Vector Limited (VCT) Earnings Call Transcript & Summary

[Foreign Language] Good afternoon to you all, and welcome to this event. My name is Jonathan Mason, and I am Vector's Chair. As we have a quorum and it is 2:00 PM, I will now declare open the 2021 Annual Meeting of Vector Limited Shareholders. Today's meeting is being held online, as you know, and as we find ourselves like last year, once again, uniting in response to COVID-19 with an online meeting. Now with this online meeting, there are some special instructions to enable participation from our shareholders. I will briefly run through these now. Today's meeting is being held online via the Computershare online meetings platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting and read the company documents associated with the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. Shareholders have received full instructions on how to access the meeting, ask questions and vote in the virtual meeting guide on page 6 of the notice of meeting, which I hope you have. I will now briefly run through the instructions for asking questions and voting. If you have a question to submit during the live meeting, please select the Q&A tab on the right half of your screen at any time. Type your question into the field, select which topic the question applies to and press send. Your question will then be submitted. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, we'll try to sort of gather or amalgamate them together. Due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail, but we'll try to avoid that and answer as many questions as we can at the meeting. Should you require any technical assistance, you can type your query, select the technical support topic and one of the Computershare team will assist with the chat function and reply to your query. Alternatively, you can call Computershare on 0800-650-034. Again, that is 0800-650-034. We ask that you please do not ask individual operational or customer service questions in this forum. In an in person meeting, we have the liberty of having members of our customer excellence team available to help you with these questions after the meeting. But since we're meeting online, these questions can instead be sent to [email protected]. Again, that is [email protected]. While we welcome any members of the media to our meeting today, as this is a meeting for shareholders, please hold your questions during the meeting and reach out to Simon or myself separately via our usual media phone. Voting today will be conducted by way of a poll on the item of business. In order to provide you with enough time to vote, once posting is open, you will be able to vote at any time throughout the presentation. I will shortly open voting on the resolutions. At that time, if you are eligible to vote at this meeting, you'll be able to cast your vote under the vote tab. Once the voting is opened, the resolutions will allow votes to be submitted at any time during the meeting. To vote, simply select your voting direction from the option shown on the screen. You can vote for all resolutions at once or by each resolution. Your vote has been cast when the tick appears. To change your vote, simply select and change your vote. You have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all items of business. The resolutions will now be open in the vote tab, please submit your votes at any time. I will give you a warning before I move to close voting. And of course, and naturally, this will be towards the end of the meeting. In addition to those attending the webcast today, 617 shareholders holding a total of more than 803,831,133 shares of appointed proxies. In my capacity as Chair of the meeting and in my own name, I hold proxies for 525 shareholders, representing 52,165,404 shares. Also included in the proxies are 751 million shares held by Entrust, our majority shareholder. Entrust is represented at the meeting today by William Cairns. It is now my pleasure to introduce my fellow directors; Alastair Bell, Tony Carter, Bruce Turner, and Dame Paula Rebstock, and a special welcome to Anne Urlwin, who you will hear from later. We would also like to thank Mike Bukowski, who stepped down from the Vector Board this month after serving us for the past 3 years. Also joining us are our Group Chief Executive, Simon MacKenzie; and John Rodger, our Chief Legal and Assurance Officer and Company Secretary. We will also have our Chief Financial Officer, Jason Hollingworth; and Graham Edwards from our external auditors, KPMG, joining us via webcast. Now to the structure of this meeting. We released our financial results on the 24th of August, and the details on this are extensively covered in our Annual Report, which is available on our website. Rather than repeat what's in the Annual Report, we will instead provide a strategic view of where Vector is now, its opportunities facing us and how we are working to achieve these for our shareholders, customers and broader stakeholder community. I will then hand over to Simon, who will talk about the financials and a summary of the key highlights from the year. After that, we will open the meeting for specific discussion on the Annual Report, including the financial statements and audit report as well as anything raised in our respective addresses. We will then move to the formal business of the meeting. Before I move to my address, I want to acknowledge all Vector staff across New Zealand and in Australia, who have worked tirelessly through multiple lockdowns and unexpected challenges to keep delivering to our customers. My thanks to you all. As we say on the cover of this year's Annual Report, Vector's vision is bold. We all know the imperative to transform the energy system because legacy energy systems are being challenged to meet the demands that are placed on them today, let alone tomorrow. Vector has long recognized this and started working towards and discussing a very different energy future with our shareholders and customers about 5 years ago. You've heard us talk about our Symphony strategy to grasp opportunities and manage risks in a more affordable way. Today, energy is no longer just critical for our customers' daily life at home, at work and in industries, clean energy is critical to decarbonization goals, not just in New Zealand, but around the world. There is hugely increasing demand for renewable energy to fuel the transition to a low-carbon economy. The electrification of transport, the role of low-emission gas and increasing demand for renewable energy generation are all key themes that are driving significant new challenges into our sector. Energy systems of tomorrow must be much more sophisticated and adaptable than those of today while remaining reliable, resilient and affordable. These are all key tenants of Vector strategy. And that strategy is to develop and build energy systems that enable decarbonization, provide customer choice or affordable while remaining safe, reliable and secure. It is about seeking to complement our existing energy system solutions with new technologies whether they are digital, analytics-driven or new technologies like smart EV chargers. This transformation has to occur to enable the much more complex energy system that will be needed in a low-carbon future, while still ensuring efficiency outcomes are achieved. Simply put, we will spend less to achieve decarbonization and the increased demands of electricity than we would if we followed a traditional asset investment methodology. Innovation and smart digital technology can accomplish much more and cost much less than old technology and systems, smarter investment, better outcomes for customers. For consumers, this provides more choices to lower energy cost, making energy more affordable and enhance the value of electric vehicles and smart homes. This benefits consumers, aligns with government decarbonization goals and is strongly in the commercial interest of shareholders. When I think about Vector's goal in enabling future low-carbon economy, it's clear that the journey presents significant opportunities for us to create new solutions and drive efficient, cost effective, sector-wide decarbonization. At a global scale, the decarbonization challenge in energy is huge. Vector's approach is to build solutions for ourselves with our partners and then consider offering them to our sector locally and around the world. We are actively working on solutions to continue delivering for our shareholders, customers and stakeholders, and we are well positioned to enable decarbonization within New Zealand, the Asia-Pacific region and globally. Simon will discuss these partnerships in more detail, but they include work with AWS, that's Amazon, to improve data analytics on our smart meters and the partnership announced yesterday with X, Google, focused on improving network resiliency and readiness for renewables and EVs. These partnerships allow us to gain access to complementary skills and capabilities that let us innovate faster and our further validation of our Symphony strategy. Our Symphony strategy aims to transform the traditional one way energy chain into an intelligent multidirectional energy system that gives the customer more choice and control. Fundamentally, it is about creating a decentralized energy system that opens up future possibilities, delivering decarbonization consistent with reliable and affordable energy systems for customers. Each part of the Vector group has a role to play, whether it's providing energy choice, data enabling connectivity, advising on renewable solutions, building new digital platforms; the benefits of our diverse portfolio of businesses are clear. And as we do this, we will continue to engage with government to share our view of how a transformed energy system can enable greater progress and affordable decarbonization and what changes to the regulatory framework would help achieve this goal. I'll talk briefly now about some of the changes we'd like to see. Public policy and strategies to achieve decarbonization goals are due in the government's emissions reduction plan, now due in May 2022 and moving to the consultation phase soon. A significant input into the government's decisions is, of course, the Climate Change Commission's final report. We were pleased to see an acknowledgment of a number of important factors we have raised that would benefit the transformation of the energy sector along the lines I have outlined. These include a strong acknowledgment of the opportunities presented by distributed energy resources to achieve affordability, resilience and decarbonization, the benefit of developing a national energy strategy to help coordinate the sector and the importance of accelerating the adoption of electric vehicles to reduce emissions from light transport. We are pleased to see that the commission call out that electricity network should be appropriately equipped, resourced and incentivized to innovate, because this will enable them and us, Vector, to play their role in helping decarbonization happen faster and more equitably. In particular, we agree strongly with the commission's comment that our regulatory framework should be in sufficiently adaptive to enable electricity distribution businesses to undertake the innovation and investment required to meet climate change outcomes. Of course, a major part of the commission's advice now before government and significant for Vector has been around the future of gas, natural gas in New Zealand's energy system. We are pleased to see the commission's final advice, recognizing the complexities of a transition away from the use of fossil gas as an energy source in homes, businesses and industry. We support a gas transition designed to meet the government's carbon reduction objectives, while considering the needs of business and residential customers. To us, this means a smooth transition that manages costs for our customers and enables network operators to continue to operate safe and reliable networks while preserving their options for lower carbon fuels in the future. The new time-frame recently announced for the country's first emission reduction plan will allow us needed time to achieve clarity on the government's plan to resolve these complexities. We will continue to engage with the government and officials as part of the gas infrastructure group and on our behalf as final decisions are made on the transition plan. So stepping back, this has been my first year as Chair. And when I reflect on it, there are a number of highlights in what has been a strong financial year for us. We've achieved the best SAIDI and SAIFI performance that those are 2 measures that look at how many unplanned power outages we have and how long they go. So we achieved the best on both of those measures in the past 5 regulatory years and that speaks to the reliability of the electricity network, in spite of continued impacts from traffic and unpredictable weather. For those of us in Auckland, we know all about it. Unregulated revenue from the metering business has increased 53% from NZD148 million 5 years ago to NZD227 million in FY '21. And we continue to see significant gross capital expenditure of NZD314.7 million in Auckland to enable growth and reliability, supporting New Zealand's largest city. The potential of Vector technology service is clear and evidenced by the strength of our global partnerships. Finally, we are making steady progress to support Auckland and New Zealand to face the great existential challenge of the 21st century, namely climate change. In closing, I thank my Board for their support and Simon and his executive team for their leadership and hard work with unexpected challenges this past year. I will now hand over to Simon.

Thank you, Jonathan, and pleasure to be with you all today. You've heard about our vision, Symphony's strategy and our role in enabling decarbonization, both here and overseas. I'll start with a quick recap of our overall financial results and then provide a few highlights from the year that demonstrate to acknowledge Vector staff and key partners for the year and once again call out Vector's essential workers and our field service providers for their dedication and commitment to delivering our essential services, particularly through the various levels we have experienced both here and in Australia. With regards to financials, Vector delivered a strong result for financial year '21, recording adjusted EBITDA of NZD513.5 million, and this was up NZD23.5 million or 4.8% on last year's result and is in line with guidance provided at the half year. Group net profit after tax was NZD194.6 million or NZD97.3 million higher than the prior year's result due to a number of factors, including higher earnings, lower interest costs, the impact of a non-cash impairment in last year's result and an increase in capital contributions. Gross capital expenditure was NZD529.5 million, NZD40.8 million or 8.3% higher than last year. This increase reflected ongoing investment and infrastructure to support Auckland's continued growth and increasing deployment of advanced meters as market demand continues to accelerate in New Zealand. Note that this increase in capital expenditure was partly funded by a $36.1 million increase in capital contributions recognized as income under IFRS standards. Operating cash flow was 25.6% higher at $499.1 million. This increase was largely due to an increase in capital contributions and lower tax paid as a result of the reduction in the level of dividend imputation. The final dividend of $0.086 per share, partially imputed at 10.5% was paid to shareholders on 16 September, taking full year dividend to $0.1675 per share. I'll now share a few highlights from the year. We continue to invest in Auckland, the fastest-growing city in New Zealand. Gross regulated capital expenditure across the electricity and gas networks in Auckland continues to be at historically high levels due to the continued growth in connections and infrastructure projects as well as investment to improve the reliability and resilience of our networks. And as Jonathan mentioned, we have achieved a strong SAIDI result, and this is due to a combination of continued improvement and innovation across our teams and our field service providers and our ongoing capital investment program. We are maintaining our focus on improving network performance for our customers. We're also transforming our electricity network through a combination of new engineering solutions and digitalization to meet the needs of the future. We're also very excited at the prospects for Vector Technology Services, which has been established to take to market solutions as developed as part of our own digital transformation journey. This is how we will accelerate and support other companies who are on their own digital transformation journeys to access to world-leading solutions. We have already engaged with around 15 of the other electricity distribution businesses in New Zealand with more seasons scheduled later in the year, about what we have developed and how these solutions may be helpful to them. We're also pleased with the development of our property company, Vector Property Services, which is exploring commercial potential of our property and facilities assets, for example, co-location with other infrastructure providers. These 2 entities, Vector Technology Services and Vector Property Services are examples of how we are leveraging our assets or services to others in the sector. Vector's metering division has seen strong growth in the last year. Our advanced meter base grew 8.8% to 1.86 million meters. Advanced meters are a key building block to enable greater use of data than the transformation of the energy sector and Vector is playing a key role here through our strategic alliance with AWS, Amazon Web Services to develop what we call the new energy platform. We have begun deployment of the first product developed through that strategic alliance and are well underway with developing the next. I will now talk briefly about our EV Smart Charging trial, which demonstrates how we are enabling the electrification of transport, whilst also using innovation and technology to importantly, keep the costs of supporting infrastructure and the investment required to enable electric vehicle charging affordable. The trial has shown that smart dynamic charging using new digital platforms enables us to add more EVs into the system while managing the load on the network. This softens or reduces peaks as more and more people come home at the end of the day and plug-in their cars to charge. This also helps us lower the need for capital investment to meet increased peak demand, ensuring we keep power as affordable and reliable as possible. With 90% of EV charging happening at the home, this type of innovation is essential to help New Zealand achieve our carbon emission reduction goals and ensure the changes are affordable. Our view is that this sort of technology is critical to enable the government goals over EV adoption are affordable for consumers and we're pleased to see the Climate Change Commission recommended EV smart charging in their final advice to the government. In the UK, for example, there has now been a decision to regulate for the introduction of EV chargers with smart capability with legislation to be introduced this year. With regards to our Amazon Web Services strategic alliance, one year into the strategic alliance between Vector and AWS, we've made very solid progress on our new energy platform. The first services to be delivered from the new energy platform are the advanced guest data services. The platform stores, processes and delivers advanced guest meter data, which has been enabled through technology we have built and deployed through the strategic alliance. We're also now well advanced in building the solution to provide electricity meter data at 5-minute intervals for our Australian customers. And this is the next step in our data services transformation program and will enable us to provide data services to other parties such as network operators. The strategic alliance is a multiyear agreement and one of a handful that AWS has across the world that will benefit our energy and utility customers, and ultimately, consumers in New Zealand, Australia and beyond through more flexible, efficient and faster processing of data. The alliance has around 60 people across the 2 companies working on the products, and they're all engaged in this product development on cutting-edge public cloud computing services. It's a true co-development between our 2 organizations, with our teams across Auckland, Seattle and Atlanta working together to build the new energy platform. You may also have seen yesterday, we announced a strategic collaboration between Vector and X, X being a subsidiary of ABC, who has within the portfolio, Google as well. We are working together on network virtualization and simulation technology. This is super critical to ensure that we can build affordable and reliable networks into the future. For those who don't know X, it's known as the moonshot factory with Alphabet, the company which runs Google. Our collaboration is part of a shared vision to enable vastly more sophisticated and adaptable electricity networks, get ahead of increasing demands for clean energy and transform the network in order to support decarbonization. We are working to virtualize our network and run simulations to model how the network will perform under certain scenarios. For an example, with an influx of EVs or rooftop solar, many of these challenges are now confronting customers globally and this product will be fundamental to be able to enable them to build the infrastructure required to meet their challenges. We also want to ensure that we are never in the way of customers wanting to opt for their own clean energy solutions. And this is another example of how we're looking outside the energy sector to partner with leading global organizations who can help us deliver not only our goals, but also those of New Zealand and the wider communities. We're also continuing to evolve our thinking on climate risk and opportunity as we prepare ourselves and others for the opportunities of decarbonized [indiscernible]. Given our own goal of net carbon zero by 2030 and increasing demand from investors, shareholders and other stakeholders, there's imperative we keep pace with disclosure expectations around carbon emissions and climate risk. For the 2 years previously, we have made disclosures under the carbon disclosure project framework. This year, we have moved from that framework to the task force for climate-related financial disclosure. This is in line with shareholder expectations and ahead of mandatory reporting under this framework set to come into effect in 2024. We are moving earlier on this as we believe it's important to provide our shareholders and stakeholders with the information, given the breadth of our portfolio in both regulated and competitive businesses. Our TCFD report shows that climate change brings both risks and opportunities for Vector and that with our diverse portfolio of Energy Solutions businesses, we are well positioned to embrace the significant opportunities presented by this energy transition. We are also able to accelerate the energy transition for the New Zealand economy. Our TCFD report is available on our website. In closing, I'll talk briefly about the year ahead. As you have heard from Jonathan, the infrastructure products and services we provide are increasingly critical. We must continue to leverage new technology and business models to provide our customers with cleaner, more reliable and affordable energy solutions into the future. In the coming year, while ensuring we deliver essential services efficiently and safely to our customers remains paramount, we are also focused on several key priorities; delivering growth in our Australian metering business, the rollout of next-generation connectivity via modem replacement program for our advanced meter fleet in New Zealand, developing and growing Vector Technology Services, supporting HRV and its return to profitability, while acknowledging that lockdowns are a set back, supporting Vector Powersmart to take advantage of opportunities in the context of the growing interest in New Zealand for solar development and also supporting Vector Fiber as it leverages its fiber assets in the wholesale market, exploring opportunities with Vector property services and successfully responding to the challenges we see around resources, enabling Auckland growth and ensuring a sensible guest transition. In conclusion, I'd like to reiterate my thanks to all the Vector staff and our field service providers who have worked through challenging times, particularly whether it's through tornados or storms for just delivering those essential services to customers in our communities, not only in New Zealand, but also Australia. I'd like to thank Jonathan and the rest of the Board for their leadership and guidance over the past year. Thank you.

Thank you, Simon. Now for the official part of the meeting. The notice of meeting lists the items to be considered as ordinary resolutions. An ordinary resolution requires a simple majority of valid votes. A reminder for those eligible to vote, you were able to do so, as I noted earlier, at any time as the voting is open. For transparency, you'll be shown the number of discretionary proxies held by me as Chair of the meeting or in my own name. I declare that it is my intention to vote the discretionary proxies in favor of the resolutions. During discussion of the agenda items, I again ask that you can find your questions and any comments directly to matters before the meeting and Vector business. It will be helpful if you select the relevant topic when you ask a question. Only questions related to the specific agenda item will be addressed as part of that discussion. If, for example, a general question is asked during the agenda item during one of the director re-election items, it will be held until the appropriate item on the agenda. We are naturally happy to hear your views on how we operate our portfolio of businesses and to answer questions about operational policy and practice. As mentioned earlier, if you have a personal matter relating to Vector services, customer service representatives can be contacted on 0508 Vector or at [email protected]. As stated in the notice of meeting, only shareholders registered at 5:00 PM on Friday, the 24th of September 2021 or their proxies or representatives may vote. If you have become a shareholder since that date, you cannot vote at this meeting, but we do welcome your attendance. So the first agenda item is to invite questions on Vector's financial and operational results for the year ended June 30, 2021. Questions on future performance will be addressed in general business. The Annual Report was available online on 24th of August 2021. Hard copy reports were sent to all shareholders who requested one. Questions on this topic may be put directly to our external auditors, KPMG, but please keep those questions relevant to their auditing role, if you choose to ask them. So are there any questions in respect of the Annual Report, the financial statements and the audit report for the year ended June 30, 2021. As we would in an in person meeting, I will provide ample time for questions. John, we should give everyone a little time to ask questions because it's a different process.

No questions at the stage, Jon.

Okay. Let's give 30 more seconds, given the new process or the process we had from last year, probably. Okay. John, I guess, that means our Annual Report was reasonably clear, hopefully. But if you do have any questions after, you can e-mail us. And so thank you on that agenda item. There appears to be no questions. And you have my sympathy on trying to do this new process. So now we'll move to the second item of business, the election and reelection of directors. The biographies of each director seeking election or reelection are contained in the explanatory notes to the notice of meeting. If you do have questions, remember, you can post them at any time. In accordance with NZX Listing Rule 2.7.1, Anne Urlwin retires, having been appointed by the Board recently and then being eligible offers herself for election. I now put the resolution to elect Anne Urlwin. And I would now like to invite Anne to address the meeting.

[Foreign Language] Good afternoon, shareholders. This is my first Vector shareholders meeting, and it is quite unique in that we're not all in the same room and able to see each other. However, this reflects the times that we live in and we are fortunate that technology has evolved to support us. And I do hope that everyone and their families are healthy and safe during this period. I joined the Vector Board a few weeks ago on the 1st of September. The recruitment process was very professional and robust, and I'm pleased today to have the opportunity to now seek your support for my election as an Independent Director. I'd like to briefly comment on my background and the experience I consider I can contribute as a Director of your company. I first developed an interest in the energy sector as a Director of Meridian Energy during the time of its wind farm developments in Southland and the Wellington region. those were early days for companies developing a full understanding of the sustainable value drivers for newer forms of energy in the place in the energy market. More recently, I have been a Director of Tilt Renewables, which was subject to a successful takeover, a transaction that closed early last month, delivering significant value to its shareholders, reflecting to renewable success in building and operating renewable energy assets in both Australia and New Zealand. Vector plays a critical role in the energy sector. Resilience and reliability are very important as is meeting customers' requirements and rising expectations while keeping power affordable and of course, responding to climate change in the government's businesses and consumers' policies and actions on decarbonization. Vector's Symphony strategy with its focus on the customer, on innovation and digitalization contribute to being well positioned to pursue opportunities as well as address the challenges of creating a new energy future. I believe some my business experience and skills are relevant to the company's strategy and activities. My broad-ranging professional business and governance background has provided me with experience in infrastructure, regulatory environments, delivery of major projects and the maintenance of critical systems and services. That experience has been with public sector and private sector organizations as well as public listed companies and companies with majority shareholders, including those representing consumers and communities. I am a Director of Queenstown Airport Corporation, which is 75% owned by the Local Council and a Director of City Rail Link, a project, many Aucklanders will be familiar with if they've experienced the inevitable disruption in the CBD as the company delivers New Zealand's largest infrastructure project. I am also a Director of Precinct properties whose central city property portfolio includes Auckland's Commercial Bay and also of retirement village operator, Summerset. Previous governance roles include being a Director of telecommunications company, Chorus, and Chairman of National Commercial Construction Company, Naylor Love and of the New Zealand Blood Service. I would welcome your support for my election as an Independent Director. And if elected, I look forward to working with my fellow directors and the senior management team on delivering value in sustainable investment returns to you, our shareholders. The online form of this shareholders' meeting precludes me from being able to meet shareholders in person. I very fortunately had the opportunity to meet the Entrust Trustees the week before this COVID lockdown and I do look forward to being able to meet many of the other shareholders at some future time when we can be together. Thank you.

Thank you, Anne. Now just to remind shareholders, you may vote at any time, and there will be a final opportunity to cast your votes later in the meeting when all resolutions have been moved and discussed. Are there any questions on this resolution?

No questions, Chair.

Thank you. There appears to be no further discussion in relation to this resolution. The proxy voting position for the next resolution is now shown on the screen. In advance of the NZX listing rules rotation requirements and in order to avoid the situation of all but one of the directors having to retire next year, Bruce retires and being eligible, offers himself for reelection. I now put the resolution to reelect Bruce Turner. And I would now like to invite Bruce to address the meeting.

[Foreign Language] Thank you, Jonathan. Thank you for the opportunity to speak to you for a few minutes as I look to be reelected to the Vector board. I'll outline my views of the challenges and opportunities ahead of Vector. I joined the Vector board 2 years ago, but my experience in the energy sector goes back longer than I might want to admit, more than 30 years, starting out as an apprentice from what was then the Auckland Electric Power Board. It's taken me around the world to Singapore and Europe as well as being involved in the development of the energy industry here in New Zealand, where I have served on the New Zealand Electricity Market [indiscernible] Committee and the MARIA Governance Board. I have also been a member of the Electricity Authority Security and Reliability Council and was heavily involved in energy sector reforms. After all these years in the energy sector, I can safely say that this is the most exciting time to be here. Let's not to say there aren't challenges to navigate, but I believe a significant part of my role as a Director is to balance a range of interests, even tensions at times between engineering, technology and economics, customer shareholder, regulator and government expectations. My experience in energy, business and governance provides me a robust understanding of these dynamics. We're all acutely aware of the need to decarbonize. This is a defining moment for all of us as we rise to this challenge and wait to see how the government act once it has considered the Climate Change Commission's advice. In tandem with this, there are increasing customer expectations from those who are deeply worried about what the future holds, we're simply trying to get through each day, feed the family and pay the bills. We know the challenges, but there are also significant opportunities for Vector. As you've heard, with our Symphony strategy and extensive capabilities across the group, we're well positioned to be a significant enabler of improved outcomes through our communities. Our objective is to enable an affordable and equitable transition to a cleaner, decarbonized economy. We're seizing these opportunities with both hands and leading the way, not just in New Zealand, but by developing technology solutions that will be sought by energy companies around the globe, and X is an example of that. Advances in technology and the smart use of data are key, and we're working to our strengths in these areas to develop energy solutions for our customers and other energy companies that are clean, affordable and reliable. This is becoming possible, thanks to the convergence of engineering and smart digital solutions to create distributed energy management systems. But solutions like this aren't something we can or even want to do alone as part of our strategy is to develop partnerships with the best capabilities around the world. This is already happening with our Amazon Web Services strategic alliance, work to build a new energy platform is well underway and will deliver services to our large retail customers as well as supporting them to comply of new market requirements in Australia. Vector is a diverse portfolio of businesses connected by our Symphony strategy. Brought into sharp focus by the Climate Change Commission's report this year, Vector is advocating for a managed transition from natural gas to alternative energy sources. We've highlighted the financial and social impact of a sudden halt for customers and for investors like Vector, if this change is not carefully planned and executed. The opportunities that will be lost should those assets not be available for low-carbon gas distribution. For us, getting our own investment mix right is also crucial. Our networks and metering businesses are capital-intensive with long-term return horizons, which means we need to invest wisely in assets that will have a role now and in the future. Our goal is to balance this with providing solutions and services that have a shorter payback. This is where Vector technology solutions will contribute, for example, with our cyber expertise and world-leading smart metering services using the new energy platform, part of our strategic alliance of Amazon Web Services. Cybersecurity is critical for any company, but for essential infrastructure, its importance is further elevated. If distribution companies across New Zealand are to enable the electrification of transport and industry, protection of their network becomes even more critical. Vector has the capability and can scale our offering to meet demand, and we're pleased to sign our first customer early this financial year. Central to everything we do is providing long-term sustainable value for our stakeholders. Vector's strong customer focus reflects our ownership model, being 75.1% owned by Entrust. This is an important point of difference of the Vector that aligns the interest of our company, shareholders and customers. As I said at the start, these are exciting times, and with your support, I may get to continue to play a part in making them happen as a Director of Vector. Thank you very much.

Thank you, Bruce. And again, and not to be repetitive, but to remind shareholders, you may vote at any time. There will be a final opportunity to cast your vote later in the meeting when all resolutions have been moved and discussed. Is there any discussion on this resolution?

No questions, Chair.

Great. There appears to be no further discussion in relation to this resolution. The proxy voting position for this resolution is shown on the screen. Now again, and I'm sorry to be repetitive. In advance of the NZX listing rules rotation requirements and in order to avoid the situation of all but one of the directors having to retire next year, Tony retires and being eligible, offers himself for reelection. I now put the resolution to reelect Tony Carter, and I'd like to invite Tony to address the meeting.

[Foreign Language] I'm disappointed that I can't speak to you in person this year. These virtual meetings are a bit of a pain. However, I would like to take this opportunity to seek your support for my reelection to the Board of Vector. This is my second time on the Board of Vector. I was a Director from 2007 to 2012, but I resigned as I became Chair both in New Zealand and Fisher & Paykel Healthcare around that time, and I simply didn't have the capacity to dedicate the time to Vector to fulfill the responsibilities of being a Director. After retiring from those Chair roles, I was invited to rejoin the Vector Board in 2019. Some people think of Vector as a boring lights company, but that is so far from the truth. Aside from the huge responsibility of keeping the lights on in Auckland, Vector also has a very significant business in installing and owning smart meters, both in New Zealand and Australia. But most importantly, Vector is going to be at the leading-edge of the transformation the New Zealand energy system needs to do to mitigate the climate change risk we are all facing. There is no doubt that things like the adoption of electric vehicles, distributed generation, the reduction in the use of natural gas, et cetera, are going to have significant impacts on our core business. Vector needs to respond to those changes by reengineering the electricity distribution system. There are some really exciting things happening at Vector. Things like being one of the very few companies globally enter into an alliance with Amazon, which has huge potential. And of course, yesterday, we announced our new arrangement of X, which is part of the Google organization. I believe that with my experience both from governance and during my executive career as well as my education and engineering, I can help Vector as it transitions to its new energy future. I ask for your support today to allow me to do that. Thank you very much.

Thank you, Tony. And again, just to remind shareholders, you may vote at any time, but there will be a final opportunity to cast your votes later in the meeting when all resolutions have been moved and discussed. And is there any discussion on this resolution?

There are no questions.

Great. So there appears to be no further discussion in relation to the resolution. The proxy voting position for this resolution is now shown on the screen. I now move to the third item of business, the appointment and remuneration of the auditor. Sorry to go through again the legal requirements here, but Section 207T of the Companies Act 1993 provides that a company's auditor is automatically reappointed unless there is a resolution or other reason for the auditor not to be reappointed. The company wishes KPMG to continue as its auditor and KPMG has indicated its willingness to do so. Section 207S of the Companies Act of 1993 noted earlier, provides that the fees and expenses of KPMG as auditor are to be fixed by the company at the annual meeting or in such a manner as the company determines at the annual meeting. The Board proposes that consistent with past practice, the auditor's fees should be fixed by the directors. And the fees for last year or in the Annual Report on page 62, for those folks who love detail. Are there any questions on the resolution?

No questions, Chair.

Thank you, ladies and gentlemen, there appears to be no further questions. The vote totals are shown on the screen and so now we move to general business. Are there any items of general business to be discussed?

Yes, Chair. The first question we've received is from the New Zealand Shareholders Association. And the Association has asked that while Vector has a solid credit rating, debt gearing continues to rise. There are 2 questions. The first is, do you have an upper limit? And the second is, if so, will that impact necessary capital investment and/or dividends?

Yes. So I'm going to kick off here, but I'm also -- so whatever I know, our CFO, Jason Hollingworth knows 10 times more. So Jason can give more color as necessary. And what I'd say to the shareholders' association and all shareholders is that the amount of debt we have is very much dependent on our earnings and cash flow. So the more cash flow we can generate, the more debt we can incur. And so as our earnings have gone up, we have been able to incur more debt. Now there's a couple measures we look at as a Board. Historically, there was one measure called fixed charge coverage ratio. So it sort of compares interest to earnings. But our interest cost with these low interest rates have gone down so much, that, that ratio is probably the strongest it's been this year for 10 years because Jason and the treasury team have driven down the average interest rate that we pay below 4%. But then there's another key ratio that just sort of compares cash flow to debt, and we're watching that very carefully, and we'll keep that within the limits to maintain our investment-grade rating, which is currently BBB as rated by Standard & Poor's because one that is very important to us. So that's sort of a high level. Jason, would you like to put any more color into that important credit question for us.

I don't think so, Jonathan. I think you have done a very good job there. It's all about the cash we earned. We determine how much we can service, yes.

Excellent.

The next question we've received here is, is it possible to introduce a shares in lieu of dividend scheme? This is asked by Ross in Elane Prestige. And I think this -- what this is referring to is a dividend reinvestment program.

Great. Look, we certainly could do that. But Simon or John, would you like to talk about -- I can't recall whether we haven't looked at that in the last year, but if we looked at it in the past and could we consider it. And you can take your dividend, of course, cash dividend and go invest it in shares. So I think the implication, though, is if we do the shares in lieu, it might save some transaction costs, right?

Yes. Certainly, if I could add to that. We haven't looked at this previously. But to the point, that's something, obviously, the Board can consider if they feel it appropriate to look at that type of scheme. But just from a historical perspective, we haven't considered that previously.

Thank you, Simon.

I could add to that. And if we were to consider such a scheme, we would need to take that to our major shareholder interest.

Of course. Yes.

Those are the only 2 questions that we have received here for ordinary business.

Okay. Well, again, this online format, I mean, I'm sure we would have gotten more questions, and it's easier to ask questions when we're in person. And gosh, I would have been depressed if you told me a year ago that we would have been having another online meeting a year from now. And in September 2022, I look forward to meeting our shareholders in person and celebrating the end of our 2-year lockdown or 18-month lockdown. But ladies and gentlemen, that concludes our discussion on the items of business, and it is now time to cast your votes, if you have not already done so. So I said, you have your chance, you have your chance, you have your chance, now it's time to cast your votes. And I will shortly close the voting system. Please ensure that you have cast your votes on all resolutions. While we wait a moment for final votes to be cast, it's appropriate that I thank you all for your support of Vector. I would also like to thank my fellow board members for their input during the year. And importantly, I also want to thank Simon and his team and our field service providers for their performance throughout the year. We've overused the term unprecedented. But gosh, it's been a year that I'll remember on my death bed, the past 18 months. And once voting is closed, the results of these votes will be released to the stock exchange tomorrow. So with that, I'll now close the voting. So are there any other questions or could we draw the meeting to a close? We had the general business that sort of should have dealt with most, but any final questions?

No more questions received, Chair.

Okay. Well, look, to all of you as shareholders, we look forward to next year. As I noted earlier, hopefully, we can meet in person, and I now declare the meeting closed. Thank you.