Vector Annual Report 2021

VECTOR ANNUAL REPORT 2021 /

Notes to the Financial Statements

2. Summary of significant accounting policies continued New standards and interpretations adopted

IAS 38 Intangible Assets interpretation: configuration or customisation costs in a cloud computing arrangement The group has adopted a new interpretation from the IFRS Interpretations Committee (IFRIC) issued in April 2021 on the International Accounting Standard 38 Intangible Assets (“IAS 38”). The interpretation considers how an entity accounts for conf iguration or customisation costs in a cloud computing arrangement. An entity does not recognise an intangible asset in a cloud computing arrangement if the contract does not contain a lease of the underlying software or if the entity has no control of the underlying software. The assessment is done as at commencement of the contract. The group has assessed the impact of the interpretation and recognised $2.3 million of cloud computing conf iguration and customisation costs as an expense in the current f inancial year prof it or loss. The identif ied costs represent up-front costs incurred at the implementation phase of new cloud computing arrangements whereby the group has not recognised an intangible asset under IAS 38. The group has also assessed the Balance Sheet impact of the interpretation at 30 June 2019 and 30 June 2020 as not material. The 2020 comparatives are therefore not restated. Amendment to NZ IAS 1: Presentation of Financial Statements The group has elected to early adopt the Amendment to NZ IAS 1: Presentation of Financial Statements, Classif ication of Liabilities as Current or Non-current retrospectively, effective from 1 July 2020. Adoption of the amendment has no impact on the group’s f inancial results for the year ended 30 June 2021, and no changes to comparative information for the year ended 30 June 2020 were made.

3. Significant transactions and events

Signif icant transactions and events that have impacted the f inancial year ended 30 June 2021:

Loss rental rebates

On 26 August 2020, we released our 2020 Annual Report and noted that we would not be distributing loss rental rebates (LRRs) in September 2020, but retaining the LRRs with a view to offset the impact of any electricity volume reductions on revenue and mitigate potential future prices increases for consumers under the new revenue cap regulatory regime effective 1 April 2020. Any excess LRRs not required to mitigate such revenue shortfalls will be returned to customers at a later date. To this effect, Vector have recognised a total of $22.8 million as income in the current year prof it or loss, comprising LRRs received in the current and prior f inancial years. Consistent with the approach stated earlier, and as communicated in Vector’s media release on 30 June 2021, the board have approved the distribution of excess LRRs not required to mitigate revenue shortfalls to customers. The provision for distribution to customers of $11.9 million provides for $20 per customer on the Vector electricity network. Refer to note 18. In May 2021, the Vector board resolved to enter into a sale and purchase agreement with other current shareholders of Tree Scape Limited to sell all ordinary and paid up shares in the company to Blair Mill Investments LLC or its nominated subsidiary. As a result, the investment was classif ied as a non-current asset held for sale in the same month. Equity accounting ceased from 1 June 2021. Refer to note 6 for details. On 20 July 2021, Vector and the shareholders signed a sale and purchase agreement to sell all the shares in the company to Blair Mill NZ Holdings Limited for cash, subject to conditions being satisf ied. The target completion date is 31 August 2021. The group will use the proceeds from the sale to repay group debt as it matures. On 31 May 2021, the Climate Change Commission (“the CCC”) finalised their advice to the New Zealand Government (“the Government”) on its first three emissions budgets and direction for its emissions reduction plan 2022 – 2025. The Government has until 31 December 2021 before it communicates its position on the CCC’s advice. The Government’s response to the CCC advice will likely have significant implications for Vector’s businesses and specifically, our gas distribution network and gas trading operations. Refer to Note 11 for further detail.

Sale of investment in Tree Scape Limited

Climate Change Commission Advice

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