Origin Energy Increases Profit by 10%

Origin Energy

Origin Energy announced a profit after tax and minority interests of $332 million for the year ended June 30, 2006, a 10% increase on the prior year profit as restated under A-IFRS, and a 15% increase on the recurring A-IFRS profit of $288 million as advised in February 2006.

The most significant factors contributing to the result were a full twelve month contribution from Contact Energy and an increased contribution from the energy Retail business in Australia which more than offset a significant decline in contribution from the Exploration and Production segment.

Origin Chairman, Kevin McCann announced that a final fully franked dividend of nine cents per share will be paid on 29 September 2006 to shareholders of record on 8 September 2006. The Dividend Reinvestment Plan will apply to this dividend without discount.

In commenting on the Company's performance Mr McCann said "The nine cent fully franked dividend declared today takes the dividends paid over the full year to 18 cents fully franked, an increase of 20% or 3 cents per share from last year.

"It is pleasing to see that the strategies pursued by the company delivered increased earnings and strong free cash flow. This has allowed the payment of a higher dividend while maintaining the ability of the Company to pursue further growth opportunities" he said.

Analysing the result further Managing Director, Mr Grant King said "In New Zealand low hydro inflows led to high wholesale electricity prices. Contact Energy has a flexible portfolio of hydro, geothermal and gas fired power generation assets and is a net generator of electricity. This has allowed it to benefit from high electricity prices and increase its thermal generation output when hydro generation has been constrained.

"In Australia the Retail business performed well despite intense competition. Customer churn across the natural gas and electricity retail businesses has remained at high levels with the Company winning a total of over 325,000 new accounts to record a net increase of over 22,000 customer accounts. Despite the increase in costs associated with this activity, the Company has improved its EBIT to Sales margins for natural gas and electricity from 7.2% to 7.8%. The LPG business increased sales volumes and margins despite rising international prices.

"The Generation business has also improved contributions through a combination of higher capacity payments and higher plant availability.

"There have been a number of achievements in the Exploration and Production business including first sales from the BassGas project, a doubling of sales from the coal seam gas projects and the addition of over 200 PJe of proved and probable reserves. However, reduced production of oil and condensate offset much of the benefit of high oil prices, while higher operating expenses and a significant increase in exploration write-offs has meant that EBITDA for the Exploration and Production segment was 11% lower than the prior year" he said.

Looking to the year ahead Mr King said "In the coming year Origin Energy's Australian operations are expected to deliver significant growth in EBITDA from the continuing development of coal seam gas assets and contributions from the BassGas and Otway Gas projects. By year end Origin Energy expects production from its Exploration and Production business will have increased from 2005/06 levels of 78 PJe to a rate of around 100 PJe per annum".

"It is expected that these assets will help grow EBITDA from Australian operations by around 15%.

"In New Zealand, Contact Energy is expected to face a more challenging environment. The assumption that hydro inflows, and consequently electricity prices, are likely to return to more average levels will mean that EBITDA from Contact Energy may be lower in the coming year. As forecast by Origin Energy at the time of acquisition Contact Energy will face a significant escalation in gas costs over the next few years which will tend to reduce earnings as this increase is absorbed.

"Continued capital expenditure on growth in the Australian business together with interest charges associated with recently completed development projects is expected to result in higher interest expense in the year ahead. It is therefore possible that there will be little growth in earnings per share in the coming year.

"Looking further ahead the Company is continuing to progress development opportunities which will significantly increase earnings. The BassGas and Otway Gas projects will contribute for only part of the 2006/07 financial year and will continue to deliver year-on-year growth into the 2007/08 financial year. CSG developments will continue to ramp-up over the coming two financial years, while the Kupe gas project, which was approved in June, will contribute to earnings from mid 2009. Origin Energy will also continue to pursue the Spring Gully and Mortlake power station developments, commercialisation of its SLIVER photovoltaic technology and other renewable energy development opportunities.

"Contact Energy is also focusing on the continued growth of its business. It is pursuing opportunities to expand hydro and geothermal generation, establish a position in wind generation and pursuing fuel purchasing strategies as a priority to fuel existing gas fired power stations and allow the development of the Otahuhu C power station.

"These developments together with continuing opportunities for consolidation in the energy industry such as the introduction of full retail contestability in Queensland and the sale of Queensland's energy retailing business provide good opportunities for continued growth. The Company believes that targeting growth in earnings per share of 10 to 15% per annum on average over the longer term remains feasible."


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