Agl Energy Limited · ASX:AGL
Agl Energy — FY2014 Earnings Presentation
60 slides from Agl Energy's earnings presentation, Feb 11, 2016
Slide 1: ASX & Media Release: AGL reports solid result in soft demand conditions
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 AGL reports solid result in soft demand conditions 20 August 2014 AGL Energy Limited
Slide 2: Media release continued: MacGen acquisition, dividends, outlook
Macquarie Generation (MacGen) acquisition: AGL has separately announced today that it has concluded an agreement to acquire MacGen for a purchase price of $1,505 million. To partly fund the acquisition, AGL has also announced the launch of a pro rata accelerated renounceable entitlement offer to rai
Slide 3: About AGL
About AGL AGL is one of Australia's leading integrated energy companies and largest ASX listed owner, operator and developer of renewable energy generation in the country. Drawing on over 175 years of experience, AGL operates retail and merchant energy businesses, power generation assets and an upst
Slide 4: FY14 Full Year Results
FY14 Full Year Results 1 Full Year ended 30 June 2014 Michael Fraser, Managing Director and CEO Brett Redman, Chief Financial Officer 20 August 2014 Nyngan Solar Plant, NSW
Slide 5: Disclaimer and important information
2 Disclaimer and 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 obje
Slide 6: Disclaimer and important information
3 Disclaimer and important information Statutory Profit and Underlying Profit Statutory Profit is prepared in accordance with the Corporations Act 2001 and the Australian Accounting Standards, which comply with the International Financial Reporting Standards. Underlying Profit is the Statutory Profi
Slide 7: Agenda
4 Agenda 5 Results Highlights Michael Fraser 8 Group Financials Brett Redman 21 Operational Review / Outlook Michael Fraser 36 Supplementary Information IMPORTANT NOTE: This presentation should be read in conjunction with the AGL Energy Limited Financial Results ASX Release for the year ended 30 Jun
Slide 8: FY14 highlights
FY14 highlights 5 Solid result given soft demand conditions. › Statutory Profit of $570 million, up 52.0% › Underlying Profit of $562 million, down 3.9% › Underlying Operating Cash Flow before interest and tax of $1.1 billion › Record mild winter and lower average demand impacted volumes and margins
Slide 9: FY14 result
FY14 result 6 Statutory and Underlying Profit impacted by lower electricity and gas volumes. › Revenue: $9,543m (1.8%) › Statutory Profit: $570m 52.0% › Underlying Profit: $562m (3.9%) FINANCIAL › Statutory EPS: 102.2 cps 49.9% › Underlying EPS: 100.8 cps (5.2%) › DPS: (final dividend 33.0
Slide 10: Macquarie Generation Acquisition
Macquarie Generation Acquisition 7 Acquisition accretive to Underlying EPS in FY15. › AGL to acquire the assets of Macquarie Generation » Adds scale and diversity to AGL’s generation portfolio » ~35-45% lower SRMC1 than other major NSW base-load generators2 › Purchase price of $1,505 million3 › Tran
Slide 11: Group Financials
8 Group Financials Brett Redman Chief Financial Officer
Slide 12: Statutory Profit to Underlying Profit reconciliation
Statutory Profit to Underlying Profit reconciliation 9 Volatility of non-cash items highlights value of focus on Underlying Profit. $m FY14 FY13* Change Statutory Profit 570 375 52.0% Adjust for the following after tax items: Significant items 20 290 Changes in fair value of financial instruments
Slide 13: Underlying Profit
Underlying Profit 10 Underlying Profit down (3.9%) on prior period. $m FY14 FY13 Change Revenue 9,543 9,716 (1.8%) Operating EBITDA 1,330 1,318 0.9% Operating EBIT Retail 318 356 (10.7%) Merchant 899 853 5.4% Upstream Gas (13) 0 n/a Energy Investments 23 26 (11.5%) Centrally managed expenses (223) (
Slide 14: Retail – key financial metrics
Retail – key financial metrics 11 Reduced underlying consumption and record mild weather impacts volumes. $m FY14 FY13 Change Electricity Revenue 3,679 3,542 3.9% Gas Revenue 1,362 1,302 4.6% Other Revenue (Fees & Charges) 74 82 (9.8%) Total Revenue 5,115 4,926 3.8% Cost of Sales (4,344) (4,143) 4.9
Slide 15: Retail – Operating EBIT drivers
Retail – Operating EBIT drivers 12 APG acquisition and rising gas rates partly offset lower volumes. 390 27 370 356 350 330 13 $ million 39 318 (60) (5) 310 (9) (21) 290 (22) 270 250 FY13 APG Retail Electricity GM Electricity GM Gas GM Gas GM Other Gross Operating D&A FY14 EBIT* Volume Net Rate Volu
Slide 16: Retail – key operating metrics
Retail – key operating metrics 13 Lower volume drives lower margins, operating costs well controlled. $m FY14 FY13 Change Operating costs (367) (352) 4.3% Depreciation and amortisation (86) (75) 14.7% Less fees and charges 74 82 (9.8%) Net operating costs (380) (346) 9.8% Gross margin 771 783 (1.5%)
Slide 17: Retail – key operating metrics
Retail – key operating metrics 14 Lower volume drives lower EBIT per customer. FY14 FY13 Change EBIT ($m) 318 356 (10.7%) Average customer numbers (‘000) 3,733 3,500 6.7% EBIT per customer account $85 $102 (16.7%) EBIT per customer account $100 $90 $80 $70 $60 $50 FY12 FY13 FY14 FY14 Full Year Resul
Slide 18: Merchant – key financial metrics
Merchant – key financial metrics 15 Higher generation, higher Queensland gas sales and lower consumer volumes. $m FY14 FY13 Change Operating EBITDA 1,093 1,018 7.4% Depreciation and amortisation (194) (165) (17.6%) Energy Portfolio Management (EPM) Wholesale Electricity Gross Margin 1,038 971 6.9% W
Slide 19: Merchant – Operating EBIT drivers
Merchant – Operating EBIT drivers 16 Higher generation, higher Queensland gas sales and lower consumer volumes. 975 40 950 (17) 925 67 $ million (28) 9 899 900 (25) 875 853 850 825 FY13 Wholesale Wholesale Gas Eco-markets Merchant Business Other Merchant FY14 Electricity Operations Customers Key dri
Slide 20: Underlying Operating Cash Flow
Underlying Operating Cash Flow 17 Strong operating cash flow reflecting quality of earnings. $m FY14 FY13 Change Operating EBITDA 1,330 1,318 12 Equity accounted income 1 (2) 3 Onerous contracts (117) (49) (68) Receivables 109 (248) 357 Inventories (54) 21 (75) Creditors (189) 22 (211) Net movement
Slide 21: Capital expenditure
Capital expenditure 18 Major project spend offset by government funding. 800 Less Solar Govt 700 Funding* 600 Solar Projects* 500 Less Solar Govt Other Funding* Retail $ million 400 Macarthur Newcastle Gas Storage 300 Upstream Gas Stay in Business 200 100 0 FY13 Actual^ FY14 Actual FY15 Forecast# *
Slide 22: Debt structure
Debt structure 19 Market liquidity supportive of financing activities. › Refinancing existing facilities secured lower margins and lengthened maturity profile » $600 million bank term facility increased to $650 million and extended to February 2018 » $400 million bank revolver facility increased to
Slide 23: Financial ratios
Financial ratios 20 AGL ratios in FY13 and FY14 impacted by carbon. › During FY14 Standard & Poor’s (S&P) adopted a revised methodology for determining corporate credit ratings. The key ratios for AGL are now » FFO / Cash interest » Gross Debt to Adjusted EBITDA › AGL ratios are expected to improve
Slide 24: Operational Review
21 Operational Review Michael Fraser Managing Director and CEO
Slide 25: People and safety
People and safety 22 Improvement in key safety and engagement measures. Key safety statistics for FY14: Total Injury Frequency Rate › Total injury frequency rate down 44% to 2.8 9 8 › Occupational injury frequency rate down 7 42% to 3.7 6 5 Key health and safety process improvements: 4 3 › Establish
Slide 26: Retail core operations
Retail core operations 23 Operational performance provides the platform for Retail’s growth strategy. › APG customers seamlessly integrated into AGL Average Speed of Answer e-Billing including improved service and cost to serve 80 1,000 900 › Lowest ever AGL underlying Days Sales 800 Outstanding of
Slide 27: Weather and consumer demand
Weather and consumer demand 24 Record mild winter reduces demand. › Record mild winter across south east Australia only Days with Minimum Temperatures < 10 degrees1 partially offset by hot January in Victoria and South 160 FY12 FY13 FY14 Australia 140 120 › Decline in total consumer market demand, p
Slide 28: Regulatory pricing
Regulatory pricing 25 Deregulation of retail markets largely complete. Electricity Gas Regulation continues but allows retail prices to reflect market New South Wales Deregulated 1 July 2014 prices (up 11.7% from 1 July 2014) Queensland Deregulated (price monitoring) from 1 July 2015 Deregul
Slide 29: Growing the Retail Business
Growing the Retail Business 26 Market fundamentals present some challenges but also substantial opportunities. Market Fundamentals FY15 Strategic Priorities Lift gross margins while driving customer value › Electricity deregulation for all States to and loyalty: be completed within 12 months › Drive
Slide 30: Gas portfolio
Gas portfolio 27 Queensland Wholesale gas sales to ramp up in FY15. Queensland Wholesale Gas Sales FY13 to FY17 › Queensland Wholesale gas sales: 80 » Sales to QLD wholesale gas customers of 57 PJ expected in FY15, up from 19 PJ in 60 Firm sales Potential sales FY14 » Sales in FY15 contracted at an
Slide 31: Moranbah asset sale
Moranbah asset sale 28 Commenced divestment process. › AGL’s Bowen Basin gas interests held for sale › Purchased in 2006 to augment domestic gas, now regarded as non-core as long-term destination for gas is LNG exports › Assets comprise: › Entitlement to 1,253 PJ (2P), 4,027 PJ (2P+2C) › 50% interes
Slide 32: Gloucester gas project
Gloucester gas project 29 Flow testing of Waukivory Pilot receives approvals. › NSW Office of Coal Seam Gas and EPA approvals clear the way for AGL to perforate, fracture stimulate and flow test four existing Waukivory Pilot wells › FEED study nearing completion › Work program underway to comply wit
Slide 33: Project updates
Project updates 30 Construction well advanced on all projects. Diamantina Power Station – Mt Isa (302 MW, AGL 50% interest) Construction largely complete, commissioning ongoing › KBR contracted to manage the completion of construction activities replacing EPC contractor (Forge Group) › Diamantina Po
Slide 34: AGL Strategic Priorities
AGL Strategic Priorities 31 Optimise and grow core business, develop capabilities for future market. Existing Business Model Future Business Model Vertically Integrated Current Priorities Integrated Energy Energy Supplier Solutions Provider 1 Integrate and maximise value of existing generation/tradi
Slide 35: Future Energy Market Model
Future Energy Market Model 32 Energy will become increasingly ubiquitous. Centralised Production Power Demand Empowered Customers Energy Storage Smart Meters Distributed Generation Control Systems FY14 Full Year Results 12 Months to 30 June 2014 20 August 2014 AGL External
Slide 36: AGL growth pipeline
AGL growth pipeline 33 AGL’s integrated strategy creating significant growth pipelines. Gloucester Gas Project Shareholder Value Macquarie Generation acquisition Time FY14 Full Year Results 12 Months to 30 June 2014 20 August 2014 AGL External
Slide 37: Outlook
Outlook 34 Strong growth in underlying business excluding carbon tax removal. › Carbon tax repeal effective 1 July 2014 gives rise to a net reduction of approximately $100 million in EBIT contribution from Loy Yang A due to cessation of transitional assistance arrangements and a reduction of approxi
Slide 38: Contact information
35 Contact information Sales - Electricity and gas www.agl.com.au Customer Service 131 245 AGL Energy Online/My AGL IQTM https://aglenergyonline.agl.com.au Corporate Information www.agl.com.au/about/Pages/Default.aspx Investors Media John Hobson Karen Winsbury Head of Capital Markets Head of Corpora
Slide 39: Supplementary Information
36 Supplementary Information
Slide 40: Electricity sales volume
37 Electricity sales volume GWh FY14 FY13 Change Consumer New South Wales 5,579 5,450 2.4% Victoria 4,234 4,258 (0.6%) South Australia 2,522 2,814 (10.4%) Queensland 2,504 2,754 (9.0%) Consumer Total 14,839 15,276 (2.9%) Business New South Wales 3,252 3,619 (10.1%) Victoria 4,190 4,651 (9.9%) South
Slide 41: Gas sales volume
38 Gas sales volume PJ FY14 FY13 Change Consumer New South Wales 22.4 24.4 (8.4%) Victoria 29.7 30.6 (2.9%) South Australia 2.9 2.8 2.1% Queensland 2.6 2.8 (3.4%) Consumer Total 57.6 60.6 (4.9%) Business New South Wales 31.5 35.1 (10.3%) Victoria 27.6 27.2 1.5% South Australia 8.0 9.0 (11.1%) Queens
Slide 42: Customer numbers
39 Customer numbers Customer Numbers As at As at Change since (‘000) 30 Jun 2014 30 Jun 2013 30 Jun 2013 Electricity New South Wales 820 717 103 Victoria 673 611 62 South Australia 434 444 (10) Queensland 389 374 15 2,316 2,146 170 Gas New South Wales 707 683 24 Victoria 567 482 85 South Australia 1
Slide 43: Consumer market – key indicators
40 Consumer market – key indicators Electricity FY14 FY13 Change Volume (GWh) 14,839 15,276 (2.9%) Avg. Consumer Accounts ('000) 2,267 2,116 7.1% Revenue ($m) 3,679 3,542 3.9% Gross Margin ($m) 420 463 (9.3%) Gross Margin 11.4% 13.1% (1.7 ppts) Gross Margin per customer $185 $219 (15.5%) Gas Volume
Slide 44: Business Customers – key indicators
41 Business Customers – key indicators Electricity FY14 FY13 Change Volume (GWh) 12,963 14,714 (11.9%) Business Accounts ('000) 18.9 18.4 2.7% Revenue ($m) 1,851 2,058 (10.1%) Gross Margin ($m) 39 66 (40.9%) Gross margin per MWh $2.98 $4.44 (32.9%) Gas Volume (PJ) 80.6 85.5 (5.7%) Business Accounts
Slide 45: Retail – cost to serve
42 Retail – cost to serve Operating costs Cost per account FY14 FY13 Change FY14 FY13 Change $m $m $ $ Cost to serve1 249 218 14.2% $67 $62 8.1% Cost to acquire2 108 106 1.9% $148 $125 18.4% Cost to retain2 23 22 4.5% $29 $19 52.6% Cost to acquire/retain2 131 128 2.3% $86 $63 36.5% Net operating cos
Slide 46: Generation – operational performance
43 Generation – operational performance › International benchmark used in North American Availability / Start Reliability (%) Electricity Reliability Corporation (NERC) 2006-2010 Historic Generation Unit statistics › ‘Availability capacity factor’ is used to measure Loy Yang A performance, and repre
Slide 47: Hydrology
44 Hydrology › Drought resistant Kiewa Scheme has been AGL Hydro % Above Minimum Operating Level heavily utilised ahead of an anticipated carbon tax repeal. Storage expected to re- fill by summer with snow melt › Dartmouth is in service and available for 170 MW. The dam is above 90% with water autho
Slide 48: Generation portfolio
45 Generation portfolio FY14 Carbon Capacity Carbon Asset Location Type Status Capacity Sent Out Impact3 Factor1 Intensity Generation ($m) (MW) (GWh) (%) (tCO2e/MWh) Hallett 1 SA Wind Control dispatch 95 349 42% 0.0 7.3 Hallett 2 SA Wind Control dispatch 71 262 42% 0.0 5.4 Hallett 4 SA Wind Control
Slide 49: Electricity hedging
46 Electricity hedging AGL Energy Hedge Position - All States* › AGL Wholesale Risk Management Policy is Contingent Generation Expected Generation Derivatives (Swaps Only) approved by the Board and establishes the 200% requirements for the management of wholesale 175% risk 150% › Clearly defined per
Slide 50: Upstream Gas – key financial metrics
Upstream Gas – key financial metrics 47 Reduced income and increased operating expenses impact Operating EBIT. $m FY14 FY13 Change Operating EBITDA 4 24 (83.3%) Depreciation and amortisation (17) (24) 29.2% Operating EBIT Upstream Gas Queensland (2) 6 (133.3%) New South Wales 0 0 - Equity Investment
Slide 51: Upstream Gas – reserves
Upstream Gas – reserves 48 2P reserves up 162 PJ or 9.4%. AGL share of gas reserves As at 30 Jun 2014 As at 30 Jun 2013 Change PJ 2P 3P 2P 3P 2P 3P Gloucester (100%) 527 649 454 565 16.1% 14.9% Moranbah (50%) - Bowen Basin 285 481 291 487 (2.1%) (1.2%) Camden (100%) 45 45 50 50 (10.0%) (10.0%) Silve
Slide 52: Upstream Gas – permits
49 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 (6,694)r - 100% ATP 471P (445) - 28.71-100% PEL 5 (398)r - 100% - PL 1 (55) 15% - PPL 1 (48)
Slide 53: Significant items
50 Significant items 12 months to 30 Jun 2014 Pre Tax Tax After Tax $m APG acquisition (49) 13 (36) Macquarie Generation (12) 4 (8) Tax items 24 24 Total significant items (61) 41 (20) › APG acquisition included transaction costs and higher costs of running old APG systems in the short term as per t
Slide 54: Reconciling Statutory to Underlying Cash Flow
51 Reconciling Statutory to Underlying Cash Flow FY13 $m FY14 Change restated Statutory net cash provided by operating activities 699 602 Cash flow relating to significant items 61 53 Unwind of carbon assistance 1 - 240 Underlying operating cash flow 760 895 15.1% Net finance costs paid 198 213
Slide 55: Return on Funds Employed
52 Return on Funds Employed $m FY14 FY13 1 Operating EBIT 1,004 1,031 Average Funds Employed 10,018 9,851 Operating EBIT / Funds Employed 10.0% 10.5% Operating EBIT 1,004 1,031 Less: Upstream Gas EBIT 13 0 Less: Equity Accounted Diamantina EBIT 2 0 Adjusted Operating EBIT 1,019 1,031 Average Funds E
Slide 56: Energy Investments
53 Energy Investments $m FY14 FY13 Change ActewAGL 25 26 (3.8%) Diamantina Power Station (2) 0 n/a Total EBIT 23 26 (11.5%) FY14 Full Year Results 12 Months to 30 June 2014 20 August 2014 AGL External
Slide 57: Capital expenditure
54 Capital expenditure FY14 SIB Discretionary Total $m Merchant 228 275 503 Upstream Gas - 124 124 Retail - 35 35 Corporate and Other 27 19 46 Capital expenditure 255 453 708 Less: AGL Solar Projects advance government grant funding - (191) (191) Net capital expenditure 255 262 517 FY14 Full Year Re
Slide 58: Balance Sheet
55 Balance Sheet As at 30 June 2014 30 Jun 2013 $m Current assets 3,252 2,836 PPE, E&E and oil & gas assets 6,236 6,176 Other non current assets 4,487 4,354 Total Assets 13,975 13,366 Current debt 45 45 Other current liabilities 1,962 2,147 Non current debt 3,669 3,064 Other non current liabilities
Slide 59: Fair Value Reconciliation
56 Fair Value Reconciliation Net Assets (Liabilities) As at $m 30 June 2014 30 Jun 2013 Change Energy derivative contracts 18 113 (95) Interest rate swaps and foreign currency derivative contracts (79) (56) (23) Total net assets (liabilities) for derivative contracts (61) 57 (118) Change in derivati
Slide 60: Comparative information
57 Comparative information › AGL has restated the result for the year ended 30 June 2013 to reflect the adoption of the revised accounting standard AASB 119 Employee Benefits. The following table summarises the affects of this change: FY13 AASB 119 FY13 $m As published Restatement Restated Revenue 9