AGL Energy Limited · ASX:AGL
AGL Energy — Investor Day (May 2015)
60 slides from AGL Energy's investor day presentation, May 26, 2015
Slide 1: ASX & Media Release: Strategy Briefing presentation
AGL Energy Limited Locked Bag 1837 Level 22, 101 Miller St T: +61 2 9921 2999 ABN: 74 115 061 375 St Leonards NSW 2065 North Sydney NSW 2060 F: +61 2 9921 2552 AUSTRALIA AUSTRALIA www.agl.com.au ASX & Media Release Strategy Briefing presentation 26 May 2015 Attached is a presentation to be made toda
Slide 2: Electricity/gas market outlook
Electricity/gas1 market outlook Richard Wrightson 2 Wholesale market drivers 1 › Demand 2 › LNG train ramp up in Queensland 3 › Generation trends > Electricity/gas market outlook > Richard Wrightson > 26 May 2015 1
Slide 3: Demand outlook; Residential rooftop solar
Demand outlook 3 Green shoots signaling the end of decline. Electricity › Solar uptake to continue its growth, storage will become a factor over a longer lead time › Average household consumption drops are being off-set by population growth › Significant increase in load from LNG projects in coming
Slide 4: Load profile; Energy efficiency
Load profile 5 Rooftop solar is reducing mid-day load. QLD Summer day profile (GW) 10,000 10 9 9,000 8 8,000 7,000 7 6,000 6 5 5,000 4 4,000 12:00:00 AM 6:00:00 AM 12:00:00 PM 6:00:00 PM All Time Peak Day (18/1/10) 5/3/15 Heat Wave Peak Day > Electricity/gas market outlook Source: Internal AGL marke
Slide 5: Forecast demand: residential and SME; industrial
Forecast demand: residential and SME 7 Per capita consumption offset by population growth. Energy consumption 160,000 160 10,000 10.0 Annual energy consumption (TWh) consumption per capita (MWh) Residential and commercial 140,000 9,500 9.5 140 9,000 9.0 120,000 120 8,500 8.5 100,000 100 8,000 8.0 80
Slide 6: Forecast East coast electricity and gas demand
Forecast East coast demand: All segments 9 Recent demand decline is beginning to moderate. AEMO forecast East coast electricity demand (TWh) 240,000 240 220,000 220 200,000 200 180 180,000 160 160,000 140 140,000 120 120,000 100 100,000 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22 2023-24 Residen
Slide 7: Fuel switching; East Coast residential gas demand
Fuel switching 11 Likely in residential; more limited for industrial. Residential heating costs - Melbourne Running costs for industrial boilers (p.a.) Heating Price ($/GJ) 40 $2,000 $1,800 35 $1,600 Post-LNG price $1,400 30 $1,200 25 Pre-LNG price $1,000 $800 20 $600 $400 15 $200 10 $0 1 2 3 4 5 6
Slide 8: East Coast gas demand; LNG trains
East Coast gas - Demand (ex-generation) 13 Decline driven by commercial/industrial sector. AGL forecast of East Coast gas demand 600 500 400 PJ/a 300 200 100 0 2011 2014 2017 2020 2023 2026 2029 2032 Consumer Industrial Transport > Electricity/gas market outlook > Richard Wrightson > 26 May 2015 LNG
Slide 9: Domestic gas market; Short term demand
Domestic gas market 15 AGL portfolio is well positioned. AGL contracted supply – Maximum annual quantity PJ 300 250 200 150 100 50 0 2015 2017 2019 2021 2023 2025 2027 Fixed Price Portfolio Gloucester Price Review New GBJV GSA Residential C&I > Electricity/gas market outlook > Richard Wrightson > 26
Slide 10: LGC market model; Queensland gas generation
LGC market model: 33,000 GWh by 2020 17 Short-term C&I contracts unlikely to support new projects and PPAs. Large-Scale Generation Certificate (LGC) market forecast for demand & supply GWh MW 60,000 6,000 50,000 5,000 40,000 4,000 30,000 3,000 20,000 2,000 10,000 1,000 0 0 2011 2014 2017 2020 2023 2
Slide 11: NSW coal generation; NEM-wide generation vs demand
NSW coal generation (ex-AGL Macquarie) 19 NSW falls driven by declines at Mt Piper and Wallerawang. NSW monthly black coal generation (TWh (as-generated)) 4,000 40 3,500 35 30 3,000 25 2,500 2,000 20 1,500 15 1,000 10 500 5 0 0 Eraring Munmorah Mt Piper Redbank Vales Point Wallerawang > Electricity/
Slide 12: Are we there yet? Forward contract price
21 Are we there yet? > Presentation title > Author > Date (Verdana 10pt) Forward contract price 22 Signs of strengthening wholesale prices. ASX Energy - Daily settlement price (Flat FY Swap) ($/MWh) $55 $50 $45 $40 $35 $30 $25 Jul-2014 Oct-2014 Jan-2015 Apr-2015 NSW QLD SA VIC > Electricity/gas mark
Slide 13: East Coast gas deals
East Coast gas deals 23 Oil price movements has impacted recent deal making. Energy Quest report March 2015 $AUD/GJ $11 $10 $9 $8 $7 $6 $5 Jul-2009 Mar-2010 Nov-2010 Jul-2011 Apr-2012 Dec-2012 Aug-2013 Apr-2014 Dec-2014 Sep-2015 STO/GLNG OE/GLNG Westside/GLNG AGL/XSTRATA OE/MMG Beach Energy/OE Esso-
Slide 14: Retail competitive environment
Retail 1 competitive environment Mark Brownfield 1 Retail energy markets across the NEM 2 An increasingly competitive market. › More than 13 million energy customer connections1 » Over 8.6 million electricity customers » Over 3.6 million gas customers » Around 1.2 million solar customers › There are
Slide 15: Retail competition remains elevated
Retail competition remains elevated 3 The number of players has increased, channels to market have reduced. Number of electricity retailers +33% +38% +33% +40% 24 22 18 16 16 14 12 10 VIC NSW SA QLD FY14 FY15 > Retail competitive environment > Mark Brownfield > 26 May 2015 Traditional advertising ch
Slide 16: Discounting remains prominent; Different dynamics across markets
Discounting remains prominent 5 Headline discounts remain high, and so are opportunities for growth. Electricity headline discounts Gas headline discounts 28% 20% 16% 16% 16% 16% 16% 15% 13% 13% 13% 12% 11% 10% 6% 6% VIC NSW SA QLD VIC NSW SA QLD FY14 FY15 FY14 FY15 > Retail competitive environment
Slide 17: Household budgets under pressure; AGL is well placed
Household budgets are under pressure 7 Driving customers to look for value from energy retailers. Money concerns causing stress Proactive churn 45% 75% 60% 30% 45% 30% 15% 15% #1 cause of increased stress, year on year More proactively searching for better deals 0% 0% 2008 2010 2012 2014 2008 2009 2
Slide 18: AGL churn lower than market; Strong brand
AGL churn lower than market 9 Our customers churn at a 25% lower rate vs. the rest of the market. Consumer market churn rates 30% 25% Rest of the Market 20% (excl. AGL) 15% AGL 10% 5% 0% Jul‐13 Oct‐13 Jan‐14 Apr‐14 Jul‐14 Oct‐14 Jan‐15 > Retail competitive environment > Mark Brownfield > 26 May 2015
Slide 19: AGL continue 'first to market' innovations
AGL continue ‘first to market’ innovations 11 New ways to use technology to improve customer comfort and cost. AGL Energy Online True Monthly Interactive My AGL & My AGL IQ Billing e-bill App Apr ‘11 – Feb ‘13 Oct ‘13 May ‘14 Apr ‘15 Control Choice Convenience Control Information and Accurate monthl
Slide 20: Rooftop solar market: Summary
Rooftop solar1 market Marc England > Rooftop solar market > Marc England > 26 May 2015 Summary 2 Rooftop solar market is ~1.4 million installs and will continue to grow. › Rooftop solar has grown rapidly to ~1.4m installs driven by: » High consumption based retail electricity tariffs » Rapid system
Slide 21: Growing solar installs; Increasing system sizes
Growing solar installs across Australia 3 Rapid growth to 1.4 million installs. Rooftop solar installations - cumulative (000) 1,400 WA & NT 1,200 SA 1,000 VIC & TAS 800 600 NSW & ACT 400 200 QLD 0 FY10 FY11 FY12 FY13 FY14 FY15 H1 > Rooftop solar market Source: CER, Sunwiz > Marc England > 26 May 20
Slide 22: Falling system costs; Commonwealth subsidy
Falling system costs 5 Cost of rooftop solar fell by 80% in five years. Installed cost of typical solar system $/W 12 10 8 -80% 6 4 2 Other costs PV module 0 FY09 FY10 FY11 FY12 FY13 FY14 > Rooftop solar market > Marc England > 26 May 2015 High upfront Commonwealth subsidy 6 RET subsidy substantiall
Slide 23: State subsidies; Large market with headroom
High ongoing state subsidies 7 State feed-in-tariffs provided an additional large ongoing benefit. Feed-in-tariffs $ p.a. / kW of capacity used for export 1,000 800 600 400 SA VIC 200 QLD NSW 0 FY11 FY12 FY13 FY14 > Rooftop solar market > Marc England > 26 May 2015 Large market with plenty of headro
Slide 24: Robust future growth drivers; Resilient to policy shifts
Robust future growth drivers 9 Solar will remain attractive. Falling costs + sophistication Increasing customer benefit › RET subsidy reductions › Better efficiency with solar partly or fully offset by technology improvements further cost decline › Financing & more + › Greater value capture with ene
Slide 25: Sophistication will drive consolidation; AGL pushing hard
Sophistication will drive consolidation 11 Highly fragmented market to date. 2014 rooftop solar market shares AGL Small players <1% Aggregators > Rooftop solar market Source: Sunwiz > Marc England > 26 May 2015 AGL is pushing hard to get ahead 12 Still a way to go but making good progress. AGL month
Slide 26: Energy storage complexity; Detail matters
Energy storage has some complexity 13 Storage has a number of components, and key specifications differ. Storage basics Key storage specs Provider Provider AGL A B Capacity Installation + 7.2 7.0 6.4 (kWh) overheads Discharge depth 80% 80% 90% (%) Hybrid Inverter = Usable capacity 6 6 6 (kWh) Batter
Slide 27: AGL Re-defined
AGL Re-defined 1 Andy Vesey 2 AGL’s business Harness insights to definition is to: enrich the customer’s energy experience > AGL Re-defined > Andy Vesey > 26 May 2015 1
Slide 28: AGL's strategic roadmap; Anticipatory culture
3 AGL’s strategic roadmap 1 Organise for Transformation › Align structure with strategy › Create anticipatory culture 2 Drive Productivity › Improve capital allocation › Improve operational efficiency 3 Unlock Growth › Grow retail energy’s share of value › Invest in business models which exploit new
Slide 29: AGL's organisation structure
5 AGL’s organisation structure CEO Company Secretariat, GGM Upstream Gas Andy Vesey Legal, Tax and Audit Chief Financial EGM EGM EGM EGM EGM EGM Officer People & Organisational Group Energy New Energy Stakeholder Culture Transformation Operations Markets Engagement Brett Redman Daniel Cram Alistair
Slide 30: Asset portfolio management & operational productivity
Asset portfolio 1 management & operational productivity Brett Redman Drive Productivity 2 Focus on productivity improvements to deliver improved returns. 1 › While AGL has grown profits over the last five years, it has not met expected returns Drive from its assets Productivity › AGL will Drive Prod
Slide 31: AGL TSR vs Market; Historic profitability & ROFE
AGL TSR vs Market 3 In the last five years, AGL’s TSR has underperformed relative to market. Total Shareholder Return - AGL vs. S&P/ASX1001 180 160 1 May 2010 = 100 140 TSR Index 120 100 80 60 2010 2011 2012 2013 2014 2015 S&P/ASX 100 Index AGL > Asset portfolio management & operational productivity
Slide 32: Looking forward; Improve capital efficiency
Looking forward 5 Initiatives in place to significantly increase free cash flow by FY17. Improve capital efficiency including divestments One off free cash flow benefit of ~$1.2 billion over FY16 and FY17. Reduce recurring sustaining capital expenditure Recurring free cash flow benefit ~$200 million
Slide 33: Reduce sustaining capex; Reduce operating cash costs
Reduce sustaining capex 7 Saving of $100m p.a. real targeted by FY17. Sustaining capex $ million 500 CPI $100m 400 real Saving 300 200 100 0 FY11 FY12 FY13 FY14 FY15 FY17 FY17 Forecast Corporate Retail Other Merchant Loy Yang Macquarie Normalisation > Asset portfolio management & operational product
Slide 34: Executing the program
Executing the program 9 Programs in place to deliver the productivity targets. › Organisation structure, leadership and accountability » EGM Organisational Transformation (Alistair Preston) to drive productivity program across entire business » EGM Group Operations (Doug Jackson - Acting) to drive m
Slide 35: Generation asset efficiency; Group operations
Generation 1 asset efficiency Doug Jackson Marc England EGM, New Energy 26 May 2015 Group operations 2 Producing safe, secure and low cost energy. Clear objectives New structure Driving productivity Producing results > Generation asset efficiency > Doug Jackson > 26 May 2015 1
Slide 36: Competitive advantage: Scale; Low cost fuel
Competitive advantage: Scale 3 Largest generator in the NEM. Largest generator in the NEM (MW) 12,000 10,000 8,000 6,000 4,000 2,000 0 AGL Origin EA Snowy Stanwell CS Energy Hydro Tas GDF Delta Coast MacGen AGL (ex. MacGen) > Generation asset efficiency > Doug Jackson > 26 May 2015 Competitive advan
Slide 37: Competitive advantage: Market agility; Group operations
Competitive advantage: Market agility 5 Flexible generation can rapidly respond to market signals. AGL Generation flexibility1 (MW) 10,000 9,000 1,000 8,000 7,000 6,000 4,400 5,000 4,000 8,700 3,000 2,000 3,400 1,000 0 Min Load 3 hour 5 minute Full Load > Generation asset efficiency 1. Excludes inte
Slide 38: Safety first; Asset strategy: Anticipating trends
Safety first 7 Improving safety performance. Total injury frequency rate 10 9 8 7 6 5 4 3 2 1 0 AGL Combined Including MacGen > Generation asset efficiency > Doug Jackson > 26 May 2015 Asset strategy: Anticipating trends 8 Disciplined capital investment decisions. › Decarbonised market › Technical e
Slide 39: Capital discipline; Driving productivity
Capital discipline 9 Doing the right work; at the right time. Estimated five-year capex plan ($m) $350 $300 $250 $200 ($M) $150 $100 $50 $0 FY15 FY16 FY17 FY18 FY19 FY20 Maintenance capex Major outage Station life attainment Mine life attainment > Generation asset efficiency > Doug Jackson > 26 May
Slide 40: Cost effective: Doing the right things; Harnessing insights
Cost effective: Doing the right things 11 Leveraging scale and standard processes. Better Right Work buying way planned Installed rooftopsolar Rooftop solar inAustralia in Australia Project Pulse Work execution > Generation asset efficiency > Doug Jackson > 26 May 2015 Harnessing insights 12 Data dr
Slide 41: Extracting value
Extracting value 13 Executing with discipline and focus. 1 › Clear asset objectives Cost 2 › Reducing losses 3 › Simple processes 4 › Driving productivity 5 › Capital efficiency Availability > Generation asset efficiency > Doug Jackson > 26 May 2015 7
Slide 42: Advocate for constructive policy outcomes
Advocate for 1 constructive policy outcomes Tim Nelson 2 Agenda 1 › Success in achieving constructive public policy outcomes 2 › Current public policy focus: » Importance of competition and affordability » Leading the tariff reform debate » Competitive neutrality around new products » Carbon reducti
Slide 43: Policy leadership; Competition, pricing and affordability
An example of policy leadership 3 Introduction of contestable metering. › Metering contestability a key Number of business days late for the provision of metering information business objective % of › 2011/12 - Analysis showed poor sample customer experience 30 » 1 in 13 meter reads estimated 25 » $
Slide 44: Network tariff reform; Competitive neutrality
Network tariff reform 5 AGL remains a strong advocate for demand tariffs at network level. › Current ‘energy’ tariffs result in Solar production and household consumption consumer inequity Household › Demand tariffs price electricity Load (kW) more cost-effectively 2.50 › Removes inequity related to
Slide 45: Climate change
Climate change 7 Carbon pricing unlikely to drive new low-emissions investment. › Carbon pricing debate in Economics of new coal, new gas and existing coal Australia has stalled LRMC/SRMC ($/MWh) › Carbon price of over $100/tonne required to displace 160 coal 140 › International experience 120 Relat
Slide 46: Grow retail energy's share of market value; Retail strategy
Grow retail 1 energy’s share of market value Stephen Mikkelsen Retail strategy 2 AGL’s retail strategy is to grow its market share of customer value. 1 › Target higher value market segments 2 › Build loyalty with existing customers 3 › Pursue digital solutions 4 › Provide innovative products and ser
Slide 47: Segmentation
Segmentation 3 The foundation for identifying high value customers. RESEARCHED ANALYSIS IDENTIFICATION PREFERENCE THE MARKET AND PROFILING AND TARGETING Researched: Insights: Implementation: Targeting value: › 10,000 › Needs and › AGL customers › Segments Residential preferences tagged in SAP combin
Slide 48: Segmentation; Customer value
Segmentation 5 Nine high value segments identified. Customer needs and lifestage matrix Segment 1 Segment 2 Segment 3 Segment 4 Segment 5 Segment 6 Lifestage A Lifestage B Lifestage C Lifestage D Lifestage E Target for High-Value customer Target for Retentions and Acquisitions Retentions > Grow reta
Slide 49: Customer value; Digital
Customer value 7 While only at the beginning of our journey, the results are promising. Average value per customer: gains and losses (October 2014 to March 2015) $21{ $14 { Gains Portfolio Losses Average > Grow retail energy’s share of market value > Stephen Mikkelsen > 26 May 2015 Digital 8 Relentl
Slide 50: Credit improvement program; Innovation
Credit improvement program 9 We are not forgetting the basics that also drive value. › AGL’s debtor performance is the best in the industry › Plateaued following the completion of specific initiatives and APG purchase Days sales outstanding 90+ Day debt to billed revenue ratio 30.0 3.50% 3.00% 25.0
Slide 51: Invest in business models which exploit new technologies
Invest in 1 business models which exploit new technologies Marc England > Invest in business models which exploit new technology > Marc England > 26 May 2015 Summary 2 AGL is investing in business models which exploit new technologies. 1 › New Energy’ established in early 2015: to embrace industry t
Slide 52: Evolving energy industry; Repositioning AGL's business
Evolving energy industry 3 There are major shifts transforming our industry. Centralised Connected Optimised Aggregated Simple Connected, Premise System-level devices Smart devices integration integration 1. Carbon reduction imperative 2. Falling cost of distributed energy 3. Proliferation of connec
Slide 53: New Energy primary strategic objectives
New Energy primary strategic objectives 5 New Energy will underpin retail growth and expand into new areas. Short-term Medium-term Long-term 1 Underpin retail 2 1 million smart 3 Comfort, value growth connections by 2020, convenience and control with: be #1 or #2 in: products and services: › Digital
Slide 54: Making early progress; Entering new customer segments
Making early progress 7 Engage customers through subscription based business models. Finance Build & Integrate Service Solar PPA launched in Launched EV home Imminent launch of a Feb 2015 with numerous charging product solar service product, term options bundle with our strategic partner kW AGL PPA
Slide 55: Excellence in execution; Building optionality
Excellence in execution 9 Maintain delivery excellence, as with recent launch of metering services. Right First Time Under Budget High Quality First metering business to gain accreditation Delivered complex Exceeded quality with AEMO after first business & technology benchmarks “0 audit capability b
Slide 56: Maximising AGL's strengths; Strategic partnerships
Maximising AGL’s strengths 11 AGL’s position will help us get ahead in new areas. Strong brand Strong balance sheet >80% of customers Launched flexible, would choose low cost solar incumbent utility finance products Existing relationships Customer knowledge Enabled lower Load metering costs Scale Ha
Slide 57: Diversity of people and 'lean' approach; New Energy commitments
Diversity of people and ‘lean’ approach 13 Deep and growing talent pool, supported by a fail fast culture. New Energy team Lean product development › Over 200 and growing › Diverse commercial and technical skills, with backgrounds from start- ups to large established companies across the globe › Sma
Slide 58: Performance measures & outlook; Financial scorecard
Performance 1 measures & outlook Brett Redman Financial scorecard 2 Eight initiatives will be reported, commencing with full year results. 1 › One-off cash flow benefit from optimising working capital and asset sales 2 › Recurring free cash flow benefit through transformation 3 › Cost of generation
Slide 59: Financial scorecard (continued); Additional cash available
Financial scorecard 3 (continued) 5 › New Energy – Break-even by 20181 6 › New Energy – Smart connections 7 › New Energy – Revenue growth 8 › Return on Funds Employed – Leading indicator for TSR 1. New Energy business unit as previously reported including solar and > Performance measures & outlook m
Slide 60: Looking ahead; FY15 Outlook
Looking ahead 5 AGL well placed to respond to and manage industry challenges. › Expectation that electricity, gas and REC wholesale prices will rise modestly › Higher retail margins targeted however competition to remain intense › Retail markets change and AGL response ongoing: » Average consumer el