AGL Energy Limited · ASX:AGL
AGL Energy — Non-Deal Roadshow (March 2010)
56 slides from AGL Energy's roadshow presentation, Mar 17, 2010
Slide 1: ASX statement
AGL Energy Limited Locked Bag 1837 Level 22, 101 Miller St T: +61 2 9921 2999 ABN: 74 115 061 375 St Leonards NSW 2065 North Sydney NSW 2060 F: +61 2 9921 2552 AUSTRALIA AUSTRALIA www.agl.com.au ASX statement For personal use only 17 March 2010 Attached is a presentation made by Michael Fraser CEO d
Slide 2: International Roadshow: Renewable growth
AGL Energy E Limited Li it d For personal use only International Roadshow Renewable growth Michael Fraser, Managing Director & CEO International Roadshow March 2010
Slide 3: Disclaimer
2 Disclaimer sc a e For personal use only The information in this presentation: › IIs nott an offer ff or recommendation d ti to t purchase h or subscribe b ib for f securities iti ini AGL Energy Limited or to retain any securities currently held. › Does not take into account the potential and curre
Slide 4: Agenda
3 Agenda ge da For personal use only › Introduction › 2010 Interim Result › Renewable Energy Target – Proposed changes › C Commitment it t to t Hallett H ll tt 5/Macarthur 5/M th wind i d farms f › Loy Yang Power/Alcoa Australia contract › NSW Privatisation › Outlook » International Roadshow » March
Slide 5: AGL's Integrated Strategy
4 AGL’s G s Integrated teg ated Strategy St ategy For personal use only Managing risk and delivering superior stable returns UPSTREAM SUPPLY unities Core Upstream ue & Generation: Gas Renewable Thermal Production Generation Generation Gas: Capturring valu growth opportu › Currently ~3 ~3,990 990 › T
Slide 6: Half Year 2010 Highlights
5 Half a Year ea 2010 0 0 Highlights g g ts For personal use only Delivering growth from the core. › Underlying profit up 22.0% › Strong result from Retail Energy up 25.9% 25 9% › Excellent wind farm performance, 450,000 MWh generated › Significant improvement in Loy Yang A profitability › 2P gas re
Slide 7: Profit & Loss
6 Profit & Loss ((excludingg significant g items & fair value movements)) For personal use only Result on track to deliver 2010 profit guidance. 6 months to 31 Dec 2009 31 Dec 2008 Change $m Revenue 3,200.8 2,994.2 6.9% Operating EBITDA 425 7 425.7 443 9 443.9 (4 1%) (4.1%) Operating EBIT Retail 183
Slide 8: Group Underlying NPAT
7 Group G oup U Underlying de y g NPAT For personal use only Solid improvement in retail gross margin. Upstream Retail Merchant $260 $250 $240 84 8.4 234 8 234.8 21.5 $230 34.1 $220 $210 41 5 41.5 $ Million n $200 (25.2) 10.4 192.5 (5.1) $190 (2.6) 2.0 $180 (17.3) $170 (22.4) (3.0) $160 1H09 PNG Oth
Slide 9: Retail – EBIT Drivers
8 Retail eta – EBIT Drivers e s For personal use only Focus on value per customer drives EBIT improvement. 21.5 5.7 $210 $200 (13.2) $190 41.5 (4.7) (4.0) 183.5 (4.2) $180 (4.8) on $170 $ Millio $160 $150 145.7 $140 $130 $120 1H09 EBIT MM Gross C&I Gross Other Gross Labour Bad & Campaigns & Other OP
Slide 10: Retail – Key Operating Metrics
9 Retail eta – Key ey Operating Ope at g Metrics et cs For personal use only Gross margin per Mass Market customer up 16.8%; still not sufficient. 6 months to 31 Dec 2009 31 Dec 2008 Change Mass Market gross margin ($m) 291.6 250.2 16.5% A Avg Mass M Market M k customer numbers b (‘000) 3 190 3,190
Slide 11: Retail – Improving Core Operations
10 Retail eta – Improving p o g Core Co e Ope Operations at o s For personal use only Good progress on Customer Service. Average Call Handling Time 650 › Ongoing productivity and billing 600 AHT Trend performance improvements: 550 Seconds » Average call handling times reduced to 500 470 seconds, in-
Slide 12: Retail – Improving Core Operations
11 Retail eta – Improving p o g Core Co e Ope Operations at o s For personal use only Reducing Ombudsman Complaints per 10,000 customers C&I Aged Debt – improving +90 day debt $25.0 90 $20.0 $ Trend $ million $15.0 75 $10.0 60 $5 0 $5.0 45 $0.0 31 to 60 days 61 to 90 days +90 days 30 Jan-09 Feb-09 M
Slide 13: Retail – Customer growth
12 Retail eta – Custo Customer e growth g o t For personal use only Accelerating growth in dual fuel customers. › Customer numbers up 23,800 (+0.7%) to 3.22 million › AGL churn at 14.8% better than market churn at 18.1% › Strong growth in Dual Fuel accounts, up 76,500 (+6.2%) Incremental Customer Nu
Slide 14: Merchant – EBIT Drivers
13 Merchant e c a t – EBIT Drivers e s For personal use only Gas volatility event affects prior half year comparison. $240 8.7 $230 9.7 $220 215.5 $210 $ Million (27.0) $200 (5.1) (0.5) 195.1 ((6.2)) $190 $180 $170 1H09 EBIT Underlying Gas Lower REC Gas Volatility HCE Power Other 1H10 EBIT Portfolio
Slide 15: Underlying Operating Cash Flow
14 Underlying U de y g Operating Ope at g Cash Cas Flow o 1 For personal use only Focus on cash flow yielding good results. 6 months to 31 Dec 2009 31 Dec 2008 $m Statutory net cash provided by operating activities 126.8 266.5 Cash flow relating to significant items 17.9 32.2 Futures margin calls (1
Slide 16: Financial Ratios
15 Financial a c a Ratios at os For personal use only AGL a stable BBB rated entity. › BBB stable credit rating › Discussions with S&P regarding treatment of wind farm PPAs are continuing: » Expect outcome prior to 30 June 2010 As at 31 Dec 2009 FFO / interest cover (times)1 9.8 FFO / interest cover
Slide 17: Capital Expenditure Committed Projects
16 Capital Cap ta Expenditure pe d tu e Committed Co tted Projects ojects For personal use only Investing for future growth. LEGEND 500.0 St Stay In I Business B i 450.0 Upstream Gas BWP1 Oaklands 400.0 Hallett 5 350.0 Bogong Retail $ million 300.0 Other 250.0 200.0 150.0 100.0 50.0 0.0 2 Jul-Dec 09
Slide 18: Debt Capacity
17 Debt ebt Capacity Capac ty For personal use only Excluding NSW privatisation, AGL has ample headroom to fund growth over the medium term. LEGEND 1,800 S&P Adjustment 1 600 1,600 Cash flow Capex 1,400 Closing FY10 Debt Operating cash flow after dividends $ million 1,200 H d Headroom 1,000 800 600
Slide 19: Large Scale Renewable Energy Target
18 Large Scale Renewable Energy Target For personal use only Federal government changes to increase RET scheme >20%. $100 $90 $80 $70 $60 Expanded MRET Announced SHW & PV Increases REC Bank › Wind likely to dominate $/REC $50 new build $40 $30 › LSRET will ill require eq i e approximately 1000 MW Ex
Slide 20: Impact of Renewable Policy Setting
19 Impact pact of o Renewable e e ab e Policy o cy Setting Sett g For personal use only Fundamental changes required to generation mix. New Build Generation Mix Years of Forecast - 2010 to 2020 Coal Plant CCGT Base Plant OCGT Peak Plant Renewable Plant 20000 18000 Capaciity required (MW) 16000 14000
Slide 21: Generation
20 Ge e at o Generation For personal use only Commitment to build Hallett 5 & Macarthur (417 MW) Current Rapid deployment of renewables to deliver low carbon fleet Generation › 140 MW Bogong: In Commissioning Breakdown Renewable ~3,990MW* 35% Gas › 71 MW Hallett 2: In Commissioning ahead of schedule
Slide 22: Renewable – Growth Pipeline
21 Renewable e e ab e – G Growth o t Pipeline pe e For personal use only Market leading portfolio provides strategic depth and optionality. Project Nominal Capacity (MW) Location Type Project Status Definition Bogong 140 Victorian Alps Hydro Commissioning Committed McKay Creek Up Rate 10 Victorian A
Slide 23: Gas Generation – Growth Pipeline
22 Gas Ge Generation e at o – G Growth o t Pipeline pe e For personal use only Developing a portfolio with strategic depth and optionality. Nominal Capacity Project Location Type Project Status Definition (MW) GENERATION Development Application Leafs Gully 360 NSW - Appin Gas Peaker Probable Approve
Slide 24: Upstream Gas – Positioning For Growth
23 Upstream Upst ea Gas – Positioning os t o g For o Growth G o t For personal use only Exploration program slowed in line with current gas market conditions. › Targeting 2,000PJ 2 000PJ of certified 2P reserves › 2P reserves entitlement up 18% (201PJ); 3P reserves entitlement up 36% (839PJ) › Camde
Slide 25: AGL's Geothermal Investments
24 AGL’s G s Geot Geothermal e a Investments est e ts For personal use only Diversified portfolio - technically and geographically. › NSW – awarded 4 geothermal exploration permits › VIC – awarded 3 geothermal exploration permits › SA – 10% investment in Torrens Energy › Geothermal alliance agreemen
Slide 26: Loy Yang Power/Alcoa Australia contract
25 Loy oy Yang a g Power/ o e / Alcoa coa Australia ust a a contract co t act For personal use only › Contract for base-load signed to 2036 commencing 2014 » Announced 1 March 2010 › ~ 820 MW load out of 2,100 MW › AGL owns 32.5% of the parent entity GEAC » Investment ~ $300 million › Refinancing of
Slide 27: NSW electricity privatisation
26 NSW S electricity e ect c ty privatisation p at sat o For personal use only Disciplined bidding approach if process proceeds. › AGL previously stated will look at all assets › Only bid for assets if accretive to EPS › Maintain BBB credit rating › Capital raising raising, if required required, lik
Slide 28: Summary
27 Su Summary a y For personal use only Strong start to FY10. › Excellent performance by Retail Energy » Significant progress on improving customer service issues » Well-positioned to continue acquiring high value customers › Merchant Energy gy delivered solid result › Upstream Gas executing strateg
Slide 29: Further Information / Contacts
28 Further u t e Information o at o / Contacts Co tacts For personal use only A range of information on AGL Energy Limited including ASX & Media Releases, Presentations, Financial Results, Annual Reports and Sustainability Reports is available from our website: www.agl.com.au Alternatively, contact:
Slide 30: Supplementary Information
29 For personal use only Supplementary Information
Slide 31: Generation – Wind farm performance
30 Generation Ge e at o - Wind d farm a performance pe o a ce For personal use only Exceeds investment assumptions. Six months to 31 December 2009 Unit Wattle Point Hallett 1 Hallett 22 Notes Capacity MW 90.8 94.5 71.4 1 Capacity 1. C it FFactor t ((average)) shown is for period Availability % 95.4
Slide 32: Operating EBITDA to Statutory Cash Flow Reconciliation
Operating EBITDA to Statutory Cash Flow 31 Reconciliation For personal use only 6 months to 31 Dec 2009 31 Dec 2008 $m Operating EBITDA 425.7 443.9 Equity accounting (19.1) 4.6 Onerous gas contract (10.4) (10.4) Receivables 67.7 125.5 Net movement in green assets / liabilities 2.9 2.0 Inventories (3
Slide 33: Energy Investments
32 Energy e gy Investments est e ts For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m EBIT ActewAGL 17.5 17.1 2.3% Elgas1 - 10.6 - Loy Yang 22.8 2.5 812.0% Investments Other 31 3.1 28 2.8 10 7% 10.7% Total EBIT 43.4 33.0 31.5% 1. AGL disposed of its 50% ownership interest in Elgas
Slide 34: Centrally Managed Expenditure
33 Centrally Ce t a y Managed a aged Expenditure pe d tu e For personal use only $75 $70 2.5 1.5 66.1 1.7 (1.3) $65 63.5 (1.8) $ Miillion $60 $55 $50 1H09 Expense Office leases Hardware and Consultants and Insurance Other 1H10 Expense software costs contractor fees premiums » International Roadshow
Slide 35: Significant Items
34 Significant S g ca t Items te s1 For personal use only 6 months to 31 Dec 2009 Pre Tax Tax After Tax $m Phoenix change program costs (11.7) 3.5 (8.2) Other (6.2) (0.3) (6.5) Total significant g items (17.9) ( ) 3.2 (14.7) ( ) 1. Full detail in Appendix 4D, Section 2. » International Roadshow » Ma
Slide 36: Capital Expenditure
35 Capital Cap ta Expenditure pe d tu e For personal use only 6 months to 31 Dec 09 SIB Discretionary Total $m Merchant Energy 19 0 19.0 92 8 92.8 111 8 111.8 Upstream Gas - 58.2 58.2 Retail Energy - 11.3 11.3 Corporate Other - 9.1 9.1 Total 19.0 171.4 190.4 » International Roadshow » March 2010 » A
Slide 37: Debt Position
36 Debt ebt Position os t o For personal use only › No group debt maturing until October 2011 Facilities @ 31 Dec 2009 $m Limit Usage Available Maturity Current Nil N/A N/A N/A N/A Non Current Term facilities Tranche C 886.7 886.7 - Oct 11 Term facilities Tranche A 200 0 200.0 200 0 200.0 - Jun 12 R
Slide 38: Balance Sheet
37 Balance a a ce Sheet S eet For personal use only As at 31 Dec 2009 30 Jun 2009 $m Current assets 2,594.4 2,473.7 PPE, E&E and oil & gas assets 2,876.7 2,974.2 Other non current assets 3 561 4 3,561.4 3 586 8 3,586.8 Total Assets 9,032.5 9,034.7 Current liabilities 1,505.9 1,505.7 Total debt 1 099
Slide 39: Fair Value Reconciliation
38 Fair a Value a ue Reconciliation eco c at o For personal use only Net Assets (Liabilities) As at $m 31 Dec 2009 30 Jun 2009 Change Electricity derivative contracts (84.1) (48.2) (35.9) Interest rate swap & foreign currency derivative contracts (8.6) (22.8) 14.2 Total net liabilities for derivativ
Slide 40: Gas Sales Volume
39 Gas Sa Sales es Volume ou e For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change PJ Mass Market VIC 15.9 18.9 (15.9%) SA 1.1 1.1 0.0% NSW 13.4 15.3 (12.4%) QLD 1.5 1.5 0.0% Mass Market Total 31.9 36.8 (13.3%) C&I VIC 13.3 17.1 (22.2%) SA 1.9 1.0 90.0% NSW 20 0 20.0 23 7 23.7 (15 6%) (
Slide 41: Electricity Sales Volume
40 Electricity ect c ty Sa Sales es Volume ou e For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change GWh Mass Market VIC 2,595 2,559 1.4% SA 1 704 1,704 1 650 1,650 3 3% 3.3% NSW 1,566 1,304 20.1% QLD 1,713 1,837 (6.8%) Mass Market Total , 7,578 7,350 , 3.1% C&I VIC 3,011 2,935 2.6% SA 1
Slide 42: Retail – Mass Market Key Indicators
41 Retail eta – Mass ass Market a et Key ey Indicators d cato s ((includes SME)) For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change Electricity Volume (GWh) 7,578 7,350 3.1% Mass Market Accounts ('000) 1,824 1,791 1.8% Revenue ($m) 1,084.2 921.7 17.6% Gross Margin ($m) 185.9 155.8 19.3
Slide 43: Retail – C & I Key Indicators
42 Retail eta – C & I Key ey Indicators d cato s For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change El Electricity i i Volume (GWh) 10,010 10,027 (0.2%) C & I Accounts ('000) 15.4 13.8 11.6% R Revenue ($ ($m)) 868 9 868.9 753 4 753.4 15 3% 15.3% Gross Margin ($m) 27.7 12.6 119.8% $ / M
Slide 44: Retail – Market Churn
43 Retail eta – Market a et Churn C u For personal use only market churn AGL churn below Market ( (14.8% vs. Market at Jun-08 Jun 08 to Dec Dec-09 09 18.1%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jun-08 Dec-08 Jun-09 Dec-09 NSW Electricity - Market NSW Gas - Market VIC Electricity - Mar
Slide 45: Retail – Customer Accounts
44 Retail eta – Custo Customer e Accounts ccou ts ((6 months to 31 Dec 2009)) For personal use only State Gas Electricity Total VIC 470,700 644,300 1,115,000 (FY09: 472,600) (FY09: 652,000)1 SA 91,500 469,600 561,100 (FY09: 85,000) (FY09: 463,900)1 NSW 740,000 358,200 1,098,200 (FY09: 752,300) (FY09
Slide 46: Retail – Cost to Serve
45 Retail eta – Cost to Se Serve e For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change Net operating expenditure 158.7m 133.5m 18.9% Net operating cost per customer account $49.51 $41.59 19.0% Cost to grow/retain 36.9m 34.9m 5.7% Cost to grow per account acquired/retained1 $81.21 $82.70
Slide 47: Retail – EBIT / Sales Analysis
46 Retail eta – EBIT / Sa Sales es Analysis a ys s For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m Electricity revenue 1,953.1 1,675.0 16.6% Gas revenue 771.9 809.9 (4.7%) Other fees and charges 31.1 25.4 22.4% Total revenue 2,756.1 2,510.3 9.8% Cost of sales (2,382.8) (2,205.7)
Slide 48: Retail – Weather Impact
47 Retail eta – Weather eat e Impact pact For personal use only Heating Degree Days › NSW exceptionally warm winter/early spring: » Aug 09 second warmest on record 800 with high number over 20 degrees 700 › VIC average winter and hot spring: 600 » Nov 09 mean temperature was 4.4 Degree Days 500 degr
Slide 49: Merchant – EBIT Analysis
48 Merchant e c a t - EBIT Analysis a ys s For personal use only 6 months to 31 Dec 31 Dec Change $m 2009 2008 Revenue from Retail Business 1. ActewAGL Dec 09: Electricity - Electricity (COGS transfer price) 1,144.1 1,023.2 11.8% sales 61%, Gas sales 32%; Other sales 7%; Dec 08: - Gas (COGS transfer
Slide 50: Merchant – Hydrology
49 Merchant e c a t – Hydrology yd o ogy For personal use only › Post Bogong, 52.6% of Hydro capacity linked to drought resistant Kiewa Scheme › Eildon (120MW) dam is operational with restricted generation output capability › Dartmouth (180MW) has good inflows over the last 12 months, a return to se
Slide 51: Merchant – Electricity Hedging: Policy
50 Merchant e c a t - Electricity ect c ty Hedging: edg g Policy o cy For personal use only › AGL Risk Management Policy is set by the Board and establishes the requirements for the management of wholesale risk › Clearly defined and approved commodity and transaction limits › Counter p party y credi
Slide 52: Merchant – Electricity Hedging: Position
51 Merchant e c a t - Electricity ect c ty Hedging: edg g Position os t o For personal use only Physical Financial AGL Energy Hedge Position - All States Contingent Gas Fired Generation Expected Generation Satisfying Financial Risk Limits 150% Derivatives (Swaps Only) Unhedged load must be Range of
Slide 53: Merchant – Wholesale Electricity Prices
52 Merchant e c a t – Wholesale o esa e Electricity ect c ty Prices ces For personal use only CY10 Forward Contract Prices › Record hot weather at the beginning of 2009 80 drove a rally in the forward market NSW1 QLD1 VIC1 SA1 75 › Relatively benign temperatures thereafter saw a return to lower leve
Slide 54: Upstream Gas – Key Financial Metrics
53 Upstream Upst ea Gas – Key ey Financial a c a Metrics et cs For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m Operating EBITDA 13.8 62.8 (78.0%) D&A (10.8) (7.4) (45.9%) Pro forma D & A adjustment - (27.0) NA EBIT PNG Upstream Investment (net of pro forma adjustment) - 22.4 NA U
Slide 55: Upstream Gas Interests – Permit Details
54 Upstream Upst ea Gas Interests te ests – Permit e t Details eta s For personal use only Permits Working Basin Project Exploration Production (Area km2) (Area km2) Interest PEL 2 (6,696) - 100% PEL 5 (400) - 100% - PPL 1 (48) 100% Camden Gas Project - PPL 2 (1) 100% Sydney - PPL 4 (55) 100% - PPL
Slide 56: Loy Yang A: Financial Performance
55 Loy oy Yang a g A: Financial a c a Performance e o a ce For personal use only 6 months to 31 Dec 2009 31 Dec 20083 Change $m G Generation ti V Volume l (GWh) 7 775 7,775 7 400 7,400 5 1% 5.1% 1 Average Price ($/MWh) $42.68 $35.46 20.4% Sales Revenue2 359 0 359.0 296 4 296.4 21 1% 21.1% Other Reve