Australia's AGL flags profit plunge as coal power suffers

  • FY21 profit falls 34%, as expected
  • Dire FY22 outlook is worse than broker forecasts
  • AGL shareholders to vote on company split by June
  • AGL shares slide 5%

Aug 12 (Reuters) - Australia's top power producer AGL Energy Ltd (AGL.AX) on Thursday warned its profit could dive nearly 60% in fiscal 2022 despite efforts to cut costs, hurt by a collapse in wholesale power prices.

Sliding wholesale prices, government pressure to cut retail rates and waning investor appetite for coal-fired power have battered the company's shares in the last two years. AGL hopes to stop the bleeding by splitting in two, with a shareholder vote expected by June 2022. L3N2OB4CW

AGL reported a 34% decline in underlying profit for the year to June 2021 to A$537 million ($396 million), in line with analysts' forecasts, hit by higher gas costs and a slump in wholesale power prices to nine-year lows, with demand hurt by pandemic lockdowns and growth in rooftop solar.

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"Financial year 2021 was one of the toughest energy markets we have seen," AGL Chief Executive Graeme Hunt told analysts at an investor briefing.

AGL warned it expects its profit to drop to between A$220 million and A$340 million for the year to June 2022, well below analysts' forecasts of A$357 million, according to Refinitiv data.

Its outlook is roughly in line with rival Origin Energy's forecast for the year ahead. read more

The plunge is expected even as AGL aims to cut A$150 million in operating expenses by June.

AGL's shares, already down 55% in the past year, sank 5.4% on Thursday, sharply underperforming the broader market (.AXJO).

The company said it is well-positioned for any sustained increase in wholesale power prices, and Macquarie analysts said with a recent rebound in wholesale prices the company would have "strong earnings support in FY23".

"Right now, you need to hope so," Chief Executive Graeme Hunt told Reuters.

Power prices have slumped due to an influx of solar and wind power, affecting the profit margins of coal-fired plants which run 24/7 whether prices are low or high - particularly painful for AGL, Australia's biggest owner of coal-fired power plants.

"AGL's coal obsession is driving the company into the ground," said Greenpeace senior campaigner Glenn Walker.

($1 = 1.3565 Australian dollars)

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Additional reporting by Savyata Mishra and Soumyajit Saha in Bengaluru; Editing by Devika Syamnath and Richard Pullin

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