AGL Power Restricted (OTCPK:AGLNF) Q2 2022 Earnings Convention Name February 9, 2022 6:45 PM ET

Firm Individuals

Graeme Hunt – Chief Government Officer

Damien Nicks – Chief Monetary Officer

Christine Corbett – Chief Buyer Officer

Markus Brokhof – Chief Working Officer

Convention Name Individuals

Tom Allen – UBS Funding Financial institution

Mark Busuttil – JPMorgan Chase & Co.

Peter Wilson – Credit score Suisse

Max Vickerson – Morgans Monetary Restricted

Mark Samter – MST Marquee

Operator

[Call Starts Abruptly] I might now like at hand the convention to, Mr. Graeme Hunt, Managing Director and CEO.

Graeme Hunt

Good morning, everyone. Graeme Hunt, talking. Thanks for becoming a member of us for the webcast of AGL’s first half outcomes for the monetary 12 months 2022. I want to start by acknowledging the normal custodians of this land, the place I’m presenting from in the present day and pay my respects to their Elders previous, current and rising. I might additionally wish to acknowledge the Conventional Homeowners of the assorted lands from which you’re all becoming a member of from, and any individuals of Aboriginal and Torres Strait Islander origin on the webcast.

Immediately I’m joined by Damien Nicks, CFO and CFO-Elect for Agl Australia; Christine Corbett, Chief Buyer Officer and CEO-Elect for AGL Australia; and Markus Brokhof, Chief Working Officer and Chief Working Officer-Elect, in addition to Deputy CEO-Elect for Accel Power. I’ll get us began earlier than handing over to the group and we could have time for questions on the finish.

Immediately’s consequence displays a strong first half efficiency, with continued resilience of our operations and producing portfolio, regardless of one other interval of pandemic-related disruption. As anticipated, decrease earnings had been primarily attributable to the non-recurrence of AUD 105 million of insurance coverage proceeds acquired within the first half of final 12 months, regarding the 2019 Loy Yang outage.

Earnings had been additionally impacted by the progressive roll-off of hedge positioning established at larger wholesale pricing, and to a smaller extent, the expiry of lower-priced legacy fuel provide contacts. Encouragingly, these impacts had been partly offset by a AUD 57 million discount in working prices, pushed by main cost-out initiatives.

In abstract, underlying EBITDA of AUD 723 million was down 21%, whereas underlying NPAT of AUD 194 million was down 41%. Adjusting for the insurance coverage proceeds, underlying revenue after tax was down 23% %. An unfranked interim abnormal dividend of AUD 0.16 per share has been declared, and the DRP shall be absolutely underwritten.

Pleasingly, now we have narrowed the underlying earnings steering ranges for FY 2022, reflecting a strong first half efficiency, with decrease second half earnings according to expectations. I’ll elaborate additional on this in direction of the tip of the presentation.

Wanting ahead, AGL is nicely positioned to learn from the development in wholesale electrical energy costs we’ve seen during the last 6 months. And we count on this, along with any sustained enchancment to wholesale pricing to be mirrored in future earnings past FY 2022, as hedge positions roll-off.

Turning now to some enterprise updates. Our strategic Web Promoter Rating stays in report territory, and we proceed to see strong progress in our telecommunication customer support numbers. Good progress was additionally achieved on the re-purposing of our main technology websites, with the development of the Torrens Battery underway and planning approval acquired for the 200-megawatt battery at Loy Yang.

We stay acutely centered on price self-discipline and money preservation to make sure stability sheet energy, previous to the implementation of the proposed demerger. As talked about, working prices decreased throughout the enterprise within the half, and we’re nicely on monitor to ship our focused AUD 150 million in working price financial savings by the tip of FY 2022, in comparison with the FY 2020 working price ranges, along with our focused discount in sustaining capital expenditure of AUD 100 million by FY 2023.

We now have additionally accomplished the sale of our investments within the EIP fund and Ecobee for roughly AUD 100 million, with different focused non-core property gross sales progressing. Importantly, wonderful progress has been achieved since we confirmed our intention to demerge the group on June 30, 2021. Leaner organizational constructions for each proposed entities have been confirmed, with further government group and board appointments made. The aim and methods for each proposed entities at the moment are in place and Christine and Markus will speak to those in larger element.

And in the present day, we’re more than happy to stipulate the proposed local weather commitments for each AGL Australia and Accel Power, which I’ll cowl shortly. Damien will speak extra to the debt financing preparations which have now been absolutely executed, in addition to the capital constructions and dividend insurance policies of each proposed entities. As well as, the offtake and transitional service agreements, as nicely the tax and regulatory processes, are all progressing nicely.

I may verify in the present day that Accel Power will maintain a 15% minority curiosity in AGL Australia, enabling Accel Power to share within the anticipated worth creation in AGL Australia and strengthening stability sheet and monetary flexibility.

And eventually, the scheme booklet containing further info on the proposed demerger is anticipated to be launched in mid-Might. This shall be adopted by a scheme assembly in mid-June, providing you with, our valued shareholders, the chance to contemplate and vote on the proposed demerger. That is actually a pivotal time in AGL’s 180-year plus journey, and we look ahead to this thrilling new chapter which is able to create a stronger future for our enterprise.

Shifting now to 2 key operational areas, security and buyer expertise, which each proceed to stay sturdy. The Whole Damage Frequency Charge per million hours labored elevated barely to 2.4 for the half 12 months, nonetheless, that is nonetheless a cloth enchancment on FY 2019 and 2020, reflecting our sustained deal with security tradition and efficiency.

As talked about, our strategic Web Promoter Rating reached one other report excessive, reflecting our unwavering deal with buyer expertise and the rewards of our important funding in digitization coming to fruition. Contemplating that we’ve had one other interval of difficult market circumstances, these outcomes are pleasing. This slide exhibits an additional abstract of our monetary consequence, which Damien will cowl in additional element later.

Now taking a better have a look at electrical energy market circumstances. Encouragingly, we’ve seen a strengthening of ahead pricing from late-Might, initially pushed by the Callide and Yallourn thermal plant incidents, and this trajectory has continued by way of the rest of 2021, largely supported by larger worldwide commodity costs. Pleasingly, the dotted strains point out this restoration to be sustained into FY 2023.

As we’ve beforehand guided, over the short-term, our hedged place will restrict potential earnings upside from a restoration in wholesale pricing, significantly in FY 2022. Long run, given the relative energy of our low price technology place within the NEM, AGL Power and the proposed Accel Power will each be nicely positioned to learn from any sustained restoration in wholesale electrical energy costs, in addition to their deal with delivering business availability throughout volatility.

AGL Australia will even be nicely positioned to handle the next wholesale pricing atmosphere, with its versatile technology portfolio offering protection for market volatility, suite of energy buy agreements benefiting from larger Vitality and LGC costs, and its capability to handle value modifications by way of its important retail and business and industrial buyer base. To not point out its in depth buying and selling experience.

On the right-hand facet you’ll be able to see the fabric elevation in volatility, pushed by the key thermal plant incidents I discussed earlier, coupled with larger outage ranges persisting throughout the summer time in Queensland. The growing penetration of latest renewable technology within the NEM has additionally had a profound impact on the volatility available in the market in recent times, because it introduces variability on the availability facet for electrical energy. Once more, we’re nicely positioned to handle this heightened volatility with our technology fleet and complicated threat administration and buying and selling experience.

The event of our 850-megawatt grid-scale battery pipeline will even be key to firming intermittent renewable technology and smoothing value volatility within the years to come back. We now have spoken earlier than of the forces which are shaping our market and accelerating Australia’s vitality transition. For any group to reach this atmosphere, it’s not sufficient to easily reply to those. A constant, clear goal and technique that ensures entry to capital and broad stakeholder assist is important for any enterprise that desires to not solely meet the challenges of the vitality transition, but in addition grasp the alternatives it presents.

We consider AGL’s proposed demerger achieves this, making a stronger future for each components of our enterprise whereas enabling a accountable and orderly transition in direction of a decarbonized vitality future. The proposed demerger will lead to 2 trade main corporations, Australia’s main multiservice vitality retailer and Australia’s largest electrical energy generator, and every group could have the power to unlock worth as they every pursue methods tailor-made to their particular person goal. Every enterprise will have the ability to act on their distinct worth drivers, ESG weightings and funding propositions, enabling them to raised entice related traders and capital and enhance future worth.

AGL Australia and Accel Power will undertake a sturdy dividend coverage that helps returns to shareholders whereas additionally supporting staff, suppliers, and the communities they serve by investing in expertise and new alternatives. Our goal, by remodeling our enterprise, isn’t solely to raised deal with our personal climate-related dangers, but in addition to take a key main position in enabling Australia’s vitality transition, creating long-term worth and sustainable funding alternatives as we do it.

With this final result as our goal, now we have outlined a manner ahead for AGL Australia and Accel Power to handle these climate-related dangers that embraces Australia’s vitality future and builds on AGL’s legacy of innovation and growth. Power transition and the trail to internet zero would be the defining problem of our period. Firms that don’t adapt, don’t innovate, and don’t set themselves on this path shall be left behind. With regards to taking motion on local weather, the AGL Power legacy is powerful.

Within the final 2 many years, AGL has performed a management position in Australia’s transition investing greater than AUD 4.8 billion in renewable and firming technology, and delivering greater than 2,350 megawatts of latest technology capability since 2003. Shifting early has meant that in the present day we function the most important portfolio of renewable and storage technology property of any ASX-listed firm. And it’s this legacy that may form the DNA of AGL Australia and Accel Power, and their response to local weather.

Immediately, we’re outlining a set of local weather commitments that exhibit decisive motion to speed up our pathway to decarbonization for every group. And importantly, they’re commitments that strike a stability between Australia’s present and future vitality wants and the necessity to responsibly decarbonize. AGL Australia shall be carbon impartial for all Scope 1 and a couple of emissions upon itemizing with credible pathways to internet zero for Scope 1, 2 and three emissions by 2040, together with a 50% emissions discount on FY 2019 ranges by 2030.

And in delivering this, it can underwrite 3 gigawatts of renewable and versatile capability by 2030, to assist its clients as a number one multi-service vitality retailer. These are milestones that may not have been contemplated by our retail enterprise beneath the present gentailer mannequin.

For Accel Power, there is no such thing as a doubt that coal-fired technology throughout the whole system will exit sooner than beforehand believed, enabling a sooner decarbonization pathway. Nonetheless, for this to occur, AEMO’s latest draft ISP estimates that roughly AUD 70 billion to AUD 90 billion value of funding in transmission and technology shall be required.

With this scale of change, these closures should not occur outdoors of a co-ordinated plan throughout governments, trade, regulators and the group. With out this we’ll create market uncertainty and put in danger vitality reliability and affordability. It’s these interdependencies that should be thought-about when figuring out the long run closure dates for our coal turbines.

Accel Power will present dependable, low price vitality with a robust deal with repurposing current thermal technology websites as low emissions industrial Power Hubs, because it brings ahead its coal closure dates to no later than 2033 for Bayswater and 2045 for Loy Yang. With Liddell scheduled to shut by April 2023, Accel’s electrical energy technology portfolio’s annual Scope 1 and a couple of emissions will scale back by 18% to 27% between FY 2025 to FY 2034, and by 55% to 60% between FY 2035 to FY 2046, in contrast a FY 2019 baseline.

General, modeling exhibits an anticipated 90 million tonnes discount in emissions between FY 2023 and FY 2050 in comparison with the outcomes from our beforehand modeled eventualities, as detailed on Slide 45 of this pack. This can be a important contribution to the Australian vitality sector’s decarbonization course of with the opportunity of enchancment past this if Accel Power is ready to deliver closure dates additional ahead throughout the closures ranges for Bayswater and Loy Yang.

As I mentioned, there are a lot of interdependencies and plenty of of these are outdoors our direct management as one group in a extremely built-in vitality community. We’d like the whole system to be able to function with out our essential base-load technology. We’re dedicated to working with authorities, trade and the group in pursuit of this and shall be reporting yearly on progress in direction of this ambition.

Australia’s vitality transition won’t occur in a single day, the market should proceed to offer individuals with inexpensive vitality whereas pursuing innovation and know-how that may ship decarbonization. By creating AGL Australia and Accel Power, we’ll present essential management to the Australian vitality system by way of this transition. These commitments we’re saying in the present day are the start of the journey for these 2 corporations, not the tip. We now have set a brand new baseline for each and it’s in opposition to this that they may measure their success and attempt to enhance because the vitality market evolves.

As I touched on earlier, wonderful progress has been achieved since we confirmed our intention to demerge the enterprise mid-last 12 months. I’ve already coated many of the milestones on this slide, nonetheless, I want to spotlight the appointment of Gary Brown, as Chief Monetary Officer-Elect of Accel Power. Gary joins us with greater than 20 years of senior finance expertise throughout quite a few ASX-listed and multinational corporations, together with BHP Billiton, Shell, Viva Power and CSG Restricted, and most not too long ago because the CFO for ENGIE Australia and New Zealand.

We additionally introduced the appointment of Graham Cockroft to the AGL Power Board in late-December and look ahead to his appreciable experience gleaned over a 30-plus 12 months profession within the vitality sector. We’ve additionally confirmed the respective Board compositions for each proposed entities. Further Non-Government Director appointments for each AGL Australia and Accel Power are nicely progressed and shall be introduced sooner or later.

Earlier than I transfer on, I might additionally like to focus on that the one-off money prices associated to the demerger are anticipated to be between AUD 220 million and AUD 260 million. This contains debt finance prices of roughly AUD 40 million for brand spanking new services and early reimbursement of sure current services. This degree of price is according to transactions of comparable complexity.

I’ll now hand to Damien to take you thru the monetary ends in extra element.

Damien Nicks

Thanks Graeme, and good morning, everybody. I’ll begin by offering some context to the half 12 months outcomes, and an replace on how we’re monitoring in direction of the money preservation targets we beforehand introduced. As Graeme touched on, the discount in our headline consequence was not sudden and pushed by elements beforehand guided to market. The strong half 12 months efficiency was pushed by sturdy technology and buying and selling efficiency within the second quarter.

I’ll undergo the group underlying revenue lead to extra element on the following slide, nonetheless one factor I want to spotlight listed below are the segmental outcomes, which at the moment are reported beneath the AGL Australia and Accel Power reporting segments, reflecting the proposed demerger entity constructions beforehand offered as a part of the FY 2021 consequence.

Please word that Centrally Managed Bills haven’t been reallocated and stays in line with prior reporting durations. Pleasingly, working prices had been down, and working money move was up 6%, regardless of the lower in earnings. I’ll talk about these actions in additional element later. Nonetheless, they’re each a very good reflection on how we’re progressing with our money preservation targets. We’re on monitor to ship our focused AUD 150 million in working price financial savings by the tip of FY 2022, and AUD 100 million discount in sustaining capital expenditure by FY 2023.

We now have accomplished the sale of our investments within the EIP fund and Ecobee, recognizing roughly AUD 100 million. The sale of different noncore property are ongoing with Newcastle Gasoline Storage Facility taking longer and being harder than anticipated. The beforehand introduced underwriting of the FY 2021 remaining and FY 2022 interim dividends will save an additional AUD 300 million roughly. These money preservation initiatives had been designed to make sure each entities will obtain funding grade credit score scores and have strong stability sheets from day 1.

Now taking a look at group underlying revenue. The AUD 134 million step-down in underlying NPAT was largely pushed by the non-recurrence of the Loy Yang outage insurance coverage proceeds. Wanting on the chart from left to proper, beginning with AGL Australia, shopper vitality margin was down, largely as a result of influence of milder climate on demand, larger price of vitality with elevated residential photo voltaic volumes, and margin compression from clients switching to decrease priced merchandise.

Provide and buying and selling fuel margin was decrease as anticipated with the influence of decrease priced legacy provide contracts rolling off, throughout the second half of FY 2021, whereas now we have been profitable in re-contracting within the short-to mid-term latest contract costs have been larger than AGL’s legacy contracts.

Shifting to Accel Power, along with the non-recurrence of insurance coverage proceeds, there was an additional discount in buying and selling and origination electrical energy margin as a consequence of decrease contracted electrical energy costs, coupled with decrease offtake gross sales to shopper electrical energy ensuing from elevated penetration of photo voltaic.

The constructive motion in Centrally Managed Bills was attributable to main cost-out initiatives carried out to attain our focused financial savings, which I’ll go into extra element on the following slide. The favorable motion in depreciation was pushed by the asset impairments acknowledged throughout FY 2021. Greater internet finance prices had been largely attributable to the embedded curiosity price unwinding from the onerous contracts and rehabilitation provisions, acknowledged in FY 2021. And eventually, the discount in tax expense largely mirrored the autumn in revenue.

As talked about, we’re nicely on monitor to ship our dedicated AUD 150 million of working price reductions in FY 2022. OpEx discount initiatives in AGL Australia included decreasing internet dangerous debt expense, and decreasing advertising and marketing and promoting spend. Markus will talk about Accel’s price out initiatives in additional element later.

Additional company price out initiatives concerned a big discount in IT and discretionary spend, mixed with labor reductions throughout the company areas. Put up demerger, we count on a small discount in working prices on a like for like foundation, with deliberate price financial savings in FY 2023 to offset latest progress and acquisition prices, plus the dis-synergies of standing up 2 separate organizations.

An organizational construction evaluation was undertaken throughout the half to simplify and streamline AGL Power, and 350 roles have been recognized for elimination. The primary tranche of exits occurred throughout the first half of FY 2022, with the remaining roles to depart previous to June 30, 2022 or early FY 2023, topic to the proposed demerger continuing. Redundancy prices related to the evaluation are projected to be AUD 40 million in FY 2022, which won’t influence underlying outcomes. These financial savings mirror leaner, extra centered organizations following the proposed demerger.

I’ll now cowl money and debt in additional element. Web money from working actions was up 8% within the half, pushed by money enchancment initiatives, a big influx from margin calls in contrast with an outflow within the earlier half and different constructive working capital actions, which greater than offset the lower in EBITDA. Decrease money tax paid within the first half was in line with the discount in earnings.

Investing money move was about AUD 147 million reflecting the funding in Tilt Renewables, and offset by the non-core funding gross sales as beforehand introduced. Financing money outflows had been considerably decrease than the earlier 12 months, reflecting the underwritten FY 2021 remaining dividend. Pleasingly, our money dialog fee stays very sturdy at 112%.

Turning to debt and funding, regardless of a difficult 12 months, we nonetheless retain enough headroom beneath our Baa2 credit standing and our debt covenants, and have over AUD 700 million of money and undrawn debt services accessible at December 31. Immediately, we are able to verify the proposed dividend insurance policies and capital constructions for AGL Australia and Accel Power. These are largely according to what now we have indicated in earlier bulletins. We consider the proposed dividend insurance policies are tailor-made to offer capital administration flexibility for every entity, while on the identical time offering acceptable returns for shareholders.

AGL Australia will set up multi-option financial institution services in combination totaling roughly AUD 2.44 billion. This shall be complemented by U.S. Personal Placement notes totaling AUD 661 million, from AGL Power’s current AUD 910 million in U.S. Personal Placement notes. It’s anticipated AGL Australia will obtain an funding credit score grade score of Baa2. It’s proposed AGL Australia will goal a dividend payout ratio vary of between 60% to 75% of underlying revenue. Dividends are anticipated to be partly franked within the short-term, focusing on to be absolutely franked over the long run.

Accel Power will set up debt services of roughly AUD 1.4 billion, which shall be a mix of amortizing time period debt and revolving working capital and assured services. Accel will even profit from further stability sheet flexibility offered by the 15% shareholding in AGL Australia, and it’s anticipated to obtain an funding credit score grade score of Baa3.

Accel Power will undertake a dividend coverage aligned with the anticipated money profile of the enterprise, focusing on 80% to 100% of free money move after servicing internet finance prices. Free money flows will successfully be Accel’s working money move excluding tax, working capital necessities, and CapEx. CapEx will embrace sustaining and any contributions for deliberate progress or funding. Dividends shall be unfranked within the first few years following the demerger as tax losses are utilized.

I’ll now handover to Christine and Markus, who will present a primary half replace on clients, operations, and portfolio technology, earlier than delving into the methods for AGL Australia and Accel Power.

Christine Corbett

Thanks, Damien, and good morning, everybody. Our shopper enterprise stays sturdy with 4.2 million companies to clients and 4.5 million once you embrace ActewAGL companies. This has been underscored by good progress in telecommunication companies and continued underlying price efficiencies. Over the previous 6 months there was elevated aggressive exercise and now we have seen a modest improve in churn, according to the market pattern. This has led to a slight discount in total vitality companies, predominantly pushed by the anticipated larger churn of Click on Power clients, though, pleasingly that is nonetheless according to our enterprise case expectations.

A spotlight for the primary half was the sturdy progress achieved in telecommunications as we scale our providing, and we now have 42,000 companies beneath the AGL model. Moreover, model consciousness of AGL’s web providing has continued to develop to 34%, with reasonable however environment friendly model and advertising and marketing funding. Web working prices per shopper vitality service proceed to be pushed decrease, underscored by digital and advertising and marketing marketing campaign efficiencies.

Prudent funding in our rising telecommunications enterprise resulted in an total improve in internet working prices. Pleasingly, now we have continued to ship effectivity, whereas on the identical time bettering our buyer expertise, as demonstrated by our sturdy NPS outcomes. We now have additionally seen an additional 12% discount in ombudsman complaints in contrast with the prior corresponding interval. As we enter the second half of FY 2022, we’ll proceed to deal with rising the worth of our buyer guide, bettering the shopper expertise, and driving effectivity in our price base.

Our Industrial and Industrial buyer efficiency has remained sturdy, primarily attributable to progress in Sustainable Enterprise Power Options. The combination of the Epho and Solgen companies has been extremely profitable. As anticipated, these companies have complemented and bolstered our current photo voltaic capabilities, enabling AGL to ship extra tailor-made and revolutionary vitality options for companies, as we accomplice with them by way of the vitality transition.

AGL is now the main business photo voltaic supplier in Australia and is uniquely positioned to ship Power-as-a-Service by way of our Behind-The-Meter know-how options. Power options gross margin has doubled to AUD 6 million, pushed by sturdy gross sales progress, with common electrical energy provide contracting tenure rising considerably. We now have additionally grown our distribution income notably, albeit off a smaller base. That is regardless of the disruption to international provide chains and the influence of COVID-related shutdowns on photo voltaic development.

We proceed to innovate and assist clients on their decarbonization journey, together with microgrids with Santos, deploying photo voltaic throughout almost 850 websites with The Salvation Military and a 5-year partnership with Goodman Group, deploying as much as 100 megawatts of photo voltaic.

Our sturdy buyer focus as evidenced by service efficiency, buyer advocacy and scaling our multi-service providing has delivered worth in the present day, while offering a strong basis for progress.

And now over to Markus.

Markus Brokhof

Thanks, Christine, and good morning, everybody. I’m happy to say that now we have had a really sturdy efficiency to the 12 months to this point. We now have been in a position to seize alternatives available in the market by way of business fleet availability, efficient buying and selling and threat administration, and complemented this with our resilient technology portfolio. This slide exhibits a number of of our key metrics for our operational efficiency.

Beginning on the left-hand facet, the business availability of the whole thermal technology fleet, which is larger in comparison with the primary half of final 12 months, principally reflecting the nice efficiency of Loy Yang and Liddell. I’ll talk about this in larger element on the following slide. Within the center, you’ll be able to see a metric that demonstrates how we’re positioning the portfolio within the traded markets. We now have improved year-on-year our seize of volatility and have extracted extra extrinsic worth of our property.

Our efficient buying and selling, origination and threat administration has come to bear within the half, as our portfolio hasn’t been hit by the coal and fuel value will increase seen within the international commodity markets on the availability facet. Once more, I’ll contact on this in additional element on an upcoming slide.

Lastly, we had a really slight discount in technology volumes over the half primarily influenced by a serious deliberate outage in Loy Yang decreasing volumes from that plant, and a few demand influence from sustained lockdowns in Victoria and New South Wales.

We now have beforehand highlighted the deal with business availability over technical availability for our thermal fleet. This is a crucial shift in mindset from being accessible as a lot as doable to maximizing availability when the market wants our models to be on and compensates for them. You’ll be able to see the pattern of Loy Yang has been actually useful, with a giant step up in availability throughout occasions when the worth is above our quick run marginal price. As we proceed to undertake disciplined investments on the station and mine, we consider this may be sustained.

On the right-hand facet, you’ll see Liddell and Bayswater. Liddell’s availability is trending down over time, which is pure for an aged plant. That mentioned, it has had an uptick relative to a poor efficiency within the first half of 2021. Liddell’s efficiency displays a modified candy spot operation; in different phrases, decreasing the operational capability to 320 to 350 megawatts, which helps us hold the models working reliably by way of to finish of life.

Bayswater is an space we’re making use of growing focus with some latest challenges arising out of derates, significantly from our coal mills. We now have invested into larger flexibility, lowered minimal load working and upgraded the Digital Management System, which is able to enhance efficiency in future years.

The commodity markets had been very a lot dominated by a restoration of the worldwide economic system, after COVID-19 impacted many of the manufacturing industries and commerce flows. Gasoline storage ranges had been under common in many of the nations within the Northern Hemisphere, and China has develop into the most important importer of LNG after many years of Japan being the most important offtaker. The diversion of LNG cargoes has induced an uplift in costs in Europe and the Asian Pacific area.

Gasoline to coal switching has additionally induced larger demand in thermal coal. However, our coal provide portfolio and fuel portfolio has not been majorly impacted by these value rallies, as a consequence of a really nicely managed procurement technique and threat administration. As well as, market members with quick positions on inexperienced certificates resembling LGCs have considerably pushed up the ahead curve for LGCs, benefitting our renewable portfolio within the short- and mid-term.

Energy costs within the ahead markets within the NEM have adopted the identical pattern and been extra pronounced within the northern states than in South Australia and Victoria.

Now, again to Christine.

Christine Corbett

Thanks, Markus. Because the CEO-Elect for AGL Australia, I’m happy to share the rising market alternatives for the brand new firm and our distinct benefit, our technique, the place we see worth, the capabilities we have to seize worth and, importantly, the sturdy place we’re taking over our local weather commitments. We now have a robust progress future.

The NEM itself is altering, after rising by lower than 5% within the final 2 many years, electrical energy consumption is forecast to develop by 23% between now and the tip of the last decade. This transformation is being pushed by the electrification of trade, transportation and residential demand. The shift is being enabled by applied sciences resembling good and related units, electrical automobiles, aggressive and dependable renewable energy, decentralized vitality, and the rise of the prosumer. We’re within the midst of this transition already as rooftop photo voltaic is now the second largest generator within the NEM with virtually 15 gigawatts of capability.

To achieve this progress market, now we have the compelling mixture of scale, vitality buying and selling and sustainability to drive progress and generate incremental worth. Scale, our roots have been in Australian vitality retailing at scale. We now have over 4 million buyer companies, we’re acknowledged for vitality and have a robust established model which our clients belief as we transfer to a sustainable future.

Buying and selling is in our DNA and shall be pivotal to handle volatility throughout the vitality transition. Our buying and selling capabilities are nicely revered and recognized, we’ll proceed to handle threat and create worth on the identical time. On the coronary heart of that is our hedging technique and suppleness to increase and alter our inexperienced portfolio over time to satisfy the vitality and decarbonization wants of our clients.

Sustainability with our massive buyer base, a versatile and inexperienced provide portfolio, and the objective of underwriting 3 gigawatts of renewable and versatile capability by 2030, now we have a singular alternative to offer management for each our residential and business clients as we progress to internet zero. Regardless of market convergence and adjoining gamers coming into the vitality sector, it’s the compelling mixture of those 3 attributes that uniquely positions AGL Australia for a robust progress future.

We’re a number one Australian model, offering greater than 4 million companies nationally. This scale renders AGL Australia a strong change agent, and our actions can really form the way forward for vitality on this nation. Being Australia’s main custodian of vitality relationships brings duty, and we take ours significantly. We all know that Australians count on us to behave on local weather change, and assembly and exceeding these expectations is paramount to the whole lot we do.

Our goal sits on the centre of our technique, connecting each Australian to a sustainable future. What underpins our goal are our 4 strategic pillars and aspirations. Buyer obsessed, as Australia’s main multi-service vitality retailer, AGL Australia holds a privileged place, uniquely positioned to offer the specialist vitality recommendation and companies that our clients want. With an unwavering deal with the wants of our clients, we’ll seize rising demand. On this new atmosphere, engaged clients are central to long run progress.

We now have established a trusted place main the class as Australia’s most acknowledged vitality model and constructing scale in telecommunications. We now have a robust historical past of innovation, retailing and buyer centricity, which offers an unimaginable platform for progress. This method shall be tailor-made for our enterprise and business clients to satisfy their evolving wants. Dramatic simplification of our merchandise will scale back complexity for purchasers and our individuals. We are going to enhance buyer expertise and time to worth by way of our investments in digital and know-how platform, together with each Kaluza, a brand new vitality core system, and the Retail Subsequent transformation program.

Accelerating decarbonization, electrification and decarbonization are probably the most important forces impacting the vitality transition over the following 2 many years. We are going to information clients by way of the decarbonization journey, offering revolutionary choices in e-mobility, decentralized vitality assets and inexperienced financing. Our partnership mannequin with enterprise clients will drive electrification and assist internet zero targets by way of our market main business vitality options place, reaching our sustainability ambitions collectively.

Increasing the versatile and inexperienced portfolio to allow us to satisfy the vitality wants of our clients and obtain our 2030 objective of underwriting 3 gigawatts of renewable and versatile capability, we’ll rigorously curate an optimum portfolio to handle each our monetary threat and producing worth for our clients. In delivering this, now we have the pliability to construct, contract or underwrite renewable and versatile vitality property increasing on greater than 2 gigawatts of versatile and renewable technology to satisfy the wants of our clients.

Our final pillar, simplifying, digitizing and interesting is about remodeling our enterprise, operational mannequin and methods of working. That is being delivered by way of digitization, simplification and partnerships, together with our partnership with Kaluza which is decreasing price to serve, bettering pace to market while growing worker engagement and efficiency.

Our Retail Subsequent program will even allow AGL Australia to develop past core vitality and increase into rising areas resembling EVs, batteries, orchestration and different adjacencies. All of this leads us to our targets, which is to have primary market share, be internet zero by 2040 and have the market main price to serve.

AGL Australia is strategically nicely positioned to learn from the vitality transition. Worth in our core enterprise is pushed by scale, effectivity, a trusted model and worth maximization by way of leveraging our buying and selling guide. Our fast focus shall be driving incremental worth by way of effectivity positive factors, by leveraging our know-how platforms, our versatile and renewable asset base and our buying and selling experience in a extra centered and nimbler atmosphere.

Over the medium time period, as electrical energy consumption rises through the transition to electrical automobiles, the demand for home charging infrastructure is anticipated to develop to AUD 1.5 billion within the subsequent decade, and we wish to assist our clients join each within the residence and on the street.

We wish to drive the electrification transition by utilizing our place as a trusted model and go-to vitality specialist, together with tapping into the rising photo voltaic and battery market. By means of strategic partnerships, we wish to make participation within the decarbonization journey inexpensive by supporting our clients with inexperienced financing to cut back the burden of upfront capital wants.

On the availability facet, the NEM might play host to over 78 gigawatts of renewable vitality property and 31 gigawatts of versatile technology and storage by 2030. We are going to play an energetic position on this market transformation and now we have the shopper demand to stimulate progress and funding, increasing our inexperienced and versatile portfolio to satisfy our clients’ wants. Lastly, we goal to drive the evolution, progress and transparency of voluntary carbon markets, alongside trade companions and authorities companies.

We’re creating worth by curating an optimum portfolio of property and contracts for vitality and carbon relative to our buyer want. Whereas AGL Australia shall be Australia’s main multi-service vitality retailer with over 4 million buyer companies, we come out of the blocks as far more than that.

We now have versatile technology property, with our fuel peakers and batteries beneath development, contracts for the output of renewable property, like our wind and photo voltaic offtakes with Tilt Renewables, and the most important non-public fleet of versatile and renewable property, together with 780-megawatt hydro-asset fleet. These property span our buyer footprint in 5 states of Australia. However we aren’t simply fascinated about provide within the conventional massive scale generator sense; our clients are more and more prosumers, collaborating within the vitality combine by way of their orchestratable property.

Immediately, we run a number one retailer-led Digital Energy Plant in Australia and we see our clients as an intrinsic a part of our provide portfolio sooner or later. We now have a complementary fuel contract guide to produce our fuel clients throughout the east and west coasts, linked to our electrical energy portfolio through the leverage of our fuel turbines on each side of the nation.

Alongside our electrical energy and fuel books, now we have a longtime inexperienced buying and selling functionality, managing national- and state-level renewable vitality schemes and carbon offsets for our clients, ready and poised for our progress in these markets. Taken collectively, AGL Australia will record as a big scale, absolutely fashioned vitality and retail market participant, outfitted with the individuals, portfolio and fervour to attach our clients to a sustainable future.

AGL Australia shall be a pacesetter in sustainability and influence at scale as a internet zero vitality enterprise by 2040. Our decarbonization roadmap lists out key milestones in direction of our internet zero targets. From the primary day of itemizing, AGL Australia shall be carbon impartial for all Scope 1 and a couple of emissions. As well as, we’ll implement a carbon pricing mechanism to underpin our funding choices. We are going to work collectively with our trade companions and authorities companies to drive the evolution of the carbon buying and selling market in Australia.

By 2030, we goal to cut back emissions by 50% primarily based on FY 2019 ranges and underwrite 3 gigawatts of renewable and versatile capability. We now have laid down the foundations by being a pacesetter in renewable and versatile property, with our carbon impartial choices on all merchandise, our partnerships with enterprise and business clients and our buying and selling positions throughout the current carbon markets.

As we join Australians to a sustainable future, now we have dedicated ourselves to a sustainable transformation alongside our clients. We’re enthusiastic about our dedication to our decarbonization journey and can come again with an in depth local weather roadmap later within the 12 months according to our strategic scorecard and metrics.

AGL Australia is poised for progress, and uniquely positioned to transition because the supplier of selection in a technology shift in direction of electrification. Enabled by our distinctive mix of scale, buying and selling DNA and sustainability credentials, now we have a robust progress future.

Now, again to Marcus.

Markus Brokhof

Thanks, Christine. As you’d keep in mind from earlier bulletins on the proposed demerger, Accel Power shall be characterised by its massive, low-cost thermal and wind fleet, backed by a big buyer guide. It’s main route for progress would be the Power Hubs. Since these bulletins, now we have been forming a holistic technique to take a seat round this firm structure, which I’ll speak to at a excessive degree earlier than going into some extra element on key areas on subsequent slides.

For Accel Power, our goal shall be advancing a brand new vitality future, collectively, and I’ll come to what meaning as I step by way of this slide. Firstly, it means assembly the challenges and alternatives that the altering vitality world presents. Decarbonization, decentralization, digitization, and the altering insurance policies of governments, will all form the pressures and alternatives that Accel can discover.

To handle these challenges and alternatives, Accel’s technique shall be to ship 3 core guarantees: to produce aggressive vitality; to guard and improve worth; and to ship new alternatives. These guarantees point out that Accel will hold environment friendly supply of vitality on the coronary heart of its operations, whereas rising into new segments that mirror the altering vitality panorama in Australia, with its growing shift to lower-carbon sources. These guarantees will leverage Accel’s current strengths, whereas offering progress and continuity previous the closure dates of its current property.

As preconditions to success on this technique, Accel Power should preserve its funding grade score and defend its stability sheet, transition to a low-carbon and versatile portfolio, and diversify its sources of income to offer the corporate with longevity and resilience.

To ship in opposition to our guarantees and preconditions, are our 3 strategic pillars. At its core, Accel is an vitality enterprise with massive scale operations, so we should function safely and effectively, which is what we time period operational excellence. Then, to monetize and create worth from our technology, we’d like buying and selling excellence. Lastly, to innovate and transition from in the present day, we’d like portfolio excellence with the power to develop within the decarbonized, decentralized, and digitized vitality future.

Whereas all this provides a way as to what Accel will pursue, it is very important know that we are going to not be doing this alone. We should accomplice with others who’ve an identical curiosity in driving the vitality future. Whether or not it’s our proficient workforce, or the communities wherein we function and the First Nations individuals, or different industries partaking at our vitality hubs, or governments, now we have a shared curiosity and can obtain our targets faster and extra successfully by working collectively.

On this slide, now we have some extra element on every of those strategic precedence areas to offer a way as to what we shall be pursuing in these. I gained’t go into every individually right here however will characterize what I see to be a few of the key features. Beginning on the left, you see that our core enterprise stays our asset fleet. The important thing focus working by way of is our individuals and atmosphere staying secure, whereas our operations stay commercially aggressive. This contains constructing on our lowest-cost place within the NEM, and steady enchancment is on the coronary heart of operational excellence.

In buying and selling excellence, you’ll see that managing the lengthy technology place by way of buyer origination and buying and selling stays a spotlight for us, however there are additionally new areas of progress and worth resembling carbon merchandise, algo-trading and build up a wider buyer base to allow us to advance renewable developments and threat handle our portfolio. Lastly, our portfolio excellence is the place you’ll see probably the most progress. The two earlier talked about strategic pillars are the elements for fulfillment in portfolio excellence.

On the coronary heart, the Power Hubs and the funding car of the low-carbon fund that we are going to search to determine, and on which I’ll go into extra element shortly. Stacking round this are different avenues to progress, resembling constructing optionality in new methods to decarbonize the economic system, and maximizing worth from daytime vitality when the duck curve is more and more pronounced.

As we glance to our first pillar of our technique, which is operational excellence, there’s a broad spectrum of actions this covers, however underpinning all of those actions should be a disciplined method to prices. Damien coated earlier that AGL has had good traction towards its price targets, and Accel will proceed this momentum, specializing in labor, upkeep and effectivity to maintain its OpEx low. Strategic asset administration and making certain now we have a disciplined method to capital spend on our property of their remaining life shall be vital to reaching our CapEx targets.

Wanting now on the right-hand facet and what our buying and selling group shall be managing. Accel could have a naturally lengthy vitality place, however will begin nicely positioned available in the market upon demerger. The present massive buyer guide and offtakes with AGL Australia will present efficient threat administration, whereas leaving some uncontracted place to seize additional worth.

Over time, because the AGL Australia offtake steps down, Accel will develop and diversify its buyer guide, and this shall be a key space for the buying and selling, origination, and portfolio groups. This shall be a main focus space for myself and my group at Accel, as rising our buyer guide and providing new contracts and merchandise will permit us to handle threat whereas bringing our pipeline of renewables and low-carbon firming on-line. This buyer progress shall be achieved by way of our Power Hubs, and extra broadly trying to develop in massive buyer segments.

The Power Hubs shall be key to our portfolio excellence precedence and allow us to develop past the core that exists in the present day. When executed, the Power Hubs will see us transition our thermal websites to hubs that present low-carbon vitality demand, increase companies, and have Accel take a hub orchestration position of synergistic vitality and waste flows.

We consider that the Power Hubs at Latrobe Valley, Hunter and Torrens, are a compelling proposition for 3 core causes. They’ll repurpose current infrastructure and capabilities which offers a aggressive edge in return on funding and execution capabilities. They’ll create synergistic intrahub flows resembling carbon dioxide, water, or warmth much like a round economic system.

The actual worth right here is that these unlock new methods to decarbonize and decrease prices for Accel and trade companions. They’re an efficient mechanism to align buyer demand for low-carbon vitality to our in depth renewables pipeline. This may permit Accel to speed up bringing these low-carbon tasks on-line and decrease the market threat for Accel. We have to work in partnerships to create the chance and worth that the Power Hubs could afford.

On the right-hand facet of the slide, you’ll be able to see a few of the industries clusters who’re within the Power Hubs and with whom now we have engaged in latest months. It’s essential that these Power Hubs unlock incremental income for Accel and construct a strong base of earnings to diversify Accel’s revenue. The goal is to not merely exchange kilowatt hours generated by our thermal portfolio with kilowatt hours of low-carbon technology.

To assist illustrate how we see this occurring, this slide highlights a few of the worth streams we’re exploring. First, and closest to our current core enterprise, is firmed renewable vitality. As I touched on earlier, partnering within the hubs permits us to direct hyperlink buyer demand for renewable vitality to bringing on-line new capability at a decrease threat for Accel and for the shopper. We consider this may occasionally symbolize 5% to 10% of latest NEM capability by way of to 2030.

Second, we see new hub merchandise emerge. One quite simple instance of that is the place extra warmth is generated by one hub participant, resembling a knowledge centre, then one other participant, resembling a greenhouse, can then use it as an enter with minimal price and it’s now not emitted as waste. The alternatives prolong far past this as land, rail, and rising energies resembling hydrogen can all be explored and leveraged at decrease price, once you deliver the fitting companions collectively in a hub.

Third, and that is the place we’re fairly uniquely positioned in creating Power Hubs, is the portfolio worth. As an vitality firm, we are able to create worth by way of load orchestration for hub companions to allow decrease price electrical energy. As AGL Power in the present day, we’re already working one of many largest VPP in Australia. Lastly, and that is our least explored space, is the chance for Accel to realize publicity and spend money on new industries the place they align to our technique and portfolio.

The Power Hubs and related pipeline of renewable growth would require important funding and can’t be funded by Accel alone. We are going to use Tilt Renewables as a blueprint to set-up the funding car. We’re presently available in the market to determine a fund, which we’re calling the Power Transition Funding Partnership, or ETIP. It should assist Accel in funding low-carbon developments and supply companions with entry to a portfolio of investments, with the pipeline already as much as 2.7 gigawatts throughout Australia. All tasks are already at totally different levels of growth and at approval levels.

Accel would fulfill a job as car supervisor along with managing growth, output advertising and marketing, development, asset and dispatch. We’re engaged on the idea that the ETIP shall be established by the purpose of demerger. Establishing the fund will assist the accelerated growth of as much as 2.7 gigawatts of high quality renewables and low carbon firming that Accel will maintain. This contains extremely useful wind, pumped hydro and battery tasks throughout New South Wales, Victoria, and South Australia. Creating this pipeline will assist Accel in sustaining its place as one of many largest wind operators in Australia and develop the low-carbon firming to assist renewables being built-in into the grid.

Earlier than handing again to Graeme, I want to spotlight some additional element in relation to the local weather commitments now we have introduced in the present day for Accel Power. As you’ll be able to see on this slide, the brand new closure home windows that now we have introduced in the present day lead to emissions discount targets that may allow a discount within the complete greenhouse fuel emissions for our thermal fleet.

With asset administration plans structured to the tip dates of 2033 for Bayswater and 2045 for Loy Yang, complete emissions throughout the interval FY 2023 to FY 2050 shall be lowered by no less than an extra 12% in comparison with the trajectory beforehand referenced to our TCFD reporting. This can be a important step ahead for Accel. By means of our 5-year planning course of and annual reporting, Accel Power will report in opposition to our ambition of earlier closure past 2033 and 2045 within the context of modifications in authorities coverage, market settings, and advances in know-how.

General, as I look throughout our technique that I’ve introduced to you in the present day, I’m excited for the distinctive position that Accel Power will play in the way forward for vitality in Australia and the alternatives for progress that it’ll have.

I’ll now hand again to Graeme.

Graeme Hunt

As talked about at the start, we’ve narrowed the underlying earnings steering ranges for FY 2022, following a strong first half efficiency. The anticipated discount in second half earnings shall be largely pushed by elevated capability prices during times of peak electrical energy demand, significantly in the summertime months, which have risen as wholesale electrical energy costs have lifted. Moreover, wholesale fuel consumption is anticipated to be decrease as a consequence of seasonally hotter months within the second half, with haulage and storage prices remaining flat.

Buyer margin is anticipated to enhance within the second half, reflecting a discount in business photo voltaic feed-in tariffs, disciplined margin administration and a ramp up of business photo voltaic tasks that had been delayed by COVID-19. And, as Damien has mentioned, we’re nicely on monitor to ship on our focused working price and sustaining capital reductions in FY 2022 and FY 2023, respectively.

Importantly, we’re nicely positioned to learn over the long run from any sustained restoration in wholesale electrical energy costs, which shall be mirrored in earnings as hedge positions from prior durations roll-off.

Thanks in your time in the present day and we’ll now open to any questions.

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] Our first query comes from Tom Allen at UBS. Go forward, Tom.

Tom Allen

Good morning, all. Simply a few fast questions on the outlook for Accel Power, if I could. Simply within the presentation in the present day, we’re now solely getting 1.5 12 months outlook on the contracting portfolio for Accel Power. So be conscious that the smelter contracts are rolling off within the mid-2020s. And likewise acknowledging that they AEMO’s newest built-in system plan is now pointing to a brand new key situation the place all coal-fired capability can be retired in Victoria by the early 2030s. Simply on condition that Accel could have a protracted vitality publicity, are you able to share some extra colour on the important thing dangers and alternatives round contracting the prevailing thermal capability from Accel, plea