LEADERSHIP Chair and Group Chief Executive report
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,
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
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.
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