Origin blames regulator for profit slump
Origin Energy has blamed regulatory decisions coupled with unusually high wholesale electricity prices for the profit squeeze which hit its December half earnings and prompted it to slash the full year profit forecast.
The group's managing director, Grant King, has described as "poor" the first half profit.
The net profit fell to $524 million from $794 million as the underlying profit slid to $362 million from $489 million.
"It has been a poor half, the question is now we respond to it," Mr King told analysts today when discussing the results.
Earnings were hit by a decision to freeze electricity tariffs in Queensland which triggered intense competition in its other markets and led to a loss of market share in the key New South Wales market, where Origin has boosted its exposure through the acquisition of the Integral Energy and Country Energy retail customers from the state government in 2011.
"We have not been able to absorb this effect on our guidance," Mr King said, with the higher market prices in Queensland alone costing $30-35 million at the pre-tax profit level, he said.
Origin also suffered from a prolonged outage at its Eraring power plant in NSW in November, which is now the subject of a damages claim to the NSW government, it said. It refused to indicate the size of this claim, although it said it expects it to be resolved in its favour by the middle of the year.
In NSW, electricity customer numbers fell from 1.42 million at end-June 2012 to 1.38 million at end-December, while in Victoria, it dropped to 623,000 from 641,000.
"Will we get back to 13 per cent margins? I'm not sure. But we should be doing better than 9 per cent," Mr King said of the performance of its electricity division.
Earnings were flattered by the forward sale of oil, which lifted cash inflows by $284 million as its commitment to fund its share of an export gas project rises.
At the same time, Origin expects to see further demand for large gas from other export projects in Queensland, which should be a positive over the next few years.
"We believe the market will be calling for gas, and we will be in a position to respond," Mr King told analysts.
Origin disclosed a 7 per cent rise to $24.7 billion in the total cost of its export gas project, following a detailed review.
"That $24.7 billion number is deliverable... both as per schedule... and cost," he said.
In NSW, Origin has to invest a further $4.4 billion over the next two years, which it is confident it can fund out of cashflows an existing loan facilities.