Resurgent Origin Energy Leaves Shareholders Waiting

By Glenn Dyer | More Articles by Glenn Dyer

Origin Energy is well and truly in the black and is looking to restart dividends to patient shareholders in 2019.

Origin lifted full-year revenue by 7% to $14.8 billion and more than doubled underlying profit on the back of improved performance in its retail and gas production operations.

The electricity and gas group’s statutory net profit for the year to June 30 was $218 million, up from a $2.2 billion loss a year earlier when results were hit by impairment charges.

There were further write downs in the year to June of $533 million but that was not enough to damage earnings as much as the massive losses the year before did.

Origin did not declare a final dividend but signalled dividends will resume in 2018-19 when shareholders can also expect profit growth.

Chairman Gordon Cairns said in yesterday’s statement, “Having materially reduced debt and lifted business performance, Origin is now in a much stronger financial position and more resilient to commodity cycles.

"However, as we have not yet reached our target capital structure the Board has determined not to pay a final dividend for FY2018.

“Subject to Board approval and no material adverse change in business conditions, our medium term outlook supports recommencement of dividends in FY2019,” he said.

Origin last paid a 10 cent dividend for the first half of 2015-16 but the board, led by chairman Gordon Cairns then suspended payouts to tackle the huge debt, costs and overvalued assets on the balance sheet.

Origin CEO Frank Calabria said in yesterday’s statement, “We had strong performance across the board this year, with earnings growth in both Integrated Gas and Energy Markets driving increases in Underlying EBITDA and Underlying Profit.

“Operating cash flows increased and we also met our target to materially reduce debt, paying down $1.6 billion on the back of the Lattice Energy and Acumen sales with adjusted net debt now sitting at just below $6.5 billion.

“After a period of significant capital investment, Integrated Gas is making a material contribution to Origin, driven by a full year of operations from both LNG trains at Australia Pacific LNG and higher commodity prices. This year Australia Pacific LNG also hit the milestone of delivering net cash flows back to Origin of $363 million.

“Energy Markets growth was driven by our power generation portfolio which lifted output by 14 per cent and benefited from higher wholesale prices, and higher natural gas sales volumes, though this was partly offset by higher operating costs associated with a very competitive retail market.

“We have made significant progress over the past 18 months on our twin priorities of reducing debt and improving returns, which has put us in a good position to pursue opportunities for the future.

“At the core of our strategy is our ambition to connect customers to the energy and technologies of the future and we are fortunate that we have opportunities right across our business. We are well placed to meet the changing needs of customers, grow low cost renewables and enhance our existing portfolio of generation assets as well as pursuing exciting opportunities like the Beetaloo Basin to grow our gas resources.

“A stable regulatory environment will be key to enabling us to invest with confidence, with new supply a critical action to place further downward pressure on prices for Australian homes and businesses,”he added.

Looking to 2018-19 Origin said yesterday it expects underlying profit to be higher and further debt reduction the year to next June.

"In Energy Markets, modest growth in natural gas gross profit will be more than offset by the absorption of a 3 per cent electricity price increase in NSW and the impact of ongoing retail competition. Energy Markets underlying earnings will also be impacted by the changed treatment of electricity hedge premiums which were previously outside of underlying earnings ($160 million).

There is no change to statutory profit or net cash flow as a result of this classification change.

"It is expected Energy Markets Underlying EBITDA will be lower at $1.50-$1.60 billion. Without the impact of the changed treatment of certain electricity hedge premiums and decision to absorb the price increase in NSW, Underlying EBITDA would have been broadly in line with FY2018 at $1.74-1.84 billion.

“Australia Pacific LNG’s FY2019 production is expected to be 660-690 PJ.

"Continued capital and operating cost savings are expected to be offset by higher one-off costs associated with non-operated capex scope changes from FY2018, increased exploration and appraisal activity and higher infrastructure spend to increase flexibility in gas processing and transport.

Australia Pacific LNG is targeting operating breakeven of US$22- 26/boe and distribution breakeven US$39-44/boe in FY2019.

"Capital expenditure excluding Australia Pacific LNG is expected to be $385-445 million, comprising appraisal of the Beetaloo Basin resource, Ironbark and Power of Choice metering reforms. This also comprises $105-125 million on growth projects, including generation flexibility, digital systems and new customer-focused technologies,” The company said.

And of course the prospect of the resumptions in dividends.

That however wasn’t enough to investors and the shares fell more than 6% to $9.09.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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