Managing Director & CEO’s Report
"AGL’s strong FY20 result reflects the stability and sustainability of the business during a period of significant upheaval across our markets and in the communities we serve."
Managing Director & CEO
I’m proud that we’ve delivered a step change in many of our key metrics on customers, our people and the community, while continuing to deliver returns for shareholders. Our performance is a testament to our strategy and our people.
Fundamental to that performance is our purpose, Progress for life, which we launched at the start of the year, and our refreshed values, Care in every action, Integrity always, Better together, Deliver your best and Shape tomorrow.
On this foundation, we have established strategic priorities of Growth, Transformation and Social Licence. These have guided us through the challenges of the COVID-19 pandemic, the summer bushfires and the drought. They have also provided the framework through which we have delivered growth in total services to customers, reliable and resilient generation output, improved reputation measures, and consistently strong dividends.
AGL has continued to protect and transform our business, while at the same time providing our people, customers and the community with the support and certainty they need to navigate our rapidly changing environment.
A resilient business with solid FY20 performance
AGL’s Statutory Profit after tax was $1,015 million, up 12 percent on FY19 as a result of a positive non-cash movement in the fair value of financial instruments. Underlying Profit after tax, which excludes these movements in fair value and Significant Items, was $816 million, down 22 percent, in line with the guidance range we provided in August 2019. The principal drivers of the decrease in profit were the unplanned outage at AGL Loy Yang in the first half, reduction in gas sales volumes, lower wholesale electricity and large-scale generation certificate prices, and increased depreciation and amortisation expense. AGL's cash flow and financial position remain strong, with net cash flow from operating activities after interest and tax up 35 percent to $2,156 million during the period. This strong cash flow has enabled us to undertake $620 million of on-market share buy-back during FY20 and announce our intention to pay special dividends in FY21 and FY22 while we temporarily remove franking from dividends while AGL recoups historic tax losses.
$816mUnderlying Profit after tax
$2,156mOperating cash flow
Our role in keeping the lights on and gas flowing for millions of homes and business, as well as vital services including hospitals and medical facilities, is critical for Australia and Australians. These essential services are backed by resilient electricity generation and I’m pleased we have maintained our resilient generation output while adapting to COVID-19 requirements. This strong result is testament to our diverse portfolio. We delivered higher year-on-year output from AGL Macquarie, while the Silverton and Coopers Gap wind farms also offset decreased generation arising from the unplanned outage at AGL Loy Yang and lower generation from Victorian hydro assets due to bushfire impacts and severe drought conditions.
Our growth agenda has continued with the acquisitions of Southern Phone Company and Perth Energy, and our grid scale battery projects in New South Wales and Queensland remain on track. Our ongoing business transformation has delivered savings of over $135 million of recurring cost savings over the last two years from systems investment and other efficiency programs funding growth and transformation programs in the business.
Running an essential services business requires a strong safety culture to manage the significant operational and personal safety risks that many of our people experience every day.
I’m pleased that this year we have decreased our combined employee and contractor total injury frequency rate, and that the majority of our injuries were of low or moderate severity. However, any injury of an AGL person or contractor is not acceptable. There is more that we can do to ensure that everyone who works at AGL can go home at the end of the day safe and well.
AGL’s ambition to be a leading multi-product retailer
We now provide 3.95 million total services to customers, serving approximately 28% of Australian households as well as a large business customer portfolio that is once again growing.
Our market-leading responses to the crises Australians have endured, along with our continuing investment in digitisation and customer experience, have been instrumental in the increase of 78,000 energy services to customers over the year and taken our Net Promoter Score into positive territory at +2.3 for the first time ever. It is also a clear demonstration of how we seek to embed our social licence priority and the needs of our customers in everything we say and do.
We are also responding to our customers’ demand for services relating to decentralised energy resources such as residential batteries and electric vehicles, and for carbon neutral products.
By the end of FY21 a carbon neutral option will be available on all AGL products – be they electricity, gas or telecommunications – giving all of our customers choice for the cleaner and more sustainable options many are seeking when it comes to their essential services.
We have improved access and digitisation of our services through our Customer Experience Transformation systems investment between FY17 to FY19, provided swift and appropriate support measures for our customers experiencing hardship, and diversified our product offerings into broadband and phone services. We are well positioned to become one of Australia’s leading multi-product retailers.
Well positioned for future headwinds
The crises of FY20 have reinforced that we need to continue to embrace and accelerate change and innovation in order to evolve as an organisation, drive transformation in our industry and deliver the high standard of essential services the community requires.
Our vision for Australia’s energy future is that it will be affordable and smart, and delivered from renewable sources that are backed by the flexible energy storage technologies that come together to power our homes, businesses and vehicles. Importantly, it will be low-emissions based.
AGL is in a unique position to contribute to this future and make a meaningful impact on Australia’s decarbonisation. Not only do our coal and gas-fired generators ensure Australia’s lights remain on, they provide the financial strength for AGL to progress the transition and deliver against our Climate Statement.
In the shorter term, FY21 will be a year of considerable uncertainty as we navigate the COVID-19 pandemic and its economic impact. Market and operating headwinds to AGL’s margin continue to grow from the maturing of lower cost gas supply contracts and extreme falls in wholesale prices for electricity and renewable energy certificates. In addition, depreciation expense will again be higher following the completion of recent capital investment programs and insurance, regulatory and compliance costs continue to rise. COVID-19 will lead to higher customer net bad debt expense and potential increased operating costs to ensure safe and reliable continued operation at AGL’s generation plant.
Despite the ongoing upheaval in national and global markets, and the increased headwinds expected in FY21, we remain committed to delivering our strategy. Against each of our strategic priorities of Growth, Transformation and Social Licence we have defined 4-year targets against which we will report and track our progress.
We have now set a number of targets for growth and transformation in our business including for customer numbers, products per customer and digital customer interactions, as well as for the ongoing transition of our energy supply portfolio to more flexible and decentralised capacity (see page 8 for more detail). These targets complement the carbon transition metrics we announced with our Climate Statement in June.
Through the delivery of our strategic priorities and our targets, AGL will evolve to meet our ambition to be Australia’s leading essential services provider and play a leadership role in Australia’s energy transition, while all the time responding to the needs of our customers.
Our investments in firming technology such as batteries and the Barker Inlet Power Station, and in the development of renewables such as Australia's largest operational wind farm at Coopers Gap, diversify our portfolio, increase our flexibility and put downward pressure on electricity prices for our customers. At the same time, they also respond to the risks and opportunities of climate change.
As we continue to get on with the business of transition this diversification and innovation will continue.
As we look to delivering value for FY21 we are considering how we can support broader efforts to lift Australia’s economy as it recovers from the impacts of COVID-19. AGL has several high-quality large-scale projects in the works, the development of which will support job recovery and economic stimulus. We also have the expertise and the workforce to deliver this - be it at our coal plants or wind farms, at our trading desks or on the phone to customers. AGL people are in a unique position to contribute to Australia’s economic recovery and energy transition.
Thank you for reading this report.