content_image/212489.jpg content_image/212491.jpg
Underlying Profit and Operating EBIT are the Statutory Profit and Statutory EBIT respectively adjusted for significant items and changes in the fair value of financial instruments. AGL believes that Underlying Profit and Operating EBIT provide a better understanding of its financial performance and allows for a more relevant comparison of financial performance between financial periods. 

AGL believes Underlying Profit and Operating EBIT are useful as they: 

> remove significant items that are material items of revenue or expense that are unrelated to the underlying performance of the business thereby facilitating a more representative comparison of financial performance between financial periods and; 

> remove changes in the fair value of financial instruments recognised in the income statement to remove the volatility caused by mismatches in valuing derivatives and the underlying asset differently. 

Underlying Profit is presented with reference to the Australian Securities and Investment Commission Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011. AGL’s policy for reporting Underlying Profit is consistent with this guidance and the Directors have had the consistency of the application of the policy reviewed by the external auditor of AGL. 

The following table reconciles Statutory EBIT to Operating EBIT: 

<img src='content_image/212489.jpg'>

Operating EBIT for the year ended 30 June 2012 was $730.4 million compared with $656.5 million for the prior corresponding period. The Statutory and Operating EBIT by segment is presented in the following table: 

<img src='content_image/212491.jpg'>

Operating EBIT/Average funds employed increased 0.3 percentage points (ppts) due to a $73.9 million, or 11.3%, increase in Operating EBIT. Partially offsetting the positive impact of an increase in Operating EBIT was an increase in average funds employed of $514.2 million or 6.9%. 

Average funds employed increased due largely to investments in assets whereby the contribution to EBIT will not commence until the assets reach practical completion or gas production. 

## Retail Energy: 

Operating EBIT of $332.8 million was up 9.1% on the prior corresponding period, due mainly to an increase of $58.6 million (9.8%) in gross margin and increased customer numbers. Total customer accounts increased by 5.5% to 3.47 million. AGL increased customer numbers in all states with dual fuel customer accounts growing by 10.2% during the year to 1.62 million. 

## Merchant Energy: 

Operating EBIT of $549.7 million was up 21.3% on the prior corresponding period. Wholesale Electricity gross margin increased 25.4% to $381.5 million. The non-recurrance of the severe summer weather events experienced in February 2011 was a key factor behind the $77.2 million increase. Wholesale Gas gross margin increased 10.1% to $114.8 million. Eco-Markets gross margin increased 49.6% to $66.4 million due to effective portfolio management and increased renewable generation. Fees from the development of wind farms fell from $61.0 million in the prior corresponding period to $43.0 million this year. 

