Agl Energy Limited · ASX:AGL
Agl Energy — H1 FY2010 Earnings Presentation
59 slides from Agl Energy's earnings presentation, Feb 26, 2010
Slide 1: 2010 Interim Results: Delivering growth from the core
AGL Energy E Limited Li it d For personal use only 2010 Interim Results 6 months to 31 December 2009 Delivering growth from the core Michael Fraser, Managing Director & CEO Stephen Mikkelsen, Chief Financial Officer Sydney 26 February 2010
Slide 2: Disclaimer
2 Disclaimer sc a e For personal use only The information in this presentation: › IIs nott an offer ff or recommendation d ti to t purchase h or subscribe b ib forf securities iti ini AGL Energy E Limited or to retain any securities currently held. › Does not take into account the potential and curr
Slide 3: Agenda
3 Agenda ge da For personal use only › Result Highlights Michael Fraser, MD & CEO › Group Financials Stephen Mikkelsen, CFO › Operational Review / Summary Michael Fraser, MD & CEO › Supplementary Information IMPORTANT NOTE: This presentation should be read in conjunction with the AGL Energy Limited
Slide 4: Half Year 2010 Highlights
4 Half a Year ea 2010 0 0 Highlights g g ts For personal use only Delivering growth from the core. › Underlying profit up 22.0% › Strong result from Retail Energy up 25.9% › Excellent wind farm performance, 450,000 MWh generated › Significant Si ifi t improvement i t in i Loy L Yang Y A profitabilit
Slide 5: Interim 2010 Results
5 Interim te 2010 0 0 Results esu ts For personal use only Retail delivers strong growth. › Revenue: $3 200 8 $3,200.8m 6.9% 6 9% ANCIAL › Underlying NPAT: $234.8m 22.0% › Statutory Profit: $183.7m 88.9% › Underlying EPS: 52 4 cps 52.4 21.0% 21 0% FINA › EBITDA / Net Interest: 15.9x (Dec 08:
Slide 6: Group Financials
6 For personal use only Group Financials Stephen Mikkelsen Chief Financial Officer » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 7: Profit & Loss (excluding significant items & fair value movements)
7 Profit & Loss ((excludingg significant g items & fair value movements)) For personal use only Result on track to deliver 2010 profit guidance. 6 months to 31 Dec 2009 31 Dec 2008 Change $m Revenue 3,200.8 2,994.2 6.9% Operating EBITDA 425 7 425.7 443 9 443.9 (4 1%) (4.1%) Operating EBIT Retail 183
Slide 8: Group Underlying NPAT
8 Group G oup U Underlying de y g NPAT For personal use only Solid improvement in retail gross margin. Upstream Retail Merchant $260 $250 $240 8.4 234.8 21 5 21.5 $230 34.1 $220 $210 $ 41.5 on $ Millio $200 (25.2) 10.4 192.5 (5.1) $190 (2.6) 2.0 $180 (17.3) $170 (22.4) (3.0) $160 1H09 PNG Other Gros
Slide 9: Retail – Key Financial Metrics
9 Retail eta – Key ey Financial a c a Metrics et cs For personal use only Strong gross margin result partially offset by higher operating costs. 6 months th to t 31 Dec 2009 31 Dec 2008 Change $m Electricity Revenue 1,953.1 1,675.0 16.6% Gas Revenue 771 9 771.9 809 9 809.9 (4 7%) (4.7%) Other Revenu
Slide 10: Retail – EBIT Drivers
10 Retail eta – EBIT Drivers e s For personal use only Focus on value per customer drives EBIT improvement. 21.5 5.7 $210 $ $200 (13.2) $190 41.5 (4.7) (4.0) 183.5 (4.2) $180 (4.8) $ Million $170 $ $160 $150 145.7 $140 $130 $120 1H09 EBIT MM Gross C&I Gross Other Gross Labour Bad & Campaigns & Other
Slide 11: Retail – Key Operating Metrics
11 Retail eta – Key ey Operating Ope at g Metrics et cs For personal use only Gross margin per Mass Market customer up 16.8%; still not sufficient. 6 months to 31 Dec 2009 31 Dec 2008 Change Mass Market gross margin ($m) 291.6 250.2 16.5% Avg Mass Market customer numbers (‘000) 3,190 3,196 (0.2%) Gr
Slide 12: Retail – Key Operating Metrics
12 Retail eta – Key ey Operating Ope at g Metrics et cs For personal use only Operating expenditure to gross margin improvement of 1.4ppts. 6 months to 31 Dec 2009 31 Dec 2008 Change g $m Operating costs (169.4) (143.3) 18.2% Depreciation and amortisation (20.4) (15.6) 30.8% Less fees and charges 31
Slide 13: Merchant – Key Financial Metrics
13 Merchant – Key y Financial Metrics For personal use only Solid underlying result. 6 months to 31 Dec De 2009 31 Dec De 2008 Ch Change e $m Operating EBITDA 225.4 244.9 (8.0%) D&A (30.3) (29.4) 3.1% EBIT Energy Portfolio Management (EPM)1 Wholesale Electricity Gross Margin 179.7 185.5 (3.1%) Whole
Slide 14: Merchant – EBIT Drivers
14 Merchant e c a t – EBIT Drivers e s For personal use only Gas volatility event affects prior half year comparison. $240 8.7 $230 9.7 $220 215.5 $210 $ Million (27.0) $200 (5.1) (0.5) 195.1 ((6.2)) $190 $180 $170 1H09 EBIT Underlying Gas Lower REC Gas Volatility HCE Power Other 1H10 EBIT Portfolio
Slide 15: Underlying Operating Cash Flow
15 Underlying U de y g Operating Ope at g Cash Cas Flow o 1 For personal use only Focus on cash flow yielding good results. 6 months to 31 Dec 2009 31 Dec 2008 $m Statutory net cash provided by operating activities 126.8 266.5 Cash flow relating to significant items 17.9 32.2 Futures margin calls (1
Slide 16: Financial Ratios
16 Financial a c a Ratios at os For personal use only AGL a stable BBB rated entity. › BBB stable credit rating › Discussions with S&P regarding treatment of wind farm PPAs are continuing: » Expect outcome prior to 30 June 2010 As at 31 Dec 2009 FFO / interest cover (times)1 9.8 FFO / interest cover
Slide 17: Capital Expenditure Committed Projects
17 Capital Cap ta Expenditure pe d tu e Committed Co tted Projects ojects For personal use only Investing for future growth. LEGEND 500.0 St Stay In I Business B i 450.0 Upstream Gas BWP1 Oaklands 400.0 Hallett 5 350.0 Bogong Retail $ million 300.0 Other 250.0 200.0 150.0 100.0 50.0 0.0 2 Jul-Dec 09
Slide 18: Debt Capacity
18 Debt ebt Capacity Capac ty Excluding NSW privatisation, AGL has ample headroom to fund growth For personal use only over the medium term. LEGEND 1,800 S&P Adjustment 1 600 1,600 Cash flow Capex 1,400 Closing FY10 Debt Operating cash flow after dividends $ million 1,200 H d Headroom 1,000 800 600
Slide 19: Operational Review
19 For personal use only Operational Review Michael Fraser Managing Director & CEO » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 20: People & Safety
20 People eop e & Safety Sa ety For personal use only Employee safety, engagement & capability – a strategic priority. Delivering on our three people initiatives: 1. Attract, retain and develop talent 2. Enable a high performance culture 3 3. Continued improvement in safety performance Lost Time Inj
Slide 21: Retail – Improving Core Operations
21 Retail eta – Improving p o g Core Co e Ope Operations at o s For personal use only Good progress on Customer Service. Average Call Handling Time 650 › Ongoing productivity and billing 600 AHT Trend performance improvements: 550 Seconds » Average call handling times reduced to 470 500 seconds, in-
Slide 22: Retail – Improving Core Operations
22 Retail eta – Improving p o g Core Co e Ope Operations at o s For personal use only Reducing Ombudsman Complaints per 10,000 customers C&I Aged Debt – improving +90 day debt $25.0 90 $20.0 $ Trend $ million $15.0 75 $10.0 60 $5 0 $5.0 45 $0.0 31 to 60 days 61 to 90 days +90 days 30 Jan-09 Feb-09 M
Slide 23: Retail – Customer growth
23 Retail eta – Custo Customer e growth g o t For personal use only Accelerating growth in dual fuel customers. › Customer numbers up 23,800 (+0.7%) to 3.22 million › AGL churn at 14.8% better than market churn at 18.1% › Strong growth in Dual Fuel accounts, up 76,500 (+6.2%) Incremental Customer Nu
Slide 24: Merchant Generation
24 Merchant e c a t Generation Ge e at o For personal use only Excellent operational performance. Operational performance Commercial Availability / Start Reliability (%) continues to exceed international benchmarks, 100.0 despite the continuing impacts of drought on hydro assets Availability / Start
Slide 25: Merchant Generation - Wind farms
25 Merchant e c a t Generation Ge e at o - Wind d farms a s For personal use only Operational performance exceeds investment assumptions. Six months to 31 December 2009 Unit Wattle Point Hallett 1 Hallett 22 Notes Capacity MW 90.8 94.5 71.4 1 Capacity 1. C it FFactor t ((average)) shown is for perio
Slide 26: Generation – Wind farms
26 Generation Ge e at o – Wind d farms a s For personal use only Long term customer contracts underpin entire wind portfolio. Melbourne Water contract win February 2010 1.6m RECs p.a. required to satisfy customer contracts › 15 year contract Committed wind farms cover ~90%90% of contracted RECs › Su
Slide 27: AGL's Geothermal Investments
27 AGL’s G s Geot Geothermal e a Investments est e ts For personal use only Diversified portfolio - technically and geographically. › NSW – awarded 4 geothermal exploration permits › VIC – awarded 3 geothermal exploration permits › SA – 10% investment in Torrens Energy › Geothermal alliance agreemen
Slide 28: Renewable Energy Certificate (REC) obligations
28 Renewable e e ab e Energy e gy Certificate Ce t cate (REC) ( C) obligations ob gat o s For personal use only Appropriate regulatory settings required to facilitate investment. › Macarthur (365MW) on hold › Federal legislation requires AGL to surrender approximately 9 million RECs per annum by 202
Slide 29: Upstream Gas – Positioning For Growth
29 Upstream Upst ea Gas – Positioning os t o g For o Growth G o t For personal use only Exploration program slowed in line with current gas market conditions. › Targeting 2,000PJ 2 000PJ of certified 2P reserves › 2P reserves entitlement up 18% (201PJ); 3P reserves entitlement up 36% (839PJ) › Camde
Slide 30: NSW electricity privatisation
30 NSW S electricity e ect c ty privatisation p at sat o For personal use only Disciplined bidding approach if process proceeds. › AGL previously stated will look at all assets › Only bid for assets if accretive to EPS › Maintain BBB credit rating › Capital raising raising, if required required, lik
Slide 31: Generation Growth Options
31 Generation Ge e at o Growth G o t Options Opt o s1 For personal use only Strong pipeline of Gas & Renewable generation. 12,000 › Existing portfolio of generation assets: LEGEND » Strategically well-positioned with Hydro installed capacity of 3,530 MW 10,000 Wind » Diversified portfolio of assets
Slide 32: Summary
32 Su Summary a y For personal use only Strong start to FY10. › Excellent performance by Retail Energy » Significant progress on improving customer service issues » Well-positioned to continue acquiring high value customers › Merchant Energy delivered solid result › Upstream Gas executing strategy o
Slide 33: Further Information / Contacts
33 Further u t e Information o at o / Contacts Co tacts For personal use only 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:
Slide 34: Supplementary Information
34 For personal use only Supplementary Information » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 35: Operating EBITDA to Statutory Cash Flow Reconciliation
Operating EBITDA to Statutory Cash Flow 35 Reconciliation For personal use only 6 months to 31 Dec 2009 31 Dec 2008 $m Operating EBITDA 425.7 443.9 Equity accounting (19.1) 4.6 Onerous gas contract (10.4) (10.4) Receivables 67.7 125.5 Net movement in green assets / liabilities 2.9 2.0 Inventories (3
Slide 36: Energy Investments
36 Energy e gy Investments est e ts For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m EBIT ActewAGL 17.5 17.1 2.3% Elgas1 - 10.6 - Loy Yang 22.8 2.5 812.0% Investments Other 31 3.1 28 2.8 10 7% 10.7% Total EBIT 43.4 33.0 31.5% 1. AGL disposed of its 50% ownership interest in Elgas
Slide 37: Centrally Managed Expenditure
37 Centrally Ce t a y Managed a aged Expenditure pe d tu e For personal use only $75 $70 2.5 1.5 66.1 1.7 (1.3) $65 63.5 (1.8) $ Miillion $60 $55 $50 1H09 Expense Office leases Hardware and Consultants and Insurance Other 1H10 Expense software costs contractor fees premiums » 2010 Interim Results 6
Slide 38: Significant Items
38 Significant S g ca t Items te s1 For personal use only 6 months to 31 Dec 2009 Pre Tax Tax After Tax $m Phoenix change program costs (11.7) 3.5 (8.2) Other (6.2) (0.3) (6.5) Total significant g items (17.9) ( ) 3.2 (14.7) ( ) 1. Full detail in Appendix 4D, Section 2. » 2010 Interim Results 6 mont
Slide 39: Capital Expenditure
39 Capital Cap ta Expenditure pe d tu e For personal use only 6 months to 31 Dec 09 SIB Discretionary Total $m Merchant Energy 19 0 19.0 92 8 92.8 111 8 111.8 Upstream Gas - 58.2 58.2 Retail Energy - 11.3 11.3 Corporate Other - 9.1 9.1 Total 19.0 171.4 190.4 » 2010 Interim Results 6 months to 31 Dec
Slide 40: Debt Position
40 Debt ebt Position os t o For personal use only › No group debt maturing until October 2011 Facilities @ 31 Dec 2009 $m Limit Usage Available Maturity Current Nil N/A N/A N/A N/A Non Current Term facilities Tranche C 886.7 886.7 - Oct 11 Term facilities Tranche A 200 0 200.0 200 0 200.0 - Jun 12 R
Slide 41: Balance Sheet
41 Balance a a ce Sheet S eet For personal use only As at 31 Dec 2009 30 Jun 2009 $m Current assets 2,594.4 2,473.7 PPE, E&E and oil & gas assets 2,876.7 2,974.2 Other non current assets 3 561 4 3,561.4 3 586 8 3,586.8 Total Assets 9,032.5 9,034.7 Current liabilities 1,505.9 1,505.7 Total debt 1 099
Slide 42: Fair Value Reconciliation
42 Fair a Value a ue Reconciliation eco c at o For personal use only Net Assets (Liabilities) As at $m 31 Dec 2009 30 Jun 2009 Change Electricity derivative contracts (84.1) (48.2) (35.9) Interest rate swap & foreign currency derivative contracts (8.6) (22.8) 14.2 Total net liabilities for derivativ
Slide 43: Gas Sales Volume
43 Gas Sa Sales es Volume ou e For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change PJ Mass Market VIC 15.9 18.9 (15.9%) SA 1.1 1.1 0.0% NSW 13.4 15.3 (12.4%) QLD 1.5 1.5 0.0% Mass Market Total 31.9 36.8 (13.3%) C&I VIC 13.3 17.1 (22.2%) SA 1.9 1.0 90.0% NSW 20 0 20.0 23 7 23.7 (15 6%) (
Slide 44: Electricity Sales Volume
44 Electricity ect c ty Sales Sa es Volume ou e For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change GWh Mass Market VIC 2,595 2,559 1.4% SA 1 704 1,704 1 650 1,650 3 3% 3.3% NSW 1,566 1,304 20.1% QLD 1,713 1,837 (6.8%) Mass Market Total , 7,578 7,350 , 3.1% C&I VIC 3,011 2,935 2.6% SA 1
Slide 45: Retail – Mass Market Key Indicators
45 Retail eta – Mass ass Market a et Key ey Indicators d cato s ((includes SME)) For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change Electricity Volume (GWh) 7,578 7,350 3.1% Mass Market Accounts ('000) 1,824 1,791 1.8% Revenue ($m) 1,084.2 921.7 17.6% Gross Margin ($m) 185.9 155.8 19.3
Slide 46: Retail – C & I Key Indicators
46 Retail eta – C & I Key ey Indicators d cato s For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change El Electricity i i Volume (GWh) 10,010 10,027 (0.2%) C & I Accounts ('000) 15.4 13.8 11.6% R Revenue ($ ($m)) 868 9 868.9 753 4 753.4 15 3% 15.3% Gross Margin ($m) 27.7 12.6 119.8% $ / M
Slide 47: Retail – Market Churn
47 Retail eta – Market a et Churn C u For personal use only market churn AGL churn below Market ( (14.8% vs. Market at 18.1%) ) Jun-08 Jun 08 to Dec Dec-09 09 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jun-08 Dec-08 Jun-09 Dec-09 NSW Electricity - Market NSW Gas - Market VIC Electricity - M
Slide 48: Retail – Customer Accounts
48 Retail eta – Custo Customer e Accounts ccou ts ((6 months to 31 Dec 2009)) For personal use only State Gas Electricity Total VIC 470,700 644,300 1,115,000 (FY09: 472,600) (FY09: 652,000)1 SA 91,500 469,600 561,100 (FY09: 85,000) (FY09: 463,900)1 NSW 740,000 358,200 1,098,200 (FY09: 752,300) (FY09
Slide 49: Retail – Cost to Serve
49 Retail eta – Cost to Se Serve e For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change Net operating expenditure 158.7m 133.5m 18.9% Net operating cost per customer account $49.51 $41.59 19.0% Cost to grow/retain 36.9m 34.9m 5.7% Cost to grow per account acquired/retained1 $81.21 $82.70
Slide 50: Retail – EBIT / Sales Analysis
50 Retail eta – EBIT / Sa Sales es Analysis a ys s For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m Electricity revenue 1,953.1 1,675.0 16.6% Gas revenue 771.9 809.9 (4.7%) Other fees and charges 31.1 25.4 22.4% Total revenue 2,756.1 2,510.3 9.8% Cost of sales (2,382.8) (2,205.7)
Slide 51: Retail – Weather Impact
51 Retail eta – Weather eat e Impact pact For personal use only Heating Degree Days › NSW exceptionally warm winter/early spring: » Aug 09 second warmest on record with high number over 20 degrees 800 › VIC average winter and hot spring: 700 » Nov 09 mean temperature was 4.4 600 degrees above the lo
Slide 52: Merchant - EBIT Analysis
52 Merchant e c a t - EBIT Analysis a ys s For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m Revenue from Retail Business 1. ActewAGL Dec 09: Electricity sales - Electricity (COGS transfer price) 1,144.1 1,023.2 11.8% 61%, Gas sales 32%; Other sales 7%; Dec 08: Electricity sales 64
Slide 53: Merchant – Hydrology
53 Merchant e c a t – Hydrology yd o ogy For personal use only › Post Bogong, 52.6% of Hydro capacity linked to drought resistant Kiewa Scheme › Eildon (120MW) dam is operational with restricted generation output capability › Dartmouth (180MW) has good inflows over the last 12 months, a return to se
Slide 54: Merchant - Electricity Hedging: Policy
54 Merchant e c a t - Electricity ect c ty Hedging: edg g Policy o cy For personal use only › 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 p party y credi
Slide 55: Merchant - Electricity Hedging: Position
55 Merchant e c a t - Electricity ect c ty Hedging: edg g Position os t o For personal use only Physical Financial AGL Energy Hedge Position - All States Contingent Gas Fired Generation Satisfying Financial Risk Limits Expected Generation 150% Derivatives (Swaps Only) Unhedged load must be limited R
Slide 56: Merchant – Wholesale Electricity Prices
56 Merchant e c a t – Wholesale o esa e Electricity ect c ty Prices ces For personal use only CY10 Forward Contract Prices › Record hot weather at the beginning of 2009 80 drove a rally in the forward market NSW1 QLD1 VIC1 SA1 75 › Relatively benign temperatures thereafter saw a return to lower leve
Slide 57: Upstream Gas – Key Financial Metrics
57 Upstream Upst ea Gas – Key ey Financial a c a Metrics et cs For personal use only 6 months to 31 Dec 2009 31 Dec 2008 Change $m Operating EBITDA 13.8 62.8 (78.0%) D&A (10.8) (7.4) (45.9%) Pro forma D & A adjustment - (27.0) NA EBIT PNG Upstream Investment (net of pro forma adjustment) - 22.4 NA U
Slide 58: Upstream Gas Interests – Permit Details
58 Upstream Upst ea Gas Interests te ests – Permit e t Details eta s For personal use only Permits Working Basin Project Exploration Production (Area km2) (Area km2) Interest 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
Slide 59: Loy Yang A: Financial Performance
59 Loy oy Yang a g A: Financial a c a Performance e o a ce For personal use only 6 months to 31 Dec 2009 31 Dec 20083 Change $m G Generation ti V Volume l (GWh) 7 775 7,775 7 400 7,400 5 1% 5.1% 1 Average Price ($/MWh) $42.68 $35.46 20.4% Sales Revenue2 359 0 359.0 296 4 296.4 21 1% 21.1% Other Reve