Agl Energy Limited · ASX:AGL
Agl Energy — Investor Presentation (May 2012)
68 slides from Agl Energy's investor presentation, May 24, 2012
Slide 1: $900 million Renounceable Entitlement Offer
For personal use only $900 million Renounceable Entitlement Offer 24 May 2012 NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 2: Disclaimer
2 Disclaimer This investor presentation (Presentation) has been prepared by AGL Energy Limited (ABN 74 115 061 375) (AGL). This Presentation has been prepared in relation to a pro rata renounceable entitlement offer of new AGL ordinary shares (New Shares), to be made to: For personal use only • elig
Slide 3: Disclaimer
3 Disclaimer Not investment advice For personal use only This Presentation has been prepared without taking account of any person’s objectives, financial situation or particular needs. Before making an investment decision, prospective investors should consider the appropriateness of the information
Slide 4: Disclaimer
4 Disclaimer The forward looking statements contained in this Presentation are not guarantees or predictions of future performance and involve known and unknown risks and uncertainties and other factors, many of which are beyond the control of AGL, and may involve significant elements of subjective
Slide 5: Disclaimer
5 Disclaimer Disclaimer For personal use only None of the underwriters, nor any of their or AGL’s respective advisers or any of their respective affiliates, related bodies corporate, directors, officers, partners, employees and agents, have authorised, permitted or caused the issue, submission, disp
Slide 6: Table of Contents
6 Table of Contents For personal use only › Transaction Overview 7 › Overview of Loy Yang A and Adjacent Coal Mine 15 › Acquisition Update 22 › Outlook & Summary 24 › Supporting Slides 30 › Key Risks 39 › Appendices: › Foreign Jurisdictions 55 › Key Assumptions 67 › Pro forma Adjustments 68 » AGL En
Slide 7: Transaction Overview
7 For personal use only Transaction Overview
Slide 8: Transaction Summary
8 Transaction Summary Equity funding to acquire remaining 67.5% of GEAC. For personal use only › Control of Loy Yang A (LYA) one of the lowest cost generators in Australia adding substantial scale, diversity and improved risk management capability to AGL’s business › Acquisition consistent with AGL’
Slide 9: Entitlement Offer Overview
9 Entitlement Offer Overview For personal use only > Fully underwritten 1 for 6 pro-rata accelerated renounceable entitlement offer with retail Offer size entitlements trading to raise approximately $900 million > Approximately 78 million new AGL ordinary shares to be issued (c.17% of issued capital
Slide 10: Offer Timetable
10 Offer Timetable1 Event Date For personal use only Trading halt, Institutional Entitlement Offer opens Thursday, 24 May 2012 Institutional Entitlement Offer closes Friday, 25 May 2012 Institutional shortfall bookbuild Monday, 28 May 2012 Existing shares recommence trading on ASX Tuesday, 29 May 20
Slide 11: Acquisition Rationale
11 Acquisition Rationale A significant step in AGL’s Integrated Strategy delivering full ownership of high- For personal use only quality generation asset and substantial long-term, low-cost fuel reserves. › AGL will have one of the largest and most competitive generation portfolios in Australia › C
Slide 12: Another step in AGL's Integrated Strategy
12 Another step in AGL’s Integrated Strategy LYA acquisition will add scale and improve risk management capabilities. For personal use only › AGL generation capacity to increase by ~32% to ~6,000 MW › Provides ownership of one of the lowest cost generators in the NEM › Significantly improves coverag
Slide 13: Deal Metrics
13 Deal Metrics Attractively priced energy resource and full ownership of baseload generation. For personal use only › Attractive implied value of Brown Black Value Units Differen power station based upon black Coal Coal -tial coal comparison and recent Value of Fuel Supply NSW GenTrader deals Expec
Slide 14: Valuation Upside
14 Valuation Upside Conservative valuation approach. For personal use only › Substantial coal resource1 provides long-term optionality » Approximately 6.5 billion tonnes of coal resource in excess of requirements for LYA and LYB power stations » TEPCO is developing expertise in brown coal technology
Slide 15: Overview of Loy Yang A and Adjacent Coal Mine
15 For personal use only Overview of Loy Yang A and Adjacent Coal Mine
Slide 16: Overview of Loy Yang A
16 Overview of Loy Yang A Largest and least carbon intensive brown coal power plant in Australia. For personal use only › Victoria’s largest power station, producing Plant Specifications ~30% of the state’s electricity Capacity › 2,210 MW › Employs approximately 550 staff and up to Location › Traral
Slide 17: Overview of Coal Mine
17 Overview of Coal Mine Loy Yang mine provides a secure and low cost coal reserve. For personal use only Loy Yang Mine › Largest brown coal mine in Australia » Coal Reserves 2.5 billion tonnes1 Mine Type › Open-cut configuration › Vertically integrated with LYA » Coal Resource ~7.7 billion tonnes2
Slide 18: Alcoa Agreement
18 Alcoa Agreement 22-year agreement with Alcoa. For personal use only › Long-term supply agreement with Alcoa Existing Pt Henry Smelter Alcoa Load Profile Existing Portland Smelter » Commences in 2014 and concludes in 2036 Portland Line 3 Expansion (Option) 1,400 Portland Line 3 Expansion 357 (Opti
Slide 19: Transitional Carbon Assistance
19 Transitional Carbon Assistance LYA to receive more than $1.25 billion in transitional carbon assistance1. For personal use only › LYA transitional carbon assistance is expected to be paid over 5 years and total more than $1.25 billion. Key elements of the assistance include: » ~$240 million in ca
Slide 20: Short run marginal cost of NEM plants
For personal use only $20 $40 $60 $80 $- $100 $120 $140 $160 $180 $200 LYA Loy Yang A Hazelwood Yallourn Loy Yang B Coal Anglesea » AGL External » 24 May 2012 Kogan Creek Millmerran $3.90 Gas Price $6.00 Gas Price Energy Brix $9.00 Gas Price Tarong North Tarong Redbank Callide C » AGL Energy Equity
Slide 21: SRMC of Thermal Plant in the NEM (including Carbon)
For personal use only $50 $- $100 $150 $200 $250 Kogan Creek Millmerran Tarong North Loy Yang A Coal LYA Tarong » AGL External » 24 May 2012 Anglesea $6.00 Gas Price $3.90 Gas Price $9.00 Gas Price Callide C Loy Yang B Yallourn Stanwell Callide B Darling Downs » AGL Energy Equity Raising Bayswater S
Slide 22: Acquisition Update
For personal use only Acquisition Update 22
Slide 23: Conditions Precedent
23 Conditions Precedent ACCC clearance paves way for removal of Federal Court Undertakings. For personal use only › On 24 May 2012, ACCC announced that it has cleared AGL’s proposed acquisition of GEAC › AGL proposes to apply to the Federal Court for removal of the 2004 undertakings that a separate
Slide 24: Conditions Precedent
24 Conditions Precedent Transitional carbon assistance payment expected prior to 30 June 2012. For personal use only › Federal Government has advised GEAC that it is entitled to receive a cash payment of $240.1 million of transitional carbon assistance › AGL expects that this payment will be made, o
Slide 25: Outlook & Summary
For personal use only Outlook & Summary 25
Slide 26: 2012 Update
26 2012 Update AGL reaffirms 2012 earnings guidance1. For personal use only › AGL reaffirms 2012 Underlying Profit2,3 guidance of $470 million to $500 million › AGL expects to pay the 2012 final dividend (fully franked) on the expanded share capital › AGL customer numbers continue to grow in 2H12 ›
Slide 27: LYA cash flows enhance AGL's ability to fund growth
27 LYA cash flows enhance AGL’s ability to fund growth LYA cash flows to support build-out of renewable pipeline. For personal use only › LYA is expected to generate substantial AGL LGC Liability incremental operating cashflows 10 New build capex required to meet legislated targets › LYA acquisition
Slide 28: AGL Growth Pipelines
28 AGL Growth Pipelines AGL’s integrated strategy and focus on long term shareholder value has For personal use only created significant growth pipelines. Ability to access multiple profit pools expected to deliver increasing shareholder value Gas production at Camden North, Gloucester, Hunter & Gal
Slide 29: Summary
29 Summary LYA acquisition represents a significant step in AGL’s integrated strategy. For personal use only › Expected to be accretive to Underlying EPS1 from FY13 and generate substantial future operating cash flows › Increases AGL controlled generation capacity by ~32% to 6,000 MW2, significant c
Slide 30: Supporting Slides
For personal use only Supporting Slides 30
Slide 31: AGL's Integrated Strategy
31 AGL’s Integrated Strategy Acquisition of LYA is a significant step in AGL’s growth. For personal use only › AGL’s integrated strategy provides access to multiple profit pools and balances risk between upstream supply of energy and our customers’ demand for energy › Ownership of LYA will significa
Slide 32: Acquisition improves coverage of customer load
32 Acquisition improves coverage of customer load Further diversifies generation mix. For personal use only › Significantly increases AGL’s owned and operated generation portfolio › Provides ownership of one of the lowest cost generators in the NEM (before and after introduction of Carbon) › Locks i
Slide 33: AGL Generation Portfolio
33 AGL Generation Portfolio Acquisition increases AGL baseload generation to better match customer For personal use only demand profile. NEM Generation – 12 months ended 30 June 2011 1 AGL Generation Portfolio 2 37,000 7,000 6,000 32,000 Peaking 5,000 Intermediate System Demand and Capacity (MW) Win
Slide 34: AGL Generation Portfolio by Fuel
34 AGL Generation Portfolio by Fuel Acquisition moves AGL carbon intensity slightly above the NEM average. For personal use only AGL generation capacity before acquisition 1 Relative carbon intensity (sent out)2 1.4 1.29 16% 1.25 1.21 1.2 21% Coal 1.00 Gas 1 0.91 2% Hydro t CO2 /MWh 0.8 Other 17% Wi
Slide 35: Overview of Coal Resource
35 Overview of Coal Resource Mine and Exploration Licence Areas contain substantial coal resource. For personal use only › Coal Resource of ~7.7 billion tonnes Loy Yang Coal Resource (million tonnes) › High quality resource with thin overburden Area Inferred Indicated Measured Total › Coal mine rese
Slide 36: Pro forma AGL Combined Balance Sheet
36 Pro forma AGL Combined Balance Sheet For personal use only Pro forma Note Pro forma AGL Pro forma Pro forma Pro forma AGL Pro forma Debt Pro forma AGL Reported 31 Offer Post Note Offer Acquisition Acquisition Equity Offer Restructure Combined As at ($m) December 20111,3 Adjustments3 Balance Sheet
Slide 37: Accounting on acquisition
37 Accounting on acquisition Fair value adjustments on acquisition to be booked as significant items. For personal use only › Selling shareholders receive $448 million made up of: » $200 million up front cash payments » 15 year deferred payment streams › Equity (100%) value of $598 million made up o
Slide 38: Acquisition Funding
38 Acquisition Funding Equity raising completes funding program. For personal use only › AGL expects that upon completion of funding AGL’s BBB rating will be reaffirmed › LYA acquisition to be funded by: » $650 million high equity credit subordinated note (completed 4 April 2012) » $850 million equi
Slide 39: Key Risks
For personal use only Key Risks 39
Slide 40: Key Risks
40 Key Risks 1.0 Introduction For personal use only Investors should be aware that there are risks associated with an investment in AGL. Some of the principal factors which may, either individually or in combination affect the future operating performance of AGL are set out below. Some are specific
Slide 41: Key Risks (cont.)
41 Key Risks (cont.) 2.0 Risks associated with AGL For personal use only The future operating performance of AGL and the value of the investment in the New Shares may also be affected by risks relating to AGL’s business. Some of these risks are specific to AGL while others relate to the general indu
Slide 42: Key Risks (cont.)
42 Key Risks (cont.) Energy supply – AGL partially relies on electricity generated from electricity generation assets that it owns or controls to manage For personal use only the wholesale cost of electricity. There is a risk that some of these assets may not be available for use when required due t
Slide 43: Key Risks (cont.)
43 Key Risks (cont.) Forecasting risk and the ability to balance gas supply and demand and contract requirements; For personal use only Development of upstream reserves – changes in commodity prices as well as fiscal and other regulations could adversely affect the economic viability of reserves dev
Slide 44: Key Risks (cont.)
44 Key Risks (cont.) 2.3 Environmental markets For personal use only AGL is exposed to the risk of significant financial loss arising from exposure to volatility and variability in existing and emerging environmental markets or from not meeting mandatory liabilities. AGL is required to comply with a
Slide 45: Key Risks (cont.)
45 Key Risks (cont.) Given AGL’s exposure to regulated pricing and the risk that it may not be able to influence regulated pricing decisions, AGL may For personal use only not be in a position to fully respond in a timely manner (if at all) to movements in pricing in wholesale electricity and gas ma
Slide 46: Key Risks (cont.)
46 Key Risks (cont.) 2.7 Authorisations and permits For personal use only If AGL does not obtain the necessary permits and/or licences for upstream gas and power development projects, there is a risk that the assets will not be built or will be materially delayed, and existing assets will be impaire
Slide 47: Key Risks (cont.)
47 Key Risks (cont.) 2.10 Litigation and legal matters For personal use only AGL is exposed to the risk of claims by gas and electricity users, native title claims, tenure disputes, environmental and occupational health and safety claims, industrial disputes and third party losses resulting from tra
Slide 48: Key Risks (cont.)
48 Key Risks (cont.) 3.0 Risks associated with proposed increased ownership of GEAC For personal use only The future operating performance of AGL and the value of the New Shares may also be affected by risks relating to AGL’s proposed increased ownership of GEAC. Some of these risks are specific to
Slide 49: Key Risks (cont.)
49 Key Risks (cont.) 3.4 Receipt of carbon assistance For personal use only Under the Clean Energy Act, GEAC is entitled to apply for coal-fired electricity generation assistance (cash payments and free carbon units) from the Commonwealth Government in respect of the first five years of the scheme.
Slide 50: Key Risks (cont.)
50 Key Risks (cont.) 3.8 Removal of Federal Court undertakings For personal use only To comply with a series of undertakings given to the ACCC and the Federal Court of Australia at the time AGL acquired its stake in GEAC in 2004, the output from Loy Yang A is sold to the market via a separate tradin
Slide 51: Key Risks (cont.)
51 Key Risks (cont.) › AGL raises approximately $650 million of Subordinated Notes1; For personal use only › AGL raises approximately $900 million under an Equity Offer; › the margins paid by GEAC on its borrowing following the acquisition will more closely reflect AGL credit risk; › GEAC’s tax loss
Slide 52: Key Risks (cont.)
52 Key Risks (cont.) › changes in interest rates and the rate of inflation; For personal use only › changes in government regulation and policies; › announcement of new technologies; and › geo-political instability, including international hostilities and acts of terrorism. No assurances can be give
Slide 53: Key Risks (cont.)
53 Key Risks (cont.) There is no guarantee that there will be a viable market during, or on any particular day in, the rights trading period, on which to For personal use only sell retail entitlements on ASX. You should note that if you sell, or do not take up, all or part of your entitlement, then
Slide 54: Appendices
54 For personal use only Appendices: Foreign Jurisdictions Key Assumptions Pro forma Adjustments
Slide 55: Foreign Jurisdictions
55 Foreign Jurisdictions This Presentation does not constitute an offer of entitlements or New Shares of AGL in any jurisdiction in which it would be unlawful. Entitlements and New Shares may not be offered or sold in any country outside Australia except to the extent permitted For personal use only
Slide 56: Foreign Jurisdictions (contd.)
56 Foreign Jurisdictions (contd.) Any financial information contained in this Presentation has been prepared in accordance with Australian Accounting Standards For personal use only and also comply with International Financial Reporting Standards and interpretations issued by the International Accou
Slide 57: Foreign Jurisdictions (contd.)
57 Foreign Jurisdictions (contd.) Section 138 of the Securities Act (Ontario) provides that no action shall be commenced to enforce these rights more than (a) in For personal use only the case of any action for rescission, 180 days after the date of the transaction that gave rise to the cause of act
Slide 58: Foreign Jurisdictions (contd.)
58 Foreign Jurisdictions (contd.) a)to legal entities that are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; For personal use only b)to any legal entity that has two or more of (i) an aver
Slide 59: Foreign Jurisdictions (contd.)
59 Foreign Jurisdictions (contd.) Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the entitlements and the For personal use only New Shares cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance
Slide 60: Foreign Jurisdictions (contd.)
60 Foreign Jurisdictions (contd.) Ireland For personal use only The information in this Presentation does not constitute a prospectus under any Irish laws or regulations and this Presentation has not been filed with or approved by any Irish regulatory authority as the information has not been prepar
Slide 61: Foreign Jurisdictions (contd.)
61 Foreign Jurisdictions (contd.) Any subsequent distribution of the entitlements or the New Shares in Italy must be made in compliance with the public offer and For personal use only prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an excepti
Slide 62: Foreign Jurisdictions (contd.)
62 Foreign Jurisdictions (contd.) Other than in the entitlement offer, entitlements and New Shares may be offered and sold in New Zealand only to: For personal use only •persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habit
Slide 63: Foreign Jurisdictions (contd.)
63 Foreign Jurisdictions (contd.) Singapore For personal use only This Presentation and any other materials relating to the entitlements and the New Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this Pr
Slide 64: Foreign Jurisdictions (contd.)
64 Foreign Jurisdictions (contd.) Switzerland For personal use only The entitlements and the New Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This Presentation h
Slide 65: Foreign Jurisdictions (contd.)
65 Foreign Jurisdictions (contd.) United Kingdom Neither the information in this Presentation nor any other document relating to the offer has been delivered for approval to the For personal use only Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section
Slide 66: Foreign Jurisdictions (contd.)
66 Foreign Jurisdictions (contd.) United States For personal use only Neither the entitlements nor the New Shares have been, or will be, registered under the U.S. Securities Act or the securities laws of any state or other jurisdiction of the United States. Entitlements and New Shares are not being
Slide 67: Key Assumptions
67 Key Assumptions Impact of GEAC Acquisition on Earnings. For personal use only Underlying Profit is the Statutory Profit adjusted for significant items and changes in fair value of financial instruments. Underlying Profit has been presented with reference to the Australian Securities and Investmen
Slide 68: Pro forma Adjustments
68 Pro forma Adjustments Description of Pro forma Adjustments For personal use only The Pro forma Adjustments in preparation of the Pro forma AGL Combined Balance Sheet, are summarised below: (a) Pro forma Acquisition Adjustments The Pro forma Acquisition Adjustments assume the acquisition of the re