Agl Energy Limited · ASX:AGL
Agl Energy — FY2012 Earnings Presentation
62 slides from Agl Energy's earnings presentation, Aug 22, 2012
Slide 1: 2012 Full Year Results
2012 Full Year Results 12 Months to 30 June 2012 Michael Fraser, Managing Director and CEO Stephen Mikkelsen, Chief Financial Officer | 22 August 2012
Slide 2: Disclaimer & Important Information
2 Disclaimer & Important Information 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 object
Slide 3: Agenda
3 Agenda › Result Highlights Michael Fraser › Group Financials Stephen Mikkelsen › Operational Review Michael Fraser › Supplementary Information IMPORTANT NOTE: This presentation should be read in conjunction with the AGL Energy Limited ASX Appendix 4E and the Consolidated Financial Statements for t
Slide 4: FY12 Highlights
4 FY12 Highlights Loy Yang acquisition strengthens platform. › Statutory Profit down due to significant items and fair value adjustments › Strong Underlying Profit growth driven by Merchant and Retail performance » Underlying Profit of $482 million in line with guidance › Acquisition of Loy Yang A c
Slide 5: FY12 Results
5 FY12 Results Strong improvement in Underlying Profit. › Revenue: $7,455.6m 5.4% › Statutory Profit: $114.9m 79.4% › Underlying Profit: $482.0m 11.8% FINANCIAL › Statutory EPS: 23.8 cps 79.9% › Underlying EPS: 100.0 cps 9.41 % › DPS: (final dividend 32.0 cents - 100% franked) 61.0 cps (FY
Slide 6: Group Financials
6 Group Financials Stephen Mikkelsen Chief Financial Officer
Slide 7: Statutory Profit to Underlying Profit Reconciliation
7 Statutory Profit to Underlying Profit Reconciliation Underlying Profit reflects improved operational performance. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Statutory Profit 114.9 558.7 79.4% Adjust for the following after tax items: Significant items 155.1 27.3 Changes in fair value of fina
Slide 8: Significant items
8 Significant items Loy Yang A acquisition largest component. 12 months to 30 Jun 2012 Pre Tax Tax After Tax $m Loy Yang acquisition (175.9) 1.6 (174.3) Impairment of non-current assets (35.8) 9.2 (26.6) Tax items - 45.8 45.8 Total significant items (211.7) 56.6 (155.1) › Loy Yang A acquisition was
Slide 9: Prior period adjustment to retained earnings
9 Prior period adjustment to retained earnings Granular review post SAP implementation has increased liability. › One-off, non-cash increase in distribution cost liability of $114.1 million › Accounting standards require an adjustment to FY12 opening retained earnings of $79.9 million net of tax › C
Slide 10: Profit & Loss (excluding significant items & fair value movements)
10 Profit & Loss (excluding significant items & fair value movements) Strong customer growth contributes to improvement in Retail Energy. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Revenue 7,455.6 7,072.5 5.4% Operating EBITDA 904.3 804.5 12.4% Operating EBIT Retail 332.8 305.1 9.1% Merchant 549
Slide 11: Group Underlying Profit
11 Group Underlying Profit Growth driven by Retail and improved Merchant portfolio performance. 580 Retail Merchant Upstream 560 26.8 540 (13.7) 44.0 520 (20.6) 43.7 500 (16.0) $ million 58.6 482.0 480 (18.0) (23.0) 460 (30.9) 440 431.1 420 400 FY11 Consumer Retail other FY11 severe Development Whol
Slide 12: Retail – Key financial metrics
12 Retail – Key financial metrics Customer growth and higher margin per customer drive strong performance. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Electricity revenue 3,009.7 2,479.3 21.4% Gas revenue 1,118.0 1,111.8 0.6% Other revenue (fees & charges) 77.5 73.0 6.2% Total Revenue 4,205.2 3,6
Slide 13: Retail – Operating EBIT drivers
13 Retail – Operating EBIT drivers Gross margin improvements driven by customer growth and tariffs. 380 4.5 58.6 (3.3) 360 (12.2) 340 (7.8) 3.2 $ million 332.8 (15.3) 320 305.1 300 280 FY11 Operating Gross margin Other gross margin Bad and doubtful Campaigns and Labour and Depreciation and Other ope
Slide 14: Retail – Key operating metrics
14 Retail – Key operating metrics Continued growth in gross margin per customer. 12 months to 30 Jun 2012 30 Jun 2011 Change Consumer gross margin ($m) 654.5 595.9 9.8% Avg customer numbers („000) 3,373.2 3,254.2 3.7% Gross margin per customer $194.03 $183.12 6.0% Gross margin per customer $200 $180
Slide 15: Retail – Key operating metrics
15 Retail – Key operating metrics NSW customer amortisation costs increases opex to gross margin ratio slightly. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Operating costs 340.1 320.0 6.3% Depreciation and amortisation 59.1 43.8 34.9% Less fees and charges (77.5) (73.0) 6.2% Net operating costs
Slide 16: Merchant – Key financial metrics
16 Merchant – Key financial metrics Operating EBIT improvement of 21.3% over prior year. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Operating EBITDA 628.5 522.3 20.3% Depreciation and amortisation (78.8) (69.1) 14.0% EBIT Energy Portfolio Management (EPM) Wholesale Electricity Gross Margin 381.5
Slide 17: Merchant – Operating EBIT drivers
17 Merchant – Operating EBIT drivers No recurrence of severe weather events. 580 22.0 560 2.3 549.7 10.5 (15.5) 540 33.5 520 $ Million 500 43.7 480 460 453.2 440 420 FY11 Operating FY11 severe Wholesale Wholesale Gas Eco-markets Power Other FY12 Operating EBIT weather events Electricity Development
Slide 18: Upstream Gas – Key financial metrics
18 Upstream Gas – Key financial metrics Lower gas storage income. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Operating EBITDA 20.6 35.8 (42.5%) Depreciation and amortisation (20.0) (21.5) (7.0%) Operating EBIT Upstream Gas Queensland / South Australia 5.7 16.2 (64.8%) New South Wales 1.5 4.2 (64
Slide 19: Debt structure
19 Debt structure $1.2 billion of Loy Yang A debt restructured. › $650 million Hybrid issued April 2012 › $900 million equity raising completed June 2012 Limit Usage › Loy Yang A debt restructured August 2012: Facilities at 30 June 2012 $m $m » $978 million Senior debt repaid Current » $234 million
Slide 20: Financial ratios
20 Financial ratios Committed to investment grade credit rating. › Stable outlook following completion of capital raising in June 2012 › Current credit rating - BBB outlook Stable › Prudently raised $1.55 billion of capital to fund acquisition and restructure debt » Maintaining disciplined approach
Slide 21: Capital expenditure
21 Capital expenditure Commencement of Newcastle gas storage construction in FY13. LEGEND Stay In Business 1 900 Upstream Gas Newcastle gas 800 storage facility Hallett 5 700 Macarthur 600 Dalton power $ million station 500 Retail Other 400 300 200 100 0 FY11 Actual FY12 Actual FY13 Forecast » 2012
Slide 22: Underlying operating cash flow
22 Underlying operating cash flow Cash flow up on prior year despite increased working capital requirement. 12 months to 30 Jun 2012 30 Jun 2011 Change $m Statutory net cash provided by operating activities 466.5 569.3 Cash flow relating to significant items 56.5 41.9 Increase / (decrease) in future
Slide 23: Operational Review
23 Operational Review Michael Fraser Managing Director & CEO
Slide 24: People & Safety
24 People & Safety Improved employee engagement and continuing focus to address safety. Employee Lost Time Injury Frequency Rate › Key safety statistics 6 » Employee LTIFR 4.2 and TIFR 6.6 5 » Contractor LTIFR 1.63 4 3 » High potential near miss incidents reduced by 20% 2 » Injury severity rate redu
Slide 25: Customer growth – 180,224 new customers in FY12
25 Customer growth – 180,224 new customers in FY12 AGL outperforms market. Total NSW electricity customer numbers › Net customer growth of 180,224 650,000 » Growth in all four States » Dual fuel customers up 151,038 590,000 New South Wales 530,000 › NSW electricity up 151,940 (FY11 +87,000) 470,000
Slide 26: AGL continues to lead Australia's retail energy markets
26 AGL continues to lead Australia‟s retail energy markets Continued emphasis on customer engagement delivers positive outcomes. AGL churn much lower than industry › Transformation of customer service operating model 21 » Improvement in all satisfaction measures 19 » Improvement in First Call resolu
Slide 27: Regulatory pricing
27 Regulatory pricing Queensland regulatory decision is unsustainable. › QCA 2012 Determination has created unsustainable precedent » Using short-run prices only is incompatible with long-term sustainable industry and market participant‟s cost structure » Estimated AGL gross margin impact1 of ~$50 m
Slide 28: Loy Yang A
28 Loy Yang A Integration of Loy Yang A is progressing well. Availability Factor › Acquisition successfully completed on 29 June 2012 100 » 2,210 MW Loy Yang A power station 95 96.9 » Adjacent coal mine with ~2.5 billion tonnes of 94.3 93.8 coal reserves 90 90.1 % › Transition team overseeing integr
Slide 29: Carbon
29 Carbon Uncertainty surrounds ongoing operation of Clean Energy Act 2011. › Clean Energy Act 2011 (carbon pricing scheme) is expected to impact AGL in FY13 as follows: » Direct emissions liability of approximately $650 million » Total cost uplift of approximately $1 billion › To prepare for commen
Slide 30: Macarthur wind farm
30 Macarthur wind farm Completion expected early 2013. › Largest wind farm in the southern hemisphere » 420 MW capacity and expected 1,250 GWh per annum output » EPC contractor – Vestas Leighton consortium » Joint venture with Meridian Energy › 97 of 140 turbines installed as at 31 July 2012 » Const
Slide 31: Newcastle gas storage facility
31 Newcastle gas storage facility Cost-competitive storage to manage winter peaks from 2015. › NSW and Commonwealth approvals in place › Major EPC contractor selected » Chicago Bridge & Iron (CBI), globally experienced » Major cost components covered under turn- key EPC contract » EPC activities und
Slide 32: Diamantina power station
32 Diamantina power station Construction of 242 MW Mt Isa power station commenced. › Joint venture with APA for a 242 MW CCGT plant and 60 MW of stand-by OCGT plant › Key commercial arrangements: » 17 year off-take agreements with strong counterparties in Xstrata/MIM and Ergon » Highly contracted bu
Slide 33: Solar Flagships
33 Solar Flagships Large-scale solar projects add to AGL‟s market leading renewable portfolio. › AGL to develop solar photovoltaic projects at Nyngan (~106 MW) and Broken Hill (~53 MW) as part of the Commonwealth Solar Flagships program › Total project cost of approximately $450 million with Commonw
Slide 34: Dalton power station
34 Dalton power station Development option to support growing NSW customer base. › Development approval for up to 1,000 MW › EPBC Act approval decision expected Q4 2012 › EPC contract negotiated with GE and Leighton Contractors » Initial proposal 500 MW gas-fired peaking plant » Favourable pricing r
Slide 35: Upstream Gas
35 Upstream Gas Total 2P gas reserves entitlement increased by 77 PJ during FY12. › Total Bowen Basin 2P reserves up 87 PJ (3P reserves up 327 PJ) › Updated independent assessment of Silver Springs reserves AGL share of gas reserves As at 30 Jun 12 As at 30 Jun 11 Change PJ 2P 3P 2P 3P 2P 3P Glouces
Slide 36: Long term gas outlook
36 Long term gas outlook LNG exports create need for new domestic supply sources. Eastern Australia Gas Demand AGL Long-term Gas Supply Contracts 3,000 300 Future development of NSW CSG 2,500 250 reserves and third party contracts required to meet future demand 2,000 200 1,500 150 PJ PJ 1,000 100 50
Slide 37: Summary
37 Summary Core businesses delivering growth and shareholder value. › Retail continues to perform well » Leading industry in customer service » Strong growth in customer numbers › Merchant delivers strong result » Improved portfolio management » Sale of Hallett 5 wind farm › Acquisition of Loy Yang
Slide 38: Outlook
38 Outlook Further EPS growth expected in FY13. › Solid growth in Merchant reflecting » Incremental EPS contribution from Loy Yang A » Hydro assets continuing to benefit from high inflows » Initial contribution from SA and Victorian desalination contracts » Offset by absence of wind farm development
Slide 39: Sales / Information / Contacts
39 Sales / Information / Contacts Sales Switch to AGL electricity and gas: www.agl.com.au Register for AGL Energy Online: https://aglenergyonline.agl.com.au Call Customer Service: 131 245 Information Refer to AGL‟s website: www.agl.com.au Contacts INVESTORS MEDIA John Hobson Julia Quinn Head of Capi
Slide 40: Supplementary Information
40 Supplementary Information
Slide 41: Electricity sales volume
41 Electricity sales volume 12 months to 30 Jun 2012 30 Jun 2011 Change GWh Consumer VIC 4,660 4,747 (1.8%) SA 3,025 3,233 (6.4%) NSW 4,821 3,859 24.9% QLD 2,904 2,835 2.4% Consumer Total 15,410 14,674 5.0% Business VIC 5,412 6,156 (12.1%) SA 4,554 3,563 27.8% NSW 4,876 5,538 (12.0%) QLD 2,532 2,833
Slide 42: Gas sales volume
42 Gas sales volume 12 months to 30 Jun 2012 30 Jun 2011 Change PJ Consumer VIC 28.7 30.8 (6.8%) SA 2.6 2.6 0.0% NSW 26.0 26.3 (1.1%) QLD 2.8 2.9 (3.4%) Consumer Total 60.1 62.6 (4.0%) Business VIC 26.7 26.0 2.7% SA 9.3 9.4 (1.1%) NSW 30.9 39.9 (22.6%) QLD 15.0 13.8 8.7% Business Total 81.9 89.1 (8.
Slide 43: Customer growth
43 Customer growth Customer Numbers 30 Jun 2011 31 Dec 2011 30 Jun 2012 FY12 vs FY11 Electricity New South Wales 467,980 556,982 619,920 151,940 Queensland 349,770 354,645 367,482 17,712 South Australia 467,769 463,513 458,822 (8,947) Victoria 639,238 637,505 637,708 (1,530) 1,924,757 2,012,645 2,08
Slide 44: Retail – Consumer key indicators (includes SME)
44 Retail – Consumer key indicators (includes SME) 12 months to 30 Jun 2012 30 Jun 2011 Change Electricity Volume (GWh) 15,410 14,674 5.0% Avg. Consumer Accounts ('000) 1,993 1,886 5.7% Revenue ($m) 3,009.7 2,479.3 21.4% Gross Margin ($m) 437.4 388.1 12.7% Gross Margin 14.5% 15.7% (1.2) ppts Gross M
Slide 45: Business customers – Key indicators
45 Business customers – Key indicators 12 months to 30 Jun 2012 30 Jun 2011 Change Electricity Volume (GWh) 17,374 18,090 (4.0%) Business Accounts ('000) 21.7 19.6 10.7% Revenue ($m) 1,926.0 1,870.0 3.0% Gross Margin ($m) 57.1 61.0 (6.4%) Gross margin per MWh $3.29 $3.37 (2.4%) 12 months to Gas Volu
Slide 46: Retail – Cost to serve
46 Retail – Cost to serve 12 months to 30 Jun 2012 30 Jun 2011 Change Net operating expenditure $321.7m $290.8m 10.6% Net operating cost per customer account $95.38 $89.34 6.8% Cost to grow/retain $108.0m $75.9m 42.3% Cost to grow per account acquired/retained1 $82.94 $84.08 (1.4%) Cost to serve $21
Slide 47: Retail – Weather
47 Retail – Weather › Winter months Heating Degree Days » New South Wales: August 2011 recorded 5th warmest mean 1200 temperatures on record; June 2012 was coldest since 2007 FY11 FY12 » Victoria: August 2011 3rd warmest average maximum 1000 temperatures on record Degree Days 800 » South Australia:
Slide 48: Merchant – Generation: Operational performance
48 Merchant – Generation: Operational performance Commercial Availability / Start Reliability (%) 1. „Commercial availability‟ is used to measure Torrens 100 Island performance, and represents the percentage of times the plant is available to operate when required. 98 2. „Start reliability‟ is used
Slide 49: Merchant – Hydrology
49 Merchant – Hydrology › Eildon is operational and at full capacity (120 MW). Goulburn Murray Water Authority is currently releasing high volumes of water to mitigate the risk of spill › Dartmouth continues to receive good inflows and is operational at 170 MW (out of a total 180 MW) AGL Hydro Stora
Slide 50: Merchant – Generation: Carbon intensity
50 Merchant – Generation: Carbon intensity Asset Location Type Status Capacity Capacity Factor FY12 Output Carbon intensity (tonnes (MW) (%) (GWh) CO2e/MWh) Torrens Island SA CCGT Owned 1,280 20% 2,280 0.6 Wattle Point SA Wind Control dispatch 91 33% 261 0 Hallett 1 SA Wind Control dispatch 95 40% 3
Slide 51: Merchant – Electricity hedging policy
51 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 › Counterparty credit limit tier allocation › Market price risk is contained
Slide 52: Merchant – Wholesale electricity prices
52 Merchant – Wholesale electricity prices FY13 Forward Contract Prices 70 › FY13 forward electricity prices increased in 65 November 2011 as a result of the passing of the 60 carbon legislation 55 $/MWh › After a subdued summer and low underlying pool 50 prices the forward curve declined 45 › The p
Slide 53: Merchant – Electricity hedging position
53 Merchant – Electricity hedging position Physical Financial Satisfying Financial Risk Limits Unhedged load must be limited Range of profit outcomes from so that potential downside unhedged load exposed to variable cannot result in an NPAT below wholesale market prices. this level as modelled in wo
Slide 54: Upstream Gas – Permits
54 Upstream Gas– Permits Permits Permits Working Working Basin Project Exploration Production Basin Project Exploration Production 2 2 Interest 2 2 Interest (Area km ) (Area km ) (Area km ) (Area km ) PEL 2 (6,708)r - 100% ATP 471P (453)r - 28.71-100% PEL 5 (401)r - 100% ATP 709P (146) - 100% - PPL
Slide 55: Return on Funds Employed
55 Return on Funds Employed 12 months to 30 Jun 2012 30 Jun 2011 $m Operating EBIT 730.4 656.5 Average Funds Employed 7,917.2 7,403.0 Operating EBIT / Funds Employed 9.2% 8.9% Operating EBIT 730.4 656.5 Less: Upstream Gas EBIT (0.6) (14.3) Adjusted Operating EBIT 729.8 642.2 Average Funds Employed 7
Slide 56: Operating cash flow
56 Operating cash flow Bad and Doubtful Debts 2.00% › Introduction of risk-based credit management 1.80% » Bad and doubtful debts increased by 6% against Consumer revenue increase of 15% 1.60% 1.40% › Further decline in Days Sales Outstanding, measuring debtors greater than 30 days from 1.20% billed
Slide 57: Operating EBITDA to statutory cash flow reconciliation
57 Operating EBITDA to statutory cash flow reconciliation 12 months to 30 Jun 2012 30 Jun 2011 Movement $m Operating EBITDA 904.3 804.5 99.8 Equity accounted income 14.0 (6.0) 20.0 Onerous gas contract (20.9) (20.9) - Receivables (197.0) (42.3) (154.7) Net movement in green assets / liabilities 20.0
Slide 58: Energy Investments
58 Energy Investments 12 months to 30 Jun 2012 30 Jun 2011 Change $m Operating EBIT ActewAGL 28.0 29.8 (6.0%) Loy Yang A (3.5) 10.7 (132.7%) Total Operating EBIT 24.5 40.5 (39.5%) » 2012 Final Results 12 months to 30 June 2012 » 22 August 2012 » AGL External
Slide 59: Capital expenditure
59 Capital expenditure 12 months to 30 Jun 2012 SIB Discretionary Total $m Merchant Energy 71.4 444.1 515.5 Upstream Gas - 151.3 151.3 Retail Energy - 70.2 70.2 Corporate Other 28.5 2.2 30.7 Total 99.9 667.8 767.7 » 2012 Final Results 12 months to 30 June 2012 » 22 August 2012 » AGL External
Slide 60: Balance Sheet
60 Balance Sheet As at 30 Jun 2012 30 Jun 2011 $m Current assets 4,131.9 2,730.4 PPE, E&E and oil & gas assets 6,323.5 3,400.9 Other non current assets 4,283.0 3,564.4 Total Assets 14,738.4 9,695.7 Current debt 616.0 886.7 Other current liabilities 1,993.8 1,570.4 Non current debt 3,696.0 284.5 Othe
Slide 61: Fair Value Reconciliation
61 Fair Value Reconciliation Net Assets (Liabilities) As at $m 30 Jun 2012 30 Jun 2011 Change Electricity derivative contracts 208.7 (89.7) 298.4 Interest rate swap & foreign currency derivative contracts (224.9) (148.5) (76.4) Total net liabilities for derivative contracts (16.2) (238.2) 222.0 Chan
Slide 62: Loy Yang A Investment
62 Loy Yang A Investment 12 months to 30 Jun 2012 2 30 Jun 2011 Change $m Generation Volume (GWh) 15,382 15,174 1.4% 1 Average Price ($/MWh) $35.33 $37.62 (6.1%) Generation revenue 543.4 570.9 (4.8%) Other revenue 88.4 77.8 13.6% Expenses (285.6) (271.1) 5.3% Depreciation (127.0) (117.1) 8.5% Borrow