Energy utility AGL Energy Ltd (ASX: AGL) reported its interim results to the market this morning. Profit after tax was heavily impacted by write-downs on the value of AGL's gas assets, after the company decided to withdraw from gas exploration and production.
However, underlying profit delivered a pleasing rise thanks to above-par performance and a full-year contribution from the Macquarie Generation coal project, while an increase in dividends should also keep shareholders happy. Here's what you need to know:
- Revenue rose 8% to $5,601m
- Statutory Loss After Tax of $449m
- Underlying Profit After Tax rose 24% to $375m
- Interim dividend of 32 cents, up 7% on previous year
- Impairments of $640m (after tax) to value of gas exploration and production assets
- Marginal improvements in customer churn, 0.9% decline in average customer numbers
- $3.1bn in non-current debt, $100m cash, heavy net cash outflow due mostly to repayment of borrowings
So What?
AGL's earnings rose this year largely thanks to a full year's contribution from its recently acquired Macquarie Generation business, although higher gas volumes and prices also played a part.
Heavy impairments on the company's gas assets were as a result of a weak gas market as well as lower-than-expected productivity from the Gloucester Gas project, which spurred the decision to abandon gas exploration and production. AGL will look to sell these assets at a future date.
The renewables portfolio remained underwater, with an Earnings Before Interest and Tax (EBIT) loss of $37m, compared to $40m in the prior comparable period.
Readers might be nervous about AGL's heavy debt load and low cash, but virtually all of its debt is non-current, requiring repayment in future periods. Cash flow from operations remained strong at $658m.
Total customer churn actually increased by 0.5%, faster than the rest of the market and narrowing the gap between AGL and its closest competitors. However, acquisitions and retentions increased by 5% while average customer numbers declined by 0.9%. Gross margin per account improved by 12%, partly thanks to external factors.
Total cost to grow per account decreased from $95 to $93. A focus on lower-cost internal channels lifted internal acquisitions and retentions from 76% to 79%.
Now What?
All things considered, it was a decent result from AGL even though the company continues to struggle to attract and retain fickle consumers. Decisions to write down the value of its gas assets and abandon gas production and exploration will further the company's renewable generation goals, although shareholders should note that AGL's renewables segment is as yet a tiny, loss-making business.
For me, I'm not a buyer of AGL Energy at today's prices as I believe the company will continue to struggle to grow revenues faster than consumer demand for electricity – which is to say, not very fast. Firm competition remains in the market, both from other utilities and alternatives like home generation.
Additionally, it's as yet uncertain where the earnings to replace the company's outgoing gas and coal assets will come from. Even though their departure is decades away, AGL's renewables segment isn't making great headway. Factor in its highest share price in five years – underlying profit has fallen significantly since then – and I struggle to see the value in AGL Energy today.
