Origin Energy Limited · ASX:ORG
Origin Energy — FY2020 Earnings Presentation
63 slides from Origin Energy's earnings presentation, Aug 20, 2020
Slide 1: Origin Energy 2020 Full Year Results
Origin Energy 2020 Full Year Results Year ended 30 June 2020 Frank Calabria, CEO & Lawrie Tremaine, CFO 20 August 2020
Slide 2: Outline
Outline 1. Performance Highlights - Frank Calabria 2. Financial Review - Lawrie Tremaine 3. Operational Review - Frank Calabria 4. Outlook - Frank Calabria 2 20 August 2020 2020 Full Year Results Announcement
Slide 3: Performance Highlights
Performance Highlights Frank Calabria, CEO 3 20 August 2020 2020 Full Year Results Announcement
Slide 4: FY2020 financial summary
FY2020 financial summary Statutory Profit Underlying Profit Underlying ROCE $83 $1,023 8.8% million million (4.7 cps) (58.1 cps) Down from 9.1% in FY2019 Reflecting $1.2 billion APLNG impairment and Stable with lower Corporate and LNG hedging Cameron LNG onerous contract provision costs partly offse
Slide 5: Strong operational and financial performance
Strong operational and financial performance Record production and cash distributions from APLNG 5% increase in APLNG 2P operated reserves, before production $73 million of targeted $100 million retail cost savings achieved in Energy Markets Best ever Net Promoter Scores in FY2020 Top quartile staff
Slide 6: We remain committed to delivering for our stakeholders
We remain committed to delivering for our stakeholders Transforming customer Committed to keeping our Caring about our impact experience people safe and engaged Strategic NPS1 Scope 1 & 2 emissions (mt CO2-e) TRIFR 4.4 FY19 FY20 20.3 18.5 2.6 2 (6) FY19 FY20 FY19 FY20 Customer interaction NPS1 Regio
Slide 7: We are driven by our Purpose of “Getting energy right”
We are driven by our Purpose of “Getting energy right” … for our Customers … for our Communities … for the Planet • Bushfire, drought & COVID relief • $365 million spent with regional • Scope 1 & 2 emissions down 9% businesses • Reducing prices beyond regulatory • New Scope 1 emissions target: 10% r
Slide 8: We experienced unprecedented volatility in our key markets
We experienced unprecedented volatility in our key markets Japan Customs-cleared Crude Domestic gas prices NEM forward prices (NSW $/MWh) (US$/bbl) (A$/GJ) 90 14 100 80 12 95 90 70 10 85 60 8 80 75 50 6 70 40 4 65 60 30 2 55 20 0 50 Apr-18 Jul-17 Nov-17 Jul-19 Oct-19 Dec-19 Jul-18 Dec-18 May-20 Feb-
Slide 9: Response to COVID-19 and low commodity price environment
Response to COVID-19 and low commodity price environment COVID-19 impact on business operations Operational response and financial resilience • Average electricity and gas demand down 5-10% • Customer support - pausing default listings, disconnections and late payment fees and providing payment exte
Slide 10: Economic recovery provides policy opportunities
Economic recovery provides policy opportunities • Coming out of COVID-19 will require a co-ordinated business and government-led recovery • Policies incentivising investment in flexible capacity will help achieve reliability, affordability and emissions reduction − a range of technologies will be ne
Slide 11: Executing strategy to create value in a changing energy landscape
Executing strategy to create value in a changing energy landscape Connecting customers to the energy and technologies of the future • Low cost gas producer and flexible gas supply, supporting growth in renewables The right ENERGY • Renewables to replace coal backed by fast-start gas and storage • Kr
Slide 12: Positioning both businesses for long term value
Positioning both businesses for long term value Energy Markets Integrated Gas Step change in customer Competitive, low cost upstream gas experience and cost producer (US$29/bbl distribution breakeven in FY2020) Progressing brownfield generation Opportunity to scale low-cost and storage opportunities
Slide 13: Financial Review
Financial Review Lawrie Tremaine, CFO 13 20 August 2020 2020 Full Year Results Announcement
Slide 14: FY2020 financial overview
FY2020 financial overview Statutory Profit Underlying Profit Underlying EBITDA $3,232M $1,211M $1,028M $1,023M $3,141M 68.8 cps 58.4 cps 58.1 cps $83M 4.7 cps FY19 FY20 FY19 FY20 FY19 FY20 Energy Markets Integrated Gas Corporate Underlying ROCE Free Cash Flow1 Adjusted Net Debt $1,644M 9.1% $1,539M
Slide 15: Impacts of revised commodity price assumptions
Impacts of revised commodity price assumptions Brent oil price assumptions – nominal1 120 Impairment in carrying value of APLNG ($746 million) 100 • Assumed reduction near term in oil prices and long term Brent crude assumption of US$60/bbl (real 2020) from FY2026 80 60 • Cost reductions, improved f
Slide 16: Accounting changes adopted from 1 July 2019
Accounting changes adopted from 1 July 2019 AASB 16 Leases APLNG dewatering and workover costs: • Adopted from 1 July 2019, prospectively • Change in treatment from 1 July 2019, prospectively • Lease liability and corresponding right-of-use asset • Previously capitalised recognised • Now expensed as
Slide 17: Underlying Profit stable
Underlying Profit stable Movements in Underlying Profit ($m) (90) (52) (61) 175 80 57 (115) 1 1,028 1,023 Primarily FY2019 Primarily impact of Reflects lower Lower net Stable $A/bbl Lower legacy site lower AASB16 Lease balance due debt and realised oil commodity provision electricity standard, to AP
Slide 18: Energy Markets Underlying EBITDA down 7%
Energy Markets Underlying EBITDA down 7% Movements in Underlying EBITDA ($m) Electricity gross profit down $203 million or 15% to $1,187 million: 29 40 19 • Margin impacts (-$136 million) (203) 1,574 1,459 − Regulation: VDO/DMO price impact (-$110 million) − Mortlake and Eraring outage, net of insur
Slide 19: Integrated Gas Underlying EBITDA down 2%, excl. accounting change
Integrated Gas Underlying EBITDA down 2%, excl. accounting change Movements Underlying EBITDA ($m) (107) (100) 57 (45) 44 Share of APLNG Share of APLNG Integrated Impact of accounting EBITDA Gas - Other 1,892 changes (-$101 million) (+$57 million) 1,741 Down $44 million, or 2% FY2019 Workovers & LNG
Slide 20: Lower operating cash flow, higher free cash flow
Lower operating cash flow, higher free cash flow Operating cash conversion 1 Uses of Free Cash Flow ($m) 1,800 96% 93% 87% 1,500 Expect futures collateral 69% to unwind as positions 1,200 settle 900 600 300 - FY19 FY20 FY19 FY20 Cash conversion Cash conversion excl futures collateral ($m) FY20 FY19
Slide 21: Capital structure and dividend
Capital structure and dividend Adjusted Net Debt / Adjusted Underlying EBITDA 4x • Capital structure restored to lower end of target range • Low franking balance expected over FY2021-23 due to tax deduction timing 3x • Lower cash flow expected in FY2021 with lower commodity prices • In this environm
Slide 22: Increasing debt maturity and lowering costs
Increasing debt maturity and lowering costs Debt maturity profile post debt extension1 - excluding Interest paid ($m) and average interest rate 2.0 lease liabilities (A$b) 500 7% 1.5 6% 400 5% 1.0 300 4% 200 3% 0.5 2% 100 1% - FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30+ 0 0% FY18 FY19 FY20 Lo
Slide 23: Building resilience to lower commodity prices
Building resilience to lower commodity prices • FY2021 APLNG costs expected to be $300-$500 million lower than FY2020 Reducing capex • Expected FY2021 Origin capex of $420 - $470 million, compared to $500 million in FY2020 • Cost to serve reduction of $73 million to date, $100 million target by FY20
Slide 24: Operational Review
Operational Review Frank Calabria, CEO 24 20 August 2020 2020 Full Year Results Announcement
Slide 25: Energy Markets
Energy Markets 25 20 August 2020 2020 Full Year Results Announcement
Slide 26: Adjusting our portfolio to adapt to market conditions
Adjusting our portfolio to adapt to market conditions 40 Sources and Uses of Electricity Sources and Uses of Gas 300 (MWh) (PJ) 35 Short Position Losses 250 Oil/JKM linked 30 Generation Swap Contracts Other 200 25 Business Gas 20 150 Business - Other Fixed Price Wholesale 15 100 Coal (Eraring) 10 Bu
Slide 27: Eraring provides generation flexibility
Eraring provides generation flexibility Average Eraring Generation and NSW Pool Price (June 2020) Volumes Volumes reduced reduced MW $/MWh in early in high solar • Volatility increasing reflecting increased renewables morning period 3,000 200 • Eraring able to respond to lower average demand and int
Slide 28: Wholesale prices below the cost of firm generation & marginal for renewables
Wholesale prices below the cost of firm generation & marginal for renewables NEM Wholesale Electricity Prices by State Estimated Cost of New Generation ($/MWh) ($/MWh) Semi-firm Firm Non-Firm Pool Price ASX Baseload 160 FY Strip Futures Price (as at 18 August 2020) 160 120 120 80 80 40 40 - - Solar
Slide 29: Gas continues to deliver, benefiting from lower supply costs in FY2020
Gas continues to deliver, benefiting from lower supply costs in FY2020 Energy Markets contracted gas (PJ) • Natural gas gross profit is underpinned by a flexible competitive supply portfolio 300 Short term volumes Volumes subject to purchased to match duration price review over of C&I sales contract
Slide 30: Medium term wholesale drivers
Medium term wholesale drivers Key Drivers Market context Origin context • 15-20 TWh of relatively fixed cost wholesale supply • COVID-19 has reduced demand, impacting prices • ~3 million certificates via fixed cost PPA’s (Stockyard Hill to Wholesale prices • We expect prices to reflect growth in ren
Slide 31: Optimising customer lifetime value
Optimising customer lifetime value Customer numbers ('000) 30% Churn (% monthly) 3,900 20 +33K +27K 8 25% 3,800 - 20% 3,700 15% Market 3,830 3,851 3,811 Origin 10% 3,600 5% 3,500 0% FY18 FY19 FY20 Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Energy Broadband FY 2019 FY 2020 • Growth in customer b
Slide 32: Delivering on our retail strategy
Delivering on our retail strategy Target market leading cost Transform customer experience Grow new revenue streams position 24% 22.3 Community Energy Services (CES) 17% 624 gross profit ($m) 6.8 500 75 Digital sales MyAccount NPS $73m of $100m target achieved 57 893 2,346 44 1,868 205 FY18 FY19 FY2
Slide 33: Octopus Energy initiatives to accelerate our strategy and set Origin apart
Octopus Energy initiatives to accelerate our strategy and set Origin apart Radical improvement in customer Opening up future growth Material reduction in cash costs experience opportunities • Single point of service • Target savings of $70-80 million in • Seamless integration and scaling of FY2022,
Slide 34: Origin at the leading edge of the convergence between data and energy
Origin at the leading edge of the convergence between data and energy Data & Analytics at the core of Virtual Power Plant unlocking Cloud migration reducing cost and customer experience and business customer value and wholesale increasing agility simplification flexibility • Migration began in 2016
Slide 35: Integrated Gas
Integrated Gas 35 20 August 2020 2020 Full Year Results Announcement
Slide 36: APLNG reserves and production continue to perform at or above expectations
APLNG reserves and production continue to perform at or above expectations APLNG reserves and cumulative production (PJ) 18,000 • 2P additions replaced ~90% of production in operated fields 15,000 since June 2017 12,000 • 2P increased by >1,700 PJ since Jun-12 (before production) 9,000 • Reserve bas
Slide 37: APLNG delivering operational excellence
APLNG delivering operational excellence Record production Competitive cost base Field connection infrastructure completed APLNG Production (100%) (PJ) 2,800 6.0 to date 720 2,700 5.5 ✓ TCIP online May 2016 700 ✓ ERIC online July 2019 ✓ TOGGS online July 2020 2,600 5.0 680 $/GJ $m 2,500 4.5 660 Stron
Slide 38: Demonstrating flexibility to adapt to market demand
Demonstrating flexibility to adapt to market demand APLNG Production (100%) to Sales (PJ) 17 • Reduced operated production by 11 PJ in response to Liquefaction1 (11) (15) lower demand due to COVID-19 − Ability to ramp up with quick recovery times 719 708 − Using artificial intelligence to remotely o
Slide 39: APLNG sales mix and realised prices
APLNG sales mix and realised prices Sales Volume (PJ) Average realised gas price A$/GJ 14 700 679 676 668 12 600 205 195 187 500 10 42 17 32 400 8 300 6 432 464 449 200 4 100 - 2 FY18 FY19 FY20 FY18 FY19 FY20 LNG contract LNG spot Domestic LNG Domestic Weighted average • Sold 481 PJ to LNG contract
Slide 40: FY2021 guidance reflects continued cost focus and volume flexibility
FY2021 guidance reflects continued cost focus and volume flexibility APLNG (100%) FY18 FY19 FY20 FY21 Guidance Production (PJ) 676 679 708 650-680 Capex + opex, excl. purchases1 (A$b) 2.6 2.7 2.5 2.0 - 2.2 Unit capex + opex, excl. purchases1 (A$/GJ) 3.8 4.0 3.5 2.9 - 3.4 Distribution breakeven (US$/
Slide 41: APLNG commercial update
APLNG commercial update APLNG contracts Tri-Star proceedings • Both major LNG customers have declared downward • APLNG’s position remains unchanged since 2014 that quantity tolerance (DQT) for calendar year 2020 reversion has not occurred • Cash received in January 2020 for 5 deferred cargoes from •
Slide 42: Beetaloo exploration targeted to resume in late 2020
Beetaloo exploration targeted to resume in late 2020 Beetaloo • Acquired additional 7.5% share in the joint venture from Falcon Oil & Gas in exchange for increasing Falcon’s carry by $25 million over the coming years • Activity temporarily paused in March 2020 in response to COVID-19 • Results obtai
Slide 43: Outlook
Outlook Frank Calabria, CEO 43 20 August 2020 2020 Full Year Results Announcement
Slide 44: FY2021 Guidance
FY2021 Guidance Provided on the basis that market conditions and the regulatory environment do not materially change, adversely impacting operations. Considerable uncertainty exists relating to potential ongoing impacts of COVID-19 and this guidance is subject to any further material impact on deman
Slide 45: FY2021 Guidance continued
FY2021 Guidance continued Energy Markets Integrated Gas Corporate • Lower Underlying EBITDA of $1,150 - APLNG 100% • Underlying costs of $75–85 million with $1,300 million: ERP replacement and FY2020 FX gains • APLNG production range of 650– and self-insurance costs not repeating – Electricity gross
Slide 46: Questions
Questions 46 20 August 2020 2020 Full Year Results Announcement
Slide 47: Appendix
Appendix 47 20 August 2020 2020 Full Year Results Announcement
Slide 48: Segment summary
Segment summary Energy Markets Integrated Gas Integrated Corporate Total - Share of APLNG Gas - Other ($m) FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 Underlying EBITDA 1,459 1,574 1,915 2,123 (174) (231) (59) (234) 3,141 3,232 Underlying EBIT 974 1,173 614 613 (197) (243) (62) (235) 1,329 1,3
Slide 49: Underlying ROCE
Underlying ROCE As at 30 June 2020 30 June 2019 Change Change ($m) ($m) ($m) (%) Capital Employed Net Assets 12,701 13,149 (448) (3) including: Investment in APLNG 6,978 6,960 18 - MRCPS issued by APLNG 2,109 3,045 (936) (31) Non-cash fair value uplift - (26) 26 (100) Adjusted net assets 12,701 13,1
Slide 50: Proportionate Free Cash Flow
Proportionate Free Cash Flow Free cash flow prepared on the basis of proportionate consolidation of APLNG. Energy Markets Integrated Gas Integrated Corporate Proportionate Total - Share of APLNG Gas - Other ($m) FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 Operating cash flow 1,307 1,707 1,965
Slide 51: Reconciliation of Adjusted Net Debt
Reconciliation of Adjusted Net Debt Issue Issue Hedged Hedged AUD $m AUD $m AUD $m Currency Notional Currency Notional 30 June 20 30 June 20 30 June 20 Interest- Debt and CCIRS Adjusted Net bearing fair value Debt liabilities2 adjustments AUD debt AUD 826 AUD 826 806 - 806 USD debt left in USD USD 1
Slide 52: Capex summary
Capex summary Origin capex ($m) FY2020 capex 500 • Generation sustain ($208 million) includes major overhauls at Eraring power station, 400 Uranquinty and Mortlake power station repairs 300 • Other sustain ($115 million) includes ERP replacement, regulatory market reforms and community energy servic
Slide 53: Energy Markets segment revenue reconciliation
Energy Markets segment revenue reconciliation The table below reconciles the difference between segment revenue and customer revenue disclosed in the Electricity, Natural Gas, LPG and Solar & Energy Services tables. FY20 FY19 Change Change ($m) ($m) ($m) (%) Energy Markets segment revenue 12,888 14,
Slide 54: Brownfield generation opportunities
Brownfield generation opportunities Stockyard Hill (contracted PPA) 530 MW (expected to be Morgan online in late CY 2020) Option for solar plus battery (up Darling Downs to 300 MW) Option for site expansion – battery and fast start gas Pelican Point Agreement for 240 MW capacity to June 2024 Eraring
Slide 55: Electricity forward price by state
55 30 70 40 80 110 50 60 90 100 30 70 80 40 110 50 60 90 100 Jul-17 Jul-17 Sep-17 Sep-17 Nov-17 Nov-17 Source: AEMO/Bloomberg Feb-18 Feb-18 20 August 2020 Apr-18 Apr-18 Jul-18 Jul-18 Sep-18 Sep-18 Dec-18 Dec-18 VIC NSW Feb-19 Feb-19 May-19 May-19 Jul-19 Jul-19 2020 Full Year Results Announcement Oct
Slide 56: LREC prices and LREC position
LREC prices and LREC position LREC forward prices Origin’s LREC position ($/cert) (million certificates) 7 Millions 80 6 70 5 60 50 4 40 3 30 2 20 1 10 - - Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 2020 2021 2022 2023 2024 CY19 CY20 CY21 Legacy & Contracts Recent solar deals FY2
Slide 57: Customer movements
Customer movements Electricity ('000) (‘000) FY20 FY19 Change 15 10 Electricity 5 Business 29 27 2 - Retail – Residential 2,261 2,270 (9) (5) Retail – SME 264 283 (20) (10) Retail – Community Energy Services 77 59 18 (15) Total 2,631 2,639 (8) (20) NSW QLD VIC SA Retail - Residential Retail - SME Re
Slide 58: Cost to serve and bad and doubtful debts over time
Cost to serve and bad and doubtful debts over time Cost to serve Bad and doubtful debts (adjusted for COVID-19) 1.09% 38 0.74% 0.71% 171 169 159 0.70% 0.66% 0.73% 117 114 96 83 80 72 75 428 411 61 345 FY18 FY19 FY20 FY21 FY24 FY16 FY17 FY18 FY19 FY20 Guidance Target Retail and Business ($m) Wholesal
Slide 59: APLNG Project Finance debt amortisation profile
APLNG Project Finance debt amortisation profile The table below outlines APLNG’s US$ project finance debt amortisation profile. APLNG’s average interest rate associated with its project finance debt portfolio was 3.6% for FY2020, FY2021 is expected to be ~3.1% Closing balance as at 30 June (US$b) 20
Slide 60: Financial Instruments and fair value adjustments
Financial Instruments and fair value adjustments Balance Sheet Impact Income Statement Impact Financial Gain/(loss) Post-tax Inc/(dec) Inc/(dec) in Total Pre-tax Gain/(loss) asset/(liability) included in Gain/(loss) in financial other net inc/(dec) in excluded from 31 Jun 30 Jun Underlying excluded
Slide 61: Important notices
Important notices Forward looking statements This presentation contains forward looking statements, including statements of current intention, statements of opinion and predictions as to possible future events. Such statements are not statements of fact and there can be no certainty of outcome in re
Slide 62: Important notices
Important notices All figures in this presentation relate to businesses of the Origin Energy Group (Origin, or the Company), being Origin Energy Limited and its controlled entities, for the reporting period ended 30 June 2020 (the period) compared with the reporting period ended 30 June 2019 (the pr
Slide 63: For more information
For more information Peter Rice General Manager, Capital Markets Email: peter.rice@originenergy.com.au Office: +61 2 8345 5308 Mobile: + 61 417 230 306 Liam Barry Group Manager, Investor Relations Email: liam.barry@originenergy.com.au Office: +61 2 9375 5991 Mobile: + 61 401 710 367 originenergy.com