Transpower New Zealand Investor update Full Year 2015

Transcription

1 Transpower New Zealand Investor update Full Year 2015

2 Agenda 1. Introduction 2. Full year results 3. Plan financial and capex forecasts 4. Regulatory update 5. Funding update 6. Other 2

3 1. Introduction 3

4 Overview of Transpower 100% state owned by New Zealand Crown 1 No plans to privatise Provides essential utility service Owner and operator of the National Grid Operating revenue breakdown System Operator 4% Other 2% System Operator (SO) for the New Zealand power system High certainty over regulated revenue Credit ratings Moody s: A1 (stable outlook) Standard & Poor s: AA- (stable outlook) Transmission 94% 1 The Crown does not guarantee bonds issued by Transpower 4

5 Policies/targets Business plan and Statement of Corporate Intent refreshed Financial policies and targets remain consistent FFO/Interest of no less than 2.8x Leverage of c.a. 70% Dividend policy of between 65-75% of cash flow after maintenance capex 5

6 2. Full year results 6

7 Income continuing activities Revenue up 4% Operating expenses down 2% EBITDAIF up 7% Depreciation, write-offs up 5% NZ$ million Total revenue 1,046 1, Operating expenses (282) (287) (295) EBITDAIF* Depreciation, write-offs (264) (251) (205) Net finance costs (226) (209) (142) Pre-tax profit Net finance costs up 8% NPAT up 6% Net profit after tax (excluding net fair value movements) * Earnings before interest, tax, depreciation, amortisation, impairments and fair value movements 7

8 Operational performance Targets 2015 Actual 2015 Target High Voltage Alternating Current (HVAC) circuit availability 98.5% 98.8% High Voltage Direct Current (HVDC) circuit availability 97.7% 97.0% Number of loss of supply events greater than 0.05 system minutes Number of loss of supply events greater than 1.0 system minute 1 3 Material breaches of System Operator performance obligations reported to the electricity authority 0 < 4 Note: These statistics do not include the Penrose event due to ongoing investigations into the cause of the event 8

9 Strategic theme: safe workplace commercial engagement run the market plan the grid deliver grid services continuous improvement good people Strategic priorities Strategic priorities A B C D E F Safety From priority and enthusiasm to risk management and an ingrained culture Project Atlas Transform our grid operating model to improve efficiency and effectiveness System Operator & IST operating model Review how we deliver the SO service Culture change and engagement Build leadership effectiveness and accountability, and delivery focus Risk framework Apply Semi-Quantitative Risk Analysis (SQRA) methodology Regulatory Performance Implement RCP2 and prepare for RCP3 9

10 Revenue analysis Statutory backed customer charge Total 53 Customers Top 10 customers account for c.a. 78% of total revenue Transmission revenue by customer: Generation - 19% Distribution - 71% Other and direct connects - 10% 10

11 3. Plan financial and capex 11

12 Outlook Maximum Allowable Revenue (MAR) is forecast flat (in real terms) for RCP2 Focus on reducing operational costs Forecast capex lower than prior years Forecast dividends lower through RCP2 due to the regulatory reset of MAR with new (lower) benchmark returns Allowable returns next updated for RCP3, from April

13 SCI forecast financial performance NZ$ million 2014/15 Actual 2015/ / /18 SCI Target SCI Target SCI Target FFO/Interest 3.2x 3.0x 3.1x 3.1x FFO/Debt 15.3% 14.1% 14.6% 14.7% Debt/(net debt + equity) 71% 70% 70% 70% Return on equity 12.2% 11.2% 11.7% 11.0% Return on capital employed 6.8% 6.4% 6.5% 6.3% 13

14 NZ$ million NZ$ million Regulated asset base & transmission revenue (pricing years from 1 April) 5,000 1,000 4, , , , ,500 13/14 14/15 15/16 16/17 17/18 18/19 19/ Regulated Asset Base (LHS) Regulated transmision revenue (RHS) 14

15 Capital projects Major projects now concluded Capital expenditure ( spend ) for 2014/15 totalled $359 million (prior year $502 million) Majority of expenditure is base capex on replacement and refurbishment of existing transmission assets Bunnythorpe-Haywards - approved $161 million Tower strengthening and lifting Higher capacity conductors installed Programme completion scheduled for

16 NZ$millions Capital projects Capital expenditure in RCP2 is weighted towards maintaining the condition of our existing assets / / / / / /20 CAPEX 16

17 4. Regulatory update 17

18 Regulatory developments Post tax nominal WACC reduced from 7.19% to 6.44% in RCP2 (from 1 April 2015) We are continuing to prioritise our expenditure and examining efficiency initiatives in response Review of Input Methodologies to occur in 2016 Input methodologies review forum held late July 2015 Decision making framework Risk allocation mechanisms Emerging technologies WACC review included 18

19 Regulatory decisions North Island Grid Upgrade Project (NIGUP) Transpower has voluntarily foregone recovery of $18 million Commerce Commission final decision on additional expenditure allows for recovery of $52 million Recovery allowed on $876 million ($824 million original approved) System Operator Service Provider Agreement Renegotiating in 2015 for years commencing 2016/17 Current revenue c.a. $41 million 19

20 Industry issues Transmission Pricing Methodology Electricity Authority considering changes Will not alter Transpower s revenue or enforceability May increase risk of customer dispute and pricing errors Technology Critical role in the development of the transmission grid Smart meters, smart appliances, solar photovoltaics and batteries Investment focus on operating as opposed to capital solutions Generation Target of over 90% renewable generation by 2025 Challenges with management of the transmission grid 20

21 NZAS Variation agreement signed, dated August 2015 Supply contract from can be terminated 1 January 2018 provided it gives notice on 1 January 2017 and meets certain terms Exit would have no material direct impact on Transpower s revenue under the current regulatory framework Some transmission costs would be shifted to other users under the transmission pricing methodology The closure would trigger some new transmission investment but will not materially change Transpower s financial position 21

22 5. Funding update 22

23 Funding Current debt c.a. $3.1 billion Predominantly refinancing of maturing debt AUD AMTN Maintain gearing of c.a. 70% Focus on maintaining current financial metrics Other EMTN NZD Bank / Bonds Prudent liquidity policies Interest cost hedging aligned to regulatory resets/periods USD 23

24 Volume (NZ$m equivalent) Term funding maturity profile 800 (by financial year) $750 million / /17 17/ / /20 20/ /22 22/ /24 24/25 25/26 Domestic USPP EMTN AMTN 26/ /28 24

25 Outlook Committed standby facility renewal - $250 million tranche maturing December 2015 Two maturities to refinance in 2015/16 financial year: $175 million domestic bond and $100 million Bank of Tokyo Mitsubishi facility Focus on domestic market issuance Maintain access to and monitor offshore markets 25

26 6. Other/Questions 26

27 SCI performance summary Financial years ended 30 June HVAC availability 98.5% 98.9% 98.7% 98.7% 98.4% HVDC availability 97.7% 80.8% 90.3% 83.6% 84.9% Number of loss of supply events greater than 0.05 system minutes Number of loss of supply events greater than 1.0 system minute EBITDAIF* margin 73% 71.1% 67.6% 63.0% 61.6% FFO/Interest 3.2x 3.0x 2.9x 2.9x 3.6x Return on capital employed 6.8% 6.8% 8.0% 7.5% 6.5% Return on equity 12.2% 11.4% 12.1% 9.9% 8.0% Earnings before interest, tax, depreciation, amortisation, impairments and fair value movements 27