Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2001 Earnings Presentation
41 slides from Origin Energy's earnings presentation, Feb 28, 2001
Slide 1: Results Announcement: Six months ended 31 December 2000
Results Announcement Six months ended 31 December 2000 28 February 2001
Slide 2: Outline
Outline • Performance Highlights • Financial Review • Operational Review • Returns to Shareholders • Outlook Page 2
Slide 3: Basis of comparison figures
• Comparison figures quoted refer to the performance of Origin Energy businesses during the December 2000 half-year compared to the December 1999 half-year • Activities relating to the Boral building and construction business reported in Origin Energy’s statutory accounts for the December 1999 half-
Slide 4: Performance Highlights
Performance Highlights
Slide 5: Financial highlights
Financial highlights • EBITDA $155.2 million ↑ 37% • PAT $49.5 million ↑ 77% • Capital expenditure $70.3 million ↓ 21% • Earnings per share 8.7 cents ↑ 78% • Net debt to equity 31.3% ↓ 4%* • Proposed on-market buy-back of up to 5% * from June 2000 Page 5
Slide 6: Operating highlights
Operating highlights • Increased natural gas production • Stronger sales volumes in Retail & Trading • Six month contribution from Ladbroke Grove power station • BP Bulwer Island cogeneration plant and Peat CSG project progressively commissioned • 11,500 additional consumers connected to networks op
Slide 7: Operating highlights cont…
Operating highlights cont… • Ariba Buyer e-procurement system installed • Full retail contestability systems project commenced • Generator alliance established Page 7
Slide 8: Financial Review
Financial Review
Slide 9: Profit & Loss
Profit & Loss Dec 00 Dec 99 % change ($m) ($m) Revenue 792.5 678.7 16.8 EBITDA 155.2 113.4 36.8 EBIT 88.5 45.7 93.6 Net interest expense 15.6 13.7 13.7 Tax expense 20.6 2.2 Profit after tax 49.5 28.0* 77.2 Earnings per share (cents) 8.7 4.9* 77.6 * Before abnormal items Page 9
Slide 10: Profit & Loss: Calendar year 2000
Profit & Loss: Calender year 2000 6 mths to 6 mths to 12 mths to Jun 00 Dec 00 Dec 00 ($m) ($m) ($m) EBITDA 158.0 155.2 313.2 EBIT 85.4 88.5 173.9 Net interest expense 16.2 15.6 31.8 Tax expense 20.4 20.6 41.0 Profit after tax 47.4* 49.5 96.9 Earnings per share (cents) 8.3 8.7 17.0 * Before abnormal
Slide 11: Tax reconciliation
Tax reconciliation Dec 00 Dec 99 ($m) ($m) Profit before tax 72.9 32.0 Prima facie tax 22.9 11.5 less Stratus benefit 5.7 10.5 add Other permanent differences 3.4 1.2 equals Tax expense 20.6 2.2 Tax payable 3.2 3.0 Envestra subvention payments 11.0 20.0 Page 11
Slide 12: Capex ($m)
Capital expenditure predominantly on development activities in Exploration & Production 120 Growth 100 SIB 80 Capex ($m) 60 40 20 0 Jun-99 Dec-99 Jun-00 Dec-00 Page 12
Slide 13: Operating cash flow after tax
Operating cash flow after tax Dec 00 ($m) Net operating cash flow 121.6 less interest received 1.3 SIB capital expenditure 45.9 add disposals 10.5 interest paid 17.5 Operating cash flow after tax 102.3 Funds employed 1,686.8 OCAT/Funds employed 6.1% Page 13
Slide 14: Other key ratios
Other key ratios • Net debt to equity (excluding OEI) of 31.3% - down from 35.6% as at June 2000 • Interest cover robust at 5.7 times compared to 4.4 times as at June 2000 • EPS per share up from 4.9 to 8.7 cents for the half • ROE for 12 months to 31 December 2000 is 7.6%, up from 6.2% for 12 month
Slide 15: Operating Review
Operating Review
Slide 16: EBITDA up 37% with all segments contributing
EBITDA up 37% with all segments contributing to the improvement 180 160 140 $m 120 100 80 60 T te n 99 00 s P k io R& E& a or ec ec at or tw r 'D 'D rp ne Ne Co Ge E&P = Exploration & Production R&T = Retail & Trading Page 16
Slide 17: Exploration & Production: strong performance
Exploration & Production: strong performance with EBITDA up 14% for the half to $105.9 million 120 75% Dec-99 • Revenue up 8% with EBIT up 100 Dec-00 74% 33% to $65 million 73% • Sales volumes increased 5% to EBITDA Margin (%) EBITDA\ EBIT ($m) 80 72% 44.9 PJe despite the sale of the 60 Port Campbel
Slide 18: Hedging: 12 month forward position
Hedging: 12 month forward position Oil price % hedged 50% Average hedge price > US$26.00 USD % hedged 73% Average hedge price US 57.5 cents Page 18
Slide 19: Exploration & Production activity
Exploration & Production activity • Capital expenditure of $57 million: – participation in the drilling of 80 wells – construction of production facility at Peat CSG field • New acreage acquired – Perth Basin: 50% interest in L1 and L2 production leases – Surat Basin: exploration permit ATP 692P – O
Slide 20: Retail & Trading: EBITDA increased by 101%
Retail & Trading: EBITDA increased by 101% to $29.7 million 40 8% • $16 million EBIT turnaround to Dec-99 report $10.2 million Dec-00 30 6% • Natural gas sales volumes up 9% EBITDA Margin (%) EBITDA\ EBIT ($m) – Cooler conditions compared to 20 4% Dec 99 half: EBIT impact approx $8 million 10 2% – A
Slide 21: Degree Day Variation
Warmer than average weather conditions adversely impacted EBIT by $5 million Cumulative Degree Day Variation (from 10 year average) Jul Aug Sep Oct Nov Dec 0 -50 Degree Day Variation -100 -150 -200 Melbourne 99 Melbourne 00 -250 Adelaide 99 Adelaide 00 -300 Melbourne Adelaide 6 months to Dec 99 735
Slide 22: Propane Price ($A)
Pressure on LPG margins continued as the average wholesale price of LPG increased by A$188 per tonne 800 Average international price of 700 LPG in 6 months to Dec-00 was A$574 Average international price of 600 LPG in 6 months to Dec-00 was A$386 Propane Price ($A) 500 400 300 200 100 0 Jul-98 Oct-9
Slide 23: Preparing for contestability
Preparing for contestability • Focusing on low cost to serve – consolidation of billing systems to achieve benefits of scale – exiting high cost legacy billing system in Victoria – e-commerce initiatives • Embarked upon major process and systems development program – comply with new regulations and
Slide 24: Generation: EBITDA increased from $1.2m to $12.7m
Generation: EBITDA increased from $1.2 million to $12.7 million 15 60% Dec-99 • Six month contribution from 50% Dec-00 Ladbroke Grove power station 10 40% EBITDA Margin (%) EBITDA\ EBIT ($m) 30% • Favourable pool prices 5 20% • BP Bulwer Island cogeneration 10% plant progressively commissioned 0 0%
Slide 25: Merchant power generation
Merchant power generation Roma Net Generation 55,908 MWh Capacity factor 18% Average spot price received $93 per MWh Ladbroke Grove Net Generation 318,519 MWh Capacity factor 91% Average spot price received $55 per MWh • One of the two Ladbroke Grove power station turbines failed in December. Repair
Slide 26: Networks: EBITDA of $11.3 million
Networks: EBITDA of $11.3 million, up 12% from the corresponding period in the prior year 30 Dec-99 25 Dec-00 • EBITDA comprised of: – Envestra distribution: $6.5 m – O&M fees: $4.8 m EBITDA/EBIT ($m) 20 • 11,500 new consumers added 15 to networks maintained and operated by Origin Energy 10 • Initia
Slide 27: Returns to Shareholders
Returns to Shareholders
Slide 28: Returns to shareholders
Returns to shareholders • Unfranked dividends inefficient • Shareholders pay tax at marginal rates • DRP participants must fund tax liability from other sources (affects 50,000 shareholders) • Many shareholders want cash returns • Share buy-backs provide attractive option for shareholders seeking ca
Slide 29: Buy-back tax implications for shareholders
Buy-back tax implications for shareholders • As a consequence of the Demerger, most shareholders have a cost base in excess of current market prices • Example: Boral purchased at $3.00 Origin cost base = $2.84 ($3.00 x 2 – $3.16) Page 29
Slide 30: Buy-back tax implications for shareholders
Buy-back tax implications for shareholders • Little or no CGT payable on buy-back proceeds • Many will crystallise a capital loss % of Proceeds Taxable - Individuals & Superannuation 50% 40% 30% 20% 10% 0% Sep 20, 1985 Apr 20, 1990 Sep 26, 1991 Mar 5, 1993 Aug 16, 1994 Jan 24, 1996 Jul 7, 1997 Dec 9
Slide 31: Capital return options
Capital return options • Demerger left Origin with low level of share capital • Capital reductions and off-market buy-backs inappropriate • On-market share buy-backs generally not attractive for small shareholders (transaction costs too high) Page 31
Slide 32: Share buy-back proposal
Share buy-back proposal • Equal access on-market buy-back • All shareholders have, for a set period of time (eg 3 weeks) equal opportunity to sell up to a fixed percentage of their holding (eg 5%) into the buy-back • These Buy-back Shares would trade on a separate line in ASX (ORGM) • Each sharehold
Slide 33: Benefits of buy-back
Benefits of buy-back • EPS and ROE positive at current prices • Tax efficient for shareholders who want cash returns (DRP participants can ignore buy-back) • Equal access (unlike most on-market buy-backs) • Cost effective for shareholders (no brokerage) • Simple to participate (sale facility) Page 3
Slide 34: Implementation
Implementation • Change to Constitution proposed to facilitate buy-back • General Meeting planned in first half of April • If approved, 5% buy-back will be held in May • Proceeds distributed to shareholders progressively during May/early June Page 34
Slide 35: Dividends
Dividends • Interim dividend deferred pending outcome of General Meeting • Future returns to shareholders will be reviewed on an ongoing basis • Available franking credits paid out as franked dividends • Small fully franked dividend (1-2 cents) likely in second half of 2001 Page 35
Slide 36: Summary
Summary
Slide 37: Delivering on recent investments
Delivering on recent investments • Funds redeployed from sale of distribution assets are now contributing to earnings 100 90 80 70 60 EBIT $m 50 40 30 20 10 0 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 6 months ended Page 37
Slide 38: Operational initiatives to drive further improvement
Number of operational initiatives implemented to drive further improvement • Full retail contestability systems project • Margin management • Focusing on working capital • Ariba e-procurement system • Unmarketable parcels Page 38
Slide 39: Development of further growth opportunities
Development of further growth opportunities • Greenfields exploration • New gas developments • Power generation and cogeneration opportunities • Continued development of energy retailing capabilities • Continuing rationalisation in the industry Page 39
Slide 40: Profit for 2000/01 expected to exceed last year
Profit for the 2000/01 year currently expected to exceed last year • Strong first half (first half typically stronger than second half) • Peat coal seam gas on line in February • BP Bulwer Island cogeneration plant contributing from 1 January • Oil hedged at prices above those of last year • Continu
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