BUACC5932 Corporate Accounting Online Tutoring

AGL Energy Limited- Introduction, Operational business activities and its key financial performances

Main business of the AGL and Its Business units

The core business activity of AGL are the activity of energy enterprises and capital investment which include production of power and storage of gas and these gas and electricity are sale to people who live in resident, extensive customer and industrial. No major changes were present in the key business activities of AGL for the annual year 2019.

AGL operates its business in four main business segments:

Wholesale markets

It consists of electricity and gas wholesalers. So, this includes Eco markets, too. These markets are accountable for assessing the price risks in gas and power energy in order to supply customers and handle the responsibilities of AGL about schemes of renewable energy. Wholesale markets also monitor and track the product which is related to portfolio of energy evading goods.

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Customers markets

This includes the portfolios of households and large business customers and its other role is to sell electricity, coal, solar and any other energy-efficient goods or services to its customers and residential properties. Consumer market sometimes rely on wholesale market as it produces energy at transfer price. The other function includes product invention, sales distribution, marketing, brand and the operational activities.

Group operations

It comprises of product portfolio of AGL’s electricity production processes across the thermal, Renewable, Natural Gas and other business units at its key sites.

Investments

It comprises of capital investments of AGL in different projects.(AGL Annual Report , 2019).

Industry outlook

The industry in which AGL is operating is Utilities and it is the second largest company in terms of costumer accounts (3.7 Mn) and market share (21.2%) in the utilities industry. Its core opponents are, Energy Australia, Ergon energy and Origin energy. Currently, Origin energy is leading with the market share of 28.1 % (The largest energy companies in Australia, 2020).

 

Sources of funding

The internal sources of finances for AGL are cash in hand, disposal of assets and cash it generates when it receives payments from its customers.

The external sources of finance for AGL are equity and debts. It generates equity investments through individual shareholders. It had 114,217 individual shareholders which include both primary and ordinary shareholders. Most of the shareholders had super funds or they invest through major pension funds. AGL usually generate debt investments or loans from banks. It also maintains bond disbursement schemes in both the United States preferred stock and Australian Medium-Term Note markets, enabling enduring or competitive market financing  (AGL Annual Report , 2019).

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Crucial components of Financial Performance reported by the AGL in the annual report

The main foundations of financial performance for this year:

  • AGL maintained a sound balance sheet consistent with the Moody’s Baa2 credit ranking, with a leveraging of approximately 23 per cent at 30 June 2019 and ample clearance entering the 2020 fiscal year.
  • AGL is consistent with its dividend policy as it maintains dividend of 2 cents per share just like last year. Moreover, AGL ‘s dividend policy aims to establish a payout ratio of 75% of the primary annual income after tax and an 80% franking lowest. Total dividends declared at 781 Mn dollars for the year were 1.8 per cent greater than in the previous year, in line with AGL ‘s growth in profit.
  • In Fiscal year 2019 AGL divested non-essential assets completing the sale of a Portfolio of smaller generations and compressed natural gas (CNG) refueling resources, known as the portfolio of AGL’s Nationwide Resources. The gain on this divestment for AGL was 37 Mn dollars.
  • AGL has continued to ensure that the shareholder value of all the projects it undertakes as part of its investing strategies is additionally positive. This comprised of 388 Mn dollars in investment to spending on development and transformation. It included investing in the Barker Inlet power plant, upgrading to Loy Yang A and Bayswater power plants, completing our Customer Experience Management program and transitioning to our enterprise resource planning (PT3) system.
  • AGL has redeemed subordinated notes worth 650 Mn dollars for 11 June 2019 making use of cash reserves and current debt settlements. A buy-back of on-market shares was announced for FISCAL YEAR 2020

(AGL Annual Report , 2019).

The accounting policies which were changed and disclosed

To reflect the incorporation of these new standards, AGL introduced AASB 9 Financial Instruments and AASB 16 Leases and reaffirmed comparative figures for 2018. In addition, AGL also implemented AASB 15 Revenue from Customer Agreements which had no such material effect in accounting books  (AGL Annual Report , 2019).

 

Assets

Property, Plant and Equipment

The net book value of PPE is 6,588 Mn dollars which consist of four elements, Right-of-use plant and equipment of 5 Mn dollars, plant and equipment of 6,295 dollars, right of use other of 196 Mn dollars, and other items (land, buildings and leasehold enhancements) of 92 Mn dollars.

The accounting policy, that is AASB 116 or IAS 16, used for property, equipment and plant is expenses based less accumulated depreciation and cumulative loss of dysfunction. Costs include expenses directly attributable to acquiring or constructing the asset. Finance costs associated with purchasing or building eligible properties are capitalized. Cost also include those gain or loss which arises when plant and equipment are transferred through cash flow hedges of foreign currency purchases. AGL used the straight-line method of depreciation for PPE where percentage of wear and tear is same through out the useful life of an asset. The approximate useful lives, residual value and depreciation method is checked where it is appropriate, and it is adjusted at the end the reporting period.

The following estimated years, which life of an asset, have been used for assets in property, plant and equipment while calculating depreciation:

  • The estimated life of freehold building was 50 years.
  • The lease period in PPE was 50 years.
  • The estimated life of plant and equipment was 50 years.

In addition, at the end of the fiscal year, AGL checks the net book value of property, plant and equipment, so that it would decide whether there is a chance that such assets had an impairment loss. If some such evidence occurs the asset’s recoverable amount is estimated for the degree of the impairment loss (if any). Furthermore, the impairment loss was combinedly accumulated with depreciation so that’s why there is no specific amount given for impairment loss in annual report of AGL (Australian Accounting Standards Board, 2019).

 

Intangible assets

The net book value of complete Intangible assets is 3740 Mn dollars which consist of four intangible assets namely, software of 503 Mn dollars, Goodwill of 2866 Mn dollars, licenses of 304 Mn dollars and others of 67 Mn dollars. Goodwill and other intangible assets like licenses seem to have unspecified life so their carrying value will be of significant value due to their indefinite life period. AGL allocated these intangible assets in cash generating unit so that impairment would be tested. The accounting policy (AASB 138 or IAS 30) of intangible assets is such that when it is acquired so it is primarily calculated at cost. The cost of an imperceptible asset attained in a combination of company is its fair value as of the acquisition date. Intangible assets are carried at cost less any accumulated amortization and impairment losses following initial recognition. The useful life of intangible can either be finite or infinite. Indefinite intangible assets are evaluated for impairment, at least annually. If there is a possibility of loss of the intangible assets so finite intangible assets are amortized over their expected useful life and are checked for impairment. The method of amortization and expected useful life was examined at the close of the reporting period. Thus, in order to calculate the intangible asset individually the following useful lives are used:

  • Three to twenty years were allocated for client relations and agreements
  • Three to seven years were allocated for software
  • the smaller of certificate period and asset useful life for licenses

Furthermore, AGL determines whether, at least semi-annually, goodwill and other intangibles with indefinite useful lives are impaired. It includes an evaluation of the symptoms of damage and an approximation of the retrievable volume of money generated units using a diminished valuation formula of operation which is related to goodwill and intangibles with infinite expected life. The impairment loss was combinedly accumulated with depreciation so that’s why there is no specific amount given for damage loss in annual report of AGL for intangible assets

 

Research area (CSR)

Communities and relationships

AGL is involved in different activities of public policy development. They want to inform their shareholders that they are following government processes and policies just like they introduced the online channel named “The Hub”. The main purpose of this channel is providing energy knowledge or the information regarding how the energy industry works to Australians. AGL invests in the communities they work in through local recruitment, local job opportunities, a coordinated network of investments in community   and opportunities to volunteer with charitable or community-based organizations for AGL employees. The community contribution for the FISCAL YEAR 2019 was 4.5 Mn dollars  (AGL Annual Report , 2019).

 

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