Conditions ‘remain challenging’ as AGL swings to $2.3b loss
Energy giant AGL will cut costs and look at possible changes to its business model after posting a $2.3 billion loss for the first half of 2021 against a backdrop of plunging wholesale energy prices.
Chief executive of the $7 billion power provider, Brett Redman, warned investors the company expects factors including “policy measures to underwrite new build of electricity generation and lower technology costs” to have an impact on wholesale energy prices for the longer term.
AGL chief executive Brett Redman.Credit:Louise Kennerley
“The outlook remains challenging,” he said.
Last week the company revealed $2.7 billion in writedowns, primarily related to historical contracts signed with wind farms when wholesale power prices and renewable energy certificates were priced much higher than they are today. Spot and forward energy prices are currently at levels not seen since 2015, Mr Redman said.
The company swung to a statutory loss of $2.7 billion for the half. Its underlying profit was $317 million, down 27 per cent on the same period last year.
In a presentation to investors, Mr Redman said the business was benchmarking its costs back to FY15 levels, the last time that wholesale energy prices were sitting where they are today.
He said the business had identified $150 million in operational expenditure savings to be delivered in 2022, and a $100 million reduction in capital expenditure spending by 2023.
Mr Redman also flagged that given the challenges the business was facing, “we are assessing our business model and capital structure”.
When asked by analysts what this would involve, he said the company was considering the best way forward and more detail would be shared at an investor day in March.
“We need to spend the time making sure we are thoughtful…We are going to come back with that thoughtful, complex response.”
AGL’s energy retail division produced brighter news, with the total number of services to customers growing by 246,000 in the half, bringing the total to 4.2 million. This makes the firm Australia’s largest energy retailer.
AGL pay a 31¢ interim dividend and a 10¢ special dividend payment which was flagged last year. It continues to expect an underlying profit after tax of between $500 million and $580 million for the 2021 financial year.
Shares in the company ticked higher on Thursday afternoon, gaining 1.4 per cent to $11.32 just after 1.30pm, though the share price remains under pressure and is down 41 per cent on the same time last year.
RBC Capital markets analyst James Nevin said the company’s commentary confirms the assumptions that power prices will have an impact into 2022 and beyond.
“We think AGL is a difficult investment proposition right now with falling wholesale electricity prices that will likely continue to flow through to earnings over the next few years,” he said.
UBS analysts said the numbers were in line with consensus, with expanded cost-saving measures the main tool AGL will be using to mitigate against the “bleak outlook” of the next two years.
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