By Ross Kelly
SYDNEY--Origin Energy Ltd. (ORG.AU), Australia's biggest
electricity retailer by customers, posted weaker annual earnings
after unseasonably mild weather crimped household energy use and
intensifying competition eroded margins.
Net profit for the year through June rose 40% to 530 million
Australian dollars (US$492 million), but was supported up by an
accounting gain on the market value of derivatives used for hedging
purposes.
Underlying profit, which more closely gauges the company's
operating performance, fell 6% to A$713 million, in line with the
A$711 million average of six analysts' forecasts compiled by The
Wall Street Journal.
Demand for electricity in Australia has fallen in recent years
after expensive network upgrades pushed up costs for consumers
already reining in spending as the country's long mining boom
fades.
Greater use of energy-efficient appliances and roof-top solar
panels is also curbing demand, while sharper competition for
customers, particularly with rival AGL Energy Ltd. (AGK.AU) in
Australia's New South Wales state, has forced Origin to discount
contracts.
Origin outbid AGL in 2010 to acquire electricity retailers being
sold by the New South Wales government. AGL has since pursued an
aggressive organic growth strategy to win back market share.
"Electricity discounts are costing Origin about A$200 million in
the 2014 financial year, but it may be premature to expect an
improvement in 2015," analysts at Bank of America Merrill Lynch
said in a note last week.
"Whilst New South Wales advertised discounts eased to about 10%
in the second half, anecdotal evidence suggests discounts as wide
as 15-20% are still on offer," the analysts said.
Adding to the pressure, Australia experienced an
uncharacteristically warm start to winter, sapping demand for
energy-intensive heating appliances. Australia's winter runs from
June through to August.
Tough conditions in electricity generation and retailing markets
were partly offset by an improved performance from Origin's oil and
gas business.
The company said its A$24.7 billion liquefied natural gas, or
LNG, joint venture with ConocoPhillips (COP), due to ship its first
cargoes to Asian buyers next year, remains on schedule and budget
despite recent strikes by construction workers.
"The LNG project will deliver a step change in Origin's earnings
and cash flow from the 2016 financial year when the project begins
to deliver LNG under its existing long-term contracts," Grant King,
Origin's chief executive, said in a statement.
Write to Ross Kelly at ross.kelly@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires