AGL Energy Limited · ASX:AGL
AGL Energy — H1 2014 Earnings Presentation
55 slides from AGL Energy's earnings presentation, Feb 26, 2014
Slide 1: FY14 Interim Results
FY14 Interim Results 1 Half Year ended 31 December 2013 Michael Fraser, Managing Director and CEO Brett Redman, Chief Financial Officer 26 February 2014
Slide 2: 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 3: Agenda
3 Agenda 4 Results Highlights Michael Fraser 7 Group Financials Brett Redman 20 Operational Review / Summary 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 Half Year ended 3
Slide 4: Half year FY14 highlights
Half year FY14 highlights 4 Lower underlying earnings. Stronger cash flow. Strategy delivers structural improvements. › Underlying Profit down 11% to $242 million › Underlying Operating Cash Flow before interest and tax up 49% to $963 million › Retail Operating EBIT of $136 million in line with prio
Slide 5: Interim FY14 result
Interim FY14 result 5 Statutory and Underlying Profit impacted by lower electricity and gas volumes. › Revenue: $4,842m (2.6%) › Statutory Profit: $261m (27.1%) › Underlying Profit: $242m (11.4%) FINANCIAL › Statutory EPS: 46.9 cps (28.2%) › Underlying EPS: 43.5 cps (12.7%) › Dividends Per
Slide 6: Macquarie Generation Acquisition
Macquarie Generation Acquisition 6 Subject to ACCC approval. › AGL signed agreement with NSW Government to purchase Macquarie Generation assets on 12 February 2014 » ACCC decision expected on 4 March 2014 » Undertakings offered to ACCC consistent with business case › AGL to acquire 100% of Macquarie
Slide 7: Group Financials
7 Group Financials Brett Redman Chief Financial Officer
Slide 8: Statutory Profit to Underlying Profit reconciliation
Statutory Profit to Underlying Profit reconciliation 8 Volatility of non-cash items highlights value of focus on Underlying Profit. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Statutory Profit 261 358 (27.1%) Adjust for the following after tax items: Significant items 1 17 - -% Changes in fair v
Slide 9: Underlying Profit
Underlying Profit 9 Underlying profit down 11% on prior period. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Revenue 4,842 4,970 (2.6%) Operating EBITDA 622 641 (3.0%) Operating EBIT Retail 136 136 0.0% Merchant 433 460 (5.9%) Upstream Gas (13) (3) 333.3% Energy Investments 14 16 (12.5%) Centrally
Slide 10: Group Underlying Profit
Group Underlying Profit 10 Record warm winter impacts first half earnings. 325 Retail Merchant 26 300 273 (17) 275 $ million (9) (2) (8) 250 (15) 17 242 (2) (10) 225 (9) (2) 200 YTD Consumer Operating D&A Energy Business Merchant Other Upstream Central Investments Interest & YTD December Gross Margi
Slide 11: Retail – key financial metrics
Retail – key financial metrics 11 Flat result achieved despite lower volumes and higher discounting. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Electricity Revenue 1,823 1,774 2.8% Gas Revenue 739 698 5.9% Other Revenue (Fees & Charges) 37 37 0.0% Total Revenue 2,599 2,509 3.6% Cost of Sales (2,2
Slide 12: Retail – Operating EBIT drivers
Retail – Operating EBIT drivers 12 Solid result in challenging environment. 180 40 23 160 (8) 3 $ million (9) 140 (3) 136 136 (37) (9) 120 100 YTD December Carbon timing Electricity Gross Gas Gross Net Bad Debt Labour & Ombudsman Campaigns, Depreciation & YTD December FY13 recovery Margin Margin exp
Slide 13: Retail – key operating metrics
Retail – key operating metrics 13 Improved timing of price increases offset by discounting and lower volumes. 6 months to 31 Dec 2013 31 Dec 2012 Change Consumer gross margin excluding fees and charges ($m) 342 316 8.2% Average customer numbers (‘000) 3,661.9 3,494.6 4.8% Gross margin per customer $
Slide 14: Retail – key operating metrics
Retail – key operating metrics 14 Net opex to gross margin ratio impacted by one-off costs, APG and Project Storm amortisation. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Operating costs (200) (183) 9.3% Depreciation and amortisation (43) (34) 26.5% Less fees and charges 37 37 0.0% Net operating
Slide 15: Merchant – key financial metrics
Merchant – key financial metrics 15 Operating EBIT decline reflecting lower electricity volumes. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Operating EBITDA 531 542 (2.0%) Depreciation and amortisation (98) (82) 19.5% Energy Portfolio Management (EPM) Wholesale Electricity Gross Margin 523 519 0.
Slide 16: Merchant – Operating EBIT drivers
Merchant – Operating EBIT drivers 16 Operating EBIT impacted by lower electricity volumes and higher SREC costs. 480 9 4 460 460 (13) $ million (15) 440 (8) 433 (2) (2) 420 400 YTD December Wholesale Wholesale Gas Eco-markets Merchant Business Power Other Merchant YTD December Key drivers: FY13 Elec
Slide 17: Underlying Operating cash flow
Underlying Operating cash flow 17 Cash flow benefited from carbon timing and strong collections performance. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Operating EBITDA 622 641 (19) Equity accounted income (1) (3) 2 Onerous contracts (18) (26) 8 Receivables 137 (194) 331 Inventories 4 9 (5) Carbo
Slide 18: Capital expenditure
Capital expenditure 18 Stay in Business, Newcastle Gas Storage and Upstream Gas key drivers of spend. 700 LEGEND 600 Stay In Business Upstream Gas 500 Newcastle Gas Storage Retail 400 Other $ million 300 200 100 0 Jul - Dec 2013 Jan - Jun 2014 Forecast FY14 Forecast FY14 Interim Results Half Year en
Slide 19: Debt structure
Debt structure 19 No material debt maturity until FY16. › $600m syndicated term facility increased to $650m and extended to February 2018 › Refinanced facility signed in February 2014 with existing banking consortium › Four year term sourced at lower margin than existing three year facility › Refina
Slide 20: Operational Review
20 Operational Review Michael Fraser Managing Director and CEO
Slide 21: People and safety
People and safety 21 Improvement in key safety and engagement measures. Key safety statistics for 1H FY14: Employee Total Injury Frequency Rate › Medical treatment injuries – 16 9 8 › Lost time injuries - 8 7 6 Key health and safety process improvements: 5 4 › Strengthened safety and incident system
Slide 22: Weather and consumer demand
Weather and consumer demand 22 Record warm winter impacts demand. AGL Total Consumer Energy Volumes › Record warm winter across southeast Australia 9.0 1H FY13 1H FY14 40 1H FY13 1H FY14 impacted demand 8.0 35 7.0 30 › Decline in total consumer market volumes, partly 6.0 25 offset by APG acquisition
Slide 23: APG Integration – NSW Scale Achieved
APG Integration – NSW Scale Achieved 23 APG integration is progressing in line with acquisition expectations. › Acquisition of APG successfully completed on NSW electricity customer numbers 25 October 2013 800 › AGL customer base now at 3.85 million 700 › AGL’s NSW electricity customer target of (th
Slide 24: AGL customer churn reduces
AGL customer churn reduces 24 Reduced discounting and churn to benefit FY15. › AGL customer churn reduced in all markets AGL Customer Churn Reducing » AGL grows gap in national churn versus the AGL 2012 Rest of Market (15.5% vs 21.8%) 26% AGL 2013 RoM 2013 » Annualised reduction in churn is estimate
Slide 25: Retail Core Operations
Retail Core Operations 25 Delivering on-going improved performance and service. › 61.9% improvement in average speed of answer 140 Average Speed of Answer down to 24 seconds 120 100 › Abandoned calls reduced by ~48% down to a rate Seconds 80 under 2% which is significantly better than industry 60 pr
Slide 26: Customer Debt Management
Customer Debt Management 26 Further innovation drives improved cash management. Total Days Outstanding 1 16 AGL APG › Days Sales Outstanding improved by 12.9% 14 driven by improved collection performance 12 10 and lower winter billings. APG acquisition 8 impacted DSO by 1.0 day 6 4 2 › On-going cred
Slide 27: My AGL Monthly Bill launched
My AGL Monthly BillTM launched 27 Smaller, more regular electricity and gas bills. › My AGL Monthly BillTM launched » More than 70,000 customers since launch » Strong take-up rate peaking at 1,000 customers per day, and continuing to average in excess of 500 per day › Provides customers more control
Slide 28: Regulatory pricing
Regulatory pricing 28 Deregulation and carbon uncertainty. › South Australia price deregulation » Reduced 1H FY14 gross margin by $15 million compared with 1H FY13 » Full year FY14 gross margin impact expected to be $30 to $35 million » AGL commitment on standing price expires January 2015 › QCA 201
Slide 29: Gas Portfolio
Gas Portfolio 29 Additional gas sales of over 40 PJ p.a. to commence in FY15. › Sales to QLD wholesale gas customers of Queensland Wholesale Gas Sales FY13 to FY17 59 PJ expected in FY151, up from 18 PJ 60 expected in FY14 50 40 » Additional sales in FY15 contracted at 30 PJ average margin of $3.40/
Slide 30: Gloucester Gas Project
Gloucester Gas Project 30 Front end engineering design (FEED) underway. › Awaiting approval from the NSW Office of Coal Seam Gas to conduct the proposed Waukivory Pilot flow testing › Petroleum production licence application re-submitted in December 2013 › Pipeline easement negotiations and geotechn
Slide 31: Diamantina Power Station (DPS) – Mt Isa
Diamantina Power Station (DPS) – Mt Isa 31 Construction largely complete. Commissioning underway. › EPC contractor, Forge Group, placed into receivership on 11 February 2014 » Contingency plan implemented to provide construction continuity » DPS Co organising replacement construction manager › DPS g
Slide 32: Newcastle Gas Storage and Solar Projects
Newcastle Gas Storage and Solar Projects 32 Construction of both projects has commenced with completion due in 2015. Newcastle Gas Storage Facility › Critical infrastructure for NSW security of supply › 1,500 TJ storage and 120 TJ/day peaking capacity › All civil works complete › Outer tank walls an
Slide 33: AGL growth pipeline
AGL growth pipeline 33 AGL’s integrated strategy creating significant growth pipelines. Retail “Must Win Battles” Shareholder Value Gloucester Gas Project Price deregulation Rising energy prices, particularly gas Solar Projects (Nyngan and Broken Hill) Newcastle Gas Storage Facility Diamantina Power
Slide 34: Outlook FY14
Outlook FY14 34 Underlying NPAT guidance of $560 million to $610 million reaffirmed. › Guidance of Underlying NPAT for FY14 of $560 million to $610 million reaffirmed subject to normal trading conditions » Successful acquisition of Macquarie Generation not expected to change guidance › Energy demand
Slide 35: Contact information
35 Contact information Sales - Electricity and gas www.agl.com.au Customer Service 131 245 AGL Energy Online/My AGL IQTM https://aglenergyonline.agl.com.au Corporate Information www.agl.com.au/about/Pages/Default.aspx Investors Media John Hobson Karen Winsbury Head of Capital Markets Head of Corpora
Slide 36: Supplementary Information
36 Supplementary Information
Slide 37: Electricity sales volume
37 Electricity sales volume 6 months to 31 Dec 2013 31 Dec 2012 Change GWh Consumer New South Wales 2,795 2,746 1.8% Victoria 2,093 2,214 (5.5%) South Australia 1,240 1,416 (12.4%) Queensland 1,254 1,393 (10.0%) Consumer Total 7,382 7,769 (5.0%) Business New South Wales 1,597 2,078 (23.1%) Victoria
Slide 38: Gas sales volume
38 Gas sales volume 6 months to 31 Dec 2013 31 Dec 2012 Change PJ Consumer New South Wales 12.2 13.9 (12.2%) Victoria 17.0 17.2 (1.2%) South Australia 1.6 1.6 0.0% Queensland 1.4 1.5 (6.7%) Consumer Total 32.2 34.2 (5.8%) Business New South Wales 16.1 19.3 (16.6%) Victoria 14.4 13.9 3.6% South Austr
Slide 39: Customer numbers
39 Customer numbers Change since Customer Numbers 31 Dec 2012 30 Jun 2013 31 Dec 2013 30 Jun 2013 Electricity New South Wales 684,140 717,089 812,883 95,794 Victoria 623,850 610,728 705,820 95,092 South Australia 458,125 443,901 436,421 (7,480) Queensland 378,412 374,048 389,818 15,770 2,144,527 2,1
Slide 40: Consumer market - key indicators
40 Consumer market - key indicators 6 months to 31 Dec 2013 31 Dec 2012 Change Electricity Volume (GWh) 7,382 7,769 (5.0%) Avg. Consumer Accounts ('000) 2,224 2,106 5.6% Revenue ($m) 1,823 1,774 2.8% Gross Margin ($m) 193 199 (3.0%) Gross Margin 10.6% 11.2% (0.6 ppts) Gross Margin per customer $86.5
Slide 41: Business Customers – Key indicators
41 Business Customers – Key indicators 6 months to 31 Dec 2013 31 Dec 2012 Change Electricity Volume (GWh) 6,628 7,911 (16.2%) Business Accounts ('000) 19.0 19.5 (2.6%) Revenue ($m) 938 1,082 (13.3%) Gross Margin ($m) 19 32 (40.6%) Gross margin per MWh $2.75 $4.16 (33.9%) Gas Volume (PJ) 41.7 46.0 (
Slide 42: Retail – Cost to Serve
42 Retail – Cost to Serve 31 Dec 2013 31 Dec 2012 Change 6 months to Restated Net Operating Costs 206 180 14.4% Net operating cost per customer account $56.36 $51.43 9.6% Cost to acquire/retain ($m) 72 64 12.5% Cost to acquire/retain per account acquired/retained1 $103.11 $67.84 52.0% Cost to serve
Slide 43: Generation: Operational Performance
43 Generation: Operational Performance 1. ‘Availability capacity factor’ is used to measure Loy Yang A performance, and represents the percentage of time Availability / Start Reliability (%) the plant is available to operate. International 100 benchmark used in North American Electricity Reliability
Slide 44: Hydrology
44 Hydrology › 52.6% of hydro capacity is linked to AGL Hydro % Above Minimum Operating Level drought resistant Kiewa Scheme › Dartmouth is in service and available for 170 MW. Dam is above 93% with the water authority planning releases over the coming months › Eildon is available for full capacity
Slide 45: Generation portfolio
45 Generation portfolio Asset Location Type Status Capacity H1 FY14 Implied Carbon Sent out Capacity Intensity generation Factor (tonnes (MW) (GWh) (%) CO2e/MWh) Wattle Point SA Wind Control dispatch 91 154 39% 0.0 Hallett 1 SA Wind Control dispatch 95 200 48% 0.0 Hallett 2 SA Wind Control dispatch
Slide 46: Electricity hedging
46 Electricity hedging AGL Energy Hedge Position - All States › AGL Risk Management Policy is set by the Board Contingent Generation and establishes the requirements for the Expected Generation management of wholesale risk 175% Derivatives (Swaps Only) › Limit unhedged load to ensure stability of pr
Slide 47: Upstream Gas – key financial metrics
Upstream Gas – key financial metrics 47 Increased operating expenses impact Operating EBIT. 6 months to 31 Dec 2013 31 Dec 2012 Change $m Operating EBITDA (1) 9 (111.1%) Depreciation and amortisation (12) (12) 0.0% Operating EBIT Upstream Gas Queensland (7) 1 (800.0%) New South Wales 0 1 (100.0%) Eq
Slide 48: Upstream Gas – Reserves
48 Upstream Gas – Reserves AGL share of gas reserves As at 31 Dec 13 As at 30 Jun 13 Change PJ 2P 3P 2P 3P 2P 3P Gloucester (100%) 454 565 454 565 - - Moranbah (50%) - Bowen Basin 288 484 291 487 (1.0%) (0.6%) Camden (100%) 48 48 50 50 (4.0%) (4.0%) Hunter (100%) 0 0 0 0 - - Silver Springs (various)
Slide 49: Upstream Gas – Permits
49 Upstream Gas – Permits Permits Permits Working Working Basin Project Exploration Production Basin Project Exploration Production Interest 2 2 Interest 2 2 (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% - PL
Slide 50: Reconciling Statutory to Underlying cash flow
50 Reconciling Statutory to Underlying cash flow 6 months to 31 Dec 2013 31 Dec 2012 Change $m Statutory net cash provided by operating activities 748 365 Cash flow relating to significant items 22 - Increase / (decrease) in futures margin calls (5) 21 Increase / (decrease) in net green position (39
Slide 51: Energy Investments
51 Energy Investments 6 months to 31 Dec 2013 31 Dec 2012 Change $m ActewAGL 14 16 (12.5%) Diamantina Power 0 - -% Total EBIT 14 16 (12.5%) FY14 Interim Results Half Year ended 31 December 2013 26 February 2014 AGL External
Slide 52: Capital expenditure
52 Capital expenditure 6 months to 31 Dec 2013 SIB Discretionary Total $m Merchant 127 5 132 Upstream Gas 0 136 136 Retail 0 17 17 Corporate and Other 12 6 18 Capital expenditure 139 164 303 Less: AGL Solar Projects net of advance government funding 1 0 (19) (19) Net capital expenditure 139 145 284
Slide 53: Balance Sheet
53 Balance Sheet As at 31 Dec 2013 30 Jun 2013 $m Current assets 3,066 2,836 PPE, E&E and oil & gas assets 6,417 6,176 Other non current assets 4,451 4,354 Total Assets 13,934 13,366 Current debt 645 45 Other current liabilities 2,416 2,147 Non current debt 2,594 3,064 Other non current liabilities
Slide 54: Fair Value Reconciliation
54 Fair Value Reconciliation Net Assets (Liabilities) As at $m 31 Dec 2013 30 Jun 2013 Change Energy derivative contracts 94 113 (19) Interest rate swaps and foreign currency derivative contracts (51) (56) 5 Total net assets (liabilities) for derivative contracts 43 57 (14) Change in derivative net
Slide 55: Comparative information
55 Comparative information AGL has restated the result for the half-year ended 31 December 2012 to reflect the following changes: › Adoption of the revised accounting standard AASB 119 Employee Benefits › A minor amendment to the basis of segment reporting which reclassified some administrative cost