AGL Energy Limited · ASX:AGL
AGL Energy — H1 FY2009 Earnings Presentation
61 slides from AGL Energy's earnings presentation, Feb 25, 2009
Slide 1: AGL Energy Limited 2009 Interim Results
AGL Energy Limited 2009 Interim Results 6 months to 31 December 2008 …Delivering on strategy, creating value & long term growth… Sydney 25 February 2009
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, MD & CEO › Group Financials Stephen Mikkelsen, CFO › Operational Review Michael Fraser, MD & CEO › Strategic & Financial Outlook Michael Fraser, MD & CEO › Supplementary Information IMPORTANT NOTE: This presentation should be read in conjunction with the
Slide 4: Result Highlights
4 Result Highlights Delivering on strategy, creating value & long term growth. › Revenue: $2,977.7m, Ï 5.1% FINANCIAL › Operating EBIT from continuing operations: $322.7m, Ï 10.2% › Statutory NPAT: $1,654.8m › Underlying NPAT: $192.5m, Ï 5.3% › Interim dividend 26 cps, fully franked – DRP in operati
Slide 5: Group Financials
5 Group Financials Stephen Mikkelsen Chief Financial Officer » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 6: Profit & Loss (excluding significant items & fair value movements)
6 Profit & Loss (excluding significant items & fair value movements) Result in line with full year guidance. 6 months to 31 Dec 2008 31 Dec 2007 Change $m Revenue 2,977.7 2,833.8 5.1% Operating EBITDA 443.9 471.4 (5.8%) Operating EBIT Retail 145.7 134.8 8.1% Merchant 211.9 156.9 35.1% Gas & Power De
Slide 7: Significant Items
7 Significant Items1 Asset sales deliver substantial profits. 6 months to 31 Dec 2008 Pre Tax Tax After Tax $m Divestment of PNG 926.6 (36.0) 890.6 Divestment of QGC 754.4 (247.5) 506.9 Divestment of Elgas 149.9 (29.0) 120.9 Divestment of North Queensland Pipeline 23.1 (9.5) 13.6 Other divestments 0
Slide 8: Group Underlying NPAT
8 Group Underlying NPAT Core business performing well. $210 G&PD Retail Merchant 33.5 41.5 192.5 182.8 (10.0) $180 (20.1) (14.8) 27.0 (12.1) $150 22.1 (20.5) (12.2) Millions $120 (13.5) (11.2) $90 $60 $30 $0 HY08 Wind farm PNG G&PD Phoenix Retail Loy Yang Gas Merchant Invest. Central Financing Tax H
Slide 9: Operating Cash Flow Summary
9 Operating Cash Flow Summary1 Continued focus and improvement. 6 months to 31 Dec 2008 31 Dec 2007 $m EBITDA (before significant items) 443.9 471.4 Equity accounted associates & joint ventures (net of dividends received) 4.6 (6.9) Net finance costs (69.1) (91.9) Tax refunded (paid) 59.3 (57.9) Work
Slide 10: Disciplined Capital Management
10 Disciplined Capital Management Well positioned for future growth opportunities. › October 09 maturities covered by cash reserves › Immediate debt capacity of ~A$1.2b to A$1.8b › Reinstated BBB stable credit rating Facilities @ 20 Feb 2009 $m Limit Usage Available Maturity Current Revolving credit
Slide 11: Retail – Key Financial Metrics
11 Retail – Key Financial Metrics Margins maintained during SAP transition. 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA 161.3 149.3 8% D & A1 (15.6) (14.5) 7.6% EBIT Electricity Revenue 1,675.0 1,619.0 3.5% Gas Revenue 809.9 716.1 13.1% Other Revenue (Fees & Charges)2 25.4 24.1 5.4% Total R
Slide 12: Retail – EBIT Drivers
12 Retail – EBIT Drivers Margins maintained during SAP transition. 19.8 $160 (5.4) $150 (3.6) (2.2) 145.7 7.0 (4.7) Millions $140 134.8 $130 $120 $110 HY08 EBIT Volume Tariffs Labour Advertising Debt provisions D&A HY09 EBIT Other Key drivers: › Despite continued high levels of competitor activity,
Slide 13: Merchant – Key Financial Metrics
13 Merchant – Key Financial Metrics Integrated portfolio continues to deliver increasing returns. 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA 239.8 182.9 31.1% D&A (27.9) (26.0) 7.3% EBIT Energy Portfolio and Merchant Operations Wholesale Electricity 182.9 151.7 20.6% Wholesale Gas 61.3 27.
Slide 14: Merchant – EBIT Drivers
14 Merchant – EBIT Drivers Integrated portfolio continues to deliver increasing returns. $250 34.0 4.5 211.9 $200 31.2 (1.2) (13.5) 156.9 $150 Millions $100 $50 $0 HY08 EBIT Wholesale Wholesale Gas Loy Yang Carbon Solutions Other HY09 EBIT Electricity Key Drivers: › Wholesale Electricity benefited f
Slide 15: Gas & Power Development – Key Financial Metrics
15 Gas & Power Development – Key Financial Metrics Significant progress in restructuring upstream gas portfolio. 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA 70.4 130.9 (46.2%) D&A (8.9) (48.9) (81.8%) Pro forma adjustment (27.0) - - EBIT PNG Upstream Investment (net of pro forma adjustment)
Slide 16: Gas & Power Development – EBIT Drivers
16 Gas & Power Development – EBIT Drivers Significant progress in restructuring upstream gas portfolio. $100 82.0 $80 $60 Millions (20.5) (8.7) $40 34.5 (14.8) (1.1) (2.4) $20 $0 HY08 EBIT PNG Upstream Gas Development Equity Investments Sundry HY09 EBIT Fees Key drivers: › Upstream gas includes impa
Slide 17: Operational Review
17 Operational Review Michael Fraser Managing Director & CEO » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 18: People & Safety
18 People & Safety Employee safety, engagement & capability – a strategic priority. › Ongoing, holistic focus on safety in the workplace delivering improved results: » HSE action plans linked to remuneration / incentives » Continuing to build a safety first culture › Building upon improved employee
Slide 19: Retail – Phoenix Business Transformation Stage
19 Retail – Phoenix Business Transformation Stage Capturing Benefits. › Final core retail migration to SAP (Phoenix) completed Nov 2008: » ~93% of total customer base now serviced out of SAP › Business Transformation Program now established to ensure optimisation, timing and delivery of SAP benefits
Slide 20: Retail – Operating Costs
20 Retail – Operating Costs Final SAP implementation results in short term cost increases. 6 months to 31 Dec 2008 31 Dec 2007 Change Net Operating Expenditure $133.5m $117.7m 13.4% Net Operating Costs per Customer Account $41.42 $36.88 12.3% Cost to Grow $30.4m $25.4m 19.7% Cost to Grow per Account
Slide 21: Retail – Market Churn
21 Retail – Market Churn Stable customer accounts despite ongoing competition. market churn Jul-04 to Jan-09 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Jul-04 Aug- Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug- Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06
Slide 22: Defensive Earnings Profile
22 Defensive Earnings Profile Robust earnings during deteriorating economic conditions. › Majority of electricity & gas gross margin is derived from mass market customer base which historically has had limited volume impacts during economic downturns Electricity Gross Margin Contribution Gas Gross M
Slide 23: Generation
23 Generation Portfolio diversity across generation type, fuel and geography. Hydro: › Bogong on budget and on schedule, operational 1HFY10 › Kiewa Scheme inflows significantly higher than pcp › Eildon operational with consistent water levels in recent months › Dartmouth not anticipated to be operat
Slide 24: Upstream Gas
24 Upstream Gas Strategic acquisitions to deliver upside growth & optionality. › Recent transactions deliver access & control over additional certified 2P reserves with further, material upside potential & optionality: » Investment in Galilee Basin CSG production pilot & exploration program » Entere
Slide 25: Upstream Gas – Operating Activities
25 Upstream Gas – Operating Activities Building a diversified domestic gas portfolio. Moranbah / Bowen Basin › Significant development drilling continued with 22 new wells completed and connected › Production was shut-in for seven weeks for scheduled maintenance of the Yabulu Power Station. Recovere
Slide 26: Upstream Gas – Delivering Duration & Flexibility
26 Upstream Gas – Delivering Duration & Flexibility Increasing self supply. › Existing portfolio flexibility allows timely development of gas production projects › AGL will continue to be a significant contractor of wholesale gas › Anticipate recent acquisitions of Gloucester, Sydney Gas/Hunter, Gal
Slide 27: Strategic & Financial Outlook
27 Strategic & Financial Outlook Michael Fraser Managing Director & CEO » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 28: The AGL Integrated Strategy
28 The AGL Integrated Strategy Balancing risk between upstream supply, retail markets & providing access to multiple profit pools. UPSTREAM SUPPLY (Core) Capturing value & growth Capturing value & growth Upstream Gas: Gas Production Renewable Generation Thermal Generation Generation: › Direct owners
Slide 29: Upstream Gas – Growth Pipeline
29 Upstream Gas – Growth Pipeline Developing a portfolio with strategic depth, duration and optionality. › CAPEX: Current AGL indicative capex per 10PJ through to production: ~$5.0m » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 30: Gas Generation – Growth Pipeline
30 Gas Generation – Growth Pipeline Developing a portfolio with strategic depth and optionality. Nominal Project Location Type Project Status Definition Capacity (MW) Development application being Leafs Gully 360 NSW - Appin Gas Peaker Probable assessed Tarrone 500 VIC - West Gas Peaker In Developme
Slide 31: Renewable Generation – Growth Pipeline
31 Renewable Generation – Growth Pipeline. Developing a portfolio with strategic depth and optionality. Nominal Project Capacity Location Type Project Status Definition (MW) Bogong 140 Victorian Alps Hydro Under Construction Committed McKay Creek Up Rate 10 Victorian Alps Hydro Under Construction Co
Slide 32: Renewables & Carbon: First Mover Advantage
32 Renewables & Carbon: First Mover Advantage AGL’s strategy benefits from recent Government announcements. EXISTING AGL STRATEGY RECENT RECENTGOVERNMENT GOVERNMENTPOLICY POLICY POSITIVE POSITIVEAGL AGLOUTCOMES OUTCOMES ~930 MW renewable generation in Government committed to expansion of operation,
Slide 33: Required Renewables Growth
33 Required Renewables Growth Expanded Renewable Energy Target (RET) Drives Growth. 50000 Exisiting MRET Expanded RET 45000 › New federal Government Policy – by 40000 2020 an additional 35,500 GWh p.a. of renewable energy required to meet the 35000 target of 45,000 GWh p.a. 30000 › If all new capaci
Slide 34: Financial Outlook & Strategic Priorities
34 Financial Outlook & Strategic Priorities › Reconfirm FY09 EBITDA guidance of $775 million to $820 million › Reconfirm FY09 underlying NPAT guidance of $370 million to $400 million: Financial » Excludes SunGas & Powerdirect customer amortisation charge of $18.1m outlook › Reconfirm dividend payout
Slide 35: Further Information / Contacts
35 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: Graeme Thompson Head of Investor Relations
Slide 36: Supplementary Information
36 Supplementary Information » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 37: Reconciliation
37 Reconciliation Operating EBIT to Operating EBIT from continuing operations. 6 months to 31 Dec 2008 31 Dec 2007 $m Operating EBIT (incl. pro forma adjustment) 359.1 372.9 Less PNG (incl. pro forma adjustment) (22.4) (42.9) NQGP (0.8) (0.9) QGC (2.6) (3.5) Elgas (10.6) (9.9) GasValpo - (9.4) Alint
Slide 38: Energy Investments
38 Energy Investments 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA ActewAGL 17.1 15.2 12.5% Elgas1 10.6 9.9 7.1% GasValpo2 - 12.3 - AlintaAGL2 - 13.6 - Investments Other 2.8 2.5 12% Total EBITDA 30.5 53.5 (43%) GasValpo depreciation - (2.9) - Total EBIT contribution 30.5 50.6 (39.7%) 1. AGL
Slide 39: Reconciliation
39 Reconciliation Statutory Cash flow to Operational Cash flow. 6 months to 31 Dec 2008 31 Dec 2007 $m Statutory net cash provided by operating activities 266.5 111.1 Cash flow relating to significant items 32.2 27.3 Less: Receipts from NEMMCO deposits replaced by guarantees - (238.3) Add: Futures m
Slide 40: Balance Sheet
40 Balance Sheet As at 31 Dec 2008 31 Dec 2007 $m Current assets 3,932.9 3,576.8 PPE and oil & gas assets 2,561.9 2,331.4 Other non current assets 3,752.6 4,291.0 Total Assets 10,247.4 10,199.2 Current liabilities 1,609.1 2,053.4 Total debt 1,756.0 2,390.9 Other non current liabilities 670.4 762.5 T
Slide 41: Fair Value Reconciliation
41 Fair Value Reconciliation Net Assets As at $m 31 Dec 2008 30 Jun 2008 Change Electricity derivative contracts 672.3 1,007.4 (335.1) Oil derivative contracts - (247.5) 247.5 Interest rate swap & foreign currency derivative contracts (38.7) 19.0 (57.7) Total net assets for derivative contracts 633.
Slide 42: Capital Expenditure
42 Capital Expenditure 6 months to 31 Dec 2008 SIB Discretionary Total $m Merchant Energy 18.64 2.81 21.4 Gas & Power Development - 205.82 205.7 Retail Energy - 44.73 44.7 Corporate Other 1.2 4.3 5.5 Total 19.8 257.5 277.3 1. Comprises Energy Services $2.8m 2. Comprises Bogong Hydro $64.6m, PNG Oil
Slide 43: QGC & PNG Sales – Accounting
43 QGC & PNG Sales – Accounting QGC $m Disposal Consideration 1,176.6 Carrying value of investment (422.2) Pre tax profit on disposal 754.4 Tax expense (247.5) Net profit after tax 506.9 PNG $m Disposal Consideration (net of cost) 1,184.9 Net Assets Disposed (book value) (492.0) 692.9 Transfer from
Slide 44: Gas Sales Volume
44 Gas Sales Volume 6 months to 31 Dec 2008 31 Dec 2007 Change PJ Mass Market VIC 18.9 17.3 9.1% SA 1.1 0.7 57.1% NSW 15.3 13.9 10.5% QLD 1.5 1.6 (6.3%) Mass Market Total 36.8 33.5 9.8% C&I VIC 17.1 17.1 - SA 1.0 0.8 25.0% NSW 23.7 24.0 (1.0%) QLD 6.7 7.1 (5.6%) C & I Total 48.6 48.9 (0.5%) Wholesal
Slide 45: Electricity Sales Volume
45 Electricity Sales Volume 6 months to 31 Dec 2008 31 Dec 2007 Change GWh Mass Market VIC 2,559 2,662 (3.9%) SA 1,650 1,661 (0.7%) NSW 1,304 1,307 (0.2%) QLD1 1,837 1,756 4.6% Mass Market Total 7,350 7,386 (0.5%) C&I VIC 2,935 2,929 0.2% SA 1,235 1,294 (4.6%) NSW 2,642 3,194 (17.3%) QLD1 3,215 3,87
Slide 46: Retail – Mass Market Key Indicators (includes SME)
46 Retail – Mass Market Key Indicators (includes SME) 6 months to Dec 2008 Dec 2007 Change Electricity Volume (GWh) 7,350 7,386 (0.5%) Mass Market Accounts ('000) 1,791 1,780 0.6% Revenue ($m) 921.7 856.6 7.6% Gross Margin ($m)1 155.8 141.2 10.3% Gross Margin 16.9% 16.5% 2.4% Gas Volume (PJ) 36.8 33
Slide 47: Retail – C & I Key Indicators
47 Retail – C & I Key Indicators 6 months to Dec 2008 Dec 2007 Change Electricity Volume (GWh) 10,026 11,290 (11.2%) C&I Accounts ('000) 13.8 11.2 23.3% Revenue ($m) 753.4 762.4 (1.2%) Gross Margin ($m)1 12.6 10.1 24.4% Gross Margin 1.7% 1.3% 25.9% 6 months to Gas Volume (PJ) 48.6 49.2 (1.2%) C&I Ac
Slide 48: Retail – Customer Accounts
48 Retail – Customer Accounts (6 months to 31 Dec 2008) Maintaining customer accounts in a competitive market. State Gas Electricity Total VIC 492,100 659,900 1,152,000 (FY08: 500,700) (FY08: 670,400)1 SA 78,500 463,700 542,200 (FY08: 75,400) (FY08: 469,800)1 NSW 764,300 318,100 1,082,400 (FY08: 759
Slide 49: Retail – Weather Impact
49 Retail – Weather Impact Heating Degree Days › NSW cold winter and early spring: » Aug 08 lowest average maximum 800 temperature since 1989 & lowest mean minimum temperature since 1951 700 › VIC cold Aug 08: 600 » Temperatures well below the long term 500 average Degree days 400 » Spring temperatu
Slide 50: Retail – Phoenix Business Transformation Stage
50 Retail – Phoenix Business Transformation Stage Capturing Benefits. » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 51: Merchant - EBIT Analysis
51 Merchant - EBIT Analysis 6 months to 31 Dec 2008 31 Dec 2007 Change $m Revenue from Retail Business - Electricity (COGS transfer price) 1,023.2 953.3 7% - Gas (COGS transfer price) 400.7 352.1 14% External Revenue - Generation Revenue 97.6 128.2 (24%) - ActewAGL¹ 135.5 116.0 17% - External (3rd P
Slide 52: Merchant – Generation Assets EBIT
52 Merchant – Generation Assets EBIT 6 months to 31 Dec 08 TIPS Somerton Vic Hydro NSW SA Wind QLD Energy Total 2 $m Hydro Generation Services1 Pool Revenue 59.4 5.1 11.1 1.2 8.3 12.0 7.6 104.7 - COGS (59.3) (3.3) - - - (11.6) (2.4) (76.6) Gross Margin 0.1 1.8 11.1 1.2 8.3 0.4 5.2 28.1 Operating Cos
Slide 53: Merchant – Hydrology
53 Merchant – Hydrology › Kiewa Scheme (365MW including Bogong) experienced average snow melt & dam levels rose accordingly. The scheme’s water management plan allows for normal operations plus provisioning water for commissioning of the Bogong Hydro Power Station › Eildon (135MW) dam is operational
Slide 54: Merchant - Electricity Hedging: Policy
54 Merchant - Electricity Hedging: Policy Integrated physical & financial policies. › 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
Slide 55: Merchant - Electricity Hedging: Position
55 Merchant - Electricity Hedging: Position Prudent hedging ensures risks covered while retaining ability to flex with demand & capitalise on new sourcing opportunities. Physical Financial AGL Energy Hedge Position - All States Satisfying Financial Risk Limits C ontingent Gas Fired Generation (max p
Slide 56: Merchant – Wholesale Electricity & Gas Prices
56 Merchant – Wholesale Electricity & Gas Prices Electricity - Calender 09 Forward Contract Prices Gas - Victorian Market Weighted Average Daily Price Including Imbalance & Deviations 80 70 75 NSW QLD VIC SA 60 70 50 65 40 $/MWh 60 $/GJ 55 30 50 20 45 40 10 35 0 1-Jul-08 1-Jun-08 1-Jan-09 1-Jan-08 1
Slide 57: Carbon Pollution Reduction Scheme – White Paper
57 Carbon Pollution Reduction Scheme – White Paper AGL industry leading generation portfolio to benefit. Indicative AGL financial outcomes under CPRS1,2 $350 › All indicators suggest measured start to Carbon Pollution Reduction Scheme (CPRS) in 2010 $300 › Forward AEU’s currently trading around $20
Slide 58: Carbon Pollution Reduction Scheme - White Paper
58 Carbon Pollution Reduction Scheme - White Paper AGL industry leading generation portfolio to benefit. AGL Power Station Regional NPV Uplift Region Stations Intensity Intensity (to 2020) Queensland Yabulu 0.5 1.040 Oakey 0.7 New South Wales - - 1.062 Victoria Somerton 0.7 1.31 AGL Hydro1 0 ~$95 mi
Slide 59: Upstream Gas Interests – Permit Details
59 Upstream Gas Interests – Permit Details Permits Working Basin Project Exploration Production 2 (Area km ) 2 (Area km ) Interest PEL 2 (6,696) - 100% PEL 5 (400) - 100% - PPL 1 (48) 100% Camden Gas Project - PPL 2 (1) 100% (Post SGL takeover) - PPL 4 (55) 100% Sydney - PPL 5 (103) 100% - PPL 6 (7)
Slide 60: Loy Yang A: Profit & Loss
60 Loy Yang A: Profit & Loss 6 months to 31 Dec 2008 31 Dec 2007 Change $m AGL Equity Share of Profit (2.9) 10.5 (127%) AGL Loan Note Interest 5.4 5.5 (1%) Total Equity Result 2.5 16.0 (84%) › Result predominantly driven by fall in revenue due to significant reduction in Victorian electricity pool r
Slide 61: Loy Yang A: Financial Performance
61 Loy Yang A: Financial Performance 6 months to 31 Dec 2008 31 Dec 2007 Change $m Generation Volume (GWh)1 7,400 7,669 (4%) 2 Average Price ($/GWh) $35.46 $49.19 (28%) Sales Revenue 270.9 300.0 (10%) Other Revenue 34.9 32.0 9% Expenses (121.7) (113.6) (7%) Depreciation (56.0) (52.6) (6%) Borrowing