2010 Annual Report

148 Pages·2010·3.15 MB·English

AGL Energy Limited Level 22, 101 Miller St Locked Bag 1837 T: 02 9921 2999
ABN: 74 115 061 37 5 North Sydney NSW 2060 St Leonards NSW 2065 F: 02 9921 2552
www.agl.com.au

ASX statement
17 September 2010

AGL Energy Limited is about to commence dispatch of its Annual Report
2010 and the Notice of Meeting in respect of the Annual General
Meeting to be held on 21 October 2010. A copy of each of these
documents has been lodged with the ASX today.

Paul McWilliams
Company Secretary

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Contents
Introductory pages 1
Divisional highlights 2
Group highlights 3
Our integrated strategy 4
Achievements toward strategies and objectives 5
Chairman’s Report 6
Managing Director’s Report 8
Leadership in sustainable business 10
Our customers 11
Major power generation and upstream gas assets 12
Retail Energy 14
Merchant Energy 16
Investments 19
Upstream Gas 20
Leadership team 22
Corporate Governance 24
Reporting contents 33
AGL Financial Calendar AGL Energy Limited
ABN 74 115 061 375
26 August 2010 2010 full year result and
final dividend announced Annual General Meeting
AGL’s Annual General
10 September 2010 Record date for 2010 final dividend
Meeting will be held
30 September 2010 Final dividend payable
at the City Recital Hall,
21 October 2010 Annual General Meeting Angel Place, Sydney
17 February 20111 2011 interim result and commencing at
interim dividend announced 10.30am on Thursday
21 October 2010.
10 March 20111 Record date for 2011 interim dividend
31 March 20111 Interim dividend payable Front cover
AGL employee Matthew

1 Indicative dates only, subject to change/Board confirmation. Arnott at AGL’s 140 MW
Bogong Power Station
in Victoria.
AGL has major
investments in the
supply of gas and
electricity, and is
currently servicing
more than 3.2 million
customer accounts
across New South Wales,
Victoria, Queensland
and South Australia.
AGL Energy Limited (AGL) is Australia’s leading integrated
renewable energy company and is Australia’s largest
private owner, operator and developer of renewable
generation assets. AGL is taking action towards creating
a sustainable energy future for our customers, our
investors and the communities in which we operate.
The Australian Gas Light Company (old AGL) was formed
in Sydney in 1837. It supplied gas for the first public
lighting of a street lamp in Sydney in 1841 and was
the second company to be listed on the then Sydney
Stock Exchange.
On 6 October 2006, old AGL and Alinta Limited
shareholders approved the merger of old AGL’s
infrastructure assets with Alinta and the subsequent
separation of AGL. This was subsequently approved
by the Federal Court of Australia on 9 October
2006. AGL began trading on the Australian
Securities Exchange on 12 October 2006.
AGL is one of Australia’s top 50 listed companies.
Divisional
highlights
AGL’s Retail Energy business delivered
strong growth in operating EBIT while
the Merchant Energy business performed
well in mild market conditions.
Retail Energy Merchant Energy Upstream Gas
– Gross margin up $71.0 million – Mild winter conditions – Focus for the year was
driven by improved regulatory reduced volumes and on exploration activities
and contract outcomes and wholesale gross margin to increase gas reserves.
from the acquisition of higher and milder summer – Proved plus probable (2P)
value customers. conditions in South Australia gas reserves at 30 June
– Operating efficiency continued and Victoria reduced the 2010 up to 1,578 PJ.
to improve, with net operating benefit from AGL’s generation – Gas sales volumes from
costs as a percentage of and hedge portfolio. ongoing operations increased
gross margin falling from – Fees from AGL’s wind farm 34 percent to 13.7 PJ.
52.4 percent to 49.5 percent. developments continued to
– Decrease in operating EBIT
– Customer accounts increased provide strong returns with was due mainly to the sale
by 45,000 and dual fuel a contribution of $57.0 million. of the Papua New Guinea
customer accounts increased business in the previous year.
to 1.36 million.
$318.7m $386.1m $5.5m
Operating EBIT Operating EBIT Operating EBIT
($million) ($million) ($million)
318.7318.7 318.7 402.8402.8 402.8 102.1102.1 102.1
386.1386.1 386.1
271.72712.676.8227616..78 266.8 331.4331.4 331.4
5.5 5.5 5.5
29.929.9 29.9
20102010 2010
20082020080922000208091022000190 2010 20082020080922000208091022000190 2010 20082020080922000089 2009
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Group
highlights
AGL’s Underlying Profit increased by 13.2%.
30 June 30 June 30 June
2010 2009 2008
$m $m $m
Profit after tax from continuing operations 356.1 718.2 316.3
Profit/(loss) after tax from discontinued operations – 877.9 (87.3)
Profit after tax attributable to shareholders 356.1 1,596.1 229.0
Adjust for the following after tax items:
Significant items (49.9) (1,441.3) (62.6)
Changes in fair value of financial instruments 122.7 251.0 184.6
Pro-forma adjustment – (27.0) (10.0)
Underlying Profit 428.9 378.8 341.0
Increase in Underlying Profit 13.2% 11.1% 4.7%
$428.9m
Underlying Profit +13.2% from 2009
$789.6m $428.9m 95.6 cents 1.0 LTIFR
Operating EBITDA Underlying Profit EPS – underlying Our Lost Time Injury
($million) ($million) (cents) Frequency Rate (LTIFR)
fell again this year,
Divested reflecting the ongoing
EBITDA importance we attach
Continuing
to employee safety
EBITDA
209.0 632.409.0 632.409.0 63.4 428.9 428.9 3.6428.9 95.6 95.6 3.6 95.6 3.6
789.6 789.6 789.6
378.8 378.8 378.8 85.0 85.0 85.0
662.8 7296.762.8 7296.672.8 729.7 341.0 341.0 341.0 78.3 78.3 78.3
2.5 2.5 2.5
1.0 1.0 1.0
2008 2002900820120002900820120009 20102008 2002900820120002900820120020090820210002900820120002900820120002900820120020090820210009 2010 2008 2009 2010
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Our
integrated
strategy
AGL’s integrated strategy provides access
to multiple profit pools and balances risk
between upstream supply of energy and
our customers’ demand for energy.
Upstream supply
(core)

Gas Production Renewable Generation Thermal Generation
Transmission

(non-core)
Gas Electricity
Distribution

(non-core)
Gas Electricity
Retail markets
(core)

Gas Renewables Electricity
Upstream supply Customer energy demand
– Maintain our position as – Focus on managing and
Australia’s largest private growing margins.
owner and operator of – Use our customer base to
renewable energy assets by leverage our upstream
continuing to develop our supply strategy to achieve
existing pipeline of projects. economies of scale.
– Increase direct ownership – Use the benefits from our
of gas to 2,000 PJ (2P) over Project Phoenix to provide
the medium term. our customers with improved
– Increase ownership or control service and more options for
of electricity generation managing their energy needs.
capacity to 6,000 MW.
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Achievements
toward
strategies
and objectives
We said we would deliver Our actual Underlying Profit for the
year was $428.9 million, an increase
Underlying Profit of between
of 13.2 percent on last year.
$390 million and $420 million
We said we would increase Our ownership of 2P gas reserves has
increased during the year from 1,107 PJ
our direct ownership of
to 1,578 PJ – an increase of 43 percent.
gas reserves
We said we would increase Our ownership or control of electricity generation
assets increased from 3,517.7 MW to 3,756.5 MW,
our ownership or control of
with the commissioning during the year of the
electricity generation assets new 140 MW Bogong Power Station, the
and maintain our position as 71 MW Hallett 2 Wind Farm and other generation
assets. We also commenced construction of the
Australia’s leading integrated
132 MW Hallett 4 Wind Farm and announced
renewable energy company our commitment to construct a 67 MW wind
farm at Oakland Hills in western Victoria.
New long-term contracts to supply renewable
energy to the Victorian Desalination Plant, the
Adelaide Desalination Plant, and Melbourne Water
Corporation have made AGL Australia’s largest
seller of renewable energy.
We said we would profitably Our customer accounts increased by 45,000
with our operating costs as a proportion of
grow our customer base
EBIT falling from 52.4 percent to 49.5 percent.
and improve our level of Complaints to State Ombudsmans’ offices
customer service fell from 76 per 10,000 customers to 48 per
10,000 customers.
We said we would continue Our Lost Time Injury Frequency Rate
fell from 2.5 to 1.0.
to improve the safety of
our employees
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Chairman’s
Report
We are confident that
we have the people and
the processes in place to
provide the service our
customers expect, and
to deliver the returns our
shareholders expect.
Mark Johnson Chairman
AGL’s strategy is founded on providing reliable, low emission energy The financial results also include, as a significant item, an
supplies and high levels of service, to all our customers. Pursuing entitlement to a refund of income tax of approximately $89 million.
this strategy involves improving every aspect of our service Amendments to the income tax law in June 2010 allow AGL to
and expanding our portfolio of energy sources within a carbon correct an anomaly in the application of the tax consolidation rules
constrained world. to the merger/demerger transaction with Alinta Limited in October
2006, and we expect to receive the cash refund during FY11. The
We continue to maintain a strong financial position which allows us
tax refund will be sufficient, for example, to fund AGL’s acquisition
to participate in national energy markets. In addition we recognise
of Mosaic Oil NL if that transaction is approved by Mosaic’s
the importance of having our people, throughout AGL, committed
shareholders later this year. A consequence of the tax refund is that
to continuously improving performance, in order to achieve or
it will temporarily deplete AGL’s pool of franking credits, and prevent
exceed operating benchmarks and objectives.
AGL from franking either the final dividend for FY2010 or the
The objective of our strategy is to provide shareholders with interim dividend for FY2011. We know that our shareholders have a
a secure and growing earnings stream. As in past years, this strong preference for receiving franked dividends. Our objective is
strategy has proved successful in 2010. to resume payment of fully franked dividends as soon as we are able
to do so.
Financial results and dividend
The result for the year, an Underlying Profit of $428.9 million, Our customers
was an increase of 13.2 percent on our results for last year; and Our goal is to provide excellent service to all our customers all
approximately $20 million higher than our expectations when we of the time. We have invested heavily in systems to help meet
gave the market our original earnings guidance in October last this goal, and management has devoted great time and effort to
year. As a result, we have been able to increase the dividend to be engaging everyone in AGL in building an organisation centred on
paid to shareholders. The final dividend of 30 cents will bring the meeting customer expectations. Although we still have much work
total dividend for the year to 59 cents – an increase of more than to do, the past year has seen continuing improvements in customer
nine percent on last year’s total dividend. service levels with faster response times and improved call handling
times at our contact centres.
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$428.9 Outlook
million
AGL has a clear strategy
that provides the flexibility
Underlying Profit of $428.9 to adapt to changes in
million, an increase of 13.2% energy technologies,
on our results for last year. market conditions, and
government policies. It has
a strong balance sheet with
many good assets and low
debt levels.
Billing statements have been redesigned to provide more useful Your Board
information and to make them easier to read. This is my last report to shareholders as Chairman of AGL, as I will
be retiring from the Board at this year’s Annual General Meeting
Our Customer Charter has been rewritten to make it shorter
after 22 years as a Director. When I joined the Board of what was
and simpler. It contains a number of promises about the level of
then The Australian Gas Light Company, AGL was a distributor
service our customers should expect from us. Our performance
of gas operating predominantly in New South Wales. It has been
against each of these promises is measured and the results are
my privilege to have served on the Board as AGL has grown and
publicly available on the AGL website and, from next year, in our
diversified to become Australia’s leading integrated renewable
Annual Report.
energy company.
Capital management
The Board has agreed that Jerry Maycock be appointed as the
Michael Fraser, in his Managing Director’s Report, has explained the
new Chairman. Jerry joined the Board in October 2006. He spent
significance of the Renewable Energy Target and its implications for
more than 20 years at Holcim Limited, one of the world’s largest
AGL’s future investment in new renewable energy projects. In the
construction materials companies. He was the Managing Director of
near term, AGL is likely to continue investing in the construction
Hastie Group Limited and, more recently, he was Managing Director
of new wind farms. We are also monitoring developments in other
of CSR Limited until his retirement as an executive in March this year.
technologies, such as solar and geothermal, so we have the flexibility
to make larger investments in these areas as they become more Jerry has very extensive experience in a variety of operating
cost competitive. Notably, AGL has recently been short listed for businesses. He also has experience in investment in large scale long
participation in the Federal Government’s Solar Flagships program. life capital assets. This is all highly relevant to AGL, and all your Board
consider Jerry to be a fine choice as Chairman.
We want to continue to invest in the development of new gas
projects, including gas storage and gas fired electricity generation We have also recently announced that Ms Belinda Hutchinson AM
assets, as these are important in securing AGL’s long-term earnings will join the Board as a non-executive Director before the end of
growth, and in making us less reliant on third party supply contracts the year. Belinda will bring extensive finance industry and public
to provide competitively priced gas to our customers. company experience to the Board. She is currently Chairman
of QBE Insurance Group Limited and has previously served as a
However, investment decisions – never easy – are made more
Director of Energy Australia and Snowy Hydro Trading. We are
uncertain by deficient energy policies, to the extent that investment
delighted that she has agreed to join the Board and we are confident
in new base load electricity generation has been deferred across the
that she will make a substantial contribution.
whole industry.
AGL’s future
Energy policy
Discontinuities in technology development and policy development
Energy policy – or, more precisely, its lack – has been a common
will hamper the rapid evolution of the energy industry but there are
theme in my reports to shareholders over the last few years. It is
inexorable pressures for change. In the future, AGL will be working
abundantly clear that current Federal and State energy policies
with all its customers to help them use increasingly expensive energy
do not provide the private sector with the certainty necessary to
more efficiently.
make the substantial investments required to maintain Australia’s
long-term security of energy supply. The structure of the industry will change as the privatisation of
energy assets in New South Wales proceeds, and as governments
The failure to pass legislation which puts a price on carbon has
inevitably move through the reforms needed to achieve efficient and
created widespread uncertainty across the energy industry and,
nationwide energy markets. The global priorities for energy security
indeed, across all of industry. Until the position on carbon pricing
and carbon constraint will bind Australia’s energy costs and prices
is finally resolved, investors will refrain from making significant
more closely to international pressures.
investment decisions regarding new base load electricity
generation assets. A highly skilled and deeply engaged workforce is essential to achieve
the best outcomes in all these circumstances. On behalf of the
The reluctance of State governments, other than Victoria, to
Board, I congratulate Michael Fraser, AGL’s Managing Director, and
deregulate energy prices has reduced market competition for
all AGL employees for their achievements over the last year. In this
customers and this creates further uncertainty for investors.
evolving energy world, we are confident that we have the people
The removal of retail price regulation in energy markets is
and the processes in place to provide the service our customers
essential to fostering competitive markets and ensuring
expect, and to deliver growing returns to our shareholders.
long-term security of energy supply.
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