Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation...

39
19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker will make to investors in Australia, Asia, the United Kingdom and the United States over the next three weeks. Peter Jans Group General Counsel & Company Secretary ERM Power Limited

Transcript of Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation...

Page 1: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

 

 

19 November 2013

Investor roadshow presentation

Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker will make to investors in Australia, Asia, the United Kingdom and the United States over the next three weeks.

Peter Jans Group General Counsel & Company Secretary ERM Power Limited

Page 2: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Investor Roadshow

19 November 2013

Page 3: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Important notice - disclaimer.

2

DisclaimerThis presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of ERM Power Limited (ERM Power) and certain plans and objectives of the management of ERM Power. Such forward-looking statements involve both known and unknown risks, uncertainties, assumptions and other important factors which are beyond the control of ERM Power and could cause the actual outcomes to be materially different from the events or resultsexpressed or implied by such statements. None of ERM Power, its officers, advisers or any other person makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of any forward-looking statements or any outcomes expressed or implied by any forward-looking statements. The information contained in this presentation does not take into account investors investment objectives, financial situation or particular needs. Before making an investment decision, investors should consider their own needs and situation and, if necessary, seekprofessional advice. To the maximum extent permitted by law, none of ERM Power, its directors, employees or agents, nor any other person accepts any liability for any loss arising from the use of this presentation or its contents or otherwise arising out of, or in connection with it.

Non-IFRS informationThis document may contain certain non-IFRS financial measures and other defined financial terms. The directors believe the presentation of certain non-IFRS financial measures is useful for the users of this document as they reflect the underlying financial performance of the business. The non-IFRS financial measures include but are not limited to:• EBITDAIF - Earnings before interest, tax, depreciation, amortisation, impairment and net fair value gains / losses on financial

instruments designated at fair value through profit and loss and gains/losses on onerous contracts.• Statutory NPAT - Statutory net profit after tax attributable to equity holders of ERM Power unless otherwise stated. • Underlying profit or Underlying NPAT- Statutory net profit after tax attributable to equity holders of ERM Power after excluding the

after tax effect of unrealised marked to market changes in the fair value of financial instruments and impairment.The above non-IFRS financial measures have not been subject to review or audit. However, the Company’s auditors, PricewaterhouseCoopers, have separately undertaken a set of procedures to agree the non-IFRS financial measures disclosed to thebooks and records of the consolidated entity.All reference to $ is a reference to Australian dollars unless otherwise stated. Individual items and totals are rounded to the nearest appropriate number or decimal. Some totals may not add down the page due to rounding of individual components.

Page 4: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

3

The Objective.

• Well-positioned, fast-growing Australian energy business

• Strongly differentiated customer proposition that has led to steady business sector market share growth – 0 to 7.5% in six years

• Expanding into small business market segment and developing complementary business lines including metering

• Macquarie Generation offers opportunity to become the 4th pillar – a significant, integrated generation and retailing business

• Board and management have highly disciplined approach to acquisitions

To become the 4th pillar in the Australian energy market

Page 5: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

4

Section 1 – Introduction to ERM Power

Page 6: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Our business in a snapshot.

5

Australia's 4th largest electricity retailer, with significant generation development and operating expertise

• Ownership interest in, and operator of, two low emission gas-fired peaking power stations− Oakey (100%1) in Queensland− Neerabup (50%) in Western Australia

• Operator of the 320MW Kwinana baseloadpower station in Western Australia

• Australia's 4th2 largest electricity retailer, licenced to sell electricity in all Australian states and the ACT and Northern Territory

• Electricity supply exposure is hedged by using owned or contracted generation capacity and derivative contracts

• Targeting business customer market− Large businesses− Small businesses

• Conventional and unconventional exploration and production tenements in Western Australia and New South Wales

• Exploring options for the business, including potential demerger

Notes:1 Financial close on acquisition of the remaining 16.67% interest in Oakey expected prior to end of CY20132 Based on ERM Power’s forecast league table for volume of electricity sold in the National Electricity Market for FY2013. The analysis draws on 2011 SRES scheme liability data, ERM Power signed contracts and broad assumptions about the market and participants. This is not an independently verified forecast

• Since inception, ERM Power has developed >2,600MW of generation and has a further >2,000MW approved for development

Page 7: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

0

10

20

30

40

50

60

70

80

90

1.00

1.50

2.00

2.50

3.00

3.50

Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13

A$m

Sha

re p

rice

(A$/

shar

e)

Underlying EBITDAIF¹ ERM Power S&P / ASX 200 (rebased to EPW)

72.4% TSR since listing Solid growth in underlying earnings Rated no. 1 in customer satisfaction2

Forecasting 28% growth in FY14 electricity sales Early wins in the small business space

Delivering growth.

6

Strong earnings and dividend growth since IPO with increasingly diverse customer type and geography

Notes:1 Earnings before interest, tax, depreciation, amortisation, goodwill impairment and net fair value gains / losses on financial instruments designated at fair value through profit and loss. Excludes significant items2 Utility Market Intelligence (UMI) survey of retail electricity industry by independent research company NTF Group in 2012 (17th year of Survey). Research based on survey of 495 business electricity customers between November 2012 and January 2013. Five major electricity retailers benchmarked

Page 8: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

National Energy Market structure.

7

Customers

Hedge counterparties1

Note:1 Providers of financial hedges to electricity price movements

Generators Transmission and distribution

ElectricityCash paymentCash settled hedge contracts

Australian Energy Market Operator

ERM SalesPool price

Pool price

Bilaterally agreed contract price

Network charge

• Delivery under physically deliverable electricity sales contracts occurs by purchasing electricity from spot market to meet obligations under sales contracts

• ERM Power manages exposure by entering into a variety of non-deliverable electricity derivative contracts

• ERM Power has agreements with generators and intermediaries such as investment banks

Page 9: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Sales strategy.

8

• Business customer market accounts for around 70% of Australia’s total electricity market by load

• The larger retailers are focussed on mass-market customers, providing an opportunity for ERM Power to capitalise on its superior customer service and efficient operations

Business customer market

Size of market 1(TWh) ~150

ERM Power Market Share

> 7.5% (from 0% six years ago)

Note:1 ESAA 2013 annual report

Why target the business market?

ERM Power targets the business customer market and has organically grown market share to >7.5%

Small business expansion underway

• Gross margins in small business segment can be five times higher than in large business segment

• Opportunity to set a new standard for small business customer service

• Natural path to the small business market

− Many large business customers have small sites that ERM Power can now supply

− Many brokers who bring large customers to ERM Power also represent small businesses

Small business sales growth

11,500 customer sites contracted

Over A$150m of forward sales contracted

More than 0.5TWh over three years contracted

Rapid growth since commencement of small business offering on 1 July

Page 10: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Demonstrated risk management.

• Daily exposure to spot market tightly managed with no major losses since electricity sales business started in 2008

• This six year track record has tested ERM Power’s risk management with significant events including the GFC, two major floods and a major cyclone in Qld, and severe heat waves and bushfires in Victoria, NSW and Western Australia

• The most significant adverse daily event was ~$500,000 in November 2011 and the most significant favourable daily event was ~$1.4 million in January 2013

ERM Power's accuracy in forecasting, monitoring and hedging customer electricity consumption enables effective risk management

-60%

-40%

-20%

0%

20%

40%

60%

80%Two Year History of Unexpected Spot Earnings

<------------------------------------FY2012--------------------------------------><------------------------------------FY2013----------------------------><-----FY2014---

% o

f dai

ly r

even

ue

9

Page 11: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Track record of growing sales.

10

0

5

10

15

20

25

30

35

40

45

FY2009A FY2010A FY2011A FY2012A FY2013A FY2014F FY2015F AGLFY2013A

ORGFY2013A

TWh

Electricity Sales - All Segments

ERM Power

Source: ERM Power, Origin Energy and AGL Energy FY2013 annual reports and ERM Power forecasts

ERM Power has delivered a 50% CAGR in electricity sales between 2009 and 2013 and is forecasting continued growth in FY2014 and FY2015

Page 12: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Embraced by large business.

11

0

5

10

15

20

25

FY2009A FY2010A FY2011A FY2012A FY2013A FY2014F FY2015F AGL FY2013A ORGFY2013A

TWh

Electricity Sales – Large Business Segment

ERM Power

Source: ERM Power, Origin Energy and AGL Energy FY2013 annual reports and ERM Power forecasts

ERM Power is among Australia's largest and most successful large business electricity retailers

AGLFY2013

Page 13: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Diversified national business.

12

Increasingly diverse sales mix by customer and region reduces business risk

Sales (GWh) by Industry Type Sales (GWh) by Region

26%

23%31%

20%

Goverment, Healthcare & Education

Manufacturing & Heavy Industry

Retail, Property, Tourism & Primary Industries

Mining & Major Infrastructure

FY2014FFY2013A

41%

24%

23%

6% 3% 3%

QLD NSW VIC TAS SA WA

35%

31%

24%

5%3% 2%

As at September 2013

Page 14: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

13

44%

9%

8%

7%

7%

ERM Power

Retailer D

Retailer B

Retailer C

Retailer A

% of customers “very satisfied”

Leader in customer satisfaction.

• Best in class customer service, as demonstrated by superior customer satisfaction rating

− ERM Power customers are five times more likely to be “very satisfied”

• Proprietary IT system which is difficult for competitors with established systems to replicate

− ERM Power billing accuracy exceeded 99.8% and billing collection rate exceeded 99.98%

• Tailored offering to large customers

ERM Power outranks its competitors in customer service and satisfaction

Note:1 Utility Market Intelligence (UMI) survey of retail electricity industry by independent research company NTF Group in 2012 (17th year of Survey). Research based on survey

of 495 business electricity customers between November 2012 and January 2013. Five major electricity retailers benchmarked

Page 15: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Capability in generation.

14

ERM Power has developed 6 power stations, representing ~5% of Australia's generation capacity

Neerabup, WA (2009)

Kwinana, WA (2008)Uranquinty, NSW (2008)

Oakey, Qld (1999)

Braemar, 1 Qld (2006)

Braemar, 2 Qld (2009)

Page 16: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Generation portfolio.

• Oakey (332MW) Peaker (100%1)

− Outstanding availability and reliabilityAvailability2 99.2% & Forced Outage Rate2 0.02%

− Inspection reaffirmed excellent condition

• Neerabup (330MW) Peaker (50%)

− Outstanding availability and reliabilityAvailability2 98.2% & Forced Outage Rate2 0.05%

− WA electricity market improvements created potential for additional revenue

• Kwinana (320MW) Baseload

− ERM Power operates this asset for others− Outstanding availability and reliability

• Development

− Opportunities affected by demand – ERM Power is not currently progressing its development projects

− 2000MW of development approvals in hand for future

15

Oakey Power Station - Queensland

ERM Power currently operates three and owns interests in two power stations in Australia

Neerabup Power Station – Western Australia

Note:1 Financial close on acquisition of remaining 16.67% interest in Oakey expected prior to end of CY20132 IEEE Standard used for calculation of Availability and Forced Outage Rate

Page 17: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

0

10

20

30

40

50

60

70

80

90

FY2009 FY2010 FY2011 FY2012 FY2013

$ m

illio

n

Earnings growth trajectory.

16

ERM Power's underlying business profitability since 20091

ERM Power has continued to deliver strong earnings growth

Note:1 Earnings before interest, tax, depreciation, amortisation, goodwill impairment and net fair value gains / losses on financial instruments designated at fair value through profit and loss. Excludes significant items. Profits from the power development business and other discontinued activities have been excluded

Page 18: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

17

Section 2 – Strategic rationale for an acquisition of Macquarie Generation

Page 19: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Background to the process.

18

• In November 2011, the NSW Government (State) announced it would sell State Owned Corporations engaged in the generation of electricity, including:

− Macquarie Generation (MacGen);− Eraring Energy (including generation trading agreements);− Delta Electricity; and− the electricity generation development sites at Bayswater B, Munmorah and Tomago

• The State announced the sale of Eraring Energy and Delta Electricity's Western power stations in July 2013

• Subsequently the State confirmed its intention to proceed with the sale of MacGen and the power station development sites, and has commenced a formal sale process

Background to the

transaction

ERM Power participation

• Stage 2 of the sale process commenced at the beginning of November 2013

• ERM Power was shortlisted and is now undertaking detailed due diligence which is expected to take a number of months

• Any acquisition will be consistent with ERM Power's strategy

• Board and management will be disciplined in approach to value

• Funding structure remains to be finalised

ERM Power has been shortlisted for the second stage of the sale process for Macquarie Generation

Page 20: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

MacGen owns two of the largest, and among the lowest cost, baseload power stations in Australia

MacGen overview.

19

• Owner of Liddell and Bayswater power stations in the Upper Hunter Valley of New South Wales− two of the largest and lowest cost

baseload power stations in NSW with a combined capacity of 4,640MW

• Supplied c.13% of east coast Australian electricity in FY2012

Note:1. Refer to appendix for further detail on MacGen assets

SYDNEY

NEWCASTLENEW SOUTH

WALES

Page 21: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Strategic rationale.

20

MacGen is low cost capacity that would enhance ERM Power's position as the 4th pillar of the Australian energy market

1

MacGen would provide long term, low cost electricity product

MacGen offers the opportunity for ERM Power to accelerate growth

2

MacGen would provide substantial vertical integration benefits3

Page 22: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

The next growth platform.

21

An acquisition of MacGen would assist ERM Power in accelerating electricity sales growth

Lower cost to serve

Ability to offer

extended contract

tenor

Increased market

visibility

• After an acquisition of MacGen, ERM Power would be well positioned to offer a more competitive offering − reduced hedging costs− improved working capital position

• The ability to offer longer term contracts will expand the pool of potential customers vs ERM Power on a standalone basis

• ERM Power commenced a successful marketing campaign for its electricity sales business in 2012, aiming to increase brand recognition

• An acquisition of MacGen would be expected to further improve perception of ERM Power's standing in the market, and potentially increase access to non-brokered loads

MacGen Energy Supply vs ERM Power Demand Forecast (TWh)

0

5

10

15

20

25

30

FY2013A FY2014F FY2015F

TWh

ERM Power Business Energy sales

Tomago Offtake

MacGen FY2013 Generation

Page 23: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

MacGen is critical for NSW.

22Source: Australian Electricity Market Operator ('AEMO') 2013 Planning Study – Existing Generator Technical Data Summary – based on variable operations and maintenance, emissions intensity and fuel cost estimates

MacGen represents a low cost supply of electricity to underpin ERM Power's electricity sales growth

NSW electricity merit order

- 1,900 3,800 5,700 7,600 9,500 11,300

SR

MC

Cumulative capacity (MW)

- 2,000 3,900 5,700 7,500 9,400 11,300

SR

MC

Cumulative capacity (MW)

Bayswater Liddell

Bayswater Liddell

Mt Piper Eraring Vales Point B

Wallerawang BTallawarra RedbankSmithfield

Colongra GT

Colongra GT

Mt Piper EraringVales Point

B

Wallerawang B

Tallawarra

Smithfield

Redbank

Short Run Marginal Cost excluding carbon (FY2014)

Short Run Marginal Cost including carbon (FY2014)

- 2,000 4,000 6,000 8,000 10,000 12,000

- 2,000 4,000 6,000 8,000 10,000 12,000

Page 24: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Vertical integration benefits.

23

• ERM Power is required to provide prudential credit support to the Australian Energy Market Operator (AEMO) and other counterparties− this is achieved via bank guarantees and cash collateral

• An acquisition of MacGen would provide ERM Power with the ability to offset these prudential obligations

Adding baseload generation to the ERM Power portfolio would be expected to reduce AEMO and hedge prudential requirements

Reduced prudential

requirements

Natural hedge

• Physical dispatch capability provides a natural hedge, reducing the financial hedge position required to manage the risk of the Electricity Sales business

• This will reduce costs associated with hedging and hence improve profitability

Optimisation over value

chain

• Improved ability to maximise total return across generation and sales through adjusting dispatch

• Elimination of the opposing risk between generators and retailers

• Diversification of ERM Power’s value creation and risk mitigation opportunities

Page 25: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

24

Acquisition criteria.

• As Australia's 4th largest buyer and seller of electricity, ERM Power routinely assesses generation acquisition opportunities

• In the last three years, ERM Power has assessed numerous opportunities and proceeded with just one: Oakey

• ERM Power has no set targets to own generation, however generation, at the right price, can increase financial returns for shareholders

• An acquisition of MacGen would only be undertaken if it were materially EPS accretive

• ERM Power's targeted capital structure and refinancing strategy is aimed at obtaining an investment grade rating in the medium term

Page 26: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

25

Conclusion.

• Fast-growing business model –continuing to pursue growth, into small business market and other business lines including metering

• MacGen represents an opportunity to increase financial returns and gain vertical integration benefits

• Board and management will be disciplined in any acquisition

Page 27: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

26

Appendix A – Review of 2013 results and outlook for 2014

Page 28: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

ERM Power corporate overview.

27Note:1 As at 15 November 2013, pro-forma for shares to be issued as a result of the share placement announced on 18 November 2013

ERM Power is committed to delivering high quality and flexible services to business energy customers

• ERM Power is a dynamic energy company with interests in in electricity sales and generation and gas production and exploration

• Trading as ERM Business Energy and founded in 1980, ERM Power has grown to become the 4th largest electricity retailer in the National Electricity Market with operations in every state

• ERM Power aspires to be the preferred energy supplier to business customers across Australia

Key metrics1

ASX code EPW

Shares on issue 238.7m

Share price A$2.71/share

Market capitalisation A$647m

Shareholders1

35.9%

2.7%

61.5%

Trevor St Baker

Other directors

Ordinary shareholders

Page 29: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Continued to deliver in FY2013.

28

Record electricity sales and NPAT1 in FY2013

Notes:1 Underlying NPAT is Statutory NPAT attributable to equity holders of the Company but excludes the impact of unrealised changes in fair values of financial instruments and onerous contracts, which best reflects the ongoing performance of the business2 Excludes significant items including the costs of the Neerabup contractor arbitration, depreciation adjustments, entering the small business market and staff rationalisation in FY2013 and the one-off discount on acquisition in FY2012

A$ million (unless noted) FY2013 FY2012 % change

Revenue 1,569.6 918.8 +71%

Discount on Acquisition - 19.8 -

EBITDAIF 69.8 85.4 -18%

Underlying EBITDAIF2 78.4 70.1 +12%

Statutory NPAT 36.5 34.2 +7%

Underlying NPAT1 15.7 30.3 -48%

Underlying NPAT ex. significant items2 20.0 13.9 +44%

Interim Dividend (cps) fully franked 5.0 4.0 +25%

Final Dividend (cps) fully franked 5.5 4.5 +22%

FY2013 full year results

Page 30: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Strong growth in forward sales.

29

28% growth in forward contracts for FY2014

-

2

4

6

8

10

12

14

16

FY2013 FY2014

TWh

Actual Sales (FY2013), Forecast Sales (FY2014)

Contracted sales(FY2013 @ 01 November 2012, FY2014 @ 29 October 2013)

+28%

+28%

Electricity Sales Growth Forecast FY2014 forecast sales substantially contracted

FY2014 forecast sales are 28% higher than FY2013 actual load

− ERM Power has a track record since IPO of meeting projected sales targets

− high degree of visibility and confidence in FY2014 uncontracted GWh

Total contracted sales of 21TWh over FY2014 and FY2015

Small business sales starting to get traction, now at 11,500 sites

Page 31: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

FY2014 outlook.

30

FY2014 EBITDAIF guidance of A$79 – $86 million confirmed

A$ million FY2014 Forecast FY2013 Actual

EBITDAIF 79 – 86 69.8

Underlying NPAT 23 – 261 15.7

Investment A$ million

Small business – finishing development of single site capability 3.0

Complementary metering offering – leveraging existing customers 2.0

Complementary gas offering – leveraging existing customers 1.0

Assessing new generation opportunities 1.0

Total ~7.0

This guidance includes ~$7m investment to enhance retailing capability and assess generation opportunities (details below)

Note:1 Includes expected impact of the buyout of the remaining 16.67% of Oakey Power Station as announced on 18 November 2013

Page 32: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Balance sheet strength to support growth.

31

A significant proportion of ERM Power's debt is recourse to its power stations, which are supported by contracted revenue from the WA Government and AGL

Note:1 Restricted cash deposits substantially support ERM Business Energy’s AEMO and Hedging Prudential requirements2 ERM Power plans to repay the outstanding Oakey term debt with the proceeds of the share placement announced 18 November 2013

Cash A$ million

Free cash 94.9

Restricted cash1 120.5

Total cash and equivalents 215.4

Debt A$ million

Electricity sales working capital facility 59.1

Electricity sales environmental certificate financing 36.4

Term debt – recourse to Oakey Power Station2 38.9

Term debt and convertible notes – recourse to Neerabup Power Station 204.5

Total debt 338.9

Net cash position after

excluding non-recourse project debt

As at 30 June 2013

Page 33: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

32

Appendix B – Overview of Macquarie Generation

Page 34: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Bayswater power station.

33

Overview

• Baseload generator, producing enough power to supply 2.0 million average Australian homes in recent years

• Commissioned in 1985, with current remaining technical life exceeding 20 years

• Nameplate capacity of 2,640MW (4 x 660MW)

• Black coal fired, consuming c.7.5Mtpa

• World leading availability and production level performance

Operational summary

1. Sources: MacGen public filings, including 2012 Annual Report, 2012 / 2013 Statement of Corporate Intent and New South Wales Auditor-General's Report, Financial Audit, Volume Four 2013 – Focusing on Electricity. Select data from FY2013 not yet publicly available as 2013 Annual Report has not been released

Australia's second largest power station with 2,640MW capacity

FY20101 FY20111 FY20121 FY20131

Production (GWh) 15,176 13,661 15,770 15,555Coal consumption (Mt) 7.2 6.6 7.5 naAvailability (%) 92 93 88 85Equivalent forced outage (%) 3 3 5 na

Page 35: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Liddell power station.

34

Overview

• Baseload generator, producing enough power to supply 1.25 million average Australian homes in recent years

• Commissioned in 1971, with current remaining technical life out to 2022

− appropriate upgrades and maintenance could extend to 2032

• Nameplate capacity of 2,000MW (4 x 500MW)

• Black coal fired, consuming c.4.0 – 5.5Mtpa

Operational summary

Low cost baseload generator with 2,000MW generation capacity

FY20101 FY20111 FY20121 FY20131

Production (GWh) 9,394 7,763 8,764 6,307Coal consumption (Mt) 4.8 4.0 4.3 naAvailability (%) 72 70 73 57Equivalent forced outage (%) 22 21 22 na

1. Sources: MacGen public filings, including 2012 Annual Report, 2012 / 2013 Statement of Corporate Intent and New South Wales Auditor-General's Report, Financial Audit, Volume Four 2013 – Focusing on Electricity. Select data from FY2013 not yet publicly available as 2013 Annual Report has not been released

Page 36: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Coal and water supply.

35

• Competitively priced, long term coal supply in NSW contracted until 2026 to meet approximately 85% of MacGen's expected operations

• Coal is supplied by nearby coal mines including Wilpinjong (Peabody Energy), Mt Arthur (BHP Billiton) and Mangoola (Glencore Xstrata)

• MacGen situated in Hunter Valley “energy corridor” with access to long-term coal delivery infrastructure via rail and conveyor

MacGen has secure supply of key inputs

Coal supply

Water supply

• MacGen has aggregate water allocations of c.100,000 ML per annum, in excess of the long term average requirement of 72,000 ML per annum for the operation of its power stations (based on 80% capacity factor for Bayswater and Liddell)

• This water is extracted from the Hunter River system and stored in MacGen'sdams – Plashett Dam and Lake Liddell. MacGen also extracts water from the Barnard River to meet any shortfall from the Hunter River system. This water is transferred to the Hunter River system and stored in Glenbawn Dam for use when required

Page 37: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

MacGen customers.

36

• Approximately 1/3 of MacGen's output is sold to Tomago Aluminium under a long term electricity supply contract

− contracted until 2028, with a formulaic repricing point in 2017

− Tomago Aluminium is a joint venture between Rio Tinto Alcan, Gove Aluminium Finance Ltd (CSR and AMP) and Hydro Aluminium and accounts for c.25% of Australia's primary aluminium capacity

• The remainder of MacGen's output is sold into the National Electricity Market (NEM), with a proportion of the spot pricing risk managed via hedge contracts with ERM Power and other retailers and market participants

A significant portion of MacGen's output is sold to Tomago Aluminium under long term contract

Retailers

Customers

NEM / AEMO

MacGen Other counterparties

Contract price

Pool price

Pool price

Tomago Aluminium

Contract price

ElectricityCash paymentHedge contract

Network

Network charges

Network charges

Page 38: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

Carbon price.

37

The newly elected Coalition Government has stated that dismantling the carbon tax remains a priority

• The Australian Government introduced a carbon pricing mechanism from 1 July 2012

• The newly elected Coalition Government has introduced draft legislation to repeal the carbon tax, with a target date of 30 June 2014

• ERM Power expects that the proposed repeal of the carbon tax would provide stimulus to electricity demand, which would be positive for wholesale electricity prices

Page 39: Investor roadshow presentation - ERM Power · 19 November 2013 Investor roadshow presentation Attached is a presentation which ERM Power Managing Director and CEO Philip St Baker

38

More Information:

Garry WestCorporate Communications ManagerEmail: [email protected]: +61 7 3020 5165Mobile: +61 457 140 650Website: www.ermpower.com.au