Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2014 Earnings Presentation
53 slides from Origin Energy's earnings presentation, Feb 20, 2014
Slide 1: 2014 Half Year Results Announcement
2014 Half Year Results Announcement Half Year Ended 31 December 2013 Grant King, Managing Director Karen Moses, Executive Director, Finance and Strategy 20 February 2014
Slide 2: Important Notice
Important Notice Forward looking statements This report 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 relation
Slide 3: Outline
Outline 1. Performance Highlights Grant King 2. Financial Review Karen Moses 3. Operational Review Grant King 4. Prospects Grant King 5. Appendix 3|
Slide 4: 1. Performance Highlights
1. Performance Highlights Grant King, Managing Director 4|
Slide 5: Results
Results Statutory Profit* $322 m down 39% Statutory EPS* 29.3 cps down 39% Underlying Profit* $381 m up 5% Underlying EPS* 34.6 cps up 4% Underlying EBITDA* $1,082 m up 3% Interim Dividend Unfranked 25.0 cps - - Group OCAT* $1,038 m up 125% Free Cash Flow* $793 m up 50% Capital Expenditure1 $460 m d
Slide 6: Strong progress on four key priorities
Origin has made strong progress on its four key priorities … Improving the Performance of the Existing Businesses Retail Transformation complete, Expansion of gas margins Increased availability and delivering operational and cash production from upstream assets flow improvements Value captur
Slide 7: Retail Transformation delivering operational and cash flow improvements
Investment in Retail Transformation at an end and beginning to deliver operational and cash flow improvements Retail Transformation Energy Markets Operating Cash Flow • Transition of all Mass Market 700 customers onto SAP platform Increase of completed a year ahead of 600 659 $359m with $268m from s
Slide 8: Stabilisation of customer position
Stabilisation of Origin’s customer position through more effective customer retention and acquisition Net Movement in Customer Accounts (Natural Gas & Electricity) NEM Energy Demand Projections 20 (GWh) (MWh) Residential & commercial consumption per capita 300,000 11.0 Annual energy consumption incr
Slide 9: Discounting moderating in NSW
While intense discounting is moderating in NSW, improvements in retail margins in the short term will be driven by discounts offered in prior and current periods Origin’s Average Signed Discount Offers for Electricity and Natural Gas (%) 14% 12% 10% 8% 6% 4% 2% SA VIC NSW QLD 0% Deregulation Timelin
Slide 10: Strengthened diverse gas supply portfolio
Origin has strengthened its diverse gas supply portfolio … Sources of Energy Markets’ East Coast Increase in Natural Gas PJ/a Gas Portfolio Customer Accounts 300 80 Ironbark (new equity gas)* Other purchases APLNG purchases Origin's existing equity gas 25 250 Gas Customer Accounts ('000) 60 200 26 1
Slide 11: Upstream investments delivered increased availability and production
Investments in upstream assets have delivered increased availability and production POTENTIAL DEVELOPMENT Availability of Origin Operated Plant • Ironbark in Surat Basin for 6 month period • Halladale/Black Watch in 100% Otway Basin • Further drilling at BassGas 80% (Yolla 5 & 6) EXPLORATION 60% • C
Slide 12: APLNG on track for first LNG in mid-2015
APLNG is on track to deliver first LNG in mid-2015, creating a step change in Origin’s earnings and cash flows Upstream Downstream 58% Complete 62% Complete • Estimated costs to complete are in line with budget • Planning underway for transitioning from project phase to investing in sustaining produ
Slide 13: Outlook for margin recovery and LNG start-up
Despite operational improvements and the moderating of intense discounting in NSW, impact of prior and current period discounts will continue to impact margin recovery in the short term … Improving operational Industry begins LNG APLNG and GLNG Full production performance of production start up from
Slide 14: 2. Financial Review
2. Financial Review Karen Moses, Executive Director, Finance and Strategy
Slide 15: 2014 Half Year Financial Highlights
2014 Half Year Financial Highlights ($ million) Dec 13 Dec 12 Change Statutory Profit 322 524 (39%) Statutory EPS 29.3 cps 48.0 cps (39%) Revenue 7,238 7,450 (3%) Underlying EBITDA 1,082 1,055 3% Underlying EBIT* 694 698 (1%) Underlying Profit 381 362 5% Underlying EPS 34.6 cps 33.2 cps 4% Group OCA
Slide 16: Underlying EBITDA up 3%, EBIT down 1%
Underlying EBITDA up 3% to $1,082 million Underlying EBIT down 1% to $694 million Underlying EBITDA Underlying EBIT ($ million) Dec 13 Dec12 Change Dec 13 Dec 12 Change Energy Markets 505 660 (23%) 372 516 (28%) Exploration & Production 302 1921 57% 162 79 105% LNG 35 271 30% 2 1 100% Contact Energy
Slide 17: Reconciliation of Statutory Profit to Underlying Profit
Reconciliation of Statutory Profit to Underlying Profit ($ million) Dec 13 Dec 12 Change Statutory Profit 322 524 (202) No gain on Items Excluded from Underlying Profit dilution (-$358m), foreign currency LNG related items (250) 294 (544) impacts (-$129m) Decrease in fair value of financial and fina
Slide 18: Statutory Profit down 39%
Statutory Profit down 39%, from $524 million to $322 million Statutory Profit Movement – Dec 12 to Dec 13 600 500 524 (162) 193 27 (31) 11 (6) 400 18 (59) $ million 381 362 300 322 200 100 - HY2013 Net Items HY2013 Underlying Underlying Underlying Underlying Underlying HY2014 Net items HY2014 Statut
Slide 19: Group OCAT increased on billing and collections
Group OCAT increased due to improved billing and collections performance ($ million) Dec 13 Dec 12 Change Decreased Energy Markets debtors from billing & collections Underlying EBITDA 1,082 1,055 27 improvements (+$268m), lower Change in working capital 217 (268) 485 sales and green certificate paym
Slide 20: Funding initiatives and debt maturity profile
As a result of a number of funding initiatives during the period, Origin has $6.51 billion of committed undrawn debt facilities and cash as at 31 December 2013 Over the last 6 months, Origin undertook a number of funding initiatives to Origin Debt & Bank Guarantee Maturity Profile lengthen debt matu
Slide 21: Unfranked interim dividend
An unfranked interim dividend of 25 cps has been determined, representing a payout ratio of 72% of Underlying EPS 60 Dec Half Jun Half 50 • Ex-dividend date: 25 February 2014 • Record Date: 3 March 2014 40 cents per share 25 25 25 25 • Payment Date: 4 April 2014 • The Dividend Reinvestment Plan will
Slide 22: 3. Operational Review
3. Operational Review Grant King, Managing Director
Slide 23: Energy Markets
Energy Markets ($m) Underlying EBITDA 800 600 660 505 400 200 Gas Gross Profit up $7 million Electricity Gross Profit down $130 million 0 Dec 12 Dec 13 Underlying EBIT margin* reduced from 9.4% to 7.2% predominantly due to impact of prior period discounting Operating cash flow up 120%, or $359 m
Slide 24: Energy Markets EBITDA down $155 million
Energy Markets EBITDA down $155 million primarily due to lower Mass Market volumes and impact of discounts from prior period … Underlying EBITDA Bridge 700 (30) • Mass Market volumes impacted by (52) warmest recorded winter (-$30m) 600 (55) 12 (31) 500 • Mass Market Electricity volumes also down due
Slide 25: Demand impacted by warmest September quarter
Both Electricity and Natural Gas Mass Market demand impacted by warmest September quarter in recorded history Cumulative Degree Days Electricity Mass Gas Mass TWh Market Volumes PJ Market Volumes 2,500 12 25 23.0 Down 15% 10.3 22.4 10 2,000 9.1 20 214 360 122 8 1,500 15 345 6 1,000 860 10 783 4 500
Slide 26: Electricity Mass Market volumes impacted
Electricity Mass Market volumes also impacted by prior year customer losses, solar PV and energy efficiency … Net Movements in Electricity Customer Accounts NEM Electricity Consumption H1 H2 H1 MWh per Capita FY2013 FY2013 FY2014 8.0 0 Electricity Customer Accounts -10 (11) -20 (21) 6.0 ('000) • Per
Slide 27: Electricity unit gross profit margin compressed
Prior period discounting and competitive pressures compressing Electricity unit Gross Profit margin Electricity Performance ($/MWh) Dec 13 Dec 12 Change Revenue • Published electricity tariffs have moved largely in line with C&I 137.1 136.3 0.8 increases in network, green and Mass Market 279.3 265.1
Slide 28: Reduced discounts in NSW and lower churn
Origin has reduced discounts in NSW, supported by a decrease in churn, while intense competition remains in VIC Origin’s Average Signed Discount Offers for Electricity and Natural Gas Churn Rates Electricity and Natural Gas (%) 40% 14% Origin, H1 FY2013 Origin, H1 FY2014 35% Market, H1 FY2013 Market
Slide 29: Eraring and Cobbora transactions consolidate generation and fuel position
The Eraring and Cobbora transactions, along with the Centennial Coal agreement, consolidated Origin’s generation and fuel position Generation Portfolio Performance Eraring and Cobbora Eraring Interm. Load/ Base Darling Downs Mortlake Ladbroke Grove Quarantine Peaking Roma Uranquinty Shoalhaven • Acq
Slide 30: Natural Gas unit gross profit expanded
Natural Gas unit Gross Profit expanded by $0.60/GJ reflecting the cost benefit of Origin’s diverse gas supply portfolio Natural Gas Performance ($/GJ) Dec 13 Dec 12 Change Revenue C&I 7.5 6.0 1.5 Mass Market 21.4 20.4 1.0 Combined Revenue 13.0 10.8 2.3 Tariff increases reflecting Cost of goods sold
Slide 31: Continued customer gains, particularly in gas
Origin has continued to gain customers, particularly in Natural Gas through dual fuel penetration in NSW Electricity and Natural Gas Customer Accounts Customer Account Movements Net gain Net gain 4,500 30 51,000 more gas customers of 5,000 of 14,000 over last 12 months 4,000 20 358 366 369 SA 3,500
Slide 32: Flat cost-to-serve per customer
Flat cost-to-serve per customer reflects efficiency of leveraging internal sales channels and new systems capability with a focus on customer retention … Cost to serve Dec 13 Dec 12 Change Customer Wins and Retains 1000 Natural Gas, Electricity & Non-commodity cost (344) (361) 17 Customer wins and r
Slide 33: Exploration & Production
Exploration & Production ($m) Underlying EBITDA 400 300 302 200 Higher production (+27%) and sales volumes (+26%) 1 192 Higher commodity prices 100 Flat operating costs 0 Dec 12 Dec 13 Higher production at Otway, BassGas and Kupe basins following completion of investments and planned shutdowns U
Slide 34: 27% increase in production
Investments made in prior periods and higher availability in the current period have resulted in a 27% increase in production PJe Origin Gas and Liquids Production1 mmboe Otway 60 10.3 • Production from Geographe 2 commenced in July 2013, offsetting natural decline in the Thylacine 50 8.6 reservoir
Slide 35: Near field development and exploration activity
Activity is focused on offsetting natural decline in production from existing assets through near field development and exploration activities … Ironbark • Pilot testing at Duke 2 and 3 pilot Otway Basin wells progressing • Drilling plans and site • Progress towards a development preparations are un
Slide 36: LNG
LNG ($m) Underlying EBITDA 40 35 30 27 1 Increased production and sales volumes 20 Higher gas prices Higher operating costs reflecting higher labour costs 10 from increased activity to prepare for first LNG 0 Dec 12 Dec 13 Substantial progress made on the project • Upstream 58% complete • Downstre
Slide 37: Upstream Project Progress - 58% complete
Upstream Project Progress - 58% complete and on track FY2014 Upstream Operated Goals Actual Progress to 31 December 2013 Plan First gas and water production from Q1 Accomplished: Reservoir performance is in line with expectations Condabri Central (eastern area) 500 wells drilled Q2 Accomplished: 564
Slide 38: Downstream Project Progress - 62% complete
Downstream Project Progress - 62% complete and on track Downstream Operated FY2014 Actual Progress to 31 December 2013 Goals Plan Final Train 1 refrigeration Accomplished: All LNG refrigeration compressors (methane, ethylene Q1 compressor set and propane) for Train 1 have been set Accomplished: 2,60
Slide 39: Key near term project goals and milestones
Construction, commissioning and operations of upstream assets will continue through calendar year 2014 … Key near term project goals and milestones FY2014 FY2014 Upstream Operated Downstream Plan Plan First gas and water production from Reedy Q3 First cryo modules set Q3 Creek (western area) Main pi
Slide 40: APLNG capital expenditure and Origin cash contribution
APLNG capital expenditure for the year was $5.3 billion, with Origin’s cash contribution $1.4 billion Cumulative Half Year to Estimate from FID1 to from FID1 to (A$m) 31 December 1st sales from Train 2 December 2013 (A$b) 2013 Project Capex 4,6701 17,167 24.73 Non-Project Capex: Capitalised O&M 105
Slide 41: Contact Energy
Contact Energy ($m) Underlying EBITDA 300 180 232 200 198 100 Lower cost of generation Lower carbon and gas costs Strengthening of the NZ dollar 0 Dec 12 Dec 13 Lower generation costs with hydro displacing more expensive thermal generation Te Mihi in final stages of commissioning, expected to ru
Slide 42: Gas flexibility enables increased hydro generation
Return to gas flexibility enables benefits from increased hydro generation … Benefits of favourable fuel mix and upgraded infrastructure realised during the period • Net purchase cost improved by NZ$5/MWh • Higher rainfall enabled increased hydro generation • Without take-or-pay gas constraints Cont
Slide 43: 4. Prospects
4. Prospects Grant King, Managing Director
Slide 44: Outlook for margin recovery and LNG start-up
Despite operational improvements and the moderating of intense discounting in NSW, impact of prior and current period discounts will continue to impact margin recovery in the short term … Improving operational Industry begins LNG APLNG and GLNG Full production performance of production start up from
Slide 45: 5. Appendix
O origin 5. Appendix
Slide 46: Important Notice
Important Notice Financial information All figures in this report relate to businesses of the Origin Energy Group (Origin, or the Company), being Origin Energy Limited and its controlled entities, for the half year ended 31 December 2013 (the period) compared with the half year ended 31 December 201
Slide 47: Glossary - Statutory Financial Measures
Glossary - Statutory Financial Measures Statutory Financial Measures are measures included in the Interim Financial Statements for the Origin Consolidated Group, which are measured and disclosed in accordance with applicable Australian Accounting Standards. Statutory Financial Measures also include
Slide 48: Glossary - Non-IFRS Financial Measures
Glossary - Non-IFRS Financial Measures Non-IFRS Financial measures are defined as financial measures that are presented other than in accordance with all relevant Accounting Standards. Non-IFRS Financial measures are used internally by management to assess the performance of Origin’s business, and t
Slide 49: Glossary - Non-Financial Terms
Glossary - Non-Financial Terms Term Meaning Proved Reserves are those reserves which analysis of geological and engineering data can be estimated with reasonable certainty to 1P reserves be commercially recoverable. There should be at least a 90% probability that the quantities actually recovered wi
Slide 50: Upstream Project Progress – Condabri Central, North and South
Upstream Project Progress – Condabri Central, North and South Condabri Central - Gas Processing Facility Condabri Central - water and brine ponds Condabri North - Gas Processing Facility Condabri South - Gas Processing Facility 50 |
Slide 51: Upstream Project Progress – Talinga, Orana, Reedy Creek and Eurombah Creek
Upstream Project Progress – Talinga, Orana, Reedy Creek and Eurombah Creek Talinga – Pipeline Compression Facility, Gas Processing Orana – Gas Processing Facility Facility in background Reedy Creek – Gas and Water Processing Facilities Eurombah Creek – Gas Processing Facility 51 |
Slide 52: Downstream Project – Curtis Island
Downstream Project – Curtis Island Curtis Island February 2013 Curtis Island December 2013 52 |
Slide 53: Thank you
Thank you For more information Chau Le Group Manager, Investor Relations Email: chau.le@originenergy.com.au Office: +61 2 9375 5816 Mobile: + 61 467 799 642 www.originenergy.com.au