Agl Energy Limited · ASX:AGL
Agl Energy — FY2017 Earnings Presentation
56 slides from Agl Energy's earnings presentation, Aug 10, 2017
Slide 1: AGL Energy FY17 Full-Year Results
AGL Energy FY17 Full-Year Results 10 August 2017
Slide 2: Results Highlights and Strategy Update; Review of Operations; Market Update
Results Highlights and Strategy Update Andy Vesey Managing Director & CEO Review of Operations and Financial Results Brett Redman CFO Market Update and Outlook Andy Vesey Managing Director & CEO
Slide 3: Disclaimer and important information
Disclaimer and important information The information in this presentation: Statutory Profit and Underlying Profit Is not an offer or recommendation to purchase Statutory Profit is prepared in accordance with or subscribe for securities in AGL Energy Limited the Corporations Act 2001 and Australian o
Slide 4: Results Highlights and Strategy Update
Results Highlights and Strategy Update Andy Vesey Managing Director & CEO
Slide 5: Improving safety and diversity outcomes
Improving safety and diversity outcomes Total Injury Frequency Rate per Women in senior leadership pipeline million hours worked (%) 10.9 38 33 33 34 32 5.2 5.4 4.1 4.3 3.6 3.3 2.7 2.0 Not Measured FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 Employees Contractors AGL Energy FY17 Full-Year Resu
Slide 6: FY17 was a year of strategy delivery
FY17 was a year of strategy delivery Financial performance enabling AGL to invest in long-term value creation 1 Strong financial performance 2 Targets delivered for asset sales, opex and sustaining capex reduction $539m $802m 3 Uncertainties resolved: Loy Yang enterprise agreement; rehabilitation St
Slide 7: Many initiatives… but more still to do
Many initiatives… but more still to do 80% of AGL residential and small business customers accessed discounts in some way during FY17 Aggregate value of discounts across AGL customer base up 28% year on year Fees waived for late payments, paper bills and over-the-counter payments for hardship and co
Slide 8: Expanding our strategic objectives
Expanding our strategic objectives Strategic Imperatives Prosper in a carbon- Build customer advocacy constrained future Key Objectives From leveraging From operator of large From high emissions From mass retailer business platforms in assetsoperator of large From technology From high emissions From
Slide 9: Allocating capital for growth and transformation
Allocating capital for growth and transformation More advanced Powering Australian $200m AGL equity commitment Renewables Fund Coopers Gap investment decision Customer Experience $300m commitment to FY19 ~$1 billion of major Transformation Supported by $130m ERP upgrade programs under way during FY1
Slide 10: Investing to support energy supply and security
Investing to support energy supply and security More than $2 billion of projects under development… Silver Springs gas storage 100 TJ ~$250m per day Gas retail Coopers Gap market entry wind farm 100,000 ~$50m 453 MW ~$900m customers Silverton wind farm Barker Inlet power station 200 MW $450m 210 MW
Slide 11: Delivering innovation for customers
Delivering innovation for customers Solar Command Virtual Power Plant product launched ~700 systems sold, 250+ installed Storage optimisation Advanced Microgrid Solutions investment Advanced energy efficiency Sense home energy monitor pilot Virtual Solar in development Electric vehicles $/day chargi
Slide 12: Review of Operations and Financial Results
Review of Operations and Financial Results Brett Redman CFO
Slide 13: Key financial outcomes reflect strong result
Key financial outcomes reflect strong result Underlying Profit after tax up 14%; dividends per share up 34% FY17 FY16 Change Statutory Profit/(Loss) after tax ($m) 539 (408) 232% Underlying Profit after tax ($m) 802 701 14% Statutory EPS (cents) 80.5 (60.5) 233% Underlying EPS (cents) 119.8 10
Slide 14: Wholesale Elec and Eco Markets offset Gas impacts
Wholesale Elec and Eco Markets offset Gas impacts Year-on-year movement in Underlying Profit after tax ($m) Energy Group Central Markets Operations activities (8) 9 (6) 3 (5) 22 (50) (101) 802 72 166 701 27 (28) FY16 Customer Customer Gas Wholesale Wholesale Gas Eco Markets Other Thermal & Other Inv
Slide 15: Electricity sales volumes broadly flat
Electricity sales volumes broadly flat Increased Wholesale volumes balancing small decline elsewhere Generation volumes down 0.7 TWh Comparison of volumes (TWh) AGL Macquarie down 0.6 TWh compared with FY16 highs Hydro down 0.4 TWh due to lower agricultural releases 14.6 13.9 Consumer customer sales
Slide 16: Increase in electricity margins
Increase in electricity margins Availability of plant contributed to improved wholesale margin Comparison of gross margin ($m) Consumer customers Price increases reflecting higher wholesale prices 1,471 Effective management of customer discounting 1,211 485 Business customers 463 40 35 Broadly flat
Slide 17: Small decrease in gas sales volumes
Small decrease in gas sales volumes Higher AGL Torrens generation partly offsets drop in business customers Comparison of gas volumes (PJ) 234.2 229.8 Consumer customers Lower consumer accounts, particularly in NSW 59.4 58.5 Average consumption per customer increased 61.6 Business customers 73.7 Two
Slide 18: Lower gas margin in line with guidance
Lower gas margin in line with guidance Primarily driven by Queensland sales margins and July curtailment Comparison of gross margin ($m) Consumer customers 802 Disciplined customer pricing more than offset by lower sales volumes and discounting 673 334 Business customers 307 Broadly flat as discipli
Slide 19: Key Consumer metrics
Key Consumer metrics EBIT per customer reduction reflects AGL investment in brand and WA FY17 FY16 Change Average customer accounts ('000) 3,655 3,692 (1%) Gross margin per customer account $217 $216 1% Net operating costs per customer account $113 $108 5% Net operating costs/gross margin rati
Slide 20: Higher spend to drive growth and life attainment
Higher spend to drive growth and life attainment Opex outlook ($m) Capex outlook ($m) 984 1,577 1,460 1,380 1,357 188 821 509 426 529 518 1,460 1,460 139 1,380 1,357 1,389 1,424 217 125 24 48 120 86 101 131 78 160 169 132 67 285 211 156 190 155 157 FY15 FY16 actual FY17 actual FY18 FY19 FY20 FY15 FY
Slide 21: Margin calls impacted FY17 cash flow
Margin calls impacted FY17 cash flow But reflect higher wholesale prices that benefit future earnings ($m) FY17 FY16 Underlying EBITDA 1,852 1,689 Equity accounted income 2 (8) Onerous contracts (36) (42) Gain on divestments (23) - Other assets, liabilities and non-cash (53) 28 Receivables 41 138 Cr
Slide 22: Strong balance sheet and liquidity position
Strong balance sheet and liquidity position Growth the priority ahead of further capital management $473m spent on on-market buy-back at 30 June Debt maturity profile ($m) 2017, compared with $596m target Reduced focus on buy-back while key growth opportunities assessed 800 Net debt up $420m to $3.2
Slide 23: Rehabilitation obligations reviewed and confirmed
Rehabilitation obligations reviewed and confirmed Provision increase of $69m reflects $1,754m cash cost over 60 years FY17 Provision GHD review of rehabilitation costs for all AGL ($m) provision increase sites completed and reviewed Conservative rehabilitation and cost estimates AGL Macquarie 141 59
Slide 24: Market Update and Outlook
Market Update and Outlook Andy Vesey Managing Director & CEO
Slide 25: Electricity: cost of new supply driving near-term price
Electricity: cost of new supply driving near-term price Renewables and gas peaking remain current focus of investment Spot price/forward curve Estimated cost of new generation 300 300 Levelised cost of electricity ($/MWh) 250 250 200 200 $MWh 150 150 100 100 50 50 0 0 Q3 2015 Q1 2016 Q3 2016 Q1 2017
Slide 26: NEM reinvestment: focus on options to replace Liddell
NEM reinvestment: focus on options to replace Liddell Renewables, storage and gas peaking all have a role to play Liddell Power Station Sources of energy, storage and peaking 1,680 MW effective capacity coal-fired The most economic option to replace power station built in 1973 Liddell will comprise
Slide 27: Portfolio pricing to continue to reflect market factors
Portfolio pricing to continue to reflect market factors Pass-through of market prices varies according to segment Consumer customer sales Pricing changes occur annually by state 13.9 Impact phased over time due to competition, customer affordability and longer term market considerations 11.2 Busines
Slide 28: Eco Markets: outlook for rising green costs in FY18
Eco Markets: outlook for rising green costs in FY18 FY17 earnings strength reflected utilisation of low-cost LGCs Extensive renewable generation supports compliance liability 7 FY17 and FY16 compliance FY18+ compliance shortfall to be met with existing shortfall predominately met inventory plus mark
Slide 29: Gas: anticipating a return to margin growth in FY18
Gas: anticipating a return to margin growth in FY18 Import and storage strategy all about competitive, secure supply FY18 outlook reflects non-recurrence of Electricity swap curve/VIC gas spot price Queensland wholesale margin step- $160 $14 down and supply curtailment in FY17 FY18 electricity swap
Slide 30: Positioned for further profit growth in FY18 outlook
Positioned for further profit growth in FY18 outlook Three key drivers of ongoing shareholder value Wholesale Electricity and Gas improvements to outweigh Underlying Profit after tax impact of reduced Eco Markets expected to be $940m to Subject to normal trading conditions $1,040m Subject to any adv
Slide 31: Supplementary Information
Supplementary Information
Slide 32: Reconciliation of Statutory to Underlying Profit
Reconciliation of Statutory to Underlying Profit ($m) FY17 FY16 Change Statutory Profit/(Loss) after tax 539 (408) 947 Adjust for the following after tax items: Significant Items Restructuring costs - 60 (60) Natural Gas impairments - 640 (640) Asset disposals - (8) 8 Changes in fair value of financ
Slide 33: Underlying Profit summary
Underlying Profit summary ($m) FY17 FY16 Change Revenue 12,584 11,150 13% Underlying EBITDA 1,852 1,689 10% Underlying EBIT Energy Markets 2,413 2,274 6% Group Operations (825) (842) (2%) Investments 17 25 (32%) Centrally Managed Expenses (237) (246) (4%) Underlying EBIT 1,368 1,211 13% Net finance
Slide 34: Energy Markets – Underlying EBIT
Energy Markets – Underlying EBIT ($m) FY17 FY16 Change Underlying EBITDA 2,508 2,374 6% Depreciation and amortisation (95) (100) (5%) Customer EBIT 449 458 (2%) Consumer Electricity gross margin 485 463 5% Consumer Gas gross margin 307 334 (8%) Business Electricity gross margin 40 35 14% Business Ga
Slide 35: Group Operations – Underlying EBIT
Group Operations – Underlying EBIT ($m) FY17 FY16 Change Underlying EBITDA (462) (494) (6%) Depreciation and amortisation (363) (348) 4% Thermal (692) (675) 3% Renewables (52) (64) (19%) Natural Gas (31) (45) (31%) Other Operations (50) (58) (14%) Underlying EBIT (825) (842) (2%) AGL Energy FY17 Ful
Slide 36: Key Underlying Profit trends
Key Underlying Profit trends Underlying Profit after tax ($m) Underlying EBIT ($m) 1,000 1,500 1,368 802 1,211 800 1,126 701 1,031 1,004 630 1,000 683 585 562 561 600 413 578 326 528 328 549 400 312 320 500 650 685 200 375 389 503 548 273 302 455 242 - - FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16
Slide 37: Pool generation volume
Pool generation volume GWh FY17 FY16 Change Asset AGL Macquarie – Bayswater 14,370 16,286 (1,916) AGL Macquarie – Liddell 8,589 7,239 1,350 AGL Loy Yang 13,924 13,816 108 AGL Torrens 2,669 2,429 240 SA wind 1,167 1,333 (166) VIC wind 1,035 1,130 (95) VIC hydro 580 1,006 (426) NSW hydro 119 131 (12)
Slide 38: Generation portfolio performance
Generation portfolio performance Carbon FY17 sent out Capacity Asset State Type Status intensity generation (MW) (tCO2e/MWh) (GWh) AGL Macquarie - Bayswater NSW Coal Owned 2,640 0.95 14,980 AGL Macquarie - Liddell NSW Coal Owned 2,000 0.98 9,062 AGL Loy Yang VIC Coal Owned 2,210 1.30 14,544 Total co
Slide 39: Key generation trends
Key generation trends Cost of generation ($/MWh) Equivalent availability factor 100% 90% 80% 70% 60% 51.1 46.8 50% 34.8 35.5 37.1 40% 30% FY13 FY14 FY15 FY16 FY17 AGL Torrens AGL Loy Yang FY13 FY14 FY15 FY16 FY17 AGL Macquarie - Bayswater AGL Macquarie - Liddell Total sent out generation volumes (TW
Slide 40: AGL Macquarie coal supply position
AGL Macquarie coal supply position Majority of coal from low-cost long-term contracts Black coal position (Mt) NSW Generator fuel costs ($/GJ) 12 3.50 11 10 3.00 9 2.50 8 7 2.00 6 5 1.50 4 1.00 3 2 0.50 1 0 FY16 FY17 FY18 Forecast FY19 Forecast FY20 Forecast - FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
Slide 41: Average electricity pool prices by state
Average electricity pool prices by state 120 110 100 90 Price ($/MWh) 80 70 60 50 40 30 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 20 NSW QLD SA VIC AGL Energy FY17 Full-Year Results | 10 August 2017 41
Slide 42: Electricity sales volumes
Electricity sales volumes GWh FY17 FY16 Change Consumer New South Wales 5,566 5,805 (4%) Victoria 3,638 3,750 (3%) South Australia 2,093 2,494 (16%) Queensland 2,591 2,585 0% Consumer total 13,888 14,634 (5%) Business New South Wales 4,769 4,080 17% Victoria 2,988 3,742 (20%) South Australia 2,119 2
Slide 43: Gas sales volumes
Gas sales volumes PJ FY17 FY16 Change Consumer New South Wales 19.8 20.9 (5%) Victoria 32.6 32.5 0% South Australia 3.5 3.3 6% Queensland 2.6 2.7 (4%) Consumer total 58.5 59.4 (2%) Business New South Wales 17.6 24.9 (29%) Victoria 26.9 25.4 6% South Australia 2.6 3.7 (30%) Queensland 14.5 19.7 (26%)
Slide 44: Customer account numbers
Customer account numbers (‘000) 30 Jun 2017 30 Jun 2016 Change Consumer Electricity New South Wales 807 808 (1) Victoria 638 636 2 South Australia 388 408 (20) Queensland 404 395 9 Total Consumer Electricity 2,237 2,247 (10) Consumer Gas New South Wales 657 674 (17) Victoria 531 533 (2) South Austra
Slide 45: Consumer Market key indicators
Consumer Market key indicators ($m) FY17 FY16 Change Electricity Volume (GWh) 13,888 14,634 (5%) Average Consumer accounts (‘000) 2,243 2,255 (1%) Revenue ($m) 3,810 3,813 (0%) Gross margin ($m) 485 463 5% Gross margin 12.7% 12.1% 0.6 ppts Gross margin per customer account ($) 216 205 5% Gross margi
Slide 46: Business Market key indicators
Business Market key indicators ($m) FY17 FY16 Change Electricity Volume (GWh) 11,198 12,268 (9%) Revenue ($m) 1,550 1,573 (1%) Gross margin ($m) 40 35 14% Gross margin 2.6% 2.2% 0.4 ppts Gross margin per MWh ($) 3.6 2.9 24% Gas Volume (PJ) 61.6 73.7 (16%) Revenue ($m) 513 544 (6%) Gross margin ($m)
Slide 47: Key Consumer profitability trends
Key Consumer profitability trends Gross margin per customer Net operating costs per Net operating costs to gross account ($) customer account ($) margin ratio 60% 56.5% 55% 52.1% 52.4% 50% 49.3% 49.9% 45% 216 217 113 40% 200 198 112 108 187 99 98 35% 30% 25% 20% FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY
Slide 48: Key Consumer operating metric trends
Key Consumer operating metric trends Consumer customer account numbers by AGL vs market churn 30% state ('000s) 24.0% 4,000 3,780 3,716 3,665 3,639 25% 3,498 20.5% 20.3% 20.2% 465 466 474 19.7% 449 486 3,000 561 20% 554 540 520 569 15% 18.4% 2,000 1,232 1,190 1,169 1,169 16.4% 1,085 15.4% 14.9% 15.7
Slide 49: Customer Experience Transformation
Customer Experience Transformation Signature moments Self-service meter Energy insights Secure payments Simple sign-on Digital move reads Quick, accurate Simple login for Track my energy A faster, easier Payment details submission of meter customers across all usage by appliance experience for store
Slide 50: Customer Experience Transformation metrics
Customer Experience Transformation metrics Annual average net promoter score (%) Number of mobile app users per month 140,000 0% 120,000 -5% 100,000 -10% 80,000 -15% -19.8% -18.7% 60,000 -20% 40,000 -25% -27.9% 20,000 -32.8% -32.6% -30% 0 Apr-16 Apr-17 Aug-15 Feb-16 Aug-16 Feb-17 Oct-15 Oct-16 Dec-1
Slide 51: Operating expenditure reduction
Operating expenditure reduction $191m in real opex savings achieved vs. $170m target ($m) 10 36 1,460 (4) (122) 34 5 7 1,380 (69) 1,357 2H16 2H17 actual: target: 659 675 FY16 FY17 actu actual al: : 706 721 FY15 CPI M&A Reclass. Reduction FY16 Actual CPI WA entry Reclass. Reduction FY17 Actual normal
Slide 52: Operating expenditure reduction (continued)
Operating expenditure reduction (continued) ($m) FY16 FY17 Total Group Operations 46 33 79 Maintenance optimisation 20 8 28 Procurement 17 6 23 Labour and contractor 12 14 26 Other (3) 5 2 Energy Markets 41 25 66 Labour and contractor 14 23 37 Campaign and channel costs 8 - 8 Other 19 2 21 Corporate
Slide 53: Working capital reduction
Working capital reduction ($m) FY16 & FY17 Actual FY16 & FY17 Target Optimise coal stockpile at AGL Macquarie 30 23 Excess gas bank to be naturally consumed 68 18 Reduce surplus large scale generation certificates and other green assets 86 90 Consumer credit and billing initiatives (13) 69 Total wor
Slide 54: Debt facilities at June 2017
Debt facilities at 30 June 2017 Debt facility ($m) Limit Usage Maturity Syndicated term facility 150 150 FY18 Revolving bilateral facility 100 0 FY19 Subordinated notes* 650 650 FY19 Revolving bilateral facilities 450 130 FY20 Syndicated revolving facility 400 140 FY21 Club facility term 410 410 FY2
Slide 55: Wholesale contracting
Wholesale contracting AGL’s Wholesale Markets Risk Management Policy (Policy) is approved by the Board and establishes the requirements for managing risks arising from wholesale energy markets. The Policy clearly defines permitted contracting activities, limits and counterparty credit management req
Slide 56: Contact
Contact James Hall Chris Kotsaris Blathnaid Byrne General Manager, Capital Markets Senior Manager, Investor Relations Group Treasurer Phone: +61 2 9921 2789 Phone: +61 2 9921 2256 Phone: +61 2 9921 2255 Mobile: +61 401 524 645 Mobile: +61 402 060 508 Mobile: +61 424 644 947 Email: jbhall@agl.com.au