AGL Energy Limited · ASX:AGL
AGL Energy — FY2009 Earnings Presentation
67 slides from AGL Energy's earnings presentation, Aug 20, 2009
Slide 1: 2009 Full Year Results
AGL Energy Limited For personal use only 2009 Full Year Results 12 months to 30 June 2009 …delivering on profit, delivering on growth, delivering on strategy… Sydney 20 August 2009
Slide 2: Disclaimer
2 Disclaimer For personal use only 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 objectiv
Slide 3: Agenda
3 Agenda For personal use only › Result Highlights Michael Fraser, MD & CEO › Group Financials Stephen Mikkelsen, CFO › Operational Review Michael Fraser, MD & CEO › Capital Expenditure Outlook Stephen Mikkelsen, CFO › Strategic Outlook Michael Fraser, MD & CEO › Supplementary Information IMPORTANT
Slide 4: Financial Year 2009 Highlights
4 Financial Year 2009 Highlights. Delivering on profit, delivering on growth, delivering on strategy. For personal use only › Improved safety performance and employee engagement › Result at top end of upgraded guidance range › BBB credit rating stable outlook re-instated following completion of $3.2
Slide 5: Financial Year 2009 Results
5 Financial Year 2009 Results Delivering on profit, delivering on growth. For personal use only › Revenue: $5,995.7m, Ï 6.1% › Statutory NPAT: $1,596.1m, Ï 597.0% › Underlying NPAT (excluding customer amortisation): $397.0m, Ï 11.6% FINANCIAL › Underlying NPAT: $378.8m, Ï 11.1% › Underlying EPS: 85.
Slide 6: Delivering on Integrated Strategy
6 Delivering on Integrated Strategy Divesting non-core assets. Investing in core markets. For personal use only FY08 BALANCE SHEET FY09 BALANCE SHEET Assets ($m) Liabilities ($m) Assets ($m) Liabilities ($m) Current Assets* 2,566.1 Current Liabilities 1,725.0 Current Assets* 1,850.6 Current Liabilit
Slide 7: Group Financials
7 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 8: Profit & Loss
8 Profit & Loss (excluding significant items & fair value movements) Result at top end of full year guidance range. For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m Revenue 5,995.7 5,653.5 6.1% Operating EBITDA 793.1 871.8 (9.0%) Operating EBIT Retail 266.8 271.7 (1.8%) Merchant
Slide 9: Group Underlying NPAT
9 Group Underlying NPAT Core business performing well. For personal use only Upstream Gas Retail Merchant 6.0 378.8 380 81.9 64.3 350 341.0 $ million 320 (29.7) (21.0) 48.5 27.0 290 (33.2) 18.4 260 (53.5) (40.5) (17.5) (12.9) 230 200 FY08 NQE PNG Upstream Gross Opex D&A Loy Yang Gas Merchant Invest.
Slide 10: Retail – Key Financial Metrics
10 Retail – Key Financial Metrics Gross margin increase offset by process and billing issues. For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m Electricity Revenue 3,475.2 3,298.0 5.4% Gas Revenue 1,497.8 1,384.3 8.2% Other Revenue (Fees & Charges) 50.9 53.8 (5.4%) Total Revenue 5
Slide 11: Retail – EBIT Drivers
11 Retail – EBIT Drivers EBIT impacted by transitional costs and incorrect QLD regulatory decision. For personal use only 24.7 320 23.8 (17.3) 290 $ million (18.4) (2.5) 271.7 (2.3) 266.8 (12.9) 260 230 200 FY08 EBIT MM Gross C&I Gross Labour Bad & Regulatory Campaign & Depreciation FY09 EBIT Margin
Slide 12: Retail – Key Metrics Calculation
12 Retail – Key Metrics Calculation Most appropriate metrics for assessing the Retail business. For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m Operating costs 308.4 270.8 13.9% Depreciation and Amortisation 36.2 23.3 54.4% Less fees and charges (50.9) (53.8) (5.4%) Net operatin
Slide 13: Merchant – Key Financial Metrics
13 Merchant – Key Financial Metrics Integrated portfolio continues to deliver increasing returns. For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m Operating EBITDA 502.0 388.8 29.1% D&A (54.7) (51.2) 6.8% EBIT Energy Portfolio Wholesale Electricity 311.0 295.5 5.2% Wholesale Gas
Slide 14: Merchant – EBIT Drivers
14 Merchant – EBIT Drivers Integrated portfolio continues to deliver increasing returns. For personal use only 500 14.3 0.3 447.3 450 9.7 41.6 (6.2) $ million 400 50.0 350 337.6 300 250 200 FY08 EBIT Wholesale Wholesale Gas Merchant Power Energy Sundry FY09 EBIT Electricity & Operations Development
Slide 15: Centrally Managed Expenditure
15 Centrally Managed Expenditure Improved infrastructure and systems increase IT costs. For personal use only 140 6.7 131.3 28.0 0.4 (3.2) $ million 110 98.1 1.3 80 50 FY08 Expense Labour Hardware & Consulting D&A Other FY09 Expense software Key drivers: › Hardware and software cost increases were d
Slide 16: Operational Review
16 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 17: People & Safety
17 People & Safety Employee safety, engagement & capability – a strategic priority. For personal use only Lost Time Injury Frequency Rate › Ongoing, holistic focus on safety in the workplace 6.0 delivering improved results: 5.0 5.2 LTIFR » HSE action plans linked to remuneration / 4.0 3.6 incentives
Slide 18: Retail – Transitional Cost Increases
18 Retail – Transitional Cost Increases Rapid progress in reducing unbilled accounts. For personal use only Billing Backlogs 300,000 30 Jun 30 Jun 12 months to Change 2009 2008 Total Unbilled 250,000 $m 200,000 Labour costs 99.3 82.0 21.1% 150,000 Doubtful debts expense 57.3 38.9 47.3% 100,000 Regul
Slide 19: Retail – Improving Core Operations
19 Retail – Improving Core Operations Good progress on improving productivity. For personal use only Average Call Handling Time › Ongoing productivity and billing performance 700 AHT improvements 650 Average Handle Time (AHT) » Average call handling times reduced (Ð 20%) 600 » Benefits to flow in re
Slide 20: Retail – Market Churn
20 Retail – Market Churn Customer numbers flat in challenging and transitional year. For personal use only Market Churn Jul-04 to Jun-09 60.0% AGL Churn at 14.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Jan-07 Mar-06 May-06 Mar-07 Mar-08 Jul-06 Jul-07 Feb-06 Apr-06 Sep-06 Nov-06 Feb-07 Apr-07 May-07 Sep-0
Slide 21: Merchant – Managing volatility
21 Merchant – Managing volatility Strong performance in dynamic market conditions. For personal use only FY09 Electricity Spot Prices (Daily Average) Volatility increasing across markets NSW1 QLD1 SA1 VIC1 › Lower underlying prices and higher peaks 2,400 Pool Priice ($/MWh) 2,000 › Driven by weather
Slide 22: Merchant Generation
22 Merchant Generation Excellent operational performance although drought impacts available capacity. For personal use only Commercial Availability / Start Reliability^ (%) 100.0 98.0 96.0 94.0 92.0 90.0 Torrens Island* Somerton AGL Hydro FY07 FY08 FY09 International Benchmark › Continuing impacts o
Slide 23: Required Renewables Growth
23 Required Renewables Growth Expanded Renewable Energy Target (RET) Drives Growth. For personal use only › Federal Legislation requires an 60,000 additional 35,500 GWh p.a. of renewable energy to meet the 50,000 expanded target of 45,000 GWh p.a. 40,000 › Desalination plants and greenpower forecast
Slide 24: Impact of Renewable Policy Setting
24 Impact of Renewable Policy Setting Fundamental changes required to generation mix. For personal use only New Build Generation Mix Years of Forecast - 2010 to 2020 Coal Plant CCGT Base Plant OCGT Peak Plant Renewable Plant 20000 18000 Capacity required (MW) 16000 14000 Renewables dominate 9,500MW
Slide 25: Generation
25 Generation Continued build of market leading portfolio. For personal use only Rapid deployment of renewables to deliver low carbon fleet Renewable › 140 MW Bogong: In Commissioning on schedule Current 34% Gas Generation › 71 MW Hallett 2: In Commissioning ahead of schedule Breakdown 49% › 67 MW O
Slide 26: Upstream Gas – Substantial Reserves Upgrade
26 Upstream Gas – Substantial Reserves Upgrade Creating value and future growth. For personal use only › Upgrading reserves with further, material upside potential and optionality: » Gloucester Basin 2P reserves upgraded 248PJ (142%) since acquisition » Moranbah 2P reserves upgraded 220PJ over FY09
Slide 27: Upstream Gas – Operating Activities
27 Upstream Gas – Operating Activities Building a diversified domestic gas portfolio. For personal use only Gloucester Basin › Five production pilot wells drilled and currently on test › Substantial reserves upgrade achieved through exploration and appraisal programs Galilee Basin › Five pilot wells
Slide 28: Upstream Gas – Delivering Duration & Flexibility
28 Upstream Gas – Delivering Duration & Flexibility Increasing self supply. For personal use only › Existing portfolio flexibility allows timely development of gas production projects › AGL will continue to be a significant contractor of wholesale gas › Anticipate recent acquisitions of Gloucester,
Slide 29: Capital Expenditure Outlook
29 For personal use only Capital Expenditure Outlook Stephen Mikkelsen Chief Financial Officer » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 30: Disciplined Capital Management
30 Disciplined Capital Management Capacity to fund growth. use only 2,000 $1.8b current net debt capacity assuming existing S&P treatment and maintenance of BBB rating 1,750 1,500 1,250 $ million For personal 1,000 Off balance 750 sheet funding 500 250 0 FY09 Net Debt* Wattle Point Hallett 1 Hallett
Slide 31: Capital Expenditure Committed Projects
31 Capital Expenditure Committed Projects Investing for future growth. For personal use only LEGEND 700 Stay In Business Upstream Gas 600 Bogong Sale of Hallett 4 Oaklands Hallett 4 500 Retail $ million Other 400 300 Additional debt 200 Funded by 100 Free cash flow after dividends 0 FY10 FY11 » 2009
Slide 32: Strategic Outlook
32 For personal use only Strategic Outlook Michael Fraser Managing Director & CEO » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 33: The AGL Integrated Strategy
33 The AGL Integrated Strategy Balancing risk between upstream supply, retail markets & providing For personal use only access to multiple profit pools. UPSTREAM SUPPLY (Core) Capturing value & growth Capturing value & growth Upstream Gas: Gas Production Renewable Generation Thermal Generation Gener
Slide 34: Renewable – Growth Pipeline
34 Renewable – Growth Pipeline Market leading portfolio provides strategic depth and optionality. For personal use only Project Nominal Capacity (MW) Location Type Project Status Definition Bogong 140 Victorian Alps Hydro Commissioning Committed RENEWABLE GENERATION McKay Creek Up Rate 10 Victorian
Slide 35: Upstream Gas – Growth Pipeline
35 Upstream Gas – Growth Pipeline Developing a portfolio with strategic depth and optionality. For personal use only Project Status Acquisition consolidated; advancing active exploration and appraisal program coordinated with land Gloucester Basin (AGL 100%) and approvals process; additional reserve
Slide 36: Gas Generation – Growth Pipeline
36 Gas Generation – Growth Pipeline Developing a portfolio with strategic depth and optionality. For personal use only Project Nominal Capacity (MW) Location Type Project Status Definition Development Application GENERATION Leafs Gully 360 NSW - Appin Gas Peaker Probable Approved Tarrone 500 VIC - W
Slide 37: Retail – Growth from Core Operations
37 Retail – Growth from Core Operations Focus on growing margins, reducing costs and leveraging customer insights. For personal use only Initiative Deliverable Improve Operating Expenditure / Gross Margin Ratio Financial Reduce doubtful debts Achieve best practice exception handling Improve core ser
Slide 38: Strategic Priorities
38 Strategic Priorities Disciplined growth underpinned by strong core operations. For personal use only › Operational excellence in core Retail, Merchant and Upstream Gas businesses › Delivering on-going growth by: » Expanding market leading renewables portfolio » Proving up and developing additiona
Slide 39: Further Information / Contacts
39 Further Information / Contacts 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: INSTITUTIONAL INVESTO
Slide 40: Supplementary Information
40 For personal use only Supplementary Information » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 41: Operating EBITDA to Underlying Operating Cash Flow Reconciliation
Operating EBITDA to Underlying Operating 41 Cash Flow Reconciliation For personal use only 12 months to 30 Jun 2009 30 Jun 2008 $m Operating EBITDA 793.1 871.8 Equity accounting (23.4) (13.4) Onerous gas contract (20.9) (20.9) Receivables (83.8) (48.3) Net green position (44.2) 51.5 Other assets (20
Slide 42: Underlying Operating Cash Flow
42 Underlying Operating Cash Flow1 For personal use only 12 months to 30 Jun 2009 30 Jun 2008 $m Statutory net cash provided by operating activities 235.4 354.7 Cash flow relating to significant items 69.2 60.1 Net AEMO deposits and futures margin calls 66.8 46.7 Increase / (decrease) in net green p
Slide 43: Energy Investments
43 Energy Investments For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m EBITDA ActewAGL 27.9 26.0 7.3% Elgas1 10.6 15.6 (32.1%) GasValpo2 - 18.3 - AlintaAGL2 - 13.6 - Investments Other 5.5 5.0 10.0% Total EBITDA 44.0 78.5 (43.9%) GasValpo depreciation - (4.8) - Total EBIT contribu
Slide 44: Significant Items
44 Significant Items1 For personal use only 12 months to 30 Jun 2009 Pre Tax Tax After Tax $m Divestment PNG 777.1 36.5 813.6 Divestment QGC 753.6 (247.3) 506.3 Divestment Elgas 149.9 (30.0) 119.9 Divestment North Queensland Pipeline 23.1 (9.6) 13.5 Other divestments (7.4) (16.3) (23.7) Gain in fair
Slide 45: Disciplined Capital Management
45 Disciplined Capital Management For personal use only › Re-financed $800m of debt which will mature in June 2012 › Reinstated BBB stable credit rating Facilities @ 30 Jun 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 T
Slide 46: Balance Sheet
46 Balance Sheet For personal use only As at 30 Jun 2009 30 Jun 2008 $m Current assets 2,473.7 3,160.4 PPE and oil & gas assets 2,974.2 1,997.8 Other non current assets 3,586.8 4,294.7 Total Assets 9,034.7 9,452.9 Current liabilities 1,505.7 1,725.0 Total debt 1,120.2 2,101.7 Other non current liabi
Slide 47: Fair Value Reconciliation
47 Fair Value Reconciliation Net Assets For personal use only As at $m 30 Jun 2009 30 Jun 2008 Change Electricity derivative contracts (48.2) 1,007.4 (1,055.6) Oil derivative contracts - (247.5) 247.5 Interest rate swap & foreign currency derivative contracts (22.8) 19.0 (41.8) Total net assets for
Slide 48: Capital Expenditure
48 Capital Expenditure For personal use only 12 months to 30 Jun 2009 SIB Discretionary Total $m Merchant Energy 35.9 263.2 299.1 Upstream Gas - 182.9 182.9 Retail Energy - 54.5 54.5 Corporate Other 10.2 5.4 15.6 Total 46.1 506.0 552.1 » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009
Slide 49: Return on funds employed
49 Return on funds employed For personal use only Upstream 12 months to 30 Jun 09 AGL Group Retail Merchant Gas Average Funds Employed1 ($m) 6,644.4 3,114.8 2,440.1 988.6 EBIT ($m) 670.1 266.8 447.3 43.3 Return on EBIT / Funds Employed 10.1% 8.6% 18.3% 4.4% (2008: 10.6%) (2008: 9.5%) (2008: 14.4%) (
Slide 50: QGC & PNG Sales – Accounting
50 QGC & PNG Sales – Accounting For personal use only QGC $m Disposal Consideration 1,175.8 Carrying value of investment (422.2) Pre tax profit on disposal 753.6 Tax expense (247.3) Net profit after tax 506.3 PNG $m Disposal Consideration (net of cost) 1,185.8 Net Assets Disposed (book value) (492.0
Slide 51: Gas Sales Volume
51 Gas Sales Volume For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change PJ Mass Market VIC 31.4 31.2 0.6% SA 1.8 1.5 20.0% NSW 27.2 26.0 4.6% QLD 2.6 2.8 (7.1%) Mass Market Total 63.0 61.5 2.4% C&I VIC 29.2 32.2 (9.3%) SA 2.9 1.5 93.3% NSW 46.1 46.9 (1.7%) QLD 13.7 14.1 (2.8%) C & I To
Slide 52: Electricity Sales Volume
52 Electricity Sales Volume For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change GWh Mass Market VIC 5,055 5,232 (3.4%) SA 3,290 3,395 (3.1%) NSW 2,882 2,698 6.8% QLD 3,576 3,316 7.8% Mass Market Total 14,803 14,641 1.1% C&I VIC 5,618 5,946 (5.5%) SA 2,579 2,516 2.5% NSW 5,079 5,903 (14
Slide 53: Retail – Mass Market Key Indicators
53 Retail – Mass Market Key Indicators (includes SME) For personal use only 12 months to Jun 2009 Jun 2008 Change Electricity Volume (GWh) 14,803 14,641 1.1% Mass Market Accounts ('000) 1,793 1,799 (0.3%) Revenue ($m) 1,945.6 1,767.2 10.1% Gross Margin ($m) 317.3 304.0 4.4% Gross Margin 16.3% 17.2%
Slide 54: Retail – C & I Key Indicators
54 Retail – C & I Key Indicators For personal use only 12 months to Jun 2009 Jun 2008 Change Electricity Volume (GWh) 19,163 21,914 (12.6%) C & I Accounts ('000) 14.0 13.2 6.1% Revenue ($m) 1,529.6 1,530.8 (0.1%) Gross Margin ($m) 31.3 15.2 105.9% Gross Margin 2.0% 1.0% 100.0% 12 months to Gas Volum
Slide 55: Retail – Customer Accounts
55 Retail – Customer Accounts (12 months to 30 Jun 2009) For personal use only State Gas Electricity Total VIC 472,600 652,000 1,124,600 (FY08: 487,500)1 (FY08: 670,400)1 SA 85,000 463,900 548,900 (FY08: 75,400) (FY08: 469,800)1 NSW 752,300 329,100 1,081,400 (FY08: 759,700) (FY08: 299,800)1 QLD 86,4
Slide 56: Retail – Cost to Serve
56 Retail – Cost to Serve For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change Net operating expenditure 293.7m 240.3m 22.2% Net operating cost per customer account $91.47 $75.47 21.2% Cost to grow/retain 60.7m 56.3m 7.8% Cost to grow per account acquired/retained $73.39 $72.54 1.2% Cos
Slide 57: Retail – EBIT / Sales Analysis
57 Retail – EBIT / Sales Analysis For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change Electricity revenue 3,475.2 3,298.0 5.4% Gas revenue 1,497.8 1,384.3 8.2% Other fees and charges 50.9 53.8 (5.4%) Total revenue 5,023.9 4,736.1 6.1% Cost of sales (4,412.5) (4,170.3) 5.8% Gross margin
Slide 58: Retail – Weather Impact
58 Retail – Weather Impact For personal use only › NSW cold winter and early spring: » Aug 08 lowest average maximum Heating Degree Days temperature since 1989 & lowest mean minimum temperature since 1951 1,400 › VIC cold Aug 08: 1,200 » Temperatures well below the long term 1,000 average Degree Day
Slide 59: Merchant - EBIT Analysis
59 Merchant - EBIT Analysis 12 months to 30 Jun 30 Jun 2008 Change $m 2009 For personal use only Revenue from Retail Business 1. Prior and current year internal - Electricity (COGS transfer price)1 2,073.5 1,926.8 7.6% revenue and COGS are now reported on a grossed-up basis. - Gas (COGS transfer pri
Slide 60: Merchant – Hydrology
60 Merchant – Hydrology For personal use only › Post Bogong 52.6% of Hydro capacity linked to drought resistant Kiewa Scheme › Rocky Valley is being utilised to cover AGL’s winter position during the morning and evening peak periods. The scheme’s water management plan is to maintain enough water to
Slide 61: Merchant - Electricity Hedging: Policy
61 Merchant - Electricity Hedging: Policy 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 party credit limit tier allocation › Market
Slide 62: Merchant - Electricity Hedging: Position
62 Merchant - Electricity Hedging: Position For personal use only Physical Financial AGL Energy Hedge Position - All States Contingent Gas Fired Generation (max possible) Satisfying Financial Risk Limits Expected Generation Derivatives (sw aps only) 150% Unhedged load must be limited Range of profit
Slide 63: Merchant – Wholesale Electricity Prices
63 Merchant – Wholesale Electricity Prices For personal use only › Benign summer weather led to downward FY10 Forward Contract Prices pressure on the forward curve driven by spot market outcomes 80 NSW1 QLD1 VIC1 SA1 › Relatively solid underlying prices stabilised the 75 forward curve during April 7
Slide 64: Upstream Gas – Key Financial Metrics
64 Upstream Gas – Key Financial Metrics For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m Operating EBITDA 63.7 196.3 (65.8%) D&A (20.4) (78.0) (70.0%) Pro forma D & A adjustment (27.0) (10.0) 170.0% EBIT PNG Upstream Investment (net of pro forma adjustment) 22.4 75.9 (70.5%) Upst
Slide 65: Upstream Gas Interests – Permit Details
65 Upstream Gas Interests – Permit Details Permits For personal use only Working Basin Project Exploration Production 2 2 Interest (Area km ) (Area km ) 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 5 (103) 100% - PPL 6 (
Slide 66: Loy Yang A: Profit & Loss
66 Loy Yang A: Profit & Loss For personal use only 12 months to 30 Jun 2009 30 Jun 2008 Change $m AGL Equity Share of Profit 19.6 2.3 752.2% AGL Loan Note Interest 11.2 10.1 10.9% Total Equity Result1 30.8 12.4 148.4% 1. Excludes prior period adjustments and fair value changes › Revenue grew by 9% l
Slide 67: Loy Yang A: Financial Performance
67 Loy Yang A: Financial Performance 12 months to For personal use only 30 Jun 2009 30 Jun 2008 Change $m Generation Volume (GWh) 14,911 15,484 (3.7%) 1 Average Price ($/MWh) $40.46 $35.40 14.3% Sales Revenue2 655.7 599.6 9.4% Other Revenue 23.0 15.8 45.6% Expenses (243.7) (229.5) 6.2% Depreciation