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.
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Origin Energy said heavy discounting and customer losses cut more than $200 million from its earnings. Price controls and customer losses together wiped about $290 million, while price discounting alone trimmed margins by around $150 million.
Origin's net profit fell to $461 million from $1.06 billion a year earlier, and earnings per share dropped to 34.6¢ from 90.6¢, reflecting the combined effects of discounting, customer churn and price controls.
Origin reported net customer losses of 23,000 in the first half, which it trimmed to 16,000 by the end of June. The company said it moved in February to stem customer losses, particularly in NSW.
Queensland price controls cost Origin an estimated $210 million, while customer losses in NSW removed about $80 million from gross profit. The article notes Queensland planned to remove price controls from 2015 and NSW was reviewing competition with potential full deregulation from 2014.
Price discounting reduced Origin's margins by roughly $150 million. Most discounted contracts are for 12 months, so the financial impact will depend on how quickly industry-wide discounting eases as contracts come up for renewal.
Ongoing issues integrating Integral Energy and Country Energy in NSW led Origin to write off $42 million of debtors, deciding some debts were too old to be repaid. The business has sped up migrating accounts to a new billing system to improve operations.
Origin is fast-tracking the transition of customer accounts onto a new billing system, expected to be completed by October, which the company says will deliver significant savings. It has also adjusted pricing and retention measures to reduce customer churn.
With commissioning of a Queensland gas export project less than two years away, Origin has put potential investments such as the Stockyard Hill wind farm (about $1.5 billion), the Iron Bark gas development (over $1 billion) and the Halladale and Black Watch gas fields (around $250 million) on the radar. The company said it will hold to a 60% payout ratio and take final investment decisions closer to export project start-up when cashflows are clearer.
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