AusNet Services' (ASX: AST) net profits dropped 87% in the past 12 months. As an investor it's important to know why.
Ausnet Services, formerly SP AusNet, is engaged in the diversified energy infrastructure business.
The company operates in four segments of Electricity distribution, Gas distribution, Electricity transmission and Select Solutions. The electricity distribution network carries electricity from the high voltage transmission network to end users. The gas distribution network carries natural gas to commercial and residential end users. Electricity transmission segment is engaged in the transmission of electricity within the state of Victoria. Select Solutions provides metering, data and asset management solutions, including integrated mobile and spatial technologies, to external parties as well as to all other segments of the company.
Not a great year for AusNet
It's fair to say, it hasn't been a great year for AusNet. In the 12 months to March 31, AusNet posted a net profit of $22.6 million, an 87% decline on the 2014 $178.3 million profit.
Notes in the annual report tell us that a number of one-off items affected net profits this year:
- Recognition of a provision for AMI customer rebates of $32.5 million for the year ended 31 March 2015
- $50 million payable for the termination of the Management Services Agreement (MSA)
- $22.2 million of performance fees under the MSA
- $7.7 million in restructuring costs associated with the Termination Deed for the year ended 31 March 2014
Other items included:
- $183.3 million in income tax expense for the settlement with the ATO in relation to the intra-group financing audit for the year ended 31 March 2015
- $84.1 million recognition of net exposure relating to Intellectual Property dispute with the ATO for the period ended 31 March 2015
- A net charge of $86.7 million for the amount potentially payable in respect of the Section 163AA dispute for the year ended 31 March 2014.
In this same year that the company posted this net profit of $22.2 million, AusNet will still pay a final 60 per cent franked dividend of 4.18c per share, which brings the group's full-year distribution to 8.36c per share.
So it would seem that 2015 was an anomaly for the company. To be fair to AusNet, let's take a look at the annual reports for the the last four years.
Revenues
Revenues appear to be growing steadily.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| 1,535 | 1,639 | 1,779 | 1,833 |
Net profits
Net profits have been inconsistent and 2015 was impacted by the issues outlined above.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| 255 | 279 | 178 | 22 |
Debt to Equity
Debt is increasing, while equity has remained steady. This is why the debt-to-equity ratio is very high.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| Debt | 4,538 | 5,277 | 6,069 | 7,216 |
| Equity | 2,927 | 3,432 | 3,444 | 3,248 |
| Net Debt/Equity Ratio | 155% | 154% | 176% | 222% |
Cash flows
Free cash flows have been negative for the past four years, but the company continues to pay dividends.
| Amounts in Millions | 2012 | 2013 | 2014 | 2015 |
| Cash flow from Operations | 430 | 568 | 730 | 767 |
| Capex | (691) | (1077) | (939) | (786) |
| Free Cash Flow | (260) | (508) | (209) | (18) |
| Dividends | (134) | (214) | (257) | (179) |
| Funding Shortfall | (395) | (722) | (466) | (198) |
Earnings per share (EPS)
Earnings per share are declining.
| Amounts in cents | 2012 | 2013 | 2014 | 2015 |
| 9 | 8 | 7 | 2 |
Dividends per share (DPS)
Dividends per share has remained constant even though EPS has been declining.
| Amounts in cents | 2012 | 2013 | 2014 | 2015 |
| 8.0 | 8.2 | 8.4 | 8.4 |
Let's take at some other events in 2015.
18 June 2015
On June 18 2015 AusNet made the following announcement:
Ausnet Services Restructure Proposal Implemented
AusNet announced a new corporate restructure, under which a new company called AusNet Services Ltd would become the single head company of AusNet Services in place of its current triple-stapled structure.
23 July 2015
On July 23 2015 AusNet made the following announcement:
Request for Trading Halt
A trading halt was requested pending the outcome of the company's Annual General Meeting (AGM) and resolutions proposed at the AGM.
The outcome of the AGM was that, independent director, Tony Iannello, was sacked.
According to Bloomberg, voting numbers released showed that 1.16 billion shares were cast in favour of Iannello and 1.79 billion were voted against. Only 1.8 million votes abstained. Singapore Power owns 1.078 billion shares in AusNet and State Grid owns 689 million.
These actions mean that AusNet's ambitions to bid for the $9 billion NSW power grid owner TransGrid will most likely be shelved after its cornerstone shareholders Singapore Power and State Grid Corporation of China separately blocked an equity raising and voted the director leading the company's bid committee off the board.
TransGrid, was to be the first business to be sold in the NSW government's $30 billion "poles and wires" privatisation process.
Verdict
2015 just hasn't been a great year for AusNet. Yes, there have been some one-off items that have affected this year's profits but, there's just too much uncertainty around the company at the moment. That's why I'll be staying on the sidelines.
