Agl Energy Limited · ASX:AGL
Agl Energy — Merger or Acquisition (February 2007)
54 slides from Agl Energy's merger presentation, Feb 19, 2007
Slide 1: AGL/Origin merger update, Powerdirect acquisition and 2007 interim results
agli investor presentation -agl/origin merger update, powerdirect acquisition. and 2007 interim results 19 February 2007 important: read the disclaimer at the end of this presentation
Slide 2: Executive summary
° executive summary agl/origin proposed merger update sagt remains committed to the origin merger proposal - ‘the merger would deliver material and sustainable benefits to shareholders ~-powerdirect acquisition provides flexibility to address potential ACCC concerns agl has acquired powerdirect for
Slide 3: Proposed merger of equals update
proposed merger of equals update paul. anthony managing director and chief executive officer
Slide 4: Merger of equals update
gg Origin: merger of equals update « while discussions are ongoing, there is no-definitive agreement to disclose to the market « ag! continues to believe the business case for a nil-premium scrip merger is compelling and the benefits released to both sets of shareholders are only available in an ag!
Slide 5: Impact of Powerdirect acquisition
eg Origin | impact of powerdirect acquisition * the acquisition of powerdirect does not dilute the rationale of an origin merger « the acquisition will provide the merged entity with greater flexibility with respect to optimising an ACCC:solution * agl has developed a proposal that would create a st
Slide 6: Powerdirect acquisition
powerdirect acquisition paul. anthony managing director and chief executive officer
Slide 7: Powerdirect transaction overview
powerdirect transaction overview *agl has acquired the four businesses of powerdirect for $1,200 million a large energy business of four parts, in aggregate 20% larger than sun retail! the transaction is expected to have an immaterial impact-on an adjusted eps basis@ agl estimates purchase price to
Slide 8: Key investment themes
key investment themes immediate scale in fast growing OLD market “~-acquire significant retail presence in fastest growing market in the NEM - improves cost leadership. in, the integrated utility sector ; higher value retail customers - acquired at $1,300/customer — superior growth profile to Sun Re
Slide 9: Valuation and business overview
valuation and business overview $870m $1,300/account ¢no scale benefits * 396,200? SEQ franchise accounts 9-10x EBITDA attributed to bid * 35,600 contestable accounts (outside of QLD) $265m 23-24x EBITDA *new business e 37,8064 accounts in OLD, NSW, (pre integration in opportunity VIC and SA ag!’s c
Slide 10: Key transaction details
key transaction details i ] sources ($m) uses (gm) ean underwritten placement! 882 acquisition of powerdirect 4,200 a We hare purchase plan PS | fi ) 5 a a ae existing facilities! 269 transaction costs? 26 total . 1,226 total 1,226 * on 16 February 2007, agl entered into a definitive agreement to ac
Slide 11: Exposure to high growth SEQ market
exposure to high growth SEQ market * SEQ customers have higher consumption reflecting low gas household penetration * QLD is fastest growing market in NEM2 ~ new dwelling growth: 2.3% ~ economic growth: 3.8% * SEQ is projected to experience higher electricity demand growth than rest of QLD? ~ growth
Slide 12: Growing customer base
growing customer base « lower customer density in powercirect service area will result in lower relative s a churn : 20% = 10% * initial churn is expected to provide 0% Eo opportunities to increase customer fan08 fanaa fan-o5 Jan-£6 Jan-07 accounts * ownership of sun gas provide opportunity to targe
Slide 13: Enhancing AGL's cost advantage
enhancing agl’s cost advantage * Energex will provide billing and call centre under the transition services agreement (TSA) until March 2008 ~ casts under TSA are higher than agi’s current cost per account * post TSA, agi will integrate the retail customers into agl’s phoenix platform providing sign
Slide 14: SME business platform
SME business platform “a new dimension to agl’s business’ AG. and mais low profit per customer _high profit per customer retaler focus % margin © 8.0 . g 5 million : yy customers / Wa in NEM powerdirect has 37,800 SME i e : residential iy accounts in QLD, NSW, SA and Fowerdivecl focus WD a) 18C sage
Slide 15: Example SME load profiling
example SME load profiling ne mn Typical mass market winter load: ‘ypicat bakery load ~ Winter pool price * powerdirect has been successful in targeting customers that benefit from moving to “time of use’ tariffs $250. $200 * powerdirect offers lower tariffs to customers that require electricity : :
Slide 16: SME business model
a Me oo SME business model focus only on growing successful SME business ~ capitalise on core competencies of management all future contestable residential activity to be pursued within agl’s current business structure separately managed to support discrete SME business focus ~ important to segregat
Slide 17: Large customers and wholesale
large customers and wholesale sales to large customers 14.4TWh pa. purchase arrangements to cover GEC and REC obligations purchase arrangements for 19.1TWh p.a. for all powerdirect customers significant portfolio benefits from combining the powerdirect wholesale load with agl’s current load TWh sunr
Slide 18: Hedging diversity benefits
_imaximurn Fee EL mass market hedge ZA 12 midnight i2 v4 midnight neon = effect of aggregating different mass market and 1&C load provides a flatter load shape reducing total hedging requirement diversity benefits cap required on standafone QLD load saving on caps from combining loads * poor state c
Slide 19: Power generation overview
power generation overview RockYampton Maryborough risbane 1g
Slide 20: Platform for further growth in QLD
platform for further growth in QLD townsville ~ 370MW gas fired generation located at townsville mica creek power station ~ joint venture with CS Energy to upgrade 325MW mica creek power station and associated 70-100MW expansion further greenfield generation developments ~ provides platform to exten
Slide 21: Integration planning
integration planning * migrate residential customers inte ag! platform by 30 June 2008 without delaying phoenix programme | appre * migrate SME customers into ag! platform when growth reaches maturity « TSA costs to 31 March 2008 (c.$19m p.a.) * post | April 2008 transition to phoenix operating cost
Slide 22: Earnings per share
earnings per share * on areported eps basis, the transaction is dilutive largely due to P&L charges for non- cash amortisation as a result of acquisition accounting under AIFRS » the majority of the non-cash amortisation charges are caused by the acquisition of powerdirect’s ‘in-the-money’ hedges ~
Slide 23: Funding details
funding details sources : (om) uses ($m) underwritten placement). 882 acquisition of powerdirect ..1,200 share purchase plan 75 transaction expenses a 26 existing facilities. 269 total 1,226 total 1,226 note: {1} minimum amount raised at underwritten floor price of $15.60/share 23
Slide 24: Share purchase plan
share purchase plan existing shareholders will be given the opportunity to acquire $5,000.worth of shares at the placement price ~ no brokerage or transaction costs total subscriptions under the share purchase plan to be capped at $75 million - if applications exceed $75 million, scale~backs will oc
Slide 25: Placement summary
placement summary issuer, : AGL Energy Limited offer size: a _ minimum $882 million number of shares: 56.55 million (15% of issued capital) dividend entitlement: placement shares not entitled to H1 2007 dividend of 9.5¢/share bookbuild floor price: $15.60 per share underwritten floor represents a di
Slide 26: Placement timetable
placement timetable * investor presentation (at UBS’s offices) 10.15am, monday 19 february 2007 * books open 6.00pm, monday 19 february 2007 * books close 5.00pm, tuesday 20 february 2007 * pricing and allocation notified by 9.00am, wednesday 21 february * prospectus lodged wednesday 21 february * t
Slide 27: 2007 interim results
2007 interim results paul anthony managing director and chief executive officer - stephen mikkelsen chief financial officer 27
Slide 28: Period in review
-~period in review pro forma profit after tax $197.4 million ~ inaugural interim dividend 9.5cps, fully franked continuing improvement in retail as business re-engineering exercise continues ~ ~EBIT of $136.6m, up 18.3% on pcp ~ net operating cost of $96.6m, down 2.9% an pcp - project phoenix rollou
Slide 29: Result overview — financial
result overview — financial Nt ci crn Revenue i i EBITDA corr i, Finance costs? CR ity Tax Expense? : oon Profit after income tax in Less: Significant items 462.60) NPAT (pro forma) _ ft Underlying basic EPS Underlying basic EPS pre significant items Interim dividend per share4 Franking % 1. The AGL
Slide 30: Profit & loss (excluding significant items)
profit & loss! (excluding significant items) | decent Core canecan evenue . ee Expenses EBITDA egy Retail . : . i | Merchant ' Energy Investments (GasVaipo, ActewAGL, AlintaAGL & Elgas) Corporate Total EBIT ee Less: finance costs Profit before tax : Aas our Less: Income tax expense Net profit after
Slide 31: Statutory cash flow summary
statutory cash flow summary Receipts from customers Payments to suppliers Dividend received Finance income received Finance costs paid Income tax paid Net cash provided by / (used in) operating activities 31
Slide 32: Debt funding
debt funding ii AGL Energy 1,653 Other 48 Gross Borrowings 1,701 * BBB (S&P) long term rating maintained Less: Cash 147 . ess: as ————_4) «Fro interest cover: 5.9x ! Net Borrowings 1,554 * Gearing: 33.4% 2 Term facilities Tranche A 380 300 80 Oct 07 Term facilities Tranche B 633 500 133 Oct 09 Term
Slide 33: Retail - key financial metrics
_ retail-key financial metrics Revenue Expenses 1,593.3) (2.3) EBITDA 121.0 16.9 D&A (5.6) - EBIT 115.4 18.4 EBIT / Sales % 6.7 key drivers * Strong margin outcomes in both electricity and gas are the key driver of EBIT to Sales improvernent 33
Slide 34: Retail - key performance measures
retail - key performance measures / de 6 d Os chan in: iin _olume (CWh) (5.0%) Mass Market Accounts (‘000) 4.5%) Revenue ($m) mass market (57%) and C&l (43%) 1,070 (5.8%) Gross Margin Mass Market 89.7 16.4% Commercial & Industrial . 18.6 (25.3%) Total Gross Margin ($m) 108.3 9.2% Gross Margin % Valu
Slide 35: Merchant - key financial metrics
merchant - key financial metrics EBITDA Wholesale Energy & Power Generation 88.8 55.7 GEAC 6.8 142.6 Upstream 4.8 n/a EBITDA 100.4 163.6 D&A (10.6) = Fair Value 6.5 = EBIT 96.3 107.8 Key drivers + Full six month contribution from hydro * Somerton & Hallett peakers contribution consistent with prior
Slide 36: Merchant - operational
merchant — operational Wholesale Energy & Power Generation * Southern Hydro now fully integrated Into portfolio « Ongoing improvement in GEAC (Loy Yang A) contribution « Hallett & Somerton continued to deliver excellent reliability & start capacity Upstream Gas « PNG Upstream Investment - Generating
Slide 37: Merchant - advancing upstream strategy
merchant - advancing upstream strategy recent transactions... bogong expansion ~ ~ 140MW, peaking power station in Kiewa Valley - important addition to portfolio through fast start hydro peaking capability - zero emission plant - benefits under carbon constrained environment hallett Wind Farm ~ Inno
Slide 38: Driving business efficiency
Retail FTE Comorate & Merchant FTE 4300 1200 41100 4000 900 00 700 600 + Retail Headcount “(end target FY09 ~ 640 FTE's) Aug-06 Dao-6 san? Jun-08 none Actua —Pianned Corporate & Merchant Headcount (ond target FY08 ~400 FTE's} lun-08 Aug-06 Deo.06 un-07 Jun-08 comm ACK —m Planned Jun.08 _ driving bus
Slide 39: Supplementary information
supplementary information 39
Slide 40: Balance sheet
balance sheet imi Current Assets PPE and Oil and gas Assets Other Non Current Assets Total Assets Current Liabilities Total Debt Other Non Current Liabilities Total Liabilities Net Assets Contributed Equity Reserves Retained Earnings ee ALN Total Equity 40
Slide 41: Capital expenditure by segment
Merchant Energy 4.2 200.4! 204.6 Retail Energy 0.1 25,32 25.4 Corporate Other 3.6 29.12 31.7 Total 7.9 254.8 262.7 | Moranbah $1 01m, Bogang $20m, Halfett $28m & PNG $37m 2 Spencer Street relocation (Meib} and Phoenix costs Al
Slide 42: Retail - market share
retail - market share (6 months to Dec 2006) a Lc OM | ~17,762 ~31,900 29% 1.46 Customer accounts to 492,980 to 673,512 Gun 06: 30%) Gun 06: 1.44) Market churn rate 26.8% 26.1% Qun 06: 22.1%) Gun 06: 24.2%) Customer accounts +7,270 ~31,956 50% WW to 60,045 to 502,228 Gun 06: 52%) Gun 06: 1.09) Marke
Slide 43: Retail - intensely competitive market
60% 50% 40% 30% Annualised Churn Rates 20% + 10% | 0% Source’ retail - intensely competitive market SeBSSS Ess esas se SSSS HSE SHEERS SEER ee SBE BS 2533 eee ESS aS Soe eee ST SERSESESELEESS REE SG SPPSERSSSSSESSSS SREP ERTS PHS SRST I aGSSR SESE NEMMCO, VENCORP and ESCOSA estimates. SA Gas and Ele
Slide 44: Retail - electricity sales volume (GWh)
retail - electricity sales volume (GWh) = Mass Market (GWh) VIC SA NSW Total C & I (GWh) VIC SA NSW QLD Total A4
Slide 45: Retail - gas sales volume (PJ)
retail - gas sales volume (PJ) Mass Market ( VIC ‘189. SA NSW - fe C &1(GWh) VIC SA NSW Total 45
Slide 46: Ongoing system efficiencies: Project Phoenix
~ongoing system efficiencies project phoenix... * realise full synergy benefits: consolidate disparate operations, + reduce iT complexity and cost: systematic replacement of functions and management layers seven (7) legacy systems with one (1) enterprise-wide . ~~ platform * drive out operating cost
Slide 47: Retail - Phoenix schedule
retail - phoenix schedule fe nD EEE AS eT TI TO EN TAL + Establish operationai control and management based on rigorous use of reliable metrics implemented to track performance and process compliance + Qtr-by-qtr review and approval of cost-reduction initiatives + Restructure, rationalise and consol
Slide 48: Merchant - EBITDA
merchant - ebitda i ls | : il Wholesale Energy and Power Generation “Wholesale Electricity 45.9 (16.8) Generation Assets! 17.9 110.7 Hydro 1.8 n/a GEAC 6.8 142.6 Wholesale Gas 25.1 33.9 Energy Services 3.6 50.0 Sundry (5.4) (46.3) Upstream Gas PNG - nia CSM 0.6 nja HC Extractions 5.1 (21.6) Gas Dev
Slide 49: Merchant - wholesale electricity
merchant - wholesale electricity . - metrics Volumes Sold (to Retail Energy) VIC NSW SA QLD Total sold volumes (exc. ACTEW) Purchased Volume - ACTEW 4G
Slide 50: Merchant - wholesale electricity generation volumes
merchant ~ wholesale electricity generation volumes 6 mon Gecem be Generation Volumes (GWh) Hallett 6 Somerton 3 Kiewa Scheme 229 Dartmouth scheme 17 Eildon 28 Rubicon 31 NSW Scheme 53 Total weighted average 367 1. Pro forma comparative
Slide 51: Merchant - wholesale electricity generation prices
merchant - wholesale electricity generation prices G months to Generation Prices ($/MW hr) Hallett Somerton Kiewa Scheme Dartmouth scheme Eildon Rubicon NSW Scheme Total weighted average 1. Pro-forma comparative
Slide 52: Merchant - wholesale gas metrics
merchant - wholesale gas metrics 6 months) Volumes Sold (PJ) Vic NSW QLD Wholesale customers Total volumes Degree Days Vic NSW QLD
Slide 53: Merchant - PNG metrics
merchant - png metrics Liftings (kbbl) Production (kbb)) Inventory (kbbl) Post - hedge price US$ / bbi Production Cost (A$ / bbi) Operating (cash) expenses / Ce D&A Exchange rate (EBIT YTD) Effective tax rate ¢ Production and liftings negatively affected by: ~ 3-week shutdown of Kumul marine termina
Slide 54: This is not a prospectus - important information
. . . . THIS IS NOT A PROSPECTUS ~ IMPORTANT INFORMATION . d I S Cc | a l I ] e i This draft document has been prepared by AGL Energy Limited (‘AGLE"), in connection with a potential offering of fully paid ordinary shares In AGLE (Shares") via an institutional placement. itis highty confidentiat and