VCT
26/02/2016 08:31
HALFYR
PRICE SENSITIVE
REL: 0831 HRS Vector Limited
HALFYR: VCT: Vector FY16 Interim Results
FINANCIAL RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2015
Leading energy industry change
Vector's earnings rise as new technology, business transformation and strong
cost control accelerates drive towards a new energy future; business on track
to achieve full-year guidance
HIGHLIGHTS:
- Adjusted EBITDA , rises 6.3% to $305.9 million from $287.9 million, whilst
revenue falls 3.5% to $663.0 million from $687.1 million
- Vector benefits from growth in Auckland and metering, strong cost control
across the regulated businesses and price increases in Gas Transportation
- Net profit rose 14.7% to $100.1 million from $87.3 million, due to
increased operating earnings and positive mark-to-market derivative
adjustments, partially offset by higher depreciation
- New Zealand smart meter fleet exceeds one million and Vector gained
accreditation to operate as a metering services provider in Australia
- Won the Tomorrow's Workforce and the Supreme Award at the EEO Diversity
Awards
- Sale of Vector Gas (which owns the gas transmission and non-Auckland gas
distribution businesses) approved by shareholders before Christmas
- Absent the sale, the business is performing in line with August guidance
for the year to 30 June 2016 of adjusted EBITDA, excluding capital
contributions, of $550 million to $565 million
- Interim dividend rises to 7.75 cents per share with a record date for
dividend entitlements of 31 March 2016 and a payment date of 14 April 2016
New Zealand's leading energy infrastructure company Vector Limited today
reports improved earnings for the six months to 31 December 2015 and good
progress positioning itself for the significant growth opportunities it sees
emerging from new technologies and growth in Auckland.
Group half-year revenue fell 3.5% to $663.0 million from $687.1 million on
the back of lower volumes at the Gas Trading division. Adjusted EBITDA rose
6.3% to $305.9 million from $287.9 million, with the company's Technology,
Gas Transportation and Electricity businesses offsetting the effects of the
tough conditions faced by the Gas Trading segment.
Adjusted EBITDA across our regulated businesses rose 6.2% to $248.8 million
from $234.3 million supported by growth in connections and energy volumes in
Auckland, regulated price increases in the Gas Transportation business and a
strong focus on cost control.
Adjusted EBITDA across our unregulated businesses rose 3.9% to $82.2 million
from $79.1 million, with ongoing growth in the New Zealand metering business
offsetting the costs associated with the push into Australia and the
well-signalled weakness in the Gas Trading business.
Operating cash flow increased 22.4% to $248.8 million from $203.3 million,
reflecting the improved earnings and the timing of tax payments.
Net profit rose 14.7% to $100.1 million from $87.3 million, due to increased
operating earnings, and positive mark-to-market derivative adjustments,
partially offset by higher depreciation.
Vector Chairman Michael Stiassny said: "Vector has made considerable progress
in the half year. We have reported improved earnings for the six months - a
period during which we successfully negotiated the $952.5 million sale of
Vector Gas, which owns the company's gas transmission business and its gas
distribution business outside Auckland.
"This sale realises full value for the business and allows Vector to repay
debt and recycle capital into higher growth opportunities. Meanwhile we have
benefited from continued growth in Auckland, and made significant progress in
areas we have identified for future growth such as metering in Australia,
electric vehicle charging infrastructure and batteries.
"These gains have been diluted by the ongoing challenges for the Gas Trading
business. Should the trading outlook for this business continue to weaken, we
will carefully review the carrying value of the Gas Trading assets and
goodwill at year-end.
"Vector's balance sheet is strong with gearing as at 31 December 2015 at
53.4% up slightly from the 52.9% achieved twelve months earlier. Gearing will
reduce substantially following the completion of the sale of Vector Gas and,
as set out at our special meeting in December, we expect to retain our
investment grade credit rating following completion of the sale."
"The Vector Board has today declared a fully-imputed interim dividend of 7.75
cents per share up 0.25 cents on the prior year's interim dividend. This
increase reflects directors' confidence in the financial strength of Vector
following the sale of Vector Gas."
The record date for dividend entitlements is 31 March 2016 and the payment
date is 14 April 2016.
"Vector is looking forward to the remainder of the year with confidence.
Absent the sale of Vector Gas, the Group is performing in line with our
previous guidance for adjusted EBITDA, excluding capital contributions, of
$550 million to $565 million," Mr Stiassny said.
"However, the final result for the year to 30 June 2016 will be impacted by
the timing of the sale of Vector Gas, which is now conditional only upon
approval by the Overseas Investment Office. We are targeting completion to
occur by the end of March."
RESULTS SUMMARY
Six months ended 31 December 2015
$M 2014
$M Change
(%)
Revenue 663.0 687.1 -3.5
Adjusted EBITDA 305.9 287.9 +6.3
Net profit 100.1 87.3 +14.7
Operating cash flow 248.8 203.3 +22.4
Dividend per share (cents) 7.75 7.5 +3.3
Vector Group Chief Executive Simon Mackenzie said: "We see significant
potential emerging across the energy infrastructure sector from customers'
ever-increasing demands for greater choice and improved service and the
ongoing and rapid advances in technology. In addition, continued growth in
Auckland presents numerous attractive opportunities on our core energy
distribution businesses.
"Vector's strategy to make the most of these trends is to create a new energy
future, by leveraging our heritage and creating options. This means taking
advantage of the strong position we occupy as an Auckland-centric provider of
energy infrastructure and by identifying and developing options that will
deliver value, choice and service for our customers and improve shareholder
returns.
"The most tangible evidence of this strategy over the past six months has
been negotiating the $952.5 million sale of Vector Gas, which owns the
group's gas transmission pipelines as well as gas distribution networks
across six regions in the North Island outside of Auckland.
"This sale, which shareholders approved before Christmas, will allow us to
recycle capital into attractive growth opportunities and allow us to begin to
earn a return on the significant goodwill on our balance sheet currently
allocated to Vector Gas. This goodwill is not recognised by the Commerce
Commission when it sets our allowable return.
"Meanwhile, we have made significant progress positioning the company for the
future.
"In January, we achieved a significant milestone in Australia when the
Australian Energy Market Operator granted us accreditation to operate as a
Metering Provider and Metering Data Provider in the National Electricity
Market.
"This accreditation allows us to provide metering services to energy
retailers in the contestable residential metering market. It was the
culmination of two years of hard work to meet Australia's stringent
requirements and required Vector to demonstrate a full operating capability
in Australia, including the establishment of a new office in Melbourne.
"We are well positioned to make the most of the considerable potential we see
across the Tasman, not least because the move builds on our position as the
leading provider of advanced metering services in New Zealand, where we now
operate a fleet of more than one million smart meters.
"While still at an early stage, our expansion into the provision of electric
vehicle (EV) charging infrastructure is gaining momentum.
"With the support of our major shareholder the Auckland Energy Consumer Trust
(AECT) we have installed two rapid chargers at our Hobson Street substation,
two rapid chargers and a standard charger at our Newmarket substation, and
standard chargers at Britomart and at our headquarters in Newmarket. We have
plans to deploy another 17 rapid chargers across our network over the coming
months.
"In January we received our first significant shipment of Tesla Energy
Powerwall batteries, one of the first shipments of these batteries to be
delivered to a customer outside of the US.
"Among the first to receive these batteries in New Zealand will be the
winners of the Future of Energy competition, which we ran last year also with
the support of the AECT. The programme will give deserving Auckland families,
schools and community groups solar and battery units to use for free for 10
years. The first installations will occur in the coming months.
"We also intend to install a Tesla Energy Powerpack utility-scale battery
into one of our zone substations later this year. The battery will store
power generated during periods of low demand and discharge power when demand
is high. It is promising to be a more cost-effective solution than relying on
traditional feeder circuit upgrades to meet electricity demand from the
surrounding suburbs.
"These initiatives, which we expect to show how new technologies can augment
traditional networks, highlight the benefits of our move in 2014 to create a
team dedicated to enhancing growth through innovative customer solutions and
technology.
"We are currently focussed on rolling out these new technologies inside our
own network. The installations will then provide important reference sites
as we look to rollout more widely across our own and other networks.
"Across Vector's energy networks we are taking advantage of new data analysis
technologies to understand customers, target new capital investment
opportunities and respond to the significant change we are seeing in the
sector. Such tools will be a key enabler of our future development.
"SAIDI, our measure of electricity network service quality, was 78.3 minutes
(excluding extreme events) for the nine months to 31 December 2015, an
improvement on the 126.7 minutes posted for the same period last year.
"This is a creditable result especially given our reduction in 'live-line'
work as part of our drive for better health and safety outcomes across the
business. That said Vector continues to believe the new SAIDI target set by
the Commerce Commission for the 2015-2020 Default Price-Quality Path will be
challenging.
"We have acknowledged the disruption caused by the 2014 fire at Transpower's
Penrose substation, which along with unusually stormy weather weighed on the
previous corresponding period's SAIDI figures . We have offered a service
level payment to impacted customers. The claims window, which closes 4 March
2016 allows impacted customers to make a claim by calling 0508 4 PENROSE or
by going online to www.vector.co.nz.
"Meanwhile, we are continuing to have positive discussions with the Commerce
Commission over the unique challenges Vector faces as a provider of essential
infrastructure to Auckland.
"As we have noted before, Vector needs a regulatory solution that recognises
customer demands for choice, Auckland's significance to the broader economy
and the unique challenges we face as we provision for growth in the region.
"The rapid technological change sweeping the energy distribution industry
increases the risk that investments could be made redundant even before
investors have recovered their capital.
"Additionally, the capital required to provide for Auckland's growth is
significant. In the coming 10 years Vector has forecast that around $1.8
billion of capital investment will be required for the city's energy
networks.
"Our discussions with the regulator cover this year's review of the input
methodologies as well as arrangements ahead of the next gas distribution
regulatory reset in 2017 and the next electricity distribution regulatory
reset in 2020.
"Looking forward, we continue to review the configuration of our business and
expenditure particularly in light of the Vector Gas sale and the new growth
opportunities we have identified. Around 130 staff will transition to Vector
Gas' new owner, First State Funds, and Vector has agreed to provide
transitional services to First State Funds for up to 9 months following
completion.
"Our active and broad ranging programme of safety leadership and training
throughout the business continues and has ensured we are well positioned for
the Health and Safety at Work Act, which comes into full effect in April of
this year.
"Our focus on promoting diversity and inclusion has been recognised for
providing leadership in New Zealand. We were delighted to be announced the
winner of the Supreme award at the Equal Employment Opportunities Trust
Diversity Awards in August 2015 as well as the winner of the Tomorrow's
Workforce award, which recognises innovative responses to tackling future
labour force challenges.
"We continue to engage positively with key stakeholders, including our
shareholders, our employees, our contractors, our business partners and
regulators, to ensure continued improvement in all aspects of our business.
Vector is in good shape and we are excited about the opportunities we see
ahead of us," Mr Mackenzie said.
SEGMENT RESULTS
Six months ended 31 December
2015
$M 2014
$M Change
(%)
Technology
Revenue 88.5 76.0 +16.4
Adjusted EBITDA 57.0 49.8 +14.5
Gas Trading
Revenue 151.4 185.9 -18.6
Adjusted EBITDA 25.2 29.3 -14.0
Electricity
Revenue 344.3 350.8 -1.9
Adjusted EBITDA 173.7 170.8 +1.7
Gas Transportation
Revenue 103.4 96.1 +7.6
Adjusted EBITDA 75.1 63.5 +18.3
Shared Services
Revenue 0.2 0.3 -33.3
Adjusted EBITDA (25.1) (25.5) +1.6
UNREGULATED BUSINESSES:
TECHNOLOGY: Smart meter roll out continues to drive growth but establishment
costs in Australia and business development expenditure dilute gains
Technology division revenue rose 16.4% to $88.5 million from $76.0 million a
year earlier, while adjusted EBITDA rose 14.5% to $57.0 million from $49.8
million.
The division benefited from a significantly higher installed smart meter
base. This was due to the acquisition of Arc Innovations and an increase in
the rate of deployment of smart meters, with 86,467 new smart meters
installed over the six month period, up from 71,385 in the prior
corresponding period.
This rate of deployment is expected to continue at least over the next 6
months and we expect to deploy approximately 170,000 meters (including
SmartCo and replacement meters) in the course of the financial year.
Vector Communications has meanwhile delivered an improved result and is
growing its market share within its network footprint.
Ongoing business development expenditure related to Australian metering,
batteries, solar solutions and home energy management systems diluted these
gains.
GAS TRADING: Challenging trading environment continues
Revenue at the Gas Trading division fell 18.6% to $151.4 million from $185.9
million a year earlier, while adjusted EBITDA fell 14% to $25.2 million from
$29.3 million as the division faces a challenging trading environment.
Natural gas volumes continued to decline, falling 27.2% to 9.1 PJ from 12.5
PJ. This reflected a reduction in demand from gas fired electricity
generators and the end to some entitlements to Maui gas. This was partially
offset by an increase in volume sold to industrial and commercial customers.
Continued weakness in the price for natural gas in New Zealand has weighed on
margins. Additionally, EBITDA was impacted by lower production and lower
processing fees at the Kapuni Gas Treatment Plant (KGTP) and lower natural
gasoline and LPG prices. Liquigas' tolled volumes fell 12.8% to 86,868 tonnes
from 99,628 tonnes, largely due to fewer exports, as lower international
prices made exports less attractive to Liquigas customers.
In September 2015, Vector received an arbitral award regarding the price and
terms for the next tranche of Kapuni gas which it has been taking since July
2013. The award was broadly in line with the amounts the company provided for
in its accounts.
Todd Petroleum Mining Company Limited and Shell (Petroleum Mining) Company
Limited have subsequently applied to the High Court to set aside certain
parts of the award, and for leave from the High Court to appeal certain parts
of the award. Vector is opposing both applications.
The Kapuni field redetermination process and the KGTP processing fee
proceedings are continuing.
Bottle swap volumes continued to increase with volumes 13.7% higher at
302,109 from 265,662 a year earlier, supporting our decision to invest in a
new bottling facility in South Auckland.
REGULATED BUSINESSES
ELECTRICITY: Auckland continuing to deliver connection and volume growth
Electricity division revenue fell 1.9% to $344.3 million from $350.8 million
a year ago while adjusted EBITDA rose 1.7% to $173.7 million from $170.8
million. Revenue for the half year was impacted by lower pass through costs,
partially offset by volume growth. Additionally, the prior corresponding
period's revenue was higher due to one-off prior period adjustments.
Volumes transported across the network grew 0.7% to 4,368 GWh from 4,337 GWh,
driven by cooler winter temperatures and a 3.6% increase in new connections
to 3,916 over the six month period, maintaining the historically high level
of connection activity seen in the prior corresponding period. Total
connections to the network at the end of the half year stood at 547,319, up
0.9% from 542,329 a year ago.
Costs were controlled, with expenditure (excluding pass through costs) $4.5
million less than the prior corresponding period.
GAS TRANSPORTATION: Price increases and Auckland growth lift earnings
Gas Transportation revenue rose 7.6% to $103.4 million from $96.1 million a
year ago, while adjusted EBITDA rose 18.3% to $75.1 million from $63.5
million.
The segment benefited from regulated price increases. Transmission volumes
declined 4.0% to 55.7 PJ from 58.0 PJ, largely due to a reduction in demand
from gas-fired electricity generators.
The gas distribution business benefited from a 4.1% increase in volumes
year-on-year, reflecting a 3,088 increase in connections to 164,840 from
161,752 a year earlier and a return to cooler winter temperatures in line
with historic averages.
Following the agreement to sell Vector Gas to First State Funds, the gas
transmission and non-Auckland gas distribution assets are now categorised as
held for sale and so we have ceased depreciation of these assets.
CAPITAL EXPENDITURE
Overall capital expenditure is largely consistent with the prior
corresponding period.
Six months ended 31 December 2015
$M 2014
$M Change
(%)
Electricity
Growth 28.4 35.1 -19.1
Replacement 40.5 36.9 +9.8
68.9 72.0 -4.3
Gas Transportation
Growth 14.1 11.8 +19.5
Replacement 8.6 11.2 -23.2
22.7 23.0 -1.3
Gas Trading
Growth 1.5 1.6 -6.3
Replacement 3.3 3.0 +10.0
4.8 4.6 +4.3
Technology
Growth 44.6 42.8 +4.2
Replacement 5.4 5.0 +8.0
50.0 47.8 +4.6
Shared Services
Growth 0.0 0.3 -100.0
Replacement 5.6 5.9 -5.1
5.6 6.2 -9.7
Total Group
Growth 88.5 91.6 -3.4
Replacement 63.5 62.0 +2.4
152.0 153.6 -1.0
Capital contributions
Electricity 19.2 17.5 +9.7
Gas Transportation 4.3 6.1 -29.5
Technology 0.3 1.9 -84.2
23.8 25.5 -6.7
Total group capex (net of capital contributions) 128.2 128.1 +0.1
For further information contact:
Investors: Media:
Dan Molloy Sandy Hodge
Chief Financial Officer External Communications Manager
Tel: +64 9 213 5179 Tel: +64 9 978 7638
Mob: +64 21 441 311 Mob: +64 21 579 522
About Vector: (www.vector.co.nz)
Vector is New Zealand's leading multi-network infrastructure company which
delivers energy and communication services to more than one million homes and
businesses across the country. The company owns and manages a unique
portfolio of businesses, which consists of electricity and gas distribution,
electricity and gas metering installations and data management services,
natural gas and LPG, fibre optic networks and solar and battery solutions.
The company has conditionally agreed to sell its gas transmission business
and its gas distribution businesses outside Auckland. Vector is listed on
the New Zealand Stock Exchange with ticker symbol VCT. Our majority
shareholder, with a 75.1% stake, is the Auckland Energy Consumer Trust
(AECT).
APPENDIX: NON-GAAP PROFIT REPORTING MEASURES
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 from or considered as a substitute for measures reported
by Vector in accordance with NZ IFRS.
In this period we have amended our definition of adjusted EDITDA to exclude
capital contributions.
Definitions
EBITDA Earnings before interest, taxation, depreciation and
amortisation
Adjusted EBITDA EBITDA 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
Six months ended 31 December 2015 2014
$M $M
Reported net profit for the period (GAAP) 100.1 87.3
Add back: net interest costs1 90.0 90.2
Add back: tax (benefit)/expense1 39.6 35.1
Add back: depreciation and amortisation1 102.8 95.9
EBITDA 332.5 308.5
Adjusted for:
Associates (share of net (profit)/loss)1 (0.4) -
Fair value change on financial instruments1 (2.4) 4.9
Capital contributions1 (23.8) (25.5)
Adjusted EBITDA 305.9 287.9
Segment adjusted EBITDA Unregulated segments Regulated Segments
$M Technology Gas Trading Electricity Gas Transportation
Six months ended 31 December 2015 2014 2015 2014 2015 2014 2015 2014
Reported segment EBITDA1 57.3 51.7 25.2 29.3 192.9 188.3 79.4 69.6
less capital contributions1 (0.3) (1.9) - - (19.2) (17.5) (4.3) (6.1)
Segment adjusted EBITDA 57.0 49.8 25.2 29.3 173.7 170.8 75.1 63.5
Segment adjusted EBITDA subtotals Unregulated 82.2 79.1 Regulated 248.8 234.3
End CA:00278348 For:VCT Type:HALFYR Time:2016-02-26 08:31:09
