Shares in energy group fell nearly 5% yesterday after the group released a less than stellar half-year profit.
While the headlines said AGL’s profit climbed to more than half a billion dollars in the December half, the reality was a bottom line that slumped 52.9%.
Investors and the company, of course, ignore after tax statutory profits and focus on “underlying” profits which is the figure without all those inconvenient one off nasties.
Statutory profit ended up at $290 million thanks to some expensive on off items.
In the case of AGL, the biggest nasty was the writing down the value of electricity derivatives, due to much higher forward trading prices.
The company was also hit by the higher costs of increased customer churn, which rose to 19.6% for the period, which cost AGL $40 million in the half.
The company said it had a 10.3% jump in underlying profit for the first half of the 2018-19 financial year, rising from $487 million to $537 million. This was driven by higher wholesale electricity prices.
The interim dividend was edged up 2% to 55 cents a share (80% franked). While the higher dividend would normally be seen as a sign of a company rewarding shareholders for a good result, this one looks more like a company keeping them happy after some expensive one-off losses.
AGL shares ended the day down 4.7% at $21.10.
Total revenue fell year on year, down 1.8% to $6.34 billion for the first half of the financial year.
Despite this mixed result and fall in revenues, AGL says it is focused on growth. It will be spending $25 million on upgrading its Loy Yang A coal-fired (in Victoria) power station’s turbine by around 15 megawatts.
It has also announced plans for a $450 million, 250 megawatts pumped hydro investment in the NSW, north of Muswellbrook, in the Hunter Valley.
AGL CEO, Brett Redman, said in yesterday’s statement: “AGL’s half-year result for FY19 reflects the disciplined management of our portfolio amid challenging operating conditions.”
“The strength and flexibility of our portfolio has enabled AGL to deliver strong returns for shareholders as we continue to invest to support supply availability throughout our fleet, deliver energy affordability programs for customers and make progress with growth opportunities.
“As the market is aware, increased input costs for coal, supply constraints in the gas market, weather impacts and ongoing energy policy uncertainty continue to place upward pressure on electricity prices,” Mr. Redman said.
“Despite these pressures, we are continuing to invest more in our existing assets and in new projects as well as delivering lower standing electricity prices for household and small business customers and expanding loyalty and hardship programs.
“We have refreshed our strategic priorities at AGL to focus on three key areas: growth, transformation, and social licence. In this context, we continue to add to our project development pipeline to bring on new supply of cleaner, affordable and more reliable energy, with wind farms at Silverton in New South Wales and Coopers Gap in Queensland and gas-fired firming capacity at Barker Inlet in South Australia all under construction.
“In addition, we will soon begin work on our project to upgrade the Bayswater Power Station in New South Wales and continue to progress potential projects to develop new gas-fired firming capacity at Newcastle and the import of much-needed gas through an LNG import jetty at Crib Point in Victoria.
Mr. Redman said: “We are currently tracking towards the mid-point of our guidance range for Underlying Profit after tax to be between $970 million and $1,070 million in the financial year ending 30 June 2019.
” Our guidance reflects the continued strong performance of the AGL portfolio. This is offsetting the earnings impact of customer affordability initiatives, our decision to increase operating expenditure at our coal-fired power stations to support future availability and, in the second half, lower forecast gas sales volumes and the cost of absorbing consumer electricity price cuts and loyalty schemes,” he said.
