AGL coming clean sans Loy Yang

Australian
Thursday 21/8/2008 Page: 22

AGL Energy, focused on growing its clean energy business, will look at selling its stake in Victoria's Loy Yang brown-coal power station stake after the federal Government hands down its new carbon trading regime and gives a more certain view of its value. AGL, which said the emission trading scheme could boost the value of its assets by $220 million, is still deciding whether to sell its $900 million stake in Queensland Gas Co, with chief executive Michael Fraser saying those funds could be deployed into assets that directly deliver gas.

The comments were made after AGL reported a 7.6 per cent gain in underlying full-year net profit to $355.5 million, which was at the higher end of guidance of between $330 million and $360 million. AGL said it still planned to report underlying profit of between $460 million and $390 million this year. Attributable net profit fell by 44 per cent to $229 million because of changes in the value of electricity, foreign exchange and oil hedges.

Mr Fraser, who replaced sacked chief executive Paul Anthony in October, said he was pleased with what had been accomplished since he had taken the helm at AGL, and that the company had been able to meet is issued guidance. The core businesses have really done well, which is something we focused on improving," Mr Fraser told The Australian yesterday , adding that a drop in profits from Loy Yang was the only blemish. Earnings before interest and tax from the Loy Yang investment fell to $12.4 million, down from $46.6 million a year earlier, because of lower Victorian electricity pool prices, higher maintenance costs and increased interest rates.

AGL has positioned itself well "for the carbon future we're all facing", Mr Fraser said, with its renewable portfolio and development opportunities giving it first mover advantage. The company said its generation portfolio could increase by about $220 million on a net present value basis because of the emissions trading scheme. Analysts reacted positively to the report, and the stock rose 3.5 per cent.

It was a good effort, given we weren't expecting the poor result from Loy Yang," ABN AMRO analyst Jason Mabee said. "If Loy Yang had had a normal year, they would have blown away their guidance." Speaking after the results, Mr Fraser said AGL's 24.9 per cent QGC stake was not seen as a core long-term asset, and while a decision had not been made to sell, it gave the group options to invest in direct gas access if the opportunity arose.

He said the company would look at its stake in Loy Yang after the Rudd Government released its white paper on carbon trading in December and the extent of any assistance the plant would get was known. Mr Fraser said the sale of the company's stake in the Papua New Guinea gas project was on track for completion by the end of the year, with final bids due September 15.

But he said it might be October before the bids which analysts say could be up to $900 million are presented to the other project partners to see whether they would exercise their preemptive rights. About $US150 million ($172 million) of the cash from the sale would need to be used to pay off associated hedging costs, the company said.