Sp Ausnet Annual Report
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SP AUSNET ANNUAL REPORT 2007 SP AusNet employs aerial techniques using demineralised water to wash dust and soot from insulators on the transmission network in south-west Victoria. Cover Image: Ben Marsh, Apprentice Power Technician, perfecting his safe climbing skills on a transmission training tower at South Morang training centre. CONTENTS CHAIRMAN’S REPORT 8 MANAGING DIRECTOR’S REPORT 9 BOARD OF DIRECTORS 10 EXECUTIVE MANAGEMENT TEAM 12 ENERGY NETWORKS 14 BUSINESS GROWTH 22 CORPORATE SUSTAINABILITY 26 CORPORATE GOVERNANCE 30 FINANCIAL REPORTS 36 SP AUSTRALIA NETWORKS (DISTRIBUTION) LTD 37 SP AUSTRALIA NETWORKS (TRANSMISSION) LTD 99 SP AUSTRALIA NETWORKS (FINANCE) TRUST 151 SECURITYHOLDER INFORMATION 176 FINANCIAL CALENDAR 179 ANNUAL GENERAL MEETING 179 ENQUIRIES AND INFORMATION 179 GLOSSARY 180 2 SP AUSNET IS A DIVERSIFIED ENERGY INFRASTRUCTURE BUSINESS OWNING AND OPERATING VICTORIA’S PRIMARY ELECTRICITY TRANSMISSION NETWORK, AS WELL AS AN ELECTRICITY DISTRIBUTION NETWORK IN EASTERN VICTORIA AND A GAS DISTRIBUTION NETWORK IN WESTERN VICTORIA. SP AUSNET COMPRISES REGULATED ENERGY NETWORK COMPANIES – SP AUSNET TRANSMISSION AND SP AUSNET DISTRIBUTION – AND THE SP AUSNET FINANCE TRUST WHICH FINANCES THOSE COMPANIES. INVESTMENT IN SP AUSNET COMPRISES A STAPLED SECURITY CONSISTING OF ONE SHARE IN EACH OF SP AUSNET TRANSMISSION AND SP AUSNET DISTRIBUTION, AND ONE UNIT IN SP AUSNET FINANCE TRUST. SP AUSNET PRIDES ITSELF ON MAINTAINING HIGH QUALITY ENERGY NETWORKS AND IS WELL POSITIONED TO TAKE ADVANTAGE OF GROWTH WITHIN ITS REGIONS AND PARTICIPATE IN FUTURE ACQUISITION OPPORTUNITIES. Karolina Bialek, Building Services Coordinator and Kevin Murphy, Manager Financial Planning and Analysis SP AUSNET ANNUAL REPORT 2007 3 4 OUR VALUES COMMITMENT WE COMMIT TO CREATING VALUE FOR OUR CUSTOMERS, OUR PEOPLE AND OUR SECURITYHOLDERS. WE UPHOLD THE HIGHEST STANDARDS OF SERVICE AND PERFORMANCE. INTEGRITY WE ACT WITH HONESTY. WE PRACTISE THE HIGHEST ETHICAL STANDARDS. PASSION WE TAKE PRIDE AND OWNERSHIP IN WHAT WE DO. TEAMWORK WE SUPPORT, RESPECT AND TRUST EACH OTHER. WE CONTINUALLY LEARN AND SHARE IDEAS AND KNOWLEDGE. Sam Giarratana, Manager Gas Services and Peter Ernst-Russell, Senior Commercial Lawyer SP AUSNET ANNUAL REPORT 2007 5 OUR FOCUS WE PRIDE OURSELVES ON MAINTAINING HIGH QUALITY NETWORKS BY TAKING AN ACTIVE APPROACH TO MANAGING OUR ASSET PORTFOLIO. IN OUR DAY-TO-DAY OPERATIONS, OUR AIM IS ALWAYS TO IMPROVE THE RELIABILITY AND QUALITY OF ENERGY DELIVERY TO OUR CUSTOMERS. STRATEGICALLY LOCATED IN VICTORIA’S POPULATION GROWTH CORRIDORS, SP AUSNET IS IDEALLY PLACED TO TAKE ADVANTAGE OF ORGANIC GROWTH. WITH CONTINUED FOCUS, WE AIM TO DELIVER ENERGY TO OUR CUSTOMERS AND RETURNS TO OUR INVESTORS ON A SUSTAINABLE BASIS WELL INTO THE FUTURE. 6 SP AUSNET HAS DELIVERED... VALUE TO SECURITYHOLDERS A$ 11.27¢ 1.50 17.9% 1.40 $0.12 $1.42 TOTAL RETURN 1.30 $1.30 1.20 1.10 1.00 31 Mar 2006 Growth 31 Mar 2007 Full Year Distribution 9.2% Growth in Security Price 8.7% Distribution Yield1 1. Based on the price of A$1.30 per security as at 31 March 2006 GROWTH IN REGULATED ASSET BASE RAB VALUE ($BN) RAB GROWTH (%) 5.0 4.7 10.0 4.3 4.1 3.9 4.0 3.8 8.0 3.0 6.0 2.0 4.0 1.0 2.0 0.0 0.0 2003 2004 2005 2006 2007 Transmission Electricity Distribution Electricity Distribution Gas RAB Growth % Year on Year SP AUSNET ANNUAL REPORT 2007 7 TOTAL REVENUE OF $1019.5 MILLION DRIVEN BY OUR REGULATED ASSET BASE AND GROWTH IN CUSTOMER CONNECTIONS AND VOLUMES OF ENERGY DELIVERED NET PROFIT AFTER TAX FROM CONTINUING OPERATIONS OF $161.2 MILLION, 3.2% UP ON PROSPECTUS FORECASTS EARNINGS BEFORE INTEREST AND TAX (EBIT) OF $424.7 MILLION, IN LINE WITH PROSPECTUS FORECASTS FULL YEAR DISTRIBUTION TOTALLING 11.27 CENTS PER SECURITY IN LINE WITH PROSPECTUS FORECAST, COMPRISING: – 64% RETURN OF CAPITAL – 9% FULLY FRANKED DIVIDEND TOTAL CAPITAL INVESTMENT OF $406.0 MILLION ON THE NETWORKS TO SECURE FUTURE REVENUE GROWTH Note. Unless otherwise stated, all fi nancial fi gures quoted are in Australian currency 8 CHAIRMAN’S REPORT Dear Securityholders, I am pleased to present SP AusNet’s report for the fi nancial year ended 31 March 2007. The year has been successful. The momentum of the robust fi nancial performance we experienced in 2005/06 continued into the current year. SP AusNet recorded earnings before interest and tax, depreciation and amortisation (EBITDA) of $624.7 million for the year ended 31 March 2007. This is in line with prospectus forecasts. Net profi t after tax for the year, excluding discontinued operations, was $161.2 million, which exceeds prospectus forecasts by 3.2%. In light of SP AusNet’s performance, the Directors have declared a full year distribution of 11.27 cents per security as set out in the prospectus. This represents a yield of 7.7% based on the closing security price of $1.465 as at 11 May 2007. The dividend is also 64% tax deferred for Australian investors for the fi nancial year 2006/07. We continue to grow our regulated asset base which increased by around 7% during the year. Investments amounting to A$406.0 million were made to meet higher than forecast customer demand growth, and to enhance reliability across our networks. 2006/07 was also a year of delivering on SP AusNet’s growth strategy, with 2.6% new connections in our gas business and 1.6% in our electricity business. This strong performance was driven by the organic expansion of our asset base, supported by the strong growth in Victorian energy demand in key growth areas. At the same time, we further integrated our transmission and distribution businesses to achieve greater synergies and to deliver enhanced benefi ts to customers. Looking ahead, SP AusNet will continue to expand its business activities into Victoria’s growth corridors, and beyond. Our performance demonstrates our position as a very stable, reliable business that continues to provide securityholders with predictable, tax effective distributions through regulated revenue streams and organic growth. At the same time, we continue to stringently evaluate strategic acquisitions that are directly aligned with our core competency of owning and operating regulated energy transmission and distribution businesses. All acquisition opportunities will be weighed carefully to ensure we continue to deliver long-term value for securityholders. On 11 May 2007, Singapore Power International Pte Ltd (“Singapore Power”) advised that it had, in conjunction with Babcock and Brown International Pty Ltd, signed a revised Scheme Implementation Agreement (“Scheme”) to acquire Alinta Ltd. Singapore Power has stated that it currently intends to invest through SP AusNet in electricity and gas transmission and distribution businesses in Australia and New Zealand and will offer SP AusNet the chance to consider this opportunity. SP AusNet has established an independent process for the assessment of this investment opportunity. Until the Scheme is voted on by Alinta shareholders and the assessment process is fi nalised, the outcome for SP AusNet is uncertain. During the year, our management company, SPI Management Services Pty Ltd (SPI Management Services), offered staff of SP AusNet and SPI Management Services a gift of A$1,000 worth of SP AusNet securities. This gift demonstrates our deep appreciation of our staff for their loyalty and hard work prior to and during SP AusNet’s listing on the Australian and Singapore stock exchanges. I would like to thank all staff for their tireless work and contributions, and our business partners for their continued support and patronage, all of which have enabled us to achieve our strategic, operational, and fi nancial targets. And I would like to thank my fellow Directors for their invaluable counsel, advice and contributions. Finally, I must thank you for your continued support of SP AusNet. Sincerely, Ng Kee Choe Chairman SP AUSNET ANNUAL REPORT 2007 9 MANAGING DIRECTOR’S REPORT It has been another eventful and rewarding year for SP AusNet – our fi rst full year of operation as a listed entity. This has largely been due to the efforts of our employees whom I thank for assisting SP AusNet grow its networks, reassess its service delivery model and fi ght another bushfi re campaign in Victoria. Our focus over the past 12 months has been bedding down the new systems and processes we adopted after listing in late 2005 and continuing our strategy of providing a solid, reliable investment for our securityholders and a sustainable and reliable energy network for our customers. DELIVERING LONG-TERM INVESTMENT RETURNS TO SECURITYHOLDERS SP AusNet has now demonstrated it can deliver strong profi ts and predictable cash fl ows, supported by a high degree of revenue certainty. Our focus is on running a sustainable operation that delivers long-term value to our investors. We are also committed to achieving positive regulatory outcomes, having put in a substantial amount of work on our gas distribution and electricity transmission regulatory submissions during the year. Over the course of the coming year, we look forward to providing you with our feedback as we work with the regulators to develop their fi nal outcomes. IMPROVING SERVICE DELIVERY In 2006 we also conducted a detailed review of our model for delivering electricity and gas distribution operational maintenance and construction. As a result of this review, we developed a long-term service delivery model that provides both the in-house fi eld operations and maintenance services and reintegrates a highly skilled workforce of over 400, supported by outsourced service providers. GROWING THE BUSINESS In the past year, we have committed $406.0 million to capital works programs to not only grow our regulated asset base, but also deliver high quality services for our customers. We are always looking for opportunities to increase network reliability and capacity to meet growing population and usage OURdemands and see this as a strong and sound way to increase revenues.