Origin blames power prices for slump
ORIGIN Energy has blamed regulatory decisions, coupled with unusually high wholesale electricity prices, for a profit squeeze that hit its December-half earnings and prompted it to slash its full-year profit forecast.
Managing director Grant King has described as "poor" the first-half profit, with the full-year outlook "tough". The net profit fell to $524 million from $794 million as the underlying profit slid to $362 million from $489 million, with the full-year forecast flagging an earnings decline of 10-15 per cent.
In response, its shares were dumped, falling 8.5 per cent to $11.33, despite assurances it will not raise fresh funds from shareholders to fund its remaining $4.4 billion liability for its share of its $24.7 billion Queensland gas export project, where costs have risen 7 per cent.
"It has been a poor half," Mr King said. Earnings were hit by high wholesale power prices and a freeze on electricity tariffs in Queensland, which triggered intense competition in other markets, with a loss of market share in New South Wales.
"We have not been able to absorb this effect on our guidance," Mr King said, with the higher market prices in Queensland wiping $30-35 million off the gross profit, he said.
Origin was also hurt by a prolonged outage at its Eraring power plant in NSW in November, which was the subject of a damages claim to the NSW government, it said.
It refused to indicate the size of the claim, although it expects it to be resolved in its favour by midyear.
In NSW, Origin's electricity customer numbers fell from 1.42 million at the end of June to 1.38 million at December 31, while in Victoria it dropped to 623,000 from 641,000.
"Will we get back to 13 per cent margins [in the electricity business]? I'm not sure. But we should be doing better than 9 per cent," Mr King said.
Earnings were flattered by the forward sale of oil, which raised $284 million, with the sale of non-core assets flagged. "That $24.7 billion number is deliverable . . . both as per schedule . . . and cost," Mr King said of the revised estimate for its gas export project, with Origin to invest a further $4.4 billion.
This financial year "is going to be a tough year", he said.
"For 2014-15, towards the end will see APLNG coming on. It will be a cracker.
"For 2013-14, we will go into it with the same pressures on the business. We will be more efficient and competitive, but structurally, nothing for it to be a cracker of a year."
Analysts expressed disappointment with the earnings, amid ongoing pressures on electricity markets that might pressure its mid-term prospects, they said.