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FY2015 Results: AGL Energy Limited

AGL published solid FY15 results, which came ahead of market consensus, thanks mainly to the Macquarie Generation acquisition which performed better than expected. By divisions (AGL changed its operational structure after its investor day in May):

  • Energy Markets: EBIT up 27.4% to reach $2,063m thanks mainly to good results from Wholesale markets, helped by the acquisition of the Macquarie Generation assets which offest the repeal of the carbon tax and increased costs in the Consumer segment;
  • Group Operations: EBIT down 54.1% to reach a negative $729m due to the addition of AGL Macquarie from September 2014, lower sales revenue from Natural Gas, higher depreciation and $401m significant item expense relating to the review of Upstream gas;
  • New Energy: EBIT was down from $21m to $2m due mainly by the closure of the Kurnell refinery partially offset by an increase in solar revenues;
  • Investments: EBIT increased 13% to $26m this year thanks to improved earnings at ActewAGL (its 50/50 JV with Actew corporation) on the back of reduced energy costs and the acquisition of a significant Government contract in the ACT region;
  • Centrally Managed Expenses: deteriorated by 26.9% to an outflow of $236m, due to increased costs associated with restructuring and AGL’s acquisition of the Macquarie Generation assets;

Overall, Group EBITDA was up 13.2% vs FY14 to reach $1,505m and margins improved to 14.1% up from 12.7%, mainly on the back of strong results in Wholesale markets.

Cash flow from operations was up $345m to reach $1,044m this year, as a result of increased EBITDA and better working capital management, which to a large extent offset increased Capital expenditures (up $83m to $806m)  on office relocation costs, the addition of AGL Macquarie maintenance and growth initiatives and also increased dividend payments up 28% to $344m. As a result free cash flow after dividend improved from an outflow of A$293m at the end of FY14 to a mere A$106m outflow.

While net debt increased to $3.6bn from $3.26bn during the period, credit ratios improved slightly: net leverage decreased from 2.45x at the end of FY14 to 2.4x, Interest cover (FFO/Cash interest) improved from 4x to 6.4x and Gearing decreased to 28.6% from 29.8% at the end of FY14.

Liquidity: On top of $259m of cash on the balance sheet, AGL has $220m of undrawn facilities, and it plans to use the proceeds from the sale of its 50% share of the Macarthur wind farm to repay $324m of Loy Yang senior debt.

Guidance: AGL will provide a formal guidance for FY16 at its AGM in September.  AGL is targetting to reduce its cost base by $200m and its sustaining capital expenditure by $100m at horizon FY17, with most of the cost improvements to be achieved by June 2016. It is also targeting aound $1bn in divestments including the sale of its 50% interest in Macarthur Wind Farm  by the first half of FY16. Additional working capital reductions of around $200m are targeted by the end of FY17.

Next Event: AGL Annual General Meeting on 30 September, 2015