AGL Energy Limited · ASX:AGL
AGL Energy — FY2007 Earnings Presentation
65 slides from AGL Energy's earnings presentation, Aug 22, 2007
Slide 1: AGL Energy 2007 full year results
AGL Energy 2007 full year results A year of strategic transformation to form an energy major… 22 August 2007
Slide 2: Disclaimer
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 situa
Slide 3: Result overview
Result overview Delivering under extreme market conditions SA $319.8m pro forma underlying (scheme booklet) NPAT Contract Prices 2008 Qld Financial $325.6m pro forma underlying (post acquisitions) NPAT NSW Final dividend of 26 cps fully franked $100 Vic $90 Business transformation & re-engineeri
Slide 4: Result overview
Result overview Financial 12 months to pro forma1 pro forma1 underlying underlying (scheme booklet) (post acquisitions) 30 June 2007 30 June 2007 Revenue 4,172.6m 4,773.9m EBITDA 715.9m 747.2m delivered scheme booklet guidance EBIT 550.1m 574.7m Profit after income tax 319.8m 325.6m Less: Significan
Slide 5: Delivering the integrated strategy
Delivering the integrated strategy Strengthening the dual-energy supply chain links target: target: ~3-4,000 PJ ~5,000 MW equity gas generation Purchase 35% of CSM Energy (coal mine methane) upstream supply Hallett Wind farm development Purchase 27.6% (310PJ) in QGC (csm) Wattle Point wind f
Slide 6: Group financials
Group financials Stephen Mikkelsen Chief Financial Officer
Slide 7: Profit & loss
Profit & loss 1,2 (excluding significant items & fair value adjustments) 12 months to Pro forma Pro forma $m (scheme booklet) (post acquisitions) 30 June 2007 30 June 2007 Revenue 4,172.6 4,773.9 Expenses (3,456.7) (4,026.7) EBITDA 715.9 747.2 EBIT Retail 203.5 192.5 Merchant 375.1 410.7 Energy Inve
Slide 8: Significant items
Significant items 12 months to Pro forma $m 30 June 2007 IT asset write off (22.7) Project write offs (4.5) Demerger costs (52.2) Redundancy / restructuring costs (34.3) PNG feed costs (7.41) Significant items before tax (121.1) Less tax applicable 35.2 Significant items after tax (85.9) 8 1. Differ
Slide 9: Statutory cash flow summary
Statutory cash flow summary 6 months Period Jan-Jun 07 $m EBITDA 379.0 Equity accounted associates & joint ventures (18.5) Net finance costs (47.1) Tax paid (58.0) Working capital (25.4) Operating cash flow 230.0 Stay In Business (SIB) capex (9.5) Cash flow after SIB capex 220.5 Less: dividends paid
Slide 10: Our retail business – key financial metrics
Our retail business – key financial metrics Pro forma – scheme booklet 12 months to change June 07 June 06 $m % Revenue 3,261.5 3,412.0 (4.4) Cost of Sales (2,821.8) (2,946.8) 4.2 Gross Margin 439.7 465.3 (5.5) Operating Costs (ex. D&A) (227.2) (223.0) (1.9) EBITDA 212.5 242.2 (12.3) D&A (9.0) (7.5)
Slide 11: Our merchant businesses – key financial metrics
Our merchant businesses – key financial metrics Pro forma – scheme booklet 12 months to ($m) June 07 June 06 Change % EBITDA Wholesale Energy & Power Generation Wholesale Electricity 30.3 42.8 (29%) Generation1 123.5 53.5 131% GEAC 46.6 22.7 106% Wholesale Gas 69.5 54.0 29% Energy Services 12.1 9.3
Slide 12: Sun Gas & Powerdirect
Sun Gas & Powerdirect Underlying1 period to 2 Sun Gas & acquisition model $m Powerdirect Gross Margin (Sun Gas $9.7m, Powerdirect $41.9) 51.6 35.8 Operating Costs (ex. D & A) (Sun Gas $2.4m, Powerdirect $18.7m) (21.1) (19.1) EBITDA (Sun Gas $7.3m, Powerdirect $23.2m) 30.5 16.7 D & A (Sun Gas $3.5m,
Slide 13: Operational review & strategy
Operational review & strategy Paul Anthony Managing Director and CEO
Slide 14: Delivering business efficiency
Delivering business efficiency Retail Headcount (end target FY09 ~ 640 FTE's) Business re-engineering exercise nearing headcount reduction 90% complete completion & delivering planned. 1300 Improvements in operational efficiency improved business performance 1100 and effectiveness across the entire
Slide 15: Delivering business efficiency
Delivering business efficiency Project phoenix and corporate cost outs Cumulative Annualised Phoenix Cost Savings $60m $30m $20m FY2007 FY2008 FY2009 Achieved Forecast Project Phoenix delivering against Corporate cost savings delivering planned cost savings target – year against plan – year to d
Slide 16: Retail – ongoing system efficiencies
Retail – ongoing system efficiencies Project phoenix – on track & on budget Complete Detailed design and build: - design, configuration & build of all strategic retail business processes, voice architecture, interfaces, reports & industry regulated enhancements - rationalisation of retail products
Slide 17: Retail – overall market churn
Annualised Churn Rate 0% 10% 20% 30% 40% 50% 60% Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 SA Electricity Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 VIC Gas Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Month Jan-06 NSW Gas Feb-06 SA Gas Unprecedented levels of churn continue Mar-06 Apr-06 May-06 Jun-0
Slide 18: Retail - market share
Retail - market share (12 months to 30 June 2007 – excluding Qld) Gas Electricity Dual Fuel Market Product/ Share customer -34,173 -59,901 -35,202 27.4% 1.46 Customer accounts to 476,569 to 645,511 to 707,684 (Jun 06: 30.9%) (Jun 06: 1.44) Victoria 26.7% 26.4% Market churn rate (Jun 06: 20.5%) (Jun
Slide 19: Retail – 'churn in perspective'
Retail – ‘churn in perspective’ AGL churn relative to market tracking down 2006 was characterised by heightened activity in 1H, AGL’s responded via 26% O pen in g u p th e g ap increased investment in effective m kt v s A GL c h u r n ( all fu els ) acquisition 24% 22% Net customer position in 2
Slide 20: Retail – Powerdirect update
Retail – Powerdirect update Performing ahead of expectations Powerdirect territory churn ~12% against state total of ~25% Competitor activity expected to increase July Churn out Queensland FRC - comprehensive AGL sales & marketing strategy 30% complete & ready to execute as required Operationa
Slide 21: Upstream generation
Upstream generation Disciplined, creative transactions Executing the ‘four-corners’ strategy deliver value accretion Bogong Power Station - 140MW hydro plant under construction Sun Gas generation plants - additional 4 renewable & low carbon generation plants acquired with total capacity of 43MW
Slide 22: Generation portfolio
Generation portfolio Material increases add robustness Increased physical intermediate & peak generation to cover extreme price risk periods 2007: ~ 3300MW Base Derivatives Peak Derivatives Non Dispatchable Hydro Wattle Pointwindfarm Equity generation Torrens Island B Torrens Island A Somerton Dar
Slide 23: Upstream gas
Upstream gas Disciplined, creative transactions Executing the ‘four-corners’ strategy deliver value accretion Moranbah (Arrow) - 50% project stake for $93m QGC - second largest single producing CSM project in Australia, no $2.00 exploration risk 2P reserves $/GJ $1.60 + ~25% QGC $1.20 – initial
Slide 24: Wholesale gas portfolio
Wholesale gas portfolio Material increases add robustness QGC, Sun Gas and TIPS acquisitions deliver additional gas portfolio longevity and depth 300 250 Indicative demand 200 Petajoules 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2006 portfolio 2007 portfoli
Slide 25: Gas portfolio update
Gas portfolio update Market leading flexibility & diversity Considerable flexibility within equity & Bowen / Surat Basin contract gas portfolio 1155PJ Contracted 517PJ equity - ACQ ‘up & down’, MDQ, ToP & flexible delivery points Rolling buy long / sell short portfolio Cooper Basin strategy QSN
Slide 26: Energy markets
Energy markets Wholesale energy & power generation Wholesale electricity contract prices moved to historical highs in all states primarily driven by drought conditions & weather events Forward prices indicate market believes relatively high pool prices will continue but not at extreme levels wit
Slide 27: Gas - operational
Gas - operational Coal Seam Methane Camden - reserves due for recertification at the end of 2007. 19 wells drilled during FY07, excellent plant processing performance (compressor availability 98.8%), 14 well drill program planned over FY08, SIS development drilling program underway to increase pro
Slide 28: PNG - operational
PNG - operational Gas focus has moved to LNG Project - working toward FEED decision by March 2008 Hedging protected revenues from oil price weakness over much of FY07 Oil production in decline - unplanned shutdowns, slower than expected recovery post shutdowns, delayed development drilling pro
Slide 29: Hydro - operational
Hydro - operational All dams benefiting from solid rain & snow AGL Hydro Storage (Percentage of total storage) 100% Kiewa scheme (~240MW – full Dartmouth Kiewa Scheme Eildon 90% 80% discretion) fully operational, receiving good snow falls - 140MW Bogong expansion to budget & on 70% track for compl
Slide 30: Portfolio – growth projects
Portfolio – growth projects A market leading portfolio of identified projects 95MW Hallett Ahead of schedule & on budget, due for completion 1H08 (SA) wind: 140MW Bogong Ahead of schedule & on budget, due for completion 2H09 (Vic) hydro: Secured site, currently progressing permitting Targeting commi
Slide 31: In summary
In summary The ‘four-corners’, integrated robust business model Delivered FY07 result under extreme market conditions & volatile weather occurrences Delivered FY07 result against backdrop of strategic acquisitions/investments which by Financial their inherent nature (gas for use in later years)
Slide 32: Outlook & way forward
Outlook & way forward FY08 forecast underlying profit on business as usual basis (including results from investment in QGC and acquisition of Sun Gas, Powerdirect & TIPS) of Financial $380 - $400 million outlook Equates to EPS range of 88-92 cents – delivering 15% target AGL currently anticipa
Slide 33: Further information / contacts
Further information / contacts A range of information on AGL Energy Limited including asx & media releases, presentations, the inaugural 2007 interim result as well as historical ‘The Australian Gas Light Company’ scheme booklets, annual reports, sustainability reports, presentations and financial r
Slide 34: Supplementary information
Supplementary information
Slide 35: Balance sheet
Balance sheet As at 30 June 2007 $m Current Assets 7,275.5 PPE and Oil and gas Assets 1,606.7 Other Non Current Assets 5,225.3 Total Assets 14,107.5 Current Liabilities 3,733.6 Total Debt 2,400.0 Other Non Current Liabilities 1,456.3 Total Liabilities 7,589.9 Net Assets 6,517.6 Contributed Equity 3,
Slide 36: Debt funding
Debt funding debt 30 June 07 $m AGL Energy Limited 2,375 BBB (S&P) long term rating maintained GasValpo 25 FFO interest cover: 5.8 times1 Gross Borrowings 2,400 Less: Cash (280) Gearing: 24.9% 2 Net Borrowings 2,120 facilities3 30 June 07 ($m) limit usage available maturity Term facilities Tra
Slide 37: Capex
Capex Pro forma SIB Discretionary Total 12 months to 30 June 2007 $ Merchant Energy 10.9 253.21 264.1 Retail Energy 0.1 32.42 32.5 Corporate Other 7.7 53.52 61.2 Total 18.7 339.1 357.8 1 Includes expenditure on Moranbah (112.6), Bogong (45.2), Hallett Wind Farm Development (26.5), Camden (11.8) and
Slide 38: Statutory to pro forma reconciliation
Statutory to pro forma reconciliation 12 months to 30 June 2007 $m STATUTORY PROFIT AFTER TAX -Jun 07 410.5 Add statutory interest expense 132.2 Add statutory tax expense 180.6 STATUTORY PROFIT BEFORE INTERTEST & TAX (EBIT) 723.3 Add EBIT for subsidiaries from 1 Jul 06 to date acquired by AGL Energy
Slide 39: Corporate cost savings
Corporate cost savings All building blocks in place to achieve $55 million savings $160 M Actual timing of $55 million savings $140 M $120 M 109.9m $100 M $80 M 17.4m 12.2m 55.3m $60 M 12m 13m $40 M $20 M saving 54.6 $0 M FYO7 outcome pre cost FY07 cost outs FY08 cost outs FY09 IT outsourcing FY10 I
Slide 40: Phoenix cost savings
Phoenix cost savings All building blocks in place to achieve $60 million savings Actual timing of $60 million savings $60m 60 45 $25m $m 30 $22m $12m 15 0 FY07 FY08 FY09 FY10 40
Slide 41: Retail EBIT - key drivers
Retail EBIT - key drivers Pro forma - scheme booklet $250 M $240 M 234.7 $230 M 12.9 $220 M $210 M (22.6) 203.4 (7.0) $200 M (8.3) (6.3) $190 M $180 M FY06 EBIT Electricity Gross Gas Gross Margin Net Operating Net Operating Net Operating FY07 EBIT Margin Costs - FTE Costs - Campaign Costs - All othe
Slide 42: Merchant EBIT - key drivers
Merchant EBIT - key drivers Pro forma - scheme booklet $450 M $400 M 375.1 15.6 1.7 1.3 24.0 $350 M 58.4 $300 M 59.4 $250 M 214.7 $200 M $150 M FY06 EBIT PNG Merchant Power Loy Yang Wholesale Gas CSM Other FY07 EBIT Existing business grew by $160.4m: $59.4m increase due to the first full year $1
Slide 43: Retail – key performance measures
Retail – key performance measures (Excluding Qld) 12 months to June 2007 June 2006 change Electricity % Volume (GWh) 20,456 22,147 (7.6) Mass Market Accounts ('000) 1,349 1,428 (5.5) Revenue ($m) – mass mkt 57% (06 56%) C&I 43% (06 44%) 2,003 2,174 (7.9) Gross Margin Mass Market Electricity margin 1
Slide 44: Retail - weather impact
Retail - weather impact 1200 1000 Milder weather across all states compared with prior year 800 Winter 2006 was very mild with Vic Degree Days and SA experiencing their warmest 600 August since 1993 NSW recorded 5th warmest August 400 since records commenced May 2007 was the warmest on 200 r
Slide 45: Retail operating costs
Retail operating costs 12 months to June 07 June 06 Change % Total operating costs ($m) 236.3 230.6 2.5% Total other margin (costs recovered) ($m) (39.9) (34.6) (15.4%) Net operating expenditure ($m) 196.4 196.0 0.2% Net operating cost per mass market account ($) 72.6 70.2 (3.4%) Notional corporate
Slide 46: Retail - competition
Retail - competition Vic & SA – world leading competitive markets 46
Slide 47: Retail – Sun Gas & Powerdirect metrics
Retail – Sun Gas & Powerdirect metrics GAS VOLUMES (Sun Gas) ELECTRICITY VOLUMES (Powerdirect ) 1 feb 07 to 30 june 07 1 mar 07 to 30 june 07 VIC 0.0 VIC 379 SA 0.0 SA 128 NSW 0.0 NSW 170 QLD 1.5 QLD 1,198 Mass Market (PJ) 1.5 Mass Market (GWh) 1,875 VIC * 0.0 VIC 505 SA 0.0 SA 34 NSW 0.0 NSW 1,065
Slide 48: Retail – ongoing system efficiencies
Retail – ongoing system efficiencies Project phoenix – on track & on budget Realise full synergy benefits: consolidate disparate Reduce IT complexity and cost: systematic replacement of operations, functions and management layers seven (7) legacy systems with one (1) enterprise-wide platform D
Slide 49: Retail – project phoenix
Retail – project phoenix Full timetable 2005 2006 calendar year 2007 calendar year 2008 calendar year Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • Establish operational control and management based on rigorous use of reliable Blueprint Stabilise & Sweat the Assets metrics implemented to track performanc
Slide 50: Retail – electricity sales volume (GWh)
Retail – electricity sales volume (GWh) (Excluding Powerdirect) 12 months to June 07 June 06 change % VIC 4,086 4,675 (12.6) SA 3,284 3,937 (16.6) NSW 1,784 1,237 44.3 Mass Market (GWh) 9,154 9,849 (7.0) VIC 4,618 4,808 (3.9) SA 2,628 2,992 (12.2) NSW 3,406 3,809 (10.6) QLD 649 689 (5.9) C & I (GWh)
Slide 51: Retail – gas sales volume (PJ)
Retail – gas sales volume (PJ) (Excluding Sun Gas) 12 months to June 07 June 06 change % Mass Market (PJ) VIC 31.4 34.9 (10.0) SA 1.6 1.2 33.0 NSW 27.2 26.3 3.3 Mass Market (PJ) 60.2 62.5 (3.6) C & I (PJ) VIC 28.3 27.2 4.1 SA 5.7 6.3 (9.5) NSW 48.5 43.0 12.9 C & I (PJ) 82.5 76.5 7.9 Total 142.7 138.
Slide 52: Merchant – carbon effective generation
Merchant – carbon effective generation A leading renewable position Current generation ~ 3,600MW 1 Potential generation post development projects ~ 5,5002 Post development projects Coal ~63% of generation Coal 19% 13% Renew able Renew able 9% clean-burn, gas-fired 6% Gas 54% Hydro Gas Hydro 15% 63%
Slide 53: Merchant – emissions trading upside
Merchant – emissions trading upside Positive financial outcomes 25 $ million (discounted change in generator profit - revenue minus cost) 20 positive upside 15 under NETTS (assumes conservative 10 carbon pricing of ~$20/tonne) 5 0 ( binary outcome ) 2010 2011 2012 2013 2014 2015 -5 limited -10 downs
Slide 54: Merchant – mitigating price movements & capturing profit pools
Merchant – mitigating price movements & capturing profit pools Indicative hedging approach for mass market A balance of own generation coupled with prudent forward hedge planning Intra year cover of ~90% or more of forecast load indicative forecast energy load – mass market indicative forecast e
Slide 55: Merchant – generation assets
Merchant – generation assets (Pool basis)1 12 months to Jun 07 ($m) Hallett Somerton Vic Hydro NSW Hydro Revenue 18.4 25.7 55.8 4.2 Operating costs (15.5) (15.8) (21.2) (1.6) EBITDA 2.9 9.9 34.6 2.6 D&A (6.8) (6.7) (5.8) (0.7) EBIT (3.9) 3.2 28.8 1.9 55 1. Revenue includes pool income and green reve
Slide 56: GEAC (Loy Yang A)
GEAC (Loy Yang A) Profit & loss 12 months to June 2007 June 2006 change % Generation Volume (GWh) 15,264 15,367 (1%) Average Price ($/MWh) $37.67 $33.55 12% ($m) Sales Revenue 623.2 538.8 16% Other Revenue 14.3 40.6 (65%) Expenses (190.6) (188.9) (1%) Depreciation (96.7) (93.9) (3%) Borrowing Costs
Slide 57: GEAC (Loy Yang A)
GEAC (Loy Yang A) Financial performance 12 months to ($m) June 07 June 06 Change % AGL Equity Share of Profit 35.9 11.3 216% AGL Loan not interest 10.7 11.4 (6%) Total GEAC Result 46.6 22.7 106% Improvement in spot market & ongoing improvement in contract market Total EBIT contribution up $23.9m
Slide 58: GEAC (Loy Yang A)
GEAC (Loy Yang A) Cash flow June 07 June 06 ($m) ($m) Cash held at start 161.0 190.0 Cash flow from operations Receipts from customers 662.3 624.0 Payments to suppliers & employees (301.2) (260.0) Hedging payments on Borrowings - (58.0) Hedging receipts on Borrowings 2.0 58.0 Tax paid - (22.0) Inter
Slide 59: Merchant – wholesale electricity metrics
Merchant – wholesale electricity metrics (Excludes Powerdirect) 12 months to (GWh) June 07 June 06 Change % Volumes Sold (to Retail Energy) VIC 8,704 9,483 (8%) NSW 5,190 5,046 3% SA 5,912 6,929 (15%) QLD 649 689 (6%) Total sold volumes (exc. ACTEWAGL) 20,455 22,147 (8%) Purchased Volume - ACTEWAGL
Slide 60: Merchant – wholesale gas metrics
Merchant – wholesale gas metrics (Excludes Sun Gas) 12 months to (PJ) June 07 June 06 Change % Volumes Sold Vic Retail Vic 59.7 62.1 (4%) NSW 75.7 69.3 9% SA 7.3 7.5 (3%) Wholesale customers 40.1 47.4 (15%) Total volumes 182.8 186.3 (2%) Reduction in Wholesale volumes due to the loss of Pelican Po
Slide 61: Merchant – wholesale electricity
Merchant – wholesale electricity Generation volumes 12 months to June 07 June 06* June 06** Generation Volumes (GWh) Hallett 146.2 21.4 21.4 Somerton 138.8 15.3 15.3 Kiewa Scheme 121.4 122.9 210.8 Dartmouth scheme 458.8 32.8 56.2 Eildon 46.2 79.1 135.6 Rubicon 21.0 17.5 30.1 NSW Scheme 76.7 51.2 87.
Slide 62: Merchant – wholesale electricity
Merchant – wholesale electricity Generation prices 12 months to ($/MWh) June 07 June 06* Hallett 125.5 318.5 Somerton 184.8 451.2 VIC Hydros 79.2 197.3 NSW Hydros 46.4 43.0 Wattle Point Wind Farm 44.6 60.9 Lower FY07 v FY06 Vic Hydro prices reflect the high volumes with low prices that were receiv
Slide 63: Merchant – PNG financial
Merchant – PNG financial 12 months to ($m) June 07 June 06 Variance % Oil sales (post hedge) 237.4 98.8 140% Tariff / Other income 6.2 3.6 72% Oil Option (6.5) (4.4) (48%) Total Revenue 237.1 98.0 142% Operating Costs (39.0) (16.7) (133%) Change in oil inventory (2.6) 8.4 (131%) EBITDA 195.5 89.7 11
Slide 64: Merchant – PNG metrics
Merchant – PNG metrics 12 months to June 07 June 06 Variance % Liftings (k bbl) 2,527 1,058 139% Production (k bbl) 2,442 1,250 95% Inventory (k bbl) 103 28 (268%) Post – hedge price US$ / bbl 73.70 69.37 6% Production Cost (A$ / bbl) 50.61 43.92 (15%) Operating (cash) expenses 15.98 13.39 (19%) D&A
Slide 65: Energy Investments
Energy Investments Pro forma 12 months to June 07 June 06 Variance % ActewAGL 18.5 15.4 20.1% Elgas 13.2 12.7 3.9% Chile 14.7 14.6 0.6% Alinta AGL 13.1 0.0 N/A Investments Other 4.5 0.0 N/A 64.0 42.7 65