Essay Sample on AGL Energy Australian Company

AGL is an Australian company that leads in gas and electricity retailing. The company began 180 years ago and its commonly known for providing power, gas, solar PV, gas, and other related services and products to more than 3.6 million small business customers and residents across New South Wales.

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Price History of AGL energy

In Australia, there are more than 20 different energy providers, but only tow companies have the largest market share as compared to the rest. The companies include Origin and AGL. In this review, we will make a comparison of their electricity plans and how it is distributed across Australia (Downes, 2019). Over the years, AGL has made changes, particularly to the Savers Home system plan. While this plan has notable discounts on how the customers use electricity, the company gave guaranteed cuts instead of the conditions of making the customers paying bills on time. In South Africa for instance, the deductions were increased from 4% to 7% and reduced in Victoria from 23% to 18%. However, the plan had a bonus for customers that use the Amazon Echo Smart home system.

The positive movement of the Price share

The statutory profit of AGL after paying a tax of $1,587 million when compared to the previously paid a fee of $ 539 million shows a decisive move into the value of the financial instruments even after experiencing a negative fair change prior (AGL, 2018). After the tax, the underlying profit minus the movements of the fair value went up to 28 percent ($1,023 million). In the upper half but under the AGL guidance range, the company's profit ranged from $ 940 million to $ 1,040 million. The underlying principle of this increase reflected in their company's earnings, particularly the Wholesale Markets business unit.

This is because it increased the depreciation cost and decreased the customer business units across AGL. Examples of the favorable price shared in June's 2018 financial year include; after paying tax the company had a statutory profit of 194 percent ($1, 587 million). It also had 242.0 cents of earnings per share which was a 201 percent rise. The net cash attained through its operation in the same year was $2,134 million. As a result, it had a total dividend of 80 percent franked (117.0 cents per share) and a return on equity on an increase of 2.8 percent points.

Dividends

In 2018, AGL declared a final dividend of 53.0 cents per share under the 80 percent franked. As reported for FY18, the final dividend was payable by September 2018 after the recorded date in August. The un-franked component that had not been paid was derived from the conduit foreign income but not subjected to the dividend particularly for non-Australian shareholders (AGL Energy FY17, n.d). The dividend reinvestment plan for AGL operated in regards to the FY18 final profit. AGL filled this gap by purchasing the shares on the market to satisfy the DRP but not at the cost of the arithmetic of the shares trade.

FY19 business and guidance Optimization Program

The underlying Profit of AGL expected after tax during their financial year of 2019 lies between $970 million to $1,070 million. This also includes the $ 120 million profit benefit even after the operating cost is reduced to mitigate the intensity of the increased competition in customer markets. The optimization program is the broader part that targets a return of the FY17 operating cost under the FY21 cost levels through normal trading conditions.

Limitations

In Australia, there are 1.7 million customers that rely on the big three energy retailers whose aim is to drive their big profits. Their long-term loyal customers who never ask for discounts usually switch the retailers The Australian consumer commission and competition's 369 page report showed a weak spot that the big retailers used their customer and incumbency case to their advantage but failed to retain the smaller retailers from attaining the more significant foothold in the market (The Australian Government, n.d). The strategies set in the dynamic market have made companies like AGL to lose money due to the discounted contract. Even though the amount was paid due to the long-serving loyal clients that always maintained to one retailer the losses were pegged for future use particularly after the renewal of the contract (Ludlow, 2018).

Based on a report released by the financial review, large players like Origin, Energy Australia and AGL which control approximately 20 percent of the country's market share also had a blanket ban due to the acquisitions of other companies (Kent & Mercer, 2006). In South, Australia AGL was forced to offer hedge contracts meant to spur the competition provided by the market due to the dominant players. The regulation of energy also had heftier powers due to the manipulation of the potential market. For instance, AGL itself sank approximately 6.5 percent after the market digested the recommendations of ACCC. AGL also had negative reviews when Origin Company dropped its prices by 3.6 percent (Macdonald-Smith, 2018).

As a result, over 1 billion dollars was wiped off AGL's market value by Origin. Moreover, AGL also experiences other issues in the electricity market because the customers were keen with the recommendations thus ending up responding in ways that benefited them. AGL also had limitations to the market price risks unless they were up in place to manage dividends, cash flow, and profits. To facilitate this, the company monitored exposures such as the electricity's generation and retailing load by observing their earnings stress testing and limits of the portfolio (King, 2016). The company also observed its contract exposure, customer demand, and production risks of oil and gas due to the gas portfolio aspects exposed to the oil price risks by using the stress and sensitivity test analysis based on the limits.

Conclusion

AGL, as elaborated, is an international company that leads in gas and electricity retailing. One hundred eighty years ago the company opened its doors by providing power, gas, solar PV, gas and other related services and products. Throughout the years AGL experienced the positive movement of the price share and generated millions of profits throughout its operations. However, several limitations were also encountered. The company showed a weak spot by using their customer and incumbency case to its advantage but failed to retain the smaller retailers from attaining the more significant foothold in the market. As a result, AGL experienced financial losses and stiff competition

References

AGL Energy FY17 Interim Results - agl.com.au. (n.d.). Retrieved from https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/results-centre/2017/ir17-interim-results-presentation.pdf?la=en&hash=3A7828EC4D7541D4F2A8134134BA375B397C1AD0

AGL (2018). Retrieved from https://www.agl.com.au/about-agl/media-centre/asx-and-media-releases/2018/august/agl-fy18-results-and-fy19-earnings-guidance

Australian Competition and Consumer Commission. (n.d.). Retrieved from https://treasury.gov.au/publication/portfolio-budget-statements-2013-14/portfolio-budget-statements-2013-14/australian-competition-and-consumer-commission/

Downes, S. (2019, January 03). Electricity Price Changes | January 2019 Update - Canstar Blue. Retrieved from https://www.canstarblue.com.au/electricity/electricity-price-changes/

Ludlow, M. (2018, July 12). How Origin, AGL and EnergyAustralia rip off loyal customers. Retrieved from https://www.afr.com/news/politics/how-origin-agl-and-energyaustralia-rip-off-loyal-customers-20180712-h12l3o

Macdonald-Smith, A. (2018, July 11). AGL, Origin slammed as ACCC gets tough. Retrieved from https://www.afr.com/business/energy/electricity/accc-rejects-forced-asset-sales-but-majors-face-constraints-20180711-h12iyp

Kent, A., & Mercer, D. (2006, June). Australias mandatory renewable energy target (MRET): An ... Retrieved from https://www.sciencedirect.com/science/article/pii/S0301421504003167

King, T. (2016, May). Annual Report 2016 - 350.org. Retrieved from http://ieefa.org/wp-content/uploads/2016/05/Sub-Critical-Australia-Risks-From-Market-Imbalance-in-the-Australian-National-Electricity_May-2016.pdf