AusNet Services reported higher cashflow from operations and maintained a stable set of results for the full year ended 31 March 2017, in line with consensus estimates
AusNet Services’ FY17 results were within analysts’ Bloomberg consensus estimates, notwithstanding lower FY17 revenue and EBITDA compared to FY16. The slight weakening in revenue and EBITDA was built into expectations, primarily driven by lower tariffs resulting from the current electricity distribution regulatory determination. On balance, the company’s other underlying businesses generated stable to strong performances, and delivered stronger cashflow from operations for the group. We expect AusNet Services to continue creating predictable revenue and cashflows, with around 70% of its total revenues locked in until FY20 under current regulatory determinations, and around 85% of its total revenues being regulated by a transparent and predictable regulator.
The company’s gas distribution network is expected to generate lower returns for the next few years from 1 January 2018, as a function of low prevailing risk free rates – a fundamental building block of the rate of return for regulated entities. However, the company has a track record of managing lower returns whilst maintaining a long term A range credit rating. The final decision from the regulator is expected to be in November 2017.
FY17 results highlights
Source: AusNet Services Key points:
- FY17 revenue was down 2.0% year on year (yoy) to AUD1.88bn from AUD1.92bn
- EBITDA dropped by 6.1% yoy to AUD1.07bn from AUD1.14bn, primarily driven by lower electricity distribution tariffs of 5.7% despite stable volumes. This was partly mitigated by a decrease in operating expenses, excluding one off items, of AUD9m in FY17 in the regulated energy services businesses
- AusNet Services achieved greater efficiency benefits – capital and operating expenditures – of AUD47m in FY17
- The company achieved higher cashflow from operations, up 4.6% yoy to AUD743m, due to lower cash tax and lower net finance costs. This compares to capital expenditure of AUD839m – an increase of 1.9% yoy – and dividends of AUD308m, up 4.5% yoy, with the latter remaining to be fully covered by net operating cashflows
- Debt at face value* was AUD6.68bn and cash or cash equivalents were AUD329m. This resulted in leverage – as measured on a net debt (on face value basis) to Regulated/Contracted Asset Base – remaining at 68% as at 31 March 2017, compared to 67% at 31 March 2016. On the other hand, Interest Cover improved slightly to 3.2x – from 3.0x – due to lower net finance costs. The company’s net debt is 98% hedged against movements in interest rates, which should continue to support the strong interest cover ratio
A link to the results is available here.
Outlook
AusNet Services reiterated its key objectives for 2017, including building a portfolio of high performing and sustainable regulated and contracted energy infrastructure businesses, operating all three core networks in the top quartile of efficiency benchmarks, targeting AUD1bn in contracted energy infrastructure assets by 2021, Regulated/Contracted Asset Base growth forecast at around 3% per annum to 2020, with forecast net debt to Regulated/Contracted Asset Base of less than 70% to 2020.
*Face value represents the principal amount that has to be repaid on maturity, excluding any adjustments for loan fees, discounts and interest cash flows. Foreign currency debt is translated at hedged foreign exchange rates, with 100 per cent of the debt and its cash flows hedged for foreign currency risk at draw down