AGL Energy Limited · ASX:AGL
AGL Energy — FY2013 Earnings Presentation
60 slides from AGL Energy's earnings presentation, Aug 28, 2013
Slide 1: FY13 Full Year Results
FY13 Full Year Results 12 Months to 30 June 2013 Michael Fraser, Managing Director and CEO Brett Redman, Chief Financial Officer | 28 August 2013
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 Brett Redman › 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 the 12
Slide 4: FY13 Highlights
4 FY13 Highlights Strong cash performance and profit growth. › Statutory Profit of $388.7 million up 238.3% › Underlying Profit of $598.3 million up 24.1% › Underlying EPS of 108.8 cents per share up 8.8% › Underlying Operating Cash Flow before interest and tax of $1.2 billion up 64.1% › Provision f
Slide 5: FY13 Results Highlights
5 FY13 Results Strong improvement of both Underlying and Statutory Profit. › Revenue: $9,715.7m 30.3% › Statutory Profit: $388.7m 238.3% › Underlying Profit: $598.3m 24.1% FINANCIAL › Statutory EPS: 70.7 cps 197.1% › Underlying EPS: 108.8 cps 8.8% › DPS: (final dividend 33.0 cents - 100% f
Slide 6: Group Financials
6 Group Financials Brett Redman Chief Financial Officer
Slide 7: Statutory Profit to Underlying Profit Reconciliation
7 Statutory Profit to Underlying Profit Reconciliation Strong growth in Underlying Profit driven by Merchant. 12 months to 30 Jun 2013 30 Jun 2012 Change $m Statutory Profit 388.7 114.9 238.3% Adjust for the following after tax items: Significant items 289.6 155.1 Changes in fair value of financia
Slide 8: Significant items
8 Significant items NSW State Government policy uncertainty drives impairment provisions. 12 months to 30 Jun 2013 Pre Tax Tax After Tax $m Loy Yang A acquisition stamp duty (52.9) - (52.9) Impairment of Upstream Gas New South Wales assets (343.7) 59.4 (284.3) Impairment of other Upstream Gas assets
Slide 9: Underlying Profit
9 Underlying Profit Growth in generation portfolio helps deliver strong profit growth. 12 months to 30 Jun 2013 30 Jun 2012 Change $m Revenue 9,715.7 7,455.6 30.3% Operating EBITDA 1,336.4 904.3 47.8% Operating EBIT Retail 355.5 332.8 6.8% Merchant 869.3 549.7 58.1% Upstream Gas 0.0 0.6 (100.0%) Ene
Slide 10: Group Underlying Profit
10 Group Underlying Profit Growth driven by uplift in Merchant performance. 1,200 Upstream Retail Merchant Gas 588.9 9.2 1,000 $ million 1.7 (247.8) 800 (30.7) (0.6) (24.5) 598.3 600 63.2 (202.6) 482.0 (40.5) 400 FY12 NPAT Consumer Other Retail Wholesale Wholesale Merchant Other Upstream Central Inv
Slide 11: Retail – Key financial metrics
11 Retail – Key financial metrics Continued customer growth in NSW helps lift gross margin. 12 months to 30 Jun 2013 30 Jun 2012 Change $m Electricity revenue 3,541.7 3,009.7 17.7% Gas revenue 1,302.3 1,118.0 16.5% Other revenue (fees & charges) 82.6 66.6 24.0% Total Revenue 4,926.6 4,194.3 17.5% Co
Slide 12: Retail – Operating EBIT drivers
12 Retail – Operating EBIT drivers Gross margin driven by customer growth and higher tariffs. 450 16.0 2.8 400 20.9 38.3 (13.1) (3.3) 355.5 350 332.8 (16.5) (10.4) $ million 300 (12.0) 250 200 150 100 FY12 SA Electricity Gas Gross Other Gross Bad & Labour & Campaigns & Depreciation Other FY13 Operat
Slide 13: Retail – Key operating metrics
13 Retail – Key operating metrics Modest improvement in gross margin per customer. 12 months to 30 Jun 2013 30 Jun 2012 Change Consumer gross margin ($m) 701.7 654.5 7.2% Avg customer numbers (‘000) 3,500.2 3,373.2 3.8% Gross margin per customer $200.47 $194.03 3.3% Gross Margin Per Customer $210 $2
Slide 14: Retail – Key operating metrics
14 Retail – Key operating metrics Operating expenditure to gross margin in line with prior year. 12 months to 30 Jun 2013 30 Jun 2012 Change $m Operating costs 353.2 329.2 7.3% Depreciation and amortisation 75.6 59.1 27.9% Less fees and charges (82.6) (66.6) 24.0% Net operating costs 346.2 321.7 7.6
Slide 15: Merchant – Key financial metrics
15 Merchant – Key financial metrics Operating EBIT improvement of 58.1% over prior year. 12 months to 30 Jun 2013 30 Jun 2012 Change $m Operating EBITDA 1,034.5 628.5 64.6% Depreciation and amortisation (165.2) (78.8) 109.6% EBIT Energy Portfolio Management (EPM) Wholesale Electricity Gross Margin 9
Slide 16: Merchant – Operating EBIT drivers
16 Merchant – Operating EBIT drivers Loy Yang A acquisition drives solid earnings uplift. 1,200 9.2 4.8 645.2 1,000 28.7 869.3 (247.8) (41.7) (22.5) $ million 800 600 549.7 (56.3) 400 FY12 QLD Reg Wholesale Wholesale Gas Eco-markets Merchant Ops Business Power Other FY13 Operating Decision Electrici
Slide 17: Underlying Operating cash flow
17 Underlying Operating cash flow Focus on working capital significantly improves EBITDA to cash conversion. 12 months to 30 Jun 2013 30 Jun 2012 Change $m Operating EBITDA 1,336.4 904.3 432.1 Equity accounted income (1.8) 14.0 (15.8) Onerous contracts (48.8) (20.9) (27.9) Receivables (247.8) (197.0
Slide 18: Capital expenditure
18 Capital expenditure Power generation stay in business and Newcastle gas storage drives capex spend. LEGEND 800 Stay In Business Upstream Gas 700 Newcastle gas storage facility 600 Hallett 5 Macarthur 500 Solar projects Retail $ million 400 Other 300 200 100 0 FY12 Actual FY13 Actual FY14 Forecast
Slide 19: Debt structure
19 Debt structure Balance sheet flexibility with $550 million in undrawn facilities. › Loy Yang A debt restructured in August 2012 » AGL purchased $120 million of Loy Yang A CPI bonds in H2 FY13 Facilities at Limit Usage › $600 million to be refinanced prior to July 2014 30 Jun 2013 $m $m › AGL to r
Slide 20: Financial ratios
20 Financial ratios BBB stable credit rating reaffirmed. › Standard & Poor’s reaffirmed AGL’s BBB stable credit rating on 21 June 2013 › Ratios reflect Loy Yang A acquisition » FFO/Interest cover expected to increase to ~4.0 times in FY14 » Lowering/elimination of price on carbon tax would improve F
Slide 21: Operational Review
21 Operational Review Michael Fraser Managing Director & CEO
Slide 22: People and safety
22 People and safety Record high employee engagement and continued focus on safety. Employee Total Injury Frequency Rate Key safety statistics: 18 › Total recordable injuries - 33 (Loy Yang A: 7) 16 14 › Lost time injuries - 18 (Loy Yang A: 3) 12 10 › Total injury frequency rate down by 31% to 5.9 8
Slide 23: Core operations continue to perform well
23 Core operations continue to perform well Further improvements in customer service and satisfaction. › Customer Satisfaction1 eBill Accounts Online customers » Overall customer satisfaction leads major 800 600 competitors 500 600 » Average call handling time down 8.8% to 400 351 seconds ('000) ('0
Slide 24: Core operations continue to perform well
24 Core operations continue to perform well Robust systems provide platform for improved debt management. › Stable operating systems over past three years provide Unbilled accounts platform for effective debtor management 10,000 » 7,266 unbilled accounts at ~0.2% of total customer 8,000 accounts 6,0
Slide 25: Weak demand impacts volumes
25 Weak demand impacts volumes Demand remains weak and impacted by mild weather. Change in Electricity Demand (2008-2013) › NEM electricity demand weak reflecting: 4.0% » General economic conditions » Solar penetration (~2,500 MW installed) 2.0% » Demand side response to price increases 0.0% FY08 FY
Slide 26: Scale achieved in New South Wales
26 Scale achieved in New South Wales NSW electricity customer base set to exceed 800,000. › Proposed APG acquisition plus organic growth will NSW electricity customer numbers see NSW electricity customer base exceed 800,000 800 APG › New South Wales electricity net growth of 97,000 in 700 FY13 (Thou
Slide 27: FY13 retail competition at record levels
27 FY13 retail competition at record levels Increase in competitor activity required more active retention campaigns. › Increased competitor activity resulted in sharp Total Market churn 24 rise in retention activity 23 » Retention activity increased by 65% in FY13 22 » Acquisition and retention cos
Slide 28: Customer acquisition channels
28 Customer acquisition channels Industry withdrawal from doorknocking gathering pace. Energy Sector Door-to-door sales force1 › AGL ceased door knocking in all states over October to March 2,500 Door to Door Sales (FTE) » Progressively expanding alternative sales channels 2,000 › Energy Australia a
Slide 29: Australian Power and Gas acquisition
29 Australian Power and Gas acquisition Opportunity to further strengthen AGL’s retail franchise. › APG acquisition subject to ACCC decision expected APG Customer Numbers 12 September ('000) Electricity Gas Total Victoria 121 107 228 › Transaction targeted to complete October 2013 New South Wales 74
Slide 30: Regulatory pricing
30 Regulatory pricing Queensland to deregulate retail prices - NSW decision pending › Regulatory pricing outcomes reduced FY13 EBIT by ~$68 million › Policy settings improving » SA government implemented price deregulation effective 1 February 2013 » Queensland announces deregulation effective 1 Jul
Slide 31: Loy Yang A provides low cost generation source
31 Loy Yang A provides low cost generation source Performance in-line with acquisition expectations. › Operational highlights for FY13: AGL Generation Capacity » Availability factor – 90.7% » Capacity factor – 84.0% » Operating expenses declined by 4.2% year on year to $273.6 million » Planned major
Slide 32: Carbon policy
32 Carbon policy Lower / no carbon price adds significant upside to Loy Yang A valuation. Carbon price assumptions1 › Uncertainty around carbon prices post-Federal 80 election Carbon Price ($/tonne nominal) 70 » High likelihood of carbon prices being lowered 60 significantly or removed 50 › Loy Yang
Slide 33: Wholesale gas portfolio
33 Wholesale gas portfolio AGL’s gas portfolio provides substantial upside. › AGL is extremely well placed with a long gas AGL Contracted Supply – Maximum Annual Quantity1 position in QLD 300 250 » QLD sourced supply contracts in place to 2027 200 150 » Existing supply contracts allow for additional
Slide 34: NSW gas regulations
34 NSW gas regulations NSW Government policy to drive up prices. › NSW CSG regulations remain uncertain » Draft Mining SEPP excludes gas exploration and development within 2 km of residential areas and within certain industry clusters » Effectively sterilises large amounts of natural gas that could
Slide 35: Gloucester Gas Project
35 Gloucester Gas Project Front end engineering design (FEED) underway. › FEED underway: » WorleyParsons engaged » Geotechnical and survey work for the pipeline › Cooperation Agreement entered into with Gloucester Council to undertake basin wide water study › Conducting irrigation trial with produce
Slide 36: Project updates
36 Project updates Solar projects › Total project cost of ~$440 million, with funding support provided by ARENA ($166.7 million) and the NSW Government ($64.9 million) › Achieved financial close for Government funding on 30 July 2013 › Partnership with First Solar: » Nyngan, NSW (102 MW) and Broken
Slide 37: Diversity of growth opportunities
37 Diversity of growth opportunities Integrated strategy delivers numerous growth opportunities. Bowen Basin JV Gloucester Gas Project Rising energy prices, particularly gas Shareholder Value Rising renewable prices NSW generation privatisation Retail "Must Win Battles" Additional QLD gas sales Pric
Slide 38: Summary
38 Summary Core businesses deliver growth and shareholder value. › Substantial increase in Underlying cash flow before interest and tax › Retail performed well in a highly-competitive environment » Proposed APG acquisition and organic growth to deliver NSW customer target » Service platform enables
Slide 39: Outlook
39 Outlook Solid operating performance to continue against backdrop of soft demand. › Retail » Core operations continue to perform well » Retail competition remains aggressive » Mild winter adds to soft demand outlook » Proposed APG acquisition targeted to complete October 2013 subject to ACCC › Mer
Slide 40: Contact information
40 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 Cor
Slide 41: Supplementary Information
41 Supplementary Information
Slide 42: Electricity sales volume
42 Electricity sales volume 12 months to 30 Jun 2013 30 Jun 2012 Change GWh Consumer New South Wales 5,450 4,821 13.1% Victoria 4,258 4,660 (8.6%) South Australia 2,814 3,025 (7.0%) Queensland 2,754 2,904 (5.2%) Consumer Total 15,276 15,410 (0.9%) Business New South Wales 3,619 4,876 (25.8%) Victori
Slide 43: Gas sales volume
43 Gas sales volume 12 months to 30 Jun 2013 30 Jun 2012 Change PJ Consumer New South Wales 24.4 26.0 (6.2%) Victoria 30.6 28.7 6.6% South Australia 2.8 2.6 7.7% Queensland 2.8 2.8 0.0% Consumer Total 60.6 60.1 0.8% Business New South Wales 35.1 30.9 13.6% Victoria 27.2 26.7 1.9% South Australia 9.0
Slide 44: Customer numbers
44 Customer numbers Change since Customer Numbers 30 Jun 2012 31 Dec 2012 30 Jun 2013 30 Jun 2012 Electricity New South Wales 619,920 684,140 717,089 97,169 Victoria 637,708 623,850 610,728 (26,980) South Australia 458,822 458,125 443,901 (14,921) Queensland 367,482 378,412 374,048 6,566 2,083,932 2
Slide 45: Consumer market - key indicators
45 Consumer market - key indicators 12 months to 30 Jun 2013 30 Jun 2012 Change Electricity Volume (GWh) 15,276 15,410 (0.9%) Avg. Consumer Accounts ('000) 2,116 1,993 6.2% Revenue ($ million) 3,541.7 3,009.7 17.7% Gross Margin ($ million) 463.7 437.4 6.0% Gross Margin 13.1% 14.5% (1.4 ppts) Gross M
Slide 46: Business customers – key indicators
46 Business customers – key indicators 12 months to 30 Jun 2013 30 Jun 2012 Change Electricity Volume (GWh) 14,714 17,374 (15.3%) Business Accounts ('000) 18.4 21.7 (15.2%) Revenue ($ million) 2,058.3 1,926.0 6.9% Gross Margin ($ million) 65.4 57.1 14.5% Gross margin per MWh $4.44 $3.29 35.0% 12 mon
Slide 47: Retail – Cost to serve
47 Retail – Cost to serve 12 months to 30 Jun 2013 30 Jun 2012 Change Net operating costs ($m) 346.2 321.7 7.6% Net operating cost per customer account $98.90 $95.38 3.7% Cost to acquire/retain ($m) 128.0 108.0 18.5% Cost to acquire/retain per account acquired/retained1 $71.75 $82.94 (13.5%) Cost to
Slide 48: Merchant – generation: operational performance
48 Merchant – generation: operational performance 1. ‘Available capacity factor’ is used to measure Loy Yang A Availability / Start Reliability (%) performance, and represents the percentage of time the plant is available to operate. International benchmark 100 used is North American Electricity Rel
Slide 49: Merchant – hydrology
49 Merchant – hydrology AGL Hydro % Above Minimum Operating Level › Significant recovery of storage levels in recent years › 52.6% of hydro capacity is linked to drought resistant Kiewa Scheme. › Dartmouth is in service and currently available for 170 MW. Dam is currently above 95% with the water au
Slide 50: Merchant – Generation: Carbon intensity
50 Merchant – Generation: Carbon intensity Implied Carbon Asset Location Type Status Capacity FY13 Output Capacity intensity Factor4 (tonnes (MW) (GWh)1 (%) CO2e/MWh) Wattle Point SA Wind Control dispatch 91 239 30% 0.0 Hallett 1 SA Wind Control dispatch 95 332 40% 0.0 Hallett 2 SA Wind Control disp
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 – Electricity Hedging: Position
52 Merchant – Electricity Hedging: Position Physical Financial AGL Energy Hedge Position - All States Contingent Generation Satisfying Financial Risk Limits Expected Generation 200% Derivatives (Swaps Only) 175% Unhedged load must be limited Range of profit outcomes from 150% so that potential downs
Slide 53: Upstream Gas – Key financial metrics
53 Upstream Gas – Key financial metrics 12 months to 30 Jun 2013 30 Jun 2012 Change $m Operating EBITDA 23.8 20.6 15.5% Depreciation and amortisation (23.8) (20.0) 19.0% Operating EBIT Queensland / South Australia 6.2 5.7 8.8% New South Wales (0.3) 1.5 (120.0%) Equity Investments 0.0 (0.1) 100.0% Su
Slide 54: Upstream Gas - Reserves
54 Upstream Gas - Reserves AGL share of gas reserves* As at 30 Jun 13 As at 30 Jun 12 Change PJ 2P 3P 2P 3P 2P 3P Gloucester (100%) 454 565 635 790 (28.5%) (28.5%) Moranbah (50%) – Bowen Basin 291 487 361 828 (19.4%) (41.2%) Camden (100%) 50 50 138 183 (63.8%) (72.7%) Hunter (100%) 0 0 134 257 (100.
Slide 55: Upstream Gas – Permits
55 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)r - 28.71-100% PEL 5 (398)r - 100% ATP 709P (146) - 100% - PPL
Slide 56: Reconciling Statutory to Underlying cash flow
56 Reconciling Statutory to Underlying cash flow 12 months to 30 Jun 2013 30 Jun 2012 Change $m Statutory net cash provided by operating activities 601.8 466.5 Cash flow relating to significant items 52.9 56.5 Increase / (decrease) in futures margin calls (8.2) (29.8) Increase / (decrease) in net gr
Slide 57: Return on Funds Employed
57 Return on Funds Employed 12 months to 30 Jun 2013 30 Jun 2012 $m Operating EBIT 1,049.3 730.4 Average Funds Employed 9,853.4 7,917.2 Operating EBIT / Funds Employed 10.6% 9.2% Operating EBIT 1,049.3 730.4 Less: Upstream Gas EBIT 0.0 (0.6) Less: Equity Accounted Diamantina EBIT 0.3 Adjusted Operat
Slide 58: Energy Investments
58 Energy Investments 12 months to 30 Jun 2013 30 Jun 2012 Change $m Operating EBIT ActewAGL 26.5 28.0 (5.4%) Loy Yang A - (3.5) n/a Diamantina Joint Venture (0.3) - n/a Total Operating EBIT 26.2 24.5 6.9% » FY13 Final Results 12 months to 30 June 2013 » 28 August 2013 » AGL External
Slide 59: Balance Sheet
59 Balance Sheet As at 30 Jun 2013 30 Jun 2012 $m Current assets 2,836.0 4,131.9 PPE, E&E and oil & gas assets 6,175.7 6,323.5 Other non current assets 4,354.1 4,283.0 Total Assets 13,365.8 14,738.4 Current debt 45.4 616.0 Other current liabilities 2,146.4 1,993.8 Non current debt 3,063.6 3,696.0 Ot
Slide 60: Fair Value Reconciliation
60 Fair Value Reconciliation Net Assets (Liabilities) As at $m 30 Jun 2013 30 Jun 2012 Change Energy derivative contracts 112.7 208.7 (96.0) Interest rate swaps & foreign currency derivative contracts (55.5) (224.9) 169.4 Total net assets (liabilities) for derivative contracts 57.2 (16.2) 73.4 Chang