AGL Energy Limited

Thank you for standing by and welcome to the AGL Energy full year results briefing conference call. All participants will be in listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand over the conference to Managing Director and Chief Executive Officer, Mr. Damien Nix. Please go ahead.

Good morning, everyone. Thank you for joining us for the webcast of AGL's full year results for the financial year 2024. I'd like to begin by acknowledging the traditional owners of the land I'm on today, the Gadigal people of the Aurora Nation, and pay my respects to their elders past, present and emerging. I'd also like to acknowledge the traditional owners of the various lands from which you're all joining. Today, I'm joined by Gary Brown, Chief Financial Officer, Joe Egan, Chief Customer Officer, and Marcus Brockoff, Chief Operating Officer. I'll get us started and we'll have time for questions at the end. This slide provides a good overview of the key themes Gary and I will cover today. Overall, an excellent year across the business. Firstly, our strong full-year financial and operational performance, which I'll speak to in more detail shortly. Secondly, we've made great progress in our ambition to connect our customers to a sustainable future. In a period of heightened market activity, our customer markets business had a great year. recording significant growth in overall customer services numbers across both energy and telecommunications and now Netflix customer services. Strategic MPS ended the year in a good position with a score of plus four, and we've increased our spread to overall market churn to just over five percentage points. In June, we were excited to announce a strategic partnership and equity investment in Kalooza as part of the next significant step of the Retail Transformation Programme. And I'll discuss this later in the presentation. Importantly, we're continuing to support our customers through this ongoing period of cost of living pressures. We've increased our two-year customer support package by a further $20 million to $90 million and accelerated the rollout of support with $63 million delivered to customers in the first year of the program. Integrated Energy has had an excellent year in terms of fleet performance, recording an equivalent availability factor of 85.8%. nine percentage points higher than FY23. A testament to the prudent investment made in our thermal generation fleet, including over 3.2 gigawatts of coal-fired unit flexibility, which continues to deliver benefits to AGL and the transition. We've also made significant progress in transitioning our energy portfolio. Our development pipeline has grown by a further 400 megawatts since the half-year result to 6.2 gigawatts. almost double since our inaugural Climate Transition Action Plan and Refresh Strategy, which was released in September 2022. We're also pleased to announce the acquisition of Firm Power and Terrain Solar, adding significant optionality to our development plans, particularly in terms of firming capacity. Turning now to the financial results, a great set of numbers. Overall, our stronger full year result was driven by higher wholesale electricity pricing, along with more stable market conditions. and importantly, improved thermal fleet availability and flexibility, following focused strategic work and capital being deployed to deliver this. We also delivered higher consumer electricity gross margin and benefited from a solid earnings contribution from the Torrens Island battery in its first nine months of operation. Underlying profit after tax was $812 million, 189% higher than the prior year, which in turn drove a significantly improved operating cash flow result. A final ordinary dividend of 35 cents per share has been declared. Unfranked, bringing the total dividend for the 2024 financial year to 61 cents per share, equating to a 50% payout ratio for the full year, in line with what we indicated at the half-year result. Please also note that AGL intends to begin paying partially franked dividends from the FY25 interim dividend. We've also provided our FY25 financial guidance ranges, which I'll discuss at the end of the presentation. Moving now to our safety, customer and employee metrics. An area of concern for myself and the board is our total injury frequency rate, which remains elevated at 3.5 per million hours worked. A small reduction from the half year, but up from 2.8 in FY23, noting that this is largely attributable to low impact injuries. We've maintained our acute focus on preventing injuries across the organisation, continuing to undertake measures, including increased focus on health and safety leadership training, as well as site-specific safety awareness programs to help reverse and improve the trend of this metric. Safety is the utmost priority at AGL, and we must perform better in this area. I've already spoken to our strategic NPS score, which remains in a good position at plus four and has increased to plus six in July. Encouragingly, our employee engagement score has further improved by five percentage points, and we continue to see positive engagement and momentum across the business. Importantly, as an organisation, we continue to make strong progress on our ESG focus areas. On the screen, you can see our six ESG focus areas with key milestones achieved for the year. I won't speak to all of these, but I want to highlight that in terms of gender equality and representation, we've met our targets for the proportion of women in our senior leadership pipeline and the overall workforce. And we've improved the median gender pay gap for total remuneration by four percentage points from 2023. Moving further to the right, we've procured over $5.9 million of goods and services from First Nations-owned businesses, exceeding our Reconciliation Action Plan target, and importantly, we've invested $6 million in the communities in which we operate. I'll speak to customer affordability on the next slide, however you can find a more fulsome update of these milestones in our annual report released today. Ongoing cost of living pressures continue to impact many Australians and some of our customers. And as mentioned at the beginning, we've stepped up our two-year customer support package by an additional $20 million to $90 million. Importantly, we've accelerated our support package spend with $63 million of the two-year customer support package utilised in FY24 to deliver assistance to our customers who need it the most. Our customer support package is in addition and complementary to the government's National Energy Bill Relief Fund, which provides bill credits to our customers. At the bottom, you can see the significant amount of government bill relief that was provided to eligible AGL customers in FY24, with over $1 billion projected to be delivered by the end of FY25. Turning now to our FY27 strategic targets, we have made strong progress and will continue to push hard to deliver on these targets. Starting on the left-hand side, I've already spoken to our strategic NPS score, which is in a great position, and we've further improved digitisation, evidenced by a digital-only customer growth. Encouragingly, our speed-to-market improvement in cumulative customer assets and store metrics have almost doubled to what was reported at the half-year, and we've almost reached our green revenue target. Turning to the right-hand side, I've already discussed a very strong EAF result, and we're aiming to further step this up to 88% over the coming years. Decentralized assets under management are 10% higher at 1.25 gigawatts, including demand side management of smelters. A great result and with almost one gigawatt of new renewable and firming capacity in development, contracted or in delivery. I'll now spend a few minutes talking to the transition of AGL and how we continue to execute on our strategy before handing over to Gary. First, just a recap of our two primary strategic objectives. connecting our customers to a sustainable future, as well as transitioning our energy portfolio. I'll first address how we're advancing the customer pillar of the strategy and shaping customer demand, focusing on our strategic partnership and equity investment in Colusa as part of a broader discussion on the Retail Transformation Program. I'll then delve into how we continue to optimise our future energy portfolio. enhancing optionality and continuing to accelerate the development of flexible assets to firm renewable generation projects as they progressively enter the NEM. And sure, we have a broad range of flexible assets to meet our customer and market needs. Firstly, we have a leading customer portfolio, demonstrating strong growth in the core business and new value pools. I've already spoken to the significant growth in customer services to 4.5 million and decentralized assets under orchestration to 1.25 gigawatts. Notably, we've seen excellent growth in the orchestration of flexible load, such as hot water orchestration, which has more than doubled this year. We're also continuing to drive commercial decarbonisation at scale, with material increases recorded in our contracted C&I power purchase agreements and commercial assets under monitoring and management. As we continue to invest in building a future-ready business, a key stat I want to highlight again is the material increase in digitisation and automated AI transactions. which is more than double this year. To continue this growth and build a future-ready business, we know that transformation is required, and in June, we announced our strategic partnership and 20% equity investment in Colusa as part of the major next step in the Retail Transformation Program. This program will enhance the customer experience, further facilitating effortless digital experiences. It will allow us to innovate and deliver new products to the market at speed and enable AGL to leverage interconnected global technology platforms to improve how we operate, the data we leverage and our overall efficiency as a business. This is not just a technology program, but a business transformation that will simplify our business and operating model and further enhance our culture focused on customer experience. Kaluza is an exciting technology platform developed in the UK that supports OVO Energy, one of the UK's leading retailers. Kaluza is more than a billing platform. Its intelligent energy and data architecture was designed with a future of energy in mind, centered around the orchestration of distributed energy resources. This focus and purpose has driven a distinctive offering based on cutting edge modular technology, unlocking the ability to manage enormous amounts of data and connect quickly and adaptively to other platforms. The Kaluza platform delivers advanced retail automation, reducing costs and enhancing customer engagement by unlocking deep insights. Powered by AI-driven customer service, it features capabilities such as agent co-pilot, sentiment analysis, and account health insights. Its accurate consumption forecasting helps to minimize bad debt and unbuild energy. Furthermore, the platform offers innovative tariffs and energy use disaggregation, enabling customer proposition development. At the core, its industry-leading demand response system optimizes real-time energy usage, unlocking value in energy management. AGL began working with Colusa three years ago through its joint venture with OVO Energy Australia. During that time, Colusa was localised for the Australian market to support the OVO Energy base, whilst also demonstrating rapid deployment of product to market, amazing growth and delivery of exceptional strategic MPS with recent scores above 40. The next phase of our partnership will see AGL deploy Colusa as its core retail platform. establish AGL's future state architecture and the migration of our customer base to Kaluza over the coming years. Importantly, the Retail Transformation Program is expected to deliver efficiencies and unlock material financial benefits. AGL is expected to realise net benefits from FY28 and reach sustainable pre-tax savings of $70 to $90 million per annum from FY29. The benefits are expected to be derived from onshore and offshore labour savings, reduction in net bad debt expense, other operating costs and lower ongoing capital expenditure. The multi-year licensing agreement and investment will build on market leading results we've already seen in OVO. In June, we also announced that we've agreed to acquire a 20% stake in Colusa for approximately 150 million Australian dollars. Please also note, we'll be hosting an investor briefing on Colusa in early September with OVO Energy. Turning now to the transition of our energy portfolio. headlined by the expansion of our development pipeline to 6.2 gigawatts, as we continue to focus on building optionality within our development plans. On the left-hand side, you can see the steady growth in our development pipeline, which has almost doubled since the CTAP and our fresh strategy was released in September 2022. The key point here is that our 5.4 gigawatt target of new projects by 2030 is more than covered by almost one gigawatt of nameplate capacity and operation under construction or contracted, as outlined in the middle of the screen, our expanded development pipeline of 6.2 GW, as well as our access to Tilt Renewable's 3.5 GW development pipeline and AGL's growing portfolio of DER assets and external off-take options. Longer term, however, to achieve our ambition to add 12 GW of new renewable generation and firming capacity by the end of 2035, we'll continue to build out the breadth and the optionality of a development pipeline. You'll also note in this slide, we've added over 400 megawatts of fast start gas generation options to our development pipeline, highlighting the critical role of gas to firm renewable generation as thermal baseline generation exits the NEM whilst continuing to develop our hydro and other long duration projects. Ultimately, this market will need a range of flexible assets types to support the orderly transition to renewables. Before I move on, I'll recap some of the recent milestones and achievements, which you can see on the right-hand side. We've now received planning approvals for the first stage of the Bowmans Creek Wind Farm. In April, Gippsland Skies was awarded a feasibility licence for a 2.5 gigawatt offshore wind development off the coast of Victoria. We entered into a joint venture with Sameva Renewables, the development of the Pottinger Energy Park. And importantly, the Musselbrook Pumped Hydro Project received critical state significant infrastructure declaration from the New South Wales Government, providing an acceleration pathway for this project. Importantly, in line with our strategy, you can see that we're seeking to accelerate the transition of our energy portfolio where possible, targeting earlier final investment decision dates for the three projects marked with an asterisk. Just as a reminder, we expect the majority of high returning firming capacity to be funded on balance sheet and the majority of renewable generation capacity be sourced by joint ventures, partnerships and offtakes. Today, we're also pleased to announce the acquisition of Firm Power and Terrain Solar. adding significant optionality to our development plans, particularly in terms of firming capacity. Firm Power is a battery energy storage system developer with over 20 projects in development, and Terrain Solar is primarily a solar project developer with six projects in development. Importantly, the combined development pipeline includes several midsize BEZ projects ranging between 200 and 500 megawatts and two to eight hour storage duration, primarily across New South Wales and Queensland. We also welcome the broad development expertise of these two companies, having successfully developed and sold over 10 projects combined, totaling approximately 1.3 gigawatts, the majority of which are now operational. Now, taking a high-level look at the firming concept capacity options under assessment and development, as we seek to further expand our portfolio of flexible assets, you'll see that we've added fast start gas options across the four NEM states, as well as Western Australia. Overall, we're well positioned for these incremental development options, with access to flexible gas supply underpinned by sizeable storage and haulage portfolios. We'll also continue to assess and develop a range of long-duration storage options, including the bluefield development of pumped hydro. As mentioned earlier, along with our joint venture partner, Itamitsu, we're pleased to have received critical state significant infrastructure status from the New South Wales Government for the Musselbrook Pumped Hydro Project. which we will believe will provide an acceleration pathway for this vitally important long-duration energy storage project, forming part of the backbone of our future firming portfolio. We're targeting a final investment decision for this project in FY26. As you can see on the screen, this project is expected to have an asset life of approximately 100 years, almost five times the typical useful life of grid-scale batteries, approximately three gigalitres of upper reservoir water storage, will be in close proximity to transgrid 330 kilovolt substation and will have full underground waterways to minimise environmental impacts. What makes this project particularly unique is that if constructed, it will be the first coal mine in the world to be converted into a long duration energy storage project. The development of our integrated energy hubs is also progressing well, with 10 MAUs secured with various parties across three major sites. Additionally, our aim of building a value chain of partners to create a circular economy at the energy hubs is making good headway. Our partnership with SunDrive announced in March to explore the development of solar PV manufacturing at our Hunter Energy Hub and our MOU with Alexum for recycling of solar panels could see us hosting several parts of the solar energy value chain at this hub. If established, the SunDrive Advanced Manufacturing Facility is expected to be the first of its kind in Australia, creating new jobs and career opportunities in the renewables industry in the New South Wales Upper Hunter region. I've been talking about adding flexible asset optionality to our development pipeline. This slide, however, provides an overview of the flexible capacity currently in operation or under construction. Approximately 7.4 gigawatts in total spread across a diverse range of asset types. Starting at the top, both our growing grid-scale battery and virtual power plant portfolios can respond to peak customer demands in seconds. Moving further down the page, both our hydro and gas peaker assets can start up and generate electricity in a couple of minutes. And finally, with the completion of the Phase 2 flexibility upgrades, we now have over 3,200 megawatts of cold-fire flexibility across Bayswater and Loyang A, with both of these power stations now being able to be flexed down approximately 75% and 60% respectively on nameplate capacity. Just a final word on the importance of a favourable external operating environment for our industries before I hand to Gary. There is a significant amount of change underway in the sector, as reflected in this slide. Support for renewables and firming generation and long-duration storage is critical to substantial investment necessary for the transition, as is getting the policy settings right for integrating consumer energy resources. While these changes provide us with opportunities, clear policy and effective regulation will be necessary for the substantial long-term investment decisions we need to be making, and we welcome collaboration across industry and government. Now over to Gary.

Thank you, Damien, and good morning, everyone. This slide shows an overall summary of our financial results, which I'll cover in more detail on the following slides. Overall, a very strong financial and operational performance for the year. Underlying profit after tax was $812 million, 189% higher than the prior year, driven by higher wholesale electricity pricing, along with more stable market conditions, improved thermal fleet availability and flexibility, higher consumer electricity gross margin, as well as the ongoing strong operational performance of the Torrens Island battery. After a challenging FY23, we are very pleased with this stronger earnings result, and continued progress we are making in relation to the delivery of our strategy. The total dividend for the 2024 financial year was 61 cents per share, an increase of 97% on the prior year, equating to a payout ratio of 50% of underlying net profit after tax. As flagged at the half-year result, this is at the bottom of our payout ratio of 50% to 75% of underlying NPAT, as we preserve capital towards the transformation of our business. In particular, the remaining construction cost of the $750 million Liddell battery over the next two years, roughly $550 million. Importantly, we maintained our BAA2 investment-grade credit rating, as well as having material headroom to covenants. We have significantly de-risked our debt portfolio, as well as materially increasing our debt tenor through the strong refinancing outcomes achieved in the first half of the year. And finally, as you can see at the bottom of this slide, a strong improvement in operating free cash flow due to higher earnings has driven materially lower net debt, providing greater capacity and financial headroom as we continue to invest in the transformation of our business. Please note, the operating free cash flow number excludes the $381 million worth of energy bill relief received from the government which is expected to be remitted to customers in early FY25. I'll first take you through group underlying profit in more detail. We can see a significant step up in profitability from $281 million in FY23 to $812 million in FY24. Starting on the left-hand side, you'll see two non-recurring items from last year, accounting for $63 million of net favourable movement. In relation to the first item, As I mentioned at the half-year result, July 2022 was a very challenging month for AGL, which impacted last year's result due to the confluence of planned and forced outages across our coal-fired fleet, resulting in a short portfolio position. This item also includes the lost generation earnings caused by the prolonged Luoyang A Unit 2 outage in the prior year. However, we're pleased with the availability we've seen across our thermal generation fleet since these events as demonstrated in this year's result. The second item reflects the earnings impact of the closure of the Liddell power station in April 2023, which led to a five terawatt hour reduction in generation and $187 million worth of net reduction in margin and OPEX savings. Moving further to the right, customer markets was $13 million higher year on year. the stronger customer market's performance was primarily driven by higher consumer electricity gross margin. As previously indicated, in line with greater retail market activity, particularly in the first half of the year, we've seen an increase in costs primarily reflecting increased net bad debt expense, which is directly associated with the higher revenue rates that came through this year. In addition, and as a result of increased market activity, we've incurred higher channel and marketing spend as we look to grow our customer base, coupled with costs associated with our customer support program. As you can see, a portion of this bar includes $26 million of non-recurring retail transformation program costs. Integrated Energy's excellent performance was underscored by the significantly higher availability and reliability of our generation fleet and portfolio flexibility. In addition, we've exercised prudent portfolio management of our risk positions, coupled with stronger electricity, energy and capacity pricing, which is realised in our earnings. I'd also like to highlight the strong $28 million earnings contribution of the Torrens Island battery in its first nine months of operation. We are very pleased with the initial performance of this asset, which is generating returns at the top end of our targeted expectations for this asset class. This and other batteries will continue to have an increasing impact on our earnings mix going forward, we deploy more assets which are supported by the higher cap prices and earnings observed across the NEM in FY24. Moving further to the right, higher finance costs were largely driven by two factors, being the cash impacts on interest of an overall increase in base rates following refinancing and non-cash impacts from increases in the discount rate and its associated impact to our provisions. Finally, higher income tax paid reflected the significant increase in earnings. As broadly indicated last August, our increase in operating costs were largely driven by CPI, customer affordability, increased retail market activity, investment in our thermal generation fleet, as well as costs associated with customer growth and the transformation of our business. We've seen the benefit of this spend in our financial results this year. However, we remain diligent on operational efficiency across the business. Operating costs have finished approximately $40 million higher than our forecast provided the half-year result. $15 million of this is in relation to a non-recurring inventory provision due to a detailed review of aging items. In addition, we've seen higher spend on plant availability, which again, we see the benefit through improved plant performance. Looking forward, As you can see on the right-hand side, we expect FY25 operating costs to remain broadly in line with FY24, with inflation and costs required to support electrification and energy hubs growth to be broadly offset by productivity and business optimization benefits. Pleasingly, this includes operating model benefits realized through the Retail Transformation Program. Turning now to customer markets performance. Overall, an excellent year. total services to customers increased 211,000 to 4.5 million services, driven by strong growth in energy, telecommunications and now Netflix services. It's also been pleasing to welcome 94,000 energy services recognised as part of the 100% acquisition of OVO Energy Australia as part of these numbers. Importantly, we maintained other strong customer metrics, including a favourable churn spread to rest of market, of 5.1 percentage points through a period of heightened market activity. On the right-hand side, you can see the improvement in consumer EBITDA per services driven by the consumer gross margin improvement for the year. Now to fleet performance and operations, headlined by excellent overall availability across our generation fleet and higher volatility captured. Again, we wish to reiterate through these financial results the benefits of our ongoing focus on maintaining our asset base. Commercial availability of our thermal fleet was up 15 percentage points, driven by the significant reduction in forced thermal outages compared to the prior year. Importantly, our fleet was available when it mattered, with the volatility captured through trading up over nine percentage points to 66.7%. Normalised for the Liddell Power Station, which closed in April 2023, Generation volumes on the right were almost 7% higher than prior year. Overall, coal-fired generation was higher. However, gas and renewable generation were both lower, attributed to the factors mentioned on the right-hand side of this slide. Briefly touching on capex, FY24 capex has ended broadly in line with our projection at the half-year result, and overall, we are pleased that our prudent step up in thermal sustaining spend has delivered a significant increase in thermal fleet availability and reliability. Focusing on FY25, the uptick in thermal sustaining spend is primarily driven by one additional major plant outage compared to FY24. Just to reiterate, over the medium term, sustaining capital spend on our thermal assets is forecasted between $400 and $500 million per annum, which will fluctuate each year subject to asset management plans. This investment is expected to continue the strong performance of our thermal asset fleet. We've reported property refurbishments as sustaining capital. However, a substantial proportion of this spend will be recovered in FY25 through incentives in our various lease arrangements. In line with our strategy, growth spend will focus on the construction of the Liddell Battery, approximately $500 million of the total estimated $750 million construction cost is forecast to be spent in FY25, with approximately $50 million remaining in FY26. Customer markets growth spend will focus on advancing our energy as a service and electrification solutions initiatives. As previously indicated, the investment in the transformation of our business is expected to drive higher depreciation and amortisation over the medium term. Depreciation and amortisation for FY24 was $19 million higher, largely driven by the increased investment in our thermal assets, as well as the Trans-Island battery coming online. In FY25, we expect an uplift of approximately $70 to $80 million, reflecting the continued investment in our thermal assets and changes to the rehabilitation provisions, the completion of the first phase of the retail transformation programs, as well as the full year depreciation impact of the Torrens Island Battery and commencement of the Broken Hill Battery. We've had an outstanding cash result for the year with underlying operating cash flow of just over $2.4 billion, $1.4 billion higher than the prior year, largely driven by significantly improved earnings and lower margin calls. Operating free cash flow more than doubled to $1.4 billion due to these factors, partly offset by higher sustaining and growth capital spend. Please note, both numbers exclude the $381 million worth of government bill relief mentioned earlier. As you can see on the bottom left-hand side, our cash conversion rate, excluding margin calls, rehabilitation and the bill relief received, improved to 98%. Turning now to our debt portfolio and funding position, where we've made excellent progress this year. Overall, we've significantly de-risked our debt portfolio with our weighted average tenor of debt increasing to 5.3 years and an improved spread of maturity dates achieved. No significant refinancing is required until FY26. Our liquidity position has also increased to $1.7 billion in cash and undrawn committed debt facilities. Moving to the right-hand side, we achieved a $942 million reduction in debt driven by the stronger cash flow performance, noting that this also includes the bill relief received, partly offset by higher capital expenditure. In terms of rating and headroom, we continue to maintain our BAA2 stable investment grade Moody's rating and hold significant headroom to covenants. Overall, we end the year with stronger operating cash flow generation as well as larger, more diversified pools of capital. Turning now to market conditions, starting with the left-hand side, we've seen a good recent recovery in FY25 and FY26 swap pricing, which are broadly consistent in terms of VWAP at this stage. And while slower than FY24, they are still materially higher than FY23. On the right-hand side, you can see cap pricing for both New South Wales and Victoria remain strong, boding well for our growth portfolio of grid-scale batteries and flexible assets. Continuing on the theme of market conditions, I want to talk through some of the tailwinds expected for longer-term electricity demand. This slide focuses on EV penetration as well as potential data centre growth. At our investor day last June, we highlighted AEMO's projection of electricity demand within the NEM likely doubling by 2050, largely driven by the electrification of the home, transportation and broader industry. Encouragingly, we are continuing to see some of these expected tailwinds come to fruition with the growing demand for electrification products from our consumer and large business customers, which includes a sharp uptick in EV market share recorded in 2022 and 2023, ahead of strong medium-term projections by AEMO. However, most recently, there has been significant step change in data center development pipelines globally, fueled by the rapid rise in the demand for AI-led data center capacity. We are seeing this trend mirrored on a domestic front as well. Broadly speaking, we could see data center capacity almost triple across over the medium term in New South Wales, Victoria, and the ACT. assuming an announced data centre development pipeline of roughly between one and a half to two gigawatts is built and operational over the medium term. Overall, the portfolio and development pipeline is well positioned to capture this upside of any future energy demand growth. Thank you for your time and I'll now hand you back to Damien.