Origin Energy scrap dividend after new loss

Origin shares fell 3pc as it ruled out a dividend, posted another big loss and said it’d look more closely at a demerger.

Origin Energy managing director Grant King, left, and chairman Gordon Cairns.

Origin Energy chief Grant King says the company will step up investigation of a demerger and other high-level strategic plans in coming months, now that the Australia Pacific LNG plant is close to starting its second train and cost-saving measures have been put in place.

The comments came as the company decided against paying a final dividend after it reported a second straight loss of over half a billion dollars, as depressed oil prices crimped margins.

Origin also declared it may investigate the sale of its oil and gas production assets not related to LNG to pay down debt.

At 12.40pm (AEST), Origin shares were off 2.7 per cent to $5.68, against a broader market slide of 0.5 per cent.

Analysts had expected the group to offer a final dividend of 10c a share, but Origin said the current market environment was not conducive to a payout as it looks to shore up its balance sheet.

Mr King said that focus of 2016 had been to make sure the business was stable and resilient to low oil prices.

“The next steps are much more strategic in terms of the structure of the business and strategy going forward,” he said, when asked about a potential demerger of the company’s LNG business or energy markets business.

“The mix of renewables is something we are very committed to, but within that context we will review and will continue to review assets and structures that best position Origin to take advantage of that future — it is now time to think about those issues and that’s where a lot of our attention will go, certainly in the next few months.”

Mr King said that despite Origin being on track to hit a target of reducing debt to less than $9bn, the priority was to reduce it further. Putting more oil and gas assets not associated with the Australia-Pacific LNG project up for sale was being considered.

“We have a variety of assets in the business that are worth a lot to us in driving earnings and others that are just as important, but that are not quite so central to the company’s strategy. We have not nominated any other than saying we continue to prioritise absolute reduction in debt.”

Origin (ORG) in fiscal 2015 had declared a final dividend of 25c.

“Given the important task of continued debt reduction, and the fact that in the current lower oil price environment the company is not generating franking credits sufficient to frank any dividends, the board has determined to not pay a dividend in respect of earnings for the second half of the financial year,” Origin chairman Gordon Cairns said.

“While the board will review each dividend decision in light of the prevailing circumstances, the board’s view is that suspension of the dividend is in the best overall interest of shareholders.”

The announcement came as Origin said its net loss improved marginally to $589 million, from $658m last year.

The loss was driven by after-tax impairments of $515m, with $271m recorded in the second half as it downwardly revised its reserves.

Its underlying earnings weakened due to the impact of low crude prices, tumbling 46 per cent to $365m. The group said the softer result came despite a “strong operational performance” at its energy markets business and the positive impact of maiden production at its flagship APLNG project.

The number was marginally shy of analyst projections for a retreat to $371.5m.

“The 2016 financial year has seen some major changes in the global energy industry with lower oil prices, new LNG projects coming into production and the adoption of carbon reduction targets on a global basis,” Origin managing director Grant King said.

“The energy resources that will benefit most from these trends are natural gas and renewables. Origin’s strategy of investing in gas and renewables sees the company well placed to lead this transition in local markets through its energy markets business and in regional markets through its investment in APLNG and its growing LNG production.”

The group’s underlying pre-tax earnings from continuing operations came in at $1.64bn, with the company showing confidence in a recovery in this metric for the upcoming financial year. Its outlook pointed to underlying pre-tax earnings jumping 45 to 60 per cent in fiscal 2017.

This should see underlying earnings from continuing operations before tax top $2.4bn in the coming year.

“Origin continues to target further debt reduction and expects adjusted net debt to be well below its target of $9 billion at the end of the 2017 financial year,” Mr King said.

“In FY2018 and beyond, as APLNG completes the transition from development to production of its LNG project, Origin expects to see significant growth in earnings and returns, strong cash flow and continuing reduction in debt.”

The group has completed $454m worth of non-core asset divestments and said it remained on track to meet a target of $800m by the end of FY2017.