By Angela Macdonald-Smith
A reinvigorated AGL Energy has flagged a smaller-than-expected drop in earnings this coming year and announced $250 million of battery and solar acquisitions as it seeks to accelerate its build-out of clean energy and prepare for the exit of coal power.
Shares in the giant electricity and gas supplier, whose biggest investor is tech billionaire Mike Cannon-Brookes, rose 2.3 per cent after it reported vastly improved results for the year ended June 30, including a near-trebling in core profit that beat its own twice-upgraded guidance.
In a further sign of the transition of the country’s biggest coal power generator towards lower-carbon energy, AGL also announced that renewables veteran Miles George will take over from Patricia McKenzie as chairman in February.
Ms McKenzie, who stepped in to steady the ship after the enforced ditching of AGL’s demerger strategy in 2022, will retire from the board after the first-half earnings results.
Wilson Asset Management portfolio manager John Ayoub said Ms McKenzie had done “a great job” in taking AGL through a volatile period and getting it where it is today.
“The message today is that the turbulent period they had been through, which saw all sorts of stuff, is now behind them and the company is in a much stronger position where they are ready to participate further in the transition,” Mr Ayoub said.
“I think Miles with his background, [and] … his experience when it comes to energy transition markets, he’s absolutely well-positioned to see the company through its next phase.”
AGL’s significantly higher profits were due to improved performance at its power stations and higher electricity prices. Its large battery at its Torrens Island site in Adelaide contributed $28 million from its first nine months of operations.
But while its bottom line surged back into the black, AGL confirmed the huge returns of 2023-24 are unlikely to be replicated, pointing to lower prices in contracts and narrower retail margins.
“AGL’s result reflects a return to more stable energy markets after the challenges of recent years, as well as signs of an ongoing successful pivot in strategy away from legacy assets,” said Betashares responsible investments director Greg Liddell.
He said the acquisitions of battery developer Firm Power and solar farm developer Terrain Solar “shows the transition to clean energy will create a range of opportunities across the energy sector”.
The acquisitions will boost AGL’s pipeline for potential projects by 8.1 gigawatts of capacity, with the most promising projects in Queensland and NSW. It will help AGL towards its target to deliver 12GW of new clean energy supply – split roughly equally between renewables and firming – by 2036.
Chief executive Damien Nicks said the acquisitions “present strong optionality for AGL” focusing on capacity that will be needed to firm up renewable generation for customers and support the exit of thermal baseload generation from the National Electricity Market. Firm Power has 21 projects in development, while Terrain Solar has six.
“We’re excited by the fact that they have some great projects in NSW and Queensland particularly – that is where in the shorter term we need to build our optionality,” Mr Nicks told The Australian Financial Review, pointing to potential final investment decisions on projects within the new portfolios being added within one or two years.
“We’ll work through the whole development pipeline with our teams, with the market modelling, and work out which ones go first.”
Mr George, a former chairman of the Clean Energy Council, joined the board in September 2022 as part of a major overhaul when several directors exited after the demerger failed. The appointment was supported by Mr Cannon-Brookes’ Grok Ventures, which also successfully nominated other directors to the board in a bid to widen the skills base required to reset the company. Grok also supported Ms McKenzie’s re-election at the AGM in November 2022.
Activist shareholder group the Australasian Centre for Corporate Responsibility said on Wednesday the change of chairman opened up an opportunity for “step change” at AGL, where it said the ambition on climate had been “underwhelming” since the board overhaul.
ACCR impact lead Harriet Kater said that with AGL – also the country’s largest carbon emitter – presenting an updated climate transition action plan to shareholders for a vote next year, “expectations are now raised for an enhanced strategy that is ambitions, nimble and value accretive”.
Net income surged to $711 million in the year ended June 30. That compared with a statutory loss of $1.264 billion the previous year, which was marred by write-downs.
Underlying net profit, a figure closely watched by the market, jumped to $812 million, up from $281 million. The figure narrowly beat AGL’s upgraded guidance in May and market consensus.
But the peak group representing energy consumers said the jump in profits was “a clear sign that the sector is failing consumers”. Brendan French, CEO of Energy Consumers Australia, said it would “do nothing to improve the poor trust that consumers have in energy companies”, pointing to a record number of customers in hardship programs.
AGL shares closed at $11.06, the highest for almost 12 months.
The company declared a final dividend of 35¢ a share, up from 23¢ a year earlier, and said it would start paying partially franked dividends from the FY25 interim dividend.
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