Origin Energy Limited · ASX:ORG
Origin Energy — HY2021 Earnings Presentation
58 slides from Origin Energy's earnings presentation, Feb 18, 2021
Slide 1: Origin Energy 2021 Half Year Results
Origin Energy 2021 Half Year Results Half year ended 31 December 2020 Frank Calabria, CEO & Lawrie Tremaine, CFO 18 February 2021
Slide 2: Outline
Outline 1. Performance Highlights - Frank Calabria 2. Financial Review - Lawrie Tremaine 3. Operational Review - Frank Calabria 4. Outlook - Frank Calabria 2 18 February 2021 2021 Half Year Results Announcement
Slide 3: Performance Highlights
Performance Highlights Frank Calabria, CEO 3 18 February 2021 2021 Half Year Results Announcement
Slide 4: HY2021 financial summary
HY2021 financial summary Statutory Profit Underlying Profit Underlying ROCE $13 $224 6.8% million million (0.7 cps) (12.7 cps) Down from 8.3% in HY2020 Down $586 million on lower commodity Down $304 million primarily reflecting lower oil, (12 month rolling basis) prices and subdued business conditio
Slide 5: Economic conditions impacting key commodity markets
Economic conditions impacting key commodity markets East coast gas demand - 4 week rolling avg Origin electricity demand - weather corrected (% change vs 2019) (% change vs 2019) 10% 10% 5% - - (5%) (10%) (10%) (20%) (15%) (20%) (30%) (25%) East Coast - all states VIC demand C&I Overall Retail (Resi
Slide 6: Oil and LNG markets were volatile, domestic energy prices remain subdued
Oil and LNG markets were volatile, domestic energy prices remain subdued LNG netback and domestic gas prices NSW electricity forward price Japan Customs-Cleared Crude 20 (A$/GJ) 100 ($/MWh) ($US/bbl) 80 18 90 70 16 80 14 70 60 ACCC forward 60 12 JKM netback price 50 ~$7.30/GJ 50 10 40 40 8 30 30 6 2
Slide 7: Continued strong operational performance in HY2021
Continued strong operational performance in HY2021 Integrated Gas Energy Markets • APLNG record production in the Dec-20 quarter • Strong EBITDA to cash conversion at 119% • Record low APLNG capex + opex in HY2021 • Reduced demand partly offset by business customer account wins • APLNG distributed $
Slide 8: Delivering for our stakeholders
Delivering for our stakeholders Getting energy right Our Customers Our Communities Our People Our Planet COVID-19 support Regional procurement Continued support for our Short term emissions initiatives in place until at increased to 18% people during COVID-19 target linked to executive least
Slide 9: A customer focused energy business positioned for a low carbon future
A customer focused energy business positioned for a low carbon future Market leading assets & capabilities Preferred position for energy transition Large domestic retail customer base Low-cost, digital-first retailer Leading energy wholesale & trading capability Short energy, covered for pea
Slide 10: We remain focused on our strategy to deliver value and growth
We remain focused on our strategy to deliver value and growth Connecting customers to the energy and technologies of the future e Maximise value of the Pursue growth in customer value 1 2 existing businesses and low carbon solutions 10 18 February 2021 2021 Half Year Results Announcement
Slide 11: Energy Markets – strategic priorities
Energy Markets – strategic priorities Maximise value of the Pursue growth in customer value 1 2 existing businesses and low carbon solutions Building on strong foundations in a changing landscape Lead the convergence of energy and data • Low cost retailer: FY2021 cost-out target on track, • Grow cus
Slide 12: Integrated Gas – strategic priorities
Integrated Gas – strategic priorities Maximise value of the Pursue growth in customer value 1 2 existing businesses and low carbon solutions Continued strong upstream performance at APLNG Accelerate towards clean energy • Record production in December quarter • Progressing opportunities in green Hyd
Slide 13: Financial Review
Financial Review Lawrie Tremaine, CFO 13 18 February 2021 2021 Half Year Results Announcement
Slide 14: HY2021 financial overview
HY2021 financial overview Statutory Profit Underlying Profit Underlying EBITDA $599M $528M $1,590M 30.0 cps 34.0 cps $1,154M $224M 12.7 cps $13M 0.7 cps HY20 HY21 HY20 HY21 HY20 HY21 Energy Markets Integrated Gas Corporate Underlying ROCE Free Cash Flow1 Adjusted Net Debt (rolling 12 months) $5,158M
Slide 15: Items excluded from Underlying Profit
Items excluded from Underlying Profit Reconciliation from Statutory to Underlying Profit ($m) Large-scale Generation Certificates trading strategy 22 • $112 million net cost relating to a decision to defer the surrender of ~2.35 million Large-scale generation 124 certificates (LGCs) 224 (47) 112 Oth
Slide 16: Large-scale Generation Certificates (LGC) strategy
Large-scale Generation Certificates (LGC) strategy Forecast LGC surplus LGC spot and forward prices ($/certificate) 160 (million certificates) 80 140 70 120 60 100 50 80 $40/Cert 40 60 $36/Cert 40 30 $27/Cert 20 20 $19/Cert - $9/Cert 10 - Jul-18 Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 Jul-24 Demand Commi
Slide 17: Lower Underlying Profit due to lower customer tariffs and commodity prices
Lower Underlying Profit due to lower customer tariffs and commodity prices Movements in Underlying Profit ($m) (88) (8) (48) (303) (37) 528 180 Lower electricity & Lower realised oil Mostly net hedge Decommissioning 224 Primarily Higher tax expense gas customer price, partially gains reflecting reta
Slide 18: Energy Markets Underlying EBITDA down 12%
Energy Markets Underlying EBITDA down 12% Movements in Underlying EBITDA ($m) (46) Electricity gross profit down $46 million or 8% to $503 million: (56) 13 • Margin impacts (-$47 million) 723 635 − Lower wholesale prices flowing into tariffs (-$134 million) − Network costs not recovered in regulated
Slide 19: Integrated Gas Underlying EBITDA down 38%
Integrated Gas Underlying EBITDA down 38% Movements Underlying EBITDA ($m) (53) 15 (550) 906 165 853 (30) 113 551 566 Integrated Share of APLNG 386 Gas - Other 303 (-$520 million) 273 273 (+$180 million) HY2020 LNG volume LNG price Domestic revenue Opex/other income Oil & LNG hedging Origin costs HY
Slide 20: Delivering robust returns in low oil price environment
Delivering robust returns in low oil price environment APLNG estimated distribution and Origin oil hedging and trading • HY2021 cash distributions from APLNG of $265 million 1,400 80 (US$38/bbl realised oil price) 1,200 – Second half expected to improve with estimated 70 FY2021 cash distribution of
Slide 21: Capex down due to lower generation spend
Capex down due to lower generation spend Capex ($m) 600 500 • HY2021 capex down $86 million or 33% 400 • FY2021 capex of $400 - $440 million (down $60 - $100 million, or ~15%) 300 – Includes ~$60 million relating to Kraken implementation – Excludes $140-150 million deferred payment for 20% 200 stake
Slide 22: Higher operating cash flow in H1, expected FY2021 free cash flow yield >10%
Higher operating cash flow in H1, expected FY2021 free cash flow yield >10% ($m) HY21 HY20 Change Underlying EBITDA 1,154 1,590 (436) Estimated FY2021 Origin Free Cash Flow 1 Non cash items (primarily APLNG EBITDA) (452) (974) 522 Yield Working cap and other 16 (77) 94 Tax paid (49) (188) 139 Estima
Slide 23: Capital structure and dividend
Capital structure and dividend • Committed to investment grade credit rating through the cycle Adjusted Net Debt / Adjusted Underlying − Target BBB/Baa2 4x EBITDA − Gearing of 20-30% • Expect capital structure to increase to the top of our 2-3x target 3x range by the end of FY2021 Target Range • Est
Slide 24: Operational Review
Operational Review Frank Calabria, CEO 24 18 February 2021 2021 Half Year Results Announcement
Slide 25: Energy Markets
Energy Markets 25 18 February 2021 2021 Half Year Results Announcement
Slide 26: Lower wholesale electricity prices impacting on margins
Lower wholesale electricity prices impacting on margins NSW electricity forward price Annual supply and demand position 100 ($/MWh) 90 Short Losses ~10 TWh ~17TWh 80 position Swap/short ~$10/MWh Average 70 Swap contracts contract 60 ~$15-20/MWh Business duration ~5 TWh Commodity 1 - 3 years 50 price
Slide 27: Domestic gas prices also impacting margins but signs of recovery
Domestic gas prices also impacting margins but signs of recovery LNG netback and domestic gas prices (A$/GJ) Annual sources and Uses of gas (PJ) 20 18 Prices begin to Supply largely Generation ~40-50 PJ fall from 2018 offset by 16 based on Prices fall oil/JKM linked linkage to significantly as 14 in
Slide 28: In a transitioning market we will maximise value and pursue growth options
In a transitioning market we will maximise value and pursue growth options Electricity portfolio Gas portfolio Near term outlook Near term outlook • Challenging operating conditions expected to persist in • Margins impacted by timing of tariff repricing compared FY2022 based on current forward price
Slide 29: Large, loyal customer base
Large, loyal customer base Customer accounts (‘000) Customer churn (% monthly) 30% 4,236 4,240 4,193 4,400 25% 14 20 26 4,100 359 365 367 20% 3,800 15% 3,500 3,200 10% 2,900 3,820 3,851 3,847 5% 2,600 - 2,300 Mar Mar May May Dec Dec Dec Sep Sep Sep Nov Nov Nov Oct Jul Aug Oct Jul Aug Oct Jul Aug Jun
Slide 30: Transforming our retail business
Transforming our retail business Growing future revenue Leading customer experience Low-cost retailer streams Cost estimates ($m) Solar & Community Energy Services Digital / Call Interactions Gross profit ($m) +90% 1000 $100-$150m 106 reduction 800 83 54 600 44 400 $85m of $100m cost 61 -54% 200 52
Slide 31: Octopus provides global growth exposure and accelerates our strategy
Octopus provides global growth exposure and accelerates our strategy Global growth strategy • Octopus targeting 100 million customer accounts on its platform, Kraken, by 2027 – 17 million licensed accounts contracted to Kraken and >£300 million in licensing revenue over next 3 years – ~93,000 new UK
Slide 32: Integrated Gas
Integrated Gas 32 18 February 2021 2021 Half Year Results Announcement
Slide 33: APLNG continues to outperform operationally
APLNG continues to outperform operationally Quality resource and assets Record low cost Lower realised oil price APLNG Production (100%) (PJ) Capex + Opex1 $m APLNG Domestic & LNG Revenue (100%) 400 $m $A/bbl 1,400 4.0 4,000 120 350 1,200 100 300 1,000 3,000 3.5 80 800 250 2,000 60 600 200 3.0 40 40
Slide 34: APLNG demonstrating flexibility to adapt to market demand
APLNG demonstrating flexibility to adapt to market demand APLNG (100%) average production TJ/day 2,100 Prior Qtrly record New Qtrly record 180 PJ Production flexibilty 182 PJ 2,000 • Strong field capability provides flexibility to ramp up production to respond to demand 1,900 • Operated production c
Slide 35: Guidance update
Guidance update FY21 previous FY21 updated APLNG (100%) FY20 guidance guidance Production (PJ) 708 675-705 685-705 Capex + opex, excl. purchases1 (A$b) 2.5 2.1-2.3 2.1-2.3 Unit capex + opex, excl. purchases1 (A$/GJ) 3.5 3.0-3.4 3.0-3.4 Distribution breakeven (US$/boe) 29 25-29² 24-28³ 1) Operating c
Slide 36: Replicating CSG exploration success in Australia’s leading shale portfolio
Replicating CSG exploration success in Australia’s leading shale portfolio APLNG – Bowen and Surat Basins Leading shale portfolio A strong history of exploration success Beetaloo Basin • Early exploration identified gas resource • Leading acreage position in Beetaloo Basin • Evolved well designs to
Slide 37: Early signs from the clean-up phase of Kyalla-117 are encouraging
Early signs from the clean-up phase of Kyalla-117 are encouraging Operation • First exploration and appraisal well targeting Kyalla shale – met goal to flow liquids- rich gas • Initial announcement, based on early data, lodged in accordance with NT regulations • Initial results are encouraging - gas
Slide 38: Outlook
Outlook Frank Calabria, CEO 38 18 February 2021 2021 Half Year Results Announcement
Slide 39: 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 40: FY2021 Guidance continued
FY2021 Guidance continued Energy Markets Integrated Gas Corporate • Lower underlying EBITDA of $1,000 APLNG 100% • Underlying costs of $90–100 million - $1,140 million reflecting: with declining functional costs more • Upgraded production guidance to than offset by higher insurance and ERP – lower e
Slide 41: Questions
Questions 41 18 February 2021 2021 Half Year Results Announcement
Slide 42: Appendix
Appendix 42 18 February 2021 2021 Half Year Results Announcement
Slide 43: Recent growth opportunities
Recent growth opportunities Investing in continued expansion of Octopus Energy as Farm-in to Canning Basin with Buru Energy it launches into Asian market • 40-50% interest in 7 permits covering 20,000km2 • Investing further ~A$65 million to maintain 20% stake • Origin to carry $12.3 million of JV pa
Slide 44: Taking action on climate change
Taking action on climate change We unequivocally support the Paris Agreement to limit the world’s temperature rise to well below 2°C above pre- industrial levels and pursue efforts to further limit this increase to 1.5°C Origin’s commitments and targets1 Origin’s actions Origin announced Australia
Slide 45: Large-scale Generation Certificates strategy – further detail
Large-scale Generation Certificates strategy – further detail ~2.35 million Statutory Underlying 9 CY2020 Profit $m Adjustment Profit $m 8 surrender CY2020 (incurred in FY2021) ~2.35 million 7 Shortfall charge accrued (~2.35 million certs x $65) (152) 152 - CY2020 Expected surrender cost (~2.35 mill
Slide 46: Reducing interest cost through on-going debt refinancing
Reducing interest cost through on-going debt refinancing Interest paid ($m) and average interest rate 400 6% 5% 300 4% • Estimated FY2021 net interest saving $60-70 million 200 3% 2% • Average HY2021 interest rate of 4.3%, down from 4.8% 100 1% - 0% • More than 36 months committed and undrawn liquid
Slide 47: Electricity forward price by state (A$/MWh)
Electricity forward price by state (A$/MWh) NSW 100 QLD 100 80 80 60 60 40 40 20 20 - - Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 VIC SA 100 100 80 80 60 60 40 40 20 20 - - Jul-18 Oct-18 J
Slide 48: APLNG sales mix and realised prices
APLNG sales mix and realised prices Sales Mix (PJ) Average realised gas Price (A$/GJ) 400 14 300 91 88 104 99 81 12 3 7 10 14 36 200 25 8 6 222 241 248 100 202 208 4 2 - - FY19 H1 FY19 H2 FY20 H1 FY20 H2 FY21 H1 FY19 H1 FY19 H2 FY20 H1 FY20 H2 FY21 H1 LNG contract LNG spot Domestic LNG Domestic Weig
Slide 49: Segment summary
Segment summary Energy Markets Integrated Gas Integrated Corporate Total ($m) - Share of APLNG Gas - Other HY21 HY20 HY21 HY20 HY21 HY20 HY21 HY20 HY21 HY20 Underlying EBITDA 635 723 513 1,033 53 (127) (47) (39) 1,154 1,590 Underlying EBIT 353 484 57 359 38 (139) (50) (39) 398 665 Underlying Profit/
Slide 50: Underlying ROCE – 12 month rolling
Underlying ROCE – 12 month rolling 31 December 2020 31 December 2019 Change Change As at ($m) ($m) ($m) (%) Capital Employed Net Assets 11,830 13,733 (1,903) (14%) including: Investment in APLNG 6,184 7,323 (1,139) (16%) MRCPS issued by APLNG 1,679 2,662 (983) (37%) Non-cash fair value uplift - (24)
Slide 51: 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 ($m) - Share of APLNG Gas - Other HY21 HY20 HY21 HY20 HY21 HY20 HY21 HY20 HY21 HY20 Underlying EBITDA 635 723 513 1,033 53
Slide 52: Reconciliation of Adjusted Net Debt
Reconciliation of Adjusted Net Debt Issue Issue Hedged Hedged AUD $m AUD $m AUD $m Currency Notional Currency Notional $m $m Dec-20 Dec-20 Dec-20 Interest bearing Debt & CCIRS FV Adjusted net debt liabilities2 adjustments AUD debt AUD 826 AUD 826 806 - 806 USD Debt left in USD USD 1,130 USD 1,130 1,
Slide 53: Energy Markets segment revenue reconciliation
Energy Markets segment revenue reconciliation The table below reconciles the difference between segment revenue and customer revenue disclosed in the Electricity, Natural Gas, LPG and Solar & Energy Services tables. HY21 HY20 Change Change ($m) ($m) ($m) (%) Energy Markets segment revenue 6,007 6,59
Slide 54: 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 ~3.0% Closing balance as at 30 June (US$m) 20
Slide 55: 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 Dec 30 Jun Underlying excluded
Slide 56: 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 57: 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 31 December 2020 (the period) compared with the reporting period ended 31 December 2019
Slide 58: 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