Origin Energy Full Year Result: ORG records $2.2b loss but underlying results tick the boxes

CommSec

Origin Energy has reported a full year loss of $2,226 million in 2017. The main feature of the result was the impairment charge of more than $3 billion against the carry value of its assets reflecting weaker energy prices.

The impairments announced in the first half of the year totalled $1,893 million and were largely consisting of $1.03 billion reflecting the portion of the Australia Pacific LNG (APLNG) business which ORG owns and a $578 million marking down in the value of the Browse Basin assets. There were further write downs in the second half of the year totalling $1,172 million, including a further $815 million in relation to APLNG and the value of Lattice Energy which came to $357 million. Removing the impairment and other adjustments, the underlying profit of $550 million was a little better than the estimate that most analysts had forecast.

Underlying earnings, before interest tax, tax depreciation, depreciation & amortisation (EBITDA) increased $834 million or 49% to $2.53 billion, helped by better performances from the electricity and gas business, and the increased contribution from LNG earnings after APLNG production increased by 46%.

ORG’s net debt decreased by $1 billion to $8.1 billion driven by $900 million in proceeds from asset sales and $1.3 billion of operating cash flows, which also funded $500 million in capital expenditure, $200 million of net contributions to APLNG and $5 million of interest payments.

The Energy Markets business reported a 12% increase in EBITDA, equating to a rise of $162 million to $1,492 million. This primarily driven by growth in Electricity segment’s gross profit which, which rose 11% - influenced by volume growth and improving returns in generation in an environment of rising wholesale prices. A modest increase in Natural Gas gross profit reflected a balance between higher sales volumes and a lower realised oil price. Looking ahead, ORG expects Energy Markets to post underlying EBITDA for FY2018 to be in the range of $1.7 billion to $1.8 billion, representing a 14 to 21 per cent increase on FY2017

One of the key area’s the group is focussed on is debt reduction. As a result, debt was the main consideration in ORG’s decision not to pay a dividend in the second half of the financial year. ORG says it will review each dividend decision against “prevailing circumstances’. The group expects that a combination of asset sales and improved cash flow will result in total debt falling below $7 billion by the end of FY18 from around $8 billion presently.

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