Vector FY19 Interim Results
FINANCIAL RESULTS FOR THE HALF-YEAR TO 31 DECEMBER 2018
SOLID HALF-YEAR RESULTS FUELLED BY
AUCKLAND GROWTH
Vector’s financial results for the six-months to 31 December 2018 demonstrated growth across all
business segments within the Group, with much of this growth fuelled by the continued expansion
of Auckland’s city and population. The six-month period also saw ongoing change as the macro
trends that Vector has long been anticipating, and in many cases leading, continue to play out.
Auckland continues to grow relentlessly. Meanwhile, new digital and energy technologies are
disrupting sector economics and offering viable alternatives to the old-fashioned 40-year
infrastructure assets that in previous decades would have been needed to accommodate this
rapid Auckland growth. This will help reduce the potential burden on future generations created
by unnecessary costs or obsolescent infrastructure.
Most importantly, consumers are demanding more empowerment over how, where and when
they use energy, and have ever-higher expectations around the service they receive and the
contributions that companies make to important societal issues.
Vector has been taking a lead on sustainability for many years because it’s the right thing to do,
because it is becoming more and more urgent to address, and because increasingly our
customers expect us to. We also believe leadership in sustainability is good for business,
providing us with better visibility of the potential role of new and more sustainable energy
technologies in driving commercial benefit and material value.
These are the macro trends that have underpinned our strategic thinking around diversification
and investment, and these are the trends that have contributed to our solid financial results for
the six months to 31 December 2018.
Adjusted earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) for the
six months to 31 December 2018 were $264.7 million, up $14.7 million (5.9%) on last year’s
result. The headline adjusted EBITDA result included an uplift as a result of accounting changes
1
.
1
For more details of these accounting changes, see page 21 of the Interim Report
MARKET RELEASE
26 February 2019
MARKET RELEASE
26 February 2019
Excluding these accounting changes, adjusted EBITDA was up $10.0 million (4.0%) on the
previous corresponding period.
Each business segment recorded an uplift in adjusted EBITDA relative to the previous
corresponding period. Regulated business earnings were up $6.0 million (3.1%) largely due to
higher electricity volumes because of continued Auckland residential growth and a colder winter
compared with the prior year. Gas Trading earnings were up $2.3 million (12.5%) due to higher
production levels at the Kapuni gas treatment plant and cost efficiencies from the new Bottle
Swap plant in South Auckland.
Earnings in the Technology segment grew $8.2 million or 12.7% driven by continued growth in
smart meter deployments in New Zealand and Australia. Within this segment, E-Co Group
experienced some market and operational headwinds, and as a result underperformed against
expectations. To address this, a new CEO and a new management team have been recruited,
who have been repositioning the business to meet the growing demand for heating, ventilation
and air-conditioning solutions.
Group net profit was up 5.4% to $83.3 million from $79.0 million in the prior period. This was
largely due to higher earnings and an increase in capital contributions partially offset by an
increase in depreciation and amortisation as well as non-cash changes within costs of finance.
Capital expenditure increased 10.1% to $201.1 million from $182.7 million in the prior period. This
was driven by an increase in Australian smart meter deployment and network capex to support
the continued growth in Auckland.
The six months has also seen the commencement of the signalled Government review of the
electricity sector which, along with the pending Interim Climate Change Commission report, will
help guide New Zealand’s transition to 100% renewable energy. Given the macro trends at play,
it is timely the Government has this once-in-a-decade opportunity to incentivise investment in the
new energy technologies that will help empower customers, help solve big market challenges,
and help promote more innovation and competition.
It can set new ground rules for the sector that will maximise benefits for the next generation of
energy consumers, promote equitable outcomes, as well as help enable New Zealand’s
sustainability ambitions. We also believe it’s an opportunity to recognise the infrastructure
demands of high growth areas such as Auckland. We need the right policy settings and
investment incentives to ensure high growth and evolving energy needs are met.
MARKET RELEASE
26 February 2019
The Electricity Pricing Review Panel’s Options Discussion paper published last week is largely
encouraging. It favours options that reflect the importance of new technology, greater resilience
and improved customer choice, as well as options that improve market transparency and address
practices that may stifle competition or unfairly penalise some consumers. As the review is
finalised, we also hope to see an even greater focus on options that improve energy efficiency,
and, most importantly, address problems experienced in the wholesale market.
Just as importantly, we are nearing the next reset of regulated pricing and quality standards for
the electricity distribution sector, scheduled to take place in 2020. What is increasingly clear is
that, given the pace of change, the existing regime for quality control, last reset in 2015, no longer
reflects the reality of the changed operating environment, particularly related to health & safety
legislation and the impact of Auckland growth. Therefore, we will continue to work constructively
with the Commerce Commission on the new quality standards which will take effect on 1 April
2020 following the regulatory reset process.
Looking ahead to the remainder of FY19, the guidance given in August for adjusted EBITDA
remains appropriate. As noted at the time, this guidance did not include the impact of adopting
IFRS 15 & 16, which together with other minor accounting changes, is expected to impact FY19
adjusted EBITDA by approximately $10 million. Our guidance range adjusted for the impact of
accounting changes is therefore $480 - $490 million. Our result in the first half of the year
benefited particularly from strong electricity volumes. Should this continue in the second half of
the year, we would expect the FY19 result to be towards the top end of the guidance range.
Looking further ahead, Vector’s future earnings and ability to pay ongoing increasing dividends
could be significantly influenced by the reset of our electricity network revenues for the period 1
April 2020 to 31 March 2025, which is known as Default Price Path (DPP3).
The Commerce Commission has now largely confirmed the methodology that will apply to this
reset – the key remaining variables are the 5 year NZ Government bond rate during June, July
and August 2019 (which is used to set the regulated WACC
2
for DPP3) and the network
expenditure allowances and quality targets that will apply to DPP3. The Commerce Commission
expects to announce its draft decision on 31 May 2019 with a final decision due on 28 November
2019. We will provide a further update when we release our full year results.
2
Weighted Average Cost of Capital
MARKET RELEASE
26 February 2019
In accordance with our dividend policy, we will review our dividend approach once the
parameters of the 2020 reset have been confirmed.
Regardless, Vector will need to continue its transformation and continue to show leadership on
technology, resilience and the provision of customer choice. It is certain that the industry will
continue to be disrupted and the impacts of climate change will continue to be felt. Vector will
need to not only stay ahead of the curve, but to continue to balance the needs of customers
today with those of the next generation.
Our vision is for Vector to create a new energy future for New Zealand. A future where customers
are fully empowered and have control and choice over where, when and how they use energy. A
future where all consumers get the benefits of new energy technologies, not just the more
advantaged. We want Vector to attract the best talent in New Zealand and contribute more than
its fair share to a more sustainable, more equitable energy system. We want all our people and
the public to be safe around energy.
About Vector
Vector is the country’s largest distributor of electricity and gas, owning the lines and pipes to
households and businesses across Auckland. Vector is also the country’s largest provider of
energy metering services, and has installed advanced meters in almost 1.5 million premises
across New Zealand, and more recently, in Australia. Vector is working innovatively to create a
smarter and more affordable energy future. Vector is listed on the New Zealand Stock Exchange
with ticker symbol VCT. Our majority shareholder, with voting rights of 75.1%, is Entrust.
For further information, visit www.vector.co.nz
ENDS
Contact
MEDIA QUERIES:
Richard Llewellyn
Head of Corporate Communications
Mobile 027 523 2362
ANALYST QUERIES:
Dan Molloy
Chief Financial Officer
64-9-213-5179 Mobile 021-441-311
---
VECTOR://
THE FUTURE
IR 2019
ELECTRIFYING
IS
Consumers are choosing how they use energy. At work, at play.
They are embracing more choice over how they get around,
e-scooters, e-skateboards, e-bikes, electric vehicles (EVs),
electric trains. You name it, choice is constantly accelerating.
The way we move around is electrifying right before our eyes.
WE’RE
ELECTRIC
GOING
BUT THE CLIMATE
IS ALSO
CHANGING
The electrification of transport is another significant example
of an energy transition, driven by consumer preference and
by the urgent need to decarbonise our economy and minimise
the growing impact of climate change on New Zealand.
It means New Zealand must find a less carbon-intensive
energy supply. It means consumers will insist on having
more control and choice. It means long-term city and energy
infrastructure planning must become more integrated.
And it means new technologies and new market entrants will
arrive, keen to disrupt the status quo on behalf of consumers
by putting more power in their hands, just as they have done
in other industries.
Change is already happening. The number of EVs has been
roughly doubling every year. By June 2040, the Ministry of
Transport estimates EVs will make up 40% of New Zealand’s
fleet. Now add in e-scooters, e-bikes, e-skateboards, and
whatever the future will bring.
The cost of grid-scale battery storage is tumbling. Energy
Storage Association (ESA) figures show costs for large-scale
storage systems have halved between 2014 and 2018.
As part of its innovative thinking, Vector is trialling vehicle-
to-home technology which turns EVs into mobile batteries.
Meanwhile, according to the International Renewable Energy
Agency, in some Middle-East countries we can now see solar
photo-voltaic prices of below 3 cents (USD) per kilowatt
hour. This is cheaper than all other forms of electricity
generation.
These sorts of trends mean that customers should be able
to look forward to more sustainable homes and energy
independence, through solar and battery, through energy
control software and technologies, and through investment
in efficiency measures like LED lights and better insulation.
BATTERIES
ARE NOW
INCLUDED
As a diversified energy group and a leader in new energy solutions,
as well as the custodians of the country’s largest energy distribution
platform that underpins this, our job is to enable the transition
to a new energy future to meet the needs of future generations,
whilst growing sustainably.
Our network must become even smarter, to cope with new types of
generation, new capabilities of technology and the ever-changing
preferences of customers. We must empower customers to control
where and when they charge their e-scooter, their e-bike or their
EV. We must keep everyone connected as stronger and more
unpredictable weather challenges New Zealand’s infrastructure.
We must support the relentless growth of Auckland city.
The wider sector must become more responsive to all these forces
also. As a country, we cannot continue to import coal to plug gaps
between supply and demand. We cannot continue to remain so
dependent on hydro storage when drought risk is increased
by climate change.
It’s time for bolder action, on all sides. The pending Interim Climate
Change Commission report will help guide how New Zealand can
make the transition to 100% renewable energy, while the current
Government electricity sector review is a huge opportunity to put
the right incentives in place to reshape the industry for the benefit
of consumers and to set new rules for new times.
IT’S TIME
FOR
NEW RULES
VECTOR
IS TAKING
THE LEAD
Disruption doesn’t wait. It starts gradually then arrives suddenly.
An energy revolution is fast growing, and is being driven by what
consumers want and what technology can deliver, not by what the
industry or regulation is willing to allow.
While the collective sector must work harder to provide less
carbon intensive supply, we know that changing consumer
preferences and the ongoing growth of Auckland will also
continue to drive demand. Vector must be in a position to handle
this disruption, so for some time we have been forming global
relationships with leading companies, and taking a leadership
position on new technologies, new customer solutions and new
ways of thinking about delivering an intelligent, resilient network.
Change has consequences. Whenever there is major disruption,
there are some who may be more impacted than others. So, we
have also been working with consumers to understand how these
new energy technologies will evolve and be used. We must strive
to help share the load. Failing to do so would leave some people
behind, and would hold Auckland back.
The future of energy is here, let’s make it work
for all New Zealanders.
PERFORMANCE HIGHLIGHTS
Interim dividend
CENTS PER SHARE
8.25
FINANCIAL HIGHLIGHTS
HALF YEAR
Group net profit increases 5.4%
Net profit
$
83.3M
Adjusted EBITDA
increases 5.9%
1
Adjusted EBITDA
$
26 4 .7M
Regulated Networks adjusted EBITDA
Up 3.1%
1
$
1 98.7M
Fully imputed
Up 12.5%
1
Gas Trading adjusted EBITDA
$
20.7M
Up 12.7%
1
Technology adjusted EBITDA
$
72.9M
Capex increases 10.1%
Capital expenditure
$
201.1M
New electricity
connections
Network connections
5,160
SNAPSHOT
New gas
connections
1,669
1. Includes NZ IFRS 15 and 16 accounting changes.
See page 21 for more details.
Vector://IR 1910
PERFORMANCE HIGHLIGHTS
Safety Always:
TRIFR decreased
by 17%
LTIFR decreased
by 59%
TCF2992_2053
TCF2992_2027
TCF2992_2071
TCF2992_2174
BUSINESS HIGHLIGHTS
Vector Urban
Forest launched
September 2018,
planting more than
15,000 trees
On 31 December
2018, Vector Lights
lit up the first major
city in world to
welcome in the
new year
Commissioned
new grid-scale
batteries in
Warkworth and
Snells Beach
Continued smart
meter growth
in New Zealand
and Australia
First New Zealand
business to receive
the Accessibility
Tick
Deloitte Energy
Excellence Award
achieved for
Health & Safety
at OnGas Bottle
Swap plant
New Outage Centre
now in operation,
supported by new
Cyber Security
Operations Centre
Vector://IR 1911
LEADERSHIP
Chair and Group Chief Executive report
CONTINUED PROGRESS
ENERGY FUTURE
TOWARDS A NEW
Simon Mackenzie
—
GROUP CHIEF EXECUTIVE
Dame Alison Paterson
—
CHAIR
Vector://IR 1912
Vector’s financial results for the six-months to
31 December 2018 demonstrated growth across
all business segments within the Group, with
much of this growth fuelled by the continued
expansion of Auckland’s city and population.
The six-month period also saw ongoing
change as the macro trends that Vector has
long been anticipating, and in many cases
leading, continued to play out. This is within an
industry that, historically, has been slow to adapt
to change and has significant vested interests
and legacy assets to protect. Vector has stood
apart from others and has been working hard
to stay ahead of the curve and lead. As a result,
we have been thinking about and investing
in customer choice and new technology and
associated trends in the energy sector for
over a decade now.
The electricity and transport sectors are rapidly
converging. Not only does New Zealand have
more electric vehicles (EVs) on our roads by
the day, but also the popularity of e-bikes is
booming, and we have even seen the mass
introduction of e-scooters in several cities as
a further sign of potential transport disruption
to come. To support the expected growth in
EVs, Vector has released a how-to guide to
make it easier for tenants and residents of
business, commercial and apartment buildings.
Vector’s ‘Connecting Electric Vehicle Chargers’
guide offers best-practice advice for installing
EV chargers – including making sure that
chargers are compatible with a wide range
of EVs now and into the future.
The showcasing of the possibilities of new and
sustainable technology is important. This was one
of the main reasons why Vector, in partnership
with Auckland Council, delivered Vector Lights
on Auckland Harbour Bridge to the city. It was
pleasing to see international media coverage of
Auckland’s New Year’s Eve celebration with Vector
Lights providing a brilliant visual back-drop to the
first major city in the world to welcome in 2019.
The energy and
transport sectors
are rapidly
converging.
LEADERSHIP
//
Vector://IR 1913
LEADERSHIP
Chair and Group Chief Executive report
Through the internet of things, cities and
infrastructure networks are becoming smarter
and more connected to each other and to
distributed devices and objects. More of this
digital and infrastructure ‘intelligence’ will be
needed to help manage the challenges of
the volatile and unpredictable weather that
climate change is now creating. This is one
of the reasons why Vector has been investing
in the co-development of an intelligent utility
networking system of systems, known as
DERMS (Distributed Energy Resource
Management System), to help manage
and optimise the inevitable growth in solar,
battery, EVs and other distributed energy
sources and network connected devices.
Auckland continues to grow relentlessly.
Meanwhile new digital and energy technologies
are disrupting sector economics and offering
viable alternatives to the old-fashioned 40-year
infrastructure assets that in previous decades
would have been needed to accommodate
Auckland’s rapid growth. This will help reduce
the potential burden on future generations
created by unnecessary costs or obsolescent
infrastructure.
And, most importantly, consumers are
demanding more empowerment over how,
where and when they use energy, and have
ever-higher expectations around the service
they receive and the contributions that
companies make to critical issues. Vector has
been taking the lead on sustainability for many
years because it’s the right thing to do, because
it is becoming more and more urgent to address,
and because increasingly, our customers expect
us to. We also believe leadership in sustainability
is good for business, providing us with better
visibility of the potential role of the new and
more sustainable energy technologies in driving
commercial benefit and material value.
These are the macro trends that have underpinned
our strategic thinking around diversification
and investment, and these are the trends that
contributed to our solid financial results for
the six months to 31 December 2018.
Looking at the half-year 2019 financials, adjusted
earnings before interest, tax, depreciation and
amortisation (Adjusted EBITDA) for the six months
to 31 December 2018 were $264.7 million,
up $14.7 million (5.9%) on last year’s result.
The headline adjusted EBITDA result includes
an uplift due to certain accounting changes
1
.
Excluding these accounting changes,
comparable adjusted EBITDA was up
$10.0 million (4.0%) on the previous
corresponding period.
Each business segment recorded an uplift
in adjusted EBITDA relative to the prior
period. Regulated business earnings were
up $6.0 million (3.1%) largely due to higher
electricity volumes because of continued
Auckland residential growth and a colder
winter compared with the last year. Gas Trading
earnings were up $2.3 million (12.5%) as a
result of higher production levels at the Kapuni
gas treatment plant and cost efficiencies from
the new Bottle Swap plant in South Auckland.
Earnings in the Technology segment grew
$8.2 million, or 12.7%, mainly because of
continued growth in smart meter deployments
in New Zealand and Australia. Within this
segment, E-Co Group has experienced
some market and operational headwinds,
and as a result has underperformed against
our expectations. To address this, a new CEO
and new management team have been recruited,
1. As at 1 July 2018, Vector has adopted new standards for
revenue from contracts and lease accounting (NZ IFRS 15, 16)
and changed the way in which we account for gains/losses
on disposal of fixed assets. For more information, and a
breakdown of NZ IFRS changes by segment see page 21
Vector://IR 1914
who have been repositioning the business
to meet the growing demand for heating,
ventilation and air-conditioning solutions.
Group net profit was up 5.4% to $83.3 million
from $79.0 million in the prior period. This was
largely due to higher earnings and an increase
in capital contributions, partially offset by an
increase in depreciation and amortisation as
well as non-cash movements within costs
of finance.
Capital expenditure increased 10.1% to $201.1
million from $182.7 million in the prior period.
This was driven by an increase in Australian
smart meter deployment and network capital
expenditure to support the ongoing growth
in Auckland.
As mentioned at the annual shareholder meeting
in November 2018, since the major storm in
April 2018, Vector has been upgrading the
foundations of its outage management systems,
processes and tools to improve the customer
experience. In addition, we have been working
closely with retailers and other key stakeholders
such as Civil Defence to improve essential
information access and data coordination.
We have increased our vegetation management
efforts and have continued to upgrade and
maintain our existing network assets.
While this programme of work has (thankfully)
yet to be tested with a weather event of similar
magnitude to the one experienced in April last
year, the painful lessons we have learnt have also
seen a comprehensive overhaul of the underlying
systems and processes that feed into customer
tools. A new and improved Outage Centre
customer tool is now in operation, supported
by a new Cyber Security Operations Centre,
and we expect to see continuous improvements
to the way in which our customers can access
information during outages.
That said, as an organisation that is increasingly
focused on customer experience across our
entire Group, we know we still have a great
deal of work to do. Further, we see customer
experience as an increasingly critical part of
our investment thinking, and have developed
deeper insights into what customers prefer
and expect and how they want to be able to
engage with us across our products and
services. We welcome the focus from the
Electricity Pricing Review panel on ensuring
wider access to network metering data on
reasonable terms.
We have also invested in our people and
our culture, to ensure we deliver on service
expectations, and try to put ourselves in the
shoes of our customers at all times. Our
customer and staff research reveals that we
are continuing to head in the right direction.
In governance matters, long-serving Chairman
Michael Stiassny stepped down at November’s
annual shareholder meeting, David Bartholomew
and Sibylle Krieger stepped down as independent
directors in the same month, and Entrust trustee
Mike Buczkowski joined the Board as a non-
independent director, replacing outgoing Trustee
James Carmichael. The Board remains committed
to the long-term strategic direction of Vector, and
has initiated an independent skills-based review
and a new director search to ensure the right
skills and composition of the Board are in place
for Vector’s future.
The six months has also seen the commencement
of the signalled Government review of the
electricity sector which, along with the pending
Interim Climate Change Commission report, will
help guide New Zealand’s transition to 100%
renewable energy. Given the macro trends at play,
it is timely the Government has this once-in-a-
decade opportunity to incentivise investment
in the new energy technologies that will help
empower customer choice, help solve big market
challenges, and help promote more innovation
and competition.
Vector://IR 1915
LEADERSHIP
Chair and Group Chief Executive report
It can set new ground rules for the sector that
will maximise benefits for the next generation
of energy consumers, promote equitable
outcomes, as well as help enable New Zealand’s
sustainability ambitions. We also believe it’s an
opportunity to recognise the infrastructure
demands of high growth areas such as Auckland.
We need the right policy settings and investment
incentives to ensure high growth and evolving
energy needs are met.
It won’t be easy. While New Zealand has long
prided itself on its electricity market, it’s clear
there are major challenges emerging. Today,
our wholesale electricity market is extraordinarily
volatile, which exposes retailers without
generation capability to significant difficulties.
We have limited hydro storage. There is coal
being imported to plug the generation gap
between supply and demand. We have seen
gas production constraints. We have uncertain
incentives around technology investment. We
have relatively slow uptake of solar, battery and
EVs compared with many other countries. And
according to the Government, customers are
paying more for their energy than ever amidst
concerns over energy affordability.
That said, the Electricity Pricing Review Panel’s
Options Discussion paper published in late
February this year is largely encouraging. It
favours options that reflect the importance of
new technology, greater resilience and improved
customer choice, as well as options that improve
market transparency and address practices that
may stifle competition or unfairly penalise some
consumers. As the review is finalised, we also
hope to see an even greater focus on options
that improve energy efficiency, and, most
importantly, address problems experienced
in the wholesale market.
The extraordinary wholesale electricity market
volatility was especially noticeable late last year,
when wholesale prices appeared to be significantly
out of kilter with market conditions. In December,
Vector joined an Undesirable Trading Situation
submission by a group of independent retailers,
asking the Electricity Authority (EA) to look more
closely at the wholesale market. We did this
because we believe it is not in the interests of
consumers to see innovative new retailers being
squeezed out of the market. We think that’s an
outcome which is bad for consumers, and bad
for competition.
Just as importantly, we are nearing the next reset
of regulated pricing and quality standards for the
electricity distribution sector, scheduled to take
place in 2020. What is increasingly clear is that,
given the pace of change, the existing regime
for quality control, last reset in 2015, no longer
reflects the reality of the changed operating
environment, particularly in relation to health
and safety legislation and the impact of
Auckland growth. Therefore, we will continue
to work constructively with the Commerce
Commission on the new quality standards
scheduled to take effect on 1 April 2020,
following the regulatory reset process.
The electricity sector is not alone in facing
the need to have fit-for-purpose regulation
that can meet the difficult challenges presented
by rapid technological disruption, volume growth
or changing consumer preferences. Many other
sectors and their associated regulatory bodies,
such as telecommunications, aviation, petrol
and banking, are grappling with the same issues.
In other matters, Vector welcomed the High
Court’s decision in December on a judicial
review of the long-standing Utilities Disputes
Limited case. We pursued this because network
infrastructure providers, and their customers,
would have been potentially significantly
impacted by the precedent created by the
original decision of the Utilities Disputes
Commissioner. This common-sense decision
Vector://IR 1916
Dame Alison Paterson
Chair
Simon Mackenzie
Group Chief Executive
provides a framework for a more certain
outcome in these sorts of scenarios, and
ensures infrastructure providers can continue
to focus their efforts on all their customers.
We also hope to see genuine progress this
year on updating tree management regulation
which is already significantly overdue. Updated
regulation has been under consideration by the
Ministry of Business, Innovation and Employment
for several years now, and the April 2018 storm
in Auckland provided a sharp reminder of the
challenges created when trees near power lines
are not adequately managed by owners.
To play our part, we increased the amount we
allocate for vegetation management, and in
September 2018 launched a new programme
to raise awareness of the need to have the right
trees in the right places, by planting thousands
more. The Vector Urban Forest initiative means
we will replace every tree we must cut down for
network management or safety purposes, with
two new natives, planted in areas that help with
local ecological restoration schemes.
Looking ahead to the remainder of FY19, the
guidance given in August for adjusted EBITDA
remains appropriate. As noted at the time, this
guidance did not include the impact of adopting
NZ IFRS 15 and 16, which, together with other
minor accounting changes, are expected to
impact FY19 adjusted EBITDA by approximately
$10 million. Our guidance range, adjusted for the
impact of these accounting changes, is therefore
$480 - $490 million. Our result in the first
half of the year benefited particularly from strong
electricity volumes. Should this continue in the
second half of the year, we would expect the
FY19 result to be towards the top end of our
guidance range.
Looking further ahead, Vector’s future earnings
and ability to pay ongoing increasing dividends
could be significantly influenced by the reset of
our electricity network revenues for the period
1 April 2020 to 31 March 2025 which is known
as the Default Price Path 3 (DPP3).
The Commerce Commission has now largely
confirmed the methodology that will apply to
this reset. The key remaining variables are the
five-year New Zealand Government bond rate
during June, July and August 2019 (which is
used to set the regulated Weighted Average
Cost of Capital for DPP3) and the network
expenditure allowances and quality targets
that will apply to DPP3. The Commerce
Commission expects to announce its draft
decision on 31 May 2019 with a final decision
due on 28 November 2019. We will provide a
further update when we release our full year
results. In accordance with our dividend policy,
we will review our dividend approach once the
parameters for DPP3 have been confirmed.
Regardless, Vector will need to progress its
transformation and continue to show leadership
on technology, resilience and the provision of
customer choice. We are certain that the industry
will continue to be disrupted and the impacts
of climate change will increasingly be felt.
Vector will need to not only stay ahead of the
curve, but also to continue to balance the
needs of customers today with those of the
next generation.
Our vision is for Vector to create a new
energy future for New Zealand. A future where
customers are fully empowered and have control
and choice over where, when and how they use
energy. A future where all consumers get the
benefits of new energy technologies, not just the
more advantaged. We want Vector to attract the
best talent in New Zealand and contribute more
than our fair share to a more sustainable, more
equitable energy system. We want all our people
and the public to remain safe around energy.
Vector://IR 1917
BUSINESS SEGMENT
REVIEWS
Regulated Network’s adjusted EBITDA for
the six months to 31 December 2018 was up
$6.0
2
million (3.1%) to $198.7 million against
the prior half-year. This adjusted EBITDA
uplift was largely driven by higher electricity
volumes because of continued Auckland
residential growth and a colder winter
compared to the prior year, partially offset
by higher maintenance costs. The increase
in maintenance costs was largely due to
additional expenditure focused on improving
network reliability and reducing SAIDI.
Revenue increased 2.6% to $403.1 million,
driven by the release of accumulated Loss Rental
Rebates
3
and an increase in capital contributions,
which were up 21.9% to $41.2 million, this
reflected continued connection growth and
significant infrastructure development taking
place across Auckland.
Underlying revenue (net of contributions,
Loss Rental Rebates and pass-throughs) was
up $7.3 million with an increase in connections
and a colder winter. This was partially offset
by a decline in gas revenue of $2.0 million,
primarily because of the regulatory gas
price reset from 1 October 2017.
New electricity connections fell 15.3% to 5,160
from 6,090, but remain elevated relative to
historical levels. New gas connections increased
0.8% to 1,669 from 1,656. Total electricity
connections stood at 567,009, up 1.3% from
559,777 the previous year. Total gas connections
were 110,489, up 2.0% from 108,270 a year ago.
Volumes transported across the electricity network
rose 0.9% to 4,390 GWh from 4,352 GWh in
the prior year. Average household consumption
on our network appears to have stabilised after
more than a decade of decline. Auckland gas
distribution volumes were flat at 7.7 PJ.
Regulated capital expenditure increased by
4.5% to $125.0 million, with most of the increase
in capital expenditure due to Auckland growth
and infrastructure development. Net of capital
contributions, regulated capital expenditure
REGULATED
2. For the breakdown of NZ IFRS changes by segment see
page 21
3. This represents the accumulation for the six-month period
ending 31 December 2018. These Transpower receipts have
been released to Other Income and a provision for payment
is reflected in Other Expenses
remained relatively flat. Notable projects
completed during the period included two grid-
scale batteries in Warkworth and Snells Beach,
as well as additional generator purchases
for supporting outage management.
During the period, Vector reached a settlement
with the Commerce Commission concerning
breaches to the electricity network quality
standards that occurred in 2015 and 2016.
NETWORKS
—
HIGHER ELECTRICITY
VOLUMES DRIVEN BY
CONTINUED AUCKLAND
RESIDENTIAL GROWTH
AND A COLDER WINTER.
Proceedings relating to network outages brought against
Vector by the Commerce Commission
Vector is aware of media reports regarding the proceedings that
have been brought against it by the Commerce Commission
under the Commerce Act, for breaches of its quality standards.
Some reports suggested Vector’s breaches were caused solely by
its decision to change its health and safety practices to avoid
work on ‘live lines’, and that the Commission had ignored this in
deciding to bring proceedings. These reports are incorrect and
the Commerce Commission has asked us to acknowledge that
Vector would have breached its quality standard in the relevant
years regardless of its changes to ‘live line’ practices. The
Commerce Commission in December 2018 stated that its
decision to pursue enforcement proceedings against Vector
was not based on Vector’s policies for de-energising of lines
for safety reasons.
A penalty hearing in relation to these proceedings is scheduled
for 6 March 2019.
Vector://IR 1918
BUSINESS SEGMENT
REVIEWS
Gas Trading’s adjusted EBITDA was up
strongly by 12.5% to $20.7
4
million from
$18.4 million a year earlier, the result
benefiting from higher production at the
Kapuni Gas Treatment Plant, increased LPG
sales and improved cost efficiencies at the
new 9kg Bottle Swap processing plant.
That said, this growth is not expected to carry
into the second half of the year, due to the loss
of a large natural gas customer and rising
gas costs.
The natural gas business experienced
challenging market conditions during the
period. While Kapuni field production was up
14.6% to 5.5PJ, natural gas volumes fell 9.4%
to 8.7 PJ as a result of planned and unplanned
gas field outages that reduced supply and
provided for unprecedented market conditions.
Consequently, some of our customers faced
significant disruption, and we worked hard to
help them mitigate their exposure.
The issues related to gas contraints have raised
a number of unresolved questions regarding
the transparency of the market.
Our LPG business performed strongly in the
first half of the year. Gas liquid sales were up
8.0% to 44,020 tonnes. While Bottle Swap
growth is now slowing (volumes up 1.8% on
the prior period), we are now benefiting from
cost efficiencies at the new plant. LPG tolling
volumes were down 8.3% to 81,718 tonnes
due to a lack of exports over the period.
TRADING
4. For the breakdown of NZ IFRS changes by segment see
page 21
GAS
INCREASED CAPACITY AT
ONGAS BOTTLE SWAP PLANT
SUPPORTING SUMMER
DEMAND FOR GAS.
—
BUSINESS REVIEW //
Vector://IR 1919
BUSINESS SEGMENT REVIEWS
The Technology segment’s revenue increased
2.3% to $137.0 million from $133.9 million
a year earlier driven largely by greater
deployment of smart meters. This also
contributed to the increase in adjusted
EBITDA for the Technology segment,
which rose 12.7% to $72.9
5
million.
Our smart meter fleet grew 11.3% to 1.48 million
over the period, including nearly 110,000 smart
meters in Australia. We installed more than
45,000 advanced meters in Australia over the
first six months of the financial year, and our
New Zealand smart meter fleet increased by
almost 30,000 (net of replacements).
The metering business in New Zealand was
augmented by the acquisition in September
2018 of Vircom, a nationwide provider of field
services for commercial and residential smart
meters. This business complements our existing
metering capabilities and enables us to provide
a full-service nationwide metering capability to
our customers.
While Vector Communications delivered a steady
result, our New Energy Solutions business has
had a mixed performance in the first half.
PowerSmart is performing well, with a strong
pipeline of projects across New Zealand and
the Pacific.
However, E-Co Products (trading as HRV),
Vector’s channel to market for healthy and energy
efficient home solutions, has faced headwinds.
Over the last 12 months we have made several
changes; these include closing the HRV retrofit
windows business, launching a residential solar
offering and more recently, appointing a new CEO,
Colin Daly, who joined us in September 2018.
While it has underperformed to expectation,
we are optimistic that this business unit is well
positioned to grow, especially given its strong
product mix, the desire of consumers for choice
and control and the Government’s focus on
healthy and energy efficient homes.
TECHNOLOGY
—
INSTALLATION OF ONE
OF POWERSMART’S
PROJECTS, AT THE
NEW ZESPRI HQ IN
MOUNT MAUNGANUI.
5. For the breakdown of NZ IFRS changes by segment see
page 21
Vector://IR 1920
ACCOUNTING CHANGES
From 1 July 2018, Vector has adopted
two new accounting standards (NZ IFRS 15
Revenue from Contracts with Customers
and NZ IFRS 16 Leases
6
) and made a change
to the way in which we account for the
disposal of fixed assets.
Of the two accounting standards, NZ IFRS 16
poses the most significant financial impact in
both the balance sheet and the profit and loss
statement. NZ IFRS 16 requires that the value of
the outstanding liability for leases is calculated
using Vector’s incremental borrowing rate at the
date of transition
7
. The right of use asset is then
recognised and measured at a value equalling
the lease liability, adjusted for lease incentives
recorded on the balance sheet. Under the
modified retrospective approach, the H1 2018
comparatives are not restated.
Vector’s right of use asset value is driven
predominantly by property leases. This includes
leases for offices, warehouses, data rooms,
and buildings.
The key impact in the profit and loss statement
is a reduction in the amount of operating
expense reported, offset by an increase in
interest and depreciation. The impact for the
six months ending 31 December 2018 is a
reduction to operating expenses of $4.0 million
and an increase to depreciation of $3.5 million
and interest cost of $1.0 million.
The impact of NZ IFRS 15 is an increase in
revenue of $0.6 million.
In addition to the adoption of NZ IFRS 15 and
16, Vector has also reassessed the presentation
of gains and losses on disposal of fixed
assets within our statement of profit and loss.
Historically, disposal losses have been included
within ‘Operating Expenses’. Disposal losses
are also included within the Group’s non-GAAP
profit measures of EBITDA and adjusted EBITDA.
From 1 July 2018, we have included disposal gains
and losses with Depreciation and Amortisation.
In the six months ending 31 December 2018,
$1.4 million of disposal losses has been
reclassified from Operating Expenses to
Depreciation and Amortisation. The H1 2018
comparatives have not been restated
8
.
IMPACT OF NZ IFRS CHANGES ON H1 2019
ADJUSTED EBITDA $M
SegmentNZ IFRS 15NZ IFRS 16To t a l
Regulated Networks0.60.61.2
Gas Trading–0.70.7
Technology–2.02.0
Corporate–0.70.7
Total0.64.04.6
6. We have adopted the modified retrospective approach
7. Both standards are effective from 1 July 2018
8. Prior year comparative value was $0.1m
ACCOUNTING
CHANGES
Vector://IR 1921
BUSINESS SEGMENT REVIEWS
Vector takes a comprehensive, Group-wide
and future-focused approach to fostering
and protecting the things that are already
of, or we believe can create, material value
for the business, including people,
communities, assets and the environment.
This means we strive to understand the
macro forces in which we operate and the value
drivers and enablers for our people, business,
stakeholders and customers. And we believe
Vector has a responsibility to lead, not follow, in
acting and advocating for the things that matter.
The six months to 31 December 2018 saw
continued business leadership. In October 2018,
Vector was recognised as the first New Zealand
business to receive the Accessibility Tick. The
Accessibility Tick is a public recognition of an
organisation’s ongoing commitment to becoming
accessible and inclusive of people with disabilities.
We did this because we believe diverse, inclusive
and accessible workplaces results in a more
successful business and can help attract talent.
In October 2018, Vector also introduced new
enhancements to our parental leave policy
which aim to reduce the financial burden for new
parents and provide extra time off for employees
to support their partners. As part of this we are
offering to top up the Government Primary
Carers payments to support new parents.
Vector continues to work with young women
to promote interest in Science, Technology,
Engineering and Maths (STEM) careers. In
the first half of the financial year we supported
initiatives including ShadowTech, Rosie Revere
Engineer and entered into a sponsorship
agreement with GirlBoss New Zealand. The
sponsorship involves funding ten workshops
in secondary schools and introduces a
sustainability award category to the GirlBoss
New Zealand Awards which recognises the
achievements of trailblazing young women.
PEOPLE, SAFETY
—
VECTOR WON THE
2018 DELOITTE ENERGY
EXCELLENCE HEALTH
& SAFETY AWARD FOR
THE PAPAKURA BOTTLE
SWAP PLANT.
& RISK
Vector://IR 1922
BUSINESS SEGMENT REVIEWS
In August 2018, Vector won the Deloitte Energy
Excellence 2018 Health & Safety Initiative of the
Year Award for the Papakura Bottle Swap plant –
a greenfield development of a state of the art
facility which was the first plant in New Zealand
to be accepted as a major hazards facility under
the safety case regime.
Vector remains one of a small number of
businesses that is Living Wage accredited.
We have also continued to proactively address
pay equity, analysing average hourly pay rates
across the company as well as across role
types and role seniority. A small number of
pay equity issues were identified and have
now been addressed.
Vector Urban Forest, an initiative to encourage
planting away from power lines, was launched
in September 2018 with the planting of over
15,000 trees at Puhinui Reserve in Auckland.
As part of this programme, Vector has
committed to planting two trees for every
tree removed for network purposes.
To address the issue of end-of-life lithium ion
batteries we have convened a Battery Leaders
Group to identify circular solutions for large
batteries. In November 2018, a workshop was
held with stakeholders across the automotive,
energy and waste industries to explore future
scenarios for maximising the value of
second-life batteries.
In safety, a continued focus over the six months
saw Total Recordable Injury Frequency Rates
(TRIFR) decrease by 17%. Lost Time Injury
Frequency Rates (LTIFR) reduced by 59%.
In October 2018, Vector was successfully
reaccredited to AS/NZS 7901, which is a
standard that covers our health and safety
processes and performance around public
safety regarding our gas and electricity assets.
Vector will reaccredit to AS/NZS 4801 for our
health and safety systems and performance
and to ISO 14001 for our environmental
systems and performance.
We have also changed the way we record and
collect information about injuries, even pre-
existing ones. For example, OnGas deliveries
involve a high degree of manual handling of
gas bottles. We now have a far better insight
into the nature and type of strains and sprains
and have implemented a nationwide triage
process to ensure treatment starts as early
as possible.
IN SEPTEMBER 2018,
VECTOR PLANTED MORE
THAN 15,000 NEW TREES
TO LAUNCH ITS URBAN
FOREST INITIATIVE.
—
Vector://IR 1923
OPERATING STATISTICS
For the six months ended 31 December
20182017
ELECTRICITY
Customers
1, 5
567,009559,777
New connections5,1606,090
Net movement in customers
2
3,93354,677
Volume distributed (GWh)4,3904,352
Networks length (km)
1
18,78318,607
SAIDI (minutes)
3
Normal Operations
4
156.7168.0
Extreme events361.40.0
Total518.1124.8
GAS DISTRIBUTION
Customers
1, 5
110,489108,270
New connections1,6691,656
Net movement in customers
2
1,2601,600
Volume distributed (PJ)7.77.7
GAS TRADING
Natural gas sales (PJ)
6
8.79.6
Gas liquid sales (tonnes)
7
44,02040,752
9kg LPG bottles swapped
8
358,208351,962
Liquigas LPG tolling (tonnes)
9
81,71889,147
TECHNOLOGY
Electricity: smart meters
1, 10
1,480,8511,333,208
Electricity: legacy meters
1
81,17091,848
Gas meters
1
226,495223,368
1. As at 31 December.
2. Net number of customers
added during the period,
includes disconnected,
reconnected and
decommissioned ICPs.
3. SAIDI (minutes) for
the 9 months ended
31 December 2018 is
an unaudited value and
subject to change.
4. Normal Operations SAIDI
includes the impact of
7 Major Event Days at the
cap of 3.37 SAIDI minutes
for each event.
5. Billable ICPs.
6. Excludes gas sold as gas
liquids as these sales are
included within the gas
liquids sales tonnages.
7. Total of retail and wholesale
LPG and natural gasoline.
Includes wholesale volumes
from Kapuni and retail
volumes via Ongas. Product
sold from Kapuni to Ongas
is counted twice for the
purpose of this metric.
8. Number of 9kg LPG bottles
swapped and sold during
the year.
9. Product tolled in Taranaki
and further tolled in the
South Island is counted
twice for the purposes of
this metric.
10. The number of smart
meters deployed as at
31 December 2018 includes
146,062 meters managed
but not owned by Vector
(31 December 2017: 118,961).
Vector://IR 1924
FINANCIAL OVERVIEW
FINANCIAL PERFORMANCE
$ MILLION
31 DEC 2018
6 MONTHS
31 DEC 2017
6 MONTHSCHANGE
30 JUN 2018
12 MONTHS
Total income688.6676.21.8%1,328.4
Adjusted EBITDA264.7250.05.9%470.1
Adjusted EBIT144.8140.43.1%244.2
Net profit83.379.05.4%149.8
Operating cash flow219.1236.0(7.2%)389.9
FINANCIAL POSITION
$ MILLION31 DEC 201831 DEC 2017CHANGE30 JUN 2018
Total equity2,451.12,468.1(0.8%)2,457.9
Total assets5,934.35,668.34.7%5,808.0
Economic net debt (borrowings net of
cash and short-term deposits)
2,449.32,252.98.7%2,337.8
KEY FINANCIAL MEASURES
31 DEC 2018
6 MONTHS
31 DEC 2017
6 MONTHSCHANGE
30 JUN 2018
12 MONTHS
Adjusted EBITDA/total income38.4%37.0%4.0%35.4%
Adjusted EBIT/total income21.0%20.8%1.3%18.4%
Equity/total assets41.3%43.5%(5.2%)42.3%
Gearing
1
49.6%47.3%4.9%48.8%
Net interest cover - (adjusted EBIT/
net interest costs) (times)
2.02.1(4.5%)1.9
Earnings (NPAT) per share (cents)8.37.95.4%14.8
Dividends declared, cents per share
(fully imputed)
8.258.250.0%16.25
1. Gearing is defined as economic net debt to economic net debt plus adjusted equity. Adjusted equity
means total equity adjusted for hedge reserves.
Rises 1.8% on the previous
corresponding period
Total income
$
688.6M
Falls 7.2% on the previous
corresponding period
Operating cash flow
$
219.1M
Vector://IR 1925
FINANCIAL PERFORMANCE TRENDS
REGULATED NETWORKS
GAS TRADING
TECHNOLOGY
CORPORATE
INTER-SEGMENT
CONTINUED OPERATIONS
DISCONTINUED OPERATIONS
20142015201620172018
618.9
590.6
625.6
676.2
688.6
-100
100
0
200
300
400
600
500
800
700
TOTAL INCOME (CONTINUING OPERATIONS)
FOR THE SIX MONTHS ENDED 31 DECEMBER
$ MILLION
244.8
253.5
250.0
264.7
20142015201620172018
0
-50
50
100
150
200
250
300
257.0
ADJUSTED EBITDA (CONTINUING OPERATIONS)
FOR THE SIX MONTHS ENDED 31 DECEMBER
$ MILLION
REGULATED NETWORKS
GAS TRADING
TECHNOLOGY
CORPORATE
TOTAL GROUP
20142015201620172018
87.3
100.1
107.1
79.0
83.3
0
20
40
60
80
100
120
NET PROFIT (INCLUDING DISCONTINUED OPERATIONS)
FOR THE SIX MONTHS ENDED 31 DECEMBER
$ MILLION
Vector://IR 1926
7.9
125.0
6.0
62.2
2
0
1
8
2
0
1
7
12.3
40.2
10.6
119.6
CAPITAL EXPENDITURE
FOR THE SIX MONTHS ENDED 31 DECEMBER
$ MILLION
REGULATED NETWORKS
GAS TRADING
TECHNOLOGY
CORPORATE
2
0
1
8
2
0
1
7
2,449.3
2,252.9
2,492.7
2,512.9
SOURCE OF FUNDING – GEARING
AS AT 31 DECEMBER
$ MILLION
ECONOMIC NET DEBT
ADJUSTED EQUITY
20142015201620172018
203.3
248.8
226.3
236.0
219.1
0
50
100
150
200
250
300
OPERATING CASH FLOWS (INCLUDING DISCONTINUED
OPERATIONS) FOR THE SIX MONTHS ENDED 31 DECEMBER
$ MILLION
Vector://IR 1927
NON-GAAP FINANCIAL INFORMATION
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 (www.vector.co.nz).
Non-GAAP profit measures are not prepared in accordance with New Zealand International Financial
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.
RECONCILIATION:
Group EBITDA and adjusted EBITDA
31 DEC 2018
6 MONTHS
$M
31 DEC 2017
6 MONTHS
$M
Reported net profit for the period (GAAP)
1
83.3 79.0
Add back: net interest costs
1
71.7 66.4
Add back: tax (benefit)/expense
1
31.3 31.9
Add back: depreciation and amortisation
1
119.9 109.6
EBITDA306.2 286.9
Adjusted for:
Associates (share of net (profit)/loss)
1
(0.5)0.1
Fair value change on financial instruments
1
0.2 (2.8)
Capital contributions
1
(41.2)(34.2)
Impairment
1
––
Adjusted EBITDA264.7 250.0
1. Extracted from reviewed financial statements.
Segment adjusted EBITDA
20182017
Six months ended 31 December
REPORTED
SEGMENT
EBITDA
LESS CAPITAL
CONTRI-
BUTIONS
SEGMENT
ADJUSTED
EBITDA
REPORTED
SEGMENT
EBITDA
LESS CAPITAL
CONTRI-
BUTIONS
SEGMENT
ADJUSTED
EBITDA
Technology
72.9 – 72.9 65.1 (0.4)64.7
Gas Trading
20.7 – 20.7 18.4 18.4
Unregulated segments93.6 – 93.6 83.5 (0.4)83.1
Regulated segment239.9 (41.2)198.7 226.5 (33.8)192.7
Corporate(27.6) – (27.6)(25.8) – (25.8)
TOTAL305.9 (41.2)264.7 284.2 (34.2)250.0
Vector://IR 1928
GROUP CONDENSED INTERIM FINANCIAL STATEMENTS
for the six months ended 31 December 2018 (unaudited)
CONTENTS
3 0 ——— Independent Review Report
3 2 ——— Group Condensed Interim Financial Statements
32 ——— Profit or Loss
3 3 ——— Other Comprehensive Income
3 4 ——— Balance Sheet
3 5 ——— Cash Flows
3 6 ——— Changes in Equity
3 7 ——— Notes to the Group Condensed Interim Financial Statements
GROUP CONDENSED INTERIM FINANCIAL STATEMENTS
These group condensed interim financial statements for the six months
ended 31 December 2018 are dated 25 February 2019, and signed for
and on behalf of Vector Limited by:
Director 25 February 2019
Director 25 February 2019
And management of Vector Limited by:
Group Chief Executive 25 February 2019
Chief Financial Officer 25 February 2019
Vector://IR 1929
INDEPENDENT REVIEW REPORT
for the six months ended 31 December 2018
© 2019 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.
Independent Review Report
To the shareholders of Vector Limited
Report on the interim consolidated financial statements
Conclusion
Based on our review, nothing has come to our
attention that causes us to believe that the interim
consolidated financial statements on pages 32 to 48
do not:
i. present fairly in all material respects the
Group’s financial position as at 31
December 2018 and its financial
performance and cash flows for the 6
month period ended on that date; and
ii. comply with NZ IAS 34 Interim Financial
Reporting.
We have completed a review of the accompanying
interim consolidated financial statements which
comprise:
— the consolidated balance sheet as at 31
December 2018;
— the consolidated statements of profit and loss,
other comprehensive income, changes in
equity and cash flows for the 6 month period
then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
Basis for conclusion
A review of interim consolidated financial statements in accordance with NZ SRE 2410 Review of Financial
Statements Performed by the Independent Auditor of the Entity (“NZ SRE 2410”) is a limited assurance
engagement. The auditor performs procedures, consisting of making enquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical and other review procedures.
As the auditor of Vector Limited, NZ SRE 2410 requires that we comply with the ethical requirements relevant to
the audit of the annual financial statements.
Our firm has also provided other services to the group in relation to regulatory, other assurance, IT forensic and
other forensic 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 reviewer of the group. The firm has no other relationship with,
or interest in, the group.
Use of this Independent Review Report
This report is made solely to the shareholders as a body. Our review work has been undertaken so that we
might state to the shareholders those matters we are required to state to them in the Independent Review
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 review work, this report, or any of the
opinions we have formed.
Vector://IR 1930
Responsibilities of the Directors for the interim consolidated financial
statements
The Directors, on behalf of the group, are responsible for:
— the preparation and fair presentation of the interim consolidated financial statements in accordance with NZ
IAS 34 Interim Financial Reporting;
— implementing necessary internal control to enable the preparation of a interim consolidated financial
statements that is 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.
Auditor’s Responsibilities for the review of the interim consolidated
financial statements
Our responsibility is to express a conclusion on the interim financial statements based on our review. We
conducted our review in accordance with NZ SRE 2410. NZ SRE 2410 requires us to conclude whether anything
has come to our attention that causes us to believe that the interim financial statements are not prepared, in all
material respects, in accordance with NZ IAS 34 Interim Financial Reporting.
The procedures performed in a review are substantially less than those performed in an audit conducted in
accordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit
opinion on these interim consolidated financial statements.
This description forms part of our Independent Review Report.
KPMG
Auckland
25 February 2019
Vector://IR 1931
GROUP INTERIM PROFIT OR LOSS
(unaudited)
NOTE
31 DEC 2018
6 MONTHS
$M
31 DEC 2017
6 MONTHS
$M
30 JUN 2018
12 MONTHS
$M
Revenue4688.6676.21,328.4
Operating expenses4(382.7)(392.0)(786.8)
Depreciation and amortisation(119.9)(109.6)(225.9)
Interest costs (net)(71.7)(66.4)(130.7)
Fair value change on financial instruments(0.2)2.83.1
Associates (share of net profit/(loss)) 0.5(0.1)(1.5)
Profit/(loss) before income tax114.6110.9186.6
Tax benefit/(expense)(31.3)(31.9)(36.8)
Net profit/(loss) for the period83.379.0149.8
Net profit/(loss) for the period attributable to
Non-controlling interests
0.70.71.6
Owners of the parent 82.678.3148.2
Basic and diluted earnings per share (cents)78.37.914.8
Vector://IR 1932
GROUP INTERIM OTHER COMPREHENSIVE INCOME
(unaudited)
31 DEC 2018
6 MONTHS
$M
31 DEC 2017
6 MONTHS
$M
30 JUN 2018
12 MONTHS
$M
Net profit/(loss) for the period83.379.0149.8
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
(1.5)4.28.9
Translation of foreign operations (1.2)(0.3)(0.3)
Items that will not be re-classified subsequently to profit or loss:
Fair value change on financial asset
–3.11.1
Other comprehensive income for the period net of tax(2.7)7.09.7
Total comprehensive income for the period net of tax80.686.0159.5
Total comprehensive income for the period attributable to
Non-controlling interests
0.70.71.6
Owners of the parent 79.985.3157.9
Vector://IR 1933
GROUP INTERIM BALANCE SHEET
(unaudited)
NOTE
31 DEC 2018
$M
31 DEC 2017
$M
30 JUN 2018
$M
CURRENT ASSETS
Cash and cash equivalents26.517.927.9
Trade and other receivables 204.6213.3210.0
Derivatives6–0.10.1
Inventories10.712.911.6
Intangible assets10.46.01.0
Income tax65.432.784.7
Total current assets317.6282.9335.3
NON-CURRENT ASSETS
Receivables
0.2–0.1
Derivatives675.545.256.5
Investment in associate8.69.58.1
Other investments 15.023.315.0
Intangible assets1,398.01,393.81,397.2
Property, plant and equipment (PPE)4,080.43,913.53,995.7
Right of use assets (ROU)9.138.9––
Deferred tax0.10.10.1
Total non-current assets5,616.75,385.45,472.7
Total assets5,934.35,668.35,808.0
CURRENT LIABILITIES
Trade and other payables
217.0234.1219.1
Provisions13.14.824.4
Borrowings6, 12513.0–224.2
Derivatives669.3–65.8
Contract liabilities243.537.839.4
Lease liabilities9.28.9––
Income tax0.40.40.7
Total current liabilities865.2277.1573.6
NON-CURRENT LIABILITIES
Payables
8.29.99.1
Provisions23.621.422.6
Borrowings61,966.82,232.02,171.1
Derivatives654.9135.751.2
Contract liabilities238.035.135.8
Lease liabilities9.231.3––
Deferred tax 495.2489.0486.7
Total non-current liabilities 2,618.02,923.12,776.5
Total liabilities 3,483.23,200.23,350.1
EQUITY
Equity attributable to owners of the parent
2,433.52,450.32,440.4
Non-controlling interests in subsidiaries17.617.817.5
Total equity 2,451.12,468.12,457.9
Total equity and liabilities 5,934.35,668.35,808.0
Net tangible assets per share (cents)7102.5105.1104.2
Gearing ratio (%)749.647.348.8
Vector://IR 1934
GROUP INTERIM CASH FLOWS
(unaudited)
NOTE
31 DEC 2018
6 MONTHS
$M
31 DEC 2017
6 MONTHS
$M
30 JUN 2018
12 MONTHS
$M
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers691.7693.11,312.2
Interest received 0.50.42.0
Dividends received–0.50.5
Payments to suppliers and employees(399.3)(389.0)(736.5)
Interest paid(72.0)(67.4)(127.0)
Income tax paid(1.8)(1.6)(61.3)
Net cash flows from/(used in) operating activities 8219.1236.0389.9
CASH FLOWS FROM INVESTING ACTIVITIES
Proceed from sale of PPE and software intangibles
0.20.10.4
Proceeds from sale of investments ––7.8
Purchase and construction of PPE and software intangibles(202.7)(184.9)(386.8)
Post-completion payment for acquisition of businesses ––(1.4)
Other investments(3.5)(15.7)(15.7)
Net cash flows from/(used in) investing activities (206.0)(200.5)(395.7)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings6
70.0435.8570.8
Repayment of borrowings6–(400.0)(400.0)
Dividends paid (80.6)(80.2)(163.9)
Sale of treasury shares–14.014.0
Lease liabilities payments(3.6)––
Other financing cash flows(0.3)(2.1)(2.1)
Net cash flows from/(used in) financing activities (14.5)(32.5)18.8
Net increase/(decrease) in cash and cash equivalents (1.4)3.013.0
Cash and cash equivalents at beginning of the period27.914.914.9
Cash and cash equivalents at end of the period 26.517.927.9
Cash and cash equivalents comprise:
Bank balances and on-call deposits
18.29.519.6
Short term deposits 8.38.48.3
26.517.927.9
Vector://IR 1935
GROUP INTERIM CHANGES IN EQUITY
(unaudited)
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 2017875.0(9.2)(49.0)0.81,613.017.72,448.3
Net profit/(loss) for the period––––78.30.779.0
Other comprehensive income––4.22.8––7.0
Total comprehensive income––4.22.878.30.786.0
Dividends––––(79.6)(0.6)(80.2)
Sale of treasury shares5.09.0––––14.0
Total transactions with owners5.09.0––(79.6)(0.6)(66.2)
Balance at 31 December 2017880.0(0.2)(44.8)3.61,611.717.82,468.1
Net profit/(loss) for the period––––69.90.970.8
Other comprehensive income––4.7(2.0)––2.7
Total comprehensive income––4.7(2.0)69.90.973.5
Dividends––––(82.5)(1.2)(83.7)
Total transactions with owners ––––(82.5)(1.2)(83.7)
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
Impact of adopting
NZ IFRS 15 at 1 July 2018
––––(6.6)–(6.6)
Adjusted balance
at 1 July 2018
880.0(0.2)(40.1)(0.3)1,594.417.52,451.3
Net profit/(loss) for the period––––82.60.783.3
Other comprehensive income––(1.5)(1.2)––(2.7)
Total comprehensive income––(1.5)(1.2)82.60.780.6
Dividends (refer Note 3)––––(80.0)(0.6)(80.6)
Employee share purchase
scheme transactions
–(0.2)––––(0.2)
Total transactions with owners–(0.2)––(80.0)(0.6)(80.8)
Balance at 31 December 2018880.0(0.4)(41.6)(1.5)1,597.017.62,451.1
Vector://IR 1936
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. 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 entity for the purposes of Part 7 of the
Financial Markets Conduct Act 2013. Vector’s condensed interim financial
statements (the interim financial statements) comply with this Act.
The interim financial statements presented are for Vector Limited Group
(“Vector” or “the group”) as at, and for the six months ended 31 December
2018. The group comprises Vector Limited (“the parent”), its subsidiaries,
and its investments in associates and joint arrangements.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparationThe interim financial statements have been prepared in accordance with
New Zealand Generally Accepted Accounting Practice (NZ GAAP) as applicable
to interim financial statements, and as appropriate to profit oriented entities.
They comply with NZ IAS 34 Interim Financial Reporting.
These interim financial statements do not include all of the information
required for full annual financial statements and should be read in conjunction
with the group financial statements and related notes included in Vector’s 2018
Annual Report. The interim financial statements for the six months ended
31 December 2018 and 31 December 2017 are unaudited.
All financial information is presented in New Zealand dollars ($) and has been
rounded to the nearest 100,000, unless otherwise stated.
SeasonalityVector’s electricity and gas businesses are affected by the seasonal demand for
energy, which generally increases during periods of colder weather. Accordingly,
financial results for the first half of the financial year reported in the interim
financial statements are generally more profitable than those of the second half
of the year.
Vector://IR 1937
NOTES TO THE INTERIM FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New standards
adopted
On 1 July 2018 the following accounting standards were adopted:
i) NZ IFRS 15: Revenue from contracts with customers
ii) NZ IFRS 16: Leases
NZ IFRS 15: Revenue from contracts with customers
The group has adopted NZ IFRS 15 Revenue from contracts with customers,
effective from 1 July 2018, using the cumulative retrospective approach. The
cumulative effect from adoption (if any) is recognised at the date of transition,
which is 1 July 2018.
NZ IFRS 15 provides an entity with guiding principles on when, how, and how
much revenue to recognise in an entity’s financial statements in any given
reporting period. The standard and its subsequent amendment replace all
existing IFRS guidance for revenue recognition. The application and adoption
of NZ IFRS 15 to the group’s revenue streams has not had a significant impact
on the group’s financial performance or financial position. The group did not
apply any practical expedients available in NZ IFRS 15.
Details of the new significant accounting policies under NZ IFRS 15 in relation
to the group’s key revenue streams are set out below.
Key revenue
streams
Significant accounting policiesImpact from IFRS
15 adoption
Electricity
and gas
distribution
services
Electricity and gas distribution services are
measured at fair value, to the extent that
pricing is determined by the regulator in
accordance with a matrix of determinations.
Revenue is recognised over time using an
output method. The right to payment
corresponds directly with the customers’
pattern of electricity and gas consumption.
None
Third party
contributions
Third party contributions towards the
construction of property, plant and
equipment are recognised over time,
reflecting the percentage completion of
the underlying construction activity or the
performance obligation if the activity is
bundled with other distinct goods or
services.
A contract liability is presented on the
balance sheet representing that portion of
consideration received from the customer
on acceptance of a contract but that the
performance obligation associated with the
contract is not yet satisfied. This liability
was previously disclosed as a part of trade
and other payables.
The timing of
revenue recognition
has changed for
some construction
contracts.
The cumulative
effect of $6.6 million
(net of tax) from
initially applying
IFRS 15 is adjusted
to opening retained
earnings. The
impact on the
profit or loss is
a $0.6 million
increase in revenue.
Vector://IR 1938
NOTES TO THE INTERIM FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Key revenue
streams
Significant accounting policiesImpact from IFRS
15 adoption
Sale of
natural gas
The group receives revenues from
customers for the provision of a
continuous supply of natural gas over
a time period. Revenue is recognised
over time in line with the customer’s
consumption of natural gas and measured
at the transaction price of the contract.
The transaction price for a gas supply
contract includes variable consideration
in the form of indexed pricing, volume
pricing, and take or pay arrangements.
The group estimates the amount of
variable considerations present in each
contract using the expected value
method, which is the sum of probability-
weighted amounts in a range of possible
consideration amounts.
None
Metering
revenue
Metering revenue earned from the
provision of metering services is
recognised over time as the customer
simultaneously receives and consumes
the benefits from operations of the
group’s network of smart meters.
None
New standards
adopted
NZ IFRS 16: Leases
The group has elected to early adopt NZ IFRS 16 Leases, effective from 1 July 2018.
The group applied NZ IFRS 16 using the modified retrospective transition approach.
Comparative information and opening equity are therefore not restated and continue
to be reported under NZ IAS 17 Leases and IFRIC 4 Determining whether an
Arrangement contains a Lease. Refer to note 9 for details of accounting policies
and impact from adoption of NZ IFRS 16.
New standard
effective and
previously adopted
NZ IFRS 9: Financial instruments
NZ IFRS 9 Financial instruments is mandatory for the group effective from
1 July 2018.
The group has previously completed the adoption of NZ IFRS 9 by electing
to early adopt NZ IFRS 9 (2013) Financial instruments in the year ended
30 June 2015 (initial application 1 July 2014) and NZ IFRS 9 (2014) Financial
instruments in the year ended 30 June 2017 (initial application 1 July 2016).
Vector://IR 1939
NOTES TO THE INTERIM FINANCIAL STATEMENTS
3. SIGNIFICANT TRANSACTIONS AND EVENTS
Significant transactions and events that have occurred during the six months to 31 December 2018:
Commerce
Commission
settlement
Over-recovery of electricity revenue
On 7 July 2017, Vector and the Commerce Commission (“the 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 settlement is effected through a $13.9 million (including accumulated
interest of $3.8 million) price adjustment for the regulatory years ending
31 March 2019 and 31 March 2020, impacting the group’s reported revenues
and interest costs for the financial years ended 30 June 2018 (3 months),
and financial years ending 30 June 2019 (12 months) and 2020 (9 months).
The estimated impact in the current year ended 30 June 2019 is a $4.3 million
decrease in revenue and a $1.5 million increase in interest costs.
DividendsVector Limited’s final dividend for the year ended 30 June 2018 of 8.00 cents
per share was paid on 14 September 2018, with a supplementary dividend of
1.41 cents per non-resident share. The total dividend paid was $80.0 million.
Liquigas Limited, an associated company of the group, paid an interim dividend
for the six months ended 31 December 2018 of $0.6 million to the company’s
non-controlling interests.
4. SEGMENT INFORMATION
SegmentsVector reports on three reportable segments in accordance with NZ IFRS 8
Operating Segments. The segments and related policies remain unchanged
from those reported in Vector’s 2018 Annual Report.
The reported segments are:
Regulated NetworksAuckland electricity and gas distribution services.
Gas Trading Natural gas and LPG sales, storage and processing,
and cogeneration.
TechnologyMetering services, telecommunications and new
energy solutions.
Vector://IR 1940
NOTES TO THE INTERIM FINANCIAL STATEMENTS
4. SEGMENT INFORMATION (continued)
31 DEC 2018
6 MONTHS
REGULATED
NETWORKS
$M
GAS TRADING
$M
TECHNOLOGY
$M
INTER-
SEGMENT
$M
TOTAL
$M
External revenue:
Sales
354.3152.9134.5–641.7
Third party contributions41.2–––41.2
Other5.5–––5.5
Intersegment revenue2.1–2.5(4.6)–
Segment revenue403.1152.9137.0(4.6)688.4
External expenses:
Electricity transmission expenses
(105.0)–––(105.0)
Gas purchases and production
expenses
–(95.1)––(95.1)
Technology cost of sales––(34.7)–(34.7)
Asset maintenance expenses(29.8)(8.2)(5.7)–(43.7)
Employee benefit expenses(8.1)(6.8)(15.0)–(29.9)
Other expenses(18.7)(19.6)(8.2)–(46.5)
Intersegment expenses(1.6)(2.5)(0.5)4.6–
Segment operating expenses(163.2)(132.2)(64.1)4.6(354.9)
Segment EBITDA239.920.772.9–333.5
Depreciation and amortisation(60.0)(7.7)(44.4)–(112.1)
Segment profit/(loss)179.913.028.5–221.4
Segment capital expenditure125.06.062.2–193.2
Reconciliation to revenue, profit/(loss) before income tax and
capital expenditure reported in the financial statements:
31 DEC 2018
6 MONTHS
REVENUE
$M
PROFIT/
(LOSS) BEFORE
INCOME TAX
$M
CAPITAL
EXPENDITURE
$M
Reported in segment information688.4221.4193.2
Amounts not allocated to segments (corporate activities):
Revenue
0.20.2–
Employee benefit expenses–(16.0)–
Other operating expenses–(11.8)–
Depreciation and amortisation –(7.8)–
Interest costs (net)–(71.7)–
Fair value change on financial instruments–(0.2)–
Associates (share of net profit/(loss))–0.5–
Capital expenditure––7.9
Reported in the financial statements688.6114.6201.1
Vector://IR 1941
NOTES TO THE INTERIM FINANCIAL STATEMENTS
4. SEGMENT INFORMATION (continued)
31 DEC 2017
6 MONTHS
REGULATED
NETWORKS
$M
GAS TRADING
$M
TECHNOLOGY
$M
INTER-
SEGMENT
$M
TOTAL
$M
External revenue:
Sales 356.6153.5131.1–641.2
Third party contributions33.8–0.4–34.2
Intersegment revenue2.3–2.4(4.7)–
Segment revenue392.7153.5133.9(4.7)675.4
External expenses:
Electricity transmission expenses
(111.9)–––(111.9)
Gas purchases and production
expenses
–(98.0)––(98.0)
Technology cost of sales––(35.6)–(35.6)
Asset maintenance expenses(28.8)(9.0)(6.9)–(44.7)
Employee benefit expenses(8.4)(7.4)(17.4)–(33.2)
Other expenses(15.5)(17.9)(8.6)–(42.0)
Intersegment expenses(1.6)(2.8)(0.3)4.7–
Segment operating expenses(166.2)(135.1)(68.8)4.7(365.4)
Segment EBITDA226.518.465.1–310.0
Depreciation and amortisation(56.9)(9.9)(35.9)–(102.7)
Segment profit/(loss)169.68.529.2–207.3
Segment capital expenditure119.610.640.2– 170.4
Reconciliation to revenue, profit/(loss) before income tax and
capital expenditure reported in the financial statements:
31 DEC 2017
REVENUE
$M
PROFIT/
(LOSS) BEFORE
INCOME TAX
$M
CAPITAL
EXPENDITURE
$M
Reported in segment information675.4207.3170.4
Amounts not allocated to segments (corporate activities):
Revenue
0.80.8–
Employee benefit expenses–(14.7)–
Other operating expenses–(11.9)–
Depreciation and amortisation –(6.9)–
Interest costs (net)–(66.4)–
Fair value change on financial instruments–2.8–
Associates (share of net profit/(loss))–(0.1)–
Capital expenditure––12.3
Reported in the financial statements676.2110.9182.7
Vector://IR 1942
NOTES TO THE INTERIM FINANCIAL STATEMENTS
4. SEGMENT INFORMATION (continued)
30 JUN 2018
12 MONTHS
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
expenses
(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:
30 JUN 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
Vector://IR 1943
NOTES TO THE INTERIM FINANCIAL STATEMENTS
5. CAPITAL COMMITMENTS
31 DEC 2018
$M
31 DEC 2017
$M
30 JUN 2018
$M
Capital expenditure committed to but not provided
for at balance date
70.875.168.0
6. BORROWINGS AND DERIVATIVES
NET
DERIVATIVES
$M
BORROWINGS
$M
Balance at 30 June 2018(60.4)(2,395.3)
Fair value movements:
Foreign exchange rates
2.1(2.2)
Interest rates and other fair value changes9.6(11.8)
Drawdown–(70.0)
Amortised costs –(0.5)
Balance at 31 December 2018(48.7)(2,479.8)
Fair value at 31 December 2018(48.7)(2,626.9)
7. FINANCIAL RATIOS
31 DEC 2018
6 MONTHS
$M
31 DEC 2017
6 MONTHS
$M
30 JUN 2018
12 MONTHS
$M
Earnings per share
Net profit attributable to owners of the parent
82.678.3148.2
Weighted average ordinary shares outstanding during
the period (number of shares)
999,911,394996,852,041998,370,185
8.3 cents7.9 cents14.8 cents
Net tangible assets per share
Net assets attributable to owners of the parent
2,433.52,450.32,440.4
Less total intangible assets (1,408.4)(1,399.8)(1,398.2)
Total net tangible assets1,025.11,050.51,042.2
Ordinary shares outstanding (number of shares)999,867,208999,913,110999,913,852
102.5 cents105.1 cents104.2 cents
31 DEC 2018
$M
31 DEC 2017
$M
30 JUN 2018
$M
Economic net debt to economic net debt plus adjusted
equity ratio (“gearing ratio”)
Face value of borrowings
2,475.82,270.82,405.7
Less cash and cash equivalents(26.5)(17.9)(27.9)
Economic net debt2,449.32,252.92,377.8
Total equity2,451.12,468.12,457.9
Adjusted for hedge reserves41.644.840.1
Adjusted equity2,492.72,512.92,498.0
Economic net debt plus adjusted equity4,942.04,765.84,875.8
49.6%47.3%48.8%
Vector://IR 1944
NOTES TO THE INTERIM FINANCIAL STATEMENTS
8. CASH FLOWS
31 DEC 2018
6 MONTHS
$M
31 DEC 2017
6 MONTHS
$M
30 JUN 2018
12 MONTHS
$M
Reconciliation of net profit/(loss) to net cash flows
from/(used in) operating activities
Net profit/(loss) for the period
83.379.0149.8
Items classified as investing activities
Non-cash items classified as investing activities
(2.5)3.112.2
Other items classified as investing activities0.2––
Net loss/(gain) on sale of investments–(1.1)(1.1)
(2.3)2.011.1
Items classified as financing activities
Items associated with lease liabilities
1.5––
Non-cash items
Depreciation and amortisation
119.9109.6225.9
Non-cash portion of interest costs (net)(1.4)(1.5)1.7
Fair value change on financial instruments0.2(2.8)(3.1)
Associates (share of net (profit)/loss)(0.5)0.11.5
Increase/(decrease) in deferred tax 11.711.88.6
Increase/(decrease) in provisions(11.3)1.021.4
Other non-cash items(1.3)–0.4
117.3118.2256.4
Changes in assets and liabilities
Trade and other payables
(3.0)15.6 1.0
Contract liabilities(2.9)10.312.6
Inventories0.9(1.6)(1.2)
Trade and other receivables 5.3(5.8)(6.6)
Income tax 19.018.3(33.2)
19.336.8(27.4)
Net cash flows from/(used in) operating activities219.1236.0389.9
Vector://IR 1945
NOTES TO THE INTERIM FINANCIAL STATEMENTS
9. LEASES
9.1 Right of use assets
LAND,
BUILDINGS AND
IMPROVEMENTS
$M
OTHER
PLANT AND
EQUIPMENT
$M
TOTAL
$M
Opening net book value–––
Movements on transition39.40.740.1
Additions0.81.52.3
Depreciation for the period(3.2)(0.3)(3.5)
Carrying amount 31 Dec 201837.01.938.9
Cost40.22.242.4
Accumulated depreciation(3.2)(0.3)(3.5)
9.2 Lease liabilities maturity analysis
MINIMUM LEASE
PAYMENTS
$M
INTEREST
$M
PRESENT
VALUE
$M
Within one year8.41.86.6
One to five years23.04.818.2
Beyond five years21.46.015.4
Total52.812.640.2
Current portion8.9
Non-current portion31.3
Total40.2
9.3 Lease expenses included in profit or loss
31 DEC 2018
6 MONTHS
$M
Short-term leases0.3
Interest on leases1.0
9.4 Lease cashflows included in cashflow statement
31 DEC 2018
6 MONTHS
$M
Total cash outflow in relation to leases4.6
Vector://IR 1946
NOTES TO THE INTERIM FINANCIAL STATEMENTS
9. LEASES (continued)
9.5 Transitional into NZ IFRS 16
01 JUL 2018
$M
Operating lease commitment at 30 June 2018
as disclosed in the Group’s financial statements
40.2
Discounted using the incremental borrowing rate at 1 July 201830.2
Finance lease liabilities as at 1 July 20180.5
Recognition exemption for:
Short-term leases
(0.5)
Extension options reasonably certain to be exercised13.0
Net changes in leases(2.3)
Lease liabilities recognised at 1 July 201840.9
TransitionThe group applied NZ IFRS 16 from 1 July 2018 using the modified
retrospective approach.
Leases entered into and identified by the group include property leases,
building access rights, and vehicle leases.
In assessing whether an arrangement is, or contains a lease, the group
considers whether the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset,
the group assesses whether:
• The contract involves the use of an identified asset;
• The group has the right to obtain substantially all of the economic
benefits from use of the asset throughout the period of use; and
• The group has the right to direct the use of the asset.
On transition, the group applied the practical expedient to not recognise right-
of-use assets and liabilities for short-term leases with lease terms ending within
12 months. The costs related to these leases are recognised in the profit or loss.
PoliciesLease liabilities are measured at the present value of remaining lease
payments, discounted at the group’s incremental borrowing rate as at
1 July 2018. The weighted-average rate applied is 4.55%.
Right of use (ROU) assets are initially recognised at cost, comprising the
initial amount of the lease liability less any unamortised lease incentives.
ROU assets are subsequently depreciated using the straight-line method
from the commencement date to the end of the lease term. In considering the
lease term, the group applies judgment in determining whether it is reasonably
certain that an extension or termination option will be exercised. The majority
of the group’s leases are property leases. These, in the main, give the group
the right to renew the leases at the end of their lease terms.
Vector://IR 1947
NOTES TO THE INTERIM FINANCIAL STATEMENTS
10. RELATED PARTY TRANSACTIONS
Majority shareholder
dividend
Vector Limited has paid its majority shareholder, Entrust, dividends of
$60.1 million during the period (six months ended December 2017:
$60.1 million, 12 months ended 30 June 2018: $122.0 million).
Outstanding
balances
At 31 December 2018, the group has no material outstanding balances due
to or from related parties of the group (31 December 2017 and 30 June 2018:
not material).
11. 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 the
financial statements.
No material contingent liabilities have been identified.
12. EVENTS AFTER THE END OF THE PERIOD
Repayment of
borrowings
On 14 January 2019, the group repaid $285.6 million (GBP 115.0 million)
of medium term notes using existing facilities.
Interim dividendOn 25 February 2019, the board declared an interim dividend for the year
ended 30 June 2019 of 8.25 cents per share.
No adjustment is required to these interim financial statements in respect
of this event.
Financial statements
approval
The interim financial statements were approved by the board of directors
on 25 February 2019.
Vector://IR 1948
BOARD OF DIRECTORS AND MANAGEMENT TEAM
BOARD OF DIRECTORS
Dame Alison Paterson
// Chair
Jonathan Mason
// Deputy Chair
Karen Sherry
Bob Thomson
Mike Buczkowski
MANAGEMENT TEAM
Simon Mackenzie
// Group Chief Executive
Dan Molloy
// Chief Financial Officer
Andre Botha
// Chief Networks Officer
Kate Beddoe
// Chief Risk Officer
Nikhil Ravishankar
// Chief Digital Officer
ASSOCIATES AND JOINT VENTURES
PRINCIPAL ACTIVITYPROPORTION HELD
31 DEC 201831 DEC 201730 JUN 2018
Associates
Tree Scape Limited Vegetation management
50%50%50%
Joint Venture
Kapuni Energy Joint VentureCogeneration
50%50%50%
FINANCIAL CALENDAR 2019
Record date for the interim dividend29 March
Interim dividend paid 11 April
Third quarter operational statisticsApril
Fourth quarter operational statisticsJuly
Full year result and annual reportAugust
Annual General MeetingSeptember
* Dividends are subject to board determination
INVESTOR INFORMATION
2019
//
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 at www.vector.co.nz
Vector://IR 1949
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
SHARE REGISTRAR
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road
Takapuna
Private Bag 92119
Auckland 1142
New Zealand
Telephone 64-9-488 8777
THE FASTEST AND EASIEST WAY TO REPORT
AN OUTAGE AND GET UPDATES IS NOW ONLINE,
AT VECTOR.CO.NZ/OUTAGES OR YOU CAN CALL
0508 VECTOR (0508 832 867)
Vector://IR 1950
insight
creative.co.nz
VEC193
VECTOR.CO.NZ
---
FINANCIAL &
OPERATIONAL
RESULTS
26 February 2019
HALF YEAR ENDED 31 DECEMBER 2018
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
4
HALF YEAR DIVIDEND OF 8.25 CENTS, FULLY IMPUTED
6.00
6.506.506.506.50
6.75
7.00
7.25
7.507.50
7.75
8.00
8.258.25
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
FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19
Dividend growth (cents per share)
InterimFinal
•Dividend policy to be reviewed once
parameters for 2020 electricity reset
are confirmed
•Electricity network revenues from 1 April
2020 to 31 March 2025 (DPP3) will be
known by December 2019. Remaining
key variables:
−5 year NZ Govt bond rate in June -August
2019. Used to set DPP3 regulatory WACC
−Network expenditure allowance & quality
targets for DPP3
−Commission will announce draft decision on
31 May & final decision on 28 November
5
H1 2019
BUSINESS HIGHLIGHTS
6
H1 2019 BUSINESS HIGHLIGHTS
•Strong pipeline of large
commercial solar and
battery projects in NZ &
Pacific
•SnellsBeach & Warkworth
grid-scale batteries
operational
•6,829 new electricity and gas
connections, c50% higher than
5 years ago
•Electricity volumes up 0.9% to
4,390 GWh
•Regulated capex up 4.5% to
$125m driven by Auckland
growth
•Deployed 29k advanced
meters in NZ
•Deployed 45k advanced
meters in Australia
•Acquisition of Vircom
augments nationwide service
capability in NZ
•New LPG 9kg Bottle Swap
plant generating cost
efficiencies
•Bottle Swap plant won
Deloitte Energy Excellence
Health & Safety award
•Kapunifield production up
14.6%
•Gas liquids sales are up
8.0%
New energy solutionsStrong H1 for Gas Trading
Metering growth
Network growth
7
CONTINUED BUSINESS LEADERSHIP
•New Outage Centre
launched as part of major
overhaul of outage
systems and processes
•Supported by new
Security Operations
Centre, developed via
partnerships with global
leaders in cyber security
•Commitment to
replace every tree
removed from network
with two native trees
•Launched September
2018 with more than
15,000 trees planted
as part of launch
•First New Zealand
corporate to receive
Accessibility Tick, a
public recognition of
an organisation’s
ongoing
commitment to
becoming
accessible and
inclusive of people
with disabilities
•Global media coverage
of Vector Lights and
Sky Tower lighting up
the first major city in
world to welcome 2019
Urban Forest launched
Outage Centre launched
Accessibility Tick
Vector Lights
•During H1 TRIFR
decreased by 17% and
LTIFR decreased by
59%
Safety Always
‹#›
FINANCIAL
PERFORMANCE
9
676.2
250.0
182.7
79.0
236.0
82.5
688.6
264.7
201.1
83.3
219.1
82.5
RevenueAdjusted EBITDACapital ExpenditureNet ProfitOperating Cash FlowHalf Year Dividend
H1 2019 FINANCIAL PERFORMANCE ($M)
H1 2018
H1 2019
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 page27 of this presentation.
+1.8%+5.9%+5.4%-7.2%+10.1%
+0.0%
From 1 July 2018 we adopted IFRS 15/16
and changed the accounting treatment of
gains/losses on disposal of fixed assets.
Excluding these accounting changes,
comparable adjusted EBITDA would be
$260m (up 4%). Comparatives not
adjusted. See Appendix for more detail.
10
EARNINGS GROWTH ACROSS ALL BUSINESS SEGMENTS
250.0
264.7
+3.7
+1.6
+7.3
-2.6
+4.6
+0.1
H1 2018Regulated
Networks
Gas TradingTechnologyCorporateAccounting
change: IFRS
Accounting
change: Loss on
disposal
H1 2019
H1 2019 ADJUSTED EBITDA MOVEMENT ($M)
Higher volumes
due to increase in
connections and
colder winter
Driven by
smart meter
growth
Prior year
one-offs and
additional
investment in
Digital
From 1 July 2018 we have adopted new accounting standards on revenue and leasing (IFRS 15/16) and changed the treatment of gains/losses on disposal of fixed assets
More detail on these changes is available on slide 26
Higher Kapuni
production, higher
gas liquid sales &
bottle swap cost
efficiencies
Comparable segment earnings +$10.0mAccounting changes +$4.7m
11
NPATUP 5.4% WITH GROWTH IN EARNINGS & CAPITAL
CONTRIBUTIONS OFFSET BY HIGHER DEPRECIATION & INTEREST
79.0
83.3
+7.2
+5.1
+3.3
-2.5
-0.7
-4.8
-3.1
-0.2
H1 2018Earnings
excluding
accounting
changes
Capital
Contributions
EarningsDeprecation &
Amortisation
InterestDepreciation &
Amortisation
InterestOtherH1 2019
MOVEMENT IN NET PROFIT AFTER TAX ($M)
IFRS 15/16 Accounting Change
All items above are net of tax.
“Other” includes tax provision release, associates and fair value change on financial instruments
The impact of the IFRS 15/16 accounting change is shown in more detail on slide 26
Increase is driven by
growth in asset base,
amortisation of
intangible, accelerated
depreciation and
increase in loss on
disposal of fixed assets
Driven by additional
borrowing ($1.4m) &
movement in non
cash unrealised FX
losses ($2.0m)
Increase is due to
growth in sub-
division activity and
infrastructure
development in
Auckland
Post tax impact
of IFRS 15/16
accounting
change
12
CAPEX DRIVEN BY AUCKLAND GROWTH &
METER DEPLOYMENT IN AUSTRALIA
$119.6m
65%
$10.6m
6%
$40.2m
22%
$12.3m
7%
$125.0m
62%
$6.0m
3%
$62.2m
31%
$7.9m 4%
GROSS CAPEX BY SEGMENT
Regulated Networks
Gas Trading
Technology
Corporate
H1 2018
H1 2019
148.5
159.9
34.2
41.2
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
H1 2018H1 2019
GROSS CAPITAL EXPENDITURE ($m)
Net capexCapital contributions
•Gross capex up 10.1% to $201.1m. Net capex (after deductingcontributions) up 7.7% to $159.9m
•Growth capex up 13.4% to $122.6m. Replacement capex up 5.2% to $78.5m
13
BBBCREDIT RATING FURTHER SUPPORTED BY S&P’S
RE-ASSESSMENT OF NZ REGULATORY REGIME
2,6252,6822,7452,7411,9331,9682,2202,2532,3782,449
52.5%
52.9%
53.6%
53.4%
43.7%
43.9%
47.1%
47.3%
48.8%
49.6%
Jun 14Dec 14Jun 15Dec 15Jun 16Dec 16Jun 17Dec 17Jun 18Dec 18
NET ECONOMIC DEBT & GEARING ($M)
Net economic debt ($m)Gearing
•Economic gearing as at 31 December 2018 at 49.6%
•GBP bonds, issued during GFC, matured in January
•Following S&P's re-assessment of the Regulatory Framework score for NZ Regulated Utilities, we can
now operate within a lower range of financial metrics for our current BBB rating
350
297
150
251
277
138
286
355
300
325
240
307
FY19FY20FY21FY22FY23FY24FY25FY26FY27FY28FY29FY30
GROUP DEBT MATURITY ($M)
Credit Wrapped Floating Rate NotesUSPP
GBP BondsBank Facilities
NZ Wholesale BondPerpetual Capital Bonds
14
SEGMENT PERFORMANCE
15
NETWORK EARNINGS BENEFIT FROM HIGHER VOLUMES
3,003
3,780
3,916
4,583
6,090
5,160
1,499
1,550
1,538
1,907
1,656
1,669
H1 2014H1 2015H1 2016H1 2017H1 2018H1 2019
NEW CONNECTIONS
ElectricityGas
192.7
198.7
-2.0
7.3
-1.0
-0.6
2.3
H1 2018Gas RevenueElectricity
revenue (net of
passthrough)
Higher
Maintenance
OtherAccounting
Changes*
H1 2019
ADJUSTED EBITDA MOVEMENT ($M)
Regulated
Networks
Segment
•Earnings uplift largely driven by higher electricity
volumes, up 0.9% to 4,390 GWh
–Volume growth coming from residential
–Driven by ongoing connection growth and average
household consumption, which appears to have
stabilised after a decade of decline
•New connections for H1 down 11.8% to 6,829
–567,009 electricity connections (up 1.3%)
–110,489 gas connections (up 2.0%)
–H1 new connections remain circa 50% higher than 5
years ago
•Gas volumes flat at 7.7 PJ. Gas revenue impacted by
regulatory price reset of -14% from 1 October 2017
•Increase in maintenance focused on improving
network reliability and reducing SAIDI
•Capital contributions up 21.9% to $41.2m driven by
Auckland infrastructure development
* Adoption of IFRS 15/16 from 1 July 2018. Impact for H1 is $1.2m. In addition, the prior year included a loss on disposal of($1.2m) as part of operating expenses. In the current period,
gains/losses on disposal of fixed assets have been classified to depreciation with a loss of ($0.9m) recorded in the period. Comparatives for both changes have not been restated.
16
SOLID PERFORMANCE BY GAS TRADING
IN A CHALLENGING MARKET
18.4
20.7
-1.2
2.5
0.3
0.7
H1 2018Natural GasGrowth in LPG
and Liquids
OtherAccounting
Changes*
H1 2019
ADJUSTED EBITDA MOVEMENT ($M)
Gas Trading
Segment
358
352
320
302
266
229
203
158
301
284
248
240
200
185
155
FY19FY18FY17FY16FY15FY14FY13FY12
BOTTLE SWAP VOLUMES (‘000 cylinders)
H1H2
•Challenging market conditions for Natural Gas business
–Natural gas volumes fell 9.4% to 8.7 PJ
–Planned and unplanned gas field outages in H1 reduced
supply
–Some of our customers faced significant disruption as a
result, and we worked hard to help them mitigate their
exposure
•Strong performance in Liquids & LPG
–Gas liquid sales up 8.0% to 44,020 tonnes
–Bottle Swap growth slowing (volumes up 1.8% on prior
period) but we are now benefitting from cost efficiencies at
the new plant
•Growth in H1 will not carry into H2, due to loss of a large
natural gas customer and rising natural gas costs
* Adoption of IFRS 15/16 from 1 July 2018. Impact for H1 is $0.7m. In addition, the prior year included a loss on disposal of($0.1m) as part of operating expenses. In the current period,
gains/losses on disposal of fixed assets have been classified to depreciation with a gain of $0.1m recorded in the period. Comparatives for both changes have not been restated.
17
TECHNOLOGY RESULT DRIVEN BY SMART METER ROLLOUT
64.7
72.9
5.6
1.6
0.1
0.9
H1 2018Additional Smart
Meters in NZ
Additional Smart
Meters in Australia
OtherAccounting
Changes*
H1 2019
ADJUSTED EBITDA MOVEMENT ($M)
Technology
Segment
•Smart meter fleet now 1.48 million (owned &
managed)
–Deployed 45,435 smart meters in Australia in H1. On
track to install 90 -100k meters in FY19
–NZ smart meter base increased by 29,480 (net of
replacements) over H1
–Vircomacquired in September 2018. Integration well
advanced.
•PowerSmartperforming well with a strong
pipeline of projects across NZ and the Pacific
•E-Co performance remains below expectations.
New CEO and management team working to
refocus & reposition the business to meet the
growing demand for energy efficient HVAC
solutions
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
MONTHLY SMART METER DEPLOYMENT
Australia Smart Meters DeployedNZ Smart Meters Deployed
* Adoption of IFRS 15/16 from 1 July 2018. Impact for H1 is $2.0m. In addition, the prior year included a gain on disposal of$1.1m as part of operating expenses. In the current period,
gains/losses on disposal of fixed assets have been classified to depreciation with a loss of ($0.5m) recorded in the period. Comparatives for both changes have not been restated.
18
OUTLOOK
•Auckland growth continues
−Still targeting c11,000 new electricity connections in FY19 (YTD of 5,160)
−Connections & infrastructure activity remain elevated, necessitating significant capital expenditure.
−Indexation of the regulated asset base pushes the recovery of this investment to the back-end of the regulatory asset life
•Smart meter deployment on track to achieve the targets previously communicated
−Targeting 70k smart meters in NZ & 90 -100k smart meters in Australia in FY19
•August guidance for adjusted EBITDA remains appropriate
−August guidance of $470–$480m did not include impact of accounting changes
1
, which will increase FY19 adjusted EBITDA by c$10m
−Guidance range adjusted for impact of accounting changes therefore $480-$490m
−H1 benefited from good electricity volumes. If this continues in H2, we would expect to be towards the top end of guidance
•Impact of 2020 electricity reset will be known by the end of November 2019
−Regulatory WACC for DPP3 effectively known by 31 August 2019
−Draft Network allowances and quality targets published on 31 May. Final decision on 28 November
−Current interest rate forecasts result in a WACC for DPP3 of c5.3%
1
Adoption of IFRS 15/16 and change to treatment of gains/losses on disposal of fixed assets
19
Q&A
ANY QUESTIONS?
20
APPENDICES
21
5 YEAR ADJUSTED EBITDA PERFORMANCE BY SEGMENT
H1 2015H1 2016H1 2017H1 2018H1 2019
Regulated Networks
191.3196.4195.7192.7198.7
Gas Trading
29.325.223.718.420.7
Technology
49.757.060.564.772.9
Corporate
-25.5-25.1-22.9-25.8-27.6
Total Group
244.8253.5257.0250.0264.7
244.8
253.5
257.0
250.0
264.7
Adjusted EBITDA
$million
For the half year ended 31 December
22
GROUP PROFIT STATEMENT
HALF YEAR ENDED 31DECEMBER ($M)
INCOME STATEMENT
H1 2019
$m
H1 2018
$m
Change
%
Revenue (excluding capitalcontributions)
647.4642.0+0.8
Operatingexpenditure(382.7)(392.0)+2.4
AdjustedEBITDA264.7250.0+5.9
CapitalContributions41.234.2+20.5
Depreciationandamortisation(119.9)(109.6)-9.4
Netinterestcosts(71.7)(66.4)-8.0
Fairvaluechangeonfinancialinstruments(0.2)2.8n/a
Associates(shareofnetprofit/(loss))0.5(0.1)n/a
Tax(31.3)(31.9)+1.9
Netprofitfortheperiod83.379.0+5.4
23
GROUP CASH FLOW
HALF YEAR ENDED31 DECEMBER ($M)
CASH FLOW
H1 2019
$m
H1 2018
$m
Operating cash flow
219.1236.0
Replacement capex
(81.5)(75.2)
Dividendspaid(80.6)(80.3)
Cashavailableforgrowthanddebtrepayment57.080.5
Growthcapex(121.2)(109.6)
Otherinvestmentactivities(3.3)(15.7)
Predebtfinancingcashinflow(67.5)(44.8)
Proceedsfromborrowings70.0435.8
Repaymentofborrowings0.0(400.0)
Otherfinancingactivities(3.9)12.0
Increase/(decrease)incash(1.4)3.0
24
SEGMENT RESULTS
HALF YEAR ENDED 31 DECEMBER ($M)
REGULATED NETWORKSTECHNOLOGYGAS TRADINGCORPORATE
H1 2019H1 2018Change %H1 2019H1 2018Change %H1 2019H1 2018Change %H1 2019H1 2018Change %
Revenue excluding
CapitalContributions
361.9358.9+0.8137.0133.5+2.6152.9153.5-0.40.20.8-75.0
Operating expenditure
(163.2)(166.2)+1.8(64.1)(68.8)+6.8(132.2)(135.1)+2.1(27.8)(26.6)-4.5
Segment Adjusted
EBITDA
198.7192.7+3.172.964.7+12.720.718.4+12.5(27.6)(25.8)-7.0
CAPEX
Replacement 63.463.7-0.56.94.3+60.53.62.8+28.64.63.8+21.1
Growth 61.655.9+10.255.335.9+54.02.47.8-69.23.38.5-61.2
Total capex125.0119.6+4.562.240.2+54.76.010.6-43.47.912.3-35.8
25
SEGMENT ADJUSTED EBITDA
SEGMENTADJUSTED EBITDA ($m)
H1 2019H1 2018
Half yearended 31 December
Reported
segment EBITDA
less capital
contributions
Segment
adjusted EBITDA
Reported
segment EBITDA
less capital
contributions
Segment
adjusted EBITDA
Technology
72.9-72.965.1(0.4)64.7
Gas Trading
20.7-20.718.4-18.4
Unregulated Segments
93.6-93.683.5(0.4)83.1
Regulated Networks
239.9(41.2)198.7226.5(33.8)192.7
Corporate
(27.6)-(27.6)(25.8)-(25.8)
TOTAL
305.9(41.2)264.7284.2(34.2)250.0
26
Change 1: From 1 July 2018, Vector has adopted two new accounting standards (IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases).
Of the two accounting standards, IFRS 16 poses the most significant financial impact in both the balance sheet and the profitand loss. IFRS 16 requires
that the present value of the outstanding liability for leases is calculated using Vector’s incremental borrowing rate at the date of transition. The right of
use asset is then recognised and measured at a value equalling the lease liability, adjusted for lease incentives recorded onthe balance sheet. Under the
modified retrospective approach, the H1 2018 comparatives are not restated. The impact on the profit and loss statement is a reduction in the amount of
operating expense reported, offset by an increase in depreciation and interest. The impact for the six months ending 31 December2018 is a reduction to
operating expense of $4.0m and an increase to depreciation of $3.5m and interest cost of $1.0m. The impact of IFRS 15 is an increase to revenue of
$0.6m
Change 2: Vector has also reassessed the presentation of gains and losses on disposal of fixed assets within our statement of profit and loss. Historically,
disposal gains and losses have been included within ‘Operating Expenses’. Disposal gains/losses are also included within the group’s non-GAAP profit
measures of EBITDA and adjusted EBITDA. From 1 July 2018 we have included disposal gains and losses with depreciation and amortisation. In the six
months ending 31 December 2018, $1.4 million has been reclassified from Operating Expenses to Depreciation and Amortisation. TheH1 2018
comparatives are not restated. Prior year comparative value was $0.1m.
IMPACT OF ACCOUNTING CHANGES IN H1 2019
Segment
(A)
Prior year
reported H1
2018 Segment
Adjusted
EBITDA
(B)
Change 1:
Impact of
adoption of
IFRS 15/16
(C)
Change 2:
H1 2018
gain/(loss) on
disposal of
fixed assets
(D)= (B) + (C)
Total Impact of
changes on
comparables
(E)
H1 2019
Segment
adjusted
EBITDA post
accounting
changes
(F) = (E) –(D)
Comparable
1
Segment
adjusted
EBITDA
H1 2019
Note: Re-
Classification
of H1 2019
gains/losses
on disposal to
Depreciation
Regulated Networks192.7 1.21.22.3198.7 196.30.9
Gas Trading18.4 0.7 0.10.720.7 20.0(0.1)
Technology64.7 2.0 (1.1)0.972.9 72.00.5
Corporate(25.8) 0.7 0.00.7(27.6) (28.3)0.0
Adjusted EBITDA250.0 4.6 0.14.7264.7 260.01.4
Depreciation and
Amortisation(3.5) (1.4)
Finance Cost(1.0)
1
Comparable segment adjusted EBITDA excludes the impact of the two accounting changes
27
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 from continuing
operations.
Adjusted EBITDA
EBITDA from continuing operations 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
Half year ended 31 December
H1 2019
$M
H1 2018
$M
Reportednet profit for the period (GAAP)
83.379.0
Addback:netinterestcosts
1
71.766.4
Addback:tax(benefit)/expense
1
31.331.9
Addback:depreciationandamortisation
1
119.9109.6
EBITDA306.2286.9
Adjustedfor:
Associates (share of net(profit)/loss)
1
(0.5)0.1
Fair value change on financial instruments
1
0.2(2.8)
CapitalContributions
1
(41.2)(34.2)
AdjustedEBITDA264.7250.0
---
APPENDIX 7 – NZSX Listing Rules
Number of pages including this one
(Please provide any other relevant
NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10. details on additional pages)
For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required.
Full name
of Issuer
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
Contact fax
numbernumber
Date
Nature of event
BonusIf ticked,
Rights Issue
Tick as appropriate
Issue
state whether:Taxable
/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
X
whether:
Interim
X
YearSpecialDRP Applies
EXISTING securities affected by this
If more than one security is affected by the event, use a separate form.
Description of theISIN
class of securities
If unknown, contact NZX
Details of securities issued pursuant to this eventIf more than one class of security is to be issued, use a separate form for each class.
Description of theISIN
class of securities
If unknown, contact NZX
Number of Securities toMinimum
Ratio, e.g
be issued following eventEntitlement
1 for 2 for
Conversion, Maturity, Call
Treatment of Fractions
Payable or Exercise Date
Tick if
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
Strike Price available.
ranking
Monies Associated with Event
Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money.
Source of
Amount per security
Payment
(does not include any excluded income)
Excluded income per security
(only applicable to listed PIEs)
Supplementary
Amount per security
Currencydividendin dollars and cents
details -
NZSX Listing Rule 7.12.7
Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
Imputation Credits
issue state strike priceWithholding Tax(Give details)
Foreign
FWP Credits
Withholding Tax(Give details)
Timing
(Refer Appendix 8 in the NZSX Listing Rules)
Record Date 5pmApplication Date
For calculation of entitlements -Also, Call Payable, Dividend /
Interest Payable, Exercise Date,
Conversion Date. In the case
of applications this must be the
last business day of the week.
Notice DateAllotment Date
Entitlement letters, call notices,For the issue of new securities.
conversion notices mailedMust be within 5 business days
of application closing date.
OFFICE USE ONLY
Ex Date:
Commence Quoting Rights:Security Code:
Cease Quoting Rights 5pm:
Commence Quoting New Securities:Security Code:
Cease Quoting Old Security 5pm:
$
29 March, 201911 April, 2019
$82,500,000
Date Payable
$$0.005729$0.032083
In dollars and cents
Retained Earnings
$0.08250
$0.00000
NZD$0.014559
Enter N/A if not
applicable
ORDINARY SHARESNZVCTE0001S7
EMAIL: announce@nzx.com
Notice of event affecting securities
Vector Limited
John RodgerDIRECTORS RESOLUTION
09 978 78522622019
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.