CREATING A NEW ENERGY FUTURE Financial and Operational Results HALF YEAR ENDED 31 DECEMBER 2015 VECTOR LIMITED Disclaimer This presentation contains forward-looking statements. Forward-looking statements often include words such as "anticipates", "estimates", "expects", "intends", "plans", "believes“ and similar words in connection with discussions of future operating or financial performance. The forward-looking statements are based on management's and directors’ current expectations and assumptions regarding Vector’s businesses and performance, the economy and other future conditions, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Vector’s actual results may vary materially from those expressed or implied in its forward-looking statements. 2 CHAIRMAN El- :I-l :3 :m EU VECTOR LIMITED - Dividend and Outlook H1 Highlights Operating Overview A VECTOR LIMITED Continuing to deliver dividend growth • 2016 fully-imputed interim dividend increases 0.25 cents to 7.75 cents per share - Record date: 31 March 2016 - Payment date: 14 April 2016 • Increase reflects directors’ confidence in Vector’s financial strength post sale of Vector Gas • Absent the sale, on track for August guidance of adjusted EBITDA(1) of $550-565m - Actual result impacted by timing of sale - Sale now only conditional on OIO approval; targeting completion in March Declared Dividend (cents per share) 7.75 7.75 8.00 7.00 7.25 7.50 7.50 7.75 FY12 FY13 FY14 FY15 FY16 7.50 7.50 7.50 6.50 6.75 FY10 FY11 (1) We have amended our definition of adjusted EBITDA to exclude capital contributions Interim Final 5 VECTOR LIMITED Simon Mackenzie GROUP CHIEF EXECUTIVE ?3?3 . . . \mwv?fl VECTOR LIMITED FY2016 H1 Snapshot – realigning the portfolio • Agreed sale of Vector Gas for $952.5m, realising full value for shareholders, allowing Vector to repay debt and recycle capital into higher growth opportunities • NZ smart meter fleet now exceeds 1 million. Vector accredited to operate as metering service provider in Australia • Customers impacted by Penrose outage can claim service level payment ($50 residential/$200 business) online (vector.co.nz) or by calling 0508 4PENROSE • Smart metering installs of 14,400 per month over first half year • Strong cost control across the regulated business • Membership of Energy Excelerator gives access to latest innovation in energy sector • Constructive engagement with Commerce Commission on emerging technologies • TRIFR now 41% below where it was two years ago • Supreme award at Equal Employment Opportunities Trust 2015 Diversity Awards 7 CHIEF FINANCIAL OFFICER Dan Molloy VECTOR LIMITED VECTOR LIMITED H1 sees growth in adjusted EBITDA, Operating cash flow & Net Profit H1 2016 Financial Performance ($m)1 687.1 663.0 H1 2015 H1 2016 287.9 305.9 203.3 248.8 87.3 100.1 Revenue -3.5% 2 3 153.6 152.0 74.7 77.2 Adjusted EBITDA Net profit Operating cash flow Capital expenditure Interim dividend +6.3% +14.7% +22.4% -1.0% +3.3% 1 The revenue and profit measures in this release represent both continuing and discontinued operations. For statutory reporting purposes, the Vector Gas businesses are presented separately in the profit and loss statement as discontinued operations. Please refer to our interim financial statements for a breakdown of continuing and discontinued operations. 2 Revenue includes the recovery of pass-through costs. 3 We have amended our definition of adjusted EBITDA to exclude capital contributions. Adjusted EBITDA is not a GAAP measure of profit. For a reconciliation of adjusted EBITDA to EBITDA and net profit refer to page 25 of this presentation. 9 VECTOR LIMITED Earnings growth across all divisions except Gas Trading H1 2016 Adjusted EBITDA ($m) 305.9 +0.4 287.9 -4.1 +7.2 Trading1 Gas Wholesale Technology +11.6 +2.9 H1 2015 Electricity Gas Transportation Shared Services 1. We have changed the name of the segment previously referred to as “Gas Wholesale” to “Gas Trading” to better reflect the businesses that contribute to this segment. H1 2016 10 VECTOR LIMITED Earnings growth & favourable derivative movements drive higher first half profit Net Economic Debt & Gearing ($m) Movement in Net Profit Before Tax ($m) +16.3 +7.3 3,000 +0.6 52.5% 52.9% 53.6% 53.4% 50.0% 2,500 -6.9 139.7 40.0% 2,000 122.4 1,500 30.0% 1,000 20.0% 10.0% 500 H1 2015 Derivative movements Earnings Depreciation Other H1 2016 0 2,625 2,682 2,745 2,741 Jun 14 Dec 14 Jun 15 Dec 15 Net economic debt ($m) • 0.0% Gearing Sale of Vector Gas will have significant impact on balance sheet - If transaction had occurred on 30 June 2015, gearing would decrease from 54% to 42% - NTA per share as at 31 December 2015 up 46% as result of sale 11 VECTOR LIMITED Capital expenditure consistent with prior corresponding period • H1 gross capex down 1.0% to $152.0m. Net capex (after contributions) flat at $128.2m • Capital contributions down 6.7% primarily due to lower relocations in gas transmission Gross Capex Split ($m) Gross Capex by Division H1 2016 4% Electricity 4% Gas Transportation Gas Trading 33% 31% H1 2015 47% Technology Shared Services 3% 3% 15% 15% 45% 200 180 160 140 120 100 80 60 40 20 0 25.5 23.8 128.1 128.2 H1 2015 H1 2016 Net capex Capital contributions 12 VECTOR LIMITED Simon Mackenzie GROUP CHIEF EXECUTIVE ?3?3 . . . \mwv?fl VECTOR LIMITED Sale of Vector Gas allows recycling of capital into higher growth opportunities • • • Vector agreed in November to sell Vector Gas for $952.5m to First State Funds - Vector shareholders approved sale in December. Now conditional only upon OIO approval - Targeting completion by end of March 2016 Vector transmission system Maui pipeline Non-Auckland Gas Distribution System Price realises full value and allows Vector to apply the proceeds to repay debt and recycle capital into higher growth opportunities - Initially c$560m of floating debt to be repaid - Further debt repayment as facilities mature Sale will result in EPS dilution of ~10% over time relative to retention - Dilution will reverse as we recycle capital into new opportunities 14 VECTOR LIMITED Leveraging our heritage & creating options 6 standard & 4 rapid EV chargers installed with another 17 rapid chargers to come 130 families, schools and community groups get free use of solar panels and Tesla battery units for 10 years Our first utility scale battery arrives later this year. New technologies will form a crucial part of the $1.8b of investment required to support Auckland’s energy infrastructure over the next decade 15 VECTOR LIMITED Technology Vector accredited as metering provider in Australia • AEMO Accreditation required Vector to demonstrate full operating capability in Australia • EBITDA growth driven by smart meter installations and Arc acquisition, offset by business development costs for Australian metering, solar and batteries • Currently providing smart metering services to more than 20 retailers in New Zealand • 1.2m smart meter installations by end of FY17 Contracted & Installed Smart Meters Technology Adjusted EBITDA Movement ($m) 1,200,000 +9.9 1,000,000 800,000 49.8 -1.0 57.0 -1.7 600,000 400,000 200,000 - H1 2015 Contracted Additional Smart Decrease in Meters (incl Arc) legacy meters Other* H1 2016 Installed 3 per. Mov. Avg. (Installed) *includes expenditure on new technology & markets 16 VECTOR LIMITED Gas Trading Challenging conditions continue for Gas Trading • As signalled in August, issues include: - Lower production & ongoing Kapuni uncertainty - Increased competition, tighter margins and lower prices for gas liquids - • • Gas Trading Adjusted EBITDA Movement ($m) 29.3 +0.9 Weaker demand from electricity generators -3.5 25.2 -0.7 -0.8 Ongoing proceedings with Kapuni Mining Companies - KMCs appealed Post 1010 PJ arbitral award which set price & terms for next tranche of Kapuni gas - Kapuni redetermination process & processing fee proceeding ongoing - Field operator recently completed extensive seismic survey of Kapuni field Increasing demand for Bottle Swap – South Auckland filling plant operational in FY17 H1 2015 Lower Natural Gas Margins and volume Lower maintenance Lower intl price for gas liquids Other H1 2016 Bottle Swap Volumes (‘000 cylinders) H2 H1 240 185 200 155 203 229 266 302 158 FY12 FY13 FY14 FY15 FY16 17 VECTOR LIMITED Lower costs & higher volumes drive improved Electricity performance • • • Electricity Adjusted EBITDA Movement ($m) New connections remain elevated +4.0 FY16 H1 new connections up more than 40% on average over 2011-14 - Electricity 173.7 -1.9 +4.5 170.8 Volumes up 0.7% due to connection growth and cooler winter temperatures -3.7 Costs controlled during period - H1 2015 Expenditure (excl. pass-through costs) $4.5m below pcp One off items in prior period Lower costs (ex pass-through) Higher volumes and ICPs Other H1 2016 Electricity Connections & Throughput 4,500 4,380 4,360 4,337 4,000 3,500 4,368 4,359 4,340 4,321 4,320 4,298 4,300 4,271 3,000 4,280 4,260 2,500 2,716 2,753 2,657 3,003 3,780 3,916 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 H1 2016 2,000 4,240 4,220 New Connections GWh Billed 18 VECTOR LIMITED Regulated price increases underpin improvement in Gas Transportation result • • • • • Gas Transportation Adjusted EBITDA Movement ($m) Gas Transmission prices increased in accordance with regulated revenue cap Transmission volumes down 4.0% as thermal generation demand declines Gas Transportation +2.1 +10.7 75.1 -1.2 Discontinued operations $52.3m 63.5 Distribution volumes up 4.1% due to cooler temperatures and connection growth Agreed sale of Vector Gas (which owns the Gas Transmission and Non-Auckland Gas Distribution networks) to First State Funds Auckland new gas connections up 13% on prior year to 1,538 Continued operations $22.8m H1 2015 Price increases Dist. Volume Other H1 2016 Gas Distribution - Connections and Throughput 12,620 2,500 2,000 12,123 1,500 1,000 500 0 11,668 11,655 1,710 2,039 2,112 2,020 H1 2013 H1 2014 H1 2015 H1 2016 New Connections TJ Billed 12,800 12,600 12,400 12,200 12,000 11,800 11,600 11,400 11,200 11,000 19 VECTOR LIMITED VECTOR LIMITED VECTOR LIMITED Group profit statement1 Six months ended 31 Dec ($m) INCOME STATEMENT 2015 $m 2014 $m Revenue (excluding capital contributions) 639.2 661.6 Operating expenditure (333.3) (373.7) Adjusted EBITDA 305.9 287.9 +6.3 23.8 25.5 -6.7 (102.8) (95.9) -7.2 (90.0) (90.2) +0.2 Fair value change on financial instruments 2.4 (4.9) Associates (share of net profit/(loss)) 0.4 - Tax (39.6) (35.1) Net profit 100.1 87.3 Capital Contributions Depreciation and amortisation Net interest costs Change % -3.4 +10.8 n/a +100.0 -12.8 +14.7 1. The revenue and profit measures in this release represent both continuing and discontinued operations. For statutory reporting purposes, the businesses sold during the period are presented separately in the profit or loss statement as discontinued operations. Please refer to our interim financial statements for a breakdown of continuing and discontinued operations. 22 VECTOR LIMITED Group cash flow Six months ended 31 Dec ($m) CASH FLOW 2015 $m 2014 $m Operating cash flow 248.8 203.3 Replacement capex (71.5) (67.8) Dividends paid (80.9) (79.2) 96.4 56.3 (91.6) (91.7) 0.0 (20.0) (0.6) (0.5) Pre debt financing cash inflow 4.2 (55.9) Increase/(decrease) in borrowings (6.0) 57.0 Other financing activities (0.4) (1.3) Increase/(decrease) in cash (2.2) (0.2) Cash available for growth and debt repayment Growth capex Acquisitions Other investment activities 23 VECTOR LIMITED Segment results1 Six months ended 31 Dec ($m) Electricity Gas Transportation Technology Gas Trading Shared services 2015 2014 Change % 2015 2014 Change % 2015 2014 Change % 2015 2014 Change % 2015 2014 Change % 344.3 350.8 -1.9 103.4 96.1 +7.6 88.5 76.0 +16.4 151.4 185.9 -18.6 0.3 0.3 0.0 Operating expenditure (151.4) (162.5) +6.8 (24.0) (26.5) -9.4 (31.2) (24.3) -28.4 (126.2) (156.6) +19.4 (25.4) (25.8) +1.6 Segment EBITDA 192.9 188.3 +2.4 79.4 69.6 +14.1 57.3 51.7 +10.8 25.2 29.3 -14.0 (24.9) (25.5) +2.4 Depreciation & amortisation (46.6) (41.7) -11.8 (10.3) (12.1) +14.9 (32.2) (27.6) -16.7 (7.1) (7.7) +7.8 (6.7) (6.9) +2.9 Segment profit 146.3 146.6 -0.2 69.1 57.5 +20.2 25.2 24.1 +4.6 18.1 21.6 -16.2 (31.6) (32.4) +2.5 EBITDA/Revenue 56.0% 53.7% 76.8% 72.4% 64.7% 68.0% 16.6% 15.8% Replacement 40.5 36.9 +9.8 8.6 11.2 -23.2 5.4 5.0 +8.0 3.3 3.0 +10.0 5.6 5.9 -5.1 Growth 28.4 35.1 -19.1 14.1 11.8 +19.5 44.6 42.8 +4.2 1.5 1.6 -6.3 0.0 0.3 -100.0 Total capex 68.9 72.0 -4.3 22.7 23.0 -1.3 50.0 47.8 +4.6 4.8 4.6 +4.3 5.6 6.2 -9.7 Revenue CAPEX 1. Revenue includes capital contributions 24 VECTOR LIMITED GAAP to non-GAAP reconciliation Vector’s standard profit measure prepared under New Zealand GAAP is net profit. Vector has used nonGAAP profit measures when discussing financial performance in this document. The directors and management believe that these measures provide useful information as they are used internally to evaluate performance of business units, to establish operational goals and to allocate resources. For a more comprehensive discussion on the use of non-GAAP profit measures, please refer to the policy ‘Reporting non-GAAP profit measures’ available on our website (vector.co.nz). Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New Zealand International Financial Reporting Standards) and are not uniformly defined, therefore the non-GAAP profit measures reported in this document may not be comparable with those that other companies report and should not be viewed in isolation or considered as a substitute for measures reported by Vector in accordance with NZ IFRS. EBITDA and Adjusted EBITDA Six months ended 31 December Reported net profit for the period (GAAP) Add back: net interest costs 1 Add back: tax (benefit)/expense In this period we have amended our definition of Adjusted EBITDA to exclude capital contributions. 1 Add back: depreciation and amortisation Definitions: 1 EBITDA EBITDA: Earnings before interest, taxation, depreciation and amortisation. Adjusted EBITDA: EBITDA adjusted for fair value changes, capital contributions, associates, impairments and significant one-off gains, losses, revenues and/or expenses. Segment adjusted EBITDA $M Six months ended 31 December Reported segment EBITDA1 less capital contributions1 Segment adjusted EBITDA Segment adjusted EBITDA subtotals GAAP TO Non-GAAP reconciliation Unregulated segments Technology 2015 Electricity 2014 2015 2014 2015 2014 Associates (share of net (profit)/loss) Capital Contributions Gas Transportation 2015 2014 57.3 51.7 25.2 29.3 192.9 188.3 79.4 69.6 (1.9) - - (19.2) (17.5) (4.3) (6.1) 57.0 49.8 25.2 29.3 173.7 170.8 82.2 79.1 Regulated 1 Fair value change on financial instruments (0.3) Unregulated 2014 $M $M 100.1 87.3 90.0 90.2 39.6 35.1 102.8 95.9 332.5 308.5 Adjusted for: Regulated Segments Gas Trading 2015 75.1 63.5 248.8 234.3 Adjusted EBITDA 1 (0.4) - (2.4) 4.9 (23.8) (25.5) 305.9 287.9 1. Extracted from reviewed financial statements 25