Origin Energy Limited · ASX:ORG
Origin Energy — FY2016 Earnings Presentation
58 slides from Origin Energy's earnings presentation, Aug 18, 2016
Slide 1: 2016 Full Year Results Announcement
2016 FULL YEAR RESULTS ANNOUNCEMENT Financial Year Ended 30 June 2016 Grant King, Managing Director Gary Mallett, Chief Financial Officer Frank Calabria, CEO Energy Markets David Baldwin, CEO Integrated Gas 18 August 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 Gary Mallett 3. Operational Review Energy Markets Frank Calabria Integrated Gas David Baldwin 4. Prospects Grant King 5. Appendix 3
Slide 4: 1. Performance Highlights
1. PERFORMANCE HIGHLIGHTS Grant King, Managing Director 4
Slide 5: Strong performance from Energy Markets, maiden LNG contribution, offset by lower oil prices
Strong performance from Energy Markets, maiden contribution from LNG production and cost reductions offset by lower oil prices $ million FY2016 FY2015 Change • Underlying EBITDA steady Statutory (Loss)* (589) (658) 69 - +$70 million contribution from Energy Markets - -$112 million in Integrated Gas
Slide 6: Delivering on key commitments - strong Energy Markets, APLNG ramp up and cost reduction
Delivering on key commitments - strong contribution from Energy Markets, rapid production ramp up at APLNG and reduction in costs Growing contribution from Growing production and Reducing cash costs of functional and Energy Markets reducing cost in Integrated Gas operational activity Energy Markets
Slide 7: Cash flow from operating activities stable despite $395 million impact
Delivering on key commitments - cash flow from operating activities stable, despite $395 million impact of cost reduction and risk management initiatives Cash Flow From Operating Activities (Continuing Operations) 1,600 1,400 (27) (22) 1,378 (102) 192 1,333 1,200 (139) 173 (117) (37) 34 1,000 $ mill
Slide 8: Capital expenditure down, APLNG contribution reducing, asset sales on track
Delivering on key commitments - capital expenditure down, contribution to APLNG reducing and asset sales program of $800+ million on track Capital Expenditure1 and APLNG Cash Contributions2 Asset Sales Program 4,000 4,000 Ongoing sales program Other announced sales 3,000 3,000 Contact Energy $ milli
Slide 9: Reserves revisions and asset sales drive H2 FY2016 net impairment charge
Reserves revisions and asset sales have resulted in a H2 FY2016 post tax net impairment charge of $271 million, taking post tax impairments for the full year to $515 million Impairments1 H2 FY2016 FY2016 2P Reserves (PJe) FY2015 Revisions Production FY2016 ($m, post-tax) Upstream Conventional 1,093
Slide 10: Adjusted Net Debt reduced by $4 billion
Adjusted Net Debt reduced by $4 billion. On track to reduce Adjusted Net Debt below $9 billion in FY2017 and committed to further reducing debt and lifting returns Movement in Adjusted Net Debt - 30 June 20151 to 30 June 2016 14 13.1 (2.9) 12 10 (2.5) 1.2 0.4 2 9.1 (0.1) $ billion 8 0.7 0.6 (1.3) 6
Slide 11: 2. Financial Review
2. FINANCIAL REVIEW Gary Mallett, Chief Financial Officer 11
Slide 12: 2016 Financial Year Highlights
2016 Financial Year Highlights $ million FY2016 FY2015 Change Statutory (Loss)* - total operations (589) (658) (10%) Items Excluded from Underlying Profit 954 1,340 (29%) Underlying Profit* - total operations 365 682 (46%) Underlying Profit* - continuing operations 354 603 (41%) Underlying EBITDA -
Slide 13: Reconciliation of Statutory Loss to Underlying Profit
Reconciliation of Statutory Loss to Underlying Profit ($ million) FY2016 FY2015 Change Statutory (Loss) – total operations (589) (658) (10%) Items Excluded from Underlying Profit Fair value and foreign exchange movements1 (195) (577) (66%) LNG items pre revenue recognition1 (222) (162) 37% Disposals
Slide 14: Underlying EBITDA down $27 million; Underlying EBIT down $247 million
Underlying EBITDA down $27 million to $1,635 million Underlying EBIT down $247 million to $735 million Underlying EBITDA Underlying EBIT ($ million) FY2016 FY2015 Change FY2016 FY2015 Change Energy Markets 1,330 1,260 70 1,004 956 48 Integrated Gas1 386 498 (112) (185) 122 (307) Corporate (81) (96)
Slide 15: ITDA increases following commencement of Train 1 operations at APLNG
ITDA increases from $62 million to $296 million following commencement of Train 1 operations at APLNG ($ million) FY2016 FY2015 Change EBITDA – Continuing operations 1,635 1,662 (27) -$42 million disproportionate opex Depreciation & Amortisation (604) (618) 14 Share of ITDA Share of ITDA (ex APLNG)
Slide 16: Segment cash flows and return on capital
Segment cash flows and return on capital Net cash flow from Average Capital Underlying ROCE1 Operating and Investing Adjusted EBIT* ($ million) Employed* (%) Activities FY2016 FY2015 FY2016 FY2015 FY2016 FY2015 FY2016 FY2015 Energy Markets 1,262 740 1,004 956 9,896 9,954 10.1% 9.6% Integrated Gas (1
Slide 17: $6.7 billion of committed undrawn debt facilities and cash
Following a number of initiatives to reduce debt, Origin has $6.7 billion1 of committed and undrawn debt facilities and cash as at 30 June 2016 Origin Debt & Bank Guarantee Pro-forma Maturity Profile as at 30 June 20162 6,000 • $4 billion of debt reduction achieved, targeting Loans & Bank Guarantees
Slide 18: 3. Operational Review – Energy Markets
3. OPERATIONAL REVIEW – Energy Markets Frank Calabria, CEO Energy Markets 18
Slide 19: Energy Markets
Energy Markets Underlying EBITDA Net cash flow from Operating Capital Expenditure $m $m and Investing Activities $m 1,600 1,600 1,600 1,200 1,330 1,200 1,200 1,260 1,262 800 800 800 740 400 400 400 298 236 - - - FY2015 FY2016 FY2015 FY2016 FY2015 FY2016 Underlying EBITDA up $70 million, maintainin
Slide 20: Natural Gas – significant growth in volumes over two years
Natural Gas – significant growth in volumes over past two years. Gross profit uplift maintained in FY2016, despite reduction in ramp gas Natural Gas Volume 1 Natural Gas Gross Profit PJ $m 300 600 Contracted Equity Ramp Gas 521 522 Retail Business LNG Generation 250 500 200 400 150 300 275 100 200 5
Slide 21: Natural Gas - competitive supply with transportation flexibility
Natural Gas - competitive supply with transportation flexibility enables Origin to serve the most valuable markets Portfolio flexibility enables Origin to manage swings in gas LNG demand and linkage to oil prices expected to increase market demand and supply volatility in the gas market 25,000 SWQP
Slide 22: Electricity – gross profit maintained by outperforming wholesale market
Electricity – gross profit contribution maintained by outperforming the wholesale market and growing volumes in the Business segment Electricity Volumes1 Electricity Procurement Cost1,2 Electricity Gross Profit 50 70 1400 Business Retail 60 1200 1,289 1,289 40 60.5 61.4 50 1000 30 40 800 $/MWh 18.4
Slide 23: Electricity - flexible wholesale portfolio outperformed the market
Electricity - Origin’s flexible wholesale portfolio substantially outperformed the market NEM spot prices up LREC spot prices up Origin’s energy procurement costs up $0.90/MWh $15/MWh $33/certificate ($4.40/MWh) $/MWh $/Certificate Volumes Sold (37.3TWh) (38.1TWh) 60 80 Market Origin Spot Purchases
Slide 24: Renewable strategy provides pipeline of new developments
Origin’s renewable strategy provides a pipeline of new developments at attractive prices Origin’s short renewable certificate position offers greater Cost of renewables falling with technological advances opportunity to benefit from falling technology costs Australian Renewable PPA Prices ($2016) an
Slide 25: Delivered $105 million in operational cost savings across two years
Delivered $105 million in operational cost savings across two years with a focus on continuous improvement to deliver future reductions $100 million operating cost reductions achieved Operational Excellence $105m in savings $m 1,000 Industry leading levels of bad and doubtful debts 900 280 Back
Slide 26: Digital first strategy underpins product and service innovation
Digital first strategy underpins product and service innovation, driving customer experience and lifetime value Improving customer experience Increasing online interaction Analytics and Innovation Interaction NPS Online sales increased 29% 12.3 219k 9.7 169k 6.3 Customer Attitudinal Propensity lifet
Slide 27: Accessing new value pools with new energy solutions
Accessing new value pools by extending beyond the grid with new energy solutions Solar Sales • 21 MW sold in FY2016 (up 95% in FY2016) • Solar-as-a-Service, introduced in May 2015, made up 66% of Business solar sales in FY2016 • Commenced selling in North Queensland Digital Meters • Building capabil
Slide 28: Strong growth opportunities over the next two years
Strong growth opportunities over the next two years, to increase cash flow and returns Maintaining strong Natural Gas margins Customer experience and Digital capability • Supply duration beyond 2022 • Analytics driving insight and agile innovation • Transport to key markets • Transforming custom
Slide 29: Energy Markets strategic priorities to deliver shareholder value
Energy Markets strategic priorities to deliver shareholder value Build • Customer first culture customer • Customer experience and service loyalty • Differentiated propositions and trust Maximise • Gas portfolio competitive position value of • Competitive cost of electricity the core • Growing large
Slide 30: 3. Operational Review – Integrated Gas
3. OPERATIONAL REVIEW – Integrated Gas David Baldwin, CEO Integrated Gas 30
Slide 31: Integrated Gas
Integrated Gas Underlying EBITDA Net cash flow from Operating Capital Expenditure and Cash and Investing Activities Contributions to APLNG $m $m $m 500 - 4,000 498 FY2015 FY2016 Acquisition 400 APLNG (1,000) 3,000 686 386 contribution (1,605) 300 Capex (2,000) 2,000 200 2,166 (3,018) (3,000) 1,000 1
Slide 32: EBITDA decreased by $112 million as LNG earnings offset by lower oil prices
EBITDA decreased by $112 million as maiden LNG earnings were offset by lower oil prices, lower production and increased exploration expense $m LNG (+$18 million) E&P (-$130 million) 700 600 (63) (38) 119 500 (59) (31) 498 (17) (34) 400 11 386 300 200 100 0 FY2015 LNG Train 1 Domestic LNG Liquids Liq
Slide 33: Production increased 57% driven by commencement of Train 1
Production increased by 84 PJe (57%) in FY2016, driven by commencement of Train 1 at APLNG, offset by lower volumes in the E&P business LNG business production (ORG share) E&P business production1 PJ PJe 200 200 150 150 46 Lower production 100 100 from Otway partially offset by increased production
Slide 34: $1.4 billion cash flow improvement from lower capital spend
$1.4 billion cash flow improvement from lower capital spend, offset by lower EBITDA, and actions to reduce costs and risks in a low oil price environment Integrated Gas Operating and Investing Cash Flow Bridge $m - Actions to reduce risks in response to low oil prices (500) (1,000) (168) 34 (139) (3
Slide 35: APLNG's 2P CSG reserves position is the largest in Australia
APLNG’s 2P CSG reserves position is the largest in Australia1 and is expected to support commitments with potential upside from contingent resources 100% APLNG Reserves and Requirements2 PJ 20,000 Production of 935PJ • 1P reserves up 17% to 7,089 PJe (including 418 PJ of production) due to developme
Slide 36: Train 1 performing in excess of design nameplate capacity
Train 1 performing in excess of design nameplate capacity, with 36 cargoes to date. Upstream capable of delivering volumes to monetise liquefaction capacity TJ/d APLNG Supply and Demand 2,500 Monetisation opportunity • Upstream continues to ramp up, with total available capacity well in excess of cu
Slide 37: Upstream construction complete, Downstream 98% complete, Train 2 on track
Upstream construction is complete and Downstream was 98% complete at 30 June 2016 with Train 2 on track for first cargo in Q2 FY2017 Timing Train 1 revenue recognition 1 March 2016 Completion of Bechtel Performance Test 30 April 2016 Commencement of Kansai SPA June 2016 Train 1 project finance
Slide 38: APLNG cash costs trending towards steady state guidance levels
APLNG cash costs trending towards steady state guidance levels (average FY2017 to • Sustain expenditure is in range of long FY2023) Guidance term guidance FY2016 Break • Operating costs will increase as Train 2 Actual even ramps up Cash costs A$b A$b US$/boe2 • Gross domestic revenue represents Capi
Slide 39: Incremental sales volumes would lower the breakeven
Incremental sales volumes of 0.5 mtpa to the domestic or export LNG market would lower the breakeven by US$0.5 to $1/boe LNG SRMC and Asian LNG price forecast1 16 Current Asian LNG spot market 14 Japan spot Japan long-term contract price • To date, 2016 Asian spot LNG price has range between US$4-$6
Slide 40: Innovation to increase well productivity is just beginning
Innovation to increase well productivity is just beginning Crystal has delivered cost Crystal established a culture of continuous improvement and cost reduction improvements and is continuing Lever Examples Potential value Full costs for an average Walloons vertical well, A$m Target production ‘swee
Slide 41: 2P reserves increased 111 PJe driven by Perth Basin and Kupe upgrades
2P reserves increased 111 PJe driven by upgrades in the Perth Basin and at Kupe, offset by declines in the Otway, Bass and Cooper basins E&P 2P Reserves Bridge1 1,400 • 34 PJe downward revision in Otway Basin due to faster decline in well deliverability resulting in less 1,200 reserves able to be ec
Slide 42: Non-APLNG execution focused on highest value projects and exploration
Non-APLNG execution focused on the highest value projects and exploration Halladale Halladale Speculant Speculant Beetaloo Expected Online latetoAugust be online 2016 early FY2017 Beetaloo exploration program is Drives increased production and continuing in H1 FY2017 earnings in FY2017 Confirmation
Slide 43: Integrated Gas is focussed on five priorities
Integrated Gas is focussed on five priorities to deliver shareholder value Upstream complete, Train 1 in production and performing at or above design nameplate Continue execution Train 2 production in H1 FY2017 momentum Complete APLNG project finance tests to release shareholder guarantees by
Slide 44: 4. Prospects
4. PROSPECTS Grant King, Managing Director 44
Slide 45: Two external influences shape priorities – lower oil price and COP21
Two external influences continue to shape Origin’s priorities and prospects – lower oil price and COP21 Increasing global commitment to reduction Fall in Oil Price in carbon emissions 140 Historical Brent Price1 Actual and Projected Global Greenhouse Gas Emissions2 120 100 80 60 40 Spot Brent (US$/b
Slide 46: APLNG is close to completion; transitional years for Origin
After eight years of development, APLNG is close to completion with Train 2 expected to come online in Q2 FY2017. FY2016 and FY2017 are transitional years for Origin as APLNG moves from development to operations FY2016: Train 1 online FY2017: Train 2 online FY2018: Both trains online • Commencement
Slide 47: Reduced capital spend and strong cash flows drove $3.3 billion cash turnaround
Reduced capital spend in Integrated Gas, strong cash flows in Energy Markets and sale of assets drove a $3.3 billion cash turnaround, with capital spend continuing to decline Capital expenditure and APLNG contributions will continue to $3.3 billion improvement in FY2016 net cash flow from decrease1,
Slide 48: Majority of drawn debt is higher interest capital market and hybrid debt
After paying down bank debt in FY2016, the majority of Origin’s drawn debt is higher interest bearing capital market and hybrid debt Debt composition 18 • Origin significantly paid down its bank debt in 16 FY2016, resulting in a higher average interest rate 14 0.78% 0.7% • Origin continues to hold s
Slide 49: Origin's strategy in a world committed to reducing carbon emissions
Origin’s strategy, in a world increasingly committed to reducing carbon emissions ORIGIN ENERGY CONNECTING RESOURCES TO CUSTOMERS ON AN INCREASINGLY SUSTAINABLE BASIS ENERGY INTEGRATED MARKETS GAS Origin’s Energy Markets business will take a leading Origin’s Integrated Gas business has a strong ga
Slide 50: FY2017 Outlook
FY2017 Outlook FY2016 and FY2017 are transitional years for Origin as LNG production commences and ramps up to full production • Origin expects1 a 45-60% increase in Underlying EBITDA for FY2017 when compared to FY2016 Underlying EBITDA from continuing operations • Energy Markets Underlying EBITDA t
Slide 51: 5. Appendix
O origin 5. APPENDIX
Slide 52: APLNG Accounting Changes
APLNG Accounting Changes Change to APLNG from 1 July 2016 Functional Currency From 1 July 2016, APLNG has changed its functional currency to USD for reporting purposes. APLNG will restate its balance sheet in USD using the exchange rate on 1 July 2016. There is no income statement impact. Impact for
Slide 53: 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 financial year ended 30 June 2016 (the period) compared with the financial year ended 30 June 2015 (the prior corres
Slide 54: Important Notices (cont)
Important Notices (cont) Reserves This Presentation contains disclosure of Origin and APLNG’s reserves and resources as at 30 June 2016. These reserves and resources were announced on 31 July 2016 in Origin’s Annual Reserves Report for the year ended 30 June 2016 (Annual Reserves Report). Origin con
Slide 55: 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 56: 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 57: 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 58: Thank You
THANK YOU For more information Joanna Nelson Group Manager, Investor Relations Email: joanna.nelson@originenergy.com.au Office: +61 2 9375 5708 Mobile: + 61 459 837 251 www.originenergy.com.au 58