Earnings Transcript for AGL.AX - Q2 Fiscal Year 2022

Operator: [Call Starts Abruptly] I would now like to hand the conference to, Mr. Graeme Hunt, Managing Director and CEO.

Graeme Hunt: Good morning, everybody. Graeme Hunt, speaking. Thank you for joining us for the webcast of AGL’s first half results for the financial year 2022. I would like to begin by acknowledging the traditional custodians of this land, where I am presenting from today and pay my respects to their Elders past, present and emerging. I would 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 Damien Nicks, CFO and CFO-Elect for AGL Australia; Christine Corbett, Chief Customer Officer and CEO-Elect for AGL Australia; and Markus Brokhof, Chief Operating Officer and Chief Operating Officer-Elect, as well as Deputy CEO-Elect for Accel Energy. I’ll get us started before handing over to the team and we will have time for questions at the end. Today’s result reflects a solid first half performance, with continued resilience of our operations and generating portfolio, despite another period of pandemic-related disruption. As anticipated, lower earnings were primarily attributable to the non-recurrence of AUD 105 million of insurance proceeds received in the first half of last year, relating to the 2019 Loy Yang outage. Earnings were also impacted by the progressive roll-off of hedge positioning established at higher wholesale pricing, and to a smaller extent, the expiry of lower-priced legacy gas supply contacts. Encouragingly, these impacts were partly offset by a AUD 57 million reduction in operating costs, driven by major cost-out initiatives. In summary, underlying EBITDA of AUD 723 million was down 21%, while underlying NPAT of AUD 194 million was down 41%. Adjusting for the insurance proceeds, underlying profit after tax was down 23% percent. An unfranked interim ordinary dividend of AUD 0.16 per share has been declared, and the DRP will be fully underwritten. Pleasingly, we have narrowed the underlying earnings guidance ranges for FY 2022, reflecting a solid first half performance, with lower second half earnings in line with expectations. I’ll elaborate further on this towards the end of the presentation. Looking forward, AGL is well placed to benefit from the improvement in wholesale electricity prices we’ve seen over the last 6 months. And we expect this, together with any sustained improvement to wholesale pricing to be reflected in future earnings beyond FY 2022, as hedge positions roll-off. Turning now to some business updates. Our strategic Net Promoter Score remains in record territory, and we continue to see solid growth in our telecommunication customer service numbers. Good progress was also achieved on the re-purposing of our major generation sites, with the construction of the Torrens Battery underway and planning approval received for the 200-megawatt battery at Loy Yang. We remain acutely focused on cost discipline and cash preservation to ensure balance sheet strength, prior to the implementation of the proposed demerger. As mentioned, operating costs decreased across the business in the half, and we are well on track to deliver our targeted AUD 150 million in operating cost savings by the end of FY 2022, compared to the FY 2020 operating cost levels, together with our targeted reduction in sustaining capital expenditure of AUD 100 million by FY 2023. We have also completed the sale of our investments in the EIP fund and Ecobee for approximately AUD 100 million, with other targeted non-core assets sales progressing. Importantly, excellent progress has been achieved since we confirmed our intention to demerge the organization on June 30, 2021. Leaner organizational structures for both proposed entities have been confirmed, with additional executive team and board appointments made. The purpose and strategies for both proposed entities are now in place and Christine and Markus will talk to these in greater detail. And today, we are very pleased to outline the proposed climate commitments for both AGL Australia and Accel Energy, which I’ll cover shortly. Damien will talk more to the debt financing arrangements which have now been fully executed, as well as the capital structures and dividend policies of both proposed entities. In addition, the offtake and transitional service agreements, as well the tax and regulatory processes, are all progressing well. I can also confirm today that Accel Energy will hold a 15% minority interest in AGL Australia, enabling Accel Energy to share in the anticipated value creation in AGL Australia and strengthening balance sheet and financial flexibility. And finally, the scheme booklet containing additional information on the proposed demerger is expected to be released in mid-May. This will be followed by a scheme meeting in mid-June, giving you, our valued shareholders, the opportunity to consider and vote on the proposed demerger. This is certainly a pivotal time in AGL’s 180-year plus journey, and we look forward to this exciting new chapter which will create a stronger future for our business. Moving now to 2 key operational areas, safety and customer experience, which both continue to remain strong. The Total Injury Frequency Rate per million hours worked increased slightly to 2.4 for the half year, however, this is still a material improvement on FY 2019 and 2020, reflecting our sustained focus on safety culture and performance. As mentioned, our strategic Net Promoter Score reached another record high, reflecting our unwavering focus on customer experience and the rewards of our significant investment in digitization coming to fruition. Considering that we’ve had another period of challenging market conditions, these results are pleasing. This slide shows a further summary of our financial result, which Damien will cover in more detail later. Now taking a closer look at electricity market conditions. Encouragingly, we’ve seen a strengthening of forward pricing from late-May, initially driven by the Callide and Yallourn thermal plant incidents, and this trajectory has continued through the remainder of 2021, largely supported by higher international commodity prices. Pleasingly, the dotted lines indicate this recovery to be sustained into FY 2023. As we’ve previously guided, over the short-term, our hedged position will limit potential earnings upside from a recovery in wholesale pricing, particularly in FY 2022. Longer term, given the relative strength of our low cost generation position in the NEM, AGL Energy and the proposed Accel Energy will both be well placed to benefit from any sustained recovery in wholesale electricity prices, as well as their focus on delivering commercial availability during volatility. AGL Australia will also be well positioned to manage a higher wholesale pricing environment, with its flexible generation portfolio providing coverage for market volatility, suite of power purchase agreements benefiting from higher energy and LGC prices, and its ability to manage price changes through its significant retail and commercial and industrial customer base. Not to mention its extensive trading expertise. On the right-hand side you can see the material elevation in volatility, driven by the major thermal plant incidents I mentioned earlier, coupled with higher outage levels persisting across the summer in Queensland. The increasing penetration of new renewable generation in the NEM has also had a profound effect on the volatility in the market in recent years, as it introduces variability on the supply side for electricity. Again, we are well positioned to manage this heightened volatility with our generation fleet and sophisticated risk management and trading expertise. The development of our 850-megawatt grid-scale battery pipeline will also be key to firming intermittent renewable generation and smoothing price volatility in the years to come. We have spoken before of the forces that are shaping our market and accelerating Australia’s energy transition. For any organization to succeed in this environment, it is not enough to simply respond to these. A consistent, clear purpose and strategy that ensures access to capital and broad stakeholder support is essential for any business that wants to not only meet the challenges of the energy transition, but also grasp the opportunities it presents. We believe AGL’s proposed demerger achieves this, creating a stronger future for both parts of our business while enabling a responsible and orderly transition towards a decarbonized energy future. The proposed demerger will result in 2 industry leading companies, Australia’s leading multiservice energy retailer and Australia’s largest electricity generator, and each organization will have the ability to unlock value as they each pursue strategies tailored to their individual purpose. Each business will be able to act on their distinct value drivers, ESG weightings and investment propositions, enabling them to better attract relevant investors and capital and improve future value. AGL Australia and Accel Energy will adopt a robust dividend policy that supports returns to shareholders while also supporting employees, suppliers, and the communities they serve by investing in skills and new opportunities. Our aim, by transforming our business, is not only to better address our own climate-related risks, but also to take a key leading role in enabling Australia’s energy transition, creating long-term value and sustainable investment opportunities as we do it. With this outcome as our objective, we have defined a way forward for AGL Australia and Accel Energy to manage these climate-related risks that embraces Australia’s energy future and builds on AGL’s legacy of innovation and development. Energy transition and the path to net zero will be the defining challenge of our era. Companies that don’t adapt, don’t innovate, and don’t set themselves on this path will be left behind. When it comes to taking action on climate, the AGL Energy legacy is strong. In the last 2 decades, AGL has played a leadership role in Australia’s transition investing more than AUD 4.8 billion in renewable and firming generation, and delivering more than 2,350 megawatts of new generation capacity since 2003. Moving early has meant that today we operate the largest portfolio of renewable and storage generation assets of any ASX-listed company. And it is this legacy that will shape the DNA of AGL Australia and Accel Energy, and their response to climate. Today, we are outlining a set of climate commitments that demonstrate decisive action to accelerate our pathway to decarbonization for each organization. And importantly, they are commitments that strike a balance between Australia’s current and future energy needs and the need to responsibly decarbonize. AGL Australia will be carbon neutral for all Scope 1 and 2 emissions upon listing with credible pathways to net zero for Scope 1, 2 and 3 emissions by 2040, including a 50% emissions reduction on FY 2019 levels by 2030. And in delivering this, it will underwrite 3 gigawatts of renewable and flexible capacity by 2030, to support its customers as a leading multi-service energy retailer. These are milestones that would not have been contemplated by our retail business under the current gentailer model. For Accel Energy, there is no doubt that coal-fired generation across the entire system will exit earlier than previously believed, enabling a faster decarbonization pathway. However, for this to happen, AEMO’s recent draft ISP estimates that approximately AUD 70 billion to AUD 90 billion worth of investment in transmission and generation will be required. With this scale of change, these closures must not happen outside of a co-ordinated plan across governments, industry, regulators and the community. Without this we will create market uncertainty and put at risk energy reliability and affordability. It is these interdependencies that must be considered when determining the future closure dates for our coal generators. Accel Energy will provide reliable, low cost energy with a strong focus on repurposing existing thermal generation sites as low emissions industrial Energy Hubs, as it brings forward its coal closure dates to no later than 2033 for Bayswater and 2045 for Loy Yang. With Liddell scheduled to close by April 2023, Accel’s electricity generation portfolio’s annual Scope 1 and 2 emissions will reduce by 18% to 27% between FY 2025 to FY 2034, and by 55% to 60% between FY 2035 to FY 2046, compared a FY 2019 baseline. Overall, modeling shows an expected 90 million tonnes reduction in emissions between FY 2023 and FY 2050 compared to the results from our previously modeled scenarios, as detailed on Slide 45 of this pack. This is a significant contribution to the Australian energy sector’s decarbonization process with the possibility of improvement beyond this if Accel Energy is able to bring closure dates further forward within the closures ranges for Bayswater and Loy Yang. As I said, there are many interdependencies and many of those are outside our direct control as one organization in a highly integrated energy network. We need the entire system to be ready to operate without our critical base-load generation. We are committed to working with government, industry and the community in pursuit of this and will be reporting annually on progress towards this ambition. Australia’s energy transition will not happen overnight, the market must continue to provide people with affordable energy while pursuing innovation and technology that will deliver decarbonization. By creating AGL Australia and Accel Energy, we will provide critical leadership to the Australian energy system through this transition. These commitments we are announcing today are the beginning of the journey for these 2 companies, not the end. We have set a new baseline for both and it is against this that they will measure their success and strive to improve as the energy market evolves. As I touched on earlier, excellent progress has been achieved since we confirmed our intention to demerge the business mid-last year. I’ve already covered most of the milestones on this slide, however, I would like to highlight the appointment of Gary Brown, as Chief Financial Officer-Elect of Accel Energy. Gary joins us with more than 20 years of senior finance experience across numerous ASX-listed and multinational companies, including BHP Billiton, Shell, Viva Energy and CSG Limited, and most recently as the CFO for ENGIE Australia and New Zealand. We also announced the appointment of Graham Cockroft to the AGL Energy Board in late-December and look forward to his considerable expertise gleaned over a 30-plus year career in the energy sector. We’ve also confirmed the respective Board compositions for both proposed entities. Additional Non-Executive Director appointments for both AGL Australia and Accel Energy are well progressed and will be announced in due course. Before I move on, I would also like to highlight that the one-off cash costs related to the demerger are expected to be between AUD 220 million and AUD 260 million. This includes debt finance costs of approximately AUD 40 million for new facilities and early repayment of certain existing facilities. This level of cost is in line with transactions of similar complexity. I will now hand to Damien to take you through the financial results in more detail.

Damien Nicks: Thanks Graeme, and good morning, everyone. I’ll start by providing some context to the half year results, and an update on how we are tracking towards the cash preservation targets we previously announced. As Graeme touched on, the reduction in our headline result was not unexpected and driven by factors previously guided to market. The solid half year performance was driven by strong generation and trading performance in the second quarter. I will go through the group underlying profit result in more detail on the next slide, however one thing I would like to highlight here are the segmental results, which are now reported under the AGL Australia and Accel Energy reporting segments, reflecting the proposed demerger entity structures previously provided as part of the FY 2021 result. Please note that Centrally Managed Expenses have not been reallocated and remains consistent with prior reporting periods. Pleasingly, operating costs were down, and operating cash flow was up 6%, despite the decrease in earnings. I will discuss these movements in more detail later. However, they are both a good reflection on how we are progressing with our cash preservation targets. We are on track to deliver our targeted AUD 150 million in operating cost savings by the end of FY 2022, and AUD 100 million reduction in sustaining capital expenditure by FY 2023. We have completed the sale of our investments in the EIP fund and Ecobee, recognizing approximately AUD 100 million. The sale of other noncore assets are ongoing with Newcastle Gas Storage Facility taking longer and being more difficult than anticipated. The previously announced underwriting of the FY 2021 final and FY 2022 interim dividends will save a further AUD 300 million approximately. These cash preservation initiatives were designed to ensure both entities will achieve investment grade credit ratings and have robust balance sheets from day 1. Now looking at group underlying profit. The AUD 134 million step-down in underlying NPAT was largely driven by the non-recurrence of the Loy Yang outage insurance proceeds. Looking at the chart from left to right, starting with AGL Australia, consumer energy margin was down, largely due to the impact of milder weather on demand, higher cost of energy with increased residential solar volumes, and margin compression from customers switching to lower priced products. Supply and trading gas margin was lower as anticipated with the impact of lower priced legacy supply contracts rolling off, during the second half of FY 2021, while we have been successful in re-contracting in the short-to mid-term recent contract prices have been higher than AGL’s legacy contracts. Moving to Accel Energy, in addition to the non-recurrence of insurance proceeds, there was a further reduction in trading and origination electricity margin due to lower contracted electricity prices, coupled with lower offtake sales to consumer electricity resulting from increased penetration of solar. The positive movement in Centrally Managed Expenses was attributable to major cost-out initiatives implemented to achieve our targeted savings, which I will go into more detail on the next slide. The favorable movement in depreciation was driven by the asset impairments recognized during FY 2021. Higher net finance costs were largely attributable to the embedded interest cost unwinding from the onerous contracts and rehabilitation provisions, recognized in FY 2021. And finally, the reduction in tax expense largely reflected the fall in profit. As mentioned, we are well on track to deliver our committed AUD 150 million of operating cost reductions in FY 2022. OpEx reduction initiatives in AGL Australia included reducing net bad debt expense, and lowering marketing and advertising spend. Markus will discuss Accel’s cost out initiatives in more detail later. Further corporate cost out initiatives involved a significant reduction in IT and discretionary spend, combined with labor reductions across the corporate areas. Post demerger, we expect a small reduction in operating costs on a like for like basis, with planned cost savings in FY 2023 to offset recent growth and acquisition costs, plus the dis-synergies of standing up 2 separate organizations. An organizational structure review was undertaken during the half to simplify and streamline AGL Energy, and 350 roles have been identified for removal. The first tranche of departures occurred during the first half of FY 2022, with the remaining roles to depart prior to June 30, 2022 or early FY 2023, subject to the proposed demerger proceeding. Redundancy costs associated with the review are projected to be AUD 40 million in FY 2022, which will not impact underlying results. These savings reflect leaner, more focused organizations following the proposed demerger. I’ll now cover cash and debt in more detail. Net cash from operating activities was up 8% in the half, driven by cash improvement initiatives, a large inflow from margin calls compared with an outflow in the previous half and other positive working capital movements, which more than offset the decrease in EBITDA. Lower cash tax paid in the first half was consistent with the reduction in earnings. Investing cash flow was about AUD 147 million reflecting the investment in Tilt Renewables, and offset by the non-core investment sales as previously announced. Financing cash outflows were significantly lower than the previous year, reflecting the underwritten FY 2021 final dividend. Pleasingly, our cash conversation rate remains very strong at 112%. Turning to debt and funding, despite a challenging year, we still retain sufficient headroom under our Baa2 credit rating and our debt covenants, and have over AUD 700 million of cash and undrawn debt facilities available at December 31. Today, we can confirm the proposed dividend policies and capital structures for AGL Australia and Accel Energy. These are largely in line with what we have indicated in previous announcements. We believe the proposed dividend policies are tailored to provide capital management flexibility for each entity, whilst at the same time providing appropriate returns for shareholders. AGL Australia will establish multi-option bank facilities in aggregate totaling approximately AUD 2.44 billion. This will be complemented by U.S. Private Placement notes totaling AUD 661 million, from AGL Energy’s existing AUD 910 million in U.S. Private Placement notes. It is expected AGL Australia will receive an investment credit grade rating of Baa2. It is proposed AGL Australia will target a dividend payout ratio range of between 60% to 75% of underlying profit. Dividends are expected to be partly franked in the short-term, targeting to be fully franked over the longer term. Accel Energy will establish debt facilities of approximately AUD 1.4 billion, which will be a combination of amortizing term debt and revolving working capital and guaranteed facilities. Accel will also benefit from additional balance sheet flexibility provided by the 15% shareholding in AGL Australia, and it is expected to receive an investment credit grade rating of Baa3. Accel Energy will adopt a dividend policy aligned with the expected cash profile of the business, targeting 80% to 100% of free cash flow after servicing net finance costs. Free cash flows will effectively be Accel’s operating cash flow excluding tax, working capital requirements, and CapEx. CapEx will include sustaining and any contributions for planned growth or investment. Dividends will be unfranked in the first few years following the demerger as tax losses are utilized. I’ll now handover to Christine and Markus, who will provide a first half update on customers, operations, and portfolio generation, before delving into the strategies for AGL Australia and Accel Energy.

Christine Corbett: Thank you, Damien, and good morning, everyone. Our consumer business remains strong with 4.2 million services to customers and 4.5 million when you include ActewAGL services. This has been underscored by good growth in telecommunication services and continued underlying cost efficiencies. Over the past 6 months there has been increased competitive activity and we have seen a modest increase in churn, in line with the market trend. This has led to a slight reduction in overall energy services, predominantly driven by the anticipated higher churn of Click Energy customers, although, pleasingly this is still in line with our business case expectations. A highlight for the first half was the strong growth achieved in telecommunications as we scale our offering, and we now have 42,000 services under the AGL brand. Furthermore, brand awareness of AGL’s internet offering has continued to grow to 34%, with moderate but efficient brand and marketing investment. Net operating costs per consumer energy service continue to be driven lower, underscored by digital and marketing campaign efficiencies. Prudent investment in our growing telecommunications business resulted in an overall increase in net operating costs. Pleasingly, we have continued to deliver efficiency, while at the same time improving our customer experience, as demonstrated by our strong NPS results. We have also seen a further 12% reduction in ombudsman complaints compared with the prior corresponding period. As we enter the second half of FY 2022, we will continue to focus on growing the value of our customer book, improving the customer experience, and driving efficiency in our cost base. Our Commercial and Industrial customer performance has remained strong, primarily attributable to growth in Sustainable Business Energy Solutions. The integration of the Epho and Solgen businesses has been highly successful. As expected, these businesses have complemented and bolstered our existing solar capabilities, enabling AGL to deliver more tailored and innovative energy solutions for businesses, as we partner with them through the energy transition. AGL is now the leading commercial solar provider in Australia and is uniquely positioned to deliver Energy-as-a-Service through our Behind-The-Meter technology solutions. Energy solutions gross margin has doubled to AUD 6 million, driven by strong sales growth, with average electricity supply contracting tenure rising significantly. We have also grown our distribution revenue notably, albeit off a smaller base. This is despite the disruption to global supply chains and the impact of COVID-related shutdowns on solar construction. We continue to innovate and support customers on their decarbonization journey, including microgrids with Santos, deploying solar across nearly 850 sites with The Salvation Army and a 5-year partnership with Goodman Group, deploying up to 100 megawatts of solar. Our strong customer focus as evidenced by service performance, customer advocacy and scaling our multi-service offering has delivered value today, whilst providing a solid foundation for growth. And now over to Markus.

Markus Brokhof: Thank you, Christine, and good morning, everyone. I am pleased to say that we have had a very strong performance to the year so far. We have been able to capture opportunities in the market through commercial fleet availability, effective trading and risk management, and complemented this with our resilient generation portfolio. This slide shows a few of our key metrics for our operational performance. Starting on the left-hand side, the commercial availability of the entire thermal generation fleet, which is higher compared to the first half of last year, mostly reflecting the good performance of Loy Yang and Liddell. I will discuss this in greater detail on the next slide. In the middle, you can see a metric that demonstrates how we are positioning the portfolio in the traded markets. We have improved year-on-year our capture of volatility and have extracted more extrinsic value of our assets. Our effective trading, origination and risk management has come to bear in the half, as our portfolio hasn’t been hit by the coal and gas price increases seen in the global commodity markets on the supply side. Again, I’ll touch on this in more detail on an upcoming slide. Finally, we had a very slight reduction in generation volumes over the half mainly influenced by a major planned outage in Loy Yang reducing volumes from that plant, and some demand impact from sustained lockdowns in Victoria and New South Wales. We have previously highlighted the focus on commercial availability over technical availability for our thermal fleet. This is an important shift in mindset from being available as much as possible to maximizing availability when the market needs our units to be on and compensates for them. You can see the trend of Loy Yang has been really beneficial, with a big step up in availability during times when the price is above our short run marginal cost. As we continue to undertake disciplined investments on the station and mine, we believe this can be sustained. On the right-hand side, you’ll see Liddell and Bayswater. Liddell’s availability is trending down over time, which is natural for an aged plant. That said, it has had an uptick relative to a poor performance in the first half of 2021. Liddell’s performance reflects a changed sweet spot operation; in other words, lowering the operational capacity to 320 to 350 megawatts, which helps us keep the units running reliably through to end of life. Bayswater is an area we are applying increasing focus with some recent challenges arising out of derates, particularly from our coal mills. We have invested into greater flexibility, lowered minimum load running and upgraded the Digital Control System, which will improve performance in future years. The commodity markets were very much dominated by a recovery of the global economy, after COVID-19 impacted most of the manufacturing industries and trade flows. Gas storage levels were below average in most of the countries in the Northern Hemisphere, and China has become the largest importer of LNG after decades of Japan being the largest offtaker. The diversion of LNG cargoes has caused an uplift in prices in Europe and the Asian Pacific region. Gas to coal switching has also caused higher demand in thermal coal. Nevertheless, our coal supply portfolio and gas portfolio has not been majorly impacted by these price rallies, due to a very well managed procurement strategy and risk management. In addition, market participants with short positions on green certificates such as LGCs have substantially driven up the forward curve for LGCs, benefitting our renewable portfolio in the short- and mid-term. Power prices in the forward markets in the NEM have followed the same trend and been more pronounced in the northern states than in South Australia and Victoria. Now, back to Christine.

Christine Corbett: Thank you, Markus. As the CEO-Elect for AGL Australia, I am pleased to share the growing market opportunities for the new company and our distinct advantage, our strategy, where we see value, the capabilities we need to capture value and, importantly, the strong position we are taking on our climate commitments. We have a strong growth future. The NEM itself is changing, after growing by less than 5% in the last 2 decades, electricity consumption is forecast to grow by 23% between now and the end of the decade. This transformation is being driven by the electrification of industry, transportation and residential demand. The shift is being enabled by technologies such as smart and connected devices, electric vehicles, competitive and reliable renewable power, decentralized energy, and the rise of the prosumer. We are in the midst of this transition already as rooftop solar is now the second largest generator in the NEM with almost 15 gigawatts of capacity. To succeed in this growth market, we have the compelling combination of scale, energy trading and sustainability to drive growth and generate incremental value. Scale, our roots have been in Australian energy retailing at scale. We have over 4 million customer services, we are recognized for energy and have a strong established brand which our customers trust as we move to a sustainable future. Trading is in our DNA and will be pivotal to manage volatility during the energy transition. Our trading capabilities are well respected and known, we will continue to manage risk and create value at the same time. At the heart of this is our hedging strategy and flexibility to expand and adjust our green portfolio over time to meet the energy and decarbonization needs of our customers. Sustainability with our large customer base, a flexible and green supply portfolio, and the goal of underwriting 3 gigawatts of renewable and flexible capacity by 2030, we have a unique opportunity to provide leadership for both our residential and commercial customers as we progress to net zero. Despite market convergence and adjacent players entering the energy sector, it is the compelling combination of these 3 attributes that uniquely positions AGL Australia for a strong growth future. We are a leading Australian brand, providing more than 4 million services nationally. This scale renders AGL Australia a powerful change agent, and our actions can truly shape the future of energy in this country. Being Australia’s leading custodian of energy relationships brings responsibility, and we take ours seriously. We know that Australians expect us to act on climate change, and meeting and exceeding these expectations is paramount to everything we do. Our purpose sits at the centre of our strategy, connecting every Australian to a sustainable future. What underpins our purpose are our 4 strategic pillars and aspirations. Customer obsessed, as Australia’s leading multi-service energy retailer, AGL Australia holds a privileged position, uniquely placed to provide the specialist energy advice and services that our customers need. With an unwavering focus on the needs of our customers, we will capture rising demand. In this new environment, engaged customers are central to long term growth. We have established a trusted position leading the category as Australia’s most recognized energy brand and building scale in telecommunications. We have a strong history of innovation, retailing and customer centricity, which provides an incredible platform for growth. This approach will be tailored for our business and commercial customers to meet their evolving needs. Dramatic simplification of our products will reduce complexity for customers and our people. We will improve customer experience and time to value through our investments in digital and technology platform, including both Kaluza, a new energy core system, and the Retail Next transformation program. Accelerating decarbonization, electrification and decarbonization are the most significant forces impacting the energy transition over the next 2 decades. We will guide customers through the decarbonization journey, providing innovative offerings in e-mobility, decentralized energy resources and green financing. Our partnership model with business customers will drive electrification and support net zero targets through our market leading commercial energy solutions position, achieving our sustainability ambitions together. Expanding the flexible and green portfolio to enable us to meet the energy needs of our customers and achieve our 2030 goal of underwriting 3 gigawatts of renewable and flexible capacity, we will carefully curate an optimal portfolio to manage both our financial risk and generating value for our customers. In delivering this, we have the flexibility to build, contract or underwrite renewable and flexible energy assets expanding on more than 2 gigawatts of flexible and renewable generation to meet the needs of our customers. Our last pillar, simplifying, digitizing and engaging is about transforming our business, operational model and ways of working. This is being delivered through digitization, simplification and partnerships, including our partnership with Kaluza which is reducing cost to serve, improving speed to market whilst increasing employee engagement and performance. Our Retail Next program will also enable AGL Australia to grow beyond core energy and expand into emerging areas such as EVs, batteries, orchestration and other adjacencies. All of this leads us to our goals, which is to have number one market share, be net zero by 2040 and have the market leading cost to serve. AGL Australia is strategically well positioned to benefit from the energy transition. Value in our core business is driven by scale, efficiency, a trusted brand and value maximization through leveraging our trading book. Our immediate focus will be driving incremental value through efficiency gains, by leveraging our technology platforms, our flexible and renewable asset base and our trading expertise in a more focused and nimbler environment. Over the medium term, as electricity consumption rises via the transition to electric vehicles, the demand for domestic charging infrastructure is expected to grow to AUD 1.5 billion in the next decade, and we want to help our customers connect both in the home and on the road. We want to drive the electrification transition by using our position as a trusted brand and go-to energy specialist, including tapping into the growing solar and battery market. Through strategic partnerships, we want to make participation in the decarbonization journey affordable by supporting our customers with green financing to reduce the burden of upfront capital needs. On the supply side, the NEM could play host to over 78 gigawatts of renewable energy assets and 31 gigawatts of flexible generation and storage by 2030. We will play an active role in this market transformation and we have the customer demand to stimulate growth and investment, expanding our green and flexible portfolio to meet our customers’ needs. Lastly, we aim to drive the evolution, growth and transparency of voluntary carbon markets, alongside industry partners and government agencies. We are creating value by curating an optimal portfolio of assets and contracts for energy and carbon relative to our customer need. While AGL Australia will be Australia’s leading multi-service energy retailer with over 4 million customer services, we come out of the blocks as much more than that. We have flexible generation assets, with our gas peakers and batteries under construction, contracts for the output of renewable assets, like our wind and solar offtakes with Tilt Renewables, and the largest private fleet of flexible and renewable assets, including 780-megawatt hydro-asset fleet. These assets span our customer footprint in 5 states of Australia. But we aren’t just thinking about supply in the traditional large scale generator sense; our customers are increasingly prosumers, participating in the energy mix through their orchestratable assets. Today, we run a leading retailer-led Virtual Power Plant in Australia and we see our customers as an intrinsic part of our supply portfolio in the future. We have a complementary gas contract book to supply our gas customers across the east and west coasts, linked to our electricity portfolio via the leverage of our gas generators on both sides of the country. Alongside our electricity and gas books, we have an established green trading capability, managing national- and state-level renewable energy schemes and carbon offsets for our customers, prepared and poised for our growth in these markets. Taken together, AGL Australia will list as a large scale, fully formed energy and retail market player, equipped with the people, portfolio and passion to connect our customers to a sustainable future. AGL Australia will be a leader in sustainability and impact at scale as a net zero energy business by 2040. Our decarbonization roadmap lists out key milestones towards our net zero targets. From the first day of listing, AGL Australia will be carbon neutral for all Scope 1 and 2 emissions. In addition, we will implement a carbon pricing mechanism to underpin our investment decisions. We will work collectively with our industry partners and government agencies to drive the evolution of the carbon trading market in Australia. By 2030, we aim to reduce emissions by 50% based on FY 2019 levels and underwrite 3 gigawatts of renewable and flexible capacity. We have laid down the foundations by being a leader in renewable and flexible assets, with our carbon neutral offerings on all products, our partnerships with business and commercial customers and our trading positions within the existing carbon markets. As we connect Australians to a sustainable future, we have committed ourselves to a sustainable transformation alongside our customers. We are excited about our commitment to our decarbonization journey and will come back with a detailed climate roadmap later in the year in line with our strategic scorecard and metrics. AGL Australia is poised for growth, and uniquely placed to transition as the provider of choice in a generation shift towards electrification. Enabled by our unique blend of scale, trading DNA and sustainability credentials, we have a strong growth future. Now, back to Marcus.

Markus Brokhof: Thanks, Christine. As you would remember from previous announcements on the proposed demerger, Accel Energy will be characterized by its large, low-cost thermal and wind fleet, backed by a large customer book. It’s primary route for growth will be the Energy Hubs. Since these announcements, we have been forming a holistic strategy to sit around this company architecture, which I will talk to at a high level before going into some more detail on key areas on subsequent slides. For Accel Energy, our purpose will be advancing a new energy future, together, and I’ll come to what that means as I step through this slide. Firstly, it means meeting the challenges and opportunities that the changing energy world presents. Decarbonization, decentralization, digitization, and the changing policies of governments, will all shape the pressures and opportunities that Accel can explore. To address these challenges and opportunities, Accel’s strategy will be to deliver 3 core promises

Graeme Hunt: As mentioned at the beginning, we’ve narrowed the underlying earnings guidance ranges for FY 2022, following a solid first half performance. The expected reduction in second half earnings will be largely driven by increased capacity costs during periods of peak electricity demand, particularly in the summer months, which have risen as wholesale electricity prices have lifted. Additionally, wholesale gas consumption is expected to be lower due to seasonally warmer months in the second half, with haulage and storage costs remaining flat. Customer margin is expected to improve in the second half, reflecting a reduction in commercial solar feed-in tariffs, disciplined margin management and a ramp up of commercial solar projects that were delayed by COVID-19. And, as Damien has discussed, we are well on track to deliver on our targeted operating cost and sustaining capital reductions in FY 2022 and FY 2023, respectively. Importantly, we are well positioned to benefit over the longer term from any sustained recovery in wholesale electricity prices, which will be reflected in earnings as hedge positions from prior periods roll-off. Thank you for your time today and we’ll now open to any questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Tom Allen at UBS. Go ahead, Tom.

Tom Allen: Good morning, all. Just a couple of quick questions on the outlook for Accel Energy, if I may. Just in the presentation today, we’re now only getting 1.5 year outlook on the contracting portfolio for Accel Energy. So be mindful that the smelter contracts are rolling off in the mid-2020s. And also acknowledging that they AEMO’s latest integrated system plan is now pointing to a new key scenario where all coal-fired capacity would be retired in Victoria by the early 2030s. Just given that Accel will have a long energy exposure, can you share some more color on the key risks and opportunities around contracting the existing thermal capacity from Accel, please?

Graeme Hunt: Okay. Thanks. I’ll start, and then throw to Markus for some more detail. I guess, starting in the middle, you have a question around the AEMO ISP, just draw your attention the fact that that’s a draft, you would have seen also quite a lot of comment about, the challenges there of meeting that 2030 indication of closure for coal. We obviously have looked at that. But it doesn’t align at this point in time with our view of how the market will develop. And hence the closure dates that we’ve announced today. I would note, though, that what we’ve also said is that there’s potential for those dates to come forward a few years and that’s why we’ve identified windows for closure. But moving forward, it’s dependent upon the evolution of the NEM over time. And Accel, obviously, we’ll look at that year in, year out and update the market as we a better place to determine how the future the NEM will unfold. Markus?

Markus Brokhof: Yeah, Tom, I think you have identified clearly, Accel is long energy, I think one of the strategic pillars was trading excellence, and growing our customer portfolio that must be in the focus now coming up. We are moving also in the context of the demerger, we are using the largest C&I customers also, or keep them we are not moving them. But we are moving them from customer market to Accel Energy in order to shorten the long position. But you’re right, that need to be a high focus going forward, because at the end of the day, we don’t want to be ending up with a long position in the market.

Graeme Hunt: Tom…

Tom Allen: Okay. Thanks, Graeme, and…

Graeme Hunt: Sorry. Tom, only I think I’d add is just, as you well know, we’re very well positioned in terms of our cost position of generation on the coal side. And so any consideration of if you like the batting order of coal closures would position us well to be more to the back end of the batting order than the front end.

Tom Allen: Thanks, Graeme. Thanks, Mark. It’s just a quick question for Christine, if I may. Just regarding AGL’s investment in overall Australia and the options you have on Ovo’s Kaluza platform that you mentioned a few times in your presentation. Does this require a licensing deal and fee to be great for it to be rolled out across AGL Australia? Or is that already occurred? And can you describe specifically what might differentiate Kaluza from other platforms such as Kraken in Australia?

Christine Corbett: Thanks, Tom. With respect to our investment decision around Kaluza that has actually already been factored into our modeling and being factored into any sort of capital allocation out of existing funds. Where we are with Kaluza at the moment, and look Kaluza is a cloud-native platform, it’s highly modular, and it really gives us the opportunity to have sort of a scalable technology platform. As we mentioned – I think we mentioned this at the full year, it gives us the optionality to build an extend upon, those to meet the challenges or where the energy markables sort of head. Where we are at the moment and what is actually sort of the relationship between ourselves and Ovo Australia is we’re working with them to localize the platform for the Australian market. That actually includes sort of integrating the platform with sort of market data and market technology and ensuring both the customer experience and business processes are compliant with all of the laws and regulations in this country. But importantly, meets the customer’s needs as well. We have actually made really good progress on that over the last sort of 6 months and we look to be onboarding our first customers soon. Your question with respect to sort of what is the same, and sort of what is different to other platforms that are out there. I think for us, what we are really excited about with the Kaluza platform is their ability, particularly in the decentralized energy space and their flex platform for us to really sort of accelerate that capability and rollout in this country.

Tom Allen: Okay. Thanks, Christine. Thanks all.

Graeme Hunt: Thanks, Tom.

Operator: Our next question comes from Mark Busuttil from JPMorgan.

Mark Busuttil: Hi, everyone. I’m just going to few if I may. Firstly, in terms of the debt that you’ve raised for each of the entities ahead of the demerger, specifically, the Accel Energy entity, you previously suggested, you’re going to put AUD 800 million into there and AUD 2.2 billion into AGL. I sort of realized your facilities are going to be more than that. Are you talked about [AUD 1.4 billion] [ph] for AGL? So can you firstly confirm that AUD 800 million is what you plan on putting on in Accel Energy? And also, can you give us a bit of a sense us to how difficult it was to raise that money whether there are covenants associated with it? What the security is and maybe even a sense of the cost?

Graeme Hunt: Will you take that Damien?

Damien Nicks: Yeah, I’ll take that one. So I’ll take a few parts if you like. So, first part of the question is, you’re right, we’ve provided the total facilities to both those businesses, we did that quite deliberately to provide the market just an overarching view of those facilities, which will include both the term debt for Accel, but also the working capital and the margin facilities that business will need. Through the product base, we’ve had really strong support. And that level, slightly for Accel from what we’ve previously and only marginally, but that was supportive of banks. In terms of the actual terms, the terms, what I’d say are in line with standard commercial terms for other ASX-listed peers when you think about expected credit rating. We…

Graeme Hunt: Looks like we might have lost Damien temporarily.

Damien Nicks: Hey, Graeme. I’m getting a lot of feedback…

Graeme Hunt: Yeah, okay. And I just…

Damien Nicks: Apologies, everyone. Unfortunately, the timing hasn’t been good. I’ve ended up in isolation on day results. So I’m doing it from here. But…

Graeme Hunt: Yeah. We’ve lost you again.

Damien Nicks: We’re just talking, Graeme.

Graeme Hunt: Yes, please. And then we might move on that the commentary around the credit ratings is in the pack Baa2 and Baa3.

Mark Busuttil: Okay. The next one is directed at Christine, if I may. You’ve seen 2 consecutive hours of decreasing customer numbers in both electricity and gas. I understand the issues you’ve had with quick energy. But can you maybe elaborate a little bit about what you see going forward? How you would address the decreasing customer numbers? And if you think you’re going to turn that around in the next sort of half or even beyond?

Christine Corbett: Yeah, absolutely. And again, thank you for the question. When you look at the year-on-year unfavorability, and look at it across both customer numbers as well as margin. So let me start with margin, because obviously that’s important for investors. When we look at that average customer demand has been lower as a result of the mild winter, obviously, the higher cost of energy from an increase in solid volumes. But there’s also been margin compression as a result of customers swapping to lower price products. For us, in particular, that’s been as a result of the click customer energy base. We did forecast that and pleasingly when we look at churn in the click customer base. It is actually performing to business case expectations, which is great. When we then look forward, we also though do see that there is increased competition in the market in particular over the last 6 months, and I’m sure that you have all seen that through both decisions from a DMO and VDO perspective, and the various market prices that have flowed. We are balancing, making sure that we are balancing both volume and value, and that has been very deliberate for us. That being said the other commitment that we gave to Markus is that we would be diversifying our product portfolio. And again you have seen the over – what we have done is our Telco customer numbers have grown over the last 6 months. We’ve now got 42,000 customer services under the AGL brand, which is really quite a remarkable performance when you think the short period of time that we’ve been in that market. So probably look, in summary, we have taken action. And you will see a better performance with respect to some of our margin management in the second half, as we have indicated, part of that is obviously, in terms of how we’re looking at managing margin specifically, we’ve looked at solar feed-in tariffs. And we’ve also looked at broadening that portfolio appeal with our multi service offering that is going well. Competitive market churn, as anticipated, but certainly, we’ve taken some decisive actions for the second half.

Mark Busuttil: Okay. And just one more, if I may. Just in terms of the full year guidance, it didn’t really change that tariff much. It’s sort of implying a fairly material drop off. And I understand that you’ve sort of talked about the reasons for that. But maybe you can just elaborate a little bit about, what you refer to as increased cost of capacity to cover periods of peak electricity demand? What exactly you’re referring to that? And, is there a possibility that performing against that?

Graeme Hunt: I might just give a brief overview, and then throw to Markus again. Look, yeah, typically, second half would be softer than the first half and that was in line with our expectations for the full year. We’re sitting here halfway through February, and typically February and March particularly can be very, very volatile. And, we also saw quite warm winter months last year. And so, a prudent forecasting and guidance process would not assume that we’re going to continue what was been an extraordinarily strong best in many years operating performance. And so, we are obviously in a position where we can’t take that for granted. And the most prudent forecasting and therefore guidance approach is that soft the second half. Maybe, Markus, you can elaborate a little bit more on what we meant by capacity cost?

Markus Brokhof: Yeah. In general, it looks a bit strange that we speak about exposure to capacity prices. But at the end of the day, in certain states, we sell off capacity; and in other states, we buy off capacity. And I’m pointing particular to Queensland and New South Wales, where we have to protect our portfolio against volatility and buying caps. And we do this not only with this – on the spot market, but we also protecting our portfolio with net derivative. This has a price. And you’re right, theoretically, we could see further upside if we are not – if we don’t need to buy all the caps in the market for particular now for balance of months and for March that could have an upside.

Mark Busuttil: Perfect. Thank you so much. Really appreciate it.

Operator: Next, we have Peter Wilson from Credit Suisse.

Peter Wilson: Thank you. So the question on wholesale gas margin, I’m not sure, if it should be better directed to Christine or to Markus. But in a rising gas price environment generally we expect AGL’s gross margin to increase are going to does that [something to supply and other products] [ph] I mean periodically profit viewed. So my question is, is there a prospect to see, I guess, higher customer prices in the second half and into next year, and hence an improvement in that wholesale gas gross margin.

Christine Corbett: Sorry. Peter, do you mind just repeating your question we were just getting some feedback. I know it is that gap, but we missed the question. It was just an overlay of feedback if you don’t mind.

Peter Wilson: Okay, hopefully that’s better. Just the outlook for the wholesale gas gross margins, given that there is higher prices in the market?

Markus Brokhof: On the one end, we have said that we are not vulnerable on the side of higher gas prices, because at the end of the day, we have covered most of the demand already in the market in the past. Still we have seasonality in our gas book, particularly the first half, much more stronger the month, July, August and September is, as much higher gas demand. So we have quite a stronger gas reside there. And then, at the end of the day, because we have fixed costs, which are fixed over the year; and then in the second half, we have then less gas sales, and that causes them some seasonality, particularly on the gas side.

Christine Corbett: And probably just to add to that, Pete, look out both our coal supply portfolio and our gas portfolio has not been majorly impacted by the price rallies of what you’re sort of seeing overseas and here, and part of that is due to obviously a very well managed procurement strategy and our risk management position. In addition, if you look at market participants with short positions on green certificates, such as LGC, that have substantially driven up the forward curves for LGC, then that benefits our renewable portfolio. But power prices in the forward markets in the NEM have followed sort of the same trend. It’s been more pronounced in the northern state than in South Australia and Victoria. So look all of that, all sort of said, the gas book is an important part of our customer portfolio. And, certainly, the position that we have the supply contracts that we have in place puts us in a good position to manage volatility on behalf of our customers moving forward.

Peter Wilson: Thanks. Maybe I say it another way, and thanks for your comments, Markus, about seasonality, but I wasn’t referring to that as such. But I like to, Christine, you do have contracts in place, and hence, somewhat of a fixed cost of gas supply understanding the legacy rolls, it’s somewhat fixed. If we look on the sale side spot gas prices are very high, should we expect that to flow through to C&I and other customer pricing? And hence, is there a prospect for the margin that you make to increase given that the market price of gas is going up more than your own cost?

Christine Corbett: Yes. So again, look, as you know, how we actually feed through those cost inputs from a transfer price perspective. We will actually reflect that through the consumer book. And we do that when we actually look at resetting prices on an annual basis, obviously, input costs is a key part of that. From a C&I perspective look it is very competitive. And, again, what we’re actually sort of starting to see in that regard is obviously increased competitive activity and margin pressure for the gas book there. But look on both sides, and Pete, let me just repeat, it is we are in a good position. We have a highly flexible gas portfolio and a supply strategy. We have long-term supply agreements in both the northern and southern markets. And that means that we can continue to make sure that we can meet our customers gas requirements, and we can do so competitively. And that actually sort of means that the margin we make is actually certainly an important part of our EBIT position, and you can see that flowing through the [LFL] [ph].

Peter Wilson: Okay. But it sounds like, so you’re not expecting your wholesale gas gross margin to grow over the coming years?

Christine Corbett: Not materially.

Peter Wilson: Okay. Great. Thank you. I’ll leave it there.

Operator: Next up, we have Max Vickerson from Morgans.

Max Vickerson: Thanks, everyone. Just a quick question for Markus on the structure of the ongoing relationship between Accel and AGL Australia in terms of the offtake in previous presentations, forgive me, I can’t remember exactly when it was. But I believe there’s some discussion around maybe a transparent basket of swap contracts kind of thing that the pricing for that offtake. Is there any more detail you can provide around that among the 3 slabs of contracts you’ve got on that Slide 32 kind of suggests that it’s kind of like a baseload swap type arrangement, but do you want to provide any more detail or how we should think about that?

Markus Brokhof: No, I think you have summarized it perfectly what we can disclose. I think the factor of the price backed up around this offtake agreement is really linked to liquid products. And so it’s at market and it has 10 or 5 years will phase out over time. So there is a decrease in volume over time. But, we are not disclosing more details to this one, because then every competitor can exactly know what we are doing.

Max Vickerson: Fair enough. I just wanted to understand, it was market length and it sounds like that will be, so that’s fine. Just another question really for well, Markus and Christine. What are you seeing in terms of demand side response? Is that playing much of an impact yet in how you guys think about hedging? I know you’ve got the Peak Energy Rewards program, Christine, and the megawatts are now part of the NEM? Is it attracting much interest in it? Has it changed how you contract?

Christine Corbett: Yes, look, when we look at and thank you, we had a peak reward event just this week. We’ve actually now had almost 100,000 customers actually participate as part of that. And, certainly, we see that that is only going to grow. So that would be the first part. The second part, when we start to look at decentralized energy, it absolutely is one of the growth pools that we’ve identified for AGL Australia, that’s going to be in terms of access and uptake to increase solar and battery storage. It’s going to be accessed and uptake to how we actually orchestrate and manage those assets and bring the customers sort of on that journey. And as I also sort of did highlight, we also sort of anticipate this decade between now and 2030, a 23% increase in demand, now with that demand and with that increase in renewables coming into the market, there will be increased volatility. And, I think, how we manage those decentralized assets and how we orchestrate against that demand is going to be important to both manage risk, but also to create value for our customers. So it’s an important part of our strategy. We are absolutely seeing growth in solar. But we are well positioned to manage for that. To that regard, when I say growth in solar, we had approximately 500 gigawatts of solar volume was exported by AGL customers during the first half compared to last year. And that’s actually driven by not only an increase in customers themselves with solar, but also an increase in the average by system. So it’s an important capability that we’ve developed, it’s only going to get more important moving forward.

Markus Brokhof: Maybe a comment on, the VPP has already grown to above 200 megawatt. So that will be in the future contributing much more to the volatility event. I think that’s something which you maybe have also recently seen in Queensland. So we are actively participating in this market.

Max Vickerson: Fantastic. Thank you. And look one final quick lunch for me. With the – sorry, maybe have been disclosed early in the slides. But just wondering what kind of board representation is Accel going to have in AGL Australia? Does that add any governance complications when you have 2 organizations, it will become increasingly independent over time? Does that add any challenges in how you manage the trading positions?

Markus Brokhof: Max, it will not have a Board seat, and there will be no special arrangements in terms of how it deals with its investment.

Max Vickerson: Very clear. Thank you. That’s all for me.

Operator: Thanks, Max. I think we’ve got enough time for one more question. We’ve got Mark Samter from MST Marquee. Go ahead, Mark.

Mark Samter: Yeah. Hi guys. I have 2 quick ones, if I can, please. The first one is, I noticed with the previous DRP that only one director that likes to take the shares, not the cash in that DRP, and no one on the board or executive have bought any stock since even when we touched on towards AUD 5. Can you just give us an indication, and obviously it’s entirely everyone’s right, what they do with their own money? But can you give us an indication that during the demerger process have been restrictions in place on board and executives buying stock because of the information you’re garnering through that? Or it just has been, no one’s chosen to buy any stock?

Graeme Hunt: Mark, there’s really 2 parts to that. One is we have a minimum shareholding policy that applies to executives and the board. And I can confirm that that’s been complied with, or in the process of being complied with directors that have just joined recently, and that ramps up over time. But the point that you just made is very valid, obviously, as we’ve moved through the planning and the assessment of this demerger. Everyone’s had to take a conservative approach in terms of any share trading.

Mark Samter: Okay. Thanks. And then just second question on the balance sheet, I know, you said Accel might be able to take a bit more than AUD 800 million a debt. But if we say it’s around that number, and I presume with the demerger costs, probably not going to generate much positive free cash flow through this half. That would mean about AUD 2 billion of debt is going to end up in AGL Australia and AGL Australia’s first off numbers are down 30% annualized on FY 2020. And that would put it on as long as the splitter corporate cost is the same as you got before that would mean AGL Australia is going to demerge with 4.5 times plus net debt-to-EBITDA. I mean, that sounds personally to me, a crazy level of gearing for a business like that to demergers will talk about growth ambitions. You need money to fund growth ambitions, and at the moment, the business going backwards. So can you tell us what you think is the right level of gearing for that business? Will it stand up soon? And it’d be how you’re thinking about that balance sheet into the demerger?

Graeme Hunt: Yeah, thanks, Mark. We’ll try to see whether we can get Damien online for that. If not, we’ll do it from here. Damien?

Damien Nicks: Thanks, Graeme. Thank you, Mark. Well, I think, Mark, the way thinking about it from the guidance, we’re guiding that we – the customer will be higher in the second half. The other thing I have to think about is total costs overall are reducing and those costs are reducing further with some of the additional cost savings we’re doing into 2023. Weather impacted also had quite a big impact on H1. So I think you’re just taking broad numbers to get up there. The other thing to think about is we see, as you’ve heard from Christine today, real growth into that business and growth into the future. So, yeah, whilst to your point, it might be a bit tight from day one, we’re really confident in the strength in the future outlook for both not only the earnings, but also the debt structure and the balance sheet.

Mark Samter: You think that’s CapEx less growth or that growth does require investment as well?

Damien Nicks: Sorry, Mark, I didn’t hear that question. Apologies.

Mark Samter: I was going to say, would that growth represent normally not much growth comes for free. I presume that growth is going to need a reasonable amount of capital. And this business will be starting with very high gearing even if annualized first half note is not certainly correct and still should be 4 times, where do we think that funding for that growth is going to come from?

Damien Nicks: I think the way to think about the modeling this business is the price that we’re doing today. And the trajectory on today is included in the way we’re thinking about the cash and the cash will spin-off in this business over that point of time. If there is any large M&A, at that point, we would have to consider how we fund that and that would be a decision time for the board and management is the best way to fund that. And if it was obviously clearly accretive, we would then think about how we would come back to market.

Christine Corbett: Just to add that, Mark, obviously, to Damien’s point, we’re thinking about future growth in 2 ways, growth across our existing transition projects and focus areas and that’s actually been incorporated into the modeling and current existing sources of funding, and that’s been allocated as part of the demerger. Obviously, when we look at future growth projects, we will prudently deploy our own capital where we think the returns make sense. But we are also looking at alternate measures to deliver growth through partnerships that will also be part of the AGL Australia growth prospects moving forward. But for any significant M&A where we see that there will be significant value, we’ll determine and the board will determine the required capital and type shouldn’t warrant any investment or equity from the market. But we’ll work with our investors to obviously demonstrate that value.

Mark Samter: Okay, perfect. Thank you.

Operator: Look, thanks, everybody. I know that there are questions still waiting to be answered. We took more time than we’d normally would in stepping through the half year, because there was so much important stuff to talk about in terms about climate and, obviously, progress on the demerger. So we obviously are open to dealing with more questions. I feed those through Investor Relations as normal and we look forward to seeing you all but virtually over the coming days. So thanks very much for your time.