AGL Energy Limited

Thank you for standing by and welcome to the Agile Energy half-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 Agile's 2026 half-year results webcast. 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 are all joining. Today, I'm joined by some of my executive team, Gary Brown, Joe Egan, David Moreto, Matthew Currie and Ryan Warburton. I'll get us started and we'll have time for questions at the end. Our first half results reflected strong operational and financial momentum across the business on the back of improved reliability and flexibility of a generation portfolio, growth in customer services and higher margins, as well as the continued delivery of the transition of our asset base. We're pleased to see our customer satisfaction metrics continue to improve and are working hard to support our customers who are facing cost of living pressures. Although the market experienced unusually less volatility in the half compared to historical averages, the longer-term forecasts for energy demand as well as our expectations for volatility remain strong. Importantly, our stronger fleet availability and flexibility coupled with excellent battery performance help mitigate the impacts of lower market volatility driven by milder weather and lower transmission constraints. Overall EBITDA was flat and as indicated underlying net profit was impacted by increased depreciation and amortisation due to continued investment in the availability and the flexibility of our assets and higher finance costs in line with an increase in borrowings and facility interest rates as we continue to invest in growth and press forward with our multi-decade transition of our business. A fully franked interim ordinary dividend of 24 cents per share has been declared in line with our policy to target a 50 to 75% payout ratio of underlying NPAT for the total FY26 dividend. Today, we have narrowed our FY26 financial guidance ranges in line with a strong first half performance and I will discuss at the end of this presentation. I'll also talk to how the NEM has progressively shifted to more elevated winter demand peaks compared to the summer peaks, partially explaining the increasing earnings skew towards the first half we've seen in recent years. We're also implementing a cost and productivity improvement program that is targeting sustainable net operating cost reductions of $50 million per annum, with the full benefit from FY27 onwards. Whilst financial outcomes were broadly stable, the fundamentals of our business continue to strengthen with a significant improvement in operational performance in the half. Starting on the left-hand side, where we saw another period of elevated market activity, We've materially grown our customer base, increased our already strong customer satisfaction, and improved consumer margin. Our customer markets business recorded excellent growth in overall customer services, primarily led by growth in energy services, including the acquisition of Ampol customers, with telecommunications and Netflix customer services also higher. Our customer satisfaction score increased to 83.8. Strategic MPS remains positive at plus four and spread to market churn remains strong at 5.3 percentage points. All strong indicators of our customers being satisfied with AGL's service offering. At the same time, we delivered a 10% improvement from the prior half in consumer margin, reflecting a return to more sustainable levels. Turning to the right-hand side, we have delivered a stronger fleet availability result for the first half and remain on track for improved fleet availability for the full year. Importantly, higher commercial availability and improved plant flexibility allowed AGL to generate when market conditions were most favourable. Amidst lower volatility, our growing flexible asset fleet delivered an excellent premium of 20% to the time-weighted average price for the half, seven percentage points above FY25. Importantly, our continued investment in flexible assets is expected to grow this premium over time. And finally, our operated battery portfolio continues to deliver excellent performance with an EBITDA contribution of $35 million, $10 million higher on the prior half. Again, a strong result despite a period of unusually lower volatility. Turning now to some observations from the half, as well as some longer-term trends and the opportunities they present for AGL. Firstly, we've observed new peak demand records, and as I mentioned, the NEM shifting to more elevated winter demand peaks relative to summer peaks. As I'll discuss on slide 15, IEMO's forecast for long-term operational demand remain highly favourable, underscored by growth in electrification, EV penetration, and data centres providing AGL with considerable opportunities into the future. Crucially, our energy portfolio, and particularly our flexible asset fleet, is well positioned to leverage the upside of rising operational and peakier customer demand. I've already mentioned the unusually lower volatility in the half, driven by milder weather and lower transmission constraints. However, over the longer term, as the NEM transitions, we do expect higher volatility through the cycle, for reasons I'll speak to later in the presentation. Again, our growing flexible asset fleet is well-placed to leverage the upside of the higher long-term volatility, delivering strong supply-side realized pricing and portfolio outcomes. And finally, the market is delivering on the 41 gigawatts of grid scale and residential batteries required in the NEM by 2035. Approximately 10 gigawatts of this target have been built, albeit a significant amount of new storage and generation capacity still needs to be in place over the next 10 years. We continue to progress the build out of our high returning operational grid scale battery projects and I'll speak to the new products and the initiatives which are delivering value for our residential battery customers. Overall, AGL is very well positioned in an evolving and transitioning energy market. We've had an excellent half across the business as we press forward with the delivery of our strategy to deliver long term value. Headlined by the transition of our energy portfolio, we've continued to make great progress. Our development pipeline has grown to 11.3 gigawatts, up from 9.6 gigawatts at the FY25 full year results in August. We continue to be very well positioned with the size, maturity, and quality of our development pipeline, with our ongoing focus on the timely and the disciplined execution of our projects of the highest portfolio value. During the half, we signed two long-term power purchase agreements with Tilt Renewables to off-take electricity generation from the Palmer Wind Farm in South Australia and the Wadi Wind Farm in Western Australia. These PPAs further diversify our electricity supply portfolio and support our target to add six gigawatts of renewable and firming capacity by 2030. AGL was awarded assist contract for the proposed 600 megawatt Hexum wind farm in Victoria, as well as the allocation of 176 megawatts of peak capacity credits by AEMO to the proposed Kwinana-Swift Gas 2 project in Western Australia. Construction has commenced on the 500 megawatt Tomago battery in New South Wales, and the 500 megawatt Liddell battery is expected to commence full operations of the 500 megawatts in the fourth quarter of FY26, with progressive operation of the first 250 megawatts in this quarter. Kaluza has also generated some great momentum in the past few months. As shared in September, the signing of a third major customer in Engie marked another major milestone in Kaluza's journey, boding well for the potential growth in other regions. More specifically, this multi-year, multi-market agreement marks Kaluza's largest deployment to date. This deal more than doubles Kaluza's contracted meters, and importantly, adds to Kaluza's significant pipeline growth demonstrated over the past two years, with multiple platform deployments in retail and flex across six active markets. The Retail Transformation Program continues to bring us well. Key capabilities have been deployed as planned over the last six months, with committed benefits tracking to plan. We've also signed a gas supply agreement with ESSO Australia, commencing in 2028 for 40 petajoules with gas to be supplied from the Gippsland Basin over a five-year period, strengthening our medium-term gas supply book. Today, we're also announcing a long-term strategic partnership with Aussie Broadband and the divestment of our telecommunications business, and I'll speak to this on the next slide. In early November, we announced an agreement to divest 19.9% of our 20% interest in Tilt Renewables for $750 million, with the agreement expected to complete in the third quarter. We expect that the proceeds will be deployed towards our investment in flexible, dispatchable capacity and provide additional balance sheet flexibility. As I mentioned, today we are announcing the divestment of our telecommunications business and a long-term strategic partnership with Aussie Broadband, with our approximately 400,000 customer services to be acquired by Aussie Broadband in June 2026. This transaction delivers strong value, with AGL expecting approximately $115 million in proceeds in Aussie Broadband shares. Importantly, this move also establishes a long-term partnership where Aussie Broadband will deliver telco services under the AGL brand, ensuring continuity for our customers and creating a platform for shared growth. will also have the opportunity to increase our equity interest in Aussie Broadband through incentives that reward telco growth under the AGL brand. Both organisations are committed to delivering a seamless migration for our customers over FY27. Under this strategic partnership, AGL will act as a sales and marketing channel for Aussie Broadband's telco offers under the AGL brand, with clear incentives to support strong customer growth. Customer operations will be managed by Aussie Broadband, giving customers access to their award-winning service and high-quality products. Customers will continue to benefit in the convenience and the value provided by bundling AGL Energy services and telco services provided by Aussie Broadband. As such, AGL will continue to deliver the retention benefits evidenced by this bundled offering today. Through this approach, AGL simplifies operations, supports growth in bundled offerings and strengthens long-term alignment through an equity-based partnership that positions both companies to succeed together. Turning now to our operational performance for the half, starting with our safety, customer and employee metrics. Total injury frequency rate saw a marginal increase. However, this metric remains significantly lower than FY23 and FY24. This is a good result, particularly across two major coal-fired outages where our contractor workforce increases significantly and we continue to strive further to improve this metric. I've already spoken to customer satisfaction, which has increased to 83.8, and we acknowledge the lower employee engagement score of 69% from the Pulse survey taken in November. We are working closely with our employees to improve engagement across the organisation, particularly in light of our recent organisation restructure, which has seen a reduction in roles across the business. As I mentioned at the start, our customer markets performance was headlined by excellent growth in customer services, continued strong customer satisfaction, as well as margin improvement in a competitive market. Total services to customers increased by 108,000. Growth in energy services was largely driven by the acquisition and the successful integration of Ampol Energy's customer base, approximately 45,000 services. And we also recorded solid growth in telecommunications and Netflix services. Crucially, we've maintained strong customer metrics, including our leading energy brand, digital offering and loyal customer base, with a favourable churn spread to the rest of the market of 5.3 percentage points. Again, a strong result in a highly competitive market. On the right-hand side, as we indicated at the four-year results, you can see the improvement in consumer gross margin on the prior half, reflecting a return to more sustainable levels. We have delivered a strong asset performance for the half, driven by continued strategic investment in our generation fleet, with commercial availability and flexibility remaining critical and highly valuable in a transitioning energy market. On the left-hand side, we've already spoken to our improved fleet performance for the half, largely driven by higher wind and hydro availability. The two major planned coal-fired unit outages were both successfully completed with complex scopes of work designed to improve future reliability and availability. This strategic investment included a low pressure heater replacement at Bayswater, low pressure turbines replacement at Luoyang, and an updated critical spares program to de-risk availability. Crucially, availability is targeted to strengthen in the second half and realign with the positive five-year trend in FY26. Our operator grid-scale battery fleet delivered an EAF of 99%, underscored by advanced analytics and continued control system enhancements to optimize charge and discharge performance. During the period, the Torrens Island battery was also transitioned to AGL site management of operations and maintenance. with this operating model also to be adopted across the fleet of AGL batteries following commissioning, providing AGL strength and control over asset performance. Turning now to a more detailed discussion of the first half fleet performance, where higher commercial availability and plant flexibility enabled AGL to generate value when market conditions were most favourable, despite a period of low volatility. On the left hand side, you can see we recorded a good increase in cold-fired commercial availability, primarily driven by stronger reliability and a lower unplanned outage factor. As mentioned earlier, the lower volatility captured was mainly attributable to the unusually lower spot price volatility that occurred in the NEM in this half, a function of milder weather and lower transmission constraints. However, I'd like to emphasise that over the longer term, as the NEM transitions and cold-fire generation is gradually withdrawn, new variable renewable generation comes online and the grid navigates new transmission build-out, we expect volatility to normalise at higher levels than observed in the first half. The NEM recorded 4.7 equivalent hours of market price cap just in January. This is higher than the 4.4 hours recorded for the entire first half. Generation volumes overall were 2.8% lower, with lower thermal generation utilisation partially offset by higher renewable output, particularly wind generation, which was supported by the commencement of the Rye Park wind farm. Again, despite lower thermal generation volumes, higher thermal fleet availability combined with almost 3.3 gigawatts of thermal fleet flexibility enabled AGL to generate when market conditions were most favourable, delivering the strong realised supply side pricing outcomes you'll see on the next slide. Encouragingly, our growing flexible asset fleet continues to deliver strong realised supply side pricing outcomes for AGL. I'll first point out that the unusually low volatility was observed in the NEM this half compared to the very high strong prior half, which you can see within the orange dotted box. We expect this to lift in the second half in line with the historical trend you can see on the right-hand side of that graph. And as I mentioned, over the longer term, we expect volatility to normalise at levels higher than observed in the first half, as the NEM undergoes a significant transition in the coming decade. Our flexible asset fleet continues to realise a premium above average market prices, a premium which has steadily increased since FY22, with a slight moderation in FY25, albeit with a good uptick in the first half of FY26. Cold-fire flexibility investments and the inherent flexibility of hydro, gas and batteries continue to underpin this premium. AGL is at the forefront of residential battery adoption, outpacing the market and capturing flexible load and associated value pools as customer demand accelerates. The graph on the left hand side shows the significant amount of storage required by 2035 as the NEM transitions away from cold fire generation. 40 gigawatts by 2035 per IEMO latest forecast with only 10 gigawatts in the system currently. The right hand side illustrates how we are capturing value and innovating across emerging residential battery enabled value pools as the market evolves. We've delivered excellent market share growth with our residential battery customer base, doubling over the past 12 months, outpacing broader market growth. We've also strengthened our flexibility proposition by launching AGL's first battery flexibility offering, Battery Awards, alongside a partnership with leading battery brand, Sig Energy. Our orchestration capabilities continue to expand with the launch of AGL Community Power, following the acquisition of South Australia's virtual power plant from Tesla. In addition, we have significantly expanded OEM capability, driving growth in VPP sign-ups. We are also innovating in emerging flexibility value pools through vehicle-to-grid trials and a network flexibility services pilot flexed together in collaboration with Endeavour Energy. Encouragingly, there are positive indicators for the demand in the NEM, which represents a potential tailwind for electricity pricing. We've seen peak demand records achieved in the NEM in 2025, as well as the continued strong long-term outlook for energy demand, supported by electrification, data centres and the expected continuity of smelter operations in New South Wales. The first graph shows the significant uptick in NEM winter demand recorded during the super peak periods in 2025 relative to the last five years. More specifically, in 2025 Queensland reached an all-time demand record in January and New South Wales and Victoria reached winter demand records. As you can see, the NEM has progressively shifted to more elevated winter demand peaks compared to the summer peaks, partially explaining the earnings skew towards the first half that we've seen in recent years. In the middle, you can see that AEMO forecasts significant growth in electricity demand over the next 30 years under all ESU scenarios, with the major drivers of this expected growth being the electrification of the home, data centres, transportation, and the broader industry. Delving further into this, the right-hand side shows the forecast material uptick in data centre-driven demand growth expected in the coming decade, driven by rapid growth in domestic data centre development pipelines, particularly in New South Wales, Victoria and the ACT, with significant supply required to meet this demand. Overall, our transitioning energy portfolio, and particularly our growing flexible asset fleet, is very well positioned to manage and leverage the upside of rising and reshaping customer demand. Concluding with market conditions before I hand over to Gary. This slide shows the observable curves for both swap pricing as well as the cap curves. Forward curves remain flat in Victoria and have eased in New South Wales over the last 10 weeks, and I've already spoken to the drivers of the unusually low volatility observed in the first half. Overall, AGL is largely hedged for FY27, and importantly, the current forward curves are not reflective of the favourable longer-term electricity demand tailwinds that I spoke to earlier, especially given a lot of recency bias is factored into the near-term forward pricing. Now over to Gary.

Thank you Damien and good morning everyone. It is a pleasure to be here today to tell you about our very strong set of operational and financial results, positioning us to continue to pursue our strategy of reinvesting cash flows back into strong generating asset returns. This slide shows an overall summary of our financial results, which I'll cover in more detail on the following slides. As Damien mentioned, our strong first half financial result reflected an improvement in operational performance with an underlying NPAT of $353 million and EBITDA at $1.09 billion. As we communicated earlier, we had higher customer markets earnings as well as stronger fleet availability and flexibility and increased battery earnings, which helped mitigate the impact of unusually lower market volatility in the NEM. As we expected, EBITDA remained flat and underlying profit was lower due to higher depreciation and amortisation and finance costs. Today we've announced a fully franked interim ordinary dividend of 24 cents per share, consistent with our targeted 50 to 75% payout ratio of underlying NPAT for the FY26 dividend. AGL also currently expects to pay a fully franked dividend for the full year. I'll speak to our improved cash performance shortly. And one of the key drivers of the higher net debt was investing cash outflows as we press forward with the transition of our business. This included expenditure on the Liddell battery, K2 turbines, as well as the acquisition of South Australia's virtual power plant for approximately $80 million. Importantly, our significant investment growth, particularly our near-term focus on firming assets, aims to continue and is currently delivering high-quality earnings for AGL with strong cash flow conversion as the business transitions. Additionally, our agreement to divest our equity interest in tilt is a prime example of our ability to recycle capital when timely and prudent. Settlement is expected in the third quarter with proceeds expected to be redeployed towards our firming projects and provide additional balance sheet flexibility. We're also exploring future funding vehicle options for the deployment of a two gigawatt plus wind farm portfolio. Before I move on, I'd like to note that we have reviewed and restated our accounting in relation to the classification of a number of renewable PPAs. The net impact on the balance sheet is immaterial. Furthermore, there is no impact on cash flow and immaterial impacts on underlying profit and our credit metrics. Let me first take you through underlying profit in more detail. Starting on the left, the stronger customer markets performance was primarily driven by margin growth across the consumer electricity and gas portfolios. Consumer electricity gross margin expansion was driven by customer growth and disciplined customer value management. Consumer gas gross margin growth was attributable to margin initiatives and higher volumes driven by colder weather. The growth bar reflects the initial earnings contribution from South Australia's virtual power plant, which we acquired from Tesla last July, as well as earnings from the sale of battery hardware, which has been supported by government initiatives. As we continue our focus on discipline cost management, customer markets OPEX was lower due to ongoing initiatives to deliver operating model benefits, partially offset by higher net bad debt expense due to revenue increases. Moving further to the right, despite stronger fleet availability, integrated energy earnings were impacted by lower coal-fired generation volumes, as well as a reduction in volatility captured compared to the prior half, with the prior half being a period of very high volatility. The positive $10 million bar for batteries reflects the full six months of operation of the Broken Hill Battery, which was being commissioned in the prior half, as well as stronger performance from the Torrens battery. As I'll touch on in a few moments, we're very pleased with the continued strong performance of our 300 megawatt operational battery fleet, which delivered a $35 million EBITDA contribution for the half, a very strong financial result. Continuing with our cost discipline, Integrated Energy's OPEX improvement was driven by a reduction in unplanned coal-fired outage days compared to the prior half, divestment of the Surat gas project, as well as savings through productivity and optimisation initiatives. The slight increase in central managed expenses was mainly driven by IT hardware and software costs as we continue to invest in our technology offerings and capabilities. At the full year results, we indicated an uplift in depreciation and amortisation in FY26 of approximately $100 million. This increase is largely attributable to the continued investment in our thermal assets with a shortening use for life, growth, including the expected commencement of the Liddell battery, as well as higher rehabilitation asset base. Please note that we are now revising down our expectation of the uplift and depreciation by $40 million to approximately $860 million, of which some of this is driven by an ongoing decrease in environmental rehabilitation assets, primarily at AGL Luoyang with the confirmation of bulk water entitlements costs. The increase in finance costs was largely driven by the higher net debt position as we press ahead with the transition of our business. And finally, lower income tax paid reflected the decrease in underlying profit before tax. We initially indicated a 3% increase in FY26 operating costs back in August. However, with a disciplined cost focus, we are tracking better than initially expected, now forecasting just under a 2% increase. The impacts of inflation in FY26 are expected to be more than offset by the significant and accelerated productivity initiatives that have been implemented across the organisation. Today, we are also giving further detail on our cost-out program in FY27 that is targeting an overall sustainable cost benefit of $50 million per annum after CPI, with CPI again expected to be fully absorbed by productivity benefits in FY27. Briefly touching on CAPEX. In line with our strategy, approximately $760 million is expected to be spent on growth this year with the majority of capital deployed to advance our high returning firming projects being approximately $650 million. This growth outlay is expected to comprise roughly $190 million for the remaining project costs for the Liddell Battery with first operations and revenues expected in the third quarter In addition, it includes approximately $360 million of the estimated $800 million total project cost for the Tomago battery with the bulk of the remaining spend expected in FY27. For the K2 turbines, about $85 million is expected to be spent in FY26 with the remaining spend in FY27, approximately $100 million. Additionally, customer markets growth spend will focus on broadening our energy as a service offering for commercial and industrial customers and electrification solutions. This significant investment in growth is the key to unlocking future value for the business. Please note the FY26 sustaining capex forecast is unchanged from August. As I mentioned before, our 300 megawatt operational battery fleet continues to deliver excellent performance with $35 million of EBITDA contribution for the half. This is despite a period of unusually low volatility that we observed in the NEM during the half. Based on 30 months of performance from FY24 to half year 26, the Torrens battery is generating an excellent annualized yield of 24%. Just to be clear, this is calculated as annualized EBITDA divided by the total project capex costs of $189 million. Given the strong operating performance of both the Torrens Island and Broken Hill batteries, we remain confident in targeting the upper end of our seven to 11% IRR range for our grid scale battery projects, noting that these are ungeared post-tax asset level returns. Just a reminder that we have 1000 megawatts of projects which are under construction and expected to be online in the coming years. The Liddell battery is expected to commence full operations in the fourth quarter of FY26. This is the entire 500 megawatts, with the commissioning of the first 250 megawatts targeted for the third quarter. The Tomago battery is expected to commence operations in late 2027. The graph shows actual and expected earnings for existing and committed projects only, noting that we have a few more late stage battery projects which we are focusing on, which I'll highlight on the next slide, with each project expected to take roughly two to three years to build once it's reached FID. This significant investment in firming assets aims to deliver high quality earnings for AGL with strong free cashflow conversion as the business transitions. Importantly, we continue to advance our development projects and pipeline, which now stands at 11.3 gigawatts. We have excellent optionality within the pipeline and seek to deliver projects of the best strategic fit and expected returns that exceed our hurdle rates. On the left hand side, you can see the priority late stage battery and wind projects which we are focusing on, which includes the 500 megawatt Tuckaroo battery in Queensland and the development of wind farm and battery projects for the Pottinger Energy Park together with our joint venture partner, Sameva Renewables. I'm also pleased to share that we're also exploring future funding vehicle options for the development of a two gigawatt plus wind farm portfolio. We have extensive experience in capital partnering with TILT since 2016 to accelerate the deployment of wind and solar generation in Australia and look forward to updating the market in due course. Please note that AGL is no longer pursuing the Gippsland Skies offshore wind project. Turning now to cash performance, which was headlined by an improvement in underlying cash flow and cash conversion, I'll run through some of the key movements. Underlying operating free cash flow was $24 million higher, driven by the unwind of government bill relief to customers in the prior corresponding period, partly offset by an increase in margin calls in the current period. The majority of the significant items relate to the continued implementation of the Retail Transformation Program and other investing cash flows include the acquisition of SAVPP for approximately $80 million. As you can see at the bottom of the screen, operating free cash flow excluding the impact of bill relief timing was $9 million higher, largely driven by lower income tax payments, partly offset by higher sustaining capital spend on our thermal assets to maintain availability and reliability in a transitioning market as evidenced this half. Encouragingly, our cash conversion rate, excluding margin calls, rehabilitation, and the timing of bill relief, increased by three percentage points to 93%. I will conclude with a discussion on net debt, credit metrics, and our strong funding position before I hand back to Damien. Starting with net debt, where one of the key drivers for the increase was the roughly $320 million spend on growth and strategic acquisitions. This included expenditure on the Liddell battery, K2 turbines and the SAVPP acquisition. The other drivers were the $168 million worth of fully franked dividends paid to shareholders and prudent spend on the flexibility and availability of our assets. Importantly, we also maintain our BAA2 investment grade credit rating with headroom to covenants. Turning to the right-hand side where our funding remains strong following the successful issuance of a $500 million AMTN in September across seven and 10 year tenors. Impressively, this issuance was more than 10 times oversubscribed, an excellent outcome heralding AGL's return to the public bond market after 10 years, and continued evidence of broad lender support as we continue to deliver on our business strategy and decarbonisation plans. Our liquidity position remains healthy at almost $1.2 billion in cash and undrawn committed debt facilities. Average debt tenor has increased marginally, and we don't have any major debt maturing until FY27. The tilt divestment proceeds are also expected to settle by the third quarter, providing balance sheet flexibility and a source of funding for our firming projects. Thank you, and handing back to Damien.