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Economic
AGL Energy Limited 16
Ongoing profitability
Introduction to ongoing profitability
In a capital constrained environment, shareholder
returns as measured by underlying profit are increasingly
important. Continued focus on its integrated business
strategy will position AGL to deliver growth in
coming years.
Approach
AGL retails gas and electricity to residential, small business,
commercial and industrial customers. The cost of supply fluctuates
with movements in energy prices. AGL’s integrated business strategy
balances risk between upstream supply of energy and customer
demand for energy.
Vertical integration provides AGL with a natural hedge against
energy price movements, while providing access to multiple profit
pools. Horizontal integration through operating across the National
Electricity Market provides further diversification of earnings
streams. Benefits flow through to customers in the form of lower
energy costs and to shareholders in the form of dividends resulting
from diversified sources of income and improved quality of earnings.
This approach is known as the AGL integrated business strategy.
Vision for ongoing profitability:
AGL’s vision is to have
an industry leading earnings profile based on sustainable
business practices.
Drivers:
Delivery of AGL’s integrated business strategy has a direct
influence on the underlying profit result and on other financial
performance indicators. Optimisation of performance in the
three business areas of Merchant Energy (electricity generation),
Upstream Gas and Retail Energy is addressed on pages 17 to 19.
Performance
AGL delivered an Underlying Profit of $482 million for
FY2012, representing an 11.8% increase compared to the prior
corresponding period. This result was within the guidance range
of $470–$500 million issued to the market on 21 October 2011.
The underlying profit was largely driven by strong Merchant and
Retail results. Retail results were strong due to higher customer
numbers and growth in gross margin per customer. Merchant
results benefited from no repeat of FY2011 severe weather events
combined with strong portfolio performance across electricity,
gas and eco-markets.
On 23 October 2012, AGL announced a guidance range of
$590–640 million for FY2013.
AGL shareholders were paid dividends totalling 61 cents per share
for the full financial year FY2012, an increase of one cent per share,
or 1.7%, on the FY2011 dividend.
In FY2013, AGL will be targetting total shareholder return to
provide a more comprehensive measure of ongoing profitability.
Underlying Profit
0
100
200
300
400
500
$million
FY09
FY10
FY11
FY12
Target
FY13
600
700
Legend
Actual
Target