Energy group AGL (AGK) has warned shareholders not to expect a big rise in earnings for the current financial year.
The company said the big dry since June and the mild weather had cut demand, and increased competition in the face of falling demand, has cut profit margins.
For the year to June 2014, AGL said its underlying net profit will fall in the range of $560-$610 million.
In the year to June 2013 the underlying net profit was $585.4 million, so the rise if it comes will be marginal and the actual result could be lower if the current dry continues.
That’s probably not good enough for Australia’s second biggest energy utility.
The largest drag on earnings identified by the company was the warmer than usual winter and spring and two other factors it outlined in yesterday’s update.
"Changes to accounting for defined benefits superannuation arrangements as a result of changes to accounting standard AASB119. The effect of these changes is to reduce Underlying Profit by approximately $10 million ($12.9 million in FY13).
"Record warm temperatures in July to September in much of eastern Australia, with a consequential fall in the demand for energy. This has reduced Underlying Profit by $25 million to $30 million.
"The continued effects of high levels of competitive behaviour and price discounting which, although now starting to abate, will constrain profit growth in FY14," AGL explained.
AGK YTD – Warmer winter hits AGL
"Guidance for FY14 Underlying Profit also includes the expected contribution from Australian Power and Gas Company Limited (APG). In July 2013, AGL announced its intention to acquire APG. APG’s 354,000 customer accounts would increase AGL’s total customer accounts to approximately 3.85 million, including 800,000 electricity customers in New South Wales.
"AGL currently owns more than 98 percent of APG’s shares and expects to complete the compulsory acquisition of the remaining shares and options by the end of October," AGL said.
The market also believes AGL is likely to bid for electricity generation assets for sale in NSW, perhaps seeking to acquire units of Macquarie Generation, although any move will be subject to scrutiny by the competition watchdog, the ACCC.
Chairman Jerry Maycock also reassured shareholders that the board was committed to paying higher dividends wherever it could do so.
"The Board’s objective is to seek to pay a progressively larger dividend each year, while retaining an appropriate level of funds for reinvestment and maintaining our BBB credit rating. Since 2006, our dividend payments have averaged around 60 per cent of underlying profit. Absent extraordinary events, we expect this approach to continue," Mr Maycock said.
AGL shares took fright at the news of the weak outlook and the shares fell.
They were falling before the turnaround in the afternoon and had hit an intra day low of $14.83, but rebounded to end at $15.24. That was still down 34c or 2.2%.
