VCT.NZVCT.NZNZE
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Operator: Good morning everybody. Welcome to Vector Limited Conference Call and Webcast to discuss the company's financial and operational results for the half year ended 31st December 2025. [Operator Instructions] I must advise you that this conference call is being recorded. I would now like to turn -- hand over to you Vector's Chair Douglas McKay who will take you through the call.
Douglas McKay: [Foreign Language] Hello everyone, and welcome to this presentation. I'm Doug McKay, Vector's Chair. Today, we're going through Vector's results briefing for the half year ended 31 December 2025. Joining me on the call for the first time as our group Chief Executive is Chris Blenkiron. Pleased to have you here, Chris. And we have Chief Financial Officer, Jason Hollingworth. We'll start the presentation with comments from Chris on overall financial performance. Then Jason will look at the detail. Chris will then talk about the outlook for the next 6 months, and then I will come back to talk about the dividend. After that, we'll be happy to take your questions. And I'll now hand over to Chris to start the presentation.
Chris Blenkiron: Thank you, Doug. Hello, everyone, and thank you for joining the call. It's great to be speaking with you for my first market update since joining Vector in December. I'll start off by setting the context for these results. The new regulatory period, known as DPP4, began on the 1st of April 2025. At this time, the Commerce Commission increased allowable revenue for all electricity distribution businesses in New Zealand. The changes support the investment that's needed for the country's energy transition. Also, keep in mind that the gray bars on the slides show the impact of businesses that have now been sold and continuing operations are shown in blue. This is to allow for easy year-on-year comparison. With that background in mind, I'll talk through some of the top line results. Vector's group financial performance for this half year has been strong and in line with our expectations. Revenue for Vector Group is up 14%, driven by higher electricity revenue. Higher revenue has flowed through to an increase in adjusted EBITDA to $240 million. This is up 19% over the same period in 2024. Adjusted EBITDA excludes capital contributions, which are paid by new customers for their connections to the network and is how we currently ensure that growth pays for growth rather than cost of growth being spread across all Auckland electricity consumers. Net profit after tax was $113 million, down 4% with the higher adjusted EBITDA offset by lower capital contributions. Gross capital expenditure was $223 million, down 15% on the prior period. However, we do expect capital expenditure to be higher in the second half of the year than it was in the first. In terms of regulatory quality measures, we include SAIDI minutes in our quarterly operating statistics, which were released last month. SAIDI is how electricity distribution businesses are measured by the Commerce Commission for the duration of power outages on their networks over a year. At this stage in the regulatory year, which finishes at the end of March, we are within the regulatory limit. Our focus is on making sure every dollar we spend produces the best value possible and keeping our charges, which are around 1/4 of the total power bill as affordable as we can. I'll now hand over to Jason to go over the detail behind these top line results.
Jason Hollingworth: Thank you, Chris. This slide shows the segment contributions towards the adjusted EBITDA figure. Adjusted EBITDA from the Electricity segment was up $48 million, reflecting that HY '26 was under DPP4 and HY '25 was under DPP3. Earnings for Gas were flat on the prior period. Other includes VTS, Vector Fibre, Equalise, which offers cyber services to other lines companies and our group eliminations. It also includes a $9.3 million loss on sale from HRV effective on 1st of August '25. Next slide. Net profit after tax was down $5 million or 4%. This is down on the prior period with the higher adjusted EBITDA being offset by the factors shown on the slide, including lower capital contributions, fair value movements on financial instruments and tax. Gross capital expenditure has decreased from a comparable 2024 period to $223 million, and you can see here some of the detail. Net CapEx after deducting capital contributions was down at $126 million. Capital contributions were down at $97 million. The slide on group debt shows that our debt levels have remained flat with gearing at 37%. The next slide, we'll now look at the segment performance, starting with electricity. Adjusted EBITDA for electricity was higher, as previously mentioned. The higher impact from pass-through costs is the transmission charges we collect on behalf of Transpower. These have increased because of Transpower's own revenue reset that reprice transmission at the same time as distribution. We passed transmission costs on and recover them via our revenues. There are also higher OpEx costs in the period linked to increased maintenance activity and also higher digital costs. Total electricity connection numbers grew by 1.3%. Looking at gas. Adjusted EBITDA for gas distribution was flat at $24 million, with slightly higher revenue in the period, offset by slightly higher costs. Gas distribution volume was down 4.5% compared to the prior period due to lower demand from the residential, industrial and commercial sectors. There has been a 0.4% in total gas connections over the period. These results are consistent with our most recent forecast for the Gas network, which were published last year in our gas asset management plan. We have recently submitted on the Commerce Commission's DPP4 draft Gas decision. This is the 5-year reset for gas distribution networks with the commission's final decision due in May 2026. We welcome the commission's intention to continue to accelerate depreciation given the heightened uncertainty over the long-term nature of gas in New Zealand. And given the difficulty in accurately forecasting gas volumes for the next 5 years, which is fundamental -- which is a fundamental input into setting a price cap, our submission advocates for a move away from a price cap for approach that would share volume forecast risk between both the network owners and consumers. The Commerce Commission is still considering its final decision, so we don't yet know what this will mean for consumer prices. Pipeline costs are just one component of the gas bill; however, most forecasts show that over the long term, these will rise. That's why we're advocating for a managed transition and making sure we recover costs fairly now. This also means keeping the gas network safe and reliable while it's still in use and planning for decommissioning when these pipes reach the end of their life. Next slide looks at Bluecurrent. Our investment in Bluecurrent continues to perform in line with our expectations. Year-on-year, Bluecurrent has increased its revenue, resulting in higher EBITDA, and this is flowing through to higher distributions. In this period, we received $26.6 million of distributions in relation to our 50% shareholding. And I'll now hand back to Chris.
Chris Blenkiron: Thanks, Jason. For the 2026 full year results, we are forecasting adjusted EBITDA to be within our guidance range of $470 million to $490 million. We are now forecasting gross capital expenditure within the range of $500 million to $540 million. This forecast represents an increase over our full year 2025 capital investment and at around $0.5 billion shows our commitment to significant investment in Auckland's critical energy infrastructure. We're forecasting capital contributions within the range of $180 million to $215 million for the full year. We've tightened the ranges for gross capital expenditure and capital contributions because we now have greater visibility of project time lines through to the end of the reporting period. Thank you to all of the Vector people, our field partners and suppliers who work incredibly hard for our customers and who delivered these results. We know that for our energy system to be at its best and most affordable, the whole sector needs to coordinate well and work in concert with each other. We're committed to doing this to support the region's role in our national economy and to help our country meet our energy aspirations. I'll now hand back to Doug.
Douglas McKay: Thank you, Chris and Jason. The board has determined an interim dividend of $0.125 per share with no imputation. Now that brings us to the end of our presentation. But just before we move to questions, I'd like to thank Chris and his executive team and everyone else at Vector, plus our field service providers and call center for their hard work over the period to deliver for Vector customers and shareholders. Chris, Jason and I are now happy to take any questions.
Operator: [Operator Instructions] Your first question comes from Grant Lowe with Jarden.
Grant Lowe: Tim, can you hear me okay?
Unknown Executive: We can. Grant, Yes.
Grant Lowe: Thanks for the presentation. And welcome, Chris. Just around a few for me. The electricity business was a beat on my numbers at both revenue and EBITDA. So I think the revenue was up circa 28%, which is a touch higher than my uplift that I was expecting. Were there any sort of one-offs in that result in terms of inflation catch-up and the like that we've seen in the past?
Jason Hollingworth: Yes, Grant, there is still a wash-up balance that we were able to recover in this period. So that is in there as well. That's coming to an end because it has a 2-year lag.
Grant Lowe: Yes. Okay. And do you have that number to hand as to roughly how much that was?
Jason Hollingworth: I don't have it to hand that I can look it up and get it to you, yes.
Grant Lowe: Okay. Yes, great. Thank you. Okay. No, that's good. And then just the -- so the guidance has been held, and we've also got that $9.3 million loss in there. With guidance being held, was that guidance already factoring in the $9.3 million loss and the washup balance that going into that number when you set the guidance at the full year?
Jason Hollingworth: I think, to be honest, probably not Grant. So I think we're at the probably higher end of that number. That loss turned up after we set that guidance. So yes.
Grant Lowe: Yes. So the washup balance was probably $9 million, that's calculable. But -- so effectively, is this effectively a $9.3 million upgrade to the guidance range.
Jason Hollingworth: I think it puts us at the top end of that guidance. We're now saying it would have been at the top end of the guidance. We've held the range. But I think if we haven't had the HRV situation, we would have probably been guiding to the top end of the range rather than sort of leaving the range as it is.
Grant Lowe: Yes. Okay. I guess, that's useful. And then just around the dividend payout, it was a touch lower than I had in my forecast, I was forecasting 13% versus your 12.5%. I appreciate it's a free cash flow measure. But obviously, the -- if we just think about the EBITDA for a second, that's up quite materially. How did the Board go about -- think about setting the 1H dividend? And then what are the sort of swing factors around for the full year dividend, what we might expect to see there?
Douglas McKay: Yes, it's a good question. To be honest, we didn't pay any attention to -- and we haven't with the interim in terms of its percentage relative to the 70% of the policy. And I understand from Jason this morning, it's lower than that.
Jason Hollingworth: For the half result.
Douglas McKay: For the half year results. Yes. We don't look at the half in that respect. It's the full year that we will pay consideration to the 70% minimum. So we don't have any reason to think we won't be well within the range at the year-end. Look, part of the decision-making was what was it last year in the interim and what should it be this year, given EBITDA is strong, as you say. And so we uplifted it by 0.5%, and we sort of thought, well, that's a good indication of how confident we feel about the way things are tracking. But if you looked at it strictly versus the policy, but we don't think about the half year in that respect, we could have gone a bit higher. But no, we haven't.
Grant Lowe: Okay. So I guess -- I mean, my full year is $27 million versus the $25 million last year based on the free cash flow calculation. I guess what I'm hearing is that there was a touch low on the free cash flow side of things. If everything sort of plays out with respect to guidance and everything else, would it be reasonable to assume that there is a slightly stronger uplift in the second half if everything plays out according to plan?
Douglas McKay: If everything plays out, yes, it will, Yes. I wouldn't necessarily agree with the $27 million, but you're at the top end of what I'm thinking of as Chairman anyway. I'm not speaking for the Board at the moment, but we'll see.
Grant Lowe: Okay. Yes, indeed. And then last one for me. Just I think last year, you provided guidance on Bluecurrent distributions. Do you have any thoughts on that? I see we've got the half year figure of $26.6 million. Do you have a full year figure in mind?
Jason Hollingworth: We do have a number. I don't have it to hand, but you can see the year-on-year sort of increase for Bluecurrent period-on-period. So I think that we expect that to continue into the second half. So I think last period, we got $23.4 million. This period, we're getting $26.6 million, so an uplift. So I expect that to continue as they continue to deploy meters.
Operator: Your next question comes from Andrew Harvey-Green with Forsyth Barr.
Andrew Harvey-Green: Doug, Chris and Jason. Just a couple of questions from me. First one, just looking at the electricity OpEx line, there was a reasonable increase, I guess, relative to first half last year, but even relative to the second half last year. Is that -- should we be thinking as that the sort of the normal half year run rate for OpEx on electricity going forward? Or are there some sort of one-offs in there that might pull it back for the second half and other periods?
Jason Hollingworth: I think there are some one-offs in that, Andrew. I don't think it's actually coming down, but I don't think it's going to keep lifting at that rate. There has been, I guess, an increase in our maintenance spend in this half that's probably going to continue with some change in standards and just some extra activity that we've been doing. We also have a couple of large projects underway that are -- have to be under these new accounting rules now have to actually be expensed rather than capitalized. So our digital costs are sort of running at a higher rate, which I think is probably going to continue while these projects are occurring. So yes, it's mainly those 2 areas that are causing that increase, maintenance spend, which is going to continue and this lumpy digital spend around a couple of key projects that are cloud-based and therefore, have to be expensed.
Andrew Harvey-Green: Just a follow-on question around the metering. I noticed, I think that it's been refinanced. So you've got -- expecting lower interest costs going forward. All other things being equal, we should expect that to help increase distributions back to Vector from the metering?
Jason Hollingworth: They've refinanced at lower interest rates. Their NPAT number is lower because they've had to write off their arrangement fees from the original facility, but sort of that's noncash, if you like. So the actual underlying cash flow is better because they've got lower interest rates, I think, by circa 30 basis points from memory. So it's a reasonable reduction.
Andrew Harvey-Green: Yes. Okay. Cool. And last question for me was just whether we've got a little bit of an update on the strategic review of the fiber business.
Chris Blenkiron: Yes, Andrew. No real update, that process continues. And just a reminder that there's no guarantee that the outcome of that strategic review would result in a sale, but the process does continue.
Operator: Your next question comes from Phil Campbell with UBS.
Philip Campbell: Just a couple from me as well. I just noticed in the half year cash flow statement, it looked as though there was some kind of positive working capital movement. So that was one of the reasons why if you did do a dividend payout ratio calculation, it was a little bit lower. I'm assuming there's just timing issues around that, Jason, and that will probably reverse in the second half?
Jason Hollingworth: Yes, that's right. There's nothing there that I'm aware of -- yes that's structural. I think it's timing, yes.
Philip Campbell: And then just on the dividend coming back to this kind of $0.27, I think we've got that in our model as well, and we're assuming that the payout ratio declines from last year. I think from last year, from memory, it was 85%. So we've got that coming down. I just wanted to see if that was still the thinking. I think the rationale at the last result was just some uncertainty around what EA is doing in terms of those capital contributions. I just wanted to check if that was still the thinking from the Board?
Douglas McKay: 0Yes, it will be lower than 85% this time around.
Jason Hollingworth: I think last year,, don't lock that in because that was a sort of one-off to do with sort of transitioning from DPP3 to DPP4 and the fact we only had a quarter in our results. So I think we said, look, we're paying up at this level, but it's not a -- don't bake that into your future numbers.
Philip Campbell: And maybe just a question on CapEx. Obviously, like it was a bit weaker in the first half. And obviously, you've tightened the range up in the full year, still a large number. What's the kind of reason for the CapEx number kind of coming down?
Chris Blenkiron: Yes, Phil, there's a couple of reasons. I mean 1 is some customer projects were sort of pushed out. It's always difficult with these lumpy capital projects, as you know, to get the timing right. So a few of those have been pushed further out. And that's probably the primary reason. So we do have some confidence going in the second half that, that run rate will certainly pick up.
Philip Campbell: Is that data centers or you can't really comment?
Chris Blenkiron: We can't comment on the specific projects, but there's a number of them.
Philip Campbell: And then maybe just last question for me on metering. I noticed that Neil Williams has left a CEO. I'm just wondering if there's any reason for that and whether you've recruited a new CEO for Bluecurrent?
Chris Blenkiron: Not yet. We haven't recruited yet. The Bluecurrent Board is managing that process, and we have 2 representatives on that Board, looking after our interests, Dame Paula Rebstock and Simon MacKenzie. And they're in the process of working with the headhunter now to find the right replacement.
Philip Campbell: Great. Awesome. And I just noticed you may not know the answer to this question, but I just noticed in the AFR, there was, obviously, one of the Bluecurrent competitors, I think, potentially a transaction happening there. Just wondering if there's any valuation read-through that you might want to comment on?
Douglas McKay: Are you talking plus ES?
Philip Campbell: Yes. Yes.
Douglas McKay: Well, look, I can't quote the numbers, but I did remember thinking the expectations on value looked very, very high. But I didn't do an earnings multiple or anything. It just -- I think it was $3 billion or something. It was a massive number. So obviously, we're trying to be involved in that process. We are interested strategically in increasing our participation in that market, increasing our number of meters but we'll just have to see how that plays out. If people are at that sort of number, that's a very big number.
Philip Campbell: Right. And then maybe just very last one, just on the fiber process. Is there any kind of timetable there? When you say we're no guarantee of sales. Is there any time when bids are due or where about are we in that process?
Jason Hollingworth: There is a timetable, Phil. And yes, I think we'll know by year-end, whether we've got a transaction or not. And I guess we won't quite know when it completes. It will depend on what the terms and conditions are. But we'll certainly, I think, have landed a decision by 30 June, one way or the other.
Operator: Your next question comes from Stephen Hudson with Macquarie Equities.
Stephen Hudson: Morning, everybody, and welcome, Chris. All of my questions have actually been posed, but perhaps just a general one for you, Chris. I know it's early days, but I guess I just -- and I know we'll be meeting with you, I believe, the 1st of March as a community. But any sort of initial observations on the state of Vector in terms of assets, people and strategic direction and where you may, I suppose, differ from sort of the prior thinking, I guess?
Chris Blenkiron: Yes, sure. I mean, Simon's left a very strong and good business operating here, Stephen. We've got some very strong people in the right roles, doing some really good work. In fact, I think some of the credit that we will get to keeping the lights on and the infrastructure going in Auckland is probably something that we should get. It's in a strong state. In terms of the strategic direction, I've not contemplated any change in strategic direction. The Symphony strategy remains as focused as it has. I think what we'll continue to do is an ongoing test against the external environment, whether that's the customer side, the regulatory settings, decarbonization pace, technical, we'll continue to test those settings. But my focus at the moment is absolutely on sort of disciplined execution on the work that we're doing as we go into the second half. But it's great to join a great business in really strong shape.
Stephen Hudson: Very good. Thanks, Chris. And I look forward to catching up.
Chris Blenkiron: Yes, Looking forward to it. Thanks Stephen.
Operator: Your next question comes from the line of Grant Lowe with Jarden.
Grant Lowe: Another one from me. Just around the meters rollout in Australia. Obviously, the regulatory bodies over there have -- I'm not sure exactly what the terminology is, but effectively mandated 100% penetration by 2030. Is there any sort of commentary you can give around Bluecurrent in terms of either contracts signed or thoughts around the level of participation in that rollout at this stage?
Douglas McKay: I don't have any updates, Grant, other than we had a Board meeting here yesterday, and Paul was telling me that things are tracking as they had indicated they would be the Bluecurrent Board. So there's no surprises there. There's incremental increases in our metering network. We don't -- we haven't had any acquisitions of packages of meters or anything like that in this period. So it's all organic at this point in time, and it's steady.
Grant Lowe: Yes. Okay. How do you -- just generally, like for the market as a whole, how do you see that rollout playing out? Like obviously, there was a big contract signed here for the rollout in New Zealand. Is it a similar sort of a process? Is that what you're expecting over the next well and you're sort of actively participating in those discussions?
Douglas McKay: Those contracts tend to be quite long term. So once you settle into them, you've got a good tenure there mostly. You're not sort of every year or 2 into another process on those same contracts. They require a lot of capital investment. They require a lot of systems and process changes and interactions. So it doesn't move around a lot. Once you land them, it's a reasonably settled market.
Grant Lowe: Yes. I guess the question I'm sort of asking is, I think rough guess there were sort of 5 million meters to go or something, you might tell me that's wrong. But are we -- do you expect to see sort of like 1 million meters contract or a rollout of 1 million meters signed in big chunks like that? Is that kind of how you expect this to play out?
Jason Hollingworth: The retailers typically bundle them up into reasonably large blocks, Grant, and then sort of tender them out. And we have contracts in place with the existing retailers, and there are still some contracts being let, but we have a number already under contract. It's competitive though, as you imagine, [ Telehub, Plus ES ] are the other 2 big players. And these retailers are sort of good at getting the sharp price out of the market. And yes, so that's it. So we've got a number of already under contract that we're executing on. New Zealand is deployed, so there's not so much going on here. It's really an Australian growth sort of situation. And once you've won those contracts, you still have to execute on them, right? So there's always a risk that if you don't deliver because there's a lot of competition for field service people to install all these meters. So it's not -- one thing to win the contract, you actually got to execute on it. And we're very sort of mindful of that because the opportunity potentially to pick up some extra work if you're the party that's executing well. And we're seeing a bit of that going on at the moment as well over there where some others potentially aren't quite performing.
Douglas McKay: And these contract package sizes are often in the order of 200,000 to 300,000 meters.
Grant Lowe: Yes. That is useful.
Operator: There are no further questions. I would now like to hand it over back to Doug for closing remarks.
Douglas McKay: Okay. Thank you. If there aren't any further questions, we'll end the teleconference and the webcast. If analysts and investors have further questions, please feel free to contact Jason. For the media, please contact Matt Britton or call our usual media phone number. Thank you, everyone, for joining us.