Good news and bad news for Origin Energy (ORG) shareholders at yesterday’s annual meeting.
CEO Grant King promised shareholders they can expect “significant growth in earnings” in the 2015-16 year and beyond, but before then they can expect a lower profit in 2014-15 (which was apparent from the weak second half for the year to June 30).
Origin’s 2013-14 underlying profit after tax of $713 million was down 6% and underlying earnings before interest tax, depreciation and amortisation of $2.14 billion was down 2% on the prior year.
"This result was a little disappointing as clearly we would have preferred to see a return to growth in earnings. Your directors have maintained the full year dividend of 50 cents per share, unfranked,” Mr King told the meeting.
In an address to the AGM in in Sydney, Mr King said profits this year from Origin’s oil and gas business would be “significantly lower" due to lower output, scheduled shutdowns and the decline in oil prices.
He said the core energy markets business should, meanwhile, deliver “an increasing contribution” to profit this year and next.
ORG YTD – Origin eyes ‘significant’ earnings growth
In the first quarter of 2014-15, the colder winter weather drove higher sales and benefited the gas business.
"Competition in the electricity market remains high and we don’t expect much improvement in the contribution from the electricity business this financial year.
"Origin expects these trends to continue and in aggregate to result in an increasing contribution from the energy markets business this year and the year after.
"As advised in August, prior period capital expenditure will result in a significant increase in depreciation in the current year.
"In summary, we are pleased with the progress of our business this year. We believe the underlying operational performance of our business continues to improve and progress by Australia Pacific LNG remains good," he said, referring to Origin’s flagship $24.7 billion LNG project under construction in Queensland,” Mr King said.
Mr King reiterated that APLNG is on track to begin production in mid-2015 so would contribute to profits in 2015-16 rather than this financial year.
Earlier, Chairman Gordon Cairns told shareholders Origin intends to maintain a dividend payout ratio of at least 60% of underlying profit as its earnings grew on the back of APLNG, while keeping its investment grade credit rating and strengthening its balance sheet.
The shares were up half a cent at $14.33, nearly 15% under the 2014 peak of $16.21 reached in early September.
That was a mild reaction for what was in effect a downgrade of 2014-15 earnings, in a general fashion.
