Annual Report 2016 AusNet Services Level 31 2 Southbank Boulevard Southbank VIC 3006 Tel: +61 3 9695 6000 Fax: +61 3 9695 6666 www.ausnetservices.com.au Locked Bag 14051 Melbourne City Mail Centre Melbourne VIC 8001 Follow us @AusNetServices About us AusNet Services is a leading The company has more than 2,500 We’re also on a transformation journey, energy delivery business, employees working in our three adapting our networks and related regulated electricity and gas networks, services to meet current and future owning and operating along with our Select Solutions business. energy needs. approximately $12 billion of At AusNet Services, our strengths are Rest assured, safety comes first in electricity and gas distribution making the complex business of moving everything we do. assets that connect into more energy trouble-free for our customers than 1.3 million Victorian homes and communities, along with being there around the clock when our customers and businesses. need us. Red Cliffs Wemen East Kerang Rowville Wodonga Shepparton Horsham Dederang Bendigo Glenrowan Waubra Mt Beauty Ballarat Mortlake Tarrone Moorabool Geelong Yallourn Terang Morwell Heywood Jeeralang TS Hazelwood Thomastown Sydenham South Morang Keilor West AusNet Services’ Gas and Melb. Templestowe Brooklyn Electricity Distribution Networks Brunswick Altona Ringwood Richmond AusNet Services operated only Terminal Station Malvern AusNet Services Terminal/Switching Station Fishermans Springvale Rowville Bend AusNet Services Electricity Distribution Network Heatherton East AusNet Services Gas Sub-Transmission Rowville and Distribution Network Frankston Cranbourne Tyabb Western Port 2 AusNet Services Annual Report 2016 Contents About us 2 2016 highlights 4 Chairman’s Message 6 Managing Director’s Report 8 Delivering change for a bright future 10 Our future in a modern energy world 21 Financial Report 22 Red Cliffs Directors’ Report 23 Lead auditor’s independence declaration 62 Wemen Consolidated income statement 63 East Consolidated statement of Kerang Rowville comprehensive income 64 Wodonga Consolidated statement Shepparton of financial position 65 Horsham Dederang Consolidated statement Bendigo Glenrowan of changes in equity 66 Waubra Mt Beauty Consolidated statement of cash flows 68 Ballarat Mortlake Notes to the consolidated Tarrone Moorabool financial statements 69 Geelong Yallourn Terang Morwell Directors’ declaration 114 Heywood Jeeralang TS Hazelwood Independent auditor’s report 115 Shareholder information 117 Company information 119 Thomastown Sydenham South Morang Keilor West AusNet Services’ Gas and Melb. Templestowe Brooklyn Electricity Distribution Networks Brunswick Altona Ringwood Richmond AusNet Services operated only Terminal Station About this report Malvern AusNet Services Terminal/Switching Station Fishermans Springvale Rowville This report highlights AusNet Services’ business Our Corporate Governance Statement Bend AusNet Services Electricity Distribution Network performance during the financial year ending and Infrastructure Entity Statement Heatherton East AusNet Services Gas Sub-Transmission Rowville 31 March 2016. The report is prepared under section are available on our website and Distribution Network 314(2) of the Corporations Act 2001 (Cth), with the Frankston Cranbourne information contained in this document correct as www.ausnetservices.com.au/ Tyabb at 31 May 2016, unless otherwise stated. investors/companyreports Western Port 3 2016 highlights 4.6% 32% Revenue Customer complaints $1,919m 5.8%* 4% EBITDA Regulated and $1,142.5m Contracted Asset Base 19.9%* 2% NPAT Dividends $326.2m (adjusted) Revenue growth EBITDA growth EBIT growth NPAT growth A$ million A$ million A$ million A$ million 489* 750 1,919 1,143 1,834 1,799 668 651 1,047* 648 1,017 974 613 1,640 907 1,535 274 255 178 23* 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 *Adjusted NPAT FY16 $326.2m, FY15 $272.0m, Adjusted EBITDA FY15 $1,079.7m 4 AusNet Services Annual Report 2016 Five-year financial summary 2016 2015 2014 2013 2012 Revenue ($M) 1,919.0 1,833.9 1,799.4 1,639.5 1,535.4 EBITDA ($M) 1,142.5 1,047.2 1,017.4 974 907.1 EBIT ($M) 750.2 668.0 647.7 651.2 613.3 Profit for the year ($M) 489.3 22.6 178.3 273.5 255 Total assets ($M) 11,676.0 12,063.3 10,612.3 10,082.2 8,730.9 Total borrowings ($M) 6,897.7 7,216.1 6,069.2 5,277.2 4,538.5 Total equity ($M) 3,557.8 3,248.8 3,444.6 3,437.1 2,927.9 Net debt to asset base (%) 67.2% 67.5% 68.6% 68.1% 73.1% Net gearing (%) 64% 66% 62% 58% 61% Interest cover (times) 3.0 2.9 2.5 2.5 2.4 Dividend (cents) 8.53 8.36 8.36 8.20 8.00 Earnings per share (cents) 13.95 0.66 5.28 8.37 8.95 Capital expenditure ($M) 822.7 809.4 950.0 881.4 710.3 Operating cash flows ($M) 710.0 767.6 730.2 568.6 430.5 Other highlights 32,650 25,553 Employee safety New customers conversations 4.1% Electricity & gas usage 450 Employees received 13% 15% safety training Electricity reliability Gas reliability 450 leaders participated First 3 “Women in Power in the inaugural Switched On Engineering” scholarships Leadership development awarded program Reliability: Gas up Electricity up 13% 5 Chairman’s Message A strong performance as we enter our next decade I would like to take this opportunity “ Today, AusNet Services is a to thank shareholders for their support of AusNet Services. It is a privilege more commercial, customer to serve as your new Chairman, and I look forward to the challenges and and future-focused organisation, opportunities ahead. with a clear vision to maintain I am pleased to present the 2016 Annual Report for AusNet Services, showcasing our focus on working safely. our sound position and the exciting period ahead. We are well placed to continue During the year, our Board and Executive Leadership Team have focused on our transformation journey delivering greater value from our core regulated businesses, exploring growth to be an agile energy delivery opportunities and improving operational efficiency to deliver sustainable returns service business.” for shareholders. A significant change during the year was the restructure of AusNet Services’ triple stapled security structure into a single entity, AusNet Services Ltd. The simplified structure broadens investor appeal, reduces administration costs, provides greater certainty in relation to the tax position of the company’s capital structure and improves the ability to distribute available franking credits to shareholders. We also settled our remaining dispute with the Australian Tax Office (ATO) over intellectual property (IP) deductions in the 1998 to 2011 tax years. This settlement concluded all tax-related disputes with the ATO. I’m also pleased to report that our Advanced Metering Infrastructure (AMI) program is tracking to schedule for completion by early 2017. Financial performance Board Composition The next 10 years Financially, we had a solid performance I would like to acknowledge our former In December 2015, we celebrated 10 for the year, increasing our revenue Chairman, Ng Kee Choe, who retired years since our listing on the Australian by 4.6 per cent to $1,919.0 million, and from the Board in May. Mr Ng served and Singapore stock exchanges. improving our Earnings Before Interest, as Chairman of the company for over In that time, the company has paid over Tax, Depreciation and Amortisation ten years, from the time of the initial $2.4 billion in dividends to shareholders, (EBITDA) by 9.1 per cent to $1,142.5 public offering in 2005. He helped to increased revenues from $760 million to million. steer the company through a range more than $1,900 million, and EBITDA of extraordinary events, including the Operating Net Profit After Tax (NPAT) of from $360 million to more than $1,100 company’s involvement in the Royal $489.3 million was significantly higher million. Our asset base has grown Commission and class actions relating than last year ($22.6 million). This was substantially too, with $6.2 billion of to Victoria’s Black Saturday bushfires, due, in part, to $163.1 million of one- capital invested in our networks, growing a complex corporate restructure and off tax benefits associated with the our Regulated and Contracted Asset simplification process, a change of name, corporate restructure and ATO IP dispute Base by $4.5 billion. and the settlement of the tax office settlement, along with provisions made disputes mentioned above. Having all of Today, AusNet Services is a more in FY15 for an ATO intra-group financing these issues behind us allows us now to commercial, customer and future- audit settlement and AMI customer focus on consolidating our position and focused organisation, with a clear vision rebate provision. preparing for a dynamic future. to maintain our focus on working safely. On an adjusted basis, EBITDA We are well placed to continue our On behalf of the Board of Directors, increased by 5.8 per cent to $1,142.5 transformation journey to be an agile I would like to thank Mr Ng for his million, principally due to higher energy delivery service business. dedication while serving as Chairman volumes and tariffs on both electricity and Director of the Board, and to wish In closing, I thank our shareholders, and gas distribution networks along him well for his future endeavours. customers, employees, fellow Directors with prior period metering impairment. and management – in particular, Adjusted NPAT increased by 19.9 per cent During the year, the Board also Managing Director Nino Ficca – for to $326.2 million. farewelled Directors Tony Iannello and establishing the sound position which Ian Renard, both of whom ceased as Directors announced a final fully franked AusNet Services now occupies, preparing Directors in July 2015 after many years dividend of 4.265 cents for the second the company well to tackle the future.