AGL Warns On Peak Power

By Glenn Dyer | More Articles by Glenn Dyer

AGL Energy boosted profit by around 300% according to one measure in the year to June and has started looking for a replacement CEO to allow for an orderly succession when the incumbent Andy Vesey calls it a day.

“While Andy Vesey has no current plans to retire, he is approaching his fourth anniversary leading AGL,” chairman Graeme Hunt said in the annual report on Thursday.

But it is clear AGL believes that he will be going sooner than later and has started sorting out succession – either internally or externally.

In media interviews yesterday Mr Vesey made it clear he was not going any time soon.

That news overshadowed to an extent the very solid result from AGL (which helps explain why your power bills look pretty steep).

But its shares slumped after the company warned that lower electricity prices could affect its profits this financial year, forecasting underlying earnings of between $970 million and $1.07 billion for 2018-19 – that will not be a real improvement on the 2017-18 result.

The shares lost 4% to $21.11.

The energy retailer’s said its statutory net profit for 2017-18 surged to $1.587 billion, nearly three times higher than the year before due to changes to valuations of hedging electricity contracts.

That was a $562 million gain on the value of its wholesale electricity hedging compared with a hefty write-down the year before. Allowing for this, AGL said its underlying profit for the year to June 30 was up 27.6% to $1.023 billion, while revenue grew 1.8% to $12.816 billion.

It said the increase in underlying profit came from strong earnings growth in wholesale electricity sales, offsetting a drop in retail customer sales and increased depreciation.

CEO Andy Vesey said shareholders have benefitted from recent high wholesale prices but acknowledged higher market prices are hurting household cost-of-living pressures.

“This increase in prices in the broader electricity market has mostly been a result of the abrupt closure of non-AGL power stations such as Hazelwood in 2017 and Northern in 2016 and higher input costs for coal and gas,” Mr Vesey said in a statement to the ASX yesterday.

"In this environment, we recognise that many Australian households are facing cost-of-living pressures because of the higher energy bills that have resulted from higher market prices. For that reason, we are investing to create new supply in the market.

AGL forecast underlying profit of between $970 million to $1.070 billion in 2019, slightly above its forecast 2017-18 range.

AGL declared a final dividend of 63 cents a share, 80% franked and payable on September 21, taking its payout for the year to $1.17 a share, up 29% from the previous year.

With no real gain in earnings forecast (and the possibility of a small fall), boosting dividend this financial year will be tough.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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