Profits 2: Origin, Hills, Oil Search

Origin Energy said its 2011 profit dropped 70% after one-off items, but grew 15% on an underlying basis.

And it says it expects "underlying profit" to grow 30% in the current financial year.

Origin told the ASX yesterday that annual profit after one-off items was $186 million, down from the $612 million in 2009-10, thanks to higher impairment charges on assets, transaction costs from acquisitions, and a fall in the value of financial instruments.

Origin bought NSW energy distributors Country Energy and Integral Energy from the NSW Government during the year to June at a cost of $3.1 billion and incurred transaction and transition costs of $215 million.

The company said that on an underlying basis the 2010-11 profit was up 15% at $673 million, on a 32% rise in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $436 million.

"Based on Origin's current assessment of operations and prevailing market conditions, Origin anticipates Underlying EBITDA to increase by around 35 per cent and Underlying Profit to increase by around 30 per cent for financial year 2012 when compared with the prior year," Origin said in yesterday's statement.

Origin also said it expected earnings per share to continue to grow.

"Based on the opportunities available to the company, Origin continues to target long term growth in underlying EPS of 10 to 15 per cent per annum on average," Origin said.

Origin declared a final dividend of 25c fully franked, steady with the prior year.

That took the total for the year to 50c a share, unchanged as well.

Despite the lack of a higher payout, investors pushed the shares up 5% or 61c to $14.16.

Origin said underlying EBITDA would benefit in 2011-12 from a full year contribution from the Integral Energy and Country Energy retail businesses, a full year contribution from the GenTrader arrangements covering the Eraring and Shoalhaven power stations, and contributions from the Mortlake Power Station which is expected to commence commercial operations during the first half of 2011/11.

Origin also expected an increased contribution from its exploration and production business due to lower levels of planned exploration expenses and improved profitability from Contact Energy in New Zealand.

Adelaide-based industrial Hills Holdings has taken a traditional route to dealing with a splash of red ink.

It yesterday revealed a steady dividend, but more importantly revealed plans to buyback up to 10% of the issued shares on market.

Naturally the flat dividend and loss of $75 million, after one-off items, were ignored by investors and fund managers eager for the buyback.

So the shares jumped 14c or 14.1% to a high of $1.14. They closed up 9% or 9c at $1.09.

So far as the market is concerned the loss is forgotten, especially a cut in the dividend.

The final of 4.5c a share took the total for the year to 10c a share, down from the 12.5c a share paid in 2010 and well under the 27.5c a share paid in 2008 and 2009.

Hills took a $100 million impairment hit on its poor performing Orrcon Steel and Team Poly water tank businesses.

The diversified electronics and hardware products manufacturer's $74.96 million loss for the year to June 30 compares to a $40.2 million profit in 2009-10.

But operating profit before the impairments for the year to June was $25.3 million, down a nasty 37% from the previous year, which tells us more about the year gone by than any commentary.

"In general, trading conditions were weaker than forecast in the second half of the year," chairman Jennifer Hill-Ling said.

Orrcon Steel had an operating loss of $7 million in the year to June, due to weak demand caused by the higher Australian dollar, sourcing of products offshore and subdued construction activity.

And an $82.5 million impairment was taken on the business.

Ms Hill-Ling anticipates Orrcon will return to profitability in the current financial year, despite unsuccessfully trying to sell Orrcon's large pipe business.

As previously announced, it will close its large pipe manufacturing plant at Unanderra, near Port Kembla in NSW, in September.

The Team Poly business, which manufactures water tanks, posted an operating loss of $2 million in the year to June, due to above average rainfall and a lack of government subsidies.

Also underperforming is the DGTEC business, which imports LCD televisions, digital set-top boxes and DVD players.

It incurred an operating loss of $3.4 million in the year to June, due to the strength of the Australian dollar and fierce competition.

A repeat of the loss is not expected in the current financial year, the company said.

Hills said the coming year was looking hard to pick.

"While future trading conditions are forecast to remain difficult in many of the markets in which Hills operates in Australia and New Zealand, our strategy remains focused on growth sectors and investment in our buoyant Electronics & Communications and Lifestyle & Sustainability divisions," Ms Hill-Ling said.

"We have implemented a number of overhead reduction initiatives to reflect the current demand for our products and services to improve performance.

"The outlook for the commercial building and the steel industry remains subdued and increased competition from imports continues across those sectors.

"In view of the above, and the current market volatility, Hills is unable at this time to provide specific profit guidance for the year ending 30 June 2012.

"It is expected that we will be in a position to provide a further update at the Annual General Meeting in November 2011," she added.

And Oil Search saw a sharp rise interim earnings thanks to higher oil prices, and has confirmed full year production guidance.

The company said yesterday that first half net profit jumped 117% to $110.868 million from $$59.109 million in the first half of the 2010 year.

That was on a 34% jump in revenue for the half to $359.345 million, up 34.2%, with earnings before interest and tax (EBIT) up 125% at $230.043 million.

Oil Search said it expected lower production in the second half of the year, with a two-week planned shutdown of its central procession facility and its Agogo processing facility from August 16.

"As a result of the shutdown, second half production is expected to be lower than in the first half," Oil Search said in a statement yesterday.

"Consequently, despite the strong first half performance, Oil Search's guidance for 2011 full year production remains unchanged at between 6.2 6.7 mmboe."

Oil Search will pay an unchanged interim dividend of 2 USc a share, unfranked.

The shares rose 4c to $6.04 yesterday.