2012 Annual Report to Shareholders
More customers are choosing Australian Power & Gas than ever. This has firmly embedded Australian Power & Gas as Australia's leading independent energy retailer.
Profit After Tax: 63% Increase
Revenue: 58% Increase
Customer Accounts: 69,000 Increase
Since our inception in 2006, each year we have set realistic goals and worked hard to surpass them. It is this approach that will best deliver sustainable growth in revenue, profit and cash flow and move us towards our goal of achieving $1 billion in revenue by 2015.
Looking back at our performance over the 2012 financial year, our results again showed that our strategy is working and delivering growing returns.
Against a backdrop of regulatory change and a period of unseasonally mild weather, Australian Power & Gas was able to continue performing well with good progress on our operational priorities and a strong set of financial results. This has firmly embedded Australian Power & Gas as Australia's leading independent energy retailer.
DELIVERING EXCELLENT FINANCIAL PERFORMANCE
More customers are choosing Australian Power & Gas than ever before. We pride ourselves on offering customers a simple pricing structure that delivers savings, while also providing a higher standard of service than our competitors. This saw us end the 2012 financial year with 341,000 billable customer accounts (up from 272,000) across Victoria, New South Wales and Queensland.
This growth in customer numbers, drove continued increases in revenue and earnings, with underlying profit after tax up 63% to $6.1 million. Revenue grew 58% to $364.8 million, slightly below our early expectations, caused by the mild weather conditions affected energy usage. In our key market of Victoria, average electricity usage was 5.4% below the previous year and gas usage fell by around 9.4% below the prior period. Cold winter conditions in May and June 2012, led to a recovery in usage levels towards the end of the financial year.
Customer acquisition continued to be expanded in the New South Wales and Queensland markets, with over 55,000 accounts added. Growth in Victoria was maintained with over 14,000 accounts added. At the end of the year, 66% of customer accounts were located in Victoria. Approximately 62% of customer accounts are for electricity supply, with the remainder gas.
Outside of these numbers, importantly, we never forget that success comes only when customers choose to reward us with their business. Customers always have a choice, and for us that means serving them with a set of products and service that meet their needs better than anyone else.
Australian Power & Gas has a formal customer complaint level below the market average and was a founding member of the Energy Assured Code of Conduct designed to improve standards across the energy industry's use of door-to-door channels.
This combination of savings and great customer service has been a driving force behind our growth since inception, helping to build loyalty amongst existing customers and attracting new customers.
These strengths have proved durable in tougher economic conditions. At a time when customers are facing pressure on household budgets, we have found that many are more prepared to consider switching their energy retailer to get a better deal. So we're sensibly investing in areas that play to our advantage and create more reasons to choose Australian Power & Gas.
INVESTING IN INNOVATION
We have diversified our sales channels to reduce channel risk. This is particularly important given we operate in an energy market that ranks among the most competitive in the world. During the year we signed a long-term agreement with Salmat, one of Australia's leading customer communication companies, to create a new sales channel alongside Appco who remain our main channel for acquiring customers. We have also developed plans to launch an internal based sales channel to support our existing door-to-door teams.
Additionally, we have expanded the number of telemarketing and web-switching channels to ensure we are well placed to continue acquiring customers through non door-to-door methods. As a result of these initiatives, we now operate 12 sales channels.
Alongside more channels, we are also innovating to improve our customers' experience. During the year we rolled out the use of iPads with industry-leading applications across our door-to-door teams. This technology provides customers with an accurate real-time energy quote and ensures they are given a more professional experience than they would otherwise receive.
We plan to introduce electronic billing and online account management and we are particularly excited by the potential for Australian Power & Gas to be at the leading edge within the retail energy market in the use of technology.
Our ability to invest in areas of advantage, such as technology, is underpinned by a strong focus on efficiency. We have continued to ensure we stay flexible on administration and operational costs that reflect the growth of our customer base. Reflective of this, staff numbers have increased from 72 to 89.
During the year we funded our growth largely from operating income. This was a key objective of the Board at the start of the year in order to ensure shareholders were not diluted and did not have to inject further equity. The benefits of scale are now also flowing through. We were able to grow our customer base by 69,000 over the 2012 financial year.
Cash receipts from customers increased 41.5% to $342.8 million, and net underlying operating cash flow for the year was $22.3 million, up from $1.8 million the previous year.
This strong improvement in cash flow reflects the scalability of our platform. We expect the upward trend in cash receipts to continue as cold weather at the beginning of the fiscal year 2013 increases energy consumption.
During the year we continued to refine our hedging portfolio to match the needs of our growing customer base. Electricity hedges in Victoria and New South Wales, the key growth areas, were reworked to achieve lower cost outcomes. As the business builds we expect to be more active in our wholesale price and volume risk management to achieve the best possible margin.
In the gas markets our team manages the long-term contractual arrangements on a daily basis to ensure costs are minimised. High demand in the early winter 2012 months saw high spot prices. We were well protected against these movements by the various mechanisms we use, such as the use of gas storage facilities and liquified natural gas.
The 2012 financial year has proved challenging in relation to the regulatory environment as we prepared for the introduction of the Federal Government's Carbon Pricing Scheme.
In New South Wales and Queensland, the respective state governments continue to have a hand in setting market prices, unlike Victoria where there is no price regulation. The pricing determinations for fiscal 2013 in New South Wales and Queensland have made trading conditions difficult in those states. As a result, we anticipate that Victoria will continue to act as the major source of growth in the coming year.
On top of the Carbon Pricing Scheme, as has been widely reported, distributor costs are also escalating significantly in the eastern States. The expansion of electricity networks to meet residential lead demand has fuelled claims of "gold plating" in the mass media. Whether or not this view is correct, the cost of distribution upgrades and expansion is having an impact on consumers energy costs.
Australian Power & Gas are actively involved in the consultative processes with State and Federal Government's and we firmly put forward the view of our customers that all increases in costs being passed through to consumers need to be justified and explained in a clear and transparent manner.
Looking ahead, with a focused strategy that has a clear plan and consistent set of priorities, we are confident in the long-term growth opportunity for the business. Our goal is to achieve $1 billion in annual revenue by 2015.
To achieve this, we believe there is significant potential for value creation in the retail energy marketplace in which we operate. Increasingly there are a variety of different ways in which we can grow including adding more customers and selling more products. We are also looking to enter other unregulated markets to leverage our expertise and customer base.
Finally, I would like to thank all our team for their commitment, energy & creativity over the past 12 months, and for the contribution that they make to our success every day.
Chief Executive Officer
View the complete Australian Power & Gas Annual Report 2012 at the link below:
Australian Power And Gas Company Limited