AGL Unveils Buyback As Headwinds Build

By Glenn Dyer | More Articles by Glenn Dyer

While AGL modestly beat expectations for full-year earnings in 2018-19, the outlook for the new financial year failed to enthuse, even though the company warned of the biggest problem – a $100 million-plus cost at a Victorian power station – months ago.

The company said underlying after-tax profit of $1.04 billion for 2018-19 were up 2.2% from the previous year, but statutory net profit for the year fell 42.8% to $905 million.

AGL is expecting underlying profit after tax for 2019-20 to be weaker than 2018-19, with the company guiding a result between $780 million and $860 million.

If that happens it will be a fall of 17% to 25%.

The major additional cost is the $100 million-plus bill for the repair (and costs) following a short circuit in the Number 2 generating unit at the company’s Loy Yang power station in Victoria.

The company declared a final dividend of 64 cents a share, up a cent from 2017-18’s final. That dividend will be 80% franked.

That takes the total for the year to $1.19 a share from $1.17 in 2017-18.

AGL shares ended down 4.9% at $19.02.

The company reported net cash from operating activities of $1.599 billion, down 25% on the prior corresponding period.

CEO Brett Redman was pleased with the company’s performance in FY 2019, saying in yesterday’s statement:

“…we were encouraged to see an increase in customer numbers over the course of the year and a reduction in the levels of customer churn – as well as near-record generation output from our electricity fleet, including an increasing share of non-thermal generation as we deliver the Silverton and Coopers Gap wind projects via the Powering Australian Renewables Fund.”

But its the outlook that concerned the market and the 17% to 25% slide in underlying earnings.

“Our expectation for materially lower earnings in FY20 reflects the impact of the extended outage of Unit 2 at AGL Loy Yang we announced in June, higher depreciation following our recent increases in capital investment, and operating headwinds from lower wholesale electricity and renewable energy certificate prices, higher input fuel costs and the re-regulation of retail standing offer prices for electricity,” Mr. Redman said yesterday.

But he was optimistic in the face of this problem (as he should be, can’t have a gloomy CEO, can we?):

“Despite this lower earnings outlook, AGL’s operating outlook remains strong. We have entered the new financial year in a robust financial position, meaning we can invest back into the business and execute our growth strategy at the same time as we undertake the on-market share buyback we have announced today.”

Ahh, when trouble hits a big company out comes the plans for a buyback to steady the share price and keep investors, especially those big holders, content.

AGL plans to buy back up to 5% of its issued share capital and based on its share price, that would cost more than $650 million.

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.

View more articles by Glenn Dyer →