Origin Energy – Australian Integrated Energy Producer, Explorer And Retailer

Who is Origin Energy?

Origin Energy is a public limited Australian company with headquartered in Sydney. An integrated energy producer, explorer, generator and retailer company which is a leading provider and distributor of energy to Australians households and businesses. The company came into origin in the year 2000. The core business of the Australian conglomerate is on energy sales, renewable energy, gas exploration, production, and power generation. The company strategy has given them the path to grow and deliver better. Delivering a best class customer experience, accelerating towards cleaner energy, becoming a low cost operator along with developing resources and working with the technology are some of the strategy the company deploys (Freeman and Hancock 2017).

Liquefied petroleum gas, electric batteries for vehicle charging, solar panels, natural gas and electricity are some of the products the company delivers. The company has a target group in New Zealand, Kenya, Australia and Pacific Islands (Alam et.al 2017).

The company has been struggling with the rising energy prices and competition from major companies like AGL Energy and Energy Australia. Origin energy is the leading integrated energy producing company with its rich culture for generation, exploration and retailing. The company has certain energy plans, which is pay on time, and save. The company is expecting to reach 11,000 megawatts of capacity by the year 2020 where significantly more wind and solar is being built (Fletcher 2015).

The detailed ratio analysis of the Origin Energy Ltd is as follow:

Liquidity Ratio

Liquidity Ratio measures the ability of the company for meeting its near term loans and obligations. It shows the conversion of current assets into cash quickly without a loss in their potential or market value (Ehiedu 2014).

Current Ratio: Current Assets/Current Liabilities

The current ratio represent the total number of current assets for covering up the current liabilities of the company (Heikal, Khaddafi and Ummah 2014).

The current ratio for the company is around 1.30 times in the year2017, and in the previous year 2016, at 1.23times, which shows that the company current liabilities reduced from the last year. It shows that the company has kept sufficeient current assets for its shortterm obligations.

Quick Ratio: (Marketable securities+ Cash+ Trade Receivable)/Current Liabilities.

The Quick ratio or the acid test ratio shows the liquidity available for the company in the form of there liquid assets. The ratio should be higher in order to show liquidity in the company’s assets. The ratio is more reliable as it does not include certain other current assets like inventory and prepaid expenses (Nobanee & Hajjar 2014).

The quick ratio for the company is around 0.62 times in the year2017 and it has declined from the previous year 2016 numbers, which was around 0.72 times. The decrease of the ratio shows the problem of the liquidity, which may arise, and the daily workings and operations of the company may get affected.

Cash Flow Ratio: Cash Flow from Operations/Current Liabilities.

The ratio shows the amount the company can pay off its short-term obligations from the daily operations of the company. It also shows whether the cash generated by the company is sufficient for meeting the daily expenses of the company. (Doh and Wu 2015).

What are Origin Energy’s products and target markets?

The ratio for the company stood around 0.33 times in the year 2017 and has degraded from the previous year 2016 of 0.49 times. This results that the cash operation by the company is not sufficient by the company to meet the daily expenses of the company.

Profitability Ratio:

The efficiency of every company is reflected in the profitability ratio of the company. It shows the return on assets and capital employed. The higher the profitability ratio the higher is the prospects for growth in a company (Kanapickien? and Grundien? 2015).

Gross Profit Margin Ratio: (Sales- Cost of Goods sold)/Sales*100

The ratio reflects the operating profit of the company; the numbers shows the profit available after deducting all the operating expenses of the company (Khamidah, Gagah and Fathoni 2018).

The gross profit margin for the company in the year 2017 was 3 times and was 2.98 times in the year 2016. The company has tried to maintain the gross profit ratio along the line and keeping the operating part of the business efficient.  

Net Profit Margin Ratio: Net Profit/ Sales

The ratio shows the profit or surplus available with the company for the equity shareholders. Net profit is calculated after taking in all the direct and indirect income and expenses of the company (Rezaie et.al 2014).

The net profit for the company is -0.16 times which has degraded from the last year 2016, which was -0.05 times. It shows that the company has been not able to generate return for investors and assets employed.

Percentage Return on Assets: Earning Before Taxes/ Total Assets*100

The efficiency in utilization of company assets gets reflected in the ratio. The higher the better is the ratio (Burca and Batrinca 2014).

The ratio for the company was around -0.08 times in the year 2017 and was -0.01 times in the year 2016. The ratio shows that the efficiency in the company return on assets has been degrading, as it was not able to deliver the returns, which is required for assets involved.

Percentage Return on Equity: (Earnings before tax/Total Equity)*100

The number or the percentage shows the gain on the capital employed by the equity shareholders. The efficiency of the company’s management is reflected in the ratio (Easton and Monahan 2016).

The Origin Energy has shown a percentage return of -17.98% in the year 2017, which has degraded the most since the last year 2016 of -2.11%. This shows that the operations and efficiency of the company in managing the assets and capital employed by the company is not producing the best results, which it should. Thus, the company should focus on decreasing its expenditure and the cost of operations and should increase its revenue.

Earnings per share: Net Income/Average wieghted number of outstanding shares.

The amount remaining within the shareholders of the company. It is simply the net income of the company divided by the weighted average number of shares (Frecka 2015).

The earnings per share of the company has fallen by around 84% from the year 2016 the number per share was -0.19 Cents to -117 cents in the year 2017. The main factor behind the increase of the losses was because of the rise in expenses and negative results of equity accounted investees where the loss increased by around 88.08%.

What is Origin Energy’s strategy?

Origin Energy Ltd is committed for creating value to the shareholders and for practicing sound corporate governance is the expectation of every stakeholder. Highest standard in integrity, environmental performance and personal safety is what the Origin Energy aspires. Corporate Governance rules and ethics applies to all employee and contractor in all the areas of the operations of the company in Australia and internationally (Tricker and Tricker 2015).

Statement on Corporate Governance

The Board of the Origin Energy Ltd summarizes the company corporate governance practices, which was in place in the financial year 30 June 2017. There are certain principles rules and regulations by which the Origin Energy ltd complies. The principles are:

• Build solid foundation for management and oversight: A board charter is set up which governs the rules and regulations in the company. Before any director gets appointed or elected a proper evaluation. Every director is provided with necessary documents, information of the company, rules and regulations regarding there joining and termination. Reviewing of all key personnel performance is reviewed annually. The remuneration report set up by the company entitles the employee of orchard energy match with the reward and recognition of the employee. Origin’s diversity roles and policy applies in every aspects of employment, in gender diversity, which is monitored for achieving gender target set by the board. Seniority roles and functions in the office along with the different performance and target are mentioned (Klettner, Clarke and Boersma 2014).
• Structuring the Board for creating Value: The management of the company follows The Corporate Governance rules and regulations ethically. The composition of the board is determined from the Directors of the company, which usually has a requirement of five to twelve directors. For creating value for the company and for discharging the responsibilities effectively, every board member must have proper skills and education to perform their duties. The company has a policy on the independence of its directors, which states that the board should majorly consist of independent directors. There are namely five committees assisting the board in the execution of duties, which are audit, safety, remuneration, environment and health committee. Each committee has its own charter from which they abide by (Haque Deegan and Inglis 2016).
• Acting ethically and responsible: Every employee and director of the company is expected to follow the corporate rules and regulations of the company. The company has laid down various rules and regulations and the code of conduct in the interest of the company for dealing with employees, customers, communities and shareholders.
• Making Timely Disclosures:Origin Energy provides full, accurate information and timely disclosure and it keeps the market informed with its quarterly report, every development and production in a digitalized way in the company’s website.

Whistleblower allegations against Origin Energy Ltd.

Origin energy has been reported for allegation by the Guardian which alleged that Sally McDow, who was a former compliance manager in the company. There were claims against the company that they have ignored well field integrity problems, among which the allegation accused for non-maintenance of wells across Australia and New Zealand. The company had also failed to seal wells after the use or there active lives. The company defended them by denying the allegations made against them and had defended the claim in the court (Larcker and Tayan 2015). 

Conclusion

Origin Energy has been suffering through loss and the case has worsened in the year17-18, which was because of the rising energy prices and rising expenses of the company. The company had several products and developments in line, which will help company, distribute electricity and generate more revenue for the company. The company offers various services, which include electricity, solar, hot water, heating and cooling, electric vehicle charging, and others. The Financial ratios of the company shows that the performance of the company has degraded. While the operating section of the company has shown some improvement on the net scale, the company net profits and return on equity and assets have degraded. A trend analysis and ratio analysis of Origin Energy has been performed for observing the financial trend and the performance of the company. Statistical tools and trend analysis helps in easy comparison of the performance of the company. The Corporate Governance of Origin Energy is with the best practices of corporate governance ethics. The company has different rules and regulations tied up for every aspects of the company. The code of conduct and the duties and rights of each employees, directors, shareholders is by the company’s policy.

Reference

Freeman, J. and Hancock, L., 2017. Energy and communication infrastructure for disaster resilience in rural and regional Australia. Regional Studies, 51(6), pp.933-944.

Alam, F., Alam, Q., Reza, S., Khurshid-ul-Alam, S.M., Saleque, K. and Ahsan, S., 2017, June. Liquefied natural gas (LNG) market and Australia. In AIP Conference Proceedings (Vol. 1851, No. 1, p. 020107). AIP Publishing.

Fletcher, J., 2015. Australia? s Electricity Grid and Nuclear Energy.

Ehiedu, V.C., 2014. The impact of liquidity on profitability of some selected companies: the financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Heikal, M., Khaddafi, M. and Ummah, A., 2014. Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), p.101.

Nobanee, H., & Al Hajjar, M. (2014). An Optimal Cash Conversion Cycle.

Doh, T. and Wu, S., 2015. Cash Flow and Risk Premium Dynamics in an Equilibrium Asset Pricing Model with Recursive Preferences.

Khamidah, A., Gagah, E. and Fathoni, A., 2018. ANALYSIS OF THE EFFECT OF GROSS PROFIT MARGIN (GPM), EARNING PER SHARE (EPS), DEBT TO EQUITY RATIO (DER), NET PROFIT MARGIN (NPM) ON RETURN ON ASSETS (ROA)(Study On Property and Real Estate Companies listed on the Indonesia Stock Exchange Year 2012–2016). Journal of Management, 4(4).

Kanapickien?, R. and Grundien?, Ž., 2015. The model of fraud detection in financial statements by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, pp.321-327.

Rezaie, K., Ramiyani, S.S., Nazari-Shirkouhi, S. and Badizadeh, A., 2014. Evaluating performance of Iranian cement firms using an integrated fuzzy AHP–VIKOR method. Applied Mathematical Modelling, 38(21-22), pp.5033-5046.

Burca, A.M. and Batrinca, G., 2014. The determinants of financial performance in the Romanian insurance market. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), pp.299-308.

Easton, P.D. and Monahan, S.J., 2016. Review of Recent Research on Improving Earnings Forecasts and Evaluating Accounting?based Estimates of the Expected Rate of Return on Equity Capital. Abacus, 52(1), pp.35-58.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.Frecka, T. J. (2015). Earnings Per Share. Wiley Encyclopedia of Management, 1-4.

Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.

Haque, S., Deegan, C. and Inglis, R., 2016. Demand for, and impediments to, the disclosure of information about climate change-related corporate governance practices. Accounting and Business Research, 46(6), pp.620-664.

Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational choices and their consequences. Pearson Education.

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