Contemporary Financial and Integrated Reporting

Introduction and Business Operating Activities

AGL is Australia’s top integrated energy business that has been operational for over 180 years. It is a proud heritage and one of the country’s mainstays of innovation. AGL runs the largest portfolio of private electricity in Australia, with its total of 10,413 MW in output accounting for 20% of electricity that the country’s National Electricity Market generates. The company ventures in electricity and gas wholesale markets with a market base of 3.7 million customer accounts, ranging from small to large wholesale and business customers. AGL operates across the energy value chain by delivering energy to customers and markets. It electricity generation portfolio encompasses thermal generation, which involves black and brown and gas as well as storage and renewable.

AGL also operates gas production facilities and gas storage infrastructure. It provides billing capabilities and customer services through billing platforms and contact centers. Part of its operations involves representing its customers in the management of energy procurement risks through market hedging and trading. The company also facilitates the delivery of distributed energy services and solutions to its customers, and looking to expand its growth opportunities in this line of business, following the growing convergence of data and energy streams. AGL operates in the energy industry, which comprises all economic activities associate with the generation, supply and distribution of gas and electricity to end users. The customers (end users) of the energy industry include Australians who depend on the industry’s output for their day-to-day consumption.

AGL’s line of business is highly competitive which makes it a rival of many companies in the energy industry. The company is focused on providing superior customer experience on a consistent basis to meet the changing customer needs and create long-term value. Some of its top competitors include Origin, Energy Australia, Alinta Energy, Dodo, True Value Solar, Hydro Tasmania, Snowy Hydro, WestSide, Active Stream, and Simply Energy. These companies are listed in a pecking order, with Origin taking the top spot. Primarily, Origin is considered one of OGL’s leading rivals. It has been operational for about two decades only and headquartered in Sydney, New South Wales. It operates in the Multi-Utilities industry and generates about 62% of the revenues earned by AGL.

Finances and Financial Performance

In 2019, AGL’s principal activities comprised operations of energy investments businesses. Some of their activities included gas storage, electricity generation, and the sale of gas and electricity to wholesale, residential and business customers. AGL’s principal activities did not face any significant changes during the year. AGL adopted both AASB 16 Leases and AASB 9 Financial Instruments to reshape its financial structure. The following table (Table 1) provides a summary of the adjustments made against all individual line item within AGL’s Group Financial Performance as well as the Summary Statement of Financial Position. The following table outlines the company’s profits in 2019:

2019 ($m) Restarted 2018 ($m)

Statutory Profit after tax 905 1,582

Adjust for:

 Significant items after tax

 National Assets gain on divestment (37)

 Residential Solar operations impairment 38

 Proceeds from Yandin wind farm development rights 5

 Sunverge impairment 27

 Active Stream gain on divestment (29)

Loss/(gain) on fair value of financial instruments after tax 139 (562)

Underlying Profit after tax 1,040 1,018

In 2019, AGL’s Statutory Profit after tax was $905 million, marking a $677 million drop from the 2018 tally. This record included two items cut out of the company’s underlying profit. AGL’s also incurred a loss on its financial instruments in 2019 with its $139 million value failing to make even a quarter of what it gained in 2018 ($562). The net loss showed a negative movement of fair value in AGL’s net derivatives of sold electricity given the higher forward prices of electricity. In addition to that, the loss also demonstrated a negative movement of fair value in AGL’s purchased coal and oil derivative contacts caused by lower prices of coal and oil. AGL accrued a net value of $4 million from impairments and divestments.

It gained $1,040 million in underlying profit after tax to mark a 2.2% increase from the 2018 tally. This result coincided with a surge in the price of its shares as shown in the table below:

2019 ($m) Restarted 2018 ($m)

Earnings per share on Statutory Profit 138.0 cents 241.2 cents

Earnings per share on Underlying Profit 158.6 cents 155.2 cents

Earnings before Interest and Tax (EBIT)

2019 ($m) Restarted 2018 ($m)

Statutory EBIT 1,472 2,464

Significant items (10) 3

Loss/gain on fair value of financial instruments 198 (803)

Finance income included in Underlying EBIT 4

Underlying EBIT

Assets: PPE and Intangibles

As of June 30, 2019, AGL’s total assets amounted to $14,821 million to record an increase from $14,633, which was its stand at the same time 2018. This increase also reflected the surge in the fair value of derivative assets of energy that are owned on contract and margin calls from those of 2018. The rise was also reflected on other current assts. In addition to that, the combined rise in PPE (Property, Plant and Equipment) and intangible assets reflected AGL’s higher capital expenditure in 2019. The following table shows the records of both 2018 and 2019 records of PPE and intangible assets:

2019

 

Plant and

Equipment ($m)

Right-of-use plant

and equipment

$m

Other ($m)

Right-of-use other ($m)

Total ($m)

Balance at 1 July 2018, net of accumulated depreciation and impairment

6,463

6

94

194

6,757

Reclassified to intangible assets

(450)

-

-

-

(450)

Additions

756

-

-

17

773

Disposals

(15)

-

-

-

(15)

Depreciation expense

(459)

(1)

(2)

(15)

(477)

Balance at 30 June 2019, net of accumulated

depreciation and impairment

6,295

6

94

196

6,588

Balance at July 1, 2018

Cost (gross carrying amount)

8,895

11

109

261

9,276

Accumulated depreciation and impairment

(2,432)

(5)

(15)

(67)

(2,519)

Net carrying amount

6,463

6

94

194

6,757

Balance at June 30, 2019

Cost (gross carrying amount)

8,672

11

109

278

9,070

Accumulated depreciation and impairment

(2,377)

(6)

(17)

(82)

(2,482)

Net carrying amount

6,295

5

92

196

6,588

In 2019, AGL had some property, plant and equipment under construction, with its financial records showing that this category of PPE accounted for about $793 million, marking a significant growth the 2018 tally, $684 million. In 2019, AGL’s valuation of intangible assets also reflected its remarkable financial performance. For example, about $450 million worth of software was reclassified under intangible assets. The following table gives a snapshot of AGL’s financials in intangible assets in 2019:

2019

 

Goodwill ($m)

Software

$m

Licenses ($m)

Other ($m)

Total ($m)

Balance at 1 July 2018, net of impairment and amortization

2,881

-

311

179

3,271

Reclassified from PPE

-

450

-

-

450

Additions

-

177

-

-

177

Disposals

(15)

-

-

-

(15)

Amortization expense

-

(124)

(7)

(12)

(143)

Balance at 30 June 2019, net of accumulated impairment and amortization

2,866

503

304

67

3,740

Balance at July 1, 2018

Cost (gross carrying amount)

2,882

-

311

258

3,451

Accumulated impairment and amortization

(1)

-

-

(179)

(180)

Net carrying amount

2,881

-

311

79

3,271

Balance at June 30, 2019

Cost (gross carrying amount)

2,867

1,072

311

258

4,508

Accumulated impairment and amortization

(1)

(569)

(7)

(191)

(768)

Net carrying amount

2,866

503

304

67

3,740

Accounting Policies

AGL’s 2019 annual report showed some changes in the company’s accounting policies. One of the areas that the changes targeted was de-designation of groups of disposal that were previously held for sale. On August 25, 2017, AGL agreed to put on sale its gas assets in North Queensland to a Shandong Order Gas Co. Limited-Orient Energy Limited consortium. The transaction had to conform to some conditions precedent to the sale process, with regulatory approval being one of them. Since these conditions were unmet, the sale process was ceased and announced to the public on January 31, 2019.

As a result, the gas assets in North Queensland became de-designated as put up for sale effective January 31, 2019 because AGL did not find another buyer for the property. Despite the change in classification of this property, the sale process is valid. The non-current assets of the gas assets in North Queensland have a nil carrying value. Primarily, this record is caused by the previous impairment losses. Another set of accounting policies that changed was associated with financial instruments used by AGL to record its financial activities. For example, AASB 9 Financial Instruments took the place AASB 139 Financial Instruments: Recognition and Measurement (AASB 139). This move was intended to mesh the three features of accounting - hedge accounting, classification and measurement, and impairment.

Besides of hedge accounting, which was prospectively applied by AGL, the company used AASB 9 retrospectively by resetting the comparative data for the financial period starting from July 1, 2017. These changes were extended to the measurement and classification of financial liabilities and assets. AGL groups its financial liabilities and assets under four categories pursuant to AASB 9. 

Reference for AGL Annual Review Report

AGL. (2019). 2019 Annual Report. AGL.

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