Origin Energy Limited · ASX:ORG
Origin Energy — HY2016 Earnings Presentation
59 slides from Origin Energy's earnings presentation, Feb 18, 2016
Slide 1: 2016 Half Year Results Announcement
2016 HALF YEAR RESULTS ANNOUNCEMENT Half Year Ended 31 December 2015 Grant King, Managing Director Karen Moses, Executive Director, Finance and Strategy Frank Calabria, CEO Energy Markets David Baldwin, CEO Integrated Gas 18 February 2016
Slide 2: 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 3: Outline
Outline 1. Performance Highlights Grant King 2. Financial Review Karen Moses 3. Operational Review Energy Markets Frank Calabria Integrated Gas David Baldwin 4. Outlook Grant King 5. Appendix 3
Slide 4: 1. Performance Highlights
1. PERFORMANCE HIGHLIGHTS Grant King, Managing Director 4
Slide 5: Highlights
Highlights On track to deliver debt reduction and cash preservation initiatives to further build resilience to prolonged low oil prices $5.5 billion of debt reduction achieved, targeting net debt below $9 billion in FY2017 Reducing operating and capital costs across the business Asset sales
Slide 6: $5.5 billion debt reduction, targeting net debt below $9 billion in FY2017
$5.5 billion debt reduction initiatives, targeting net debt below $9 billion in FY2017 Movement in Net Debt - 30 June 2015 to 31 December 2015 14 • Origin implemented a series of 13.3 (3.0) 12 measures that have reduced net debt to $9.3 billion at 31 December 2015 10 0.3 (0.2) (2.5) 0.9 0.4 Sale o
Slide 7: Cash preservation initiatives increase resilience to lower oil prices
Cash preservation initiatives, combined with cash generation from existing businesses, increase resilience to lower oil prices for longer Origin’s Brent Oil Price Assumptions (used for planning purposes and impairment considerations) 120 Reduced dividends 100 Capex reductions 80 Opex reduction
Slide 8: Interim dividend of 10 cps and payout ratio
Consistent with the announced intention during last year’s Entitlement Offer to reduce the annual dividend to 20 cps on expanded capital base, an unfranked interim dividend of 10 cps has been determined for the first half Dividends1 and Payout Ratio 600 100% • Reduction in annual dividend from 50 ce
Slide 9: Reducing cost of functional support as activity diminishes
As acquisition and development activities have diminished, the cost of providing functional support to the businesses is being reduced Total Monthly Hours Worked1 Origin Personnel 4M 9000 Elevated workforce to deliver APLNG and Monthly Hours Worked (million hours) 3M other growth projects in 8000 En
Slide 10: Savings from headcount and capex reductions
Savings from headcount and capex reductions will contribute to reduced operating and capital costs in Energy Markets and Integrated Gas Capital Expenditure and Cash • Reduction in operational positions will contribute to cost Contributions to APLNG1,2 saving commitments in Energy Markets and Integra
Slide 11: APLNG breakeven cost reduction opportunities
With APLNG now in production opportunities in the near term are being identified to reduce pre-production estimates of breakeven costs by A$3-5/boe Pre-production estimates of breakevens Now that APLNG is in production Cash cost (targeted average steady state A$ A$/boe3 US$/boe4 • Opportunities in t
Slide 12: Mortlake Terminal Station sale and asset sales target
Entered into sale agreement for Mortlake Terminal Station for $110 million, continuing to target sales of at least $800 million Infrastructure and wind assets • Agreement to sell Mortlake Terminal Station to AusNet Services for $110 million (announced on 12 February 2016) • Represents 12.9x FY2017 E
Slide 13: Impairments of geothermal, IT and upstream assets
Decision to exit some activities has resulted in a $222 million impairment of geothermal and IT assets and an additional $22 million in upstream assets, taking recent impairments for upstream assets to $412 million Post-tax impairment Impairments ($m) • As flagged at last year’s Entitlement Offer, H
Slide 14: Stable results driven by Energy Markets
Stable results driven by strong Energy Markets business with fall in oil price having a modest impact on results Energy Markets EBIT/Sales Margin 12% 11.2% EBITDA Bridge – Continuing Operations 10% 9.4% 1,000 8% 4 6% 25 (43) 4% 900 71 (25) 2% (38) 846 (30) (3) $ million 0% HY2015 HY2016 800 807 Ener
Slide 15: APLNG commenced LNG production and shipments
APLNG has commenced LNG production and shipments, with increasing confidence in upstream production and downstream liquefaction capacity TJ/d Ramp Up of APLNG Operated 1200 Production 1000 APLNG Upstream complete, Train 1 in production 800 5 cargoes shipped, including 3 to Sinopec 600 Increasi
Slide 16: 2. Financial Review
2. FINANCIAL REVIEW Karen Moses, Executive Director, Finance and Strategy 16
Slide 17: 2016 Half Year Financial Highlights
2016 Half Year Financial Highlights (Unless otherwise stated, information is presented on a continuing operations basis to exclude Contact Energy) $ million HY2016 HY2015 Change Statutory (Loss)* - total operations (254) (25) 916% Underlying Profit* - total operations 254 346 (27%) Underlying Profit
Slide 18: Underlying EBITDA and EBIT
Underlying EBITDA down $39 million to $807 million Underlying EBIT down $74 million to $443 million Underlying EBITDA Underlying EBIT ($ million) HY2016 HY2015 Change HY2016 HY2015 Change Energy Markets 721 621 100 557 470 87 Integrated Gas 137 273 (136) (63) 95 (158) Corporate (51) (48) (3) (51) (4
Slide 19: Reconciliation of Statutory Loss to Underlying Profit
Reconciliation of Statutory Loss to Underlying Profit ($ million) HY2016 HY2015 Change Statutory (Loss) – total operations (254) (25) 916% Items Excluded from Underlying Profit Fair value and foreign exchange movements1 (82) (369) (78%) LNG items pre revenue recognition1 (154) (68) 126% Disposals, i
Slide 20: Cash flow from operating activities
Cash flow from operating activities down $429 million to $397 million, reflecting impacts of actions to reduce cost and risks in response to low oil prices Bridge of Cash Flow From Operating Activities 900 800 826 (117) 700 (39) (117) 600 $ million (56) 500 (69) (37) 5 400 397 300 $279m of actions t
Slide 21: Debt reduction, liquidity and maturity profile
Over the 6 months Origin has reduced debt, increased liquidity and improved serviceability Origin Debt & Bank Guarantee Pro-forma Maturity Profile as at 31 December 20151 • $5.5 billion of debt reduction achieved, 6,000 targeting net debt below $9 billion in FY2017 Loans & Bank Guarantees - Undrawn
Slide 22: 3. Operational Review – Energy Markets
3. OPERATIONAL REVIEW – Energy Markets Frank Calabria, CEO Energy Markets 22
Slide 23: Energy Markets
Energy Markets $m Underlying EBITDA $m Cash Flow From $m Capital Expenditure 800 800 Operating Activities 150 694 721 132 117 600 600 Carbon 621 621 116 100 400 400 577 50 200 200 - - - HY2015 HY2016 HY2015 HY2016 HY2015 HY2016 Underlying EBITDA up $100 million or 16% to $721 million due to increa
Slide 24: EBITDA up $100 million to $721 million
EBITDA up $100 million to $721 million Growing margins while reducing costs Energy Markets Underlying EBITDA Bridge 800 (9) 25 4 700 721 • Growing Gross Profit from Natural Gas and 80 Electricity (+$71m): 600 621 • Natural Gas Gross Profit up $80m 500 • Electricity Gross Profit stabilised (-$9m) $ m
Slide 25: Natural Gas gross profit increase
Increase in Natural Gas Gross Profit of $80 million from growing volumes and margin expansion Natural Gas Volume Growth1 Natural Gas Procurement Costs Unit Margin Expansion PJ $/GJ $/GJ 100 LNG 4.4 3.6 Business 84 Retail 3.5 80 4.0 4.1 3.4 4.0 3.2 64 3.6 60 3.2 2.8 40 2.8 2.4 20 2.4 0 2.0 2.0 HY2015
Slide 26: Competitive gas position and portfolio
Competitive gas position supported by supply duration beyond 2020, transport flexibility and growing customer base Energy Markets’ East Coast Gas Portfolio Origin’s Flexible Transport Capacity PJ/a 300 Other Purchases (Price Review) Other Purchases (Oil Linked) Other Purchases (Fixed Price) APLNG pu
Slide 27: Electricity margins stable
Electricity margins stable (-$9m) Unit margins up $12 million, offset by prior period customer losses Electricity Volumes Down1 Electricity Procurement Cost Flat1,2 Unit Margin Expansion $/MWh $/MWh TWh 20 60 40 9.6 9.3 58.5 58.5 50 35.5 36.2 15 30 40 10 30 20 9.6 9.4 20 5 10 10 0 0 0 HY2015 HY2016
Slide 28: Energy procurement costs flat in rising wholesale market
Energy procurement costs flat in a rising wholesale market NEM Spot Prices Rise 23% Origin’s Energy Procurement Cost Flat $/MWh Origin Supply HY2016 Market Origin outcome 50 (18.6 TWh) Market Increase Flat Spot (+$9/MWh) (+$0.2/MWh) 40 Wholesale market Increase Flat Contract (+$1/MWh) (-$0.5/MWh) 30
Slide 29: Flexible fuel and generation portfolios
Flexible fuel and generation portfolios position Origin strongly in changing market Origin’s energy portfolio flexibility Long capacity with geographic diversity TWh (FY2015 volumes) Capacity, MW 40 35 30 Business 25 A 20 15 10 Retail B 5 0 Min Production Max Production Sales NSW QLD VIC SA (Low mar
Slide 30: Renewables more attractive as costs fall
Renewables more attractive than ever as utility scale solar and wind generation costs fall 14TWh of new renewable build required1 LREC price rising and renewables cost falling2 $/MWh TWh 35 140 30 120 Solar PPA 25 100 Wind PPA 20 80 15 60 10 40 5 20 Existing New Build 0 0 FY2015 FY2016 FY2017 FY2018
Slide 31: Origin well placed to accelerate a renewable future
Origin is well placed to accelerate a more renewable future Origin’s renewable certificate (LREC) position1 Significant renewables opportunity 10 • Origin is actively pursuing a number of utility 9 scale solar and wind opportunities, including 8 via offtake agreements Number of LREcs (millions) 7 •
Slide 32: Cost savings and capex reduction on track
On track to deliver $100 million in cost savings and $50 million reduction in capex, embedding a culture of continuous improvement Operating Cost Reduction Focus on lifting operational performance Bad & Doubtful Debts (% of billings) $m, cumulative 100 • Credit and collections 1.7% transformation Co
Slide 33: Retaining high value customers through internal channels
Focused on retaining high value customers through cost effective internal channels. Customer accounts stable. Focus on cost effective channels & high value customers Customer accounts stable1 Increasing sales through low Natural Gas and Electricity Customer Active renewal program (%) Accounts (‘000)
Slide 34: Building customer loyalty and trust
Building customer loyalty and trust Customer Experience Digital Customer Experience • Growing customer centric culture Interaction NPS eBilling customer accounts (‘000) • New and differentiated propositions 1,112 12 • Campaign agility 9.7 820 10 • Customer alerts and notifications 8.1 8 7.2 6.3 Digi
Slide 35: Becoming Australia's leading energy solutions provider
Becoming Australia’s leading energy solutions provider Solar Energy Services Digital Metering Solar Sales (MW) Cumulative meters (‘000) 10 60 8 50 40 6 30 4 20 2 10 0 0 HY2015 HY2016 HY2015 HY2016 • 42% increase in Solar sales • Launched battery proposition as first retailer to • More than 8,000 new
Slide 36: Energy Markets strategic priorities
Energy Markets strategic priorities to deliver shareholder value Build Customer first culture customer Customer experience and service loyalty Differentiated propositions and trust Digital capability Maximise Gas portfolio competitive position value of Competitive cost of electricity the
Slide 37: 3. Operational Review – Integrated Gas
3. OPERATIONAL REVIEW – Integrated Gas David Baldwin, CEO Integrated Gas 37
Slide 38: Integrated Gas
Integrated Gas Underlying EBITDA Cash Flow From Capital Expenditure and Cash $m $m Operating Activities $m Contributions to APLNG 300 300 2,500 686 273 254 200 2,000 200 1,412 100 1,500 137 - 1,000 856 100 -102 -100 500 Acquisition APLNG contribution 323 308 Capex - -200 - HY2015 HY2016 HY2015 HY201
Slide 39: Integrated Gas EBITDA down $136 million
EBITDA down $136 million to $137 million primarily due to a $53 million Vietnam exploration write-off following exit from all international exploration activities1, lower liquids prices and lower production Integrated Gas EBITDA Bridge Gas and Liquids Production2 300 3 (1) (30) PJe (20) 120 APLNG (4
Slide 40: Integrated Gas operating cash flow bridge
OCF down $356 million to -$102 million primarily due to decrease in underlying EBITDA, and the impacts of actions to reduce cost and risks in response to low oil prices Integrated Gas Cash Flow From Operating Activities Bridge (136) Actions to reduce cost 250 • Lower EBITDA (-$136m), offset by and r
Slide 41: APLNG upstream complete, Train 1 started up
APLNG Upstream is complete and performing at or above expectations. In the Downstream, Train 1 has started up and performing at or above nameplate capacity Key Goals and Milestones Plan Actual Progress First Cargo from Train 1 Q2 FY16 Accomplished Q3 Commencement of Sinopec SPA Q2 FY16 Accomplished
Slide 42: Remaining cash contribution to APLNG ~$1 billion
Origin’s remaining cash contribution to APLNG from 1 January 2016 is ~$1 billion, consistent with previous guidance1, cost reductions having mitigated upward pressures from lower oil price and train delay Cumulative Half Year to (A$m) from FID1 to 31 Dec 2015 31 Dec 2015 Includes unfavourable foreig
Slide 43: $1 billion cost reduction in APLNG upstream
$1 billion cost reduction initiatives in APLNG’s Upstream total annual costs have been implemented, with average per well costs of $2.7m in FY2017 APLNG Operated Costs per Well 5 Drilling & Completions • Bundled 20+ wellsite services into one (implemented) • Technological improvements to completions
Slide 44: Sustain well development lifecycle decreasing
Sustain well development lifecycle duration is decreasing from 36 months to 6-9 months, increasing flexibility to tailor future capex spend APLNG Gas Production (TJ/d) Nameplate capacity plus 10% • Sustain wells and infrastructure 2 Train Contracted is parceled into discrete “Delivery Demand Package
Slide 45: APLNG expected to exceed nameplate capacity
APLNG performance is expected to exceed nameplate capacity, creating options to lower the breakeven APLNG Supply and Demand TJ/d 2,500 Upstream production is expected to exceed contracted demand: Opportunity to monetise • Well production levels currently being constrained to 2,000 Uncontracted produ
Slide 46: APLNG is structurally well positioned
APLNG is structurally well positioned APLNG Is underpinned by: Strong reserves1 16,174 PJ Quality assets 3P 2P 1P Leading operators Upstream Operator Downstream Operator Aligned shareholders 37.5% 37.5% 25% Strong offtake contracts with creditworthy customers 1 mtpa 7.6 mtpa contracted contracted A3
Slide 47: LNG increasingly important in global energy mix
In the longer-term, LNG is increasingly important in the global energy mix, and Australia is well positioned Forecast 2020 Cost of US and East Coast Australian Global gas demand will continue to grow, by ~2% Delivered Asia LNG (US$/mmbtu) over the next decade, with LNG growing by 4-6% per annum1 1
Slide 48: Integrated Gas strategic priorities
Integrated Gas strategic priorities to deliver shareholder value Upstream complete, Train 1 in production and performing at or above nameplate Continue Train 2 production in H1 FY2017 execution momentum Complete APLNG project finance tests to release shareholder guarantees by end CY2017 Comp
Slide 49: 4. Outlook
4. OUTLOOK Grant King, Managing Director 49
Slide 50: Guidance reaffirmation – Existing Businesses
Guidance reaffirmation – Existing Businesses Origin reaffirms guidance provided at the time of last year’s the Entitlement Offer in relation to existing businesses1: • FY2016 Underlying EBITDA (excluding LNG Underlying EBITDA) to be $1.45b to $1.55b • FY2017 Underlying EBITDA (excluding LNG Underlyi
Slide 51: Guidance update - LNG
Guidance update - LNG Guidance in relation to the contribution from LNG to Origin’s Underlying EBITDA and NPAT provided at the time of the Entitlement Offer was: • FY2016 Underlying EBITDA of $110m to $230m and contribution to Underlying NPAT of ($170m) to ($220m) • FY2017 Underlying EBITDA of $1.2b
Slide 52: Origin's priorities to drive improved shareholder returns
In order to drive improved returns for shareholders in a low oil price environment, Origin’s priorities are: GROWING CONTRIBUTION FROM ENERGY MARKETS • Continue to build customer loyalty and trust ENERGY • Maximise value of core business MARKETS • Creating new energy solutions • Engaged, high perfor
Slide 53: 5. Appendix
O origin 5. APPENDIX
Slide 54: Important Notices
Important Notices 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 2015 (the period) compared with the half year ended 31 December 2014 (the prior correspo
Slide 55: Important Notices (cont)
Important Notices (cont) Reserves This Presentation contains disclosure of Origin and APLNG’s reserves and resources as at 30 June 2015. These reserves and resources were announced on 31 July 2015 in Origin’s Annual Reserves Report for the year ended 30 June 2015 (Annual Reserves Report). Origin con
Slide 56: Glossary - Statutory Financial Measures
Glossary - Statutory Financial Measures Statutory Financial Measures are measures included in the Financial Statements for the Origin Consolidated Group, which are measured and disclosed in accordance with applicable Australian Accounting Standards. Statutory Financial Measures also include measures
Slide 57: 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 58: 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 be 1P reserves commercially recoverable. There should be at least a 90% probability that the quantities actually recovered wi
Slide 59: 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 59