Appendix 4E - Preliminary Final Report Results for announcement to the market for the year ended 1. Revenue and result Amount $ 000 $ 000 % Revenues from ordinary activities 230,122 Up by 99,851 77% Loss from ordinary activities after tax attributable to shareholders (9,535) Down by (6,262) 191% Underlying profit after tax attributable to shareholders 3,737 Up by 2,317 163% 2. Earnings per share cents per share cents per share Basic and diluted (statutory) (6.7) (3.2) Basic (underlying) 2.6 1.4 3. Net tangible assets per share Basic and diluted (statutory) 0.2 (14.6) Basic (underlying) 11.3 (12.2) 4. Dividend Final dividend (unfranked) 0.5 - Date of announcement of dividend Friday 26 August (cum dividend) Ex-dividend Monday 12 September Record date Friday 16 September Payment and despatch date Monday 26 September Shareholders are advised that Australian Power & Gas does not have a dividend reinvestment plan and dividends will be paid by cheque. 5. Brief commentary on the results Revenue has grown by $99.9 million to $230.1 million from the prior financial year as the s billable customer base has continued to grow. As at the had over 272,000 (: 145,000) billable customer accounts, in the Victorian, New South Wales and Queensland retail energy markets. Revenue of $230 million was ahead of the previously provided guidance range of $200 to $220 million. Underlying profit after tax of $3.7 million (: $1.4 million) was achieved. This result was within guidance range of $3.5 to $4.5 million. The Statutory loss of $9.5 million includes an expense of $15.7 million for the change in fair value of financial hedges and costs relating to a convertible note issue of $2.3 million. The adjustment for changes in hedge valuations primarily relates to the fixed price electricity hedges the has in the Victorian and Queensland markets. The value of the hedges, which relate to the period until at least December 2013, has been written down due to forward prices current at being lower than the fixed prices within the contracts. 6. The write down relating to the financial hedges has no affect on the underlying business and cash flow of the as retail prices and margins have been set so as to recover the expected costs under the contracted agreements. The agreements cover all customer usage in their respective markets at a fixed price. The expensing of the valuation movement is required under current accounting standards due to the uncertain impact of the carbon tax proposed by the Australian Federal Government. A more detailed commentary on the results is contained in an attached statement. The preliminary final results for the year ended (subject to audit) are also attached. Annual General Meeting For the purposes of Listing Rules 3.13.1 and 14.3, it is advised that the Annual General Meeting of Australian Power and Gas Company Limited is expected to be held on 23 November. A venue will be advised at a later date. Page 1
Appendix 4E - Preliminary Final Report Contents Page 3: Page 14: Page 15: Page 16: Page 17: Commentary on results Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial report Page 18: 1. Significant accounting policies Page 20: 2. Segment information Page 21: 3. Profit for the year Page 23: 4. Income taxes Page 25: 5. Cash and cash equivalents Page 26: 6. Borrowings Page 27: 7. Issued capital Page 28: 8. Contingent liabilities Page 28: 9. Other information Page 2
Commentary on preliminary results for the financial year ended The Directors of and its subsidiaries () set out below a commentary on the preliminary financial results for the year ended. Underlying Result The Statutory net loss after tax has been adjusted to exclude items that do not reflect on the continuing financial performance of the. The table below excludes these adjusting items from the results. The Directors believe that this presents a more accurate view of the financial results for the financial year. Underlying results for the financial year: $000s $000s $000s % Revenue and other income 230,122 130,271 99,851 76.6% Energy costs (170,797) (91,747) (79,050) 86.2% Gross margin 59,325 38,524 20,801 54.0% Other income 223 568 (345) (60.7%) Overheads (38,350) (25,570) (12,780) 50.0% Earnings before interest tax and depreciation 21,198 13,522 7,676 56.8% Amortisation and depreciation (11,549) (6,551) (4,998) 76.3% Earnings before interest and tax 9,649 6,971 2,678 38.4% Net finance costs (4,480) (4,943) 463 (9.4%) Taxation (1,431) (608) (823) 135.4% Underlying net profit after tax 3,737 1,420 2,317 163.2% Average customer accounts (number - refer below) 208,759 123,037 85,722 69.7% Underlying net profit after tax per average customer account $18 $12 $6 55.1% Underlying net profit after tax as percentage of revenue (%) 1.6% 1.1% Set out below is a reconciliation of the Statutory Profit to the Underlying Profit and comments on each item: $000s $000s $000s % Statutory loss (9,535) (3,273) (6,262) 191.3% Adjustment for costs included in the statutory result, after tax: Finance costs 2,219 3,732 (1,513) (40.5%) Hedges 11,053-11,053 na Market re-entry costs - 961 (961) na Underlying profit 3,737 1,420 2,317 163.2% Page 3
Commentary on preliminary results for the financial year ended Finance costs: During the financial year costs of $2.3 million ($2.2 million after tax) were incurred in relation to a facility of $18.9 million of convertible notes (Notes). $6.3 million was received and 6,300, $1,000 face value Notes were issued. The 6,300 Notes were then converted into 14.3 million ordinary shares during the financial year. The remaining balance of the Notes were cancelled. Costs incurred in relation to the convertible note facility included an expense of $1.6 million for the issue of 18.9 million attaching options, placement fees and the recognition of an interest rate component to the Notes issued. The Directors consider that the placement of Notes and its related costs do not form part of the ongoing results of the 's activities and have excluded the costs to arrive at the underlying results. Hedges: At the held hedges that provide fixed priced electricity wholesale costs in the Victorian and Queensland market. These hedges cover the expected volume of electricity that will be used by Australian Power and Gas customers until December 2013. Under Australian Accounting Standards movements in the forward prices of electricity result in an accounting loss or gain that is recorded at each reporting date. In previous periods the loss or gain was recorded as a movement in reserves and did not effect the Statement of Financial Performance. The hedge agreements contain a clause relating to the pass through of the proposed carbon tax by the Australian Federal Government. As a result of the uncertainty surrounding the ability of Australian Power and Gas to pass through this cost to its customers, the hedges are now defined by Australian accounting standards as "ineffective" and their movement in value is required to be recorded in the Statement of Financial Position. As the value of forward curve has moved downwards during the period since the last reporting date (31 December ) a pre-tax loss of $15.7 million ($11.0 million after tax) has been recognised. The Directors believe that the adjustment to Statement of Financial Position arising from the changes in the value of hedges at each reporting period does not reflect accurately the operating results of the 's activities. Retail pricing is set with reference to the expected costs under the fixed price hedges and the expected operating margins are forecast accordingly. There is, therefore, a matching of forecast revenue and costs during the term of the hedges. Earnings per share Earnings per share of negative 6.7 cents (: negative 3.2 cents) was recorded in respect of the Statutory loss. When the underlying profit after tax is used to calculate the earnings per share the result was 2.6 cents (: 1.4 cents). Page 4
Commentary on preliminary results for the financial year ended Customer accounts Active (billable) customer accounts at totalled 272,443 (: 145,074), an increase of 127,000 accounts. Customer acquisition activity was expanded to include the New South Wales and Queensland markets, with over 55,000 accounts being added in these new markets. Growth in Victoria was maintained with over 71,000 accounts added. At 30 June, 78% of customer accounts are located in Victoria, with the balance in New South Wales and Queensland. Approximately 63% of customer accounts were for electricity supply and the remainder gas. No. No. No. % Customer accounts by state and product Victoria Electricity 113,961 77,668 36,293 46.7% Gas 97,620 62,516 35,104 56.2% 211,581 140,184 71,397 50.9% New South Wales Electricity 35,065 2,278 32,787 1439.3% Gas 984-984 na 36,049 2,278 33,771 1482.5% Queensland Electricity 22,002 2,612 19,390 742.3% Gas 2,811-2,811 na 24,813 2,612 22,201 850.0% Total customer accounts 272,443 145,074 127,369 87.8% Customer accounts by product Electricity 171,028 82,558 88,470 107.2% Gas 101,415 62,516 38,899 62.2% Total customer accounts 272,443 145,074 127,369 87.8% Average customer accounts (number) 208,759 123,037 85,722 69.7% (Calculation = opening plus closing accounts divided by 2) Page 5
Commentary on preliminary results for the financial year ended Energy usage Total energy usage by customers increased during the year due to the increase in customer accounts. Average usage per customer account for both electricity and gas fell due to the rapid growth in customer accounts towards year end. The April to June period has relatively lower usage for electricity accounts and April to May for gas accounts. During the 3 month period to June approximately 36,000 customer accounts were added. % Electricity used by customers (MWh) 712,636 399,356 313,280 78.4% Gas used by customers (Gj) 4,669,174 3,219,614 1,449,560 45.0% Average electricity usage per average customer account 5.6 5.7 (0.03) (0.6%) Average gas usage per average customer account (Gj/annum) 57.0 62.0 (5.03) (8.1%) Revenue Revenue earned during the financial year totalled $230.1 million (: $130.2 million) which was above the Directors' guidance range of $200 to $220 million. Total revenue has increased substantially due to the continuing customer acquisition program. Average revenue per billable account increased to $1,102 (: $1,063), however at a lower rate of increase than in the year. This reflects the combination of a change in mix of the customer base to include New South Wales and Queensland (which generally have lower average revenue per account), offset by retail price increases which occurred during the year. $000s $000s $000s % Victoria $195,662 $127,270 68,392 53.7% New South Wales $19,954 $1,696 18,258 1076.5% Queensland $14,506 $1,305 13,201 1011.6% Total revenue and other income $230,122 $130,271 99,851 76.6% Average customer accounts (number) 208,759 123,037 85,722 69.7% Revenue per average customer account ($/account) $1,102 $1,063 $39 3.7% Growth rate of revenue per average customer account (%) 3.7% 12.6% Wholesale costs and gross margin Wholesale cost were $186.5 million (: $91.7 million), including hedge revaluations of $15.7 million, and resulted in a gross margin of $42.9 million (: $37.9 million). When the movement in the hedge valuation is removed, the underlying gross margin was $59.3 million (: $38.5 million), an increase of 54%. The has fixed price and reallocation agreements with major generators of electricity in Victoria and Queensland that substantially mitigate wholesale pricing risks. These agreements cover the period until December 2013 (in Victoria there is also a one year option to extend the arrangement). These agreements ensure that electricity wholesale costs in Victoria and Queensland are fixed for all electricity used by the s customers. In New South Wales the forecast load is hedged via futures instruments. The has a number of gas supply and pricing agreements with major gas suppliers that extend until December 2014. The agreements ensure that costs of the Victorian gas usage will be substantially within a known range. Similar arrangements for the New South Wales and Queensland markets are also in place. Page 6
Commentary on preliminary results for the financial year ended $000s $000s $000s % Revenue (excluding other income) 230,122 130,271 99,851 76.6% Underlying energy costs (170,797) (91,747) (79,050) 86.2% Underlying gross margin 59,325 38,524 20,801 54.0% Average customer accounts (number) 208,759 123,037 85,722 69.7% Underlying gross margin per average customer account ($/account) $284 $313 (29) (9.2%) Underlying gross margin per average account fell during the year due to the lower retail prices from New South Wales and Queensland customer accounts. The result was also impacted by an increase in the cost and number of green products required to be purchased to fulfil compliance obligations. In particular a significant increase in the costs associated with the Federal Government's renewable energy scheme was not anticipated in our retail pricing structure. The unanticipated increases are estimated at $3.2 million ($2.3 million after tax) and resulted in a reduction in the average margin per customer account of approximately $15. Operating expenses Operating expenses for the year totalled $38.3 million up from $26.9 million in the prior year. However operating costs efficiency improved across a range of ratios. Measured on a per customer account basis, overheads fell to $184 from $219 the previous year. As a percentage of the underlying gross margin earned operating costs reduced to 64% down from 69% in the prior year. The main categories of expenses were: $000s $000s $000s % Employee benefits expenses - full time employees (equivalent) at numbered 73 (: 55). Staff numbers increased during the financial year to manage the higher level of customer numbers. 8,042 7,359 683 9.3% Administration expenses 2,960 3,154 (194) (6.2%) Operational expenses - the costs of servicing customers and reflected the growth of the customer base. Operating costs are predominately based on a fixed rate per customer account via an outsourced arrangement with a provider of back office services. This agreement has a further 4 years of operation. 19,432 12,753 6,679 52.4% Bad debts allowance - increased due to the growth in size and complexity of the customer base 6,040 2,993 3,047 101.8% Sales and marketing expenses - primarily related to promotion and other sales supporting activities. 1,876 684 1,192 174.3% 38,350 26,943 11,407 42.3% Page 7
Commentary on preliminary results for the financial year ended Average customer accounts (number) 208,759 123,037 85,722 69.7% Operating costs per average customer account ($/account) $184 $219 ($35) (16.1%) Operating costs as percentage of gross margin (%) 64.6% 69.9% na na Operating costs as percentage of revenue (%) 16.7% 20.7% na na Earnings before interest, tax, depreciation and amortisation (EBITDA) Underlying EBITDA for the financial year was a positive $21.1 million (: $13.5 million) and reflects the achievement of a sufficiently large customer base to generate positive operating results, before write down of customer acquisition and financing costs. $000s $000s $000s % Revenue 230,122 130,271 99,851 76.6% EBITDA 21,198 13,522 7,676 56.8% Average customer accounts (number) 208,759 123,037 85,722 69.7% EBITDA per average customer account ($/account) $102 $110 ($8) (7.6%) EBITDA / revenue (%) 9.2% 10.4% na na Amortisation and depreciation Depreciation and amortisation of $11.5 million (: $6.5 million) comprised mainly the amortisation of customer acquisition costs and recording costs. Customer acquisition and recording costs are amortised over the expected life of the contract, which are between one and three years. The actively initiated strategies during the year to encourage longer retention periods. $000s $000s $000s % Equipment depreciation 446 227 219 96.3% Customer acquisition costs: Current amortisation 6,412 3,672 2,740 74.6% Write down of lost accounts 4,692 2,653 2,039 76.9% 11,104 6,325 4,779 75.6% Total amortisation and depreciation 11,550 6,552 4,998 76.3% Average customer accounts (number) 208,759 123,037 85,722 69.7% Current amortisation per average account ($/account) $31 $30 1 2.9% Amortisation and depreciation / revenue (%) 5.0% 5.0% na na Net increase in customer accounts (number) 127,369 44,074 83,295 189.0% Expenditure on customer acquisition ($000s) (refer note below) $19,592 $7,504 12,088 161.1% Average cash cost of acquisition per net account added $154 $170 (16) (9.7%) ($/account) Page 8
Commentary on preliminary results for the financial year ended Note: the cash cost of acquisitions in the financial year included payments deferred from prior years of $3.8 million which have been deducted for the purposes of calculating the average cost of acquisition ratio. The ratio has fallen in due to increased reliance on lower cost channels. The 's annual acquisition expenditure consists of costs resulting from the replacement of customer accounts that have churned to other retailers ("account replacement") and growth of the customer base ("growth"). The significant increase in total net accounts added has resulted in a lower percentage of total customer acquisition expenditure being applied to the replacement of churned accounts. Account replacement (maintenance of existing customer base) 6,231 4,598 1,633 35.5% Growth expenditure (new accounts) 13,361 6,705 6,656 99.3% Total acquisition expenditure 19,592 11,303 8,289 73.3% Net financing costs Net financing costs of $6.8 million (: $10.2 million) consisted of interest costs of convertible instruments and debt facilities, and other finance charges. The net financing costs included $2.3 million ($2.2 million after tax) relating the Notes put in place during the year (refer above to commentary on Underlying Result). $000s $000s $000s % Interest paid on borrowings 4,322 2,626 1,696 64.6% Interest paid on convertible notes 606 572 34 5.9% Interest received on deposits (723) (210) (513) 244.3% Other costs of borrowing 276 1,955 (1,679) (85.9%) Underlying finance expense 4,480 4,943 (463) (9.4%) Working capital facility fees expensed on roll over of facility - 5,315 (5,315) na Convertible note placement fees 530-530 na Valuation of options attached to convertible notes 1,625-1,625 na Embedded interest rate option expense 222-222 na 2,377 5,315 (2,938) (55.3%) Statutory finance expense 6,857 10,258 (3,401) (33.2%) Average customer accounts (number) 208,759 123,037 85,722 69.7% Underlying finance expense per average account ($/account) $21 $40 (19) (46.6%) Underlying finance expense / revenue (%) 1.9% 3.8% na na Page 9
Commentary on preliminary results for the financial year ended Operating and investing cash flow The cash shortfall from operations and investing totalled $33.2 million (: $14.3 million). Customer acquisition costs of $20.0 million contributed significantly towards the shortfall. Customer growth also leads to an increase in working capital requirements due to the industry billing cycles. Included in operating cash flow is the payment in advance or provision of bank guarantees to energy market counter parties for credit support, which is a normal requirement within the energy industry. The increase in credit support provided during the year was $7.4 million (: $3.0 million). $000s $000s $000s % Customer payments 199,607 115,155 84,452 73.3% Payments to suppliers and employees (197,826) (111,135) (86,691) 78.0% Underlying operating cash flow 1,781 4,020 (2,239) (55.7%) Customer acquisition costs (19,592) (11,304) (8,288) 73.3% Net finance costs (6,340) (3,442) (2,898) 84.2% Equipment and systems development (1,614) (621) (993) 159.8% Credit support (deposits and prepayments) (7,489) (3,048) (4,441) 145.7% Operating and investing cash flow (33,253) (14,395) (18,858) 131.0% The cash flow shortfall was funded by debt and equity totalling $39.2 million. Debt advanced of $19.5 million was predominately under the 's $50 million working capital debt facility. This facility is secured against the receivables of the which have increased substantially with the growth in customer account numbers. Equity raised included a placement to institutional investors in November and December of $15.5 million and a further $5.0 million arranged in June. Costs of equity issues of $0.9 was paid, providing a net of $19.6 million. Equity was also increased by the conversion of $6.3 million of convertible notes that were issued in the prior year, however this is not included in the current year figures below as it was not a movement in cash during the current year. $000s $000s $000s % Net debt advanced 19,587 17,149 2,438 14.2% Net proceeds from ordinary share issues 19,618-19,618 na 39,205 17,149 22,056 128.6% Page 10
Commentary on preliminary results for the financial year ended Cash and debt The had cash at of $19.9 million (: $8.7 million), including amounts held as security for guarantees issued to suppliers of $8.4 million (: $3.2 million). As shown in the table below, net cash increased by $5.9 million. The targets a minimum cash reserve to ensure that there are sufficient funds on hand to address any liquidity issues that may arise from wholesale market volatility, to met debt facility requirements and credit support requirements of energy industry counter parties. The underlying net debt to equity ratio of the at was 66% (: 139%). Notwithstanding an increase in the dollar value of debt, this ratio has decreased during the year as a result of the raising of equity (net of costs) of $19.6 million. $000s $000s $000s % Cash (Note 5) 19,900 8,706 11,194 128.6% Less amounts held to secure bank guarantees (8,484) (3,242) (5,242) 161.7% Net cash 11,416 5,464 5,952 108.9% Debt (Note 6) 53,691 43,613 10,078 23.1% Adjust convertible notes to face value 209-209 na Adjusted debt 53,900 43,613 10,287 23.6% Underlying net debt 42,484 38,149 4,335 11.4% Equity 51,204 27,981 23,223 83.0% Add back after tax effect of items to determine underlying net 13,272 (555) 13,827 na profit after tax (refer above) Adjusted equity 64,475 27,426 37,049 135.1% Underlying net debt to adjusted equity ratio 66% 139% na 47.4% Adjusted debt at consisted of (amounts shown at face value of debt): Working capital facility 47,200 27,813 19,387 69.7% Convertible notes (maturity December 2012) 4,000 4,000 - na Convertible notes (converted to equity September ) - 3,000 (3,000) na Loan (maturity December ) 2,700 2,700 - na Loan (replaced by convertible note facility) - 6,100 (6,100) na Adjusted debt 53,900 43,613 10,287 23.6% Page 11
Commentary on preliminary results for the financial year ended Receivables The had at a total of $81.2 million (: $41.9 million) of invoiced and unbilled debtors. Customers are invoiced on either a 2 or 3 monthly cycle, which is dependant on meter reading cycles. Customers have approximately 14 days from invoice date to settle amounts owing. These industry characteristics lead to a longer than usual period of collection of amounts due. $000s $000s $000s % Invoiced debtors 28,945 13,394 15,551 116.1% Unbilled and other debtors 52,221 28,458 23,763 83.5% 81,166 41,852 39,314 93.9% Allowance for doubtful debts (9,793) (4,501) (5,292) 117.6% Net debtors 71,373 37,351 34,022 91.1% Average days outstanding - invoiced (days) 30 25 5 21.9% Average days outstanding - unbilled (days) 83 80 3 3.9% Average days outstanding - combined (days) 113 105 9 8.2% Payables The had at a total of $45.1 million (: $29.5 million) of invoiced and accrued payables. Payables are generally paid monthly. Accrued amounts relate to energy charges which are billed and payable in advance of customer invoicing. $000s $000s $000s % Invoiced amounts 4,921 9,669 (4,748) (49.1%) Accrued and other creditors 40,140 19,834 20,306 102.4% Total creditors 45,061 29,503 15,558 52.7% Average days outstanding - invoiced (days) 9 30 (21) (71.0%) Average days outstanding - accrued (days) 70 61 9 15.4% Average days outstanding - combined (days) 79 91 (12) (13.4%) Page 12
Commentary on preliminary results for the financial year ended Working capital employed $000s $000s $000s % Net debtors 71,373 37,351 34,022 91.1% Inventory 1,565 910 655 72.0% Other current assets (prepayments) 10,088 6,702 3,386 50.5% Cash held as security for bank guarantees 8,484 3,242 5,242 161.7% Trade and other payables (45,061) (29,503) (15,558) 52.7% Working capital 46,449 18,702 27,747 148.4% Working capital per account ($/account) $170 $129 Working capital ratio (current assets divided by current liabilities - 2.0 1.6 Page 13
Consolidated statement of comprehensive income for the financial year ended Notes $ 000 $ 000 Continuing operations Revenue 2(c) 230,122 130,271 Other income 2(c) 223 568 Expenses 3(a) (224,937) (118,690) Profit/(loss) before finance costs, depreciation and amortisation 5,408 12,149 Depreciation and amortisation 3(b) (11,550) (6,552) Profit/(loss) before finance costs (6,142) 5,597 Finance costs 3(c) (6,857) (10,258) Loss before tax (12,999) (4,661) Income tax benefit 4(a) 3,464 1,388 Loss for the year attributable to shareholders (9,535) (3,273) Other comprehensive income Net loss on cash flow hedges 1,167 (1,155) Total comprehensive income for the year attributable to shareholders (8,368) (4,428) Notes to the financial statements form part of the Financial Report and are included on pages 18 to 28 Page 14
Consolidated statement of financial position as at Notes $ 000 $ 000 Current assets Cash and cash equivalents 5 19,900 8,706 Trade and other receivables 71,373 37,351 Inventories 1,565 910 Intangible assets 9,819 4,948 Other 10,088 6,702 Total current assets 112,745 58,617 Non-current assets Property, plant and equipment 775 751 Deferred tax assets 16,928 13,600 Intangible assets 41,085 36,610 Total non-current assets 58,788 50,961 Total assets 171,533 109,578 Current liabilities Trade and other payables 45,061 29,503 Borrowings 6 2,700 13,100 Other financial liabilities 18,290 3,660 Provisions 788 321 Total current liabilities 66,839 46,584 Non-current liabilities Borrowings 6 50,991 30,513 Other financial liabilities 2,500 4,500 Total non-current liabilities 53,491 35,013 Total liabilities 120,330 81,597 Net assets 51,204 27,981 Equity Issued capital 7 98,790 69,647 Reserves 11,624 8,010 Accumulated losses (59,210) (49,676) Total equity 51,204 27,981 Notes to the financial statements form part of the Financial Report and are included on pages 18 to 28 Page 15
Consolidated statement of changes in equity for the financial year ended Issued capital Share based payments reserve Equity settled employee benefits reserve Hedging reserve Accumulated losses Total $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Balance at 1 July 2009 69,618 6,419 1,492 (13) (46,403) 31,113 Loss attributable to shareholders of the parent entity - - - - (3,273) (3,273) Gain/(loss) on cash flow hedges - - - (1,647) - (1,647) Income tax relating to components of other comprehensive income - - - 492-492 - - - (1,155) (3,273) (4,428) Issue or ordinary shares 29 - - - - 29 Value of share options issued - 598 669 - - 1,267 Balance at 69,647 7,017 2,161 (1,168) (49,676) 27,981 Balance at 1 July 69,647 7,017 2,161 (1,168) (49,676) 27,981 Loss attributable to shareholders of the parent entity - - - - (9,534) (9,534) Gain/(loss) on cash flow hedges - - - 1,660-1,659 Income tax relating to components of other comprehensive income - - - (492) - (492) Total comprehensive income/(loss) for the period - - - 1,168 (9,534) (8,367) Issue of ordinary shares 20,518 - - - - 20,518 Conversion of convertible notes 9,300 - - - - 9,300 Issue of shares to employee 44 - - - - 44 Share issue costs, net of tax (841) - - - - (841) Convertible note interest rate option - 482 - - - 482 Value of share options issued - convertible notes - 1,625 - - - 1,625 Value of share options issued - employees - - 414 - - 414 Value of share options issued - other - 48 - - - 48 Value of share options expired 122 - (122) - - - Balance at 98,790 9,172 2,453 - (59,210) 51,204 Notes to the financial statements form part of the Financial Report and are included on pages 18 to 28 Page 16
Consolidated statement of cash flows for the financial year ended Notes $ 000 $ 000 Cash flows from operating activities Receipts from customers 199,607 115,155 Payments to suppliers and employees (197,826) (111,135) Cash generated from operations 1,781 4,020 Prepayments to counter parties (credit support) (2,246) (2,583) Payments for customer acquisition (19,592) (11,304) Interest received 946 338 Borrowing costs paid (7,286) (3,780) Net cash used in operating activities (26,397) (13,309) Cash flows from investing activities Proceeds from/(payments for): Property, plant and equipment (382) (621) Intangibles (1,232) - Restricted cash (credit support) (5,243) (465) Net cash (used in)/provided by investing activities (6,857) (1,086) Cash flows from financing activities Proceeds from the issue of ordinary shares 20,518 - Costs of issue of ordinary shares (900) - Proceeds from borrowings 23,100 20,650 Repayment of borrowings (3,513) (3,501) Net cash used in financing activities 39,205 17,149 Net increase in cash and cash equivalents 5,951 2,754 Cash and cash equivalents at the beginning of the financial year 5,465 2,711 Cash and cash equivalents at the end of the financial year 5 11,416 5,465 Notes to the financial statements form part of the Financial Report and are included on pages 18 to 28 Page 17
Notes to the preliminary final financial report 1. Significant accounting policies a) Statement of compliance (Company) is a public company listed on the Australian Securities Exchange (ASX) and trades under the symbol APK. The Company was incorporated and operates in Australia. The preliminary final financial report includes the consolidated financial statements of the Company and its controlled entities (). This preliminary final financial report has been prepared to comply with the requirements of the ASX s Listing Rules under Chapter 4. The preliminary final financial report is based upon a financial report prepared in accordance with Australian Accounting Standards. The preliminary final financial report does not contain all the notes usually included within the annual financial report and this report should be read in conjunction with the Annual Report and other announcements made by the Company subsequently. All dollar amounts shown are Australian (AUD) dollars unless otherwise stated. The preliminary final financial report has been prepared on an accrual basis and is based on historic costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied, except hedge facilities which are valued at market rates. The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts are rounded off to the nearest thousand dollars, unless otherwise indicated. The following significant accounting policies have been adopted in the preparation and presentation of the preliminary final financial report. b) Going concern The Directors have prepared the preliminary financial statements on a going concern basis which contemplates the continuity of normal business activity and the realisation of assets and settlement of liabilities in the normal course of business. At, the 's total assets of $171,533,000 exceeded total liabilities of $120,330,000 and the 's current assets of $112,745,000 exceeded current liabilities of $66,839,000. For the year ended, the recorded a loss before taxation of $12,999,000 (: $4,661,000), and net cash used by operating activities was $26,397,000 (: $13,309,000). To continue as going concerns the Company and require: the availability of funding facilities for working capital requirements; and increases in revenue and cash flows from operating activities to fund working capital requirements. This is dependent upon increases in customer numbers generating a cash inflow to offset the forecast expenditure. As at, the had the ability to draw upon a revolving debt facility agreement ('Fortress Facility'). The Fortress Facility is secured over all the assets and businesses of the and expires on 22 December 2012. The ability to drawdown funds under the Fortress Facility is dependent on the level of receivables owing by customers and adherence to performance and other conditions. The conditions include: limitation on the amount that can be drawn to 90% of the amount of gross invoiced and unbilled receivables less allowances for overdue debts and other contingencies. If the drawn balance exceeds this amount then the must reduce the drawn balance; adherence to targeted ratios for debtor ageing, ratio of accounts on payment plans and bad debt write offs; adherence to targeted levels of net worth, minimum cash levels, and interest coverage; and other conditions normally found in secured loan facility agreements. Page 18
Notes to the preliminary final financial report If the operates within the above conditions its revolving debt facility is capable of being drawn to $50,000,000. As at, the revolving debt facility had been drawn to $47,200,000, of a total of $50,000,000 available at that date. The Company s and 's current forecasts indicate that in order to meet the current business plans the ability to draw upon the currently available debt facility is required. Subsequent to two ratios under the Fortress Facility have or may be breached as follows: an interest coverage ratio that requires that EBIT for each twelve month period is always at least two times the interest expense for the same period. The Directors forecasts project that the Company and the will be in breach of the interest coverage ratio in September ; and a ratio in respect of debtors outstanding that measures the amount of increase in 60 day aged debt over a 3 month period being no more than 0.8% of revenue. This ratio was breached as at 31 July, however it was waived by Fortress on 22 August. The Directors expect that this ratio will to be breached in future periods. The expected breaches are partially due to the seasonality of operations and also due to being set at the inception of the business in 2007, prior to actual trading conditions being known. The Directors forecasts are based on the expectation that any further covenant breaches will be waived by Fortress and therefore that the Fortress Facility will continue to be available. As part of ongoing business operations and capital structure planning the Company and continues to investigate funding requirements and opportunities. In the event that sufficient cash flows from operations are not generated and/or the financial support of the Company and s financiers is not sufficient, the Company and the would seek to implement alternative arrangements including the raising of further funds. The directors are of the opinion that the use of the going concern basis of accounting is appropriate as they are satisfied regarding the Company's and 's ability to maintain the continued support of current financiers and/or other sources of funding. The ability of the to find support amongst existing and new investors has been demonstrated during the current financial year with the conversion of a convertible note of $6,300,000 into ordinary shares and the raising of additional equity through the issue of new ordinary shares raising $20,518,000. However, in the event that the financial support of its current financiers and from other sources is not available, significant uncertainty would exist in relation to the ability of the Company and the to continue as going concerns and they may be required to realise their assets and extinguish their liabilities other than in the normal course of business and at amounts different from those stated in the financial statements. The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Company and be unable to continue as going concerns. c) Significant accounting judgements, estimates and assumptions In the application of the s accounting policies, the Company's management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which forms the basis of making the judgments. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period; or in the period of the revision and future periods if the revision affects both current and future periods. d) Adoption of new and revised standards In the current year, the has adopted all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current annual reporting period. Page 19
Notes to the preliminary final financial report e) New standards and interpretations not yet adopted Certain new standards, amendments to existing standards and interpretations have been issued, but are not yet effective. They are available for early adoption at but have not yet been applied in preparing this preliminary financial report. The potential effectiveness of the standards and interpretations on the s preliminary financial report has not yet been determined. 2. Segment information The offers products to the customers in the retail energy market in the eastern Australian states. Information reported to the chief operating decision maker (the Chief Executive Officer) for the purpose of resource allocation and assessment of segment performance focuses on the products or services provided within each market. The views its segments based on geographical location and has disclosed its reportable segments above on this basis. The 's reportable segments are as follows: Energy - Victoria Energy - Queensland Energy - New South Wales Unallocated (a) Revenue and results by reportable operating segments Segment Revenue Segment Profit $ 000 $ 000 $ 000 $ 000 Continuing operations Energy - Victoria 195,662 127,270 41,637 38,140 Energy - Queensland 14,506 1,305 (1,427) 768 Energy - New South Wales 19,954 1,696 3,326 178 Revenue 230,122 130,271 Profit/(loss) before tax Central administration, marketing and employment costs Finance costs Loss before tax (continuing operations) 43,536 39,086 (49,677) (33,489) (6,857) (10,258) (12,998) (4,661) The revenue reported above represents revenue generated from external customers. There were no inter-segment sales during the period. The revenue reported above represents revenue generated from external customers. There were no intersegment sales during the period. The accounting policies of the reportable segments are the same as the s accounting policies. Segment profit represents the profit earned by each segment without allocation of administration, marketing and employment costs, amortisation and depreciation, finance costs and income tax expense. This is the measure reported to the 's chief operating decision maker for the purposes of resource allocation and assessment of segment performance. (b) Assets and liabilities by reportable operating segment $ 000 $ 000 Segment assets: Energy - Victoria 119,376 88,523 Energy - Queensland 7,112 414 Energy - New South Wales 14,222 527 Unallocated 30,823 20,115 Total assets (continuing operations) 171,533 109,578 Page 20
Notes to the preliminary final financial report Segment liabilities: $ 000 $ 000 Energy - Victoria 23,563 18,826 Energy - Queensland 2,970 197 Energy - New South Wales 5,447 303 Unallocated 88,350 62,271 Total liabilities (continuing operations) 120,330 81,597 (c) Revenue from major products and services Revenue (continuing operations) $ 000 $ 000 Electricity 155,412 82,084 Gas 74,710 48,186 230,122 130,270 Other income Net foreign exchange gain - 440 Other 223 128 223 568 3. Profit for the year Profit before income tax has been arrived at after charging the following expenses. The line items below combine amounts attributable to both continuing operations and discontinuing operations. (a) Expenses $ 000 $ 000 Cost of sales 170,797 92,302 Fair value losses/(gains) on derivatives 15,790 (555) 186,587 91,747 Employee benefits expenses 8,042 7,359 Administration expenses 2,960 3,154 Operational expenses 19,432 12,753 Bad and doubtful debts Marketing expenses 6,040 2,993 1,876 684 224,937 118,690 Page 21
Notes to the preliminary final financial report (b) Other expenses Depreciation and amortisation Plant and equipment 446 227 Customer acquisition costs amortisation 6,412 3,672 Write down of lost accounts and other costs 4,692 2,653 Total depreciation and amortisation 11,550 6,552 Operating lease rental expenses Minimum lease payments 1,093 470 Employee benefits expenses Wages and salaries 6,037 5,163 Defined contribution plans 566 408 Share-based payments 44 697 Other employee benefits 981 1,091 Total employee benefits expenses 7,628 7,359 (c) Net financing costs Interest income Other entities 723 210 Interest and facility fees expenses Loans 4,322 2,572 Convertible notes 381 572 Finance leases 1 4 Loans provided by substantial shareholders - 50 Discount on settlement of convertible loan - (247) Facility fees - share based payments 1,625 598 Facility fees - other 1,251 6,919 7,580 10,468 Total net financing costs 6,857 10,258 Page 22
Notes to the preliminary final financial report 4. Income taxes $ 000 $ 000 (a) Income tax benefit Deferred tax relating to origination and reversal of timing differences (3,025) 123 Tax losses (439) (1,511) Total income tax benefit (3,464) (1,388) (b) Reconciliation of tax benefit and pre-tax profit Loss from continuing operations before income tax expense (12,997) (4,661) Income tax benefit calculated at 30% (: 30%) Non assessable items Income tax benefit (3,899) (1,398) 435 10 (3,464) (1,388) (c) Income tax expense recognised directly in equity Deductible transaction costs arising on the issue of equity instruments recognised directly in equity Revaluations of financial instruments treated as cash flow hedges Net tax expense/(income) recognised directly in equity (360) - 498 (492) 138 (492) (d) Deferred tax recognised in income statement Temporary differences Unbilled revenue 7,010 4,043 Doubtful debts (1,588) (1,020) Customer acquisition costs 2,433 703 Prepayments 689 1,331 Provisions (376) (1,124) Accruals (140) 218 Share based payments (6,092) (3,894) Derivative financial instruments (4,737) - Share based payments (86) - Other (138) (134) Net deferred tax (liability)/asset (3,025) 123 Page 23
Notes to the preliminary final financial report $ 000 $ 000 (e) Deferred tax balances Deferred tax assets/(liabilities) arise from the following: Recognised in loss for year Unbilled revenue (15,370) (8,361) Doubtful debts 2,939 1,350 Customer acquisition costs (4,295) (1,862) Prepayments (2,655) (1,966) Other financial assets 1,500 1,124 Provisions 236 96 Accruals 12,042 5,950 Share based payments 430 343 Derivative financial instruments 4,737 - Tax losses 16,155 15,717 Other 347 209 Net deferred tax asset/(liability) 16,066 12,600 Recognised in other comprehensive income Deductible transaction costs arising on the issue of equity instruments recognised directly in equity 862 502 Derivative financial instruments - 498 862 1,000 Net deferred tax asset/(liability) 16,928 13,600 Current and prior year tax losses will only be available to offset against future profits if: (a) (b) the and the Company continue to comply with the conditions for deductibility imposed by tax legislation; and (c) the and the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; no changes in tax legislation adversely affect the and the Company in realising the benefit from the deductions for the losses. As at there were no unrecognised deferred tax assets or deferred tax liabilities (: $nil). The Company and all its wholly-owned subsidiaries have formed a tax consolidated group with effect from November 2006 and therefore are taxed as a single entity from that date. The Company is the head entity in the tax consolidated group. The Company compensates other tax consolidated group members for tax benefits transferred by way of entry to relevant intercompany accounts. No income tax is payable by the as it incurred a tax loss for the year ended. Page 24
Notes to the preliminary final financial report 5. Cash and cash equivalents $ 000 $ 000 Cash and cash equivalents 19,900 8,706 Less: cash deposits subject to charge (refer Note 8) (8,484) (3,242) Cash per cash flow statement 11,416 5,464 s in cash subject to charge: Balance at the beginning of the financial year 3,242 2,777 Add: cash placed/(withdrawn) on deposit per cash flow statement 5,242 465 8,484 3,242 Page 25
Notes to the preliminary final financial report 6. Borrowings $ 000 $ 000 Unsecured at amortised cost Current Loans from: Related parties (i) (ii) Other entities (i) (ii) 1,700 3,225 1,000 2,875 2,700 6,100 Non-current Loans from: Related parties (ii) Other entities (ii) - 1,700-1,000-2,700 Secured at amortised cost Current Convertible note (iii) (iv) - 7,000-7,000 Non-current Convertible note (iv) Revolving loan (v) 3,791-47,200 27,813 50,991 27,813 53,691 43,613 Disclosed in the financial statements as: Current borrowings Non-current borrowings 2,700 13,100 50,991 30,513 53,691 43,613 (i) (ii) (iii) An unsecured loan of $6,100,000 was advanced during the prior financial year and had a fixed interest rate of 8%pa. The loan was increased by a further $200,000 during the current financial year and then rolled over into a convertible note. The convertible note had an interest rate of 8% and was converted into 14,318,000 ordinary shares at a conversion price of $0.44. An unsecured loan of $2,700,000 with a fixed interest rate of 20.0%pa. The loan is repayable by 31 December. During the financial year 3,000 secured convertible notes with a face value of $1,000 each (: $3,000,000) were converted into 15,000,000 ordinary shares at a conversion price of $0.20. The convertible notes were secured by a fixed and floating charge over the assets of the. Prior to conversion interest was payable at a fixed rate of 8.0% pa (: 8.0%). Page 26
Notes to the preliminary final financial report (iv) (v) 4,000,000 convertible notes secured by a fixed and floating charge over the assets of the. During the year ended the period in which the holder can convert the notes into ordinary shares was extended to 22 December 2012. At the option of the Company, it can elect to repay early the notes after 2012. In addition, the conversion price was agreed to be reset to $0.55 (previously between $0.59 and $0.64) and the number of ordinary shares that would be issued if all of the notes converted was reset to 7,272,727. Unconverted notes are repayable on 22 December 2012 (: 22 December ) at the issue price. Interest is payable at a fixed rate of 8.0% pa (: 8.0%). The extension of the notes has been treated as a new issue and the value of the convertible notes have been split between the liability element and an equity component. The equity component represents the value of the option to convert the liability into equity of the. The interest charge for the year is calculated by applying an effective interest rate of 8%pa to the liability component. A loan facility secured by fixed and floating charge over the assets and business of the was entered into on 22 June 2007. The facility is for a maximum amount of $50,000,000 (: $50,000,000) and its expiry was extended during the prior financial year to 22 December 2012. The facility can be drawn to the value of receivables, billed and unbilled, reduced by certain factors. The interest rate of the facility is a variable rate, and is calculated with reference to the current bank bill swap yield plus a margin. The interest rate at was 10.88% (: 10.73%pa). An unused line fee of 0.5%pa (: 0.5%) applies to the balance of the facility not drawn. There are no repayments required other than if the drawn balance exceeds specified security ratios. During the financial year there were draw downs of $22,900,000 (: $13,350,000 ) and repayments of $3,513,000 (: $1,127,000). Availability of the facility is dependant on adherence to performance and other conditions. The conditions include: limitation of amount that can be drawn to 90% of the eligible receivables. The amount of eligible receivables is calculated by deducting from the gross amount of billed and unbilled receivables allowances for overdue debts and other contingencies. If the drawn balance exceeds this amount then the must reduce the drawn balance; adherence to targeted ratios for debtor ageing, ratio of accounts on payment plans and debt write off; adherence to targeted levels of net worth, minimum cash levels and interest coverage; and other conditions normally found in secured loan facility agreements. 7. Issued capital 175,473,409 fully paid ordinary shares (: 101,395,657) (i) (ii) $ 000 $ 000 98,790 69,647 Average issue in fully paid ordinary shares price No. '000 $ 000 No. 000 $ 000 Balance at beginning of financial year (i) (ii) 101,395 69,647 101,310 69,618 Conversion of convertible notes $0.20 15,000 3,000 - - Exercise of employee options $0.65 187 122 - - Placement of shares $0.45 13,993 6,297 - - Placement of shares $0.45 1,151 518 - - Placement of shares $0.45 19,341 8,703 - - Conversion of convertible notes $0.44 14,318 6,300 - - Placement of shares $0.50 10,000 5,000 - - Issue of shares employee share plan (iii) $0.50 88 44 85 29 Costs of issues - (1,200) - - Tax benefit of share issue costs - 359 - - Balance at end of financial year (i) (ii) 175,473 98,790 101,395 69,647 Page 27