AGL profit pull back amid volatility
Profits at the nation’s biggest power generator slumped 58 per cent and investors are bracing for more poor returns as old power stations near retirement.
AGL Energy has signalled a pullback in profit expectations as electricity market “chaos” extends into 2023, warning station breakdowns that crippled the grid this winter were likely to be repeated as plants neared retirement age.
Annual profit for the nation’s biggest power generator slumped 58 per cent to $225m, some 8 per cent shy of analysts’ numbers, while 2023 guidance will not be issued until late September when a strategy review is released.
While consensus forecasts show a 90 per cent lift in earnings this year, outgoing chief executive Graeme Hunt hosed down those expectations, pointing to market volatility and the ongoing loss of generation at Loy Yang A where it has been plagued by a fault.
“We’re not looking at this point in time at a major step-up in earnings year on year,” Mr Hunt told analysts, noting AGL’s prediction of “resilient” earnings in 2023 may not equate to 90 per cent growth.
Van Eck, a major AGL investor, conceded said another tough year may be in store.
“It will be hard to grow vastly in the next year,” Van Eck portfolio manager Jamie Hannah said. “The results were disappointing, but expected unfortunately. And I do agree they can’t send their full guidance out until they do a full strategic review.”
AGL was now facing earnings downgrades, according to Barrenjoey Capital Partners. “This is either a meaningful downgrade to consensus or consensus is not listening to management,” equities analyst Dale Koenders said. “The difficulty is how quickly does the recovery and electricity prices flow through to earnings.”
Underlying earnings fell 27 per cent to $1.21bn as a series of coal breakdowns including a major outage at Loy Yang A hit a time of high wholesale prices, forcing the electricity retailer to buy expensive supplies in the market.
A string of breakdowns in coal power stations that sparked record power prices and a supply squeeze this winter were likely to continue as old plants edge closer to retirement, according to AGL.
The return of negative wholesale prices in recent weeks as renewables carve out the position of coal during the day also continues to pile pressure on the fossil fuel. Solar supplied more generation than coal into the national electricity market for the first time on record on Friday, underscoring changes sweeping the grid. A mix of fuels would be needed through the transition, given the growing unreliability of coal this winter, according to the AGL chief who described the June quarter market conditions as chaotic.
“You can never guarantee that things won‘t break down,” Mr Hunt told The Weekend Australian in reference to coal.
“We all own cars that are in a range from being decades to being months old,” he said.
“And things still break down. And as things get older, the potential for that increases.
“But we are confident that the work that we do – and the money that we spend – is focused on managing the reliability as soon as we possibly can and we will continue to work on that.”
AGL has suffered outages at its Bayswater and Loy Yang A plants and also at Liddell, which will shut down permanently in April 2023.
After being plagued by boiler tube leaks in June and July which it described as an “extreme situation”, AGL said it had introduced acoustic monitoring in the boilers to detect early signs of tube failure and measures to cut corrosion.
The company will pay a dividend of 10c per share with a total dividend of 26c per share, down 65 per cent on the previous year.
Its statutory profit of $860m, which bounced back from a $2bn loss the year before, included a $486m hit from onerous contract provision revaluations, impairments, and costs associated with the demerger and restructuring.
AGL said 300 people left the company during the 2022 financial year amid falling employee engagement scores as the company said staff were “rallying round” each other after its demerger was dumped.
The company has endured a torrid year after being forced to dump long-held plans to split into two companies after intense pressure from Atlassian billionaire Mike Cannon-Brookes, the company’s largest shareholder and climate activist.
AGL is now searching for both a new chief executive and chairman after Mr Hunt and Peter Botten resigned in the wake of losing the demerger vote. The power giant said the selection process for a new chair “is well advanced” and it expects to announce an appointment before the 2022 annual general meeting in November. A global search for a new CEO has also started along with a hunt for new non-executive directors.
A new strategy is being prepared with several board members due to deliver an update on its future direction in late September.
AGL said the review would focus on four key areas including a review of the existing strategies it had developed for AGL Australia, with its customer base of 4.5 million, into a newly listed retail-focused company, and the coal generator Accel Energy.
The emergence of Brookfield on AGL‘s share register in June with a 2.5 per cent stake has also stoked speculation the Canadian investment giant may reprise a takeover offer after two bids with Mr Cannon-Brookes were rejected in March. AGL said there had been no contact with Brookfield since its June announcement.
AGL shares ended 3.9 per cent, or 32c, lower on Friday at $7.84. They are up 24 per cent in 2022.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout