Customer churn and discounting put the squeeze on Origin
Origin's net profit slumped to $461 million, down from $1.06 billion a year earlier. Earnings a share fell to 34.6¢ from 90.6¢.
Price controls and customer losses wiped $290 million from Origin's earnings in the latest year.
Queensland price controls cost an estimated $210 million and customer losses in NSW wiped another $80 million off the gross profit.
Queensland has committed to removing price controls from 2015, while NSW is reviewing the level of competition which may pave the way for full deregulation from 2014.
Origin continued to lose customers in NSW in particular, although from February it has moved to stem the loss. In the first half, net customer losses stood at 23,000, which it trimmed to 16,000 by the end of June.
Price discounting cut margins by $150 million, and the focus now is how long it will take for the financial impact of this to run off. Most discounted contracts are for 12 months, with the focus on the level of industry-wide discounting as they come up for renewal.
"It's a great time to be a customer ... [but a] difficult time to be a competitor," Origin managing director Grant King said.
Ongoing problems bedding down the acquisition of Integral Energy and Country Energy in NSW resulted in a $42 million write-off of debtors, with Origin taking the decision that some debts were too old to be repaid. It has sped up the transition of accounts on to its new billing system, which it expects will be completed by October, with significant savings.
With commissioning of the Queensland gas export project less than two years away, Origin has put prospective investments in new projects on the radar, while holding to its 60 per cent payout ratio.
The Stockyard Hill wind farm project in Victoria is expected to cost about $1.5 billion, the Iron Bark gas development in Queensland more than $1 billion, and the Halladale and Black Watch gas fields off Warrnambool in the Bass Strait about $250 million. Decisions to act on these projects will be taken closer to the start-up of the export gas project, once cashflows from that are better defined.
Frequently Asked Questions about this Article…
Origin Energy’s profit fell because heavy discounting and customer losses significantly reduced margins and revenue. The article says discounting and churn cut more than $200 million from earnings, price controls and customer losses wiped $290 million, and a $42 million write-off related to an acquisition also weighed on results.
Origin’s net profit dropped to $461 million from $1.06 billion a year earlier, and earnings per share fell to 34.6¢ from 90.6¢, reflecting the combined impact of discounting, price controls, customer losses and the acquisition-related write-off.
Price controls and customer losses together removed about $290 million from Origin’s earnings. Queensland price controls cost an estimated $210 million, while customer losses in NSW wiped another $80 million from gross profit.
Origin continued to lose customers, particularly in NSW. Net customer losses were 23,000 in the first half but were trimmed to 16,000 by the end of June after the company took steps from February to stem the outflow.
Price discounting cut margins by about $150 million. Most discounted contracts are for 12 months, so the financial impact depends on renewal patterns and the level of industry-wide discounting as contracts come up for renewal; the article says discounting is expected to continue to drag on earnings in the year ahead.
The $42 million write-off related to debtors from the acquisition of Integral Energy and Country Energy in NSW; Origin decided some debts were too old to be repaid. It has sped up moving accounts onto a new billing system, which it expects to complete by October and which should deliver significant savings.
Origin has several prospective investments on its radar: the Stockyard Hill wind farm in Victoria (about $1.5 billion), the Iron Bark gas development in Queensland (more than $1 billion), and the Halladale and Black Watch gas fields off Warrnambool in the Bass Strait (about $250 million). Decisions on these projects will be taken closer to the start-up of the Queensland gas export project once related cashflows are clearer.
Yes. Despite the earnings pressure, Origin said it is holding to a 60 per cent payout ratio, indicating it intends to maintain dividend policy at that level.
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