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Results Overview

The Operating & Financial Review includes a number of non-International Financial Reporting Standards (IFRS) financial measures. Snowy Hydro management uses these non-IFRS financial measures to assess the performance of the business and make decisions on the allocation of resources. Among these non-IFRS financial measures is Underlying Profit/(Loss) after tax. This measure is Statutory Profit/(Loss) after tax adjusted for:

  • significant items (which are material items of revenue or expense that are unrelated to the underlying performance of the business); and
  • changes in the fair value of financial instruments recognised in the consolidated statement of profit or loss (to remove the volatility caused by mismatches in valuing financial instruments and the underlying asset differently).

Snowy Hydro believes that Underlying Profit/(Loss) after tax provides a better understanding of its financial performance than Statutory Profit/(Loss) after tax and allows for a more relevant comparison of financial performance between financial periods.

The consolidated Statutory Profit after tax attributable to the owners of Snowy Hydro was $332.2 million (FY2018: $267.5 million restated). The underlying profit after tax was $321.2 million (FY2018: $428.4 million restated). The following table reconciles Statutory Profit after tax to Underlying Profit after tax, and then to Underlying EBITDA.

Reconciliation of Statutory Profit after tax to Underlying Profit after tax and Underlying EBITDA

2019

Restated* 2018

Statutory Profit/(Loss) after tax

332.2

267.5

Adjust for the following after tax items:

Changes in fair value of financial instruments

(11.0)

148.9

Snowy 2.0 feasibility study costs

-

12.0

Underlying Profit after tax

321.2

428.4

Depreciation and amortisation

139.1

138.9

Amortisation of acquired derivative

-

1.8

Net finance costs

34.1

42.0

Income tax expense

139.0

183.0

Underlying EBITDA

633.4

794.1

Generation EBITDA

522.1

659.5

Retail EBITDA

111.3

134.6

Underlying EBITDA

633.4

794.1

*The prior period financial information has been restated, as described in Note 2 of the Financial Statements.

In what can be characterised as a turbulent year for the energy industry, against a backdrop of materially lower water inflows to the Snowy Hydro scheme and intense competition and regulatory intervention particularly in the mass market sector, the Company’s EBITDA outcome of $633.4 million (FY2018: $794.1 million) was delivered through excellence in asset operations and optimisation of its portfolio.

Snowy Hydro’s assets performed extremely well with the entire portfolio available to provide a reliable, secure supply of energy showcasing the critical role that Snowy Hydro plays in system security and managing price risk for the NEM during periods of volatility, when it is needed most to keep the lights on.

Generation EBITDA

The Generation business EBITDA was $522.1 million, a decrease of 21% from $659.5 million in FY2018.

The market environment and operational strategies were distinctively different in FY2018 and FY2019.

In the second half of FY2018, a combination of mild weather, high thermal and renewable plant availability and output and muted demand resulted in a NEM environment of low prices and minimal price volatility.

In contrast, during the First Half of FY2019, Snowy Hydro anticipated the hot weather and supply issues that came to pass, particularly in Victoria, and set the portfolio exposures correspondingly. In light of low inflows and a dry forecast, a strategy of water conservation and hydro generation reduction was adopted in the first half, to ensure Snowy Hydro was well prepared for the anticipated challenges ahead, both for Snowy Hydro’s contract exposures and for the NEM.

The Second Half of FY2019 benefited from this strategy and despite the very dry conditions and lower hydro scheme inflows, reliable plant and a soundly constructed portfolio enabled Snowy Hydro to do its utmost to deliver security to an unstable Victorian NEM region, which experienced extreme volatility.

Of note were the extended price spikes in Victoria with 76 five-minute periods reaching prices higher than $10,000/MWh. This led to the Cumulative Price Threshold (which is triggered after the equivalent of 7.5 hours of VOLL) activating with Victorian prices capped at $300/MWh for a week. This is extremely rare, with the Cumulative Price Threshold last being triggered nearly 10 years ago. During this period, the market operator, AEMO, resorted to load shedding and directed over 200,000 customers to shut down their power usage. This intervention was undertaken when Snowy Hydro’s Tumut 3 plant had approximately 1,500MW of capacity available but unable to be utilised due to constraints on the existing transmission lines, highlighting the limitations of the existing transmission system.

The overall generation volume reduction of approximately 1,200 GWh from the prior year was the primary driver of the reduction in EBITDA.

Whilst the sale of traditional capacity products declined in FY2019, Snowy Hydro was able to expand its reach into other channels to market, largely offsetting the revenue reduction.

Retail EBITDA

The Retail business EBITDA was $111.3 million, a decrease of 17% from $134.6 million in FY2018.

FY2019 was a tale of two halves, for both customer growth and financial performance.

The combined headwinds of competitor activity and the Victorian government’s energy comparison website with a heavily publicised cash incentive resulted in abnormally high churn and slightly negative customer growth in the First Half of FY2019. However, when these two influences abated in and churn returned to more normal levels, the Retail business returned to customer growth achieving overall customer growth of approximately 3% to a record 1.09 million.

Lower average gas usage per customer in Victoria, lower average electricity usage per customer in NSW, and tighter margins due to competitive pressures were the primary drivers of the reduction in EBITDA.

Despite the headwinds, Retail achieved a number of key milestones in FY2019:

  • Continued strong customer growth in NSW where electricity customers grew 15.4% and gas customers by 28.9%; and
  • Market leading positions in industry customer satisfaction awards retained by both the Red and Lumo brands. In addition, during FY2019 Red’s Commercial and Industrial team again secured 100% customer satisfaction in the annual Utility Market Intelligence (UMI) survey. This is the fourth year in five that Red has achieved 100% customer satisfaction.