Vector Annual Report 2021

Creating a new energy future –

a bold vision ANNUAL REPORT 2021

Our vision

Creating a new energy future – a bold vision

isn’t linear.

In pursuing our vision over the past few years, we’ve had to be flexible and adaptable. We haven’t been afraid to challenge the status quo. As leaders of the transformation of the energy sector, we know the ‘same old’ just won’t cut it. We have the confidence to forge new solutions and for our people to work differently, to think differently. We have collaborated with global technology companies and thought leaders who share our view that innovation and digitalisation are key to meeting the future needs of energy systems and fast-evolving customer demands. As governments, businesses and consumers urgently take action to decarbonise, at Vector we are clear on our vision – creating a new energy future.

It’s bold.

VECTOR ANNUAL REPORT 2021 /

Creating a new energy future – a bold vision

Contents

Performance snapshot

Chair and Group Chief Executive report

Chief Financial Officer report

Our people and safety

Regulated networks

Gas trading

Metering

Our climate and sustainability

Our Board

Our management team

Governance report

Entrust, majority shareholder of Vector

Joint ventures and investments

Operating statistics

Financial performance trends

Non-GAAP financial information

Financials

Independent auditor’s report

Statutory information

Financial calendar and directory

106

About this report This report, dated 23 August 2021, is a review of Vector’s financial and operational performance for the year ended 30 June 2021. The financial statements have been prepared in accordance with appropriate accounting standards and have been independently audited by KPMG. The financial and operational information has been compiled in line with NZX Listing Rules and recommendations for investor reporting. The report has drawn from a wide range of information sources. This includes: our stakeholders, customers, communities, sustainability framework, value drivers, risk register, Board reports, asset management plan, financial statements and our operational reports. Throughout the report, we have focused on what matters most to our stakeholders and our business. Care has been taken to ensure all information in this report is accurate, including internal assurance and verification processes and Board approval. Forward-looking statements in this report are based on best- available information and assumptions regarding Vector’s businesses and performance, the economy and other future conditions, circumstances and results. As with any forecast, forward-looking statements are subject to uncertainty. Vector’s actual results may vary from those expressed or implied in these forward-looking statements.

VECTOR ANNUAL REPORT 2021 /

Performance snapshot

BUSINESS PERFORMANCE

680,099 NO. OF 9KG BOTTLE SWAPS $ 529.5 M GROSS CAPEX INVESTED ACROSS THE GROUP $ 513.5 M ADJUSTED EBITDA 1 $ 194.6 M GROUP NET PROFIT AFTER TAX

NEW ELECTRICITY CONNECTIONS OVER THE PAST 5 YEARS AUCKLAND’S GROWTH CONTINUES, WITH MORE NEW ELECTRICITY CONNECTIONS EACH YEAR

1.9 M ADVANCED METERS ACROSS NEW ZEALAND & AUSTRALIA 116,472 TOTAL GAS CONNECTIONS

590,799 TOTAL ELECTRICITY CONNECTIONS 10.9 % GROWTH IN EBITDA FOR OUR METERING BUSINESS

PEOPLE & COMMUNITIES

340,500 RESIDENTS IN THE ENTRUST DISTRICT BENEFITTED BY MORE THAN $95 MILLION (2020) THANKS TO ENTRUST’S SHAREHOLDING IN VECTOR 94 VECTOR LIGHTS SHOWS FOR THE PEOPLE OF AUCKLAND AND VISITORS

100+ TRAINED MENTAL HEALTH FIRST RESPONDERS

1. EBITDA from continuing operations adjusted for fair value changes, associates, third-party contributions, and significant one-off gains, losses, revenues and/or expenses. Refer to Non-GAAP reconciliation on page 44.

Creating a new energy future – a bold vision

CLIMATE CHANGE

12 % REDUCTION IN OUR CARBON FOOTPRINT IN THE PAST YEAR (SCOPE 1, 2, AND 3)

INNOVATION

2 NUMBER OF SUSTAINABLE ENERGY ASSOCIATION NZ AWARDS WON BY VECTOR POWERSMART

30 NUMBER OF HIGHLY SKILLED DIGITAL AND ENGINEERING ROLES CREATED ACROSS VECTOR AND AMAZON WEB SERVICES, BUILDING THE NEW ENERGY PLATFORM

CLOSE TO 200 PARTICIPANTS IN OUR EV SMART CHARGING TRIAL

SHAREHOLDER

16.75 CENTS PER SHARE FULL-YEAR DIVIDEND

VECTOR ANNUAL REPORT 2021 /

Chair & Group Chief Executive Report

Real progress with Symphony

SIMON MACKENZIE GROUP CHIEF EXECUTIVE

JONATHAN MASON CHAIR

The past twelve months have seen a dramatic sharpening of focus around the world and in New Zealand on climate change, and the efforts that will be required across the world to transition to a low emissions future. In New Zealand, the recommendations put forward by the Climate Change Commission illustrate that our energy system must rapidly shift to a more localised, consumer-centric model. Not only is our energy infrastructure critical to our daily lives, but also to our collective future through its role in enabling the decarbonisation of transport and industry. Legacy energy systems across the whole sector are increasingly unable to meet these new challenges, and must become vastly more sophisticated and adaptable. Vector is well advanced globally in developing and operating digital platforms to manage these changing requirements.

That’s why our vision is bold, because the path isn’t straight and we can’t rely on solutions of the past. Our Symphony strategy puts the customer at the centre of the energy system, using data analytics and technology to create new solutions and options to help people manage the transition to a low-carbon system. It will also result in a more affordable transition for customers, since the new solutions we deploy alleviate the pressure to invest in heavy infrastructure, and this has a beneficial flow-on effect on the prices our customers pay for the services we provide. Fundamentally, it is about creating customer choice, delivering decarbonisation at the same time as

This is a crucial time in our industry, and Vector is well positioned to respond to the challenges and opportunities decarbonisation will bring. We see this as an opportunity to do things differently; to be flexible, adaptable, and to innovate.

Creating a new energy future – a bold vision

Dividend This year, shareholders will receive a final dividend of 8.50 cents per share imputed at 10.5%, taking the full-year partially imputed dividend to 16.75 cents per share. The final dividend will be paid to investors who are on the register at 9 September 2021 and distributed to investors on 16 September 2021.

customers, and at a group level as we continue to reimagine what energy systems are capable of. We’ve also continued to look outside the energy sector to find other companies that can help us achieve our goals.

“Our long-standing vision to create a new energy future is also long-term in its aspiration. We are proud of the steps we are taking along the way.

LOOKING BACK Business performance This report contains separate

performance overviews and highlights of three of our key business segments; Regulated Networks, Gas Trading, and Metering. However, this year has also seen notable developments among our other businesses. We are excited by the establishment of Vector Technology Services (VTS). VTS will be focused on taking to market key proprietary solutions to accelerate and support other companies who are on their own digital transformation journeys to have access to world leading solutions (page 8). HRV has delivered a solid result despite the challenges of Covid-19 and continues to show improvement in what is a challenging and competitive environment, making a positive financial contribution. Vector Powersmart had a challenging year that has seen a number of its projects in the Pacific Islands impacted by Covid-19 issues. However there are ever increasing opportunities arising in New Zealand as solar farms and developments expand. As such Vector Powersmart is well positioned to advise and construct these solutions in New Zealand whilst also continuing with projects in the Pacific when travel permits. Vector Fibre has delivered a steady performance over the year. High speed telecommunications services are critical to customers, and we see Vector Fibre as key to this opportunity as it leverages its fibre assets in the wholesale market.

As we summarise in this report, this strategy has enabled us to deliver a strong financial result in the face of continued disruption from Covid-19, particularly in Auckland and parts of Australia. We commend our teams who have continued to respond to customer needs with urgency, commitment and adaptiveness, even as we continue to find ways to contribute positively to the global challenge of decarbonisation. Strong earnings Vector has delivered a strong result for FY21, recording adjusted earnings before interest, tax depreciation and amortisation (adjusted EBITDA 1 ) of $513.5 million. This was up $23.5 million or 4.8% on last year’s result and is in line with guidance provided at the half-year result. Group net profit after tax was $194.6 million or $97.3 million higher than the prior year’s result due to a number of factors including higher earnings, lower interest cost, the impact of a non-cash impairment in last year’s result, and an increase in capital contributions. Total capital expenditure for the year was $529.5 million, an increase of $40.8 million or 8.3% on the prior year. The increase reflected continued investment in infrastructure to support Auckland’s growth, and, in our Australian metering business, increasing deployments of advanced meters, and increasing stock levels to counteract risks associated with global production shortages linked to Covid-19.

reliable and affordable energy solutions for customers. Over the past twelve months we have seen continued progress against our Symphony strategy across our portfolio of businesses, as they deliver for our $ 513.5 M ADJUSTED EBITDA 1 , UP $23.5 MILLION OR 4.8% ON LAST YEAR’S RESULT

VECTOR ANNUAL REPORT 2021 /

Chair & Group Chief Executive Report

$ 194.6 M GROUP NET PROFIT AFTER TAX, $97.3 MILLION HIGHER THAN THE PRIOR YEAR’S RESULT Developing new revenue opportunities We have further developed our strategy to leverage the infrastructure and technology we use in our existing businesses in order to create commercial opportunities, such as providing has been established to take to market solutions developed as part of our digital transformation journey. This has led to investment efficiencies through our choice to partner with others to develop these solutions, which Vector as a customer benefits from, and which avoid the need for us to seek alternative solutions from third party vendors. We are exploring global opportunities for key priority solutions including the New Energy Platform created through our strategic alliance with Amazon Web Services (AWS), Distributed Energy Resource Management Systems (DERMS), cyber security, and others. As an example, VTS is now providing cyber security services to another New Zealand electricity distribution business, leveraging Vector’s 24/7 security operations centre. Vector Property Services has been established to explore the commercial potential of our property and facilities assets, in the context of the opportunities to partner with third parties to better utilise some of our passive land, building and tunnel assets, such as co-location of other infrastructure, and broader development in line with our Symphony strategy. solutions to third parties. Vector Technology Services

Vector Property Services is a new unit established to look at opportunities within our property portfolio. Ongoing impacts from Covid-19 As an essential services provider, in the past twelve months we have maintained our focus on ensuring the safety of our people and communities in the face of Covid-19, and ensuring our ability to continue providing our essential products and services. We have seen significant workforce and supply chain challenges across several of our businesses, including metering, and the procurement of common equipment such as cabling for our electricity distribution business. Through careful planning and strong management we have been successful in mitigating disruption to our work programmes. We have also had success in managing the impacts of fluctuations in commodity prices. We see these challenges as likely to persist over the short term and are working to mitigate their impact and reduce our exposure. We continually evolve our internal policies and the ways we support our staff to work safely, and their wellbeing, under changing Covid-19 restrictions. We are executing a comprehensive plan to support the Covid-19 vaccine rollouts across New Zealand and Australia with information, access to medical experts to answer individual questions, and other practical support for our people (page 14). Electricity network quality performance We are pleased to report that in the last regulatory year to 31 March 2021, we have seen improving network quality performance within our regulatory System Average Interruption Duration Index (SAIDI) limit. This follows a sustained focus on improving network performance for our customers over previous years. We acknowledge the efforts of our own people and our Field Service Providers in this outcome and we remain committed to continuing this focus.

Enabling growth in Auckland We continue to invest in the integrity and reinforcement of the electricity network supporting Auckland’s growth, using a mix of traditional and non- wired solutions. Our aim is to keep pace with growth while also ensuring the investments we make are efficient, so that future costs are affordable for our customers, and the network is ready for the demands placed on it from electrification. In determining our capital investment approach for the network, we must navigate the complexities of a growing city and multiple other infrastructure and investment pipelines, including major projects such as light rail or large housing developments, which require significant planning and investment from us.

LOOKING FORWARD

At the centre of the energy transition

Electrification of the economy is at the heart of New Zealand’s decarbonisation efforts. The electrification of transport will be part of this, as will distributed energy resources such as solar and batteries, new customer technology solutions such as Vehicle-to-Home charging, and new business models such as peer to peer trading, enabling customers to trade their excess energy.

Creating a new energy future – a bold vision

“It is in our interest as a company to lead the transformation of the energy sector and to provide our stakeholders with the information that serves their long-term interests.

the context of enabling electrification to lower our carbon emissions. At a consumer level, our ownership model, being majority-owned by Entrust, ensures our incentives are aligned to deliver for our customers and shareholders and places our focus on getting the energy transition right. We do not seek to build our way to electrification, since that would be unaffordable for our customers. Instead, we seek to optimise the use of our existing infrastructure through digital solutions, and build where we need to. Our Symphony strategy aims to find solutions to deliver affordable, reliable and clean energy. Our innovations in data analytics, enabling distributed energy solutions for homes and businesses, such as solar, batteries, and electric vehicle (EV) charging, and the digitalisation of the electricity network are designed to deliver value aligned with this strategy. Evolving our thinking on climate risk and opportunity We are evolving our thinking on climate risk and opportunity as we prepare ourselves and others for the opportunities a decarbonised future will bring. Vector has adopted a science- based target for our own emissions reduction plans, which complements our earlier commitment to achieve net zero emissions by 2030. We are committed to supporting decarbonisation in New Zealand, through what we call our carbon ‘handprint’, which is how we enable others to reduce their carbon footprint. Our Smart EV Charging trial in Auckland is an example of our handprint in action (page 24). Smart solutions like this would enable car owners to switch to EVs knowing they will be able to charge them reliably and keep power affordable for all. Climate-related financial disclosures New Zealand is the first country to enshrine a Task Force on Climate- related Financial Disclosures (TCFD)

reporting obligation on major private sector entities. While that reporting will not become mandatory until 2024, we are embarking on this journey in advance of that deadline. Our reasoning is simple: it is in our interest to lead the transformation of the energy sector and to provide our stakeholders with the information that serves their long- term interests. We are developing, for the first time, our responses in relation to recommendations from the TCFD. Our TCFD report will show that climate change brings both risks and opportunities for Vector, and that with our diverse portfolio of energy solutions businesses, we are well positioned to embrace the significant opportunities presented by the energy transition. We are also able to accelerate the energy transition for the New Zealand economy. We intend to publish our first TCFD report soon. Cyber security in the context of ‘Crimeware-as-a-Service’ Perpetrators of cyber threats have vastly increased their sophistication in recent years, to the point where, in a mirror of our modern, global economy, the cybercrime economy has seen a decisive shift towards a ‘Crimeware-as-a- Service’ model. At the same time, digital platforms that reduce cost, and improve efficiency and effectiveness, continue to become increasingly important. We continue to increase our cyber security capabilities and have several key partnerships in place with global leaders in cyber security. While building this capability to protect our own business, we are creating tools that can be used by other organisations in New Zealand via VTS. As the barriers to conducting cybercrime continue to lower, we have seen a number of large-scale, severe, well- publicised security events. We are also seeing increasing criticality for electricity distribution, particularly in the context of electrification. Against this context, we are maintaining significant investment

Vector has long embraced this future and our role in bringing it about, in the countries we already operate in and beyond. Our Symphony strategy unites our teams on a clear path into the future and directs our activity, often in ways that put our people at the forefront of emerging technology and new solutions. One clear example from the past twelve months is our work to demonstrate the potential for smart, algorithmically controlled, electric vehicle (EV) charging technology to enable lower transport emissions and more efficient capital investment in the infrastructure needed to support it (page 24). Another is our work with leading global companies, such as Amazon Web Services, to develop new products and services, such as the New Energy Platform (page 21). We are proud of the opportunities Vector provides for our people to contribute meaningfully Alongside decarbonisation, long- term energy affordability continues to be central to our strategy and our ownership model. Earlier this year we saw the vulnerability of our current system to ‘dry year’ risk, where some businesses faced high electricity prices. The importance of energy affordability is set to become even more significant in to a low-carbon future. Energy affordability

VECTOR ANNUAL REPORT 2021 /

Chair & Group Chief Executive Report

The future of gas We were pleased to see the Climate Change Commission’s final advice recognises the complexities of a transition away from the use of fossil gas as an energy source in homes, businesses and industry. In particular, we support the need for careful planning and industry involvement around any transition away from gas. A balanced transition, rather than one that fails to plan sufficiently, is most likely to meet the objectives of Government, customers, and gas asset owners. If a clear transition path cannot be agreed, there are likely to be significant customer cost implications. For example, under the Climate Change Commission’s demonstration transition pathway, the cost to households, consumers and commercial buildings for appliance replacement and building modifications to transition away from gas could total $5.3 billion by 2050. There would also be major disruptions for businesses and households, as the investment requirements of maintaining gas infrastructure are passed to a declining customer base. A managed transition acknowledges the role low- emissions gases such as biomethane or hydrogen could play in the future, using existing infrastructure. This is something that we are exploring, along with others in the industry (page 19). We will continue to engage with New Zealanders and the Government, both together with our industry as part of the Gas Infrastructure Group, and on our own behalf, as final decisions are worked through on the best possible transition plan. Upholding the regulatory compact on gas distribution We note the Commerce Commission is tasked with resetting prices for regulated gas pipelines businesses from 1 October 2022. As part of this process, Vector intends to reconsider and possibly republish our 10-year forecasts for our gas distribution business in December, as we learn more at that time about

to continue to build on what we have established so far, and to further evolve the Vector cyber security capabilities against our cyber security strategy and roadmap. Regulation and policy for a new energy future The Climate Change Commission’s advice for the Government has highlighted a number of opportunities to improve the regulatory and policy landscape to better enable decarbonisation. A number of its recommendations align with views we have championed previously, including increasing recognition of the opportunities presented by distributed energy resources, developing a national energy strategy, and accelerating the adoption of electric vehicles. We look forward to continued positive engagement with our regulators and the Government to find solutions together. We share the Commission’s view that electricity networks should be appropriately equipped, resourced and incentivised to innovate so that they can play their role in helping electrification happen faster, and more equitably. In particular, we agree with the Commission’s comment, in its final advice, that our regulatory framework Businesses to undertake the innovation and investment required to meet climate change outcomes ”. We also note the Clean Car Discount scheme and the National Charging Infrastructure Plan. The uptake of EVs is something Vector has been preparing for over the past few years, most recently with our EV Smart Charging trial. This has underscored the need for EV charging to be smart, and connected to electricity network management systems. We strongly advocate for a standard requiring this for new EV chargers, otherwise our ability to use this technology to benefit EV owners, and all electricity customers, may be constrained. should be “ sufficiently adaptive to enable Electricity Distribution

the Government’s implementation of the Climate Change Commission’s recommendations around natural gas. Vector maintains that an active dialogue between regulators, the Government and industry around this reset is necessary to ensure any regulatory compacts are upheld, especially at a time when confidence needs to be maintained to justify the significant ongoing investments required to maintain the integrity of existing gas network infrastructure. infrastructure, products and services that are increasingly critical for our decarbonisation efforts. We must continue to leverage new technology, and business models, to provide our customers with cleaner, more reliable and affordable energy solutions into the future. In the coming year, while ensuring we deliver essential services efficiently and safely to our customers remains paramount, we are also focusing on delivering growth in our Australian metering business, developing and growing VTS, successfully responding to the challenges we’re seeing around resources, enabling Auckland growth, and ensuring a sensible gas transition. We are strongly positioned to enable decarbonisation and continue delivering strong results to our shareholders. FINAL WORDS Across our group we provide

Jonathan Mason Chair

Simon Mackenzie Group Chief Executive

Creating a new energy future – a bold vision

“Given our strategy, we are ideally positioned to help solve big challenges like decarbonisation, and continue to deliver a strong result to our shareholders.

SOUTHERN PAPRIKA, ONE OF OUR COMMERCIAL CUSTOMERS IN WARKWORTH

VECTOR ANNUAL REPORT 2021 /

Chief Financial Of ficer Report

A strong financial result

Cash flow Operating cash flow was 25.6% higher at $499.1 million. This increase was largely due to an increase in capital contributions and lower tax paid as a result of the reduction in the level

Vector’s financial performance for the year reflects a strong result with adjusted EBITDA 1 of $513.5 million. This was up $23.5 million or 4.8% on last year’s result. Group net profit after tax was $194.6 million which was $97.3 million or 100% higher than the prior year. The result was largely due to increased earnings, higher capital contributions and lower interest cost being partially offset by higher depreciation and amortisation. The prior year also included a non-cash impairment of $32.0 million.

of dividend imputation. Capital expenditure

SEGMENT ADJUSTED EBITDA 1 Adjusted EBITDA 1 for our Regulated Networks was $350.7 million, up $13.1 million or 3.9% against the prior year. Adjusted EBITDA1 includes a full-year impact of the Commerce Commission’s DPP3 price reset, which came into effect on 1 April 2020 and saw prices reduce by 6.9%, and the retention of loss rental rebates (LRRs) in order to partially mitigate future electricity distribution price increases, and to offset the impact of electricity volume reductions on revenue under the new revenue cap regulatory regime. Despite the adverse impact of the DPP3 reset and inflation forecast assumptions used to set DPP3, the Regulated Networks delivered a solid result in the period. During the year we retained a total of $22.8 million of LRRs, and we have announced our intention to pass on a credit of $20 to Auckland electricity account holders later in the year, representing a distribution of about $12 million of LRRs directly to customers. Gas Trading adjusted EBITDA 1 was $27.4 million, down $6.5 million against $ 171.6 M ADJUSTED EBITDA 1 FOR VECTOR’S METERING SEGMENT GREW 10.9% TO $171.6M

the prior year total of $33.9 million. The reduction in earnings was mainly due to the sale of the Kapuni gas treatment plant and associated assets, which took place in March 2020. After normalising for this sale, adjusted EBITDA 1 was flat due largely to improved natural gas and Ongas LPG margins offset by lower Liquigas tolling revenue. Vector continues to retain an economic interest in the performance of the Kapuni plant, with the net present value of future income recognised as a $81.7 million receivable on the balance sheet and $6.3 million of interest income included in FY21 profit. Adjusted EBITDA 1 for Vector’s metering segment grew $16.8 million or 10.9% to $171.6 million, as a result of continued growth in advanced meter deployments in New Zealand and Australia. Cloud-computing adjustments The recently announced interpretation of the International Financial Reporting Standards (IFRS) in relation to cloud- computing arrangements by the interpretations committee for the International Accounting Standards Board requires that certain project implementation costs be expensed. This has had a $2.3 million impact on adjusted EBITDA 1 for the year ended 30 June 2021. Capital contributions Capital contributions grew by 41.8% to $122.5 million during the year, resulting from a change in policy requiring 100% customer funding for electricity connections and continued connection growth. Given the challenges of keeping pace with Auckland growth, we continue to review the level of customer capital contributions.

Gross capital expenditure was $529.5 million, $40.8 million (8.3%) higher than last year. This increase reflected ongoing investment in infrastructure to support Auckland’s continued growth, and increasing deployments of advanced meters as market demand continues to accelerate in Australia. Note this increase in capital expenditure was partly funded by a $36.1 million increase in capital contributions recognised as income under IFRS. In FY21 we invested $314.7 million gross capital expenditure to facilitate Auckland’s growth, and improve the safety, reliability and resilience of our electricity and gas networks. This maintains the high level of network capital expenditure invested over recent years for replacements and upgrades, improving network quality performance within regulatory limits, and to Vector continues to maintain a strong balance sheet. Our 30 June 2021 gearing, as measured by economic net debt to economic net debt plus adjusted equity, rose to 56.5% from 55.2% at the beginning of the year. We remain an ‘investment-grade’ credit risk with a Baa1 rating from Moody’s and BBB from Standard & Poor’s. Dividend This year, shareholders will receive a final dividend of 8.50 cents per share imputed at 10.5%, taking the full-year partially imputed dividend to 16.75 cents per share. The final dividend will be paid to investors who are on the register at 9 September 2021 and distributed to investors on 16 September 2021. improve reliability. Balance sheet

1. EBITDA from continuing operations adjusted for fair value changes, associates, third-party contributions, and significant one-off gains, losses, revenues and/ or expenses. Refer to Non-GAAP reconciliation on page 44.

Creating a new energy future – a bold vision

Climate Change Commission report We await with interest to see the

Government’s response to the Climate Change Commission’s report and how the Commerce Commission incorporates any policy changes into the regulatory frameworks for the gas and electricity industries, and any impacts on our gas trading businesses. There is also the DPP3 reset of gas distribution prices due to come into force from 1 October 2022. Vector is working closely with other industry players, regulators and government officials in ensuring there is a smooth transition to a new decarbonised energy system. Vector will re-test the carrying value of its electricity and gas assets at 31 December 2021 as part of its interim reporting obligations, by which time we hope to have more clarity on the outlook for these businesses.

JASON HOLLINGWORTH CHIEF FINANCIAL OFFICER

GROUP CAPITAL EXPENDITURE $ MILLION

DIVIDEND DECLARED CENTS PER SHARE

529.5

100 150 200 250 300 350 400 450 500 550

488.7

425.1

381.2

367.4

0 50

FY17

FY18

FY19

FY20

FY21

VECTOR ANNUAL REPORT 2021 /

Our people and safety

None of us could have anticipated the pressures that Covid-19 would bring, and the range of stresses and unexpected worries which have continued to play a large part in our employees’ lives over the past twelve months. We have maintained a focus on care and wellness for our people throughout the year, recognising our role in providing a supportive and inclusive workplace, in relation to physical and mental health. Covid-19 support and vaccinations Throughout the year we have continued to evaluate and adapt our response To help our people navigate the continued disruption, we have implemented a number of programmes aimed at providing extra support and information. This has included a vaccination information campaign, to provide access to factual, relevant campaign has included external subject matter experts such as doctors, written communications in multiple languages, video, staff Q&A sessions, and has been tailored for relevance across New Zealand and Australia. Mental health and wellbeing This year we have been consistent in proactively helping our people find ways to access support if they are having a hard time. to Covid-19, to ensure our ability to deliver our essential services is not compromised. information about the Covid-19 vaccination. This multi-channel In recognition that mental wellbeing is a continuum and we must be vigilant about how concerns may manifest across our large workforce, we have begun to roll out a Mental Health First Responder programme, to improve our ability to help our people through tough times. So far we have more than one hundred trained mental health first

responders who can provide another avenue for any of our Vector people to find support, including referrals to appropriate care where necessary. We are now looking to pilot a mental health leadership course for all people leaders, and create a champions forum to raise awareness and assist in normalising and destigmatising mental health. We have also run programmes covering mindfulness, and weekly informal learning opportunities, covering a range of topics from an introduction to New Zealand Sign Language, to the human impacts of hybrid working. Progress towards our Group safety goals To track our progress against our safety goals, Vector continues to measure safety performance across the Group, including Lost Time Injury Frequency Rate (LTIFR) and Total Recordable Injury Frequency Rate (TRIFR). Beyond tracking progress, these measures are critical for indicating which areas require ongoing improvement. In the last year we observed a 21% increase in LTIFR and a 30% increase in TRIFR across the Group. This can be attributed to low-level manual handling, slips, trips and fall injuries. The severity rate, which measures number of lost days per 1 million hours worked, improved by 24%. In alignment with our Symphony strategy, our approach to managing and improving safety across the Group continues to evolve, to one where the unique needs of our different businesses, employees and customers directly inform our safety management thinking and practices. This is being reflected in a review Vector is undertaking of its Health Safety and Environment Management System (HSEMS) to reflect the latest HSE developments and continue to enhance the practical application and usability of the HSEMS at all levels of our businesses.

We remain focused on our critical health and safety risks, our controls, and on assuring our confidence in those controls. Vector has now moved the reporting and management of HSE incidents to Vector’s group incident management system, Active Risk Manager (ARM). This enables incidents that occur in our businesses, importantly including ‘near-miss’ incidents, to be linked with our critical HSE risks, which drives a data-driven and continually improving understanding of where our focus is best applied to develop HSE improvements. Attracting and developing diverse talent Vector remains committed to diversity and inclusion as we recognise the importance of a dynamic workplace to drive a range of views that are representative of our communities and customers. At 30 June 2021, the proportion of female executives was 25%, however this does not include Fiona Michel who is currently on secondment. In the past twelve months, we have seen a slight gender composition shift with the number of female employees increasing from 35.1% to 35.6% across the organisation. Our ethnicity profile has moved slightly, with our Māori representation reducing by 1.1% to 5.0%, Pasifika representation has increased by 1.9% to 5.0%, Asian representation up by 5.0% to 19.1%, and MELAA (Middle Eastern, Latin American and African) representation has increased by 1.3% to 2.3%. Age-wise, in the past year our employees aged 20 to 39 has remained unchanged at 49.8%. Those aged 40 and over has increased slightly by 1.6% to 49.4%, while employees aged under 20 years declined by 1.6% to 0.6% and 0.2% recorded as unknown.

Creating a new energy future – a bold vision

EMPLOYEES BY ETHNICITY

EMPLOYEES BY AGE

EMPLOYEES BY GENDER

.% PREFER NOT TO SAY

.% UNDER

.% DIVERSE

.% +

UNKNOWN

.% ASIAN

PASIFIKA

.% UNKNOWN

.% FEMALE

OTHER

NZ MĀORI

.% MALE

EUROPEAN

NZ EUROPEAN

MELAA*

* Middle East, Latin America and Africa

Pasifika poetry Five of our people have become published poets this year, with their poems included in the Pasifika Niu Leaders Aotearoa anthology. This collection was published in celebration of Vector’s Growing Pasifika Niu Leaders programme,

first developed in response to the under-representation of Pasifika employees in our leadership roles. Since inception in 2017 we have invited other organisations to participate and since then have seen 60 Pasifika leaders graduate.

REBECCA GEORGE AND TIOATA TUILOMA, TWO VECTOR PEOPLE WHO HAVE GRADUATED FROM OUR GROWING PASIFIKA NIU LEADERS PROGRAMME

VECTOR ANNUAL REPORT 2021 /

Regulated networks

Increased revenue Revenue increased 0.9% to

590,799 TOTAL ELECTRICITY CONNECTIONS, AN INCREASE OF 1.9% Auckland gas distribution volumes were down 1.4% at 14.1 PJ from 14.3 PJ a year earlier. Strong connection growth across electricity and gas New electricity connections increased to 14,995 from 12,231 in the prior year. We also added 3,844 new gas connections, up from 3,201 a year earlier. Total electricity connections stood at 590,799 up 1.9% from 580,060 a year earlier. While total gas connections were 116,472, up 2.2% from 113,960 a year ago. Both electricity and gas volumes have been impacted by Covid-19. Volumes transported across the electricity network were up only slightly at 8,325 GWh from 8,315 GWh a year earlier.

$767.5 million, due to an increase in capital contributions which were up $35.4 million to $121.1 million. This increase was partially offset by the full-year impact of the Commerce Commission’s lower DPP3 revenue allowance and lower pass-through costs. Despite the adverse impact of the DPP3 reset and inflation forecast assumptions used to set DPP3, the regulated networks delivered a solid result in the period. The increase in capital contributions reflects continued connection growth and a change in capital contribution policy where we now seek 100% contribution for electricity connections. Underlying revenue was down $10.9 million (2.4%) driven by the impacts of the DPP3 price reset and volume reductions.

Mt Albert undergrounding The Mt Albert undergrounding project was proudly funded by Entrust, the majority shareholder of Vector, and was delivered by Vector. The area, bound by Oakley Creek, New North Road, Carrington Road and Unitec, consists of 16 streets, with a combined street length of 5.4km, 166 poles and benefitting 867 customers. It is a significant project and will result in the removal of 10.2km of overhead electricity lines. The project commenced in October 2019 and is nearing completion. Where possible, Vector aims for a ‘dig-once’ approach, so residents benefit not only from underground power services, but also potentially from telecommunications, street lighting and pavement upgrades, resulting in an all-round visually enhanced street appeal at the end of the project. It takes a large crew to pull off an undergrounding project of this scale. Vector provides project ambassadors, who frequently communicate with residents and property owners about the project, how they will be impacted, and time frames.

ENTRUST TRUSTEES (FROM LEFT) DR PAUL HUTCHISON, WILLIAM CAIRNS AND ALASTAIR BELL AT THE SITE OF THE MT ALBERT UNDERGROUNDING PROJECT

Creating a new energy future – a bold vision

Ongoing capital investment in making the electricity network more resilient has also contributed to improved performance, including field deployment this year of digital solutions that link asset assessment tools used by our Field Service Providers with our asset information systems in real time. This enables further evolution in our risk- based approach to asset management. Together with our Field Service Providers, we are maintaining our focus on improving network performance for our customers, including how we respond to severe weather events, such as the June 2021 tornado in Papatoetoe, Auckland. “We are continuing to transform our electricity network through a combination of new engineering solutions and digitalisation to meet the needs of the future.

Maintaining high levels of capital expenditure

Improving network reliability We have seen notable improvements in network availability over the past year. We measure these improvements through mechanisms such as SAIDI, where we achieved compliance within the regulatory limit and other measures that monitor how effective we are in keeping the lights on. Continued innovation in work practice and technology across our teams and our Field Service Providers, has contributed to these results. We are gratified to see that the field work supporting this effort has been delivered safely, especially in the context of ongoing disruption and adaptation to Covid-19.

Gross regulated capex decreased by 0.8% to $314.7 million compared to $317.1 million a year earlier. Capex net of capital contributions was 16.3% lower than the prior year at $193.6 million. Capex continues to be at high levels due to higher growth capex reflecting the continued growth in connections and infrastructure projects, as well as investment to improve the reliability and resilience of our networks.

VECTOR ANNUAL REPORT 2021 /

Regulated networks

Delivering for customers through lockdowns

jobs planned on the electricity network each month, every one involving careful planning, coordination between delivery teams, traffic management and other infrastructure providers, and notification to customers. We have improved our ability to quickly determine which jobs should be postponed or proceed as

As a provider of essential services, across three Auckland lockdowns this year we have refined our processes for quickly adapting to the changes these bring for us and our customers. The task is not simple; we can have hundreds of

Creating a new energy future – a bold vision

We are continuing to transform our electricity

“We take into consideration the increased inconvenience of temporary power outages to customers who may suddenly find themselves trying to work and school their children from home.

network through digitalisation to meet the needs of the future.

Evolving for the future While we continue to invest in improving network availability, we are also continuing to transform our electricity network through a combination of new engineering solutions and digitalisation to meet the needs of the future. Our ongoing Smart EV Charging trial (page 24) has demonstrated how optimising existing infrastructure using new technology can reduce the cost of EV uptake while securing reliable charging. Our programme to implement an Advanced Distribution Management System is progressing and is an important component of improved optionality, network resilience, flexibility and innovation. We have implemented a new Default Distributor Agreement, imposed by the Electricity Authority, with all electricity retailers who use our network, which we hope will provide us better access to electricity consumption data from customer smart meters. This is an important step towards ongoing digitalisation as it improves our visibility

planned. We take into consideration the increased inconvenience of temporary power outages to customers who may suddenly find themselves trying to work and school their children from home. This work has been informed by data that shows, compared with 2019, customers are less accepting of planned outages occurring on a weekday afternoon. We consider this to be a sign of changing customer preferences as a result of Covid-19 lockdowns requiring more people to be at home during the day, as well as reflecting the increasing criticality of electricity supply to daily life. Working together for Auckland We have worked collaboratively with a number of other Auckland agencies this year to develop innovative arrangements that benefit the city. Through a new Electricity Resilience Targeted Rate, adopted by Auckland Council in its 10-year Budget 2021-2031, there will be an enhanced maintenance programme for existing street trees owned by the council, improving power supply security and public safety around power lines, while public tree planting, in line with the council’s Urban Ngahere (Forest) strategy, will also be boosted. We have also developed operational processes with Auckland Transport and Waka Kotahi NZ Transport Agency that enable our first responder Field Service Providers to use bus lanes and priority access motorway on-ramps. We are still working towards the ability to use flashing lights to help designate our first responders as emergency vehicles. These provisions enable faster access to emergency sites involving electricity assets, such as car crashes with power poles. We continue to engage with large customers and developers making plans for Auckland, whether expanding their existing operations, or considering

of network performance at the customer end, and will help our ability to plan and innovate to meet future needs. The insights we gain from our data analytics includes modelling that combines all Vector customer and energy information with wider data sources, such as building characteristics and socioeconomics. This continues to set us apart from other electricity distributors through facilitating a bottom-up view of network planning that starts with the customer. This approach is strongly aligned with our Symphony strategy to put the customer at the centre of the energy system, and provides us a granular view of changing energy consumption patterns, and new technology adoption. We take our responsibilities around management, privacy and security of all data seriously, and our commitment remains firm as our industry evolves. We are focused on ensuring we have the right security and protections in place to make sure that, as custodians of the data, we look after it in accordance with our privacy obligations.

Gas Infrastructure Future Working Group Vector is a member of the Gas Infrastructure Future Working Group, established in May 2021, to offer constructive input to the Government’s response to the Climate Change Commission’s advice in relation to the future of gas in New Zealand. The working group comprises Vector, PowerCo and Firstgas, with regulators and other parties as observers. The working group recognises that New Zealand currently does not have a coordinated plan or planning process to address the consumer effects and complexities of significantly reducing or transitioning away from natural gas if the decision is made that piped natural gas should be a much smaller part of the energy mix or removed from the energy mix altogether. The working group is undertaking research to better understand the problem and potential solutions by assessing the policy, practical and stakeholder implications if gas was phased out under a wind-down scenario, and the feasibility of incorporating green gas (such as biogas or hydrogen gas) under a repurposing scenario. The working group intends to provide a findings report that draws out insights from the research and makes recommendations to the Government on policy decisions that may affect the future of gas in New Zealand.

moving to the region to ensure their access to safe, reliable and secure infrastructure.

VECTOR ANNUAL REPORT 2021 /

Gas trading

Volumes The Vector Ongas LPG business

Liquigas LPG tolling volumes were down 11.8% to 102,351 tonnes from 116,024 tonnes a year earlier. Natural gas sales volumes were down 3.8 PJ to 8.6 PJ from 12.4 PJ in the prior period due to a tight gas market and the loss of a major customer from January 2020.

acquisition, ordering and account management services.

Over the year we have also continued the roll-out of a Vector Ongas brand covering our 9kg Bottle Swap, LPG and natural gas products and services for residential and commercial customers. This visual identity revitalises our proposition in a competitive market. Challenging commercial gas market Natural gas supply was constrained due to local factors such as lower production, as well as other factors such as import delays due to Covid-19 disruption. In this challenging market, we worked hard with our customers to find solutions to secure supply.

continued to strengthen during the year. LPG bulk and cylinder sales were higher compared to the prior year. Overall LPG sales were up 3.9% at 45,043 tonnes. Bottle Swap 9kg volumes were down 3.1% to 680,099 bottles from 701,923 bottles a year earlier. This decline is partly attributable to the impact of Covid-19 as the prior year saw an unseasonal increase in the number of swaps during March 2020 in the lead-up to the first lockdown in New Zealand.

Working to improve customer experience

Our gas teams have continued to focus on improving our ability to deliver to our customers’ expectations in an environment where ensuring adequate resources has been challenging. We have also focused this year on streamlining and improving the online ordering process across our range of gas products. We have taken a significant step in this activity with the launch of a new customer portal offering online

45,043 TONNES OF LPG SALES, AN INCREASE OF 3.9%

Lowering delivery emissions and collaborating on city centre air quality In March 2021 Vector Ongas was proud to announce that it is one of five businesses participating in an electric truck trial with Fuso New Zealand, for its deliveries in Auckland’s city centre. The area has the highest population density of anywhere in New Zealand and exceeds air quality limits for nitrogen dioxide and particulate matter. With the trial set to run over FY22, our involvement is an exciting opportunity for Vector to explore how zero- emissions distribution capabilities can help lower our carbon emissions, and gain insights into the impact on electricity demand around Auckland from charging behaviour introduced by these new technologies. Our participation in the trial will also see Vector provide valuable data that will inform future decision-making for improving air quality in Auckland city centre, aligned with Auckland Council’s wider Zero Emissions Area, which is an emissions reduction strategy within the City Centre Masterplan.

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