Page 21 - AGL Sustainability Report 2011

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Economic
Sustainability Performance Report 2011 19
Ongoing profitability
Effciency of retail business
Optimisation of AGL’s operating model to deliver a
‘lowest-cost-to-serve’ outcome is crucial, given that
retail energy markets in which AGL competes are among
the most competitive in the world.
Approach
AGL is focusing on the management and growth of margins, by
leveraging its upstream strategy and achieving retail economies of
scale through a service platform capable of supporting four to five
million customers.
Following the implementation of a new SAP billing system in 2009,
AGL’s focus in 2011 was to drive improvements in the customer
experience, to improve operational efficiency and to increase
customer numbers.
AGL undertook two major restructuring initiatives during the year.
Firstly, and largely completed before 31 December 2010, was the
transitioning of substantial retail back-office processes (mainly
non-customer facing billing and sales fulfilment) to offshore service
providers. This involved redundancy and restructuring costs of $8.0
million before tax of which $6.5 million was recognised and disclosed
in the interim results.
Secondly, as part of the annual budget cycle which commenced in
March 2011, AGL identified a number of opportunities to improve
operating efficiencies and organisational reporting lines. As a result,
a number of employment positions became redundant.
Performance
Relatively high levels of retail competitor activity persisted
throughout FY2011. AGL’s average national customer churn for
FY2011 was 16.2%, compared to an average market churn of 20%.
During the year, total customer accounts increased by 53,920 to
approximately 3.3 million. Importantly, dual fuel customer numbers
increased by 109,600 (8.0%) to 1.47 million.
The business is now operating more efficiently, with the level of
operating costs as a proportion of gross margin falling from 49.5%
in FY2010 to 46.2% in FY2011.
The ongoing business priorities for Retail Energy are to profitably
build AGL’s retail capability, achieve operational excellence and
continue improving customer service. During FY2011, Retail
Energy commenced a project to grow AGL’s total New South Wales
electricity customer base to between 800,000 and 900,000
customers over the next three years.
Retail markets by state and fuel type
1
State
Gas
Electricity
Total
NSW
718,000
468,000
1,186,000
Vic.
473,000
639,000
1,112,000
SA
104,000
468,000
571,000
Qld
74,000
350,000
424,000
Total accounts
(Net) 30 June 2011 1,369,000
1,925,000
3,294,000
Percentage change
from 30 June 2010
0.0%
+2.8%
+1.6%
Note
1 Customer numbers rounded to nearest thousand.
Net OPEX to gross margin ratio
46.9
%
52.4
49.5
46.5
40
50
60
FY11
FY10
FY09
FY08