Energy producer and retailer Origin Energy predicts profits will fall further than expected in the second half as it moves to slash 850 jobs.
The downgrade comes amid cost blowouts at the company's Australia Pacific liquefied natural gas (APLNG) project which analysts have linked to a credit rating downgrade on Thursday.
Shares in Australia's largest electricity retailer fell more than eight per cent as investor attention focused on managing director Grant King's pay packet and potentially losing his full year bonuses.
Origin Energy fears its full year earnings will fall by up to 15 per cent after its interim profit dropped 34 per cent to $524 million in the half year to December 31.
The company now expects its full year profit to fall by between 10 and 15 per cent, instead of its previously forecast drop of five to 10 per cent.
Mr King said the profit downgrade was caused by a combination of weather, demand and plant availability in January which resulted in an extended period of high wholesale electricity prices in Queensland, costing the company $30 million to $35 million.
"We could not absorb that impact, particularly given that the Queensland Competition Authority (QCA) determination makes no allowance for those sorts of disruptions," Mr King said.
Standard & Poor's Ratings Services on Thursday revised its long-term senior unsecured credit rating for Origin from BBB+ (negative outlook) to BBB (stable).
But Origin said it had no intention of raising equity following the re-rating.
It now expects its commitment to APLNG to be funded from free cash flow.
Origin also plans to cut another 350 jobs in 2013, taking the total number for the year to 850.
Mr King said the reduction in staff came as the company reaped the benefits of investing in new retail systems.
And he conceded the profit downgrade and share price fall would cast attention on his bonuses.
"I'm sure it will, but that's presuming something that's still a long way from happening because we're only half way through the year."
Origin expects regulatory and market competitive pressures that affected its first half result for its energy markets division to continue for the remainder of the year.
The company has been hit by weakening demand in electricity use at a time when regulators in some states are cracking down on rising prices.
It expects its main driver for growth in the future will be its investment in the Australia Pacific LNG project, in which it is a 37.5 per cent stakeholder.
Origin says the project will be delivered on or ahead of schedule at a cost of $24.7 billion, with the company's investment expected to peak at $4.4 billion.
The company had initially expected to contribute $3.6 billion to the project, which was originally estimated to cost $23 billion.
Morningstar analyst Gareth James said the cost overruns at APLNG were disappointing but the downgrade was not entirely unexpected.
"In the short to medium term that Origin's earnings will stabilise and possibility rebound," he said.
An analyst who did not want to be named said the cost overruns at APLNG were serious because it was only 30 percent complete.
"That's tightened up the balance sheet which has seen them lose a credit rating," he said.
The market was less willing to give Origin the benefit of the doubt with cost overruns.
Origin Energy shares fell $1.01, or 8.16 per cent, to $11.37.