AGL profit falls amid margin squeeze, rising coal costs

Investors are paying close attention to the profitability of AGL Energy as it moves to please both investors and fund its transition away from coal.

AGL Energy has posted a 7 per cent fall in half-year profit despite a jump in revenue as Australia’s second-largest electricity and gas retailer said its retail margins were squeezed, and it was forced to increase maintenance costs to keep its coal fleet operational.

Still, the result surpasses market expectations, though it will also test the willingness of investors to accept a lower dividend of 23c a share from 26c from a year earlier.

Underlying profit after tax fell to $373m for the six months to December 31, despite a 15 per cent jump in revenue to $7.13bn.

Statutory profit, which includes an array of financial derivatives that often wildly swings as a result, plunged 83 per cent, though the market usually looks through this metric.

AGL also tightened guidance for underlying profit after tax to $580m to $710m from a prior forecast of $530m-$730m.

The profitability of AGL shapes as a major test of its capacity to maintain its appeal to investors while also funding its transition away from coal.

Screen grab from the AGL’s ‘We're getting out of coal’ campaign. Picture: Supplied

AGL has outlined a $20bn plan to 12GW of replacement capacity as it moves aggressively – particularly under pressure from its largest shareholder billionaire Mike Cannon-Brookes – to shutter its coal fleet.

In November 2022, 70 per cent of shareholders supported AGL’s plan to exit coal by 2035, despite Mr Cannon-Brookes, urging a more aggressive transition.

AGL said firming and flexible generation assets are expected to generate post tax returns of between 7 per cent and 11 per cent. Renewable energy generation assets will generate after-tax returns of between 6 per cent and 8.5 per cent.

More to come

Originally published as AGL profit falls amid margin squeeze, rising coal costs