AGL Energy Limited (AGL) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the AGL Energy 2023 Half 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. Damien Nicks speaking. Thank you for joining us for the webcast of AGL's First Half Result for the financial year 2023. I'd like to begin by acknowledging the traditional custodians of this land of where I'm presenting from today, and pay my respects to their elders past, present and emerging. I'd also like to acknowledge the traditional owners of the various lands from which you are all joining from and any people of Aboriginal and Torres Strait Islander origin on the webcast. Today, I'm joined by Gary Brown, Chief Financial Officer. Before we commence, I'd like to say that I'm truly honored to have been appointed as the Managing Director and CEO of this incredible organization, which has a vast history spanning over 185 years. This is certainly an exciting time to lead AGL, as we strive to deliver upon our Refresh strategy and accelerate the decarbonization of our customer and generation portfolios supported by a highly experienced Board and Management Team now in place. I'd also like to congratulate Gary on his confirmation as CFO. Today's results reflect a challenged first half performance, driven by the impact of plant outages during unprecedented energy market conditions in July, when our resulting short position was exposed to high pool prices, together with prolonged outage of Loy Yang Unit 2 which was caused by a generator rotor defect. Earnings were also impacted by the closure of Liddell Unit 3 in April 2022, reducing generation volumes as we indicated in our FY '23 financial guidance update in late September. The first half also saw another disruptive period for the energy markets through the implementation of domestic commodity price caps and a mandatory code of conduct for gas producers. And I'll speak to the impact of energy markets in our business later in the presentation. Overall, our half-year underlying profit after tax was $87 million, down 55% on the prior year. An interim ordinary dividend of $0.08 per share has been declared, unfranked with the DRP reinstated. Despite a challenged start to the half in terms of fleet performance, I'm pleased to say we've had much stronger performance across the portfolio the remainder of the period. And I'll speak to the measures that have been undertaken to improve our thermal fleet reliability, setting us up for a stronger second half and beyond. We've also seen positive updates and momentum across the business. Customer markets recorded strong organic growth across both energy and telecommunications, amidst a period of heightened market volatility, up by 61,000 customers, [ where ] our strategic NPS reached a new record high of plus 12. Additionally, decentralized assets under orchestration grew to 199 megawatts. In late September, we also announced our Refresh strategy and one of the most significant decarbonization initiatives in Australia. The accelerated closure of Loy Yang A, together with our ambition to supply up to 12 gigawatts of new generation and firming capacity by the end of 2035, will reshape AGL's generation portfolio and represents a major step forward in Australia's decarbonization journey, ultimately connecting our customers to a sustainable future. Pleasingly, our inaugural climate transition action plan was endorsed by shareholders at the 2022 Annual General Meeting in November. Good progress was also made in advancing our 3.2 gigawatt development pipeline and the transformation of our thermal sites to low carbon Industrial energy hubs. Both the Torrens Island and Broken Hill batteries are on track to commence operations mid-2023, and I'm pleased to say that the Liddell battery will be backed by Arena with funding negotiations underway for the first 250 megawatt phase. A feasibility study is also well underway with Idemitsu for the Muswellbrook Pumped Hydro Project. In terms of guidance and outlook, we've narrowed FY '23 financial guidance and I'll discuss this further at the end of the presentation. Although forward wholesale electricity pricing has lowered from historically high levels over the past 6 months, these prices remain elevated compared to FY '20 and '21 levels, which we expect to see reflected in strong earnings growth for FY '24. Moving now to safety and customer metrics, which both remain very strong. Our total injury frequency rate continues to trend lower, reflecting a disciplined and sustained focus on safety culture and performance over 3 years in a row. And as mentioned before, we achieved a record strategic NPS score of plus 12, an excellent result, given the sheer volatility in Australian energy retailing of recent months. Turning now to a more detailed discussion on customer markets performance, which was underscored by strong growth and improved customer experience. Total services to customers increased 61,000 to 4.3 million delivered through both energy and telecommunication services growth. Pleasingly, disciplined margin management and scaling of growth business areas delivered an $11 million improvement to gross margin. Looking forward, we will continue to responsibly grow our customer base while prudently managing margin. We also delivered improved retention with our churn spread improving to almost 6 percentage points, an excellent result reflecting both our improved service quality as well as heightened market activity, as selected retailers withdrew or lowered discounting to regulated pricing. AGL continues to have the least consumer electricity complaints of any Tier 1 retailer, and Ombudsman complaints have also reduced by 15%. Encouragingly, net operating costs per service have continued to trend lower, driven by digitization, reduction in net bad debt expense and labor savings. However, we do expect an increase in the second half, driven by net bad debt seasonality as well as higher technology spend and growth investment as we scale our Energy Solutions businesses to drive distributed energy under orchestration. Significant process has also been made in customer markets key priority areas. We continue to have the highest brand awareness in energy and now have over 50% of customers interacting solely through digital channels. Pleasingly, consumer EBIT per service also continues to grow, increasing 9% compared to the first half of FY '22. Good momentum is also being achieved in accessing future value pools. Customer Markets Green revenue now accounts for over 20% of total revenue and our virtual power plant has grown 44% to 199 megawatts of decentralized assets under orchestration, underpinned by the NEO platform. Strong Commercial behind-the-meter revenue growth has been recorded as well as significant increase in Commercial solar assets under monitoring and management. We're also excited to have secured new strategic partnerships, which will make the transition to electric vehicles simpler and easier for our customers. And finally, our partnership with Ovo Energy Australia and Kaluza continues to grow with over 40% of customers now migrated to the Kaluza platform, a strong increase on the 30% migrated at the end of the period. Moving now to fleet performance and operations. Commercial availability of the coal fleet was weighed down by a particularly challenging period in July with high levels of forced outages at Liddell and Loy Yang Unit 2, coinciding with the planned outage at Bayswater. On a positive note, we've completed testing to lower minimum generation levels at both Loy Yang A and Bayswater. We are now able to ramp down Bayswater Unit 4 to 200 megawatts and are awaiting AEMO's approval for the remaining units. Additional work is underway to further lower these to between 130 and 150 megawatts. The ability to flex our coal-fired plant is increasingly important as new renewable generation enters the system. Volatility captured through trading was also lower. Whilst we saw significant market disruption with severe weather events driving forced outages in the NEM, the trading team was able to manage this using a combination of financial and firming assets, particular the Kiewa Hydroelectric Scheme in Victoria, which provided greater flexibility during this period. Lower generation volumes overall were primarily driven by the closure of Liddell Unit 3 and the unplanned outages, marginally offset by stronger renewal generation volumes, which were 13% higher than the prior corresponding period. Despite a challenged start to the half, we've seen a strong uptick in availability from November, illustrated by the dark blue line. Overall, whilst we had lower unplanned outages compared to the second half of FY '22 the confluence of the Liddell and prolonged Loy Yang Unit 2 outages, combined with the planned outage of Bayswater Unit 4 as well as summer readiness activities, resulted in an overall outage factor higher than we were targeting. Looking forward, we have less days of planned unit outages in the second half, giving us a higher availability base to work from and reduce the overall impact of any unplanned outages that may arise. We will also continue to run Liddell at its sweet spot to manage operations and reduce derates and outages through the end of its life in April. This slide shows the key areas we have been focusing on to improve thermal fleet availability and reliability as we responsibly transition to a low-carbon portfolio. Our main priority is minimizing equipment failures that may result in future unplanned outages and derates. This includes additional preventative maintenance on mills, precipitators and chemical cleans of boilers to reduce known failure modes such as tube leaks. We're also bolstering preventative maintenance through stronger inventory management to ensure that, where appropriate, critical spares are held on site or accessed with a reasonable timeframe. Repairing Loy Yang A Unit 2's spare rotor and stator is an example that provide a shorter return to service time if such an incident were to reoccur. As mentioned, sizable CapEx investments have also been made to increase the reliability and efficiency of our fleet with upgrades to the turbine and generators of the Bayswater units as well as further investment in digital control systems, which enables us to flex each Bayswater Unit by nearly 500 megawatts. A quick update on our decarbonization pathway, growth pipeline and Energy Hubs. The planned closure of Liddell Power Station is on track for April 2023 and will be the first key milestone of our accelerated decarbonization pathway, reducing AGL's annual greenhouse gas emissions by approximately 8 million tonnes per annum. Importantly, by closing and transitioning the Liddell Power Station and site to a clean Energy Hub, we are undertaking one of the largest decarbonization initiatives in Australia in 2023. We look forward to both expected commencement of operations of both the Torrens Island and Broken Hill batteries in mid-2023. Numerous feasibility studies are also underway to bring strong opportunities to commercialization, and we are progressing initiatives to rationalize our upstream and midstream gas portfolios. Now a quick recap and update on our strategy before I hand over to Gary. I'm very proud to say that AGL is leading Australia's energy transition, backed by a bold and accelerated plan to connect our customers to a sustainable future and transition our energy portfolio. We will drive this transition by ensuring a strong foundation across our business, placing ESG at the forefront of everything we do, continuing to inspire and empower our dedicated workforce and importantly, leveraging technology, digitization and artificial intelligence to enhance customer experience as well as strengthening our trading operation and risk management capabilities. Our focus on both leading and emerging technologies will underpin the future energy relationship with customers, unlocking the value of electrification and decentralized energy. We have a defined strategy to deliver an accelerated low carbon future. And this slide, which you may be familiar with from our announcement in late September, provides a good summary of the key targets along our 12-year decarbonization roadmap. We will deliver this strategy whilst maintaining a relentless focus on our valued customer base and, importantly, work closely with our people to explore opportunities for career transition as we progress towards a low carbon energy portfolio. Our ongoing priority is to strengthen and drive value from our core business, providing a strong platform for growth in the medium to longer term to realize opportunities through the energy transition, which you can see on the right-hand side. As mentioned, one of our core priorities will focus on how we help customers decarbonize the way they live, work and move. We will drive electrification through propositions we offer and propel growth in e-mobility, starting with in-home charging. We will continue to accelerate growth in decentralized assets, helping our customers electrify and decarbonize and positioning AGL as leading in energy solutions. Our market-leading position in Commercial solar is evidence of the strong progress achieved in this area. Additionally, our retail transformation program, which Jo spoke to at our full year result in August, not only simplifies our core, but extends to new energy technology, which will enhance capability to remotely manage distributed energy resources in a flexible and digital-led way. This slide provides a good summary on how we're tracking today in terms of delivering our strategy as well as our near term focus areas. I've already spoken to many of these points for our customer portfolio, including our desire to accelerate decentralized assets under orchestration, drive growth in e-mobility and expand our Commercial and Industrial Energy Solutions portfolio. Our energy portfolio will focus on progressing the feasibility studies mentioned on the bottom left-hand side, accelerating the development of the Liddell battery, and importantly advancing and accelerating our project pipeline to meet our 5 gigawatt target of renewable generation and firming in place by the end of 2030. Importantly, we look forward to sharing details on our business strategies at an Investor Day targeted for mid-2023. I'll now hand you over to Gary to take you through the financial result in more detail.

Thank you, Damien, and good morning, everyone. It's my pleasure to address you in my first result as Chief Financial Officer. This slide shows an overall summary of our financial result, which I'll cover in more detail on the following slides. Let me first take you through our group underlying profit in more detail. The stronger Customer Markets performance was largely driven by growth in our Commercial and Industrial business, a reduction in net bad debt expense as well as labor savings and efficiencies being realized through ongoing digitization. Turning now to Integrated Energy, where there were some material movements. As indicated previously, July was a particularly challenging month for AGL with the confluence of planned and forced outages across our coal-fired fleet, resulting in a short generation position. Compounding the short position, AGL experienced significantly higher pool prices, which were driven by heightened winter energy demand as well as elevated fuel input costs, due to the spike in global commodity prices. The $73 million movement primarily related to lost generation earnings caused by the prolonged Loy Yang Unit 2 outage as well as the closure of Liddell Unit 3 in April 2022. This was partially offset by the positive impact, as higher forward electricity prices started to reset through our customer book, hedging and trading gains as well as stronger hydro generation. Higher global commodity pricing has also increased both the revenue and costs for our gas portfolio. Pleasingly, however, AGL's competitively priced gas portfolio coupled with prudent trading performance drove the strong margin contribution you can see in the trading and operations gas bar. Please note that AGL's gas portfolio is well positioned to meet customer demand, having taken appropriate measures to support future supply, including a short extension of our Camden gas field and the filling of Newcastle Gas Storage Facility to cover upcoming winter demand. Finally, the higher depreciation and amortization charges primarily related to the accelerated closure of the Bayswater and Loy Yang A power stations, whilst lower income tax paid reflected the reduction in earnings. Let's take a quick look at the reconciliation between underlying profit and statutory profit which we've included due to 3 material movements. Items on the left were largely driven by external and market factors, whereas those on the right represent structural or operational decisions made by AGL. Starting from the left, the onerous contracts gain was driven by an increase in the price of large-scale generation certificates, partly offset by lower forward electricity pricing in relation to AGL's long term renewable power purchase agreements as well as an updated discount rates used to value the liability. The negative movement in the fair value of financial instruments primarily reflects the impact of a drop in forward prices for electricity on a net bought position, noting that we had an increase in this number in the prior period, when forward prices were much higher. And finally, the impairment charges relating to the carrying value of our generation fleet cash generating unit. This is a result of our accelerated decarbonization plan and decision to bring forward the targeted closure of AGL's thermal generation assets by the end of FY '35, as we announced in September 2022. In August, we did indicate a step up in forecasted operating costs for FY '23 to be roughly in line with CPI. Pleasingly, during a period of significant inflationary pressure, operating costs continue to be well managed across the business, consistent with CPI increases once adjusted for the nonrecurring items identified at the full year result. A portion of this increase is a small yet prudent uplift in cybersecurity spend to further bolster protection of our operations and customers. Turning now to cash and debt; net cash from operating activities of $37 million was 94% lower compared to the first half of FY '22, due to lower underlying EBITDA and large working capital outflows, particularly payables and margin calls, driven by significant market price movements during the period. The payables cash outflow of $429 million was largely due to the high payable position at the full year, driven by high prices, and then a significant reduction in electricity pool prices across the period and the resultant cash outflows. Notably, the impact of government intervention contributed to a sharp decline in forward electricity prices resulting in $119 million of variation margin outflows at the end of the half. As you can see, whilst these working capital outflows did result in a reduction in AGL's credit metrics, we forecast this reduction will be temporary, as cash conversion rates recover to historical levels in line with the stabilizing wholesale pricing environment and improved generation performance. Encouragingly, Moody's have retained their Baa2 rating and upgraded their outlook to stable. The process to finance maturing debt is also well underway. Now briefly touching on CapEx; as noted last August, growth CapEx for this year will focus on the completion of the Torrens and Broken Hill batteries. You will also note a marginal uptick in thermal sustaining CapEx compared to the forecast we provided last August. This is primarily due to additional spend to strengthen the reliability of our thermal fleet, as they transition to closure which Damien discussed earlier. Before I hand back to Damien, I'd like to take a few moments to discuss how we intend to fund and deliver our future target portfolio. This slide shows the indicative ranges for the primary channels AGL will leverage to deliver its 12 gigawatt ambition as announced in late September. Damien has already spoken to decentralized assets under orchestration, which is a growth area for AGL and key component of our targeted energy portfolio. Assets developed on AGL's balance sheet will comprise the largest component, and will focus on firming assets, building upon AGL's existing development pipeline of grid scale batteries and pumped hydro projects. These assets will be funded through a mix of operating cash flow, capital recycling by the potential sell down of developed and operating assets as well as project and corporate level funding. Importantly, we have an excellent track record of raising capital for clean energy projects having raised over $3.5 billion of equity and debt funding into renewable assets since 2008 and are confident in our ability to access a growing pool of global capital, dedicated to fund the energy transition. Partnerships will be the second largest component, and includes the 3.5 gigawatt development pipeline via Tilt Renewables. We will partner with renowned renewable asset developers, which will deliver additional capital and expertise and help accelerate our development options. The main focus of partnerships will be in renewables, such as wind. The balance is expected to be delivered by our offtakes and we intend to leverage the scale and diversity of AGL's customer base, to achieve the most favorable supply mix and terms. Importantly, our strategic asset base and extensive renewable development capabilities position us well to generate excess returns from the transition of our generation portfolio. As an integrated player, AGL will seek to maximize investment returns through additional development, management, trading and ongoing services that typically would not all be available to a pure play energy company. The returns and ranges shown are for observable comparative companies and projects and are provided as an indication of the types of returns that we would expect to see. Now handing back to you, Damien.

Thanks, Gary. As mentioned, I'd like a moment to discuss the impacts of recent federal government interventions in energy markets. Whilst we do support certain measures, namely the customer bill rebates as well as the role of the safeguard mechanism, we're concerned that the commodity price intervention has created regulatory uncertainty for coal and gas suppliers, undermining their business and investment confidence. I must emphasize that policy certainty and clarity is key to encourage new investment in clean energy generation and supply to ensure the pace of Australia's energy transition. Importantly, our core business fundamentals remain strong despite market interventions. Our robust risk management has ensured retail strength and stability amid significant volatility in Australian energy markets. Additionally, our coal-fired generation portfolio is well supported by a combination of wholly owned and production cost-linked fuel supply minimizing exposure to rising global commodity prices and the impacts of the commodity price caps. Taking a closer look at market conditions, you can clearly see the reduction in spot and forward pricing from historically high levels, partly driven by the introduction of the commodity price caps, milder weather and additional plant availability. The shaded area on the right hand side shows the downward pressure on FY '24 forward pricing, illustrated by the difference between the dotted and solid lines, which represent FY '24 forward pricing snapshots taken in September 2022 and January 2023, respectively. Encouragingly, as we've indicated by the data point callouts on the graph, FY '24 forward pricing still remains elevated compared to FY '20 and FY '21 levels, which we expect to see reflected in strong earnings growth in FY '24. I'll now conclude by talking to FY '23 guidance and our outlook. As I mentioned earlier, we've narrowed our underlying earnings guidance range for FY '23. Our full year guidance reflects the improved second half as expected, largely driven by an anticipated increase in generation, with improved plant availability and a reduction in outages, partly offset by lower forward electricity prices. Customer margin is expected to improve due to growth in customer services. Operating costs are forecast to increase half on half due to the seasonal net bad debt expense and inflation. Encouragingly, the outlook beyond FY '23 remains positive. Wholesale electricity pricing remains elevated compared to the prior periods, with AGL expected to benefit as historical contract positions reset in FY '24 and FY '25. Additionally, sustained periods of higher wholesale electricity prices are expected to flow through to retail pricing outcomes, and the Torrens Island and Broken Hill batteries are also anticipated to commence operations in mid-2023. This will be partly offset by lower earnings due to the closure of the remaining 3 units of the Liddell Power Station. Thank you for your time and we'll now open to questions.

We will now open for questions. In the room, in addition to Damien and Gary, we have our Chief Customer Officer, Jo Egan; and Chief Operating Officer, Markus Brokhof. [Operator Instructions] The first question comes from Dale Koenders from Barrenjoey.

There is just a lot going on in the market in terms of government intervention and cost inflation. Just wondering if you could provide some comments as to how you're thinking about what's going on in retail competition at this point in time, the outlook for bad debts and churn? I know we've obviously got the data for the half just passed, but sort of more on a going forward basis? And the labor cost pressures when you combine it altogether, is cost plus CPI sustainable going forward?

Dale, I'll take that one. Let me first start, I'll start on net bad debt expense. We're really pleased with the result for the half, came in lower than the previous half. And that sort of represents some of the strength of the work we're doing around collections and so forth. We anticipated it probably higher than it otherwise would have come through and something we'll continue to watch closely, but that's another reason why we continue to support the government customer bill relief. We think that's important in this sort of environment. From an inflationary perspective, we are, like others, seeing inflationary impacts through the organization, but we continue to manage that very strongly. You see, we've put a forecast out there for the full year to manage within CPI, and we'll continue to do that through sort of digitization of much of what we do, but also continue to drive efficiency through our generation units as well. Dale, anything further?

Thanks, Dale. Next up, we've got Anthony Moulder from Jefferies.

[indiscernible] managing inflation.

Sorry, Anthony. You cut out there. Can you just please repeat the question?

Sure. So appreciate you're managing your inflation costs well, and there could be some higher bad debts in the second half, but just interested as to what were the key changes to your view on guidance, given that's been lower EBITDA as well as NPAT, please?

Yes. So what you've seen is a tightening of the range, a narrowing of the range. The rationale behind that is what we saw after we run a long position, let's call it, 2 terawatts to 3 terawatts of energy, because that curve came off around December, January, you're just seeing some of that linked with ordinary sell -- we're selling that at obviously lower prices into the market. And that length we have typically relates to those firming assets and renewable type assets in the marketplace. So that's the key driver there.

Thanks, Anthony. Our next question comes from Max Vickerson at Morgans.

Can I just ask a question about your forecast rates of return on those 2 types of assets, just on the renewables 6% to 8.5%. I have to admit, if that's an ungeared return, it sounds a little bit high. Can you just clarify, does that suggest a change in gearing or is that an actual arm's length wholesale electricity market return or is there some customer margin potentially captured in that benchmark?

It's Gary Brown here. Look, just to sort of answer that question. So we've obviously provided this as sort of some indicative ranges to try and give some clarity to the market. I guess from an AGL perspective, we do see ourselves as being able to extract additional returns from the traditional pure players. So you're looking at things like the ability to be able to be -- participate in things like development and orchestration and those sorts of things. So we do see ourselves as again, being able to, I guess, move up in that in terms of where the returns are. But again these are observable returns that we're seeing in the market as well.

Excellent. If I can just ask one quick follow-on then. Given the higher returns you see in the firming assets, is there a limit to how quickly you can deploy those and you kind of hinted, that that's where you want to have your on-balance sheet assets. How quickly can you deploy those -- just from a market perspective, how much -- how big is the market, the storage still returns to degrade, if you pump too much capital in there too quickly?

Yes. I think, look, what you're seeing today, we've got obviously the Torrens Island battery coming on mid this year. That really demonstrates the strength of our infrastructure and our assets, if you like. We took, if I [ do remember ] that battery only 18 months ago. So the ability to deploy the right batteries in the right locations and using our infrastructure is incredibly valuable. So obviously got the Torrens Island battery, but also Liddell, we're continuing to work with Arena on funding in that phase and we will continue to drive that as quickly as we can. But you can imagine those sites have the capability and capacity for us to go very, very quickly when we see the market there available for us. So that will be a big part of what we put on our balance sheet, because we can do it quickly, we can also do it when the market needs it and we have the infrastructure and grid connection.

Thanks, Max. Next up, we have Ian Myles from Macquarie.

Maybe you can give us a little color on how your strategy has changed as a result of the coal caps and the gas caps and whether that's going to have an impact on the profitability of those businesses.

Morning, Ian. Look, I'll take that one and I might even just hand over to Markus as well, just from a broader hedging and risk management perspective. But we are -- from a coal perspective, you'd be aware, we obviously own all our own coal down in Loy Yang and contract out for the Hunter for Macquarie. So we're not part of that cap, if you like. We are well underneath that cap and that provides us sort of the breadth to manage risk management and profitability in that space. What we're seeing, however, is obviously that's having an impact on bringing down the curve. From a gas perspective, and I'll get Markus to talk on where some of those conversations are at the moment, what we've seen since the intervention come in is a lot of those conversations and negotiations have dried up. So we are just -- we are wanting to see them come live again, so we can bring more gas into the market and help our C&I customer base. But maybe, Markus, do you just want to comment on maybe first gas and then impact of coal?

On the gas side, I think our book is very much covered until end of FY '25. We are still in negotiations with one of the large -- with a few large producers here in the local market. For sure at the moment resistance to enter into contract with us because due to the fact that there is quite some uncertainty about pricing. But particular I think the [ tenure ] of market intervention and that is applying also for the coal side. At the moment, I would say there is no change in our strategy overall when it comes to contracting our gas and our coal. But the big question mark, how long is the governmental intervention taking place? I think there are a lot of discussion. Is it only for 1 year or will it continue to be, and this will somehow influence any strategic decision about a change in our strategy.

I understand it's very un-PC, but could we expect to see the coal-fired plants actually will turn up as a result of this $125 a tonne cap, because they are already profitable running much harder now than ever before?

That's true. Maybe some people which have not done proper risk management are running now much more harder, that's most probably true. I think we will most probably still study the terms and conditions very carefully, because I think between the lines, you can read that there are some obligations. That it's not a free lunch, the $125, because there are some obligations that you can be directed and there is a must-run. We are not happy about this, so we will most probably -- and we have not participated in this scheme.

And I think, Ian, the other thing to call out is through the work we've done on this plant over the last number of years, I mean, Macquarie now we're able to turn down to 200 megawatts from 685 megawatts, and Loy Yang well below that 40% as well. So that flexibility is going to be incredibly important in this market going forward, particularly in the middle of the day and we'll continue to see how far we can drive that down so we've got the flexibility we need.

That's great. Just on the side of that, does that create a CapEx impasse, because these machines aren't really originally designed to turn up and down with the thermal heat going through the metals?

So we've spent -- over the last number of years, when we've done a number of the upgrades, a lot of that spend has been incurred. I mean, what we are obviously then just trying to manage carefully is any additional ongoing maintenance of the fleet as a result. We're not seeing any of it today, but things such around the mills and so forth, that's where the work takes place, but the value in doing that would far exceed some of that cost. But I don't know, Markus, do you want to comment?

No, I think that's all.

Thanks, Ian. Next up, we have Mark Samter from MST Marquee.

Just my question is around the balance sheet. There wasn't an enormous amount of talk around it in the presentation. Just keen to get a feel for something that's back up to almost $3 billion in loss and other working capital drag will normalize. Just keen to A, get a feel for how much headroom you think you have organically over the next couple of years, but also maybe just give us an update on how refinancings go and your ability to raise debt at the moment? I'm just cognizant that -- let's say a moot document now. But if we go back to the demerger document, something you guys felt that it was going to be much easier for the businesses to raise debt as separate entities together. Can you give us a feel for how those conversations are going with vendors, but particularly, keen also to get a feel for what you think you have in headroom over the next couple of years for investment?

So firstly, as we've sort of said in the slides, we've sort of talked through the amount of headroom that we had in terms of liquidity at the end of the half, which is about $485 million. As we've talked about, we saw a significant reduction in working capital as a result of the reduction in prices. And we're very confident that those cash conversion rates will return to historical levels throughout the second half, particularly as we see more normalization of those working capital levels. In addition to that, we've obviously spoken to having a strong -- expectation of a strong '24 and '25 as well. So I think that will certainly assist the balance sheet. We've also sort of had a number of discussions with financiers, and we're very confident about our ability to refinance the company and certainly set ourselves up for growth in the future. As we all know, there's a lot of demand for renewable projects to deploy capital into those areas as well. So we're very confident going forward.

And Mark, just to add to that...

And is there much that's changed in the -- sorry, Damien, I might have interrupted you there.

Keep going. It's all right, mate.

Are you seeing much different in the -- obviously rates are rising, but the premiums you're paying for debt?

Yes, look, I think it depends on which market you tap. I mean certainly because the risk free rate has gone up, that obviously has an impact as you move through. But again, we're pretty confident with the ability to be able to source competitively priced debt going forward.

And Mark, just the other thing I'd say, I think having a clearly endorsed strategy now going forward, having a Board in place, a management team in place, the banks now look at our transition plan and strongly support that transition plan, and that's a key part of us getting access to that capital. The whole team is involved in plenty of these discussions with the banks, just to talk about this transition plan and our delivery of it. So we are confident to be able to deliver on that refinance.

Thanks, Mark. Next up, we have Pete Wilson from Credit Suisse.

Damien, as you said in your comment, looking out to '24, '25 that you said the increased earnings from the Torrens Island and Broken Hill batteries will be partly offset by the closure of Liddell. So that would imply -- the word partly would imply that Torrens and Broken Hill is greater than the earnings loss from Liddell. So could you just please unpack that a little bit, what the uplift you're expecting from the batteries is, what the earnings of Liddell is, and also include there what your expectation is around the change in operation of Bayswater once you bring Liddell out?

Let me try and unpack that one a little bit. So what the intention of that statement is, is obviously when Liddell comes out of the market, clearly we will have lower generation and lower earnings as a result. It will partly offset it. It won't fully offset it. That was the notion of the words we're trying to use there. Clearly different revenue streams from a battery, than will be from a generation perspective. But what we do see is particularly in the SA market, that battery playing an important role in those periods of peak demand and so forth. But the intention wasn't -- I think the way you read it is probably the other way around. We don't intend that to obviously offset Liddell. It will provide some additional revenues and margin into the business going forward and we anticipate that coming on halfway through the year. Markus?

And maybe still to keep in mind the results of Liddell are overstated. If you would continue to run Liddell, there is no reason to believe that this would -- the margin or the gross margin, which we are generating, would stay like this, because it needed heavy investment. And from Bayswater, if you look then after the Liddell closure, what happens in this Bayswater -- most probably Bayswater will then run a bit harder, in order to make sure that we have the energy in the portfolio. From an energy point of view going forward, we are balanced, but for sure some capacity is missing overall when Liddell is going out, and this way -- and we have secured already because the closure of Liddell is known for the last 7 years. We have already secured the capacity in the market via additional contracts, which we have secured via kept contracts and so on, so that's under control.

Thanks, Pete. Next up, we have Rob Koh from Morgan Stanley.

Congratulations to all the team members who have been confirmed in their roles. I guess my first question is just about the Slide 18, where you've called out an $82 million increase in gas gross margin in trading and origination. And so that's great. I just wanted to get a sense of if that continues for the current half and next year, or should we be looking to include, at the very least, the short-term gas price cap as impacting that number, please.

I think there is a few elements to this. On the one end, we have optimized -- and I think I said this to you already in the past, we have optimized our haulage and transportation portfolio, have optimized the contracts and renegotiation and so on, in order to cope also with the pressure on the gas portfolio because you are well aware that our legacy contracts over time are running out, and we had to successively fill the gas portfolio with short-term contracts. So there was some pressure on and we have managed to get some costs out of this. On the other hand, for sure, this rise in gas prices, we were able to increase the profitability of our overall gas book. That most probably will then have also some spillover effect in the second semester. Going forward, with the price caps, it will be most probably and that's something we will lose some competitive edge when it goes forward because everybody could theoretically then secure price at $12 per gigajoule. But we believe we have a competitive edge with our portfolio, because at the end of the day, we have quite some flexibility in the portfolio, and this will be our USP going forward, our unique selling proposition. So I think we are well placed, but for sure if the price caps will not only stay for $12 and go further on, then it will be a very tough market.

Yes, I see. Thank you, Mr. Brokhof. Hence the comments about the intervention. That's clear. If I can sneak in another question to your Head of Customer, who had a really great half, maybe just a quick update on number of services per customer. There was a previous target, but that was 1.6, but that was set quite some time ago. So just wondering how we should think about that, please.