AGL Energy Limited · ASX:AGL
AGL Energy — FY2010 Earnings Presentation
60 slides from AGL Energy's earnings presentation, Aug 26, 2010
Slide 1: 2010 Full Year Results
Image: Bogong Creek Kiewa Hydro Scheme 2010 Full Year Results 12 months to 30 June 2010 Operational focus delivers continued growth Michael Fraser, Managing Director & CEO Stephen Mikkelsen, Chief Financial Officer 26 August 2010
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 / Summary 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 2010.
Slide 4: FY10 Highlights
4 FY10 Highlights Retail underpins strong result. › Underlying profit up 13.2% › Strong result from Retail Energy up 19.5% › Continued growth in customer numbers and margins › Gloucester/Camden 2P gas reserves up 49.9% › Significant improvement in underlying cash flow up $121 million › Safety and em
Slide 5: FY10 Results
5 FY10 Results Strong operational performance delivers good financial outcomes. › Revenue: $6,610.7m 9.2% › Underlying Profit: $428.9m 13.2% FINANCIAL › Statutory Profit: $356.1m 77.7% › Underlying EPS: 95.6 cps 12.5% › DPS: (Final 0% franked, Interim 100% franked) 59.0 cps (Jun 09: 54.0 cps
Slide 6: FY10 Results: Underlying EPS and CFPS
6 FY10 Results Strategy implementation delivers solid results. Underlying EPS and CFPS Cents 160 Underlying EPS › Underlying cash flow per share 22.9% 140 Underlying CFPS* 120 (0.7%) » Up 22.9% in 2010 100 12.5% 8.6% 80 » Driven by improved operational efficiency 60 40 › Underlying EPS 20 0 » Up 12.
Slide 7: Group Financials
7 Group Financials Stephen Mikkelsen Chief Financial Officer » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 8: Profit & Loss (excluding significant items & fair value movements)
8 Profit & Loss (excluding significant items & fair value movements) Underlying profits grow by 13%. 12 months to 30 Jun 2010 30 Jun 2009 Change $m Revenue 6,610.7 6,051.1 9.2% Operating EBITDA 789.6 793.1 (0.4%) Operating EBIT Retail 318.7 266.8 19.5% Merchant 386.1 402.8 (4.1%) Upstream Gas (incl.
Slide 9: Group Underlying Profit
9 Group Underlying Profit Strong uplift in Retail gross margin. Upstream Retail Merchant 440 41.1 428.9 71.1 420 (16.4) 400 (2.8) (3.6) (4.9) 378.8 (8.2) (1.8) 380 $ million 360 (22.4) (2.0) 340 320 300 FY09 NPAT PNG Upstream MM, C&I Labour Other Retail Wholesale Wholesale Merchant Central Interest
Slide 10: Retail – Key Financial Metrics
10 Retail – Key Financial Metrics Strong revenue growth flows through to Operating EBIT. 12 months to 30 Jun 2010 30 Jun 2009 Change $m Electricity Revenue 4,010.0 3,475.2 15.4% Gas Revenue 1,511.9 1,497.8 0.9% Other Revenue (Fees & Charges) 63.7 50.9 25.1% Total Revenue 5,585.6 5,023.9 11.2% Cost o
Slide 11: Retail – EBIT Drivers
11 Retail – EBIT Drivers Continued focus on customer value drives improvement. 7.9 12.8 350 31.6 (10.2) (16.4) (5.3) 318.7 320 39.5 (8.0) 290 $ million 266.8 260 230 200 FY09 EBIT MM Gross C&I Gross Other Gross Bad & Campaigns & Labour Depreciation & Other Opex FY10 EBIT Margin Margin Margin Doubtfu
Slide 12: Retail – Key Operating Metrics
12 Retail – Key Operating Metrics Mass market margins improve but still don’t deliver adequate returns. 12 months to 30 Jun 2010 30 Jun 2009 Change Mass Market gross margin ($m) 533.3 493.8 8.0% Avg Mass Market customer numbers (‘000) 3,205.6 3,191.9 0.4% Gross margin per Mass Market customer $166.3
Slide 13: Retail – Key Operating Metrics
13 Retail – Key Operating Metrics Operating expenditure to gross margin improves to 49.5%. 12 months to 30 Jun 2010 30 Jun 2009 Change $m Operating costs 335.1 308.4 8.7% Depreciation and amortisation 41.5 36.2 14.6% Less fees and charges (63.7) (50.9) 25.1% Net operating expenditure 312.9 293.7 6.5
Slide 14: Merchant – Key Financial Metrics
14 Merchant – Key Financial Metrics Lower market volatility and mild weather impact earnings. 12 months to 30 Jun 2010 30 Jun 2009 Change $m Operating EBITDA 449.8 460.6 (2.3%) D&A (63.7) (57.8) 10.2% EBIT Energy Portfolio Management (EPM)1 Wholesale Electricity Gross Margin 313.7 318.6 (1.5%) Whole
Slide 15: Merchant – EBIT Drivers
15 Merchant – EBIT Drivers Strong performance from underlying gas portfolio. 410 402.8 400 5.4 23.4 390 (10.3) 5.8 386.1 $ million (6.8) (2.1) 380 (5.1) 370 (27.0) 360 FY09 EBIT NSW Underlying Gas Volatility Underlying Gas Merchant Energy Services Power Other FY10 EBIT Interregional Electricity Even
Slide 16: Underlying Operating Cash Flow
16 Underlying Operating Cash Flow1 Strong cash generation continues. 12 months to 30 Jun 2010 30 Jun 2009 Change $m Statutory net cash provided by operating activities 390.0 235.4 Cash flow relating to significant items 27.8 69.2 Futures margin calls 5.9 66.8 Increase in net green position 17.6 44.2
Slide 17: Financial Ratios
17 Financial Ratios Continued improvement across all key financial metrics. › BBB stable credit rating » S&P rating affirmed in May 2010 › Improved outcome in S&P’s review of AGL’s wind farm off-take agreements As at 30 Jun 2010 30 Jun 2009 FFO / Interest cover (times)1 7.5 6.6 FFO / Interest cover
Slide 18: Capital Expenditure
18 Capital Expenditure $146 million capex deferred in 2010. LEGEND Stay In Business 700.0 Upstream Gas Oaklands 600.0 Forecast provided FY09 Hallett 5 result (net of Hallett 4) Bogong 500.0 Macarthur Retail $ million Other 400.0 300.0 200.0 100.0 0.0 FY10 Actual FY11 Forecast » 2010 Final Results 12
Slide 19: Debt Capacity
19 Debt Capacity Ample headroom to fund organic growth. LEGEND 1,800 S&P Adjustment 1,600 Capex Forecast 1,400 Closing FY10 Debt Operating cash flow 1,200 after dividends $ million 1,000 Tax Refund Cash flow Cash Headroom 800 flow Cash flow 600 400 200 0 FY10 Actual FY11 Forecast » 2010 Final Result
Slide 20: Return on Funds Employed
20 Return on Funds Employed Strong internal focus on return on assets. 12 months to 30 Jun 2010 30 Jun 2009 30 Jun 2008 $m Operating EBIT 652.1 643.1 693.2 Average Funds Employed 6,953.8 6,644.4 6,623.5 EBIT / Funds Employed 9.4% 9.7% 10.5% Operating EBIT 652.1 643.1 693.2 Less: Upstream Gas EBIT (5
Slide 21: Operational Review
21 Operational Review Michael Fraser Managing Director & CEO » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 22: People & Safety
22 People & Safety Continued improvement in safety performance and engagement. Delivering on our three people initiatives: 1. Attract, retain and develop talent 2. Enable a high performance culture 3. Continued improvement in safety performance Lost Time Injury Frequency Rate Employee Engagement 70.
Slide 23: Retail – Delivering Customer Growth
23 Retail – Delivering Customer Growth Accelerating growth in dual fuel customers. › Customer numbers up 45,317 (+1.4%) to 3.24 million › AGL churn at 14.7%, better than market churn of 18.7% › Strong growth in Dual Fuel accounts, up 122,278 (+9.9%) Incremental Customer Numbers Dual Fuel Accounts In
Slide 24: Retail – Improving Core Operations
24 Retail – Improving Core Operations Strong working capital management. Mass Market Aged Debt – improving across all categories 140 › Unbilled customers continue to be at historical 120 low levels and customers >30 days overdue are 100 immaterial $ million 80 60 › The implementation of the Credit I
Slide 25: Retail – Improving Core Operations
25 Retail – Improving Core Operations Good progress on Customer Service. AGL churn much lower than industry 19 › AGL market churn remaining steady while 17 industry churn increased Market churn (%) » AGL churn 4 ppts below Industry average 15 » Victoria still the most competitive market in the 13 wo
Slide 26: Retail – Weather Impact
26 Retail – Weather Impact FY10 characterised by mild weather. Heating Degree Days 1200 › Winter months 1000 » New South Wales August 2009 the second warmest Heating Degree Days August on record 800 » Victorian average maximum temperature 2 degrees 600 above long term average 400 » South Australian
Slide 27: Renewable Energy Certificates – Demand/Supply
27 Renewable Energy Certificates – Demand/Supply Additional renewable generation required by 2014. › Enhancements to RET scheme passed in June 2010 Forecast Industry LRET Balance REC (million) » Ensures the majority of 20% RET is 60 satisfied by large scale renewable generation 50 » Wind likely to b
Slide 28: Renewable Energy Certificates (REC) Obligations
28 Renewable Energy Certificates (REC) Obligations Reduction in future capex requirement. › Reduced LRET requirement AGL’s RET Liability › Increased energy generation at Macarthur REC (million) › Improves ability to stage build program 9.0 8.0 Renewable generation 7.0 › Under construction 6.0 » Hall
Slide 29: Upstream Gas – Focused on Growing Reserves
29 Upstream Gas – Focused on Growing Reserves Strong reserve upgrade at Gloucester. › 2P reserves at Gloucester increase by 58% › 2P reserves entitlement up 21% (1,578PJ); 3P reserves entitlement up 7% (3,372PJ) › Initial reserves assessment expected at Hunter in 1H11 AGL share of CSG reserves As at
Slide 30: Mosaic Oil NL
30 Mosaic Oil NL Building strategic capability. › Offer for Mosaic at 15 cents per share » Via Scheme of Arrangement › Key dates » Scheme meeting 7 October 2010 » Effective date 11 October 2010 » Implementation date 20 October 2010 › Proposal to create a gas storage facility at Silver Springs » Util
Slide 31: NSW Electricity Privatisation
31 NSW Electricity Privatisation Rigorous financial discipline to be applied. › NSW privatisation timetable » Data rooms opened 1 July 2010 » Bids due 1 November 2010 » Successful bids expected to be announced Late-2010 › Potential opportunity to increase scale in both Retail & Generation › Only bid
Slide 32: Summary
32 Summary Operational focus delivered continued profit growth. › Excellent performance by Retail Energy across full year » Substantial improvement in customer service » Sound platform for further growth » Good improvement in cash collection › Merchant Energy delivered solid result › Upstream Gas de
Slide 33: Outlook 2011
33 Outlook 2011 Solid profit growth expected to continue in 2011. › Retail Energy expected to show solid improvement » Impact of regulatory price reviews » Further reduction in operating expenses to gross margin » Continued improvement in customer service › Merchant Energy to deliver good improvemen
Slide 34: Further Information / Contacts
34 Further Information / Contacts A range of information on AGL Energy Limited including ASX & Media Releases, Presentations, Financial Results, Annual Reports and Sustainability Reports is available from our website: www.agl.com.au Alternatively, contact: INVESTORS MEDIA John Hobson Nathan Vass Hea
Slide 35: Supplementary Information
35 Supplementary Information » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 36: Operating EBITDA to Statutory Cash Flow Reconciliation
Operating EBITDA to Statutory Cash Flow 36 Reconciliation 12 months to 30 Jun 2010 30 Jun 2009 $m Operating EBITDA 789.6 793.1 Equity accounting (39.1) (23.4) Onerous gas contract (20.9) (20.9) Receivables (25.4) (83.8) Net movement in green assets / liabilities (17.6) (44.2) Inventories (42.9) (8.4
Slide 37: Energy Investments
37 Energy Investments 12 months to 30 Jun 2010 30 Jun 2009 Change $m EBIT ActewAGL 30.4 27.9 9.0% Elgas1 - 10.6 - Loy Yang 45.1 30.8 46.4% Investments Other 6.2 5.5 12.7% Total EBIT 81.7 74.8 9.2% 1. AGL disposed of its 50% ownership interest in Elgas on 2 October 2008. » 2010 Final Results 12 month
Slide 38: Significant Items
38 Significant Items1 12 months to 30 Jun 2010 Pre Tax Tax After Tax $m Impairment of non-current assets (21.7) 6.5 (15.2) Acquisition costs (5.1) 0.7 (4.4) Phoenix change program costs (11.7) 3.5 (8.2) Redundancy, termination and restructuring costs (11.1) 3.3 (7.8) Tax consolidation adjustment - 8
Slide 39: Capital Expenditure
39 Capital Expenditure 12 months to 30 Jun 2010 SIB Discretionary Total $m Merchant Energy 46.1 159.0 205.1 Upstream Gas - 123.2 123.2 Retail Energy - 31.5 31.5 Corporate Other 22.0 7.9 29.9 Total 68.1 321.6 389.7 » 2010 Final Results 12 months to 30 June 2010 » 26 August 2010 » AGL External
Slide 40: Debt Position
40 Debt Position › Successfully priced US$300 million unsecured notes in United States Private Placement › Two tranches of 12 year and 15 year maturities › No group debt maturing until October 2011 Debt Maturity Profile post US Private Placement Facilities @ 30 Jun 2010 $m Limit Usage $ million 1,00
Slide 41: Balance Sheet
41 Balance Sheet As at 30 Jun 2010 30 Jun 2009 $m Current assets 2,208.5 2,473.7 PPE, E&E and oil & gas assets 2,997.1 2,974.2 Other non current assets 3,485.3 3,586.8 Total Assets 8,690.9 9,034.7 Current liabilities 1,532.5 1,519.0 Total debt 900.8 1,120.2 Other non current liabilities 457.7 549.8
Slide 42: Fair Value Reconciliation
42 Fair Value Reconciliation Net Assets (Liabilities) As at $m 30 Jun 2010 30 Jun 2009 Change Electricity derivative contracts (474.3) (48.2) (426.1) Interest rate swap & foreign currency derivative contracts (7.2) (22.8) 15.6 Total net liabilities for derivative contracts (481.5) (71.0) (410.5) Cha
Slide 43: Gas Sales Volume
43 Gas Sales Volume 12 months to 30 Jun 2010 30 Jun 2009 Change PJ Mass Market VIC 28.1 31.4 (10.5%) SA 2.0 1.8 11.1% NSW 25.0 27.2 (8.1%) QLD 3.2 2.6 23.1% Mass Market Total 58.3 63.0 (7.5%) C&I VIC 25.8 29.2 (11.6%) SA 7.3 2.9 151.7% NSW 39.0 46.1 (15.4%) QLD 14.6 13.7 6.6% C & I Total 86.7 91.9 (
Slide 44: Electricity Sales Volume
44 Electricity Sales Volume 12 months to 30 Jun 2010 30 Jun 2009 Change GWh Mass Market VIC 4,931 5,055 (2.5%) SA 3,404 3,290 3.5% NSW 3,338 2,882 15.8% QLD 3,406 3,576 (4.8%) Mass Market Total 15,079 14,803 1.9% C&I VIC 6,097 5,618 8.5% SA 3,196 2,579 23.9% NSW 5,397 5,079 6.3% QLD 4,593 5,887 (22.
Slide 45: Retail – Mass Market Key Indicators (includes SME)
45 Retail – Mass Market Key Indicators (includes SME) 12 months to 30 Jun 2010 30 Jun 2009 Change Electricity Volume (GWh) 15,080 14,803 1.9% Mass Market Accounts ('000) 1,856 1,793 3.5% Revenue ($m) 2,208.9 1,945.6 13.5% Gross Margin ($m) 345.0 317.3 8.7% Gross Margin 15.6% 16.3% (0.7) ppts Gross M
Slide 46: Retail – C & I Key Indicators
46 Retail – C & I Key Indicators 12 months to 30 Jun 2010 30 Jun 2009 Change Electricity Volume (GWh) 19,283 19,163 0.6% C & I Accounts ('000) 16.5 14.0 17.9% Revenue ($m) 1,801.1 1,529.6 17.7% Gross Margin ($m) 49.6 31.3 58.5% $ / MWh $2.57 $1.63 94.0% 12 months to Gas Volume (PJ) 86.7 91.9 (5.7%)
Slide 47: Retail – Market Churn
47 Retail – Market Churn AGL churn below Market (14.7% vs. Market at 18.7%) market churn Jul-08 to Jun-10 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jul-08 Dec-08 Jun-09 Dec-09 Jun-10 NSW Electricity - Market NSW Gas - Market VIC Electricity - Market VIC Gas - Market SA Electricity - Market
Slide 48: Retail – Delivering customer growth
48 Retail – Delivering customer growth State Period1 Gas Electricity Total Victoria FY10 468,190 642,588 1,110,778 FY09 472,678 651,958 1,124,636 South Australia FY10 96,788 477,879 574,667 FY09 84,955 463,907 548,862 New South Wales FY10 726,692 380,801 1,107,493 FY09 752,292 329,100 1,081,392 Quee
Slide 49: Retail – Cost to Serve
49 Retail – Cost to Serve 12 months to 30 Jun 2010 30 Jun 20093 Change Net operating expenditure 312.9m 293.7m 6.5% Net operating cost per customer account $97.11 $91.47 6.2% Cost to grow/retain 77.5m 67.5m 14.8% Cost to grow per account acquired/retained1 $86.84 $81.63 6.4% Cost to serve 235.4m 226
Slide 50: Retail – EBIT / Sales Analysis
50 Retail – EBIT / Sales Analysis 12 months to 30 Jun 2010 30 Jun 2009 Change $m Total revenue 5,585.6 5,023.9 11.2% Cost of sales (4,890.3) (4,412.5) 10.8% Gross margin 695.3 611.4 13.7% Operating costs (excl D & A) (335.1) (308.4) 8.7% Operating EBITDA 360.2 303.0 18.9% Depreciation and amortisati
Slide 51: Merchant - EBIT Analysis
51 Merchant - EBIT Analysis 12 months to 30 Jun 2010 30 Jun 2009 Change $m Revenue from Retail Business 1. Generation revenue is pool revenue - Electricity (COGS transfer price) 2,324.6 2,073.5 12.1% from owned generation assets. 2. ActewAGL June 10: Electricity sales - Gas (COGS transfer price) 725
Slide 52: Merchant Generation
52 Merchant Generation Operational performance of Commercial Availability / Start Reliability (%) generation assets continues to exceed international 100.0 benchmarks. 98.0 Availability / Start Reliability (%)) 96.0 94.0 92.0 1. Commercial availability is used to measure Torrens Island performance,
Slide 53: Merchant - Wind Farm Generation
53 Merchant - Wind Farm Generation › Hallett 2 commissioned 17 May 2010 › High operational availability continued across portfolio Twelve months to 30 June 2010 Unit Wattle Point Hallett 1 Hallett 2 Total Capacity MW 90.8 94.5 71.4 256.7 Availability % 95.2 95.7 94.9 95.3 Generated Energy1 MWh 206,6
Slide 54: Merchant – Hydrology
54 Merchant – Hydrology › 52.6% of Hydro capacity is now linked to drought resistant Kiewa Scheme › Eildon can deliver 80MW of generation out of 120MW capacity › Dartmouth has had good inflows over the last 12 months. Re-commissioning works are underway to have the plant operational prior to the sum
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 - Electricity Hedging: Position
56 Merchant - Electricity Hedging: Position Physical Financial AGL Energy Hedge Position - All States Satisfying Financial Risk Limits Contingent Gas Fired Generation 125% Expected Generation Derivatives (Swaps Only) Unhedged load must be limited Range of profit outcomes from 100% so that potential
Slide 57: Merchant – Wholesale Electricity Prices
57 Merchant – Wholesale Electricity Prices FY11 Forward Contract Prices › A relatively mild 2009 winter and declining spot 75 prices across the NEM resulted in the forward NSW QLD SA VIC curve being sold off in all states 70 65 › Hot weather in NSW in December combined with a 60 constraint on a phys
Slide 58: Upstream Gas – Key Financial Metrics
58 Upstream Gas – Key Financial Metrics 12 months to 30 Jun 2010 30 Jun 2009 Change $m Operating EBITDA 26.6 101.2 (73.7%) D&A (21.1) (44.3) (52.4%) Pro forma D & A adjustment1 - (27.0) na EBIT PNG Upstream Investment (net of pro forma adjustment) - 22.4 na Upstream Gas Queensland / South Australia
Slide 59: Upstream Gas Interests – Permit Details
59 Upstream Gas Interests – Permit Details Permits Working Basin Project Exploration Production Interest (Area km2) (Area km2) PEL 2 (6,696) - 100% PEL 5 (400) - 100% - PPL 1 (48) 100% Camden Gas Project - PPL 2 (1) 100% Sydney - PPL 4 (55) 100% - PPL 5 (103) 100% - PPL 6 (7) 100% PEL 4 (5,076) - 10
Slide 60: Loy Yang A: Financial Performance
60 Loy Yang A: Financial Performance 12 months to 30 Jun 2010 30 Jun 2009 Change $m Generation Volume (GWh) 15,518 14,911 4.1% 1 Average Price ($/MWh) $42.62 $40.46 5.3% Sales Revenue2 715.7 655.7 9.2% Other Revenue 21.7 23.0 (5.7%) Expenses (264.7) (243.7) 8.6% Depreciation (112.7) (112.2) 0.4% Bor