Power price regulation and 'headwinds' to hit profit, warns AGL
Power giant AGL has posted stronger-than-expected underlying profits but is cautioning investors to brace for a tougher year ahead due to pressures including a generator outage at its coal-fired power plant in Victoria and the Morrison government's introduction of a fixed basic energy price for customers.
AGL, Australia's largest power generator, on Thursday announced full-year underlying profits to June 30 of $1.04 billion, up 2.2 per cent on the previous year. Its statutory net profit after tax fell 42.8 per cent to $905 million, the company said.
In guidance lodged with the ASX, the electricity and gas supplier has warned that earnings would likely be "materially lower" for the 2020 financial year – forecasting underlying profits of between $780 million and $860 million.
Chief executive Brett Redman said this was due to a generator outage at Loy Yang A coal-fired power plant expected to last until December, as well as a wave of operating "headwinds", citing the sliding wholesale price of electricity, higher fuel costs, and the "re-regulation" of retail standing offer prices with the Morrison government's introduction of a "Default Market Offer" last month.
"Despite this lower earnings outlook, AGL's operating outlook remains strong," Mr Redman said.
"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."
AGL on Thursday announced a share buyback of up to 5 per cent of its shares over 12 months. Based on AGL's closing share price of $20 on Wednesday, this equated to about $650 million, the company said.
Also on Thursday, AGL revealed it had sealed a $93 million to deal to buy the Western Australia-based power generator and retailer Perth Energy, which operates the 120-megawatt Kwinana Swift power station.
The acquisition of Perth Energy, whose majority owner is Infratil, added to AGL's west coast expansion which it began in July 2017, Mr Redman said.
"Perth Energy, as WA's third-largest electricity and gas retailer to business customers, is a strong strategic fit for us as we seek to expand WA and will provide greater flexibility for our management of our WA gas position," he said.
"We believe there is great opportunity for the Kwinana Swift plant to provide firming services as the electricity market moves to a higher renewables penetration."
Shares in AGL were trading 3.6 per cent lower at $19.28 shortly after the market opened on Wednesday.
AGL declared a final dividend of 64¢ a share.