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Business Value Driver

Finance

Access to and management of financial capital to support execution of strategy and investment in growth opportunities through retaining financial market support.

We recognise that prudent financial management is an essential component of preserving and growing value for all our stakeholders. The trust placed in us by financial markets is integral to our ability to fund our operations and invest in new products and services to support our customers and the communities in which we operate.

As Australia’s second oldest publicly listed company, AGL has a long and proud relationship with Australian investors. At 20 July 2020, we had 120,499 individual shareholders, representing primarily everyday Australians either directly or via their super funds, as well as many of Australia’s and the world’s largest pension funds.

We also have longstanding relationships with our lending banks, both in Australia and internationally. We have established a successful bond issuance program in both the US Private Placement and Australian Medium Term Note markets, enabling us to diversify our funding from long-term, competitively-priced sources. AGL has a strong balance sheet and significant liquidity, which are of particular benefit in the current uncertain economic environment. The low gearing ratio, significant headroom and liquidity AGL currently holds means AGL is well positioned to manage through the COVID-19 crisis. As of 30 June 2020, we had over $1 billion in cash and undrawn bank facilities, and material headroom not only to our debt covenants but also within our ratings metrics. We have no bond market refinancings until November.

AGL recognises that capital allocation during a time of a transitioning energy market must be disciplined to ensure that we are creating value for the long-term while protecting ongoing returns. Our four capital allocation principles (refer to page Purpose, Values & Strategy ) continue to underpin our activities.

In August 2019, we announced a return of capital to shareholders via an on-market buyback of up to 5% of issued capital. As at 30 June AGL had purchased $620 million worth of shares, and expects the buyback to be complete shortly.

Dividends were declared for FY20 in line with our dividend policy of paying out 75% of Underlying Profit after tax and franking of 80%. Shareholders received 98.0 cents total dividend for FY20.

AGL has announced it intends to undertake a Special Dividend Program over FY21 and FY22. Under the Special Dividend Program, AGL anticipates paying special dividends of up to 25 percent of Underlying Profit after tax, thereby augmenting AGL’s dividend policy payout ratio of 75 percent to take the effective payout ratio to 100 percent of Underlying Profit after tax over this period. Both ordinary dividends and special dividends will remain subject to Board discretion, trading conditions and the ongoing funding and liquidity requirements of the business. AGL has also announced it expects to reduce franking on dividends to zero in FY21 and FY22 while it utilises historic tax losses. This temporary reduction in franking will enable AGL to return to generate franking credits from underlying earnings as early as the FY23 interim dividend.


Creating value

Delivering shareholder value

Underlying Profit after tax was $816 million, down 21.5% compared with FY19, but consistent with guidance. Refer to the commentary on page Year-on-year movement in Underlying Profit after tax ($m) onwards for further detail.

Return on equity was 10.0%, down 2.5 percentage points. AGL’s total shareholder return in FY20 was -8.6%, compared with -7.8% for the S&P/ASX100 Index.

KPI

FY20

FY19

FY181

FY17

FY16

Target

Underlying Profit after tax

$816m

$1,040m

$1,018m

$802m

$701m

FY21: Consistent with guidance

Return on equity (%)

10.0

12.5

13.1

10.2

8.3

FY21: Consistent with objectives of FY21 LTI

Total shareholder return (%)

-8.6

-1.8

-12.3

42.4

14.8

FY21: Consistent with objectives of FY21 LTI

  1. 1 Restated for adoption of AASB 9 Financial Instruments and AASB 16 Leases.

Portfolio review

The portfolio review reporting for both the Electricity and Gas businesses provides a consolidated margin for electricity and gas across operating segments. This is as an effective tool to present how value is generated in the business. The portfolio review combines the revenue from external customers and associated network and other costs, the costs of the procurement and hedging of AGL’s gas and electricity requirements, and the costs of managing and maintaining AGL’s owned and contracted generation assets to calculate the consolidated margin. A per unit rate ($/MWh for electricity and $/GJ for gas) is derived from each category of revenue and cost using the relevant associated volumes.

The table below is presented in more detail in the Financial Review in section 1.5 in and should be read in conjunction with section 1.7 to reconcile the segmental revenue and costs allocated to each portfolio with Group Underlying EBIT.

Portfolio Reporting Summary to Underlying Profit after tax

2020
$m

2019
$m

Electricity Portfolio

Total revenue

7,172

7,010

Customer network and other cost of sales

(3,312)

(3,067)

Fuel costs

(1,013)

(1,063)

Generation running costs

(716)

(660)

Depreciation and amortisation

(499)

(422)

Net portfolio management

164

191

Electricity Portfolio Margin

1,796

1,989

Gas Portfolio

Total revenue

2,496

2,626

Customer network and other cost of sales

(584)

(575)

Gas purchases

(950)

(1,045)

Haulage, storage and other

(308)

(287)

Natural Gas

(29)

(58)

Gas Portfolio Margin

625

661

Other AGL

Gross margin

44

66

Operating costs

(924)

(883)

Depreciation and amortisation

(224)

(173)

Net finance costs

(179)

(193)

Income tax expense

(322)

(427)

Total Other AGL

(1,605)

(1,610)

Underlying Profit after Tax

816

1,040

Legend

Improving trend and/or satisfactory outcome

Deteriorating trend

Neutral trend

KPI linked to FY20 remuneration outcomes for CEO and Key Management Personnel (page STI approach and outcomes )

Beyond FY20

AGL has been identifying increasing market and operating headwinds for some time, and these have accelerated as a result of the economic impacts of the COVID-19 pandemic. However, AGL is a resilient business with strong cash flows and credit metrics. We are well positioned for challenging economic conditions to endure, and to take advantage of investment opportunities that may arise during the slowdown or as a result of economic stimulus.

More information

The Financial Review (page Financial Review ) outlines AGL’s financial performance for FY20. Full financial accounts are available from page Financial Report .

A summary of performance against AGL's capital allocation principles is available on page Purpose, Values & Strategy .

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