Agl Energy Limited · ASX:AGL
Agl Energy — FY2011 Earnings Presentation
65 slides from Agl Energy's earnings presentation, Aug 25, 2011
Slide 1: 2011 Full Year Results
2011 Full Year Results 12 Months to 30 June 2011 Michael Fraser, Managing Director and CEO Stephen Mikkelsen, Chief Financial Officer | 25 August 2011
Slide 2: Disclaimer
2 Disclaimer The information in this presentation: › Is not an offer or recommendation to purchase or subscribe for securities in AGL Energy Limited or to retain any securities currently held. › Does not take into account the potential and current individual investment objectives or the financial si
Slide 3: Agenda
3 Agenda › Result Highlights Michael Fraser › Group Financials Stephen Mikkelsen › Operational Review Michael Fraser › Supplementary Information IMPORTANT NOTE: This presentation should be read in conjunction with the AGL Energy Limited ASX Appendix 4E for the 12 months ended 30 June 2011. » 2011 Fi
Slide 4: FY11 Highlights
4 FY11 Highlights Organic growth strategy delivers strong initial success. › Flat Underlying Profit constrained by weather and Loy Yang A › Strong underlying operating cash flow before tax at $676 million › 95,959 new NSW electricity customers contracted in 2HFY11 › Retail Energy Operating EBIT incr
Slide 5: Final 2011 Result Highlights
5 Final 2011 Result Strong operational cash flow further strengthens financial metrics. › Revenue: $7,072.5m 7.0% › Statutory Profit: $558.7m 56.9% FINANCIAL › Underlying Profit: $431.1m 0.5% › Underlying EPS: 94.4 cps 1.3% › DPS: (final dividend 31.0 cents - 100% franked) 60.0 cps (Jun 10:
Slide 6: Group Financials
6 Group Financials Stephen Mikkelsen Chief Financial Officer » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 7: Profit & Loss (excluding significant items & fair value movements)
7 Profit & Loss (excluding significant items & fair value movements) Flat Underlying Profit - constrained by weather events and Loy Yang A. 12 months to 30 Jun 2011 30 Jun 2010 Change $m Revenue 7,072.5 6,610.7 7.0% Operating EBITDA 804.5 789.6 1.9% Operating EBIT Retail 373.0 318.7 17.0% Merchant 3
Slide 8: Group Underlying Profit
8 Group Underlying Profit Continued improvement in Retail offset by LYA and weather events. 520 Retail Merchant 500 65.8 47.7 8.1 480 (11.5) (11.9) (8.9) $ million 460 440 (43.7) 431.1 428.9 (41.2) (2.2) 420 400 FY10 MM & C&I Retail other Severe Energy Merchant Upstream Central Investments Interest
Slide 9: Retail – Key Financial Metrics
9 Retail – Key Financial Metrics Continued margin improvement against a backdrop of subdued demand. 12 months to 30 Jun 2011 30 Jun 2010 Change $m Electricity Revenue 4,349.4 4,010.0 8.5% Gas Revenue 1,665.7 1,511.9 10.2% Other Revenue (Fees & Charges) 76.0 63.7 19.3% Total Revenue 6,091.1 5,585.6 9
Slide 10: Retail – EBIT Drivers
10 Retail – EBIT Drivers Strong improvement in mass market. 420 3.1 400 12.3 62.5 3.3 (5.7) 380 373.0 (13.2) (8.0) 360 $ million 340 318.7 320 300 280 FY10 MM Gross Margin C&I Gross Margin Other Gross Margin Campaigns & Labour & Contractor Bad & Doubtful Debts Other Opex costs FY11 Advertising Servi
Slide 11: Retail – Key Operating Metrics
11 Retail – Key Operating Metrics Continued growth in gross margin per customer. 12 months to 30 Jun 2011 30 Jun 2010 Change Mass Market gross margin ($m) 595.8 533.3 11.7% Avg Mass Market customer numbers (‘000) 3,254.2 3,205.6 1.5% Gross margin per Mass Market customer $183.08 $166.35 10.1% Gross
Slide 12: Retail – Key Operating Metrics
12 Retail – Key Operating Metrics Opex to Gross Margin on track to meet target of low 40s. 12 months to 30 Jun 2011 30 Jun 2010 Change $m Operating costs 356.6 335.1 6.4% Depreciation and amortisation 43.8 41.5 5.5% Less fees and charges (76.0) (63.7) 19.3% Net operating costs 324.4 312.9 3.7% Gross
Slide 13: Merchant – Key Financial Metrics
13 Merchant – Key Financial Metrics Operating EBIT down 2%. 12 months to 30 Jun 2011 30 Jun 2010 Change $m Operating EBITDA 447.3 449.8 (0.6%) D&A (69.1) (63.7) 8.5% EBIT Energy Portfolio Management (EPM) Wholesale Electricity Gross Margin 304.3 313.7 (3.0%) Wholesale Gas Gross Margin 104.3 102.3 2.
Slide 14: Merchant – EBIT Drivers
14 Merchant – EBIT Drivers Strong underlying Electricity performance impacted by one-off events. 400 386.1 8.5 2.0 1.9 378.2 380 46.8 (10.9) 360 $ million 340 (43.7) 9.9 320 (22.4) 300 FY10 Severe Weather Carbon Hedge Hydro and New Underlying Wholesale Gas Eco-markets Merchant Other FY11 Events Cost
Slide 15: Significant Items
15 Significant Items AGL lowers cost base. FY12 savings approximately $20 million. 12 months to 30 Jun 2011 Pre Tax Tax After Tax $m Redundancy, termination and restructuring costs (27.0) 7.3 (19.7) Merger and acquisition related costs (17.3) 4.2 (13.1) Tax consolidation adjustment - 5.5 5.5 Total s
Slide 16: Debt Position
16 Debt Position Net debt only increased $50 million to $471 million. › Refinancing of existing $886m syndicated bank loan signed 20 July 2011 » Replaced with $1,000m self-arranged syndicated loan facility » $600m - 3 year Term facility; $400m - 5 year Revolving facility › $200m Export credit agency
Slide 17: Financial Ratios
17 Financial Ratios Continued improvement across all key financial coverage metrics. › BBB stable credit rating › Rating reaffirmed by S&P in August 2011 30 Jun 2011 30 Jun 2010 FFO / Interest cover (times)1 12.2 7.5 FFO / Interest cover S&P Adjusted (times)2 7.9 5.4 Net Debt ($m) 471.4 420.4 Net de
Slide 18: Capital Expenditure
18 Capital Expenditure Macarthur represents ~40% of committed FY12 capital spend. LEGEND Stay In Business 1,000 Upstream Gas 900 Oaklands 800 Macarthur Hallett 5 700 Retail Other $ million 600 Dalton/Newcastle 500 GSF 400 300 200 100 0 FY10 Actual FY11 Actual FY12 Forecast » 2011 Final Results 12 mo
Slide 19: Debt Capacity
19 Debt Capacity $500 million of headroom to fund future capex. 2,300 $500m 1,800 Cash $ million flow Cash LEGEND 1,300 S&P Adjustment Capex Forecast 800 Dalton / Newcastle GSF Closing FY11 Debt 300 Operating Cash Flow after Dividends Dividend -200 FY11 Actual FY12 Forecast Reinvestment Plan Headroo
Slide 20: Return on Funds Employed
20 Return on Funds Employed Flat results impacted returns. 12 months to 30 Jun 2011 30 Jun 2010 30 Jun 2009 $m Operating EBIT 656.5 652.1 643.1 Average Funds Employed 7,403.0 6,953.8 6,644.4 EBIT / Funds Employed 8.9% 9.4% 9.7% Operating EBIT 656.5 652.1 643.1 Less: Upstream Gas EBIT (13.6) (5.5) (4
Slide 21: Underlying Operating Cash Flow
21 Underlying Operating Cash Flow Solid uplift in cash flow. 12 months to 30 Jun 2011 30 Jun 2010 Change $m Statutory net cash provided by operating activities 569.3 390.0 Cash flow relating to significant items 41.9 27.8 Futures margin calls (30.0) 5.9 Increase in net green position 94.1 17.6 Under
Slide 22: Operating cash flow
22 Operating cash flow Strong working capital management. Aged Unbilled Accounts – improving across all categories 3,500 › Unbilled customers continue to reach new lows 3,000 Num ber of accounts 2,500 » Oldest mass market unbilled customer aged 2,000 52 days 1,500 1,000 › Mass market days sales due
Slide 23: Operational Review
23 Operational Review Michael Fraser Managing Director & CEO » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 24: Safety & People
24 Safety & People Safety metrics require on-going focus. › Key safety statistics » 4.2 million hours worked » 9 Lost Time Injuries Lost Time Injury Frequency Rate » 21 Total Injuries 6.0 January 2008 - June 2011 › Embedding a safety culture across employees 5.0 and contractors 4.0 › Key people init
Slide 25: NSW growth – Electricity customer acquisition
25 NSW growth – Electricity customer acquisition Lead sales in 2HFY11 up 75% on pcp. NSW Electricity Lead Sales FY11 vs. FY10 › NSW Lead sales of +96,000 in 2HFY11 70,000 » Strong 2H performance given Jan-Feb activity traditionally slow 60,000 # of electricity lead sales › Net Growth versus Lead sal
Slide 26: NSW growth – Electricity customer acquisition
26 NSW growth – Electricity customer acquisition Attractive cost to acquire creates shareholder value. › Average acquisition cost per customer - $170 » Amount amortised over life of contracts - $162 › High proportion of new customers entering into fixed-term contracts (83%) › Capitalised cash outlay
Slide 27: NSW growth – Electricity customer acquisition
27 NSW growth – Electricity customer acquisition1 All regions responding to increased activity and AGL’s product offering. AGL Electricity Lead Sales by Distributor Patch1– FY11 › Prior to completion of NSW privatisation 50,000 » Churn primarily occurred in Ausgrid 45,000 patch 40,000 # Mass Market
Slide 28: Retail competition in other States
28 Retail competition in other States Competitive activity remains high in benign wholesale market conditions. New Customer Lead Sales - Qld, VIC & SA (2HFY11) › Changes to Consumer Laws in January 2011, re: hours of operation for door-to-door sales › AGL over-estimated likely downturn in sales acti
Slide 29: Customer growth
29 Customer growth Strategies to improve retention & sales in Queensland/South Australia. Customer Numbers 30 Jun 2010 31 Dec 2010 30 Jun 2011 FY11 vs FY10 (‘000) Electricity New South Wales 381 423 468 87 Queensland 371 362 350 (21) South Australia 478 475 468 (10) Victoria 643 646 639 (4) 1,873 1,
Slide 30: Improving customer service
30 Improving customer service Industry outperformance. AGL churn much lower than industry 21 › AGL continues to outperform industry despite 19 increasing competition Market churn (%) 17 » AGL customer churn 3.8 ppts below industry 15 average 13 » AGL churn reduced in NSW 11 Dec-09 Jun-10 Dec-10 Jun-
Slide 31: Managing NSW electricity load
31 Managing NSW electricity load Generators provide additional hedge cover. › Unaligned NSW generation available to Entity Capacity % of (MW) Region support AGL’s NSW growth strategy Macquarie Generation 4,839 28.8% Snowy Hydro 2,516 15.0% › AGL has been able to procure significant Delta Coastal 2,5
Slide 32: Building scale in generation
32 Building scale in generation Dalton to deliver cost-competitive capacity and portfolio flexibility. › Initial 500 MW peaking capacity › EPC contract signed » Leighton Contractors/GE consortium » Conditional upon planning approval, transmission and gas connection » Planning approval expected withi
Slide 33: Newcastle Gas Storage Facility
33 Newcastle Gas Storage Facility Storage to deliver cost-competitive capacity and portfolio flexibility. › EPC contractor selected » Conditional upon NSW and Commonwealth government approvals › Approvals expected Q2FY12 › Managing peak gas demand (daily and hourly) › Storage capacity 1.5 PJ › Peak
Slide 34: New QGC gas sales contract
34 New QGC gas sales contract Gas sale of between 54 PJ and 74 PJ. › Binding agreement executed with QGC » Reshapes the contractual volumes in AGL’s existing gas purchase agreement » Reduces AGL’s front-end purchase obligations and increases volumes available for sale to QGC post January 2014 » AGL
Slide 35: Mosaic acquisition
35 Mosaic acquisition Emerging gas storage business provides new platform for growth. Silver Springs underground gas storage project › Underpinned by QGC gas storage services agreement for first 7 years › Stage 1 in commissioning › Injection commenced August 2011 › Current injection/extraction rate
Slide 36: Upstream Gas – Creating long-term value
36 Upstream Gas – Creating long-term value Total 2P reserves entitlement increased by 511 PJ during FY11. › Initial Hunter gas reserves booked (2P: 142 PJ) › Total Bowen Basin 2P reserves up 310 PJ despite 131 PJ decline at Moranbah › Arrow Energy commits to FEED. ATP 1103 gas likely to be committed
Slide 37: Renewables
37 Renewables Projects remain on track. › Macarthur (420 MW) wind farm construction commenced November 2010 » $1 billion project (AGL 50%) remains on track for Q1 2013 completion » AGL’s 50% interest is being partly funded by $200m export credit facility › Oaklands Hill (67 MW) wind farm sold in Jun
Slide 38: Carbon price proposed from 1 July 2012
38 Carbon price proposed from 1 July 2012 Market-based mechanism will achieve lowest cost. › Government committed to 1 July 2012 start date » Legislation scheduled to be passed in 1HFY12 › AGL well-positioned for a low carbon environment » Generation fleet average emissions intensity 58% below NEM »
Slide 39: Summary
39 Summary Good start to NSW organic growth strategy. › Retail Energy continues to perform well » Ongoing improvement in customer service » Good growth in NSW electricity customer acquisitions » NSW acquisition costs per customer substantially less than $200 › Merchant Energy delivers flat result »
Slide 40: Outlook
40 Outlook › Strong growth in Merchant Energy reflecting: » Assumed absence of costs associated with 2011 weather events » Favourable wholesale electricity markets » Increased contribution from hydro assets » Initial contribution from South Australia desalination contract » Partially offset by reduc
Slide 41: Sales / Information / Contacts
41 Sales / Information / Contacts Sales Switch to AGL electricity and gas: www.agl.com.au Register for AGL Online: https://aglenergyonline.agl.com.au Call Customer Service: 131 245 Information Refer to AGL’s website: www.agl.com.au Contacts INVESTORS MEDIA John Hobson Nathan Vass Head of Capital Mar
Slide 42: Supplementary Information
42 Supplementary Information » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 43: Electricity Demand - NEM
43 Electricity Demand - NEM 610 590 FY08 FY09 FY10 FY11 30 Day Rolling Demand (GWh) 570 550 530 510 490 470 450 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: AEMO (excludes Tasmania) » 2011 Final Results 12 months to 30 June 2011 » 25 August 2011 » AGL External
Slide 44: Electricity Sales Volume
44 Electricity Sales Volume 12 months to 30 Jun 2011 30 Jun 2010 Change GWh Mass Market VIC 4,747 4,931 (3.7%) SA 3,233 3,404 (5.0%) NSW 3,859 3,338 15.6% QLD 2,835 3,406 (16.8%) Mass Market Total 14,674 15,079 (2.7%) C&I VIC 6,156 6,097 1.0% SA 3,563 3,196 11.5% NSW 5,538 5,397 2.6% QLD 2,833 4,593
Slide 45: Gas Sales Volume
45 Gas Sales Volume 12 months to 30 Jun 2011 30 Jun 2010 Change PJ Mass Market VIC 30.8 28.1 9.6% SA 2.6 2.0 30.0% NSW 26.3 25.0 5.2% QLD 2.9 3.2 (9.4%) Mass Market Total 62.6 58.3 7.4% C&I VIC 26.0 25.8 0.8% SA 9.4 7.3 28.8% NSW 39.9 39.0 2.3% QLD 13.8 14.6 (5.5%) C & I Total 89.1 86.7 2.8% Wholesa
Slide 46: Retail – Mass Market Key Indicators (includes SME)
46 Retail – Mass Market Key Indicators (includes SME) 12 months to 30 Jun 2011 30 Jun 2010 Change Electricity Volume (GWh) 14,674 15,079 (2.7%) Avg. Mass Market Accounts ('000) 1,886 1,856 1.6% Revenue ($m) 2,479.4 2,208.9 12.2% Gross Margin ($m) 388.1 345.0 12.5% Gross Margin 15.7% 15.6% 0.1 ppts G
Slide 47: Retail – C & I Key Indicators
47 Retail – C & I Key Indicators 12 months to 30 Jun 2011 30 Jun 2010 Change Electricity Volume (GWh) 18,090 19,283 (6.2%) C & I Accounts ('000) 19.6 16.5 18.8% Revenue ($m) 1,870.0 1,801.1 3.8% Gross Margin ($m) 61.0 49.6 23.0% $ / MWh $3.37 $2.57 31.1% 12 months to Gas Volume (PJ) 89.1 86.7 2.8% C
Slide 48: Retail – Market Churn
48 Retail – Market Churn AGL churn 3.8 ppts below Market (16.2% vs Market at 20.0%) 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 NSW Electricity - Market NSW Gas - Market VIC Electricity - Market VIC Gas - Market SA Electricity - Market SA Gas -
Slide 49: Retail – Cost to Serve
49 Retail – Cost to Serve 12 months to 30 Jun 2011 30 Jun 2010 Change Net operating expenditure $324.4m $312.9m 3.7% Net operating cost per customer account $99.12 $97.11 2.1% Cost to grow/retain $75.9m $77.5m (2.1%) Cost to grow per account acquired/retained1 $84.08 $86.84 (3.2%) Cost to serve $248
Slide 50: Retail – Weather
50 Retail – Weather › Winter months Heating Degree Days » Victoria experienced 6th wettest August 2010 on record with 1200 exceptionally low daytime temperatures 1000 » South Australia July and August 2010: 1 - 3°C below average Heating Degree Days temperatures; second coolest Autumn on record in 20
Slide 51: Merchant – EBIT Analysis
51 Merchant – EBIT Analysis 12 months to 30 Jun 2011 30 Jun 2010 Change $m Revenue from Retail Business 1. Generation revenue is pool revenue - Electricity (COGS transfer price) 2,393.9 2,324.6 3.0% from owned generation assets. 2. ActewAGL Jun 11: Electricity sales - Gas (COGS transfer price) 822.9
Slide 52: Merchant – Generation: Operational performance
52 Merchant – Generation: Operational performance Operational performance of Commercial Availability / Start Reliability (%) generation assets continues to meet or exceed international 100.0 benchmarks. 98.0 Availability / Start Reliability (%) 96.0 94.0 92.0 1. Commercial availability is used to me
Slide 53: Merchant – Hydrology
53 Merchant – Hydrology › 52.6% of Hydro capacity is now linked to drought-resistant Kiewa Scheme › Eildon is operational and at full capacity (120MW) › Dartmouth continues to get good inflows and is operational at 145MW (out of a total 180MW) AGL Hydro Storage (Above minimum operating level) AGL Hy
Slide 54: Merchant – Generation: Carbon intensity
54 Merchant – Generation: Carbon intensity Asset Location Type Status Capacity Capacity Factor Output 2010/11 Carbon intensity (MW) (%) (GWh) (tonnes CO2e/MWh) Torrens Island SA CCGT Owned 1,280 20 2,211 0.6 Angaston SA OCGT Control dispatch 49 0 1 1.0 Wattle Point SA Wind Control dispatch 91 32 252
Slide 55: Merchant – Electricity Hedging: Policy
55 Merchant – Electricity Hedging: Policy › 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 party credit limit tier allocation › Market price risk is contain
Slide 56: Merchant – Wholesale Electricity Prices
56 Merchant – Wholesale Electricity Prices › Financial Year 2012 contract prices fell significantly in the second half of Calendar Year 2010 and January 2011 following a prolonged period of flat spot prices across the National Electricity Market › Forward prices then spiked in February 2011 in respo
Slide 57: Merchant – Electricity Hedging: Position
57 Merchant – Electricity Hedging: Position Physical Financial Satisfying Financial Risk Limits Unhedged load must be limited Range of profit outcomes from so that potential downside unhedged load exposed to variable cannot result in an NPAT below wholesale market prices. this level as modelled in w
Slide 58: Upstream Gas – Key Financial Metrics
58 Upstream Gas – Key Financial Metrics 12 months to 30 Jun 2011 30 Jun 2010 Change $m Operating EBITDA 35.1 26.6 32.0% D&A (21.5) (21.1) 1.9% EBIT Upstream Gas Queensland / South Australia 16.2 4.7 244.7% New South Wales 4.2 4.3 (2.3%) Equity Investments (0.4) (2.2) (81.8%) Sundry (6.4) (1.3) 392.3
Slide 59: Upstream Gas Interests – Permit Details
59 Upstream Gas Interests – Permit Details Permits Permits Working Working Basin Project Exploration Production Basin Project Exploration Production Interest 2 2 Interest (Area km2) (Area km2) (Area km ) (Area km ) PEL 2 (6,708) - 100% ATP 471P (703)r - 28.71-100% PEL 5 (401) - 100% ATP 709P (146) -
Slide 60: Operating Cash Flow to Statutory Cash Flow Reconciliation
60 Operating Cash Flow to Statutory Cash Flow Reconciliation 12 months to 30 Jun 2011 30 Jun 2010 Movement $m Operating EBITDA 804.5 789.6 14.9 Equity accounting (6.0) (39.1) 33.1 Onerous gas contract (20.9) (20.9) - Receivables (42.3) (25.4) (16.9) Net movement in green assets / liabilities (94.1)
Slide 61: Energy Investments
61 Energy Investments 12 months to 30 Jun 2011 30 Jun 2010 Change $m EBIT ActewAGL 29.8 30.4 (2.0%) Loy Yang 10.7 45.1 (76.3%) Investments Other - 6.2 (100.0%) Total EBIT 40.5 81.7 (101.7%) » 2011 Final Results 12 months to 30 June 2011 » 25 August 2011 » AGL External
Slide 62: Capital Expenditure
62 Capital Expenditure 12 months to 30 Jun 2011 SIB Discretionary Total $m Merchant Energy 61.8 254.8 316.6 Upstream Gas - 114.1 114.1 Retail Energy - 64.4 64.4 Corporate Other 27.5 - 27.5 Total 89.3 433.3 522.6 › SIB capital expenditure relates predominantly to: » Torrens Island Power Station Proje
Slide 63: Balance Sheet
63 Balance Sheet As at 30 Jun 2011 30 Jun 2010 $m Current assets 2,730.4 2,208.5 PPE, E&E and oil & gas assets 3,400.9 2,997.1 Other non current assets 3,564.4 3,485.3 Total Assets 9,695.7 8,690.9 Current liabilities 1,570.4 1,532.5 Total debt 1,171.2 900.8 Other non current liabilities 612.6 457.7
Slide 64: Fair Value Reconciliation
64 Fair Value Reconciliation Net Assets (Liabilities) As at $m 30 Jun 2011 30 Jun 2010 Change Electricity derivative contracts (89.7) (474.3) 384.6 Interest rate swap & foreign currency derivative contracts (148.5) (7.2) (141.3) Total net liabilities for derivative contracts (238.2) (481.5) 243.3 Ch
Slide 65: Loy Yang A: Financial Performance
65 Loy Yang A: Financial Performance 12 months to 30 Jun 2011 30 Jun 2010 Change $m Generation Volume (GWh) 15,174 15,518 (2.2%) 1 Average Price ($/MWh) $37.62 $42.62 (11.7%) Generation revenue 570.9 661.4 (13.7%) Other revenue 77.8 76.0 2.4% Expenses (271.1) (264.7) 2.4% Depreciation (117.1) (112.7