AusNet Half Year 2022 Results Release and Presentation

For personal use only

ASX Announcement

11 November 2021

AusNet Services Half Year 2022 Results

Release and Presentation

The following documents are attached:

1. AusNet Services Half Year 2022 Results Release; and
2. Investor Presentation.

Authorised by

Naomi Kelly

Company Secretary

Investor Relations Enquiries	Media Relations
Adrian Hill	Karen Winsbury
General Manager	Head of External Communications
Strategy & Corporate Development	+ 61 3 9483 0989
[phone]

For personal use only

ASX Announcement

11 November 2021

AusNet Services Half Year 2022 Results

AusNet Services Limited (AusNet) reported its half year results for the period ended 30 September 2021 (HY2022), announcing a total dividend of 4.75cps (unfranked), in line with full year 2022 dividend guidance of 9.5cps, unfranked.

On 31 October 2021, AusNet agreed the terms of a binding proposal and entered into a Scheme Implementation Deed (SID) under which a consortium of investors, led by Brookfield is to acquire all the shares in AusNet for cash consideration by means of a scheme of arrangement (the Scheme) for $2.65 per share. Further details are contained on page 3 of this release.

The six months to 30 September 2021 have presented a challenging operating environment. Victoria has continued to endure various COVID-19 restrictions, including three separate lockdowns. Despite these challenges, our employees have been able to adapt, manage and respond quickly and safely, maintaining a strong focus on health and wellbeing while seeking to minimise disruptions to customers.

In addition, Victoria experienced severe weather events in June and October 2021, when strong winds and storms had a damaging impact on our distribution network. The June storm was the largest event we have ever responded to on our network. In both storm events, concerted emergency response effort from AusNet and delivery partners restored supply, with the safety of our employees and the community remaining a priority at all times. As part of this effort, we worked closely with the Victorian State Government to facilitate Government relief payments and provide other support measures to impacted customers.

We also announced the single corridor for the Western Victoria Transmission Network Project (WVTNP), an important step toward determining the final proposed route. This is a major infrastructure project for the State of Victoria which aims to reduce congestion on the existing transmission network and enable future growth in renewable generation for the National Electricity Market. We will continue to engage constructively with landowners and local communities as we progress through the Environmental Effects Statement process.

Tony Narvaez, Managing Director of AusNet said, "Our response to the significant challenges during the period continues to highlight the resilience of our people. We continue to adapt our organisation to capitalise on growth opportunities arising from the energy transition. Our portfolio of energy transmission and distribution assets puts AusNet at the epicentre of this energy transition which will require additional infrastructure to accommodate new sources of renewable energy. AusNet will play a pivotal role in the decarbonisation and development of the energy sector in Victoria."

	A$M		HY 2022	HY 2021	Variance
	Revenues		1,031.8	1,039.4	↓0.7%
	EBITDA		636.4	661.6	↓3.8%
	EBITDA after lease income (EBITDAaL)		653.7	679.5	↓3.8%
	Earnings before interest and tax		402.0	429.7	↓6.4%
	Profit before income tax		244.1	303.6	↓19.6%
	Net profit after tax		177.5	225.7	↓21.4%
	Cash flow from operations		403.0	430.9	↓6.5%
	Capital Expenditure		392.5	379.1	↑3.5%
	Dividend (cps)		4.75	4.75	0.0%
	Franking		0%	40%

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Operating & Financial Review

The decline in financial performance compared to the prior period was expected. This primarily resulted from a combination of lower regulatory revenues under regulatory resets and declining price paths, additional costs arising from our employee underpayment remediation, and significant movements in non-cash hedge accounting outcomes. There were a number of other factors that impacted our results, and these are explained further below.

Regulatory revenues (excluding easement tax and Transmission Use of System (TUoS) revenues which are pass-through items) were $18.8 million lower than the prior period. This predominantly arose in our electricity distribution business from the AER approved Electricity Distribution Price Review (EDPR) price path under reset, as well as the "stub" period (1 January 2021 to 1 July 2021) to transition to a new regulatory year. Our gas distribution business also experienced declining revenues from a milder winter and lower approved tariffs.

Our operating expenditure (excluding easement tax, and TUoS expenses) increased by $7.1 million or 1.9%. Our efforts to address employee underpayment and related matters has resulted in an additional $7.4 million of costs being recognised in the current period, including remediation, on-cost and external advisory costs. Expenses were also impacted by a change in the accounting treatment of cloud software implementation costs, which are now expensed and resulted in $2.9 million of additional operating expenditure. In addition, there was a $2.8 million increase in non-discretionary items including insurance, council rates and levies, as well as a $4.1 million increase in other operating expenditure due to the prior year deferral of maintenance, higher IT costs associated with cybersecurity and project related works, and general wage increases.

Offsetting these operating expenditure increases is our continued focus on transformation. In addition, the Development & Future Networks business (previously Growth & Future Networks) was able to achieve a $3.7 million reduction in operating expenditure (before corporate overheads).

Net profit after tax decreased by $48.2 million because of the EBITDA decrease described above as well as an increase in net finance charges largely due to the impact of a $19.8 million movement in non-cash hedge accounting. Our effective tax rate has increased from 26% to 27% in the current period, reflecting a $13.3 million income tax credit in the prior period because of amended tax returns for the 2016-2019 period. Our current period effective tax rate of 27% remains less than the corporate tax rate of 30% as we have recognised a $6.9 million income tax credit relating to an amended assessment lodged with the Australian Taxation Office.

Capital expenditure had a marginal increase over the prior period of $13.4 million or 3.5%. We saw capital expenditure increase following the re-establishment of supply to 230,000 customers impacted by the June 2021 severe storm event, our investment in the planning and approval stages of WVTNP, and the system go live on 1 October 2021 of our transition to the new Five-Minute Settlement (5MS) rule across the National Electricity Market. The 5MS rule aligns operational dispatch and financial settlement in the electricity network, every five minutes. These increases were partially offset by a declining spend pattern in our REFCL programme following the installation of these devices at 59% of our 22 targeted zone substations and the completion of the replacement of transmission towers damaged by severe wind during January 2020.

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AusNet enters into Scheme Implementation Deed with Brookfield

On 31October 2021 AusNet agreed the terms of a binding proposal and entered into a Scheme Implementation Deed (SID), with a consortium led by Brookfield under which the consortium is to acquire all the shares in AusNet for cash consideration of $2.65 cash per share by means of a scheme of arrangement. $2.65 cash per AusNet share represents a 34% premium to the undisturbed AusNet share price of $1.98 as at 17 September 2021.

The consortium includes co-investors Sunsuper Superannuation Fund, an Australian multi-industry superannuation fund (Sunsuper), Alberta Investment Management Corporation, an institutional investment manager for pension, endowment and government funds in the Province of Alberta Canada (AIMCo), the Investment Management Corporation of Ontario, an investment manager overseeing assets on behalf of public sector institutions in Ontario (IMCO) and Healthcare of Ontario Pension Plan, a defined benefit pension plan for Ontario healthcare workers (HOOPP).

The Brookfield binding proposal came following several earlier unsolicited, indicative, non-binding and conditional cash proposals from Brookfield and two unsolicited, indicative, non-binding and conditional cash and scrip proposals under a scheme from APA Group (APA).

The Scheme values AusNet at an equity value of $10.2 billion and an enterprise value of $17.8 billion.

If the Scheme is implemented, AusNet shareholders will receive total consideration of $2.65 cash per share, less the total cash amounts of any dividend paid in respect of the half-year ended 30 September 2021 (being $0.0475 per share) and in respect of the full year ending 31 March 2022 (up to a maximum of $0.0475 per share).

If the Scheme is implemented after 31 March 2022, AusNet shareholders will be entitled to additional consideration from Brookfield of $0.000260274 per share for each day after 31 March 2022 that has elapsed by the date of implementation.

The AusNet Board of directors unanimously recommends that shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert concluding in its report (and continuing to conclude) that the Scheme is in the best interests of AusNet shareholders. Singapore Power (which currently owns 32.74% of the AusNet shares) has informed AusNet that it supports the Scheme and intends to vote in favour of it, subject to the SID not being terminated, there not being a superior proposal, an independent expert concluding that the Scheme is in the best interests of AusNet shareholders (and not changing that conclusion) and the Scheme being implemented by 30 June 2022.

A Scheme Booklet, which will contain important information relating to the Scheme and the Scheme Meeting, the reasons for AusNet's Board recommendation, and the Independent Expert's Report, is currently expected to be made available to shareholders in advance of the Scheme meeting, proposed to be held before the end of March 2022 at which shareholders will vote on whether to approve the Scheme. AusNet is exploring whether the timetable can be accelerated.

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Outlook

Our core business is connecting communities with energy and accelerating a sustainable future and we play a pivotal role in the decarbonisation of the energy sector in Victoria. Our goal remains to deliver long-term shareholder value, while demonstrating strong Environmental, Social and Governance principles.

FY22 dividend guidance of 9.5 cps (unfranked) confirmed.

Current expectations are that the Brookfield Scheme will be implemented by February / March 2022.

Dividend Key Dates

The 2022 interim dividend of 4.75 Australian cps is unfranked. The Dividend Reinvestment Plan (DRP) will not be in operation for the 2022 interim or final dividends given the binding proposal from Brookfield.

For further information please refer to the DRP rules at www.ausnetservices.com.au.

Relevant dates:
11 November 2021	Announcement of Half Year 2022 Results and interim dividend
16 November 2021	Ex-dividend date for interim dividend
17 November 2021	Record date for interim dividend
16 December 2021	Payment of interim dividend

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