Letter from the Chairman
"I am pleased to present AGL’s annual report for the financial year ended 30 June 2020 (FY20)."
Last year, for the first time, we produced our Annual Report in a way that was aligned with the principles of Integrated Reporting, combining discussion and analysis of both the financial and non-financial drivers of sustainable value for our business.
We have continued that approach this year, confident that it provides a comprehensive and cohesive view of our strategy, governance, performance and prospects.
FY20 has been a time of unprecedented challenge for many Australians. The impacts of widespread and severe drought, followed by devastating bushfires and the health and economic effects of the COVID-19 pandemic, have been extreme.
I am proud of AGL’s role in responding to these crises at a time when our customers, and others that rely on us, have been in need.
Working with government, AGL has acted quickly to ensure that we ‘keep the lights on’ for our customers while providing carefully targeted financial support to our customers, employees and communities affected.
During the bushfire season, we acted swiftly to provide support to our customers, our people and the affected communities by providing targeted debt waivers and billing pauses for affected customers and bill credits for AGL customers who were front line volunteers.
I am particularly proud of the way AGL and its people are responding during the COVID-19 pandemic, including by adopting new ways of working with a large proportion of the workforce pivoting to remote working while a number of AGL's people at generation sites continue to work with additional health and safety measures in place so that there is no disruption to customer experience and AGL's operations.
We continue to support our community partners as well as our affected customers through our hardship programs.
As the world continues its response to the COVID-19 pandemic, the full extent of the impact on Australia and its economy remains unclear and energy markets in Australia continue to experience uncertainty and volatility. The impacts on the energy markets to which AGL is exposed, not least wholesale electricity and gas prices have been profound, while many customers are facing levels of hardship that directly impact their ability to pay their bills.
In recognition of the financial stress that our customers are facing as a result of the pandemic, in March 2020 AGL launched its COVID-19 Customer Support Program. The program included access to deferred payments until 31 July 2020 and waiving disconnection and reconnection fees for small businesses forced to temporarily close. AGL continues to provide ongoing payment support options to customers who cannot pay their bills because they have lost their job or business, or because their health has been impacted by the pandemic.
Amid this environment, I am pleased to say that AGL retains a robust financial position from which to continue paying dividends, to maintain the performance of the assets we already have, and to invest in new growth opportunities.
Our strategy remains focused on Growth, Transformation and Social Licence. Ultimately, our goal is to be a leader in multiple essential services, with those services being provided in a carbon-neutral manner. Details of how we are targeting to deliver against this strategy are set out on pages 8-9 of this Annual Report.
Consistent with the above strategy, AGL provided an update on how we are getting on with the business of transition. Our new Climate Statement outlines AGL's target to achieve net zero emissions by 2050, and details five key commitments to help manage carbon risk and reach this target, including:
- offering customers the option of carbon neutral prices across all our products;
- supporting the evolution of Australia’s voluntary carbon markets;
- continuing to invest in new sources of electricity supply;
- responsibly transitioning our energy portfolio; and
- being transparent.
To maintain transparency and accountability for these commitments, AGL has continued to report under the Task Force on Climate-Related Financial Disclosures (TCFD) voluntary disclosure framework and from FY21, we have included carbon transition metrics in AGL's Long-term Incentive Plan for executives.
Disciplined capital management and shareholder returns
As part of the FY19 results last year, the Board announced an on-market buy-back of up to 5% of the company’s issued capital. During FY20, we purchased $620 million in AGL shares and we are on track to complete the buy-back in August.
We have now returned more than $1 billion to shareholders via on-market share buy-backs since FY17.
AGL declared dividends for FY20 of 98 cents per share, including the 51 cents per share final dividend declared with the full-year result, consistent with our policy to target a 75% dividend payout ratio of Underlying Profit after tax. The FY20 final dividend will be payable on 25 September 2020 with a record date of 27 August 2020.
During FY21 and FY22, AGL intends to operate a special dividend program, which will effectively increase the target dividend payout ratio to 100% of Underlying Profit after tax during this period. AGL is not proposing to pay franked dividends during this period while it utilises historic tax losses. It is anticipated that the additional value provided under the special dividend program will help to offset the impact of the loss of franking for shareholders who value franking credits. Both ordinary dividends and special dividends will remain subject to Board discretion, trading conditions and the ongoing funding and liquidity requirements of the business.
Our guidance for FY21 is for Underlying Profit after tax to be in the range of $560 to $660 million, a material reduction on FY20. This is driven by a number of operating and market headwinds (which are accelerating as a result of COVID-19) and which are driving reduced margin in wholesale gas and electricity; further increases in depreciation expense from recent investment in plant, systems and growth; and further COVID-19 cost challenges. Our cash flow and liquidity remains strong and we have material headroom to fund investment and further capital management initiatives.
During the year, AGL undertook a Board performance and skills review facilitated by an independent third party. This helps to ensure that the Board is well placed to deal with the challenges of today and into the future. The review helped to identify future development areas, and also highlighted various areas of strength.
A copy of the Board’s current skills matrix is included in the Corporate Governance Summary section of this Annual Report.
Further details are available online in our annual Corporate Governance Statement.
On 1 July 2020, the Board welcomed Mark Bloom as a new non-executive director.
Mark has extensive experience as a finance executive, including holding positions as CFO and executive directorships at both ASX-listed and overseas listed organisations.
His extensive track record, experience in overseeing global and local finance and IT teams and board experience will be a valuable asset to the AGL Board. At this year’s Annual General Meeting (AGM), Mark will stand for election by shareholders.
As foreshadowed in last year’s Annual Report, after over 11 years’ service, Les Hosking will retire from the AGL Board after this year’s AGM. On behalf of the Board, I wish to thank Les for his commitment and valuable contribution to AGL over many years and wish him the very best for the future.
We were also pleased to welcome four new members to the Executive Team in FY20: Christine Corbett as Chief Customer Officer, Markus Brokhof as Chief Operating Officer, João Segorbe as Executive General Manager, Strategy & Corporate Development and Elizabeth McNamara as Executive General Manager, Corporate Affairs. John Chambers will also be joining the Executive Team in August 2020 as Executive General Manager, Future Business & Technology.
This year our AGM will be held on Wednesday, 7 October 2020. In light of the uncertainty and potential health risks associated with the COVID-19 pandemic, this year we will hold a virtual AGM. Shareholders will have the ability to participate remotely via an online platform or by lodging a directed proxy or direct vote in advance of the meeting. Questions can also be submitted in advance of the AGM.
Further details will be provided in the Notice of Meeting, which will be published in late August.
AGL is continuing to work through the evolving impacts of COVID-19, with a focus on ensuring our customers are supported, our assets continue to operate effectively and at the same time prioritising the safety and health of our people, the environment and the communities in which we operate.