chief
Executive, who is responsible for the day-to-day leadership and
management of the company. The framework also reserves
certain matters for the decision of the Board. The board charter
also sets out the expectation that all directors continuously
educate themselves to ensure that they may appropriately and
effectively perform their duties.
STRUCTURING THE BOARD TO ADD VALUE
Vector’s Board is composed of a minimum of three and a
maximum of nine directors, with at least two being ordinarily
resident in New Zealand. As at 30 June 2018, the Board
comprised eight directors, all of whom are non-executive
directors. Information on the skills, experience and expertise
of each director and their independence status is set out in
the ‘Board of Directors’ section on page 52.
The Board considers all directors to be independent with the
exception of James Carmichael and Karen Sherry who are not
independent directors as they are also trustees of Entrust,
Vector’s majority shareholder. Only independent directors are
eligible to be the Board Chairman. Directors are required to
inform the Board of all relevant information which may affect
their independence.
The Board has a formal board charter detailing the board’s
purpose, responsibilities, composition and operation, which is
published on Vector’s website. A committee or individual
director may engage separate independent professional advice
in certain situations, at the expense of the company, with the
approval of the Chairman of the Board.
PREPARATION OF ANNUAL REPORT
The Board takes an active role in preparing the Annual Report,
including the financial statements that comply with generally
accepted accounting practice. The Board contributes to and
reviews all aspects of the Annual Report.
The Audit Committee is responsible for financial reporting
integrity, which includes reviewing financial statements, reviewing
external financial reporting, assessing the fairness of financial
statements, submitting group financial statements to the board
for approval, and considering and approving the Chairman’s and
Group Chief Executive’s reports for the Annual Report.
The Board approves the Annual Report, including the financial
statements, following the recommendation to do so from the
Audit Committee.
AUDITORS
Vector’s external auditors for the year ending 30 June 2018
were KPMG. The Board, after considering the recommendations
of the Audit Committee, consider and review the appointment
of external auditors. The Board requires the rotation of the audit
partner for the statutory audit after no more than five years.
The Audit Committee provides a formal forum for
communication between the Board and the external auditors,
ensures the independence of the external auditors, has
oversight of audit planning, reviews and recommends audit fees,
considers audit opinions and evaluates the performance of the
external auditors. No issues concerning the external auditors’
independence have been identified.
2018
Vector://AR 18130
CORPORATE GOVERNANCE
continued
BOARD COMMITTEES
There are currently six board committees, to assist the Board
with specific responsibilities. Each committee reports its
proceedings back to the Board.
The committees are:
Audit Committee
Assists the Board in fulfilling its corporate governance
responsibilities to safeguard the integrity of Vector’s financial
reporting. It independently meets external auditors at least
twice a year without company employees present.
A full description of the Audit Committee’s composition and
duties is contained in the Audit Committee Charter, which is
published on Vector’s website. The committee’s members as
at 30 June 2018 were: Jonathan Mason (Chairman), James
Carmichael, Alison Paterson, Karen Sherry, Michael Stiassny
and Bob Thomson.
Regulatory Committee
Assists the Board in fulfilling its responsibilities to protect the
interests of Vector, our shareholders and stakeholders given
the regulatory environment in which Vector operates. A full
description of the Regulatory Committee’s composition and
duties is contained in the Regulatory Committee Charter,
which is published on Vector’s website. The committee’s
members as at 30 June 2018 were: James Carmichael
(Chairman), Jonathan Mason, Karen Sherry, Michael Stiassny
and Bob Thomson.
Risk and Assurance Committee
Assists the Board in fulfilling its responsibilities to protect
the interests of shareholders, customers, employees
and the communities in which Vector operates through
TABLE OF ATTENDANCE
Attendance records of Board and committee meetings for the year ended 30 June 2018 are provided in the table below.
FULL
BOARD
AUDIT
COMMITTEE
RISK AND
ASSURANCE
COMMITTEE
REMUNERATION
COMMITTEE
REGULATORY
COMMITTEE
NOMINATIONS
COMMITTEE
SUSTAINABILITY
COMMITTEEAGM
TOTAL MEETINGS
147443231
M Stiassny (Chair)
147443131
D Bartholomew ~
72
†
2
†
2
†
1
†
–1
†
–
J Carmichael
147443231
H Fletcher *
33–21–11
S Krieger ^
51
†
1
†
1
†
––––
J Mason
13734
†
3231
A Paterson
147443231
K Sherry
137443131
B Thomson
147343131
† Director attending the committee meeting who is not a member of the committee.
* Hugh Fletcher ceased to be a director on 26 September 2017.
^ Appointed on 1 May 2018
~ Appointed on 28 February 2018
establishing a sound risk management framework and
rigorous processes for internal control. A full description of
the Risk and Assurance Committee’s composition and duties
is contained in the Risk and Assurance Committee charter,
which is published on Vector’s website. Risk and Assurance
Committee members as at 30 June 2018 were: Karen
Sherry (Chair), James Carmichael, Jonathan Mason, Alison
Paterson, Michael Stiassny and Bob Thomson.
Nominations Committee
Assists the Board in fulfilling its responsibilities to have an
efficient mechanism for examination of the selection and
appointment practices of the company. For as long as
Entrust holds at least 50.01% of Vector’s shares, this
committee undertakes non-binding consultation with Entrust
prior to finalising any board recommendation regarding a
director nomination or appointment. A full description of the
Nominations Committee’s composition and duties is
contained in the Nominations Committee Charter, which is
published on Vector’s website. The Nominations Committee
considered and recommended the appointment of David
Bartholomew and Sibylle Krieger before their recent
appointments. Members of the Nominations Committee as
at 30 June 2018 were: Michael Stiassny (Chairman), James
Carmichael, Jonathan Mason, Alison Paterson, Karen Sherry
and Bob Thomson.
Remuneration Committee
Assists the Board in overseeing the appointment,
performance and remuneration of the Group Chief Executive
and members of the executive team (including succession
planning), reviewing Vector’s Remuneration Policy and
2018
Vector://AR 18131
CORPORATE GOVERNANCE
continued
CORPORATE GOVERNANCE //
reviewing and monitoring Vector’s Diversity and Inclusion
Policy. The Remuneration Committee evaluates the
performance of the Group Chief Executive and provides
input into the process and review by the Group Chief
Executive of the performance of senior management.
The evaluations are based on criteria that include the
performance of Vector and the accomplishment of strategic
objectives. During the year ended 30 June 2018,
performance evaluations of the Group Chief Executive and
executives were conducted in accordance with this process.
A full description of the Remuneration Committee’s
composition and duties is contained in the Remuneration
Committee Charter, which is published on Vector’s website.
Members of the Remuneration Committee as at 30 June
2018 were: James Carmichael (Chairman), Alison Paterson,
Karen Sherry, Michael Stiassny and Bob Thomson.
Sustainability Committee
Assists the Board in fulfilling its responsibilities and
objectives in matters related to implementing sustainable
business practices and Vector’s role as a responsible
corporate citizen; this includes but is not limited to
environmental performance and opportunities, community
engagement and investment, diversity and inclusion, ethical
business practices and human rights and sustainable supply
chain practices. The Sustainability Committee Charter is
available on Vector’s website. Members of the Sustainability
Committee as at 30 June 2018 were: Karen Sherry (Chair),
James Carmichael, Jonathan Mason, Alison Paterson,
Michael Stiassny and Bob Thomson.
REMUNERATING FAIRLY AND RESPONSIBLY
The directors’ remuneration, and certain employee
remuneration information, is set out in the ‘Statutory
Information’ section of this Annual Report. Vector’s Director and
Executive Remuneration Policy is published on Vector’s website.
Vector’s directors do not participate in an executive
remuneration or share scheme. Directors do not receive any
options, bonus payments or incentive-based remuneration. The
company does not have a scheme for retirement benefits to be
given to directors.
RESPECTING THE RIGHTS OF SHAREHOLDERS
Vector recognises the rights of shareholders as the owners of
the company and encourages their ongoing active interest in
the company’s affairs by:
• Communicating with them effectively
• Ensuring they have full access to information about the
company, including through the Vector website
• Conducting shareholder meetings in locations and at times
convenient to the majority of shareholders
• Providing shareholders with adequate opportunity to ask
questions about, and comment upon, relevant matters, and to
question directly the external auditors at shareholder meetings
• Enabling shareholders to receive communications from, and
send communications to, Vector and our security registry
electronically
• Inviting shareholders to contact the company to ask questions,
or express views, about matters affecting the company.
To facilitate this, Vector has a dedicated email address for
shareholder/investor queries, which is: investor@vector.co.nz.
Vector’s Shareholder Relations Policy is published on
Vector’s website.
Vector’s Constitution includes provisions relating to our majority
shareholder, Entrust. In addition, Vector and Entrust are parties
to a Deed Recording Essential Operating Requirements, which
includes certain policy, consultation, pricing reporting and the
energy solutions programme obligations.
RECOGNISING THE LEGITIMATE INTERESTS OF
VECTOR’S STAKEHOLDERS
Vector’s commitments to our various stakeholders are part of
our board charter and the company’s Code of Conduct and
Ethics. Vector’s Stakeholder Relations Policy is published on
Vector’s website.
MAKING TIMELY AND BALANCED DISCLOSURE
Vector has in place a Continuous Disclosure Policy designed
to ensure that we comply with NZX Limited’s Main Board
Listing Rules.
Vector ensures that public information about the company
is readily accessible to all stakeholders. The company maintains
an up-to-date website containing a comprehensive range of
information. Vector issues quarterly reports on our operational
performance and conducts detailed market briefings in
conjunction with the release of our annual and interim
financial results.
Information presented at these briefings, and public
announcements made at other times, are published on the NZX
website. In addition, they are made available on Vector’s website
following their NZX release.
Vector’s interim and annual company reports are now viewed
primarily online, but shareholders are entitled to have hard
copies of both documents, and can request them by contacting
the company. If you have any questions or would like to request
a copy of the Annual or Interim Report, please email investor@
vector.co.nz or phone +64 9 978 7788.
2018
Vector://AR 18132
REMUNERATION AND PERFORMANCE
REMUNERATION FRAMEWORK
Vector’s remuneration framework is designed to attract and
retain high performing individuals, able to support the delivery
of the company’s strategy and vision, and reward them
appropriately and competitively. The Board regularly reviews
our remuneration strategy.
All employees have fixed remuneration, targeted at the market
median, and most have the potential to earn a Short-Term
Incentive (STI). STI is a variable element of remuneration and
is only paid if both company and individual performance goals
have been met.
Fixed Remuneration
Fixed remuneration is reviewed each year based on data from
independent remuneration specialists. Employees’ fixed
remuneration is based on a matrix of their own performance and
their current position when compared to our internal role bands
and the market.
Short term incentive
STI values are set as a percentage of fixed remuneration, from
5% to 50% based on the complexity of the role. The Group Chief
Executive has an STI as a percentage of fixed remuneration as
set out later in this report. STI payments are determined following
a review of Company and individual performance and paid out at
a multiplier of between 0x and 1.0x for the Group Chief Executive,
executive leadership team, and all eligible employees.
This model is based on clear goals, differentiating performance,
and rewarding delivery.
Company performance goals are set and reviewed annually by
the Board to align with shareholder value. If company goals are
not met, including preliminary “gateway” goals, no STI is payable.
In the year ended 30 June 2018, the company goals were:
• 40% Disciplined growth and cost efficiency (EBITDA
performance against budget);
• 40% Customer and regulatory outcomes;
• 20% Sustainability.
Individual performance goals for all employees are tailored to
their role, with 50% of the goals based on ‘what’ they achieve
and 50% based on ‘how’ they perform their role, which includes
a health and safety component for all employees.
As an example of how STI is calculated, an employee with fixed
remuneration of $80,000 and an STI element of 10% may
receive between $0 and $8,000 (0x to 1.0x their STI
percentage) depending on the level of company performance
and their individual performance.
The Group Chief Executive remuneration
The Group Chief Executive’s remuneration consists of fixed
remuneration and an STI. There is no Long-Term Incentive
(LTI) or share options. This is reviewed annually by the Board
after reviewing company performance, the Group Chief
Executive’s individual performance and advice from external
remuneration specialists.
2018
Vector://AR 18133
REMUNERATION AND PERFORMANCE
REMUNERATION AND PERFORMANCE //
GROUP CHIEF EXECUTIVE REMUNERATION FOR PERFORMANCE PERIODS ENDING
30 JUNE 2018 AND 30 JUNE 2017
FIXED REMUNERATIONPAY FOR PERFORMANCETOTAL REMUNERATION
SALARY
1
NON-TAXABLE
BENEFITS
2
SUBTOTALSTISUBTOTAL
FY181,206,422–1,206,422
3
FY171,176,997–1,176,997499,047
4
499,0471,676,044
FIVE YEAR REMUNERATION SUMMARY
TOTAL
REMUNERATION
% STI AWARDED
AGAINST MAXIMUM
FY18
5
FY171,676,04484.80%
FY161,575,45474.40%
FY151,533,94773.85%
FY141,501,31674.73%
FY131,484,42779.76%
1. Salary indicates fixed remuneration, inclusive of holiday pay as per New Zealand legislation.
2. No additional benefits.
3. STI for FY18 performance period has not been calculated (scheduled for review in October 2018).
4. STI for FY17 performance period (paid FY18).
5. Total Remuneration and STI data not available at this time.
DESCRIPTION OF THE GROUP CHIEF EXECUTIVE STI, SCHEME FOR PERFORMANCE PERIOD
ENDING 30 JUNE 2018
SCHEMEDESCRIPTION
PERFORMANCE
MEASURES
PERCENTAGE OF
MAXIMUM AWARDED
STISet to a maximum of 50% of fixed
remuneration for FY18 on-plan
performance where the highest
levels of both company and
individual performance measures
are achieved.
Company performance
measures:
• 40% Disciplined growth and
cost efficiency.
• 40% Customer and
regulatory outcomes.
• 20% Sustainability.
Individual performance
measures:
• 25% Growth options.
• 25% Policy and regulatory
compliance.
• 25% Sustainability and
communications.
• 25% Health and Safety.
If met, payment will be October
2018.
2018
Vector://AR 18134
FINANCIAL CALENDAR AND DIRECTORY
2018
Final dividend paid14 September
Annual meeting 29 October
2019
First quarter operational statistics October
Second quarter operational statistics January
Half year result and report February
Interim dividend* April
Third quarter operational statistics April
Fourth quarter operational statistics July
Full year result and annual report August
Final dividend* September
* Dividends are subject to board determination.
INVESTOR INFORMATION
Ordinary shares in Vector Limited are listed and quoted on the New Zealand Stock Market (NZSX) under the company code VCT.
Vector also has capital bonds listed and quoted on the New Zealand Debt Market (NZDX). Current information about Vector’s
trading performance for its shares and bonds can be obtained on the NZX website at www.nzx.com. Further information about
Vector is available on our website www.vector.co.nz.
DIRECTORY
REGISTERED OFFICE
Vector Limited
101 Carlton Gore Road
Newmarket
Auckland 1023
New Zealand
Telephone 64-9-978 7788
Facsimile 64-9-978 7799
www.vector.co.nz
POSTAL ADDRESS
PO Box 99882
Newmarket
Auckland 1149
New Zealand
INVESTOR ENQUIRIES
Telephone 64-9-213 5179
Email: investor@vector.co.nz
This Annual Report is dated
23 August 2018 and signed
on behalf of the board by:
Michael Stiassny Jonathan Mason
ChairmanDirector
FINANCIAL CALENDAR
insight
creative.co.nz
VEC187
VECTOR.CO.NZ
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.