AGL Energy profit surges as hunt steps up for successor to Vesey
Summary: AGL Energy has posted a near-tripling in net profit for 2017-18 but the forecast earnings by the major gas and power retailer fell well short of consensus.....
The news on the profits came as AGL flagged it has started to consider candidates to succeed controversial chief executive Andy Vesey.
AGL's share price dived as much as 5.4 per cent in early trading as analysts focused on the soft earnings guidance.
Amid speculation about the future of Mr Vesey at AGL, chairman Graeme Hunt said that while he "has no current plans to retire, he is approaching his fourth anniversary leading AGL."
AGL's full-year profit has jumped. AGL Energy
"As such the board is increasing its focus on the development of internal candidates who may be suitable to succeed Andy, while maintaining an active view of potential external candidates," Mr Hunt said in the annual report, released on Thursday with the full-year earnings.
Mr Vesey, an American who previously worked for US power giant AES Corporation, has irked federal government politicians in Canberra as he has determinedly set AGL, the country's biggest carbon polluter, on a path towards cleaner energy. Most recently he led AGL's resistance to government pressure to sell or extend the life of its Liddell coal generator in NSW.
A surge in prices that has hit households and businesses hard has also hardened public and political attitudes towards the energy suppliers, which are facing particular scrutiny by the competition watchdog. AGL has been seen as one of the main culprits in driving up east coast gas prices because of a $2 billion contract it struck to sell gas to Santos's GLNG project that ended up as exported LNG.
Underlying net profit for the full year rose 27.6 per cent to $1.023 billion, beating consensus estimates of $997 million, but within AGL's February guidance of $940 million-$1.04 billion.
But AGL's guidance for underlying profit in 2018-19, of $970 million-$1.07 billion, is shy of market consensus of $1.098 billion.
AGL is spending more on retaining customers. AGL Energy
JPMorgan analyst Mark Busuttil said the "strong" result for 2017-18 would likely be overshadowed by the guidance, which compares with his estimate of $1.115 billion.
Shares in AGL, which slid as low as $20.83 at the open, were down 4.3 per cent at $20.065 at 10:19am AEST.
Mr Busuttil highlighted AGL's comments about slowing momentum in earnings amd softening wholesale prices and tough retail competition.
The guidance includes the benefit of a $120 million cut in operating costs, intended to offset the impact of more intense retail competition. The cost reduction "is part of a broader business optimisation program targeting a return to FY17 operating cost levels by FY21," AGL said.
Mr Vesey has been called to Canberra several times over the past 18 months to explain the company's actions. Andrew Meares
Mr Vesey on Thursday blamed the surge in electricity prices on the "abrupt" closure of the Hazelwood and Northern coal generators - neither of which was owned by AGL - and higher costs for coal and gas. The same point was made by Cath Tanna, head of rival EnergyAustralia, which this week also posted a near-trebling of profit.
AGL's improved result "reflects the benefits of our multibillion-dollar investments in our electricity generation portfolio over recent years, which alongside disciplined execution of our strategic plans, has resulted in strong returns for shareholders during the recent period of higher wholesale electricity prices," Mr Vesey said.
The 194 per cent jump in bottom line profit, to $1.587 billion, was also driven by a $562 million increase in the value of energy derivative contracts, in contrast to a negative value a year earlier.
AGL declared a final dividend of 63¢ a share, taking the payout for the full year to $1.17 a share, up 29 per cent.
Wholesale electricity prices are set to drop. AGL Energy
Mr Vesey also underlined AGL's strong support for the National Energy Guarantee, which goes before federal and state energy ministers at a meeting in Sydney on Friday.
He said that if the NEG goes through, AGL anticipates being able to proceed with additional new generation projects, including potentially gas-fired plants and pumped hydro, as well as battery storage in the longer term. AGL already has more than $2 billion of new projects under development.
"While wholesale electricity prices have already begun to fall over the past 12 months, policy certainty is key to encouraging the additional generation supply that will place further downward pressure on prices and benefit consumers over time," Mr Vesey said.
AGL also announced additional measures to help vulnerable customers, including $50 million of hardship debt relief. It also committed to extend to all states "loyalty discounts" to customers on expensive "standing offers" who have been with AGL for at least two years.
Speculation about Mr Vesey's future at AGL has swirled in recent weeks amid reports the executive has been spending increasing amounts of time in the US, rather than Australia, and an absence of more than three months on Twitter. He resumed tweeting late last week, including a post on Tuesday calling for support for the NEG.