AGL Energy Limited (AGL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the AGL Energy Full Year Results Briefing Conference Call. [Operator Instructions] I would now like to hand over the conference to Managing Director and Chief Executive Officer, Mr. Damien Nicks. Please go ahead.

Good morning, everyone. Thank you for joining us for AGL's 2026 Full 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 Eora Nation and pay my respects to their Elders past, present and emerging and from the various lands from which you're all joining. Today, I'm joined by some members of my executive team, Gary Brown, Jo Egan, Dave Moretto and Matthew Currie. I'll get us started, and we'll have time for questions at the end. Our strong full year results reflected excellent business performance across AGL with the strength of our integrated business helping to mitigate the impact of softer market conditions and a very mild May and June. Customer markets delivered a great result, driven by growth in customer services, excellent customer satisfaction outcomes and a return to more sustainable margins. The improved availability and flexibility of our generation asset portfolio, including the continued strong performance of our batteries, supported earnings resilience in a period of low volatility in the NEM, which was driven by a combination of unusually milder weather, higher renewable generation, factory capacity growth and lower transmission constraints. We also maintained strict cost discipline in a period of persistent inflation, holding operating costs broadly flat on the prior year, including delivering $30 million of our targeted $50 million FY '27 net operating cost reduction a year earlier in FY '26. Our FY '26 results are a function of consistent strategic delivery over the last 4 years to build a strong, resilient and flexible business with incredible pipeline optionality that positions us very favorably today and through the transition. Overall, EBITDA was 2% higher and underlying net profit marginally lower due to an anticipated increase in depreciation and amortization, reflecting the continued investment in the availability, flexibility and growth of the asset portfolio, coupled with higher finance costs. An improved operating cash flow performance supported our material growth outlay and an increase in dividends. Today, we've declared a final ordinary dividend of $0.26 per share, fully franked, bringing the total fully franked dividend for the 2026 financial year to $0.50 per share, $0.02 per share higher than FY '25. This equates to a 53.3% payout ratio for the full year. As you can see, we are targeting a higher payout ratio of between 55% and 60% for the FY '27 dividend within our existing policy, delivering shareholder returns whilst we press ahead with our growth agenda again in FY '27, including the construction of the Tomago battery and the K2 project. Overall, a great set of operational and financial results. We've had another excellent year of strategic execution, generating long-term value and strengthening the resilience, flexibility and optionality of the business through the energy transition. Firstly, we continue to put customers at the center of our strategy, supporting them through ongoing cost of living pressures whilst transforming our customer business to deliver better experiences, innovative products and a lower cost to serve. We achieved higher customer satisfaction outcomes in a competitive market and delivered disciplined, well-executed acquisitions, including Ampol Energy's Australian energy customers. During the year, we also met our FY '27 target to increase decentralized assets under orchestration to 1.6 gigawatts. Our strategic acquisition of South Australia's Virtual Power Plant, combined with material growth in customer-controlled hot water under orchestration, drove a 250-megawatt increase in decentralized assets under orchestration to 1.74 gigawatts. In February, we also announced a long-term strategic partnership with Aussie Broadband alongside the divestment of our telecommunications business for approximately $115 million. The divestment allows us to simplify customer markets operations, reduce ongoing operating costs and maintain a bundled customer proposition through the AGL brand. We also continue to benefit from our 20% investment in Kaluza. Kaluza is generating strong momentum and expanding its global presence, headlined by the signing of ENGIE. Turning now to the transition of our energy portfolio. Our flexible asset fleet advanced by roughly 400 megawatts to 8.7 gigawatts, largely driven by an increase in decentralized assets under orchestration, as I mentioned earlier. This is spread across a diverse range of assets, including batteries, hydro and 3.3 gigawatts of thermal coal unit flexibility, enhancing our ability to respond to evolving market conditions throughout the energy transition. Construction has commenced on the K2 project in Western Australia, and I'm pleased to report that the 500-megawatt Liddell battery commenced operations in July with construction of the 500-megawatt Tomago battery advancing and LTESA secured. AGL was also awarded a [indiscernible] contract for the proposed 600-megawatt Hexham Wind Farm in Victoria and signed 2 long-term power purchase agreements with Tilt Renewables, adding further diversity to our electricity supply portfolio and supporting our target to add 6 gigawatts of renewable and firming capacity by 2030. The Tilt divestment was a prime example of our disciplined approach to capital allocation and recycling, monetizing developments for strong realized premiums with the proceeds redeployed towards our higher returning firming projects and transition opportunities. We have also commenced engagement with a range of potential capital partners regarding the development of more than 2 gigawatts of renewable projects from our pipeline. This process is focused on identifying structures that improve capital efficiency while maintaining strategic and operational flexibility, and we look forward to providing further updates as this work progresses. Overall, a big year of strategic delivery and execution. In FY '26, I'm proud that we achieved a significant improvement in business performance, demonstrating the resilience of our strategy. Starting on the left-hand side, we continue to grow our customer base, delivered great customer satisfaction outcomes and improved consumer margin during a period of elevated market activity. These results demonstrate the strength of our retail portfolio. In particular, our customer markets business recorded excellent growth in overall customer services, primarily in electricity services, including the acquisition of Ampol customers with telecommunication services also higher. Some clear examples of AGL's strong brand and our focus on delivering superior customer outcomes include the increase in our customer satisfaction score or CSAT to 84.1, an uplift in strategic NPS to plus 10 and spread to market churn improved by 4.9 percentage points. At the same time, we've generated an 11% improvement in consumer margin, reflecting a return to more sustainable levels. On the right-hand side, I'm pleased that our continued investment in our asset portfolio delivered a 4.3 percentage point improvement in fleet availability and positions us well to generate when market conditions are favorable. In a period of lower volatility, our growing flexible asset fleet generated an excellent premium of 118% to the time-weighted market price, 5 percentage points above FY '25 with our continued investment in flexible assets supporting us to grow this premium over time. And finally, our operated battery portfolio delivered great performance with an EBITDA contribution of $57 million, $10 million higher even with a year of lower market volatility. Touching on safety performance, where our total injury frequency rate did increase slightly. However, this metric remains significantly lower than FY '23 and FY '24 and well below industry averages. This is a good outcome given the significant amount of operational and maintenance activity undertaken across our sites during the year. I've already spoken to customer satisfaction, and we acknowledge the lower employee engagement score of 70%. However, this score remains broadly in line with industry benchmarks, and we remain focused on fostering an inclusive, empowered and connected workforce through the energy transition. I'll now turn to how the business will continue to create value as the market evolves. I want to begin by reaffirming the strength of our integrated business and our ability to deliver value as the market evolves, underscored by the strength of our customer base, the quality and the flexibility of our energy portfolio and deep optionality embedded within our development pipeline. We deliver 4.6 million customer services nationally, a large and diversified customer base that underpins the transition and rebuild of our energy portfolio, supported by great customer satisfaction and low cost to serve. This is backed by a high-quality integrated portfolio of generation assets, which is becoming increasingly flexible, delivers earnings resilience and allows us to capture value from changing demand patterns and intraday market dynamics. Our market-leading development pipeline provides significant optionality and our well-defined capital allocation framework ensures we only deploy capital to projects with the strongest portfolio fit and risk-adjusted returns. We are seeing value increasingly shift towards flexibility, firming and orchestration services, whilst the shift to electrification, higher EV penetration and a significant forecasted uplift in data centers coming online are creating durable sources of long-term demand growth. We are well positioned with a compelling suite of EV plans, propositions and partnerships and continue to see increasing uptake in electrification products across our consumer and large business customers. Importantly, retail transformation will drive lower cost to serve, improve customer experience and accelerate product innovation, all of which are critical as our customers move to a more electrified future and seek a broader suite of products. And finally, our capital-light approach to renewable development preserves vital balance sheet capacity for higher returning firming investments. Taken together, these business fundamentals and strategic priorities provide confidence in our ability to generate long-term returns for shareholders. The FY '26 outcomes on this slide demonstrate those fundamentals in practice. Firstly, we are seeing benefits of increased fleet asset flexibility, which has grown by 1.3 gigawatts to 8.7 gigawatts over the past 2 years, delivering improved realized supply side pricing premiums as well as higher quality and more resilient earnings, and we expect to improve these premiums as we grow our flexible asset capacity. Secondly, our continued investment in our coal-fired fleet is delivering the great outcomes you can see on the top right-hand side, with higher availability and greater coal-fired unit flexibility also contributing to the enhanced supply-side portfolio pricing outcomes. We're also delivering customer value and improved margins in a tighter retail environment while keeping operating costs broadly flat since FY '24. This has been achieved despite inflation and continued investment in growth, demonstrating great cost discipline with the full implementation of our cost-out program to occur in FY '27. Together, these outcomes reinforce the resilience of our business fundamentals and ability to deliver through various market conditions. Turning now to a discussion on current market dynamics, where the recent events of the 21st and the 22nd of June in South Australia provide a timely reminder that electricity markets remain finely balanced and are highly susceptible to unexpected changes in supply and demand. Over those 2 days, as an example, you can see that South Australia experienced extended periods of extremely low wind generation. Whilst batteries play an important role in supporting the market, the duration of these low wind events limited their ability to discharge adequate supply during the Sunday evening peak and recharge again before Monday morning. The combination of these factors contributed to the significant price volatility outlined on Sunday evening and Monday morning, demonstrating how quickly market conditions can change when key sources of generation are unavailable for an extended period. As I discussed at the Macquarie Conference in May, alignment can easily break in 5 key instances: extreme weather, low solar irradiation, thermal generator outages, interconnected issues and this particular example, lack of wind generation. Now overall, the current picture is one of a system functioning well, however, with limited margin for error during these peak periods. Demand is growing, peaks are rising and volatility remains a feature under strained conditions. These dynamics underline the importance of adequate firming capacity and business resilience, both key focus areas for AGL as the NEM continues to navigate the energy transition. As mentioned at the beginning, we had a year of lower volatility, which reflected a combination of the factors you can see on the screen, and this is driving the softer cash pricing you'll see on one of the following slides. As the energy transition progresses, we do expect volatility to be a feature of the NEM as it has been historically. This is due to the withdrawal of coal-fired generation, new renewable generation and the grid navigating new transmission build-out. Now to a more detailed discussion on fleet performance, where higher commercial availability and plant flexibility helped mitigate the earnings impact of lower market volatility. On the left-hand side, you can see we recorded a solid increase in coal-fired commercial availability, driven by stronger reliability and a lower unplanned outage factor. As I alluded to, the lower volatility captured was primarily attributable to the lower spot price volatility recorded in the NEM this year. Generation volumes overall were 3.4% lower, largely driven by lower thermal generation utilization in response to these market conditions. Despite the lower thermal generation volumes, higher thermal fleet availability, combined with 3.3 gigawatts of thermal fleet flexibility enabled AGL to generate when market conditions were most favorable, delivering the strong realized supply side pricing premiums I spoke to earlier. Continuing the discussion on market conditions, the divergence we are seeing between FY '27 and FY '30 forward curves largely reflects recent cyclical factors, whilst the medium-term outlook points to a progressively tighter system and returning to pricing levels, which will ultimately be required to underpin investment requirements. The forward market is increasingly recognizing numerous structural changes underway across the NEM. Planned coal-fired retirements in both New South Wales and Victoria from FY '29 will remove significant baseload capacity from the system. Importantly, if those retirements are delayed, reliance on aging and less reliable baseload generation is likely to increase volatility, further reinforcing the value of the portfolio flexibility. At the same time, demand forecasts continue to strengthen, underpinned by the growth of data centers and broader electrification across the economy. Crucially, strong market and commercial signals are required to support the delivery of new renewable generation at pace required by the system. Overall, AGL is well positioned against this market backdrop, and we are largely hedged for FY '27, providing earnings resilience in the near term, noting the FY '27 VWAPs indicated by the horizontal dotted lines on the screen. Our diversified and high-quality integrated portfolio positions us to capture value from any uplift in forward prices and volatility with a growing flexible asset portfolio delivering enhanced realized supply side pricing outcomes. As mentioned at the start, customer markets performance was headlined by growth in customer services, higher customer satisfaction outcomes as well as margin improvement in a competitive market. Total services to customers increased by 92,000 with Energy Services growth, both organic and attributable to the acquisition and successful integration of Ampol Energy's customer base. Importantly, we've maintained strong customer satisfaction, supported by our leading energy brand, digital offering and loyal customer base. Our churn advantage to the rest of the market also improved to 4.9 percentage points. These are great results in a highly competitive market. You can see the improvement in consumer gross margin on the right-hand side, driven in part by customer growth and reflecting a return to more sustainable levels. We are reshaping customer markets to focus on our core energy business, modernize our product offerings and back a leading platform in Kaluza, which continues to expand its domestic and global appeal. I've already touched on our long-term strategic partnership with Aussie Broadband and the divestment of our telecommunications business, which allows us to simplify operations and sharpen our focus on our core energy business. Our 100% subsidiary, OVO Australia is currently utilizing Kaluza and Salesforce and continues to see rapid growth, innovation and positive satisfaction outcomes supported by these modernized platforms and AI capability. Our retail transformation program will unlock these capabilities across AGL as our customers shift towards a more electrified future. This program continues to make progress with key capabilities deployed and savings of $25 million delivered ahead of plan. We are focused on delivering the program successfully and following a detailed review of the next phase of implementation, we now expect the transformation program to extend by up to 12 months and cost to increase by an additional $100 million to $150 million. This reflects the scale and complexity of the program, bolstering of our delivery approach and additional investment to derisk implementation. And we believe this additional investment will support the effective delivery of a modern, scalable retail platform and underpin long-term customer and shareholder value. The anticipated strategic and operational benefits of the program remain unchanged, and we expect the full benefits of annual pretax cash savings of $70 million to $90 million from FY '30. Kaluza continues to expand its local and global presence with AI now utilized across its entire product and software development life cycle, expediating both delivery and entry into new markets. Kaluza's second retail implementation is underway in Australia and is making excellent headway in Europe. The landmark agreement with ENGIE is its largest deployment to date and migrations are underway in Belgium and France localization has commenced. Overall, we believe Kaluza's AI native operating model, maturing platform and rapidly expanding global appeal underpins the long-term value potential of our strategic investment. We are taking a disciplined approach to investing in flexible asset capacity to position us very favorably through evolving energy markets. Our strategy is premised on building a firming portfolio diversified by technology and asset type. Batteries and demand response enable us to respond to peak demand events in a matter of milliseconds, whilst gas peakers and hydro assets provide longer duration firming capacity to support grid stability. This broad mix enhances our ability to respond to changing market conditions and capture value across a wide range of operating environments. As we grow our flexible asset capacity, we expect to strengthen realized supply side pricing outcomes and deliver higher quality, more resilient earnings over time. The middle graph breaks this down by asset type, also showing the solid premiums we're achieving for our coal-fired generation assets through our investment in flexibility. Importantly, we'll continue to sequence new developments in response to market signals, prioritizing investments in regions with higher renewable penetration and near-term coal-fired withdrawals. We'll also seek to grow demand-side flexibility with a focus on batteries and electric vehicles whilst pursuing our strategy to own and operate a gas peaker in each mainland state. Our market-leading development pipeline of over 10 gigawatts provides significant optionality for our portfolio transition. This pipeline is diversified across location, technology and asset type, including grid-scale batteries, pumped hydro, gas, wind and solar. We have opportunities spanning every mainland state, which is complemented by approximately an additional 5 gigawatts of early-stage opportunities. This breadth of options allows us to remain disciplined and responsive, sequencing new developments in line with market signals, customer needs and system requirements. Importantly, we will leverage this optionality to only deliver projects with the best strategic fit and risk-adjusted returns. Gary will elaborate further on our disciplined approach to capital allocation. As I've mentioned before, this pipeline will continue to evolve as projects are added, removed where uneconomic and where projects reach FID. Data centers are one of the most significant emerging sources of electricity demand. And before I hand over to Gary, I want to spend a few moments talking about how our energy hubs and energy portfolio present a unique opportunity to support regional data center expansion. What differentiates these sites is not just the scale of the land available, but the combination of water infrastructure, grid connectivity and generation capacity that already exists today, not to mention the sheer breadth of optionality within our development pipeline, which I just spoke to. These sites were built to underpin large-scale industrial operations and have the potential to support over 7 gigawatts of data center capacity over the long term, largely based on grid connection potential. Importantly, data centers require reliable and increasingly low emission supply at scale. This is where our integrated portfolio becomes a real advantage. We can support customers with a combination of renewable generation and firming solutions. At the same time, future developments have the potential to attract new investment into regions where AGL has operated for decades, creating new job opportunities for our highly dedicated workforce, supporting both economic transition and long-term regional growth objectives. Collectively, these energy hubs provide a unique platform to enable Australia's digital-led growth whilst creating long-term value from AGL's strategic land and infrastructure portfolio. Now over to Gary.

Thank you, Damien, and good morning, everyone. This slide shows an overall summary of our financial results, which I'll cover in more detail shortly. As Damien mentioned, our strong full year financial results reflected excellent business performance across the organization with EBITDA of $2.1 billion and underlying net profit of $631 million. Net debt ended the year broadly flat with our significant outlay for growth, strategic acquisitions, sustaining capital and $330 million worth of fully franked dividends, more than offset by strong operating cash flow generation and the Tilt divestment proceeds. As Damien also noted, the Tilt divestment was a prime example of our ability to recycle capital when timely and prudent, monetizing developments for strong realized premiums with the divestment resulting in a realized post-tax gain on sale of $268 million. We've also commenced engagement with a range of potential capital partners regarding the development of more than 2 gigawatts of renewable projects from our pipeline and look forward to updating the market as this work progresses. Our balance sheet remains in a healthy position with our Baa2 investment-grade credit rating maintained. Today, we've also announced a fully franked dividend of $0.26 per share, up $0.01, taking the full year dividend to $0.50 per share. Return on invested capital remained above 10%, and I'll speak to our disciplined framework for deploying capital through the transition. Overall, a great set of financial results. 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 with consumer electricity margin benefiting from solid customer growth and portfolio optimization. The growth in other margin bar reflects the first year of gross margin contribution from South Australia's Virtual Power Plant, which we acquired from Tesla last year as well as margin from the sale of battery hardware, which has been supported by government initiatives. The increase in customer markets OpEx was mainly driven by higher net bad debt expense following the cessation of government relief support in conjunction with elevated cost of living pressure. These drivers were partially offset by the ongoing delivery of operating model benefits related to the retail transformation program. Moving further to the right, as we now focus on the Integrated Energy business, you can see in the initial bar being flat that stronger fleet availability and flexibility helped mitigate the earnings impact of lower market volatility as well as a reduction in thermal generation volumes. The positive $10 million bar for batteries reflected a stronger performance from the Torrens battery, and we continue to be very pleased with the overall performance of our 300-megawatt operational battery fleet, which delivered a $57 million EBITDA contribution for the year, a great financial result. Note, this is a 20% CapEx yield since operation of this growing battery fleet. As previously advised, the lower gas gross margin was driven by higher-priced gas purchases as our lower cost legacy contracts gradually rolled off. Integrated Energy's OpEx improvement was attributable to the ongoing productivity and optimization initiatives across our various sites. As previously flagged, the $19 million uplift in depreciation and amortization was largely attributable to the continued investment in our thermal assets with a shortening useful life and growth. For FY '27, we do expect an uplift of roughly $50 million for depreciation and amortization, which will include a full year's worth of depreciation for the Liddell battery. We also note the increased net finance costs, which reflected higher average net debt balances prior to the receipt of the Tilt proceeds, coupled with an increase in interest rates. We have our costs well under control, and we will deliver on our $50 million cost-out program for 2027. We previously indicated a 2% increase in FY '26 operating costs in February. However, through our recent cost-out initiatives and tight cost controls, operating costs have remained flat with the impacts of inflation more than offset by the significant productivity initiatives implemented across the organization. More broadly, as you can see, we've made significant progress on managing our cost base over the last few years, with operating costs remaining flat since FY '24 despite significant inflationary pressures and our material investment in growth, and this trend is expected to continue in FY '27. Just a reminder that our cost-out program in FY '27 is targeting an overall sustainable cost benefit of $50 million per annum after CPI. Due to productivity initiatives undertaken in FY '26, we were able to deliver some of these benefits earlier than originally stated with $30 million of benefit delivered in FY '26. We again expect to fully absorb CPI through productivity benefits in FY '27. This targeted cost-out program reflects our ongoing focus on minimizing operating costs in an inflationary environment whilst continuing to invest in growth. Briefly touching on CapEx. In line with our strategy, approximately $700 million was spent on growth this year, with the majority of capital deployed to advance our high-returning firming projects of approximately $600 million. This growth outlay comprised roughly $70 million for the remaining project costs of the Liddell battery, approximately $360 million of the estimated $800 million total project cost for the Tomago battery with roughly $370 million expected in FY '27 and $70 million in FY '28 and approximately $140 million of the estimated $490 million total project cost for the K2 project with roughly $270 million expected to be spent on in FY '27 and the remainder in FY '28. As you can see on the right-hand side, FY '27 forecast growth capital spend is roughly $800 million and will follow a similar trend as we press ahead with the construction of high-returning firming projects. FY '27 sustaining capital spend is expected to be broadly in line with FY '26, approximately $700 million. and includes roughly $500 million on our thermal fleet as we have 2 major planned coal-fired unit outages again in FY '27. This prudent spend is to maintain the availability and reliability of our thermal asset fleet in a transitioning market as evidenced this year through a great availability result. Turning now to cash performance, headlined by strong operating cash flow generation and a 97% cash conversion rate, which supported our material investment in growth. It is important, as we have demonstrated, to continue to generate strong cash flows in our business to support ongoing investment in growth initiatives. I'll run through some of the key movements. Underlying operating free cash flow was $110 million higher, driven by stronger EBITDA and the unwind of government bill relief to customers in the prior year, partly offset by higher margin calls. The majority of the significant items relate to the continued implementation of the retail transformation program. You can see the receipt of the Tilt proceeds of $739 million, and the other investing activities line primarily comprises SAVPP acquisition investment of roughly $80 million. Operating free cash flow, excluding the impacts of bill relief timing, was $42 million higher, largely driven by lower income tax payments. Encouragingly, our cash conversion rate, excluding margin calls, rehabilitation and the timing of bill relief ended the year at 97%, a brilliant result. Turning now to net debt, credit metrics and our solid funding position. We continue to maintain a strong balance sheet supporting our investment-grade credit rating. Starting with net debt, which ended the year broadly flat, noting that our significant outlay for growth, strategic acquisitions, sustaining capital and $330 million worth of fully franked dividends was more than offset by strong operating cash flow generation and the Tilt divestment proceeds, a great outcome. Importantly, we also maintained our Baa2 investment-grade credit rating with headroom to covenants. Our funding remains in a great position following the $510 million Asian term note refinancing in May with all tranches extended by 2 years at lower margins. I've already touched on the Tilt divestment and spoke to the $500 million AMTN issuance in February, which was over 10x oversubscribed, an excellent endorsement of our business fundamentals and strategy. Our liquidity position remains very healthy at almost $1.6 billion in cash and undrawn committed debt facilities. Average debt tenure is stable at just over 5 years, and we don't have any major debt maturing until FY '29. I will now take you through our capital allocation framework that we apply within the business. We remain disciplined in how we allocate capital, balancing investment in our core business with targeted opportunities that position AGL to create long-term value through the energy transition. On the left-hand side, you can see that our capital allocation principles remain consistent, robust and flexible to respond in an evolving energy market. Moving to the right-hand side, where we target an IRR of 10% across the portfolio for all growth investments developed on our balance sheet. Just to be clear, this is post-tax ungeared and at a project level, leveraging our material portfolio optionality to deliver projects with the strongest portfolio fit and risk-adjusted returns. In customer and C&I, we're concentrating on new product offerings and the expansion of our commercial and industrial Energy as a Service business, particularly behind-the-meter projects that deliver ongoing recurring revenue. We're also progressing almost $2 billion worth of firming projects, adding to our flexible asset capacity, which remains key in a transitioning energy market. I've already spoken to our near-term imperative to create an investment partnership for the development of a 2-gigawatt plus wind farm portfolio. And finally, our stay-in business CapEx priorities continue to focus on maintaining safe, flexible and reliable operations within our energy portfolio, whilst driving efficiencies and meeting regulatory compliance requirements within customer markets. These investments are essential to supporting the performance and resilience of our core business. We continue to maintain our dividend policy of 50% to 75% of underlying NPAT, noting that we have the flexibility to pay within this range, of course, at the Board's discretion. This dividend policy provides the flexibility to allocate capital in a disciplined way, balancing shareholder returns with investment in growth across a range of market conditions. This year's total fully franked dividend of $0.50 per share equates to a payout ratio of 53.3%, which is $0.02 per share higher than the prior year. We're also targeting a higher payout ratio of between 55% to 60% for the FY '27 dividend. This is within our existing policy range and demonstrates that we have the ability and flexibility to pay dividends within the broader range from our strong operating cash flow. Thank you again and handing back to Damien.

Thanks, Gary. I'll now conclude by talking to FY '27 guidance, which reflects earnings resilience through evolving market conditions. Our confidence in the durability of our earnings, cash flows and balance sheet means we are targeting within our existing policy, a higher dividend payout ratio for FY '27 dividend of between 55% and 60% of underlying NPAT, with the expectation this will be fully franked. FY '27 underlying EBITDA guidance reflects an expected stabilization in consumer energy margins, a full year of earnings contribution from the Liddell Battery and lower operating costs across the business driven by our cost-out program. This also reflects an increase in gas costs as low-cost legacy contracts roll off, together with the impact of lower wholesale electricity prices rolling through our contractor positions, noting that this is at a premium to the current market prices through our largely hedged generation position, as I alluded to earlier, and our flexible asset fleet. FY '27 underlying NPAT guidance reflects an increase in depreciation and amortization of roughly $50 million, partially offset by a reduction in finance costs of approximately $30 million. Thank you for your time, and we'll now open for any questions.

[Operator Instructions] First question comes from Tom Allen from UBS.

You called out today that factors driving lower near-term electricity prices and volatility are largely cyclical and not structural. I'd just like to explore that further. So, consensus earnings estimates for AGL over FY '27 to '29 are broadly flat. And it appears that despite backwardation in price curves today, you're hinting an expectation that the market will tighten as thermal assets exit the market, which would imply greater upside than downside risk to price curves over the next few years. So, can you comment, Damien or Gary, on how and when the planned exit of Yallourn in calendar year '28 and AGL's own Torrens plant might be increasingly reflected in price curves over the next 2 years as the volume of those futures contracts for calendar year '28 increases? If you could also include a comment on how the continued operation of the Tomago smelter might impact AGL and the broader market outlook also.

Thanks, Tom. I might start -- I'll work backwards maybe on that one and come back. So, as you're aware through the media, the Tomago smelter for us comes to an end at the end of FY '28. That enables us to have some length into the market into FY '28. So that's a net positive. In terms of the arrangement between Tomago and Snowy, that's for them to discuss in conjunction with government. Look, what I would say is our result today demonstrates the resilience of our business as we navigate this transition. It's going to be complex. It's going to be bumpy. It's going to evolve. But what you're seeing today is the premium to the market that we can achieve through the assets we have. And we'll keep building out those assets. We'll keep bringing those assets to the market at the right time using the capital discipline we've displayed over the last couple of years. In terms of where those forward curves are going to finish should I say, I'm not going to comment on where I think that market will end up. But what you have seen over '26 is a very mild year. You've seen some great thermal performance of the broader NEM and a really mild year. So, what we're saying is we see the market is finally balanced. It's working right now. It's operating, but it doesn't take much for it to, if you like, get stretched. So again, for us, that's why we're investing in that flexible plant, investing in batteries and gas peakers and so forth. And at the same time, bringing into play more wind, but using capital partners to do that. So, for me, the question is more about bringing the right assets into the market at the right time when coal eventually exits the market. And I say it like that because it will. It will get to the end of its life, and we'll have to have new assets in.

Just following on this point around volatility and pricing, there has been some concern from investors on the resilience of AGL's battery earnings. Can you comment on how investors should interpret that downside case of AGL's battery earnings in a market scenario that might see lower volatility for longer and particularly with respect to the difference between the battery earnings in vertically integrated portfolio like AGL's being different perhaps from a stand-alone merchant battery?

Yes. And I think that's exactly the point, Tom. I mean we are an integrated vertical player for us, and you can see that through the battery result this year. It's up $10 million on the back of what was a mild year, and there wasn't a huge amount of volatility. But again, we're not [ merchant ] into the market. We can utilize that battery to prevent us having to buy caps and manage our hedging positions and so forth. And on top of that, you'll see the Liddell battery coming into the market into FY '27. It's now operational. That project went extremely well from a construction and operational perspective. So, we'll see that benefit into future years. In terms of how those batteries play in our portfolio, it is a portfolio of assets, and it's exactly the point. And so, you see that playing through the premium we can get to market through that flexibility. And we've got a slide on that to demonstrate about 18% up on where that -- I suppose the base market is. So that premium will continue to grow over time. That enables us to manage through the cycle. We are going to see cycles. I'm not going to sit here and say we won't. But what I would say is that, that premium that we can earn through both our assets and also the breadth of our customer base sets us up incredibly well.

And just clarifying your comment on an ongoing operation of Tomago being net positive. That being that if AGL doesn't sell the same volume of electricity under contract to Tomago as it has in recent years, there is an electricity portfolio EBIT uplift by putting that capacity into higher-value contracts and markets?

That's broadly correct. Yes. And the other thing I would say right now, and I think this opportunity is also significant is just where the data center load or potential load goes. I think it's enormous. And so, from an AGL perspective, that provides some length into the market for us as we think about where we're going to be contracting that energy. And that contracting energy could be on a range of things, whether it be to the customer base, data centers, but having that length is not a bad position to be in this market right now.

Next up, we have Tom Wellington from Citi.

Just wanted to touch on those battery returns further to Tom Allen's question. You provided that indicative medium-term guidance for those grid-scale batteries within the portfolio. Obviously, these have been downgraded as we've seen those forward swaps and caps sell off over the last 12 months. But just wanted to get a gauge as to how exactly you're thinking about those returns profiles relative to the 7% to 11% internal rates of return that you've talked to previously? And I guess further, what would be needed from the market perspective in order to see a reversion back towards the upper end of that guidance range?

Yes. Look, I think right now, I mean, if you look at the results, and I think – I can't remember which slide it's on, but the return, the EBITDA to CapEx is sitting on average around about 20%. So that would be well above those levels. We've always provided a long-term view of IRR on the return of those batteries. They will move through cycles. However, the important piece, as I answered Tom's question is these are integrated batteries through the integrated portfolio so that we can -- it's not -- they're not merchant batteries, right? Yes, there will be some reduction in various years, but it's the value they provide through our portfolio that provides us the greatest -- the greatest value through the portfolio. But Gary, maybe you just want to touch on those returns?

Yes. Look, so those projects to date have returned a 20% CapEx yield, which is clearly really strong. We've also talked in our current results about an incremental $10 million of EBITDA but I would just remind everybody, there are 4 revenue streams here. We've got FCAS, arbitrage portfolio benefit and caps or avoided caps. And depending on the particular period, depending on the particular market, we find that some of those revenue streams perform better than others. We're still really confident that they'll perform in the upper end of that 8% to 11% range over the 20-year period.

And maybe just to add to that, those markets are evolving. So, we're seeing additional revenue streams from those evolving markets as well.

Next up, we've got Uwan Minogue from Barrenjoey.

We've started to see some media reports of some of the smaller retailers struggling. Can you just talk us through the competitive dynamics you're seeing in the retail space at the moment?

Yes. Look, sure. Look, I won't talk about other retailers in the market. But what I would say it has been a really competitive year. It's been highly competitive. You saw the churn rate step up for us, almost 1%, but our spread to market, which is the important piece for us, also grew. So that's a positive. And during that competitive market, we're able to grow almost 90,000 customers, including -- that included the acquisition of Ampol. So, for us, it's the resilience of our portfolio. It's the product suite we're putting out there that puts us in the best position. What I would say, though, in this environment is you want to make sure you're incredibly well hedged and you've got great risk management through this market because an evolving market, it will always throw something up at us. And for us, we are really well positioned to manage that risk.

Great. And then secondly, can you just talk us through what gave you the confidence in tightening the payout ratio for next year and then what we should think about in terms of the moving pieces there looking further out?

Yes, sure. I mean I think, clearly, it was a strong set of results in what was a milder year. We saw great cash flow, a strong balance sheet. So that's what gave us the ability to not only pay a little bit higher in FY '26, but tighten that range into the '27 year. So that tightening was $55 million to $60 million. That just provides that confidence for shareholders, but also confidence where we see cash in the balance sheet.

And next up, we have Gordon Ramsay from RBC.

Damien, just a question about wholesale electricity prices and the June quarter. We've seen a flattening of the intraday price profile and lower evening peak pricing. You've been kind of saying that you think volatility will be going up. Is that more a longer-term statement from your viewpoint? And is that more reliant on Yallourn closing in '28 and basically structural changes in the market? Because certainly, near term, it looks like volatility is actually decreasing from my viewpoint.

Yes. Look, I think the way to think about '26 and what we're saying is we think volatility will be in this market. There are going to be periods where it's not there and periods where it will be risk from this market hasn't disappeared. Risk will still exist in this market. We did see '26 though, as an incredibly mild year. And to your point on that last quarter, I think you made, May and June were some of the warmest months we've seen in a long while. So, for us to print the number we printed as well with a very mild May and June was really pleasing in terms of that breadth of how the assets operated and the flexibility. Our point in the slides are the market is finally balanced. We do believe volatility will continue to exist. And – yes, but there will be years depending on weather, depending on network constraints, depending on thermal generation, it will drive where volatility exists. And thermal generation, let me just call it, I think for the '26 year was incredibly strong, not just at our end, but across the whole market as well.

Excellent. And just one other question about the Kaluza -- I think it is Kaluza and Salesforce, the cost increase and the expansion by 12 months. Can you just give a little bit more detail in terms of what's behind that?

Yes. Look, through a review, this is a big, broad complex program. It's across the whole ecosystem of customer markets. It's effectively rebuilding that ecosystem such that for electrification and customer products and services in the future, it's a decision we made a couple of years ago. Through a review, we've made the decision to, if you like, delay that for 12 months or take 12 additional months. The reason for that is the complexity in the market that we're dealing with, the regulatory and the policy overlay. We wanted to take more time to get this right for our customers. So, it is largely a time issue. It is not a Kaluza or a Salesforce issue. This is about taking us more time to get it right for our customers.

Next up, we've got Rob Koh from Morgan Stanley.

Congratulations on the result. Can I please ask about Slide 38 in your pack, which is your FY '27 strategic targets, and there's amazing progress on a lot of those targets. But being the perfectionist that I am, I just wanted to ask what your kind of FY '27 plans are on NPS and EAF as a big jump up on EAF, and I presume you'll make an economic decision there?

Yes. Thanks, Rob. I appreciate you calling that out. I think we -- you're right, over the last 4 years, I think the team has done a great job to deliver on our strategic targets. There's clearly still more -- we have work to do. I'll start maybe on the asset availability, and I'll come back to customer. The asset availability and importantly, the flexibility of those assets has come about over the last 4 or 5 years, investing back in that fleet, making sure we can flex those units and availability and big credit to the teams. And I will call out Bayswater. We hit 99.9% over a quarter, first time we've done that in that plant for 40 years, which is an incredible outcome. Do I -- will we get there every day of the week? No, we won't. But it's always about that trade-off decision, the economics of how much you invest versus the availability we want to get. And it's more about, Rob, -- it's not just equivalent availability. It's actually the commercial availability we want. So having the plants there when the system needs it and when we need it. So again, we'll continue to drive for the direction of upwards performance, but it will be an economic trade-off all the way through. And then on customer NPS, I think this is a record for us, which is a great result. Still more to be done. I think to get from 10 to 20 will be a good stretch for Jo this year. But I think what we're seeing through both having a leading brand, having great customer satisfaction and also an increase in our rep score really goes to the quality of the business and the quality of the products and services we're putting out there.

Okay. Sounds good. Can I ask a question about Slide 37? I asked a strategic question, I'm going to ask you probably a low-quality question. Slide 37 is a chart you've had before, and you've now added FY '30 battery earnings contribution. Are the heights of those columns changed since your last disclosure? Or is it still the same underlying CapEx and timing and target returns driving those nice fuzzy columns?

As you mentioned the word fuzzy, Rob, we deliberately obviously keep that relatively translucent because it depends on where different positions are at the time, but they're materially similar to prior periods, and it's deliberately translucent because they're not numbers that we're specifically guiding to, much more directional in nature. I think what we do there, which is quite clear is we show a really strong performance in FY '26. And then we're showing when the various batteries are going to commence operations. And just as importantly, you can see the significant growth in that EBITDA profile as well.

And just the batteries, it doesn't include the K2 project, which would also come in, is it roughly December '27. So, there'd be half a year there on top of that. And the other thing I'd say, Rob, is the question we got for some time was will the battery earnings more than offset the change in coal and gas, that position still holds.

Okay. Sounds good. The thing is you brought up K2, and I'm glad to hear that that's going well. And I guess you got RCM payments there. I mean WEM intraday volatility is somehow negative midday to peak, like midday prices in the WEM are higher than evening peak. Is that -- do you see that happening in the NEM from time to time? Or is there something special about the WEM?

Let me try and answer that broadly. I might pass to Dave. I know Dave will know the answer off the cuff. But the reason that asset is there and the reason you're getting paid capacity payments for the asset is largely an insurance product. That's what it's there for, to kick in when the market needs it. We can operate that -- obviously, that asset commercially as well. So again, we'll use that within the portfolio that we have today to operate. But Dave, do you want to comment on the WEM?

Yes. So, on the WEM, really interesting market. I think maybe a little bit less mature than we are over here on the East Coast. You've had a lot of batteries come in very quickly. And I think they're still trying to figure out exactly how to operate. They are required to discharge during the evening peak. And so, there is quite some competition for charging in the middle of the day. You would need quite a lot more penetration over here on the East Coast to get that sort of thing to happen consistently out over time. But this is why continued build-out of energy is so important in addition to the storage that's happening at the moment.

Next up, we've got Cameron Needham from Bank of America.

First question just on gas procurement. You've highlighted higher gas costs as the lower cost legacy contracts roll off. Could you just give us an indication or a reminder on how far through that repricing process you are? And should we expect a further step-up in gas costs through FY '28? And assuming so, can you just quantify the impact for us as well?

Yes. Look, let me kick it off. What you're seeing play through the '26 results is some just a little of the low-cost gas contracts rolling off. It was roughly December. So, into FY '27, you're sort of seeing the full year impact of that occur. And then largely, we'll be continuing to contract out our gas book. I think right now, with both the reservation scheme out there and so forth, we'll continue to use discipline as to when we contract that gas. But right now, we're more than sufficient into '27. But Dave, maybe you want to add some more comments there on that one as well?

Yes. I mean we are well set up for FY '27. That's all been put away. We signed about 65 PJs of gas contracts over the course of FY '26. Looking out beyond FY '28, we're just taking a moment as the gas reservation policy comes through and crystallizes. I think directionally for us, lower gas prices are a benefit. We're not an exporter. We're just trying to provide gas to our customers and to our GPG. So, it's directionally going in the right way for us.