• AGL shares close down 13% at over one-year low
• Cuts final dividend by 29% to 25 Australian cents
• Results reflect ongoing green transition, says investor

SYDNEY, Aug 13 (Reuters) - Australia's top power producer AGL Energy (AGL.AX) , opens new tab on Wednesday reported a 21% drop in annual underlying profit and missed earnings expectations due to tighter retail margins and higher costs from its transition to renewable energy.

Shares closed down 13% at the lowest level since April 2024, and had their weakest trading session since October 2007.

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But the Sydney-based company, which is Australia’s biggest carbon emitter, said it was confident its investments in big batteries would bring a strong earnings stream once operational.

"We have invested heavily in growth this year, with approximately A$900 million ($587.79 million) deployed towards battery developments and strategic investments,” AGL CEO Damien Nicks said on an earnings call.

He said the batteries would also "more than offset" rising gas purchasing costs as legacy contracts neared expiration in 2027. "That’s why we're going after these as quickly and as hard as we can," he said.

AGL is targeting final investment decisions for 900 megawatts of grid-scale battery projects for storage, as part of a commitment to more ambitious renewable energy targets.

On Wednesday, it released a new climate plan targeting 6 gigawatts of renewable and storage assets by 2030, up from its previous target of 5GW.

The need for liquidity to support its green spending meant it declared a final dividend of 25 Australian cents per share, down from 35 Australian cents in the previous fiscal year, and on the lower end of its forecast payout ratio range of 50% to 75%.

Earnings before interest, tax, depreciation and amortisation fell 9% to A$2.01 billion and core profit was down by over one-fifth to A$640 million.

AGL said compressed consumer margins from gas and electricity retailing added to the softer result, as well as increased spending to support ageing coal plants that had suffered unplanned outages and downtime in the past year.

"We are not satisfied with the fleet performance. I think that's very clear," said Chief Operating Officer Markus Brokhof.

RBC Capital Markets analyst Gordon Ramsay said the result missed his estimates due to higher-than-expected costs and margin compression in its electricity and gas portfolio and the guidance had "disappointed".

AGL forecast underlying net profit for the financial year ending June 30, 2026 of between A$500 million and A$700 million. The midpoint of the range is 10% below the average A$667 million net profit estimate of nine analysts polled by LSEG.

But Jamie Hannah, deputy head of investments at top-15 AGL shareholder VanEck, was undeterred. He called the market reaction "out of kilter with the medium and long-term strategies" of the company.

The softer performance reflected the fact the company was in a transition period as it looks to pivot to clean energy and prepare for its exit from coal power in 2035, Hannah said.

“They've got the ageing coal power plants so outages are obviously affecting ability to run those power plants,” he said. “But at the same time, they have to spend money to build out the next phase of power generation, a lot of that’s renewables and the like.”

“That’s an ongoing transition which is going on globally. AGL being one of the biggest players in Australia is obviously the centre of that here.”

($1 = 1.5319 Australian dollars)

https://www.reuters.com/business/energy/australias-agl-shares-plunge-weaker-results-reflect-cost-going-green-2025-08-12/