VETTF (VETTF) Q4 2026 Earnings Report, Transcript and Summary

Good morning, everybody. Welcome to Vector Limited's conference call and webcast to discuss the company's financial and operational results for the full year ended 30 June 2026. [Operator Instructions] I must advise you that this conference call is being recorded today. I would now like to hand you over to Vector's Chair, Doug McKay, who will take you through the call. Please go ahead, Doug.

[Foreign Language] Good morning, everyone. I'm Doug McKay, Vector's Chair. Today, we'll be going through Vector's financial and operational results for the full year ending 30 June 2026. Joining me on the call are Group Chief Executive, Chris Blenkiron; and Chief Financial Officer, Jason Hollingworth. We'll begin with an overview of the year, then cover the detailed financial and reportable segment results, our investment in Bluecurrent, the outlook for fiscal '27 and then the final dividend. After that, we'll open up the call for questions. But for now, I'll hand over to Chris to start the presentation.

Thank you, Doug, and good morning, everyone. FY '26 has been a year of strong financial performance. We've maintained a disciplined approach to capital allocation. We're sharply focused on delivering the services and experiences our customers expect and deserve, and we're delivering for our shareholders. We've had a record year of capital investment in the electricity network. We've done this while continuing to be very deliberate about when and where we invest so that we can build a safe, reliable and future-ready network while minimizing the cost impact to our customers. Overall, the picture ahead is that Auckland has an opportunity to power more of its economy with affordable, reliable electricity, and Vector's network is essential to making that future possible. I'll now move on to an overview of our group level financial results for the year. To set the scene for these results, a higher revenue allowance for electricity distribution businesses applied for the full 12 months of these results compared with only 3 months in the previous financial year. This higher revenue was set by the Commerce Commission from the 1st of April 2025 as part of the DPP4 reset. This led to revenue from continuing operations increasing by $111 million or 12% to just over $1 billion. The higher revenue flowed through to adjusted EBITDA of $482 million, up $81 million or 20%. Net profit after tax increased by $86 million or 55% to $240 million. During the year, our investment into Auckland's electricity network was our highest ever reported in a financial year and exceeded $0.5 billion. Gross capital expenditure for the group increased by $74 million or 16% to $544 million. And finally, our operating cash flow increased by $117 million or 23% to $633 million, and this was driven by the higher adjusted EBITDA. I'll now hand you over to Jason.

Thanks, Chris. I'll begin with the drivers of adjusted EBITDA, net profit, capital investment and the balance sheet. I'll then take you through the performance of our Electricity and Gas Distribution segments, followed by our investment in Bluecurrent. This slide shows adjusted EBITDA for continuing operations increased by $81 million to $482 million in FY '26. The increase was driven by the Electricity segment, which contributed an $88 million uplift. Gas Distribution was flat year-on-year, and the Other adjusted EBITDA was $8 million lower due to a $9.3 million loss on the sale of HRV. The main driver of earnings growth, as Chris has said, was the higher DPP4 revenue allowance for the electricity distribution business applying for the full period of these results, whereas the higher allowance was in place for only a quarter in the prior year. Other remains a non-reportable segment, and that includes VTS, HRV, Vector Fibre, Equalise and also some group eliminations. We'll now move to net profit after tax. NPAT from continuing operations increased to $240 million, up $82 million on the prior year. The largest positive driver was the increase in adjusted EBITDA, and this was partially offset by lower capital contributions and higher net interest. A key difference year-on-year is that FY '25 included a $37 million impairment of the Gas Distribution business, and there was no impairment in FY '26. Overall, the increase in NPAT reflects the stronger earnings performance, together with the absence of the Gas impairment recognized in the prior year. And I'll now move to capital investment. Our gross capital investment increased by $74 million or 16% to $470 million -- from $475 million (sic) [ $470 million ] in FY '25 to $544 million in FY '26. Electricity CapEx accounted for the majority of the movement, increasing from $432 million to $512 million, which is a record amount of capital invested into the electricity network in a single year. Within that, the electricity growth CapEx increased by $16 million (sic) [ $18 million ], while electricity replacement CapEx increased by $62 million. Gas Distribution CapEx was down $5 million, and other CapEx was down $1 million. Net CapEx increased from $260 million in FY '25 to $353 million in FY '26 due to the higher gross CapEx and also lower capital contributions at $191 million in FY '26, down from $211 million in FY '25. We'll now move to the balance sheet. Vector continues to maintain a strong balance sheet. Our Standard & Poor's credit rating remains at BBB+ with a positive outlook. Our economic net debt at June '26 was up $120 million to $2.28 billion, with gearing at 39%. I'll now move to the segment performance. Let me start with Electricity. Electricity adjusted EBITDA increased by $88 million or 25% from $352 million in FY '25 to $440 million in FY '26. Revenue increased by $141 million, driven by the impact of the DPP4 reset, which included $38 million from the net impact of the DPP3 inflation wash-ups and IRIS penalties. Pass-through costs increased by $31 million, with the increase linked to the new reset period for Transpower. And these costs are recovered through revenue. Other OpEx increased by $22 million, linked to the increased maintenance activity and also higher digital costs. Total electricity connections continue to grow, increasing 1.6% to 642,134. And then to Gas Distribution. Gas Distribution adjusted EBITDA was flat at $47 million. Revenue was slightly higher, but this was partially offset by higher costs. Gas volumes were down 1.7% on the prior year with lower demand across all sectors. And total gas connections decreased by 0.5% on the prior year to 119,991. The gas market remains an area of ongoing uncertainty, and we continue to manage the business prudently, having moved from investing CapEx to spending more on maintenance where we can to maintain safety, reliability and long-term customer outcomes. I'll now move to Bluecurrent. Our investment in Bluecurrent continues to perform well. Our revenue, EBITDA and cash available for distribution were all up on FY '25. Vector equity accounts its 50% investment in Bluecurrent. So while Bluecurrent earned $222 million of EBITDA in FY '26, the company reported an accounting loss of $43 million due to depreciation costs, interest costs and also the amortization of intangible assets. Vector recognizes 50% of this loss in its P&L. Bluecurrent is currently debt funding the rollout of its new meters, which means surplus operating cash flow is available to be distributed to shareholders each year. Bluecurrent's net debt increased from $1.391 billion to $1.59 billion over the year, and that was due to the rollout of new meters, mainly in Australia. In FY '26, Vector received $55 million in distributions from Bluecurrent, and that was up by $3 million on FY '25. These distributions comprise $10.2 million of interest on a shareholder loan provided to Bluecurrent Australia, $12.1 million of principal that was repaid on this loan, and we received $32.6 million of dividends. The net book value of our Bluecurrent investment was $580 million at year-end. This net book value was reduced over the year due to the recognition of our share of the joint venture's loss, the dividends we received and an increase from the net movement in the shareholder loan balance due to an FX gain. I'll now hand back to Chris to cover the outlook.

Thank you, Jason. As with FY '26, we are providing guidance on adjusted EBITDA, gross CapEx and capital contributions for F '27. Adjusted EBITDA is forecast to increase on FY '26. The DPP4 decision set out a path of increasing revenue in each year of the 5-year period. Our forecast for FY '27 is consistent with this and includes recovery of an additional net $54 million of revenue wash-up and IRIS adjustments. We're also forecasting an increase in gross capital expenditure, and we'll likely see another record year of investment into the electricity network. The primary driver of the increase is higher levels of replacement CapEx. This is important because it reflects how we're investing more to ensure the network remains reliable and resilient as Auckland continues to grow and electrify. Importantly, we're focused on balancing these investments with affordability. We're very disciplined on when and where we invest to deliver the network our customers need while minimizing the cost impact. Customer-driven activity is expected to be broadly in line with FY '26, although the guidance range for capital contributions is lower, noting contributions can vary substantially depending on the timing of major customer project connections. For FY '27, the guidance range is: adjusted EBITDA of $540 million to $560 million; gross CapEx of $605 million to $635 million; capital contributions of $160 million to $190 million. Before I hand back to Doug, I'd like to thank all our people, including our field service providers and call center teams, for their enormous work throughout the year. I would also like to acknowledge our customers, our partners and stakeholders as we continue to invest in the network and support Auckland's growth and electrification. I'll now hand back to Doug.

Thank you, Chris. I'll now cover the dividend. The Board has determined a final dividend of $0.135 per share with no imputation. This brings the full year dividend to $0.26 per share. The dividend record date is 9 September 2026, and the payment date is 21 September 2026. Chris, Jason and I are now happy to take any of your questions.

[Operator Instructions] Your first question comes from Joshua Dale and Craigs Investment Partners.

I have a handful of questions. So it was helpful to see the split out of Bluecurrent distributions. One thing I noticed was the weighting to dividends was quite high in FY '26, and the loan repayments were much lower. So two questions on that. What does the pace of that shareholder loan paydown look like in the future? And is this now a permanent shift into dividend receipts for you from Bluecurrent?

Joshua, there were originally two loans for Bluecurrent, one into New Zealand and into Australia. And the New Zealand loan has been repaid, so we will now be receiving dividends out of New Zealand. The loan that's in Australia is probably going to take over 5 years to repay based on current forecast. So we'll continue to receive interest and principal repayments out of the Australian business.

That's helpful. And distributions from Bluecurrent obviously increased by $3 million to $55 million for FY '26. Is that about the right increase to assume into FY '27?

It reflects the deployment of meters. So I think if they continue to deploy meters at the current rates, you would expect that to broadly follow that trend.

And it might be a bit of a hard question to answer, but the metering market in Australia and New Zealand is obviously somewhat finite, and there's probably an upper limit as to what Bluecurrent's revenue and EBITDA could be at some point in the future. Is there any sense, I guess, as to when you might start to approach that limit of full market penetration and the time frame over which that might play out? I appreciate your competitors are obviously in the mix as well.

So the Australian market is moving to 100% rollout of smart meters by 2030, so that's the sort of time frame there. The New Zealand market, though, that's been highly penetrated for quite a while now is still growing because people are still connecting to the electricity network. So there's always that underlying growth of new connections that will continue. So not at the rate that you see when you're rolling out smart meters, but it will continue to have growth. We've also deployed smart gas meters into the New Zealand market successfully. And Bluecurrent are looking at trying to push smart gas meters into the Australian market, so there's an opportunity there. And there's also opportunities in smart water metering, which is another whole segment that is available potentially to Bluecurrent. So there are still growth opportunities for that business going forward outside the current sort of smart electricity metering rollout in Australia.

Okay. And just last two questions, hopefully, easy ones. First, imputation, obviously, there's none at the moment. I think you signaled we might expect to see some from FY '28 onwards. Is that still the case? And I guess, any sense of level would be helpful and perhaps timing around when you may get to full imputation.

You'll see that in our balance sheet that our tax asset is now a current tax asset. So that tells you that we're going to use it up in the next 12 months. So that's -- that will be the end of that, and then we'll start paying cash tax towards the end of FY '27. Not a huge amount, I don't think. So we'll really be starting to become a taxpayer in FY '28. We'll never get to -- based on our forecast, we'll never be fully imputing our dividends, but we'll be imputing a portion of them as we pay tax. So not a lot happening this financial year, but we should expect to start seeing a level of imputation in FY '28.

Okay. Last one, you've obviously tested the market with your fiber business. What happens to it now? Are you just sitting on that for now?

Yes, Josh, it's Chris. Yes, we've decided we're the best owner for the fiber business. Obviously, it's got an exciting growth curve ahead of it, actually, if you look at data centers, if you look at 5G. So we weren't short of people interested in that business, but we decided that we're the best owner. And so now going forward, they've got a lot of opportunity in front of them in the market, which I know the team is pretty pumped about actually, and they're getting after it.

Your next question comes from Andrew Harvey-Green and Forsyth Barr.

A couple of questions from me. First of all, I think you've been running a bit of a strategic review over the last few months, Chris and Doug. Just a question, I guess, in terms of progress on that and timing and sort of what we might expect to see from that in due course?

Yes, Andrew, that's something we're just in the sort of final throes of working through. I think to give a flavor, I mean, the focus very much on the efficiency and sort of the disciplined execution. And I guess you saw a bit of that through the capital program that we talked about through the results just now. So there's a big focus on making sure that, that part is transformed and operating as well as it can be into the future. There's a large program of work ahead. But we're also having a look at the energy transition, what role that we should be playing in that. Auckland needs to electrify, the country needs to electrify, so we're looking at that. But we'll probably have a little bit more to say at that probably towards the shareholder meeting in September. So we're just working through the final parts of it now.

Yes. It's Doug here, Andrew. I'll just add to that. We've got a lot of growth opportunity in front of us. So it's all very positive in terms of what our future strategy will be. I'd also say it's going to be much closer to our core business operations than the previous step-outs into other activities, which we've been cleaning up from for the last 3 years. So we've now bottomed the cleanup pretty much, made the strategic decision to keep going for growth in fiber as part of that review. But now we're clean slate, we've got a complete strategy that we've been working our way through, testing various hypotheses. And we're almost there, almost there, and we will speak more to that around the AGM. But there is no shortage of growth opportunities in our part of the sector or the industry.

Yes. Great. And the only other question I really had, I guess, is probably more for Jason, just around the S&P rating and noting you're on that positive watch. I mean, is that something that you're wanting to pursue as a credit rating upgrade? Or is it more a case of if it happens, it happens?

I think it would be good, Andrew, because obviously, it would make our debt costs lower. We do have some refinancing to happen over the sort of next 12 to 18 months. So again, it's really an S&P call, I think. So we will -- we have an annual cycle with them. We'll be presenting them with some updated information sort of in the next month. And really, it's up to them, will they maintain that positive outlook or move on that.

Your next question comes from Phil Campbell and UBS.

Just a couple from me as well. I suppose just the first one was just, I think, recently, there was a ComCom letter under Section 36 of the Commerce Act on connections. Just wondering if you had any kind of views on potential impact of that?

We're engaging with ComCom actively on many fronts, as you know. The EA is currently also speaking about connections and balance point and the like. There's various angles that ComCom are looking at, at the moment and the EA that we're actively engaging with. And I think it's a positive thing. One of those angles is around distributed generation. It's another thing that we're actively looking to work with our customers on and open up to. So nothing really in terms of material impact for us. We'll keep working through them. And if we need to, we can update later on.

Awesome. Second one was just on the CapEx guidance. Obviously, it looks though it's a bit higher than what was in the AMP. And is that mainly due to replacement? I'd just be interested in kind of reconciling that guidance with the AMP.

Yes, it is slightly higher than the AMP for this year, Phil. So -- and it is a lot of replacement CapEx, as I think we mentioned in that slide. So again, there are some larger projects, some of it just the timing of things. So yes, we will try and deliver the AMP over the 5-year period. But yes, this year is slightly higher.

Great. And then I haven't had time to calculate. I just wondered what the dividend payout ratio was under your formula on the $0.26?

It's at the bottom of that payout range, Phil, of 70%. Which I think we signaled at our -- last year.

Yes, that's right. I suppose it's -- will we get a bit more of a color in terms of what potential kind of guidance on the payout ratio when you've done your strategic review at the AGM? Or will that be included within that? Or is it just going to be more about the growth opportunities?

Yes, we haven't turned our mind to the payout ratio at this stage, Phil, for next year. We've been focused on what this year should be. But as you can see from the tenor of our conversation this morning and some of our written commentary, we have a lot of growth opportunities, and we need a lot of CapEx. So we're being very conservative at the moment in the way we're thinking about where we fall in that range. And it could well be that we continue to be very conservative. I certainly wouldn't be encouraging anyone to push up into the upper half of that range, nothing like that. Because we need a lot of access -- we need access to the capital for our growth and replacement.

[Operator Instructions] Your next question comes from Stephen Hudson at Macquarie Securities.

Just a couple from me. Just firstly on capital contributions. I just wondered if you can give us a bit of flavor for what you're seeing out there? You're obviously forecasting a reasonable dip this year.

Yes, it's pretty steady. Obviously, we won't go into the specific projects and the commercial nature of them. But I mean, we're seeing a pretty steady flow. But as you can imagine, some of the big projects can really swing that around as I sort of signaled in terms of the guidance. But in terms of activity, it's pretty steady.

Okay. And just coming back to the payout ratio, you've sort of got quite a specific definition of cash flow available for distribution, and it's different, I think, to what you used to use as a free cash flow payout definition. If we were to assume sort of the dividend climbed by cents by per share in line with the dividend trend slide that you've got on Slide 17 there, what would the traditional free cash flow payout ratio look like at the end of DPP4, Jason? So leaving aside your company-specific definition and just using the old traditional stand business CapEx.

Look, I don't know off the top of my head...

What would your...

I don't know, Stephen, off the top of my head. I'm happy to look at it. But yes, I can't do that calc sitting here, I'm afraid.

I suppose it's sort of quite an important count because you've got a -- on the traditional definition, your free cash flow payout, you're actually paying out more than your traditional free cash flow. It's over 100%. And so it's -- but we understand that you're growing into that through the DPP4 smoothing. Do you think it would be under 100%, I suppose, is the question? By the time 2030 rolls around?

Yes. Look, I just don't know. But I guess we've got a policy that we've been -- that we forecast against, and it takes account of the reset and it takes account of our current balance sheet. So I guess I'm used to thinking of it in that terms rather than sort of going back to how we used to measure things. And I think our old policy was more of a progressive policy, right, where the dividends went up at a certain rate each year rather than a specific sort of payout percentage or anything. So it was quite different.

The two components -- Doug McKay here, Stephen. The two components of a percentage of cash flow, 70% to 100% of cash flow and 75% of CapEx is debt-funded. They are the guideposts at the moment. It's -- I'm not saying they'll be the guideposts forever. In fact, there could well be a need to revise our dividend policy at some point in the next few years, particularly as we land our strategy and we start to understand the capital -- the CapEx implications of that. But we'll be more transparent about that when we finish that work by the time we get around to our AGM.

Yes. Okay. That's useful. Just one final one. Doug, you talked about -- you've got a lot of prospective growth and projects in front of you. Can you give us a bit of a flavor for where and what they are?

I can broadly do that. But I won't go into too much detail because it is part of our strategy work, and we need to land it. But the whole electrification -- the stats I like to use, Stephen, on this one is people bandy around that we're 92% or 97% renewable on our electricity generation, whatever that number is, but you know what I'm saying. But we're only 34% renewable in total energy in New Zealand. And when you look at the impact of lifting, say, from 34% -- which broadens the definition to vehicles and transport and a whole lot of other things -- but when you lift that number from 34% to say, 60% to 65%, the opportunities for savings for our consumers and our customers are very significant. Plus, we've got the ongoing uncertainty around gas supply in New Zealand. So there's a dramatic uptick in inbounds for us on electrification and how can we help our customers with that. And both retail and industrial customers are finding that quite a complex process to navigate. You've got to have a lot of technical knowledge. So yes, you think about the implications for electrification, that in itself is a major growth opportunity for a business like ours.

There are no further questions at this time. I'll now hand back to Mr. McKay for closing remarks.

Thank you. So if there are no further questions, we'll end the teleconference and the webcast. If analysts and investors have further questions, then please contact Jason. If media have any follow-ups, please contact Matt Britton or call our usual media phone number. Thank you, everybody, for your interest and for joining us.