AGL Energy (ASX:AGL)

Andy Vesey
MD & CEO
Market Cap (AUD): 14.26B
Sector: Utilities
Last Trade (AUD): 21.75 +0 (+0%)
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1. About

 

AGL is one of Australia's leading integrated energy companies and largest ASX listed owner, operator and developer of renewable energy generation in the country. AGL’s diverse power generation portfolio includes base, peaking, and intermediate generation plants, spread across traditional thermal generation as well as renewable sources including hydro, wind, landfill gas, solar and biomass. AGL also invests in and operates natural gas exploration, development and production tenements, and operates natural gas storage facilities.[1]

2. Business model

 

The Company operates in following divisions:[2]

 

Divisions

Revenue ($M)

% of Revenue

% of Profit (before Int, Tax, Depn & Amort)

Profit drivers[3]

Energy Markets

$12,194

96.9%

135.4%

Energy Markets Underlying EBIT of $2,413M was $139M or 6.1% higher than the prior year due to higher Wholesale Markets gross margin and ongoing discipline in the management of customer pricing and net operating costs. Gross margin performance was driven by growth in Wholesale Electricity  

Group Operations

$389

3.1%

(24.9%)

Group Operations Underlying EBIT of ($825M) was $17M higher largely attributed to driving value through a sustained productivity and cost management program. The decrease in Thermal Underlying EBIT was largely attributed to higher depreciation of $35M driven by a higher asset base

Investments

N/A

N/A

0.9%

ActewAGL Retail partnership contributed an equity share of profits of $24M for the year compared with $30M in the prior year. The decrease was due to lower electricity gross margins resulting from higher wholesale prices. New Energy investments include Sunverge Energy Inc and Solar Analytics Pty Limited. The operating losses of these investments were consistent with expectations for early stage technology investments

Others

$1  

N/A

(11.4%)

N/A

3. Strategy

 

AGL believes it has two strategic imperatives: to prosper in a carbon-constrained future as energy markets respond to community expectations in relation to climate change; and to build customer advocacy as changes in distributed energy and mobile technology alter customer expectations.[4]

Consistent with these imperatives, AGL is currently pursuing four key objectives that drive its strategy and decision making:

  • To move from being a mass-market retailer to offering customers a more personalised experience. AGL’s flagship initiative in this space is the $300 million Customer Experience Transformation program
  • To move from being an owner and operator of large assets to being an orchestrator of both large and small assets. AGL’s flagship initiative in this space is the $20 million Virtual Power Plant project in South Australia
  • To move from reliance on high emissions technology to much lower emissions alternatives. AGL’s flagship initiative in this space is the Powering Australian Renewables Fund  
  • To move from leveraging business platforms in existing markets to leveraging those platforms in new geographies as well. AGL’s expansion into the Western Australian gas retail market is consistent with this objective. In addition AGL is exploring opportunities to operate in competitive retail energy markets in certain select markets overseas

4. Markets

 

The Company operates in markets including:[5]

 

Industry (Australia)

Industry Revenue

Growth Rate

Electricity Retailing

$46 billion (2016)

0.6% (Annual 12-17)

Hydro-Electricity Generation

$1 billion (2017)

10.2% (Annual 13-18)

Wind and Other Electricity Generation

$2 billion (2017)

13.1% (Annual 13-18)  

5. Competition

 

Major competitors Include:[6]

 

  • Duke Energy Corp (NYSE:DUK)
  • International Power Ltd
  • Origin Energy Ltd (ASX:ORG)

6. History

 

1837[7]

The Australian Gas Light Company was created with 'An Act for Lighting with Gas the Town of Sydney"

 

1841   

The Australian Gas Light Company lit the first gas lamp in Australia. Within two years there were 165 gas lamps in the city of Sydney

 

1850   

Gas lighting allowed for late night shopping in department stores

 

1857   

AGL introduced gas purification in Australia allowing for gas to be used in private residences

 

1873   

For a sum of £4, AGL imported the first gas-cooking stove and installed it in its Darling Harbour store

 

1890   

Gas stoves were advertised in cookery books and could be rented or bought from AGL for easier and more efficient home cooking

 

1936   

Around 59,000 housewives had taken gas-cooking classes provided by AGL to better understand the benefits this new home energy resource provided

 

1976   

AGL introduced natural gas to Sydney which involved installing the longest pipeline in the country (from South Australia to Sydney)

 

1988   

AGL pioneered the new nylon pipe technology, Goldline, to reduce gas leakage from the old NSW network.Goldline was fed through existing pipes, removing the need to overhaul the entire pipeline network. The result was a reduction of carbon dioxide equivalent emissions by 13 million tonnes

 

1998   

The solar generator located at Wilpena Pound in the Central Flinders Ranges in South Australia was commissioned.This station has 1,250 solar cells, each with a capacity of 80 W, and cover more than 2,000 square meters

 

2006   

The Australian Gas Light Company (AGL) and Alinta Limited shareholders approved the merger of AGL's infrastructure assets with Alinta and the subsequent separation of AGL Energy. AGL Energy began trading on the Australian Stock Exchange on 12 October 2006

 

2007   

AGL listed as a member of the Dow Jones Sustainability World Index, the leading global ranking of sustainability - the only Australian energy retailer to achieve this status

 

2008   

AGL committed to new ways of sourcing sustainable energy with the Hallet wind farm in South Australia

 

2009   

AGL's Bogong Power Station opened in Victoria - the largest hydroelectric asset to be built on the Australian mainland for 25 years

AGL became proud sponsors of the AGL Action Rescue Helicopter service in south east Queensland to help keep this vital service operating

AGL restored and has continued to provide power to the iconic Skipping Girl sign in Victoria - maintaining an important part of Victorian history

 

2010   

AGL sponsored the Adelaide Zoo Pandas, Wang Wang and Funi by providing their exhibit with solar power to help them reduce their carbon paw print

 

2011   

AGL Energy Online was launched. An online energy management tool to help save customers time and hassle

AGL launched the Smarter Living Store to help customers reduce their energy usage by purchasing energy saving products online

 

2012   

AGL gives the gift of solar power to the iconic Skipping girl sign in Victoria for her 75th birthday to keep her skipping on sunshine.

AGL celebrates its 175th anniversary

AGL acquired 2,210 MW Loy Yang A Power Station and the adjacent Loy Yang Coal Mine

 

2013   

The Macarthur Wind Farm opens and is the largest wind farm in the Southern Hemisphere and represents an investment of approximately $1b

AGL hands over naming rights sponsorship of the Sunshine Coast Rescue Service to RACQ in July to allow the Service to secure a vital $1.5 million boost to funding. AGL continues its support of the Service as a major sponsor

 

2014   

AGL acquired Macquarie Generation, comprising the 2,640 MW Bayswater Power Station, the 2,000 MW Liddell Power Station, the 50 MW Hunter Valley Gas Turbines and the Liddell Solar Thermal Project

AGL regains 'AGL' ASX ticker code

 

2015   

First gas arrives at AGL’s Newcastle Gas Storage Facility

AGL released its new Greenhouse Gas Policy, providing a pathway for the gradual decarbonisation of AGL’s generation portfolio by 2050

AGL announced it is launching a battery storage device into the Australian market, making it the first Australian energy retailer to do so

AGL's Nyngan and Broken Hill solar plants achieve full generation, sending 155 MW of renewable energy into the National Electricity Market

 

2016   

AGL launched the Powering Australian Renewables Fund, an innovative new financing initiative designed to unlock investment and open up more opportunities to develop approximately 1,000 MW of renewable energy generation

AGL announced the launch of the world’s largest virtual power plant, ultimately involving 1,000 connected batteries installed in homes and businesses in South Australia, providing 5 MW of peaking capacity and offering customers the opportunity to save on their energy bills

 

2017   

AGL announced development of $295 million power station in South Australia

AGL agreed to sell North Queensland gas assets

7. Team

 

Board of Directors[8]

 

Graeme Hunt – Non-Executive Director and Chairman

Andrew Vesey – Managing Director and Chief Executive Officer

Peter Botten – Non-Executive Director

Jacqueline Hey – Non-Executive Director

Leslie Hosking – Non-Executive Director

Belinda Hutchinson – Non-Executive Director

Diane Smith–Gander – Non-Executive Director

John Stanhope – Non-Executive Director

 

Management Team

 

Andrew Vesey – Managing Director and Chief Executive Officer

Brett Redman – Chief Financial Officer 

Elisabeth Brinton – Executive General Manager, New Energy

Dan Cram – Executive General Manager People & Culture

John Fitzgerald – General Counsel and Company Secretary

Lisa Harrington – Executive General Manager Stakeholder Relations

Doug Jackson – Executive General Manager Group Operations

Simon Moorfield – Executive General Manager Information Systems and Technology

Alistair Preston – Executive General Manager Organisational Transformation

Melissa Reynolds – Chief Customer Officer

Richard Wrightson – Executive General Manager Wholesale Markets


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8. Financials

 

2018 Half YearResults Presentation

 

Financial Year 2016/17 (ended 30 June):[9]

 

Divisions

Revenue ($M)

% Change

Profit (before Int, Tax, Depn & Amort) ($M)

% Change

Energy Markets

$12,194

11.3%

$2,508

5.6%

Group Operations

$389

101.6%

($462)

6.5%

Investments

N/A

N/A

$17

(32.0%)

Others

$1  

N/A

($211)

2.3%

Total

$12,584

12.9%

$1,852

9.7%

9. Risk

 

Major risks include:[10]

 

Material Business Risks

AGL’s enterprise wide risk program is aligned with the principles and requirements of ISO 31000, the international standard for risk management. This program is supported by AGL’s Risk Management Policy and Risk Management Standard. Consistent with this, AGL’s risk management process identifies factors critical to the successful delivery of its business strategies and future prospects. As at the date of this Report, there were 10 factors identified, as follows:

 

  • Anticipatory culture and human capital;
  • Strong and appropriate governance;
  • Resilience capability;
  • Asset safety and reliability;
  • Optimisation of wholesale energy markets;
  • Stakeholder advocacy;
  • Financial management and value proposition;
  • Transition to low emissions technology;
  • Data and IT security management; and
  • Becoming a customer-led, digital-first retailer