Nothing like a bit of global warming to get the energy utilities’ revenue rising and profits growing.
And that’s what we saw from energy utility AGL yesterday which has rewarded shareholders with a sharply higher dividend after it returned to profit in the six months to December after the big financial and asset clean up the year before.
On top of that AGL continued to benefit from rising power prices, but sold less electricity to consumer and business markets, but more to the wholesale sector.
As well the company says it had fewer customers switching suppliers than their competitors, meaning lower costs in the half in the consumer area.
AGL reported a half year a net profit of $325 million, a reversal from the loss of $449 million a year earlier. The underlying profit for the half was $389 million compared to $375 million earned a year earlier.
The company left unchanged its forecast of a year to June underlying profit of $720-800 million and expects earnings to reach the top half of this guidance, meaning a slight, 4% upgrade to profits for the year.
Interim dividend was boosted 28% to 41c as share from 32c, thanks to a change in the dividend policy, as it now targets a payout ratio of 75% of underlying earnings up from 60-65% previously.
Rising wholesale electricity prices is beginning to flow through to the bottom line, AGL said yesterday.
“The impact of rising wholesale prices is expected to continue,” AGL CEO Mr Andy Vesey said in yesterday’s statement. “The forward curve points to sustained improvement, although the impact will continue to be phased over time due to competition, customer affordability considerations and the timing of roll-over of contracts.
Customer numbers were broadly flat across both consumer and business accounts, with only minor movement across states, with customers switching supplier offset by gains.
Customer ‘churn’ was 15.9% up from 15.7% in the December, 2015 half year, which was below the broader churn in the market of 20.1%, the company said.
But the volume of electricity sold into both the consumer and business markets fell 8% and 10% respectively, it said, although stronger sales into the wholesale market helped to offset some of the decline. As a result the overall volume of electricity sold fell 1.8% in the half year.
The $58 million from higher wholesale electricity prices and sales plus cost savings in the first six months of 2016-17 more than compensated for lower profits in the wholesale gas business, which AGL said last year would be hit to the tune of $100 million this year.
Mr Vesey said the 4% rise in full-year guidance takes into account the “headwinds” in AGL’s gas portfolio, including lower margins on existing wholesale contracts, supply disruptions seen last September quarter and the impact of mild winter weather in July-August.
He was cautious on how long the gains from higher wholesale electricity prices could be expected to continue, pointing to customer affordability issues and the timing of the rollover of wholesale contracts.
AGL shares rose 4.3% to $24.
