Origin Energy Powers Down Dividend Policy Despite Earnings Surge

By Glenn Dyer | More Articles by Glenn Dyer

Origin Energy’s underlying profit might have surged more than 40% in the year to June, but the coming year will be tougher, so a new dividend policy will be adopted to handle any slowdown.

Origin’s net profit increased five-fold to $1.21 billion in the year to June 30, up from $280 million in 2017-18.

After excluding one-off items, profit was up 41.5% $1.03 billion.

The company thinks the federal government’s introduction of a fixed basic energy price for customers will make life tougher to companies like in the electricity and gas markets.

CEO Frank Calabria said in a statement and later briefing that “headwinds” were affecting electricity margins.

“In light of this, we have been focused on enhancing the customer experience, simplifying our retail business by targeting cost savings of greater than $100 million by the 2021 financial year and growing new revenue streams in centralised energy services, solar and storage and broadband,” he said.

Origin said profit in its natural gas portfolio was expected to be “relatively stable” during the coming year, but the company has warned of a $100 million reduction in electricity profit on the back of the impact of government default market offers.

He said the 2018-19 result was underpinned by “contributions from two strong cash-generating businesses,” Mr. Calabria said as well as the company’s continuing efforts to simplify the organisation.

“Our efforts to simplify the organisation and a $1.1 billion reduction in debt resulted in us achieving the lower end of our target capital structure range.

“This disciplined approach to capital means Origin is in a position to deliver both returns to shareholders through the dividend and to focus on growth opportunities, “ the CEO added.

Origin declared a final dividend of 15 cents a share. With the interim of 10 cents a share, it is the first annual dividend since 2015-16 when a 25 payment was made.

Origin Chairman Gordon Cairns indicated that the company’s board had put in place a new dividend payout ratio policy.

“The board has also announced a dividend policy which will seek to pay shareholder distributions through the business cycle, targeting an ordinary dividend payout range of 30 to 50 percent of free cash flow per year.”

That means dividends will be determined not by earnings by efficiencies, cash generation, and retention as well as revenue gains.

Investors ignored that news and the warning of the ‘headwinds’ in 2019-20 and pushed the shares up 2.3% to $7.37 at the close.

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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