Agl Energy Limited · ASX:AGL
Agl Energy — Investor Day (October 2019)
86 slides from Agl Energy's investor day presentation, Oct 30, 2019
Slide 1: Investor day
NA —= ad Investor day 30 October 2019
Slide 2: Investor Day agenda
9:00 Business and strategy update 12:00 Portfolio update: optionality in generation, Brett Redman, Managing Director & CEO trading and supply João Segorbe, EGM, Strategy & Corporate Development Melinda Buchanan, GM, Gas & Renewables Operations David Moretto, Interim GM, Portfolio Growth 9:45 Finance
Slide 3: Brett Redman and João Segorbe
Eildon Hydroelectric Power Station, Victoria Brett Redman, Managing Director & CEO João Segorbe, EGM, Strategy & Corporate Development
Slide 4: Australia's leading integrated energy company delivering on our strategy
Australia’s leading integrated energy company delivering on our strategy Strong financial base Safety • $2 billion+ annual cash flow • Positive improvement on • Strong recurring dividend stream combined employee / contractor TIFR to 3.5 since FY19 results Positioned for transition • Diverse and flex
Slide 5: Growth, Transformation, Social Licence
Growth Transformation Social Licence Accelerate growth to meet Reposition, refresh Meet and exceed rising evolving customer needs and reinvigorate AGL community expectations Investor Day | 30 October 2019 5
Slide 6: Customer-centricity in a digital world; policy uncertainty; climate change; technology
Customer-centricity Policy uncertainty Climate change risk Technology driving in a digital world and intervention and mitigation major shifts in energy Investor Day | 30 October 2019 6
Slide 7: Four growth pathways
Connection Orchestration Trading and Supply Generation Growth investment targeted Continued investment to four key pathways in core assets Energy, data and Distributed energy Large-scale storage Baseload capacity mobility for customers and storage and flexible capacity and renewables Investor Day |
Slide 8: Dawn of the battery age
Dalrymple ESCRI battery, Dawn of the battery South Australia age: grid-scale batteries now have a real market role AGL has signed a deal with Maoneng to buy capacity from four 50 MW batteries Innovative swap structure enables AGL to call on energy capacity at a fixed price as required Locations to i
Slide 9: Grid-scale storage investment is set to take off
Grid-scale storage investment is set to take off Cost to develop batteries will continue to fall as it did for wind and solar* • It is projected grid-scale batteries will have a 300.00 600 cumulative installed capacity of 3 GW in Australia by 2030* 250.00 500 • AGL is actively working with developer
Slide 10: $1.9b of new energy supply projects completed or in construction
$1.9b of new energy supply projects completed or in construction; a further $2b in the pipeline Legend Coopers Gap Wind Farm* 453 MW | $850m Completed or in construction Completion FY20 Development pipeline Offtake agreements Bells Mountain Pumped Hydro Gas firming 250 MW / 8hrs | ~$450m Potential c
Slide 11: Strategic priorities and operational goals
STRATEGIC PRIORITIES Growth Transformation Social Licence Accelerate growth to meet Reposition, refresh Meet and exceed rising evolving customer needs and reinvigorate AGL community expectations OPERATIONAL GOALS Safety Customers People Financial Combined employee/ NPS ranking vs. other Improve empl
Slide 12: João Segorbe, EGM, Strategy & Corporate Development
João Segorbe, EGM, Strategy & Corporate Development
Slide 13: Connection, Orchestration, Trading and Supply, Generation
Connection Orchestration Trading and Supply Generation Own the Connected Customer Market leader in Physically backed Leading provider of flexible relationship by providing orchestration of customer- energy trader generation capacity and multiple essential services owned energy assets storage across
Slide 14: Customers will drive change in the energy sector
Proportion of average household expenditure Customers will drive change in the energy sector and across many other areas in society Other essential services The way customers buy energy and data packages and 7% other essential services is converging in the digital world Our research shows that more
Slide 15: Generation and storage capacity coming through households and businesses
Battery capacity owned by households and businesses Generation and storage capacity is coming into the Australian market through households and businesses Batteries in Electric Businesses and homes can derive greater value from Vehicles (EVs) their assets if they can operate as part of the wider sys
Slide 16: Commodity prices increasingly interlinked
Difference between highest and lowest average prices 1000 hours of the year in Victoria AGL is a major provider of commodity price risk 87 management services for homes and businesses 80 Electricity 64 68 The importance of these services is growing as $/MWh 31 commodity prices are increasingly inter
Slide 17: $130b grid-scale and $70b behind-the-meter investment opportunity
Forecast installed generation capacity in Australia1 250 The energy industry transition presents $130b grid-scale and $70b behind-the-meter investment opportunity2 200 Renewables will make up 82% of energy 150 capacity by 20503 100 Flexibility will be critical with 14 GW of baseload generation expec
Slide 18: Q&A
Q& A
Slide 19: Damien Nicks, Chief Financial Officer
Damien Nicks, Chief Financial Officer Bayswater Power Station, New South Wales
Slide 20: Underlying Profit after tax expected to be $780 million to $860 million
Underlying Profit after tax expected to be $780 million to $860 million Key drivers of year-on-year reduction Impact of the Loy Yang Unit 2 unplanned outage: $80 million to $100 million Higher depreciation expense from recent investment in plant, systems and growth: approximately $70 million Operati
Slide 21: Operating cost trends and cash flow strength
1. Operating cost trends in recent years have been linked to strong profit growth, market activity and plant investment After delivering a small decrease in operating costs in FY19 2. we are focused on driving sustainable year-on-year reductions 3. The strength of our cash flow and balance sheet rem
Slide 22: Loy Yang Unit 2 outage timeline
• Loy Yang Unit 2 experienced an electrical short, internal • Unit 2 expected to be operational by mid-December 2019 to the generator, forcing it out of service as initially anticipated • General Electric has been contracted to complete a full • Insurance proceeds are subject to finalisation with in
Slide 23: Coal generation volumes at node (GWh)
Coal generation volumes at node (GWh) 4,000 3,788 3,581 3,500 3,265 3,000 2,745 2,805 2,500 1,929 2,002 1,992 2,000 1,500 1,000 500 0 Bayswater Liddell Loy Yang Rest of fleet FY19 Q1 FY20 Q1 Investor Day | 30 October 2019 23
Slide 24: FY18 and FY19 underlying earnings summary
$ million FY18 FY19 Comments Revenue and other income 12,865 13,273 Volume-drvien costs have risen with revenue Cost of sales (9,070) (9,440) Higher coal and gas costs reflect market trends Gross margin 3,795 3,833 Modest reduction following period of rising costs Operating costs (1,559) (1,548) Inc
Slide 25: Key cost drivers of the business
Key cost drivers of the business* ($m) FY18 FY19 FY20 and beyond Network costs (2,842) (2,772) Other distribution costs (340) (373) Largely volume-driven costs over which we have limited control Pool purchase costs (3,582) (4,060) Renewable schemes compliance costs (593) (497) Likely to decrease as
Slide 26: Generation fuel costs
Generation fuel costs ($ million) FY20 and beyond 1,063 937 Gas import strategy and new efficient plant Gas to mitigate impact of higher market prices AGL’s trading and Brown Extraction costs largely stable due to supply focus coal recent efficiency gains will help mitigate the impact of Black Expos
Slide 27: Generation running costs and PPAs
Generation running costs and PPAs ($ million) FY20 and beyond 660 575 PPA Contracted volumes to increase but unit price costs ($/MWh) falling PPAs becoming Gas larger Will decrease with efficient new generation feature of generation cost base but existing Loy assets will Yang Broadly flat outlook du
Slide 28: Customer Markets opex
Customer Markets opex ($ million) FY20 and beyond 556 532 Labour and Variable labour costs reducing with contractor lower call volumes and increased digital adoption services Focused on driving Bad and Reducing net bad debts through sustainable doubtful year-on- leveraging data and analytics debts y
Slide 29: Generation sustaining capex
Generation sustaining capex ($ million) FY21 and beyond 411 ~400 Hydro Broadly flat for current portfolio Macquarie and Torrens spend to Gas generation Broadly flat as Torrens A is mothballed decrease with asset retirements Will decrease in FY22-23 as Liddell Macquarie reaches retirement Loy Yang to
Slide 30: Depreciation and amortisation outlook
Depreciation and amortisation FY21 and beyond outlook ($ million) Upstream gas assets will head to zero ~725 Other when assets retire 625 Increase driven by investment in digital Systems Short-term transformation including in CXT and PT3 outlook for D&A is a Hydro Broadly flat small increase Gas Inc
Slide 31: Investment in growth pathways
Investment in growth pathways Liddell Thermal assets continue to generate strong cashflows Bayswater to fund AGL’s transformation Loy Yang Upstream Gas AGL Torrens Coal Assets Gas Storage Traditional hydro Renewables PPAs Flexible generation Batteries and Customer systems pumped hydro and platforms
Slide 32: Cash conversion and cash flow outlook
Cash conversion Cash flow outlook 2,500 120% Historical cash conversion ~100% of 2,000 100% Underlying EBITDA (excluding margin calls) 80% Forecast decrease in FY20 Underlying NPAT 1,500 includes $70m non-cash impact of D&A $ million 60% 1,000 FY20 cash flow expected in line with historic 40% cash c
Slide 33: Disciplined approach to capital allocation
Disciplined approach to capital allocation Capital allocation principles Application Run existing business for • Continue to invest in core asset performance optimal performance and value • Focus on sustainable cost efficiencies • Baa2 credit rating Maintain strong balance sheet • Dividend payout ra
Slide 34: Improvements to OFR enabling greater transparency
Improvements to Increase TCFD disclosure Adopting Business Value OFR enabling greater of AGL’s assessment of Drivers into everyday transparency climate-related risks business activities Integrated Reporting Including the consideration of Including aspects of internal inclusive of value drivers how a
Slide 35: Q&A
Q& A
Slide 36: Macarthur Wind Farm, Victoria
Macarthur Wind Farm, Victoria
Slide 37: AGL Portfolio Reporting Summary
AGL Portfolio Reporting Summary ($m) Electricity Portfolio FY18 FY19 Gas Portfolio FY18 FY19 Consumer revenue 4,145 4,068 Consumer revenue 1,538 1,530 Large Business revenue 1,615 1,734 Large business revenue 339 168 Wholesale and Eco Markets revenue 1,055 1,104 Wholesale Gas and Eco Markets revenue
Slide 38: Break
BREAK
Slide 39: Customer update presenters
Christine Corbett, Chief Customer Officer Dominique Van Den Berg, GM, Distributed Energy Simon Moorfield, EGM, Future Business & Technology
Slide 40: Christine Corbett, Dominique Van Den Berg, Simon Moorfield
Christine Corbett Dominique Van Den Berg Chief Customer Officer GM, Distributed Energy Simon Moorfield EGM, Future Business & Technology
Slide 41: Chief Customer Officer
Chief Customer Officer
Slide 42: Responding to heightening expectations and regulatory changes
AGL is responding to heightening expectations and regulatory 1. changes whilst continuing to deliver for our customers AGL is focusing on winning the consumer and Commercial and 2. Industrial (C&I) Connected Customer relationship by evolving into a multi-product retailer AGL’s investment in digital
Slide 43: Connection, Orchestration, Trading and Supply, Generation
Connection Orchestration Trading and Supply Generation Own the Connected Customer Market leader in Leading provider of flexible Physically backed relationship by providing orchestration of customer- storage and generation energy trader multiple essential services owned energy assets across Australia
Slide 44: Residential and commercial trends
• Increasingly connected • Integrated energy solutions and tailored advice • Elevated service expectations Residential Commercial • Declining prices increasing C&I focus trends • Trust trends • Sustainability focus • ~28 billion devices globally forecast by 20221 • Value pools are expanding as custo
Slide 45: Policy uncertainty and intervention
Policy uncertainty and intervention Victorian Government final • Affordability remains a key focus Power of Choice response to Thwaites report • Implications for gas market unclear JUL 2017 JUL 2019 • Potential national market convergence (VDO, DMO) 2017 2018 2019 2020 • 5 minute settlements to be i
Slide 46: Advocate, protect, simplify, transform
Advocate for Protect most Simplify our offering Transform for industry change vulnerable customers and rewarding loyalty the future • Collaboration with • A Fairer Way, • Almost 500,000 customers • Foundational Government to design Affordability Package on Essentials capabilities delivered the refer
Slide 47: Churn spread, customer accounts and Net Promoter Score
Churn spread to rest of Customer accounts have grown Net Promoter Score market decreased to 5.4 ppts by 80,000 from FY18 increased by 5.6 points Residential and small business Residential and small business Quarterly Net Promoter Score customer churn customer accounts (million) (advocates less detra
Slide 48: Movers are an increasingly important segment
Movers are an increasingly Renters make up the Movers value ease important segment majority of Movers and simplicity3 Switchers vs Movers market transfers (‘000s)1 FY19 Movers by segment (‘000s)2 “ • Ensure the power is connected when I want it 2,813 2,879 1,063 2,673 • Keep the process simple for m
Slide 49: Rebuilding trust and multi-product appeal
Energy companies need to Energy companies need to Customers find a multi-product rebuild trust with customers get the basics right proposition appealing Customer perceptions (%) What’s important to customers Appeal of multi-product offering 76 76 71 62% - Provides the best deals 16% 18% 67 61 59 26%
Slide 50: Growth, Transformation, Social Licence
Growth Transformation Social Licence Win the Connected Become famous Regain the trust of our Customer relationship in for great service customers and the both consumer and C&I community • Deliver multi-product • Deliver our Service Promise • Embed customer advocacy offerings • Leverage CXT • Drive c
Slide 51: Southern Phone Company acquisition offer
• The offer, if accepted, would see the acquisition of all issued capital 100,000+ of Southern Phone Company (SPC), from its current 35 local council shareholders for $27.5 million • The purchase of SPC will allow AGL to acquire telco capabilities including: SPC customers across Australia, primarily
Slide 52: Data is a logical entry point into the Connected Customer relationship
Data is a logical entry point into the Connected Smart home & business Broadband Electric vehicles Customer relationship Energy Batteries • Data provision in Australia is a $56 billion market analytics • Data is a good strategic fit due to synergies with the core AGL offering, competitive position E
Slide 53: GM, Distributed Energy
GM, Distributed Energy
Slide 54: VPPs generate value through orchestration
Behind The Meter assets (millions) VPPs generate value through orchestration: Electric Vehicles (EVs) Wholesale trading: Discharge during high-price events 2.6 Ancillary Services (FCAS): Short-interval discharge for frequency Network services: Locating assets in network- constrained areas, to offset
Slide 55: Customer load with solar + battery, without orchestration
Customer load with solar + battery, without orchestration $100,000 Spot Market Price ($/MWh - log scale) $10,000 Capacity (kW) $1,000 $100 $10 $1 0:00 2:30 5:00 7:30 10:00 12:30 15:00 17:30 20:00 22:30 Gross Load PV excess PV - Self Consumption Battery out - Self consumption Net load Price [RHS] Inv
Slide 56: Solar + battery: orchestrated
Solar + Battery: Orchestrated $100,000 Benefits for customer Spot Market Price ($/MWh - log scale) $10,000 • Lower energy costs (including bill credits) $1,000 Capacity (kW) – Potentially 30% further savings on top of solar self consumption benefit $100 • Helping stabilise the grid in their neighbou
Slide 57: EGM, Future Business & Technology
EGM, Future Business & Technology
Slide 58: Investor Day | 30 October 2019
Investor Day | 30 October 2019 58
Slide 59: Connected Customer app concept
Tomorrow we are forecasting high energy use You will earn $20 for leaving your You have car at home been credited with $20 Sell my energy Connected Customer The energy from your battery will power 15 homes for the next 2 hours Investor Day | 30 October 2019 59
Slide 60: Connected Customer app and enabling data
Energy insights Weather Battery status forecast & capability Tomorrow we Digitally are forecasting high energy use Customer enabled preferences customers You will earn $20 for leaving your You have car at home been credited Credit with $20 Sell my energy Live market pricing & trading analytics Conne
Slide 61: Digital platform and APIs
AGL Future Business CHANNELS Agent IVR Web Mobile Voice Smart home and business Car Application Program Interface (APIs) APIs 2x▲ customers 20x▲ improvements • Shared Economy CX on e-bills / month • Multi-product Core Pricing, 3x▲ digital sales 15x▲ app users • Uplift in Wholesale Product & Billing
Slide 62: Q&A
Q& A
Slide 63: Barker Inlet Power Station, South Australia
Barker Inlet Power Station, South Australia Melinda Buchanan, GM, Gas & Renewables Operations David Moretto, Interim GM, Portfolio Growth Phaedra Deckart, GM, Energy Supply & Origination Simon Sarafian, GM, Trading
Slide 64: Portfolio update presenters
Melinda Buchanan David Moretto GM, Gas & Renewables Operations Interim GM, Portfolio Growth Phaedra Deckart Simon Sarafian GM, Energy Supply & Origination GM, Trading
Slide 65: GM, Gas & Renewables Operations
GM, Gas & Renewables Operations
Slide 66: Building optionality and flexibility throughout our portfolio
AGL’s strategy is about building optionality and flexibility 1. throughout our portfolio Our investments in supply and storage will enhance and 2. underpin our core competitive advantage in trading 3. The flexible portfolio we are developing will be well placed to respond to and thrive in the energy
Slide 67: Connection, Orchestration, Trading and Supply, Generation
Connection Orchestration Trading and Supply Generation Own the Connected Customer Market leader in Leading provider of flexible Physically backed relationship by providing orchestration of customer- storage and generation energy trader multiple essential services owned energy assets across Australia
Slide 68: Interim GM, Portfolio Growth
Interim GM, Portfolio Growth
Slide 69: Trading and Supply trends; Generation trends
• From national to international market • Technology driving major shifts in energy • Interchangeability of units of energy • Need for different services • Policy uncertainty and intervention Trading and • Constrained fuel supply chains Generation • Baseload generation retirement Supply trends • Cli
Slide 70: Current portfolio meets requirements through diversity
Current portfolio Market conditions Ready to meets requirements changing meet challenge through diversity • Increasing requirement • Investing in flexibility for flexibility • Developing new generation • Continuing penetration and storage options of renewables Geography Fuel • Dispatchable plant und
Slide 71: Storage – VPP, grid-scale batteries and pumped hydro
Future price profile Storage – VPP, grid-scale batteries and pumped hydro • Historical NEM profile - lowest over night, peaking as the sun sets • Fast ramping • Discharge batteries • Low marginal cost generation introduced with • Flow water large scale wind and solar penetration • Charge batteries •
Slide 72: Barker Inlet Power Station
Typical day in South Australia* 2,500 Barker Inlet Power Station (BIPS) 2,000 • Flexible 210 MW dual-fuel gas peaking power station • Fast-start generator to suit increasingly dynamic market Demand (MWh) 1,500 Ramping of ~1,500 MW • Assists in balancing steep movements of wind and solar 1,000 • Flex
Slide 73: Bayswater upgrade
New South Wales median day load profile Bayswater upgrade • Demand profiles of NEM changing with increasing penetration of renewables and rooftop solar • Bayswater upgrade progressively adds additional Demand 25 MW/unit - totalling 100 MW • Flexibility of Bayswater to respond to changing price and d
Slide 74: GM, Energy Supply & Origination
GM, Energy Supply & Origination
Slide 75: Multiple supply sources and geographic diversity
Multiple supply Transport Geographic diversity Storage Coal Electricity Water Competitive pricing Sourcing Global markets Gas Renewables Oil Diverse technologies Satisfying Domestic and customer demand international trading Investor Day | 30 October 2019 75
Slide 76: LNG imports will provide new and flexible gas supply
LNG imports will provide new and flexible supply options in east coast gas market 700 Supply 600 • New supply agreements in place: Cooper, BHP, Exxon 500 Flexibility and storage 400 • Storage position to deliver flexibility: PJ 300 Iona Gas Storage, Newcastle Gas Storage Facility, Silver Springs Gas
Slide 77: Coal supply, flexibility and storage
Newcastle coal index (NEWC) (A$/tonne) Supply $170 • Long-term low-cost coal contracts out to 2025 $160 • Multiple short-term suppliers used $150 $140 Flexibility $130 • Competitive advantage through central Hunter $120 Valley location and delivery infrastructure $110 • 15% increase in train dischar
Slide 78: GM, Trading
GM, Trading
Slide 79: Trading
Geographic diversity Storage Transport Trading Flexible Commodity assets interchange-ability Investor Day | 30 October 2019 79
Slide 80: Value creation through trading AGL's portfolio of the future
Case study: Value creation through trading AGL’s portfolio of the future Investor Day | 30 October 2019 80
Slide 81: Developing the strength of the future portfolio
Developing the strength of the future portfolio Future success lies in flexibility of: Generation Fuel supply Storage Legend Currently operating or in construction Development pipeline Current offtake agreements Future offtake agreements Investor Day | 30 October 2019 87
Slide 82: Q&A
Q& A
Slide 83: Brett Redman, Managing Director & CEO
Brett Redman, Managing Director & CEO 89
Slide 84: Closing: foundation for growth pathways
Our strong heritage, people and We are positioned to deliver Our refreshed growth values, assets and capabilities, against our growth pathways of pathways, capital allocation are the foundation of our Connection, Orchestration, principles, investment success today Trading and Supply and discipline a
Slide 85: Important notice and disclaimer
• The material in this presentation is general information about AGL’s Statutory Profit and Underlying Profit: activities as at the date of this presentation. It is provided in summary form • Statutory Profit is prepared in accordance with the Corporations Act and does not purport to be complete. It
Slide 86: Contact
Contact James Hall Chris Kotsaris Sophia Li General Manager, Corporate Finance Head of Investor Relations (Interim) Group Treasurer (Acting) Phone: +61 2 9921 2789 Phone: +61 2 9921 2256 Phone: +61 2 9921 2092 Mobile: +61 401 524 645 Mobile: +61 402 060 508 Mobile: +61 476 809 190 Email: jbhall@agl.