Customer churn and discounting put the squeeze on Origin
Heavy discounting and customer losses slashed more than $200 million from Origin Energy's earnings in the year to June, with the discounting to continue to drag on earnings in the year ahead.
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.