Infratil Limited · NZX:IFT
Infratil — Investor Day (July 2012)
46 slides from Infratil's investor day presentation, Jul 31, 2012
Slide 1: The Consolidated Australian Energy Group
The Consolidated Australian Energy Group Infratil Investor Day 31 July 2012
Slide 2: Our energy businesses in Australia
Our energy businesses in Australia • East Coast – National Energy Market (NEM) - Lumo Energy • Retailing electricity & gas primarily to mass market customers…although this is changing • 457,000 customers - 4th largest customer base in the NEM • CEO – Dean Carroll - Infratil Energy Australia (IEA) •
Slide 3: Leveraging the Infratil / TrustPower relationship
Leveraging the Infratil / TrustPower relationship • In New Zealand TrustPower is an active retailer and generator • In Australia TrustPower is an accomplished wind farm developer and operator • Australian retail market is very different to the market in NZ - Indeed different retail strategies are of
Slide 4: NEM Retail Landscape
NEM Retail Landscape • Carbon Price – retailers pass on the cost, but bear the brunt of consumer anger • More knee jerk political responses to electricity (& gas) pricing? - Qld legislating to make contract termination fees illegal. NSW requiring carbon costs to be separately identified on each cons
Slide 5: NEM Supply Landscape
NEM Supply Landscape • Electricity - Surplus supply driven by manufacturing sector slowdown, domestic solar PV penetration and energy efficiency measures • Should the market have seen this coming? YES - Will further vertical and/or horizontal integration reduce wholesale market liquidity? - Buyers f
Slide 6: WEM Landscape and Perth Energy
WEM Landscape and Perth Energy • Retailing - 3rd largest WA retailer with a growing market share of 14% of the commercial & industrial market. Mass market is not contestable. - FY2012 sales volume of 1300GWh, a 24% increase on pcp - High barriers to retail new entry due to illiquid wholesale contrac
Slide 7: Further Consolidation?
Further Consolidation? • Integration amongst the big three, Origin, AGL & TruEnergy very unlikely • Horizontal integration in the generation market may be limited in some jurisdictions also due to Restrictive Trade Practices legislation (Competition and Consumer Act 2010) • Horizontal integration in
Slide 8: IEA is well placed to address uncertainties
IEA is well placed to address uncertainties • Australian energy landscape has never been so uncertain… impacting: - Investment in new gas-fired generating plant - New renewables projects through difficulties in securing long term off-take agreements - Forward wholesale electricity prices – will ther
Slide 9: Our Customers… Where are they?
Our Customers… Where are they? • 457,000 as at 30 June 2012 and still counting… • Lumo well positioned in the attractive Victoria market • Selective acquisition activity undertaken and ongoing in other States • Taking a wait and see position in Queensland 9
Slide 10: Who are they?
Who are they? • Lumo’s customer profile skewed a little to older demographic - Largely a function of sales channels employed to date (D2D and telesales) • Solid representation in family belt Source: Roy Morgan Research Lumo Energy User Profile Dec 2011 10
Slide 11: Organic customer growth trajectory
Organic customer growth trajectory 1,000,000 900,000 800,000 700,000 Customers 600,000 500,000 400,000 300,000 200,000 100,000 0 2006 2006 2007 2008 2009 2010 2010 2011 2012 2012 2013 2013 2014 2014 2015 2016 2016 2007 2009 Current Replace churn Likely range 11
Slide 12: Acquisition… Plenty of fish in the sea!
Acquisition… Plenty of fish in the sea! Source: Internal analysis of market data 12
Slide 13: Changing the traditional acquisition method
Changing the traditional acquisition method • Channels to achieve the first 450,000 customers are unlikely to sustain the next five years of customer growth - ‘Opt outs’ into the Do Not Call register total circa 7 million phone numbers - Campaigning for door to door channels under threat • Lumo will
Slide 14: Developing channel diversity is crucial
Developing channel diversity is crucial • Increasingly a greater range of marketing channels are being deployed • Already getting good traction from online leads and Virgin Velocity Partnerships Our marketing philosophy is to be customer centric utilising Internet appropriate channels that Other SMS
Slide 15: Significant focus on enhancing our sales capability
Significant focus on enhancing our sales capability • Strong group of channel sales partners with good compliance orientation • Targeting diversification of sales channels to spread the risk • Positioning for a world with a greater percentage of in-bound sales activity Channel Source Feb-11 Jun-12 M
Slide 16: Our major new channel… 100% Infratil owned
Our major new channel… 100% Infratil owned 16
Slide 17: Introduction to Direct Connect (DC)
Introduction to Direct Connect (DC) • Incorporated in August 2004 to arrange connection services for customers moving into new premises which successfully serviced 140,000 energy customers in 2011/12 Business Profile • To June 2012, DC has partnered with 3,084 Connecting Agents (Real Estate Agents)
Slide 18: Direct Connect – who are they?
Direct Connect – who are they? • Only 18% of the total moving market uses an aggregator like DCA Market Share Total Moves across Australia DCA, 8.1% Home Others, 9.7% Owners 36% Not Rentals Touched, 64% 82.2% Direct Connect Growth in Energy sales 140,000 120,000 100,000 80,000 60,000 SA NSW 40,000 Q
Slide 19: Direct Connect – how are they growing?
Direct Connect – how are they growing? • Continue to develop products using Partnerships • Expand product offering in SME markets in conjunction with Lumo • Development of new products to capture more home owner moves 19
Slide 20: NSW is an emerging market
NSW is an emerging market • NSW is an emerging opportunity for Lumo - Over 3 million electricity sites / 1 million gas - Recent deregulation = poor service by incumbents • Lumo entered in earnest in July 2011 - Early mover • Very selective acquisition - Only Integral (Endeavour) to date • Introduced
Slide 21: Brand evolution
Brand evolution • The brand will be evolved through: - Building a clear and compelling brand position and delivering on it - Driving customer segmentation and targeted marketing programs - Channel diversification to reach and cost effectively engage preferred customers - Promote customer engagement
Slide 22: Brand positioning
Brand positioning • Energy is a difficult category for consumers to differentiate and position brands • Price and scale/reputation are the current defaults used • Key to being differentiated and owning a gap in the market is to offer better value by improving and reinforcing quality and utility Qual
Slide 23: Aspirational brand position
Aspirational brand position Modern a 2nd tier retailers Master Servant (Leadership driven (Leadership driven by Corporation) by Customers) Incumbents Traditional 23
Slide 24: Building the Lumo brand
Building the Lumo brand • Our objective is to develop a compelling brand position for Lumo that is both exciting and distinctive within the highly competitive energy sector Phase 1 Phase 2 Creative Idea & Phase 3 Implementation Implementation Brand Essence Brand DNA Plan Complete Phase 4 Measurement
Slide 25: Looking after customers… In the Lifecycle
Looking after customers… In the Lifecycle • Investment has been, and is being made in Information Technology to: - Enhance our systems - Provide for scalability - Improve the customer experience • Developing and extending programs that touch all key moments of truth • Creating an ongoing dialogue wi
Slide 26: … Improving our service to customers
… Improving our service to customers • Front and back offices working together allows customer feedback data to be collected, analysed and fed back into the customer value chain to ensure improvements are delivered • Implementing a quality methodology and starting to see the associated improvement c
Slide 27: … With new Propositions
… With new Propositions • New propositions will address specific customer needs. An example is a movers product for new customers from Direct Connect • Ultimately market segmentation will inform product development • To date Lumo has been successful with a very narrow product range • Group buying sc
Slide 28: Victoria leads the way in switching
Victoria leads the way in switching • Yes, it is competitive but our position is established and adding value Source: VassaETT (World Energy Retail Market Rankings 2012) 28
Slide 29: Wholesale electricity markets remain liquid
Wholesale electricity markets remain liquid • Markets remain active and liquid up to two years forward - Despite integration activities across the industry we see little benefit in vertical integration but ….. while there remains sufficient “independent” generators, and active trading participants,
Slide 30: Electricity wholesale – other considerations
Electricity wholesale – other considerations • Renewable Energy (and other “green” obligations) - Content to buy from market • CO₂ uncertainty leading to illiquidity beyond two years forward - (but we’ve had to manage this issue for four years now) • To counter any chronic shift in liquidity, IEA co
Slide 31: Bamarang development site is a valuable option
Bamarang development site is a valuable option • Up to 450MW gas generation development site in NSW - Bought out of NSW privatisation - Well located on the Eastern Gas Pipeline - Approvals in place to construct • Capacity not needed until 2016 – 2018 (or beyond) • However, IEA may develop earlier to
Slide 32: Peaking Power Stations
Peaking Power Stations • Total of 160MW diesel fired “super” peakers • Excellent availability stats • Have not been required to run commercially for last 18 months • Medium-term capacity values (cap prices) under pressure from reducing demand 32
Slide 33: IEA Wholesale Gas positioning
IEA Wholesale Gas positioning • IEA is now positioned with a very flexible, low risk gas portfolio: STORAGE TRANSPORTATION SUPPLY 33
Slide 34: Longer term gas position
Longer term gas position • Well balanced to 2015/16 with a diversity of supply and no “cliff edges” • Improved liquidity enables rolling contract renewal • With substantial price uncertainty beyond 2015, IEA is keen to not lock into longer-term fixed price contracts which could turn out to be uncomp
Slide 35: Wholesale summary and key messages
Wholesale summary and key messages • Electricity demand reducing → benign wholesale prices • Flexible competitive gas portfolio • Optionality to deal with mid-decade uncertainties - Carbon - LNG exports - Demand levels - Renewable etc. legislation - Liquidity … Management challenge in positioning fo
Slide 36: The Key Messages
The Key Messages • IEA is delivering sustainable returns - Good earnings - Focus now on efficiency/process improvements - Abnormal charges associated with historic gas position are a thing of the past - Risk management processes are robust • Customer growth has returned - Confident about FY13 custom
Slide 37: Overview of Financial Results
Overview of Financial Results A$ million Mar’ 11 Mar’ 12 FCST Mar’ 13 Lumo customers (No.) 409,000 442,000 490,000 – 510,000 Generation capacity (MW) 277 MW 277 MW 280 MW Revenue 698 788 950 - 995 EBITDAF 43 50 60 - 70 Hedge Revaluation movements 35 31 - Net Finance Costs - external (3) (9) (8) - (1
Slide 38: EBITDAF Contribution breakdown
EBITDAF Contribution breakdown A$ million Mar’ 11 Mar’ 12 FCST Mar’ 13 Perth Energy 5 13 14 - 16 Generation 8 11 9 - 11 Retail 44 44 41 - 47 Excess Gas (5) (12) - Electricity Hedge Book Restructuring (4) 1 - Excess NGAC’s (2) (4) (1) Generation Development / (3) (3) (3) Unallocated Overhead EBITDAF
Slide 39: 2011/12 ended strongly despite gas impacts
2011/12 ended strongly despite gas impacts 90.0 Retail Electricity Perth Energy Generation Retail Gas Other 80.0 3 70.0 7 3 A$ in millions 6 9 2 60.0 5 4 10 50.0 2 8 40.0 50 48 48 43 30.0 EBITDAF Mar Retail Electricity Wholesale Electricity Hedge Perth Energy - Perth Energy - Generation Retail Gas E
Slide 40: 2011/12 – Key Points
2011/12 – Key Points • Lower Wholesale Electricity Costs - Our hedge book performed well - Hedge restructure trading gains are not expected to re-occur • Perth Energy Generation - Prior comparative period only had 7 months earnings from the Kwinana Power Station - Engine repair costs incurred in 201
Slide 41: Further gains anticipated in 2012/13
Further gains anticipated in 2012/13 90.0 Retail Gas Retail Electricity Perth Energy Other 2 3 80.0 22 70.0 18 A$ in millions 2 60.0 12 50.0 65 40.0 50 30.0 EBITDAF Mar Excess gas Retail Electricity Retail Electricity Perth Energy - Operating Other EBITDAF Mar 2012 Volume Margin Generation Expenses
Slide 42: 2012/13 – Key Points
2012/13 – Key Points • Excess Gas - Much more balanced and flexible wholesale gas portfolio • Retail Electricity Margins - In line with customer growth • Perth Energy - Generation - Higher capacity prices in the short term • Operating Expenses - Approximately 50/50 split with CTS and Acquisition Cos
Slide 43: Cost to serve stable going forwards
Cost to serve stable going forwards Total = $113 Total = $115 Other includes Total = $95 miscellaneous items such as printing, stationary, regulatory and occupancy costs …Increased investment in systems and processes will lead to a reduction in other areas of Cost to Serve and eventually a total red
Slide 44: Valuation of IFT's Australian Energy Assets
Valuation of IFT’s Australian Energy Assets ASSET Midpoint Midpoint A$ million valuation valuation Investor Day 29 March 2011 31 March 2012 Diesel recip Power Stations– 160MW 144 139 Bamarang Gen. Development Site 9 9 Kwinana Power Station – 120MW 148 138 Perth - K2 and K3 Development Options 8 10 L
Slide 45: Is it worth the journey?... Yes
Is it worth the journey?... Yes • We’re a business that is… - growing… its client base & capabilities - increasing its EBITDAF and its returns to shareholders • …in a sector where: - new entrants will increasingly find it difficult to gain a foothold - players that are not well resourced will eventu
Slide 46: Appendix 1: Capital Structure as at 31 March 2012
Appendix 1: Capital Structure as at 31 March 2012 A$ million Infratil Perth Australian Australia Energy Group Cash 24 19 43 Receivables, prepayments and inventories 142 32 174 Prepaid Gas 38 - 38 less Payables and accruals (82) (25) (107) Net working capital 122 26 148 Property, plant and equipment