AGL Energy Limited · ASX:AGL
AGL Energy — 2010 JPMorgan NY conference
51 slides from AGL Energy's conference presentation, September 2010
Slide 1: 2010 JPMorgan NY conference
Image: Bogong Creek Kiewa Hydro Scheme 2010 JPMorgan NY conference Renewable energy fuels growth opportunities Michael Fraser, Managing Director & CEO September 2010
Slide 2: Disclaimer
2 Disclaimer sc a e This presentation is not intended as an offer, invitation, solicitation or recommendation with respect to the purchase or sale of any security in the United States or any other jurisdiction. Securities may not be offered or sold in the United S States absent b registration i i un
Slide 3: Integrated Strategy
3 Integrated g Strategy gy Managing risk and improving returns UPSTREAM SUPPLY Core Upstream Gas: g value & grrowth Gas Renewable Thermal Generation: Production Generation Generation › Targeting › Currently ~4,228 ownership hi off MW of capacity portunities ~2,000 PJ (2P) owned and/or TRANSMISSION ›
Slide 4: Renewable Energy: Customer load drives opportunities
4 Renewable e e ab e Energy: e gy Customer Custo e load oad drives d es opportunities oppo tu t es Obligations and opportunities reside with retailers. › Legislation reduced LRET requirement AGL’ RET Li AGL’s Liability bilit › Regulatory certainty for large scale projects REC (million) › Penalty of
Slide 5: Renewable Energy: Demand legislated
5 Renewable e e ab e Energy: e gy Demand e a d legislated eg s ated Additional renewable generation required by 2014. › Enhancements to RET scheme passed in June 2010 Forecast Industry LRET Balance » Ensures the majority of 20% RET is REC (million) satisfied by large scale renewable 60 generation 50
Slide 6: Renewable Energy: World-class wind resource
6 Renewable e e ab e Energy: e gy World-class o d c ass wind d resource esou ce Average wind speeds (metres per second) › Wind resource is best in Tasmania and areas in Western Australia, South Australia and Victoria › NSW, Queensland and the Northern Territory have limited large g scale wind ppoten
Slide 7: Renewable Energy: Strong growth pipeline
7 Renewable e e ab e Energy: e gy Strong St o g growth g o t pipeline p pe e Provides strategic depth and optionality. Project Nominal Capacity (MW) Location Type Project Status Definition Bogong 140 Victorian Alps Hydro Commissioned Completed McKay Creek Up Rate 10 Victorian Alps Hydro Commissioned
Slide 8: Gas Generation: Growth pipeline
8 Gas Ge Generation: e at o Growth G o t pipeline p pe e Nominal Capacity Project Location Project Status Definition (MW) s Generattion Dalton Stage 1 600 NSW In development Probable Tarrone Stage 1 600 VIC In development Probable Madeline Downs - Kogan 1,150 QLD Site acquired freehold (350/800) Pos
Slide 9: Industry consolidation: NSW electricity privatisation
9 Industry dust y consolidation: co so dat o NSWS electricity e ect c ty privatisation p at sat o Opportunity for additional scale. › NSW privatisation timetable » Data rooms opened 1 July 2010 » Bids due 1 November 2010 » Successful bids expected to be announced Late-2010 › Potential opportunity to
Slide 10: Upstream Gas: Strategically positioned reserves
10 Upstream Upst ea Gas: Gas Strategically St ateg ca y positioned pos t o ed reserves ese es Strong reserve upgrade at Gloucester. › 2P reserves at Gloucester increase by 58% › 2P reserves entitlement up 21% (1,578PJ); 3P reserves entitlement up 7% (3,372PJ) › Initial reserves assessment expected a
Slide 11: People & Safety
11 People eop e & Safety Sa ety Continued improvement in safety performance and engagement. Delivering on our three people initiatives: 1. Attract, retain and develop talent 2. Enable a high performance culture 3 3. Continued improvement in safety performance Lost Time Injury Frequency Rate Employee
Slide 12: Financial Ratios
12 Financial a c a Ratios at os Continued improvement across all key financial metrics. › BBB stable credit rating » S&P rating affirmed in May 2010 › Improved outcome in S&P’s review of AGL’s wind farm off-take agreements As at 30 Jun 2010 30 Jun 2009 FFO / Interest cover (times)1 7.5 6.6 FFO / Int
Slide 13: Capital Expenditure
13 Capital Cap ta Expenditure pe d tu e Strict investment discipline around capex decisions. LEGEND St Stay In I Business B i 700.0 Upstream Gas Oaklands 600.0 Hallett 5 Forecast as at FY09 result1 Bogong 500.0 Macarthur Retail $ million Other 400.0 300.0 200.0 100.0 0.0 FY10 Actual FY11 Forecast 1.
Slide 14: Debt Capacity
14 Debt ebt Capacity Capac ty Ample headroom to fund organic growth. LEGEND 1,800 S&P Adjustment 1 600 1,600 Capex Forecast 1,400 Closing FY10 Debt Operating cash flow 1,200 after dividends $ million 1,000 Tax Refund Cash flow Cash Headroom 800 flow Cash flow 600 400 200 0 FY10 Actual FY11 Forecast
Slide 15: Underlying Operating Cash Flow
15 Underlying U de y g Operating Ope at g Cash Cas Flow o 1 Strong cash generation continues. 12 months to 30 Jun 2010 30 Jun 2009 Change $m Statutory net cash provided by operating activities 390.0 235.4 Cash flow relating to significant items 27.8 69.2 Futures margin calls 5.9 66.8 Increase in net
Slide 16: Return on Funds Employed
16 Return etu ono Funds u ds Employed p oyed Strong internal focus on return on assets. 12 months to 30 Jun 2010 30 Jun 2009 30 Jun 2008 $ $m Operating EBIT 652.1 643.1 693.2 Average Funds Employed 6,953.8 6,644.4 6,623.5 EBIT / Funds Employed 9.4% 9.7% 10.5% Operating EBIT 652.1 643.1 693.2 Less: U
Slide 17: FY10 Highlights
17 FY10 0 Highlights g g ts Retail underpinned strong result. › Underlying profit up 13.2% › Strong result from Retail Energy up 19.5% › Continued growth in customer numbers and margins › Gloucester/Camden Gl /C d 2P gas reserves up 49.9% 49 9% › Significant improvement in underlying cash flow up $1
Slide 18: Group Underlying Profit
18 Group G oup U Underlying de y g Profit o t Strong uplift in Retail gross margin. Upstream Retail Merchant 440 41.1 428.9 71.1 420 (16.4) 400 (2.8) (3.6) (4.9) 378.8 (8.2) (1.8) 380 $ million 360 (22.4) (2.0) 340 320 300 FY09 NPAT PNG Upstream MM, C&I Labour Other Retail Wholesale Wholesale Mercha
Slide 19: Retail – Key Operating Metrics
19 Retail eta – Key ey Operating Ope at g Metrics et cs Mass market margins improve but still don’t deliver adequate returns. 12 months to 30 Jun 2010 30 Jun 2009 Change Mass Market gross margin ($m) 533.3 493.8 8.0% Avg Mass Market customer numbers (‘000) 3,205.6 3,191.9 0.4% Gross margin per Mass
Slide 20: Retail – Key Operating Metrics
20 Retail eta – Key ey Operating Ope at g Metrics et cs Operating expenditure to gross margin improves to 49.5%. 12 months to 30 Jun 2010 30 Jun 2009 Change g $m Operating costs 335.1 308.4 8.7% Depreciation and amortisation 41.5 36.2 14.6% Less fees and charges (63.7) (50.9) 25.1% Net operating exp
Slide 21: Retail – Delivering Customer Growth
21 Retail eta – Delivering e e g Customer Custo e Growth G o t Accelerating growth in dual fuel customers. › Customer numbers up 45,317 (+1.4%) to 3.24 million › AGL churn at 14.7%, better than market churn of 18.7% › Strong growth in Dual Fuel accounts, up 122,278 (+9.9%) Incremental Customer Numbe
Slide 22: Retail – Improving Core Operations
22 Retail eta – Improving p o g Core Co e Ope Operations at o s Good progress on Customer Service. AGL churn much lower than industry 19 › AGL market churn remaining g steady y while 17 industry churn increased Market churn (%) » AGL churn 4 ppts below Industry average 15 » Victoria still the most c
Slide 23: Merchant – EBIT Drivers
23 Merchant e c a t – EBIT Drivers e s Strong performance from underlying gas portfolio. 410 402.8 400 5.4 23.4 390 (10.3) 5.8 386.1 $ million (6.8) (2.1) 380 (5.1) 370 (27.0) 360 FY09 EBIT NSW Underlying Gas Volatility Underlying Gas Merchant Energy Services Power Other FY10 EBIT Interregional Elec
Slide 24: Summary
24 Su Summary a y Operational focus delivered continued profit growth. › Excellent performance by Retail Energy across full year » Substantial improvement in customer service » Sound platform for further growth » Good improvement in cash collection › Merchant Energy delivered solid result › Upstream
Slide 25: Outlook 2011
25 Outlook Out oo 2011 0 Solid profit growth expected to continue in 2011. › Well-positioned for growth » NSW privatisation » Policy framework to deliver a lower carbon environment › Retail Energy expected to show solid improvement » Impact of regulatory price reviews » Further reduction in operatin
Slide 26: Further Information / Contacts
26 Further u t e Information o at o / Contacts Co tacts 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: INVESTORS MEDIA John
Slide 27: Supplementary Information
27 Supplementary Information » 2009 Final Results 12 months to 30 June 2009 » 20 August 2009 » AGL External
Slide 28: Significant Items
28 Significant S g ca t Items te s1 12 months to 30 Jun 2010 Pre Tax Tax After Tax $m Impairment of non-current assets (21.7) 6.5 (15.2) Acquisition costs (5.1) 0.7 (4.4) Phoenix change g pprogram g costs (11.7) ( ) 3.5 (8.2) ( ) Redundancy, termination and restructuring costs (11.1) 3.3 (7.8) Tax c
Slide 29: Capital Expenditure
29 Capital Cap ta Expenditure pe d tu e 12 months to 30 Jun 2010 SIB Discretionary Total $m Merchant Energy 46 1 46.1 159 0 159.0 205 1 205.1 Upstream Gas - 123.2 123.2 Retail Energy - 31.5 31.5 Corporate Other 22.0 7.9 29.9 Total 68.1 321.6 389.7 » 2010 JPMorgan NY conference » September 2010 » AGL
Slide 30: Debt Position
30 Debt ebt Position os t o › Successfully priced US$300 million unsecured notes in United States Private Placement › Two tranches of 12 year and 15 year maturities › No group debt maturing until October 2011 Debt Maturity Profile post US Private Placement Facilities @ 30 Jun 2010 $m Limit Usage $ m
Slide 31: Balance Sheet
31 Balance a a ce Sheet S eet As at 30 Jun 2010 30 Jun 2009 $m Current assets 2,208.5 2,473.7 PPE, E&E and oil & gas assets 2,997.1 2,974.2 Other non current assets 3 485 3 3,485.3 3 586 8 3,586.8 Total Assets 8,690.9 9,034.7 Current liabilities 1,532.5 1,519.0 Total debt 900 8 900.8 1 120 2 1,120.2
Slide 32: Fair Value Reconciliation
32 Fair a Value a ue Reconciliation eco c at o Net Assets (Liabilities) As at $m 30 Jun 2010 30 Jun 2009 Change Electricity derivative contracts (474.3) (48.2) (426.1) Interest rate swap & foreign currency derivative contracts (7.2) (22.8) 15.6 Total net liabilities for derivative contracts (481.5)
Slide 33: Gas Sales Volume
33 Gas Sa Sales es Volume ou e 12 months to 30 Jun 2010 30 Jun 2009 Change PJ Mass Market VIC 28.1 31.4 (10.5%) SA 2.0 1.8 11.1% NSW 25.0 27.2 (8.1%) QLD 3.2 2.6 23.1% Mass Market Total 58.3 63.0 (7.5%) C&I VIC 25.8 29.2 (11.6%) SA 7.3 2.9 151.7% NSW 39 0 39.0 46 1 46.1 (15 4%) (15.4%) QLD 14.6 13.7
Slide 34: Electricity Sales Volume
34 Electricity ect c ty Sales Sa es Volume ou e 12 months to 30 Jun 2010 30 Jun 2009 Change GWh Mass Market VIC 4,931 5,055 (2.5%) SA 3 404 3,404 3 290 3,290 3 5% 3.5% NSW 3,338 2,882 15.8% QLD 3,406 3,576 (4.8%) Mass Market Total , 15,079 14,803 , 1.9% C&I VIC 6,097 5,618 8.5% SA 3,196 2,579 23.9%
Slide 35: Retail – Mass Market Key Indicators
35 Retail eta – Mass ass Market a et Key ey Indicators d cato s ((includes SME)) 12 months to 30 Jun 2010 30 Jun 2009 Change Electricity Volume (GWh) 15,080 14,803 1.9% Mass Market Accounts ('000) 1,856 1,793 3.5% Revenue ($m) 2,208.9 1,945.6 13.5% Gross Margin ($m) 345.0 317.3 8.7% Gross Margin 15.
Slide 36: Retail – C&I Key Indicators
36 Retail eta – C & I Key ey Indicators d cato s 12 months to 30 Jun 2010 30 Jun 2009 Change El Electricity i i Volume (GWh) 19,283 19,163 0.6% C & I Accounts ('000) 16.5 14.0 17.9% R Revenue ($ ($m)) 1 801 1 1,801.1 1 529 6 1,529.6 17 7% 17.7% Gross Margin ($m) 49.6 31.3 58.5% $ / MWh $2.57 $1.63 9
Slide 37: Retail – Market Churn
37 Retail eta – Market a et Churn C u AGL churn below Market ( (14.7% vs. Market at 18.7%) ) market churn Jul-08 to Jun-10 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jul-08 Dec-08 Jun-09 Dec-09 Jun-10 NSW Electricity - Market NSW Gas - Market VIC Electricity - Market VIC Gas - Market SA Ele
Slide 38: Retail – Delivering customer growth
38 Retail eta – Delivering e e g customer custo e growth g o t State Period1 Gas Electricity y Total Victoria FY10 468,190 642,588 1,110,778 FY09 472,678 651,958 1,124,636 South Australia FY10 96,788 477,879 574,667 FY09 84 955 84,955 463 907 463,907 548 862 548,862 New South Wales FY10 726,692 380,
Slide 39: Retail – Cost to Serve
39 Retail eta – Cost to Se Serve e 12 months to 30 Jun 2010 30 Jun 20093 Change Net operating expenditure 312.9m 293.7m 6.5% Net operating cost per customer account $97.11 $91.47 6.2% Cost to grow/retain 77.5m 67.5m 14.8% Cost to grow per account acquired/retained1 $86.84 $81.63 6.4% Cost to serve 2
Slide 40: Retail – EBIT / Sales Analysis
40 Retail eta – EBIT / Sa Sales es Analysis a ys s 12 months to 30 Jun 2010 30 Jun 2009 Change $m Total revenue 5,585.6 5,023.9 11.2% Cost of sales (4,890.3) (4,412.5) 10.8% Gross margin 695.3 611.4 13.7% Operating costs (excl D & A) (335.1) (308.4) 8.7% Operating EBITDA 360.2 303.0 18.9% Depreciati
Slide 41: Merchant – EBIT Analysis
41 Merchant e c a t - EBIT Analysis a ys s 12 months to 30 Jun 2010 30 Jun 2009 Change $m Revenue from Retail Business 1. Generation revenue is pool revenue - Electricity (COGS transfer price) 2,324.6 2,073.5 12.1% from owned generation assets. 2. ActewAGL June 10: Electricity sales - Gas (COGS tran
Slide 42: Merchant Generation
42 Merchant e c a t Generation Ge e at o Operational performance of Commercial Availability / Start Reliability (%) generation assets continues to exceed international 100.0 benchmarks. 98.0 %) ability / Start Reliability (% 96.0 94.0 92.0 1. Commercial availability is used to measure Torrens Island
Slide 43: Merchant – Wind Farm Generation
43 Merchant e c a t - Wind d Farm a Generation Ge e at o › Hallett 2 commissioned 17 May 2010 › High operational availability continued across portfolio Twelve months to 30 June 2010 Unit Wattle Point Hallett 1 Hallett 2 Total Capacity MW 90.8 94.5 71.4 256.7 Availability % 95.2 95.7 94.9 95.3 Gener
Slide 44: Merchant – Hydrology
44 Merchant e c a t – Hydrology yd o ogy › 52.6% of Hydro capacity is now linked to drought resistant Kiewa Scheme › Eildon can deliver 80MW of generation out of 120MW capacity › Dartmouth has had good inflows over the last 12 months. Re-commissioning works are underway to have the plant operational
Slide 45: Merchant - Electricity Hedging: Policy
45 Merchant e c a t - Electricity ect c ty Hedging: edg g Policy o cy › 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 party y credit limit tier allocatio
Slide 46: Merchant - Electricity Hedging: Position
46 Merchant e c a t - Electricity ect c ty Hedging: edg g Position os t o Physical Financial AGL Energy Hedge Position - All States Satisfying Financial Risk Limits Contingent Gas Fired Generation 125% Expected Generation Derivatives (Swaps Only) Unhedged load must be limited Range of profit outcome
Slide 47: Merchant – Wholesale Electricity Prices
47 Merchant e c a t – Wholesale o esa e Electricity ect c ty Prices ces FY11 Forward Contract Prices › A relatively mild 2009 winter and declining spot 75 prices across the NEM resulted in the forward NSW QLD SA VIC curve being sold off in all states 70 65 › Hot weather in NSW in December combined w
Slide 48: Upstream Gas – Key Financial Metrics
48 Upstream Upst ea Gas – Key ey Financial a c a Metrics et cs 12 months to 30 Jun 2010 30 Jun 2009 Change $m Operating EBITDA 26.6 101.2 (73.7%) D&A (21.1) (44.3) (52.4%) Pro forma D & A adjustment1 - (27.0) na EBIT PNG Upstream Investment (net of pro forma adjustment) - 22.4 na Upstream Gas Queens
Slide 49: Upstream Gas Interests – Permit Details
49 Upstream Upst ea Gas Interests te ests – Permit e t Details eta s Permits Working Basin Project Exploration Production Interest (Area km2) (Area km2) 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 50: Energy Investments
50 Energy e gy Investments est e ts 12 months to 30 Jun 2010 30 Jun 2009 Change $m EBIT ActewAGL 30.4 27.9 9.0% Elgas1 - 10.6 - Loy Yang 45.1 30.8 46.4% Investments Other 62 6.2 55 5.5 12 7% 12.7% Total EBIT 81.7 74.8 9.2% 1. AGL disposed of its 50% ownership interest in Elgas on 2 October 2008. » 2
Slide 51: Loy Yang A: Financial Performance
51 Loy oy Yang a g A: Financial a c a Performance e o a ce 12 months to 30 Jun 2010 30 Jun 2009 Change $m G Generation i V Volume l (GWh) 15,518 14,911 4.1% 1 Average Price ($/MWh) $42.62 $40.46 5.3% Sales Revenue2 715 7 715.7 655 7 655.7 9 2% 9.2% Other Revenue 21.7 23.0 (5.7%) Expenses (264.7) (24