2018 Annual Report

Annual Report 2018 CONTENTS ABOUT US 2018 highlights 2 AusNet Services delivers safe and Chairman’s message 4 reliable gas and electricity to more Managing Director’s report 5 than 1.4 million customers. Business review 6 Financial report index 20 We are an Australian energy delivery Directors’ report 21 services business, owning and Lead Auditor’s independence declaration 62 operating approximately A$11 billion Consolidated income statement 63 of electricity and gas network assets. Consolidated statement of comprehensive income 64 We have almost 1,900 employees Consolidated statement of financial position 65 working across our regulated Consolidated statement of changes in equity 66 networks and for our commercial Consolidated statement of cash flows 68 Notes to the consolidated financial statements 69 energy services business. We are Directors’ declaration 115 developing products and services to Independent auditor’s report 116 empower customers to have more Glossary of terms 123 control over their energy usage. Shareholder information 125 Our aim is to maintain a safe and Company information 127 trouble-free energy supply for our customers at all times, while we harness the opportunities being created by new technology and energy industry restructuring to build a truly customer-focused modern energy business. CORPORATE GOVERNANCE STATEMENT Our Corporate Governance Statement, Infrastructure Entity Statement, and Tax Transparency Report are available on our website www.ausnetservices.com.au/Investor-Centre/Company-reports AUSNET SERVICES’ GAS AND 1 ELECTRICITY NETWORKS Thomastown ABOUT US South Morang Sydenham Keilor West Melb. Templestowe Brooklyn Brunswick Altona Ringwood Red Cliffs Richmond Malvern Fishermans Springvale Rowville Bend Heatherton East Rowville Wemen Frankston Cranbourne Tyabb Kerang Wodonga Shepparton Horsham Dederang Bendigo Glenrowan Ararat Waubra Mt Beauty Ballarat Tarrone Mortlake Moorabool Terang Morwell Heywood Geelong Jeeralang Hazelwood AusNet Services Terminal Stations AusNet Services Electricity Distribution Network AusNet Services Gas Sub-transmission and Distribution Network OUR ELECTRICITY NETWORK WIND FARMS WITH / WITHOUT BATTERIES MICRO GRID HOMES WITH BUSINESSES WITH SOLAR PANEL SOLAR PANELS AND / OR BATTERY AND / OR GENERATION BIG BATTERIES / PUMPED HYDRO POWER STATIONS TWO-WAY FLOW ANNUAL REPORT 2018 REPORT ANNUAL ELECTRIC VEHICLES SOLAR PLANTS WITH BATTERIES AusNet Services Transmission Network AusNet Services Distribution Network 2 2018 HIGHLIGHTS BEST EVER NATIONAL SUPPLY RELIABILITY INNOVATION AWARDS 148.7MINS 2 (TOTAL USAIDI) TEXT MESSAGES FEMALE LOWEST EVER INJURY TO CUSTOMERS NEW HIRES FREQUENCY RATE 20% 42% 5.46 (1.34M) ORDINARY CASH FLOW DIVIDENDS 5.1% 19.3% EBITDA 6.5% ($1,142.9M) AUSNET SERVICES AUSNET FIVE-YEAR 3 FINANCIAL SUMMARY 2014 2015 2016 2017 2018 Revenue ($M) 1,799.4 1,833.9 1,919.0 1,881.5 1,909.8 EBITDA ($M) 1,017.4 1,047.2 1,142.5 1,073.3 1,142.9 EBIT ($M) 647.7 668.0 750.2 647.4 700.5 Profit for the year ($M) 178.3 22.6 489.3 255.1 291.4 Total assets ($M) 10,612.3 12,063.3 11,676.0 11,756.5 12,517.3 Total borrowings ($M) 6,069.2 7,216.1 6,897.7 6,665.3 7,565.1 Total equity ($M) 3,444.6 3,248.8 3,557.8 3,698.4 3,556.0 Net debt to asset base (%) 68.6% 67.5% 67.2% 67.9% 66.7% Net gearing (%) 62% 66% 64% 63% 66% Interest cover (times) 2.5 2.9 3.0 3.2 3.6 Dividend (cents) 8.36 8.36 8.53 8.80* 9.25 Earnings per share (cents) 5.28 0.66 13.95 7.15 8.08 Capital expenditure ($M) 950.0 809.4 822.7 839.6 750.2 Operating cash flows ($M) 730.2 767.6 710.0 742.8 886.4 * Excludes 1 cent per share special dividend 4 CHAIRMAN’S MESSAGE Delivering today and evolving for the future THE ENERGY LANDSCAPE tax, depreciation and amortisation (EBITDA) to $1,142.9 million. While there has been progress in the Net profit after tax (NPAT) grew national energy debate throughout 14.2 per cent to $291.4 million. the year, we are keen to see further policy certainty to facilitate a clear Our robust balance sheet and active direction for our industry and our capital management framework will customers. continue to underpin sustainable shareholder returns, as well as Australia will need significant funding our growth strategy. The investment in the coming decades revenue path for the business will to provide energy security, remain stable, given that there are modernise infrastructure and to no revenue resets until January 2021. facilitate renewable generation. (Left to right) We are pleased to present AusNet Along with our industry peers, Peter Mason LOOKING AHEAD and Nino Ficca Services’ annual report for the AusNet Services believes policy financial year ended 31 March 2018 clarity and consistency are essential In the upcoming year we will build – a year in which we have delivered to ensure this occurs. on our focus on efficiency to improve a solid performance for shareholders, the performance of our portfolio and We will continue to advocate while also continuing to transition organisation, to realise customer for constructive policy settings and grow our business. outcomes, leverage technology and representing the interests of our focus on our growth strategy. The energy industry is experiencing a stakeholders. In the meantime, period of unprecedented change and we have been pushing ahead I would like to thank our disruption. This includes the transition transforming our own business, and shareholders, customers, employees, to renewable generation and strengthening our customer focus. management and my fellow directors decarbonisation, increasing customer for their contribution to AusNet choice and price sensitivity, regulatory FINANCIAL PERFORMANCE Services’ ongoing transformation. and government intervention, as well as accelerating technology advances It is pleasing to have delivered a I invite all shareholders to attend our and the adoption of distributed solid financial performance this year, Annual General Meeting on 19 July energy resources. with a decrease in operating 2018 in Melbourne. expenses driven by our cost AusNet Services is actively involved efficiency program and an increase in the national energy debate, is in operating cash, underpinning investing resources in realigning growth in ordinary dividends of Peter Mason AM networks to support new large-scale 5.1 per cent. Chairman renewable generation and is working with communities on innovative Cash flow from operations increased projects such as mini grids. 19.3 per cent to $886 million despite minimal growth in revenues, and Our objective is to deliver was achieved by disciplined cost sustainable and growing returns management and working capital. to shareholders, through continued investment in our regulated and Our efficiency program has delivered contracted asset base, with an significant savings this year, and ongoing focus on cost management. contributed to a 6.5 per cent increase in earnings before interest, AUSNET SERVICES AUSNET MANAGING 5 DIRECTOR’S REPORT Our energy landscape is changing rapidly. Networks will remain central to this transformation. Our core businesses in electricity Our electricity distribution network distribution tariffs fell in January and gas distribution and electricity set a new record for reliability in 2018 (gas by more than 9 per cent). transmission place us in a strong calendar year 2017, reflecting much We received two national awards - strategic position as the most hard work over several years. for the Mondo community mini grid diverse energy networks business in Reliability incentives, along with at Yackandandah and for our Australia, active in many parts of the customer contributions, also Mooroolbark mini grid project. energy supply chain. underpinned revenue growth in this segment. We have made strong progress THE YEAR AHEAD growing our Commercial Energy Gas connections also grew, and Services business and positioning we have continued to achieve gas We will continue our efforts to ourselves for further investments network efficiencies and deliver cost embrace change, drive efficiency, as opportunities continue to arise. savings to customers. and lead network transformation, so that we are positioned to take Our Commercial Energy Services up growth opportunities. SAFETY business made good progress Our regulated businesses will drive Safety is our core value, and I am against its long-term growth targets, to meet our customers’ expectations delighted that our long-term signing contracts for infrastructure around safety, reliability and improvement trends has continued projects collectively worth around affordability. We will seek to be this year. Our Recordable Injury $170m, including four wind farms influential advocates for our Frequency Rate (RIFR) number and other projects during the customers. of 5.46 was a record low outcome. financial year, with more expected to follow. The market for new energy services The challenge for us is to maintain continues to evolve rapidly, and we the momentum of a mature program, OUR CUSTOMER FOCUS are working with several partners and we have sought to do this by to develop and commercialise engaging our workforce to drive We aim to put the customer at the new services. further improvements. centre of our planning, decision- making and behaviours. The long-term strategy in this BUSINESS PERFORMANCE area remains extremely agile, and As part of the upcoming 2021-25 participation in new trials and The second year of our efficiency electricity distribution price reset, ventures is the most effective way program delivered tangible financial we have embarked on a ground- to identify the best opportunities for results, positioning us to grow, breaking trial in which we will both our business and our customers. improving our efficiency, and negotiate our proposed service customer outcomes. offerings and expenditure directly I am confident about our ability to with highly skilled customer further transform our business as Our transmission business remains representatives. This trial is being we pursue growth opportunities.

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