AGL Energy Limited · ASX:AGL
AGL Energy — H1 2009 Earnings Presentation
61 slides from AGL Energy's earnings presentation, Feb 25, 2009
Slide 1: 2009 Interim Results
AGL Energy Limited For personal use only 2009 Interim Results 6 months to 31 December 2008 …Delivering on strategy, creating value & long term growth… Sydney 25 February 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 › Strategic & Financial Outlook Michael Fraser, MD & CEO › Supplementary Information IMPORTANT NOTE: This presentation should be read in
Slide 4: Result Highlights
4 Result Highlights Delivering on strategy, creating value & long term growth. For personal use only › Revenue: $2,977.7m, Ï 5.1% FINANCIAL › Operating EBIT from continuing operations: $322.7m, Ï 10.2% › Statutory NPAT: $1,654.8m › Underlying NPAT: $192.5m, Ï 5.3% › Interim dividend 26 cps, fully fr
Slide 5: Group Financials
5 For personal use only Group Financials Stephen Mikkelsen Chief Financial Officer » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 6: Profit & Loss (excluding significant items & fair value movements)
6 Profit & Loss (excluding significant items & fair value movements) Result in line with full year guidance. For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m Revenue 2,977.7 2,833.8 5.1% Operating EBITDA 443.9 471.4 (5.8%) Operating EBIT Retail 145.7 134.8 8.1% Merchant 211.9 156.
Slide 7: Significant Items
7 Significant Items1 Asset sales deliver substantial profits. For personal use only 6 months to 31 Dec 2008 Pre Tax Tax After Tax $m Divestment of PNG 926.6 (36.0) 890.6 Divestment of QGC 754.4 (247.5) 506.9 Divestment of Elgas 149.9 (29.0) 120.9 Divestment of North Queensland Pipeline 23.1 (9.5) 13
Slide 8: Group Underlying NPAT
8 Group Underlying NPAT Core business performing well. For personal use only $210 G&PD Retail Merchant 33.5 41.5 192.5 182.8 (10.0) $180 (20.1) (14.8) 27.0 (12.1) $150 22.1 (20.5) (12.2) Millions $120 (13.5) (11.2) $90 $60 $30 $0 HY08 Wind farm PNG G&PD Phoenix Retail Loy Yang Gas Merchant Invest. C
Slide 9: Operating Cash Flow Summary
9 Operating Cash Flow Summary1 Continued focus and improvement. For personal use only 6 months to 31 Dec 2008 31 Dec 2007 $m EBITDA (before significant items) 443.9 471.4 Equity accounted associates & joint ventures (net of dividends received) 4.6 (6.9) Net finance costs (69.1) (91.9) Tax refunded (
Slide 10: Disciplined Capital Management
10 Disciplined Capital Management For personal use only Well positioned for future growth opportunities. › October 09 maturities covered by cash reserves › Immediate debt capacity of ~A$1.2b to A$1.8b › Reinstated BBB stable credit rating Facilities @ 20 Feb 2009 $m Limit Usage Available Maturity Cu
Slide 11: Retail – Key Financial Metrics
11 Retail – Key Financial Metrics Margins maintained during SAP transition. For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA 161.3 149.3 8% D & A1 (15.6) (14.5) 7.6% EBIT Electricity Revenue 1,675.0 1,619.0 3.5% Gas Revenue 809.9 716.1 13.1% Other Revenue (Fees & Charges)2
Slide 12: Retail – EBIT Drivers
12 Retail – EBIT Drivers Margins maintained during SAP transition. For personal use only 19.8 $160 (5.4) $150 (3.6) (2.2) 145.7 7.0 (4.7) Millions $140 134.8 $130 $120 $110 HY08 EBIT Volume Tariffs Labour Advertising Debt provisions D&A HY09 EBIT Other Key drivers: › Despite continued high levels of
Slide 13: Merchant – Key Financial Metrics
13 Merchant – Key Financial Metrics Integrated portfolio continues to deliver increasing returns. For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA 239.8 182.9 31.1% D&A (27.9) (26.0) 7.3% EBIT Energy Portfolio and Merchant Operations Wholesale Electricity 182.9 151.7 20.6%
Slide 14: Merchant – EBIT Drivers
14 Merchant – EBIT Drivers For personal use only Integrated portfolio continues to deliver increasing returns. $250 34.0 4.5 211.9 $200 31.2 (1.2) (13.5) 156.9 $150 Millions $100 $50 $0 HY08 EBIT Wholesale Wholesale Gas Loy Yang Carbon Solutions Other HY09 EBIT Electricity Key Drivers: › Wholesale E
Slide 15: Gas & Power Development – Key Financial Metrics
15 Gas & Power Development – Key Financial Metrics For personal use only Significant progress in restructuring upstream gas portfolio. 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA 70.4 130.9 (46.2%) D&A (8.9) (48.9) (81.8%) Pro forma adjustment (27.0) - - EBIT PNG Upstream Investment (net of
Slide 16: Gas & Power Development – EBIT Drivers
16 Gas & Power Development – EBIT Drivers For personal use only Significant progress in restructuring upstream gas portfolio. $100 82.0 $80 $60 Millions (20.5) (8.7) $40 34.5 (14.8) (1.1) (2.4) $20 $0 HY08 EBIT PNG Upstream Gas Development Equity Investments Sundry HY09 EBIT Fees Key drivers: › Upst
Slide 17: Operational Review
17 For personal use only Operational Review Michael Fraser Managing Director & CEO » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 18: People & Safety
18 People & Safety For personal use only Employee safety, engagement & capability – a strategic priority. › Ongoing, holistic focus on safety in the workplace delivering improved results: » HSE action plans linked to remuneration / incentives » Continuing to build a safety first culture › Building u
Slide 19: Retail – Phoenix Business Transformation Stage
19 Retail – Phoenix Business Transformation Stage Capturing Benefits. For personal use only › Final core retail migration to SAP (Phoenix) completed Nov 2008: » ~93% of total customer base now serviced out of SAP › Business Transformation Program now established to ensure optimisation, timing and de
Slide 20: Retail – Operating Costs
20 Retail – Operating Costs Final SAP implementation results in short term cost increases. For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change Net Operating Expenditure $133.5m $117.7m 13.4% Net Operating Costs per Customer Account $41.42 $36.88 12.3% Cost to Grow $30.4m $25.4m 19.7% Co
Slide 21: Retail – Market Churn
21 Retail – Market Churn Stable customer accounts despite ongoing competition. For personal use only market churn Jul-04 to Jan-09 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Jul-04 Aug- Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug- Sep-05 Oct-05 Nov-05 Dec-05 Jan-06
Slide 22: Defensive Earnings Profile
22 Defensive Earnings Profile Robust earnings during deteriorating economic conditions. For personal use only › Majority of electricity & gas gross margin is derived from mass market customer base which historically has had limited volume impacts during economic downturns Electricity Gross Margin Co
Slide 23: Generation
23 Generation For personal use only Portfolio diversity across generation type, fuel and geography. Hydro: › Bogong on budget and on schedule, operational 1HFY10 › Kiewa Scheme inflows significantly higher than pcp › Eildon operational with consistent water levels in recent months › Dartmouth not an
Slide 24: Upstream Gas
24 Upstream Gas For personal use only Strategic acquisitions to deliver upside growth & optionality. › Recent transactions deliver access & control over additional certified 2P reserves with further, material upside potential & optionality: » Investment in Galilee Basin CSG production pilot & explor
Slide 25: Upstream Gas – Operating Activities
25 Upstream Gas – Operating Activities For personal use only Building a diversified domestic gas portfolio. Moranbah / Bowen Basin › Significant development drilling continued with 22 new wells completed and connected › Production was shut-in for seven weeks for scheduled maintenance of the Yabulu P
Slide 26: Upstream Gas – Delivering Duration & Flexibility
26 Upstream Gas – Delivering Duration & Flexibility For personal use only Increasing self supply. › 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 27: Strategic & Financial Outlook
27 For personal use only Strategic & Financial Outlook Michael Fraser Managing Director & CEO » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 28: The AGL Integrated Strategy
28 The AGL Integrated Strategy For personal use only Balancing risk between upstream supply, retail markets & providing access to multiple profit pools. UPSTREAM SUPPLY (Core) Capturing value & growth Capturing value & growth Upstream Gas: Gas Production Renewable Generation Thermal Generation Gener
Slide 29: Upstream Gas – Growth Pipeline
29 Upstream Gas – Growth Pipeline Developing a portfolio with strategic depth, duration and optionality. For personal use only › CAPEX: Current AGL indicative capex per 10PJ through to production: ~$5.0m » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 30: Gas Generation – Growth Pipeline
30 Gas Generation – Growth Pipeline Developing a portfolio with strategic depth and optionality. For personal use only Nominal Project Location Type Project Status Definition Capacity (MW) Development application being Leafs Gully 360 NSW - Appin Gas Peaker Probable assessed Tarrone 500 VIC - West G
Slide 31: Renewable Generation – Growth Pipeline
31 Renewable Generation – Growth Pipeline. Developing a portfolio with strategic depth and optionality. For personal use only Nominal Project Capacity Location Type Project Status Definition (MW) Bogong 140 Victorian Alps Hydro Under Construction Committed McKay Creek Up Rate 10 Victorian Alps Hydro
Slide 32: Renewables & Carbon: First Mover Advantage
32 Renewables & Carbon: First Mover Advantage For personal use only AGL’s strategy benefits from recent Government announcements. EXISTING AGL STRATEGY RECENT RECENTGOVERNMENT GOVERNMENTPOLICY POLICY POSITIVE POSITIVEAGL AGLOUTCOMES OUTCOMES ~930 MW renewable generation in Government committed to ex
Slide 33: Required Renewables Growth
33 Required Renewables Growth For personal use only Expanded Renewable Energy Target (RET) Drives Growth. 50000 Exisiting MRET Expanded RET 45000 › New federal Government Policy – by 40000 2020 an additional 35,500 GWh p.a. of renewable energy required to meet the 35000 target of 45,000 GWh p.a. 300
Slide 34: Financial Outlook & Strategic Priorities
34 Financial Outlook & Strategic Priorities For personal use only › Reconfirm FY09 EBITDA guidance of $775 million to $820 million › Reconfirm FY09 underlying NPAT guidance of $370 million to $400 million: Financial » Excludes SunGas & Powerdirect customer amortisation charge of $18.1m outlook › Rec
Slide 35: Further Information / Contacts
35 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: Graeme Thompson Head
Slide 36: Supplementary Information
36 For personal use only Supplementary Information » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 37: Reconciliation: Operating EBIT to Operating EBIT from continuing operations
37 Reconciliation For personal use only Operating EBIT to Operating EBIT from continuing operations. 6 months to 31 Dec 2008 31 Dec 2007 $m Operating EBIT (incl. pro forma adjustment) 359.1 372.9 Less PNG (incl. pro forma adjustment) (22.4) (42.9) NQGP (0.8) (0.9) QGC (2.6) (3.5) Elgas (10.6) (9.9)
Slide 38: Energy Investments
38 Energy Investments For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m EBITDA ActewAGL 17.1 15.2 12.5% Elgas1 10.6 9.9 7.1% GasValpo2 - 12.3 - AlintaAGL2 - 13.6 - Investments Other 2.8 2.5 12% Total EBITDA 30.5 53.5 (43%) GasValpo depreciation - (2.9) - Total EBIT contribution 30.
Slide 39: Reconciliation: Statutory Cash flow to Operational Cash flow
39 Reconciliation For personal use only Statutory Cash flow to Operational Cash flow. 6 months to 31 Dec 2008 31 Dec 2007 $m Statutory net cash provided by operating activities 266.5 111.1 Cash flow relating to significant items 32.2 27.3 Less: Receipts from NEMMCO deposits replaced by guarantees -
Slide 40: Balance Sheet
40 Balance Sheet For personal use only As at 31 Dec 2008 31 Dec 2007 $m Current assets 3,932.9 3,576.8 PPE and oil & gas assets 2,561.9 2,331.4 Other non current assets 3,752.6 4,291.0 Total Assets 10,247.4 10,199.2 Current liabilities 1,609.1 2,053.4 Total debt 1,756.0 2,390.9 Other non current lia
Slide 41: Fair Value Reconciliation
41 Fair Value Reconciliation For personal use only Net Assets As at $m 31 Dec 2008 30 Jun 2008 Change Electricity derivative contracts 672.3 1,007.4 (335.1) Oil derivative contracts - (247.5) 247.5 Interest rate swap & foreign currency derivative contracts (38.7) 19.0 (57.7) Total net assets for der
Slide 42: Capital Expenditure
42 Capital Expenditure For personal use only 6 months to 31 Dec 2008 SIB Discretionary Total $m Merchant Energy 18.64 2.81 21.4 Gas & Power Development - 205.82 205.7 Retail Energy - 44.73 44.7 Corporate Other 1.2 4.3 5.5 Total 19.8 257.5 277.3 1. Comprises Energy Services $2.8m 2. Comprises Bogong
Slide 43: QGC & PNG Sales – Accounting
43 QGC & PNG Sales – Accounting For personal use only QGC $m Disposal Consideration 1,176.6 Carrying value of investment (422.2) Pre tax profit on disposal 754.4 Tax expense (247.5) Net profit after tax 506.9 PNG $m Disposal Consideration (net of cost) 1,184.9 Net Assets Disposed (book value) (492.0
Slide 44: Gas Sales Volume
44 Gas Sales Volume For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change PJ Mass Market VIC 18.9 17.3 9.1% SA 1.1 0.7 57.1% NSW 15.3 13.9 10.5% QLD 1.5 1.6 (6.3%) Mass Market Total 36.8 33.5 9.8% C&I VIC 17.1 17.1 - SA 1.0 0.8 25.0% NSW 23.7 24.0 (1.0%) QLD 6.7 7.1 (5.6%) C & I Total 48.
Slide 45: Electricity Sales Volume
45 Electricity Sales Volume For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change GWh Mass Market VIC 2,559 2,662 (3.9%) SA 1,650 1,661 (0.7%) NSW 1,304 1,307 (0.2%) QLD1 1,837 1,756 4.6% Mass Market Total 7,350 7,386 (0.5%) C&I VIC 2,935 2,929 0.2% SA 1,235 1,294 (4.6%) NSW 2,642 3,194 (
Slide 46: Retail – Mass Market Key Indicators
46 Retail – Mass Market Key Indicators (includes SME) For personal use only 6 months to Dec 2008 Dec 2007 Change Electricity Volume (GWh) 7,350 7,386 (0.5%) Mass Market Accounts ('000) 1,791 1,780 0.6% Revenue ($m) 921.7 856.6 7.6% Gross Margin ($m)1 155.8 141.2 10.3% Gross Margin 16.9% 16.5% 2.4% G
Slide 47: Retail – C & I Key Indicators
47 Retail – C & I Key Indicators For personal use only 6 months to Dec 2008 Dec 2007 Change Electricity Volume (GWh) 10,026 11,290 (11.2%) C&I Accounts ('000) 13.8 11.2 23.3% Revenue ($m) 753.4 762.4 (1.2%) Gross Margin ($m)1 12.6 10.1 24.4% Gross Margin 1.7% 1.3% 25.9% 6 months to Gas Volume (PJ) 4
Slide 48: Retail – Customer Accounts
48 Retail – Customer Accounts (6 months to 31 Dec 2008) For personal use only Maintaining customer accounts in a competitive market. State Gas Electricity Total VIC 492,100 659,900 1,152,000 (FY08: 500,700) (FY08: 670,400)1 SA 78,500 463,700 542,200 (FY08: 75,400) (FY08: 469,800)1 NSW 764,300 318,10
Slide 49: Retail – Weather Impact
49 Retail – Weather Impact For personal use only Heating Degree Days › NSW cold winter and early spring: » Aug 08 lowest average maximum 800 temperature since 1989 & lowest mean minimum temperature since 1951 700 › VIC cold Aug 08: 600 » Temperatures well below the long term 500 average Degree days
Slide 50: Retail – Phoenix Business Transformation Stage
50 Retail – Phoenix Business Transformation Stage Capturing Benefits. For personal use only » 2009 Interim Results 6 months to 31 December 2008 » 25 February 2009 » AGL External
Slide 51: Merchant - EBIT Analysis
51 Merchant - EBIT Analysis For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m Revenue from Retail Business - Electricity (COGS transfer price) 1,023.2 953.3 7% - Gas (COGS transfer price) 400.7 352.1 14% External Revenue - Generation Revenue 97.6 128.2 (24%) - ActewAGL¹ 135.5 116.0
Slide 52: Merchant – Generation Assets EBIT
52 Merchant – Generation Assets EBIT For personal use only 6 months to 31 Dec 08 TIPS Somerton Vic Hydro NSW SA Wind QLD Energy Total 2 $m Hydro Generation Services1 Pool Revenue 59.4 5.1 11.1 1.2 8.3 12.0 7.6 104.7 - COGS (59.3) (3.4) - - - (1.6) (4.1) (68.4) Gross Margin 0.1 1.7 11.1 1.2 8.3 10.4
Slide 53: Merchant – Hydrology
53 Merchant – Hydrology For personal use only › Kiewa Scheme (365MW including Bogong) experienced average snow melt & dam levels rose accordingly. The scheme’s water management plan allows for normal operations plus provisioning water for commissioning of the Bogong Hydro Power Station › Eildon (135
Slide 54: Merchant - Electricity Hedging: Policy
54 Merchant - Electricity Hedging: Policy Integrated physical & financial policies. 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 p
Slide 55: Merchant - Electricity Hedging: Position
55 Merchant - Electricity Hedging: Position Prudent hedging ensures risks covered while retaining ability to flex For personal use only with demand & capitalise on new sourcing opportunities. Physical Financial AGL Energy Hedge Position - All States Satisfying Financial Risk Limits C ontingent Gas F
Slide 56: Merchant – Wholesale Electricity & Gas Prices
56 Merchant – Wholesale Electricity & Gas Prices For personal use only Electricity - Calender 09 Forward Contract Prices Gas - Victorian Market Weighted Average Daily Price Including Imbalance & Deviations 80 70 75 NSW QLD VIC SA 60 70 50 65 40 $/MWh 60 $/GJ 55 30 50 20 45 40 10 35 0 1-Jul-08 1-Jun-
Slide 57: Carbon Pollution Reduction Scheme – White Paper
57 Carbon Pollution Reduction Scheme – White Paper AGL industry leading generation portfolio to benefit. For personal use only Indicative AGL financial outcomes under CPRS1,2 $350 › All indicators suggest measured start to Carbon Pollution Reduction Scheme (CPRS) in 2010 $300 › Forward AEU’s current
Slide 58: Carbon Pollution Reduction Scheme - White Paper
58 Carbon Pollution Reduction Scheme - White Paper AGL industry leading generation portfolio to benefit. For personal use only AGL Power Station Regional NPV Uplift Region Stations Intensity Intensity (to 2020) Queensland Yabulu 0.5 1.040 Oakey 0.7 New South Wales - - 1.062 Victoria Somerton 0.7 1.3
Slide 59: Upstream Gas Interests – Permit Details
59 Upstream Gas Interests – Permit Details For personal use only Permits Working Basin Project Exploration Production 2 (Area km ) 2 (Area km ) Interest PEL 2 (6,696) - 100% PEL 5 (400) - 100% - PPL 1 (48) 100% Camden Gas Project - PPL 2 (1) 100% (Post SGL takeover) - PPL 4 (55) 100% Sydney - PPL 5
Slide 60: Loy Yang A: Profit & Loss
60 Loy Yang A: Profit & Loss For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m AGL Equity Share of Profit (2.9) 10.5 (127%) AGL Loan Note Interest 5.4 5.5 (1%) Total Equity Result 2.5 16.0 (84%) › Result predominantly driven by fall in revenue due to significant reduction in Victor
Slide 61: Loy Yang A: Financial Performance
61 Loy Yang A: Financial Performance For personal use only 6 months to 31 Dec 2008 31 Dec 2007 Change $m Generation Volume (GWh)1 7,400 7,669 (4%) 2 Average Price ($/GWh) $35.46 $49.19 (28%) Sales Revenue 270.9 300.0 (10%) Other Revenue 34.9 32.0 9% Expenses (121.7) (113.6) (7%) Depreciation (56.0)