Origin Energy Limited · ASX:ORG
Origin Energy — FY2005 Earnings Presentation
54 slides from Origin Energy's earnings presentation, Aug 29, 2005
Slide 1: Final Results Announcement, Full-year ended 30 June 2005
Final Results Announcement Full-year ended 30 June 2005 29 August 2005 1
Slide 2: Outline
Outline • Performance Highlights • Financial Review • Operating Review • Impact of A-IFRS • Outlook - All comparative data are in relation to the prior corresponding period, 1 July 2003 to 30 June 2004, unless otherwise stated - All references to $ are references to Australian dollars unless otherwi
Slide 3: Performance Highlights
Performance Highlights 3
Slide 4: Financial Highlights
Financial Highlights • Revenue(1) $ 4.9 billion up 38% • EBITDA(1) $ 928 million up 74% • NPAT $ 266 million up 30% • Free cash flow (FCF) (1) $ 447 million up 28% • OCAT Ratio (2) 14.4% target 9.4% • Debt / (debt + equity) 41% up from 31% • EPS - Basic 37.2 cps up 24% • - Normalised(3) 34.9 cps up
Slide 5: Operating Highlights
Operating Highlights • Acquisition of 51.4% interest in Contact effective 1 October 2004 • Higher retail margins realised despite increased levels of churn, mild weather and higher LPG purchasing costs • Increased oil production from the Perth Basin • Reserves upgrades at Yolla, Kupe and Spring Gull
Slide 6: Financial Review
Origin energy Financia ial Review
Slide 7: Consolidation of 100% of Contact changes presentation of results
The consolidation of 100% of Contact produces a number of significant changes in the presentation of Origin’s results Consolidation of Contact – Origin has consolidated 100% of Contact Energy as required by Australian accounting standards – Outside equity interests are recognised in reporting of net
Slide 8: Profit & Loss
Jun 05 Jun 04 % change Profit & Loss ($m) ($m) Revenue 4,914.3 3,556.0 38% EBITDA 927.8 532.2 74% EBIT 615.2 329.2 87% Net interest expense (135.1) (45.4) 197% Tax expense (147.4) (76.9) 92% Outside Equity Interests (66.7) (2.0) NPAT 266.0 204.9 30% ROE* 9.7% 10.6% EPS - Basic 37.2¢ 30.0¢ 24% EPS -
Slide 9: EBITDA of $928m up 74%
EBITDA of $928m up 74% led by consolidation of Contact and higher contributions from E&P and Retail Divisions Jun 05 Jun 04 % change ($m) ($m) Exploration & Production 245.5 197.2 25% Retail 254.1 237.6 7% Generation 52.7 68.0 (23%) Networks 29.8 29.4 1% Contact 345.6 - - Total 927.8 532.2 74% • E&P
Slide 10: Depreciation & Amortisation
Depreciation & Amortisation ($ million) Jun 05 Jun 04 Generation property, plant and equipment 96.7 22.5 Other buildings, plant & equipment 97.0 78.7 Amortisation in producing areas* 70.8 51.7 Electricity hedging contracts 6.7 11.3 Licences 16.1 18.6 Goodwill 23.8 18.6 Other 1.5 1.5 Total 312.6 203.
Slide 11: Funding & Interest
Funding & Interest Financial year ended Jun 05 Jun 04 ($m) ($m) Net debt ($m) 2,743 861 Total equity ($m) 3,990 1,939 Debt to (debt + equity) (%) 41% 31% Capitalised Interest 20.0 7.7 Net interest expense ($m) 135.1 45.4 Net interest cover (x EBIT)* 4.0 6.2 Weighted average interest rate 7.0% 6.6% •
Slide 12: Funding of Contact acquisition
Funding of Contact acquisition • Consideration for the acquisition was $1.0 billion plus NZ$535 million debt assumed from Edison Mission • Initial Funding – Convertible Undated Preference Shares (CUPS) ($595 million net of costs) – External Debt facilities ($426 million) – Origin immediately repaid
Slide 13: Tax Reconciliation
Tax Reconciliation ($ million) Jun 05 Jun 04 Profit before tax 480.1 283.8 Prima facie tax 149.7 85.4 add non deductible amortisation 24.4 20.2 less non-assessable income (7.2) (10.0) less other permanent differences (19.5) (18.7) equals Tax expense 147.4 76.9 Effective tax rate 30.7% 27.1% Tax (pai
Slide 14: Operating cash flow after tax has increased
Operating cash flow after tax has increased…… ($ million) Jun 05 Jun 04 Incl Contact Excl Contact EBITDA 928 582 532 Change in working capital (31) (30) (48) Stay-in-business capex (net) (111) (66) (83) Other (incl. non-cash items) (7) (4) 2 Tax / subvention payments (181) (46) (2) OCAT 598 436 402
Slide 15: Capital expenditure and acquisitions
SIB increase largely Contact expenditure on generation assets. Higher growth capex is driven by E&P projects… Jun 05 ($m) Jun 04 ($m) Stay-in-business 132 86 Growth Exploration & Production 315 207 Retail 39 30 Generation 3 - Networks - - Contact 18 - Total capital expenditure 507 323 Acquisitions (
Slide 16: Cash flow return from the business segments
Cash flow return from the business segments is measured pre-tax and targets 14.3% over a full year Funds Operating OCFR OCFR* Employed Cash flow Jun 05 Jun 04 ($m) ($m) (%) (%) Exploration & 1,303 178 13.7% 13.6% Production Retail 1,237 217 17.5% 14.9% Generation 333 48 14.6% 15.0% Networks 223 38 1
Slide 17: Final dividend of 8cps declared
A final dividend of 8cps has been declared, bringing the full year dividend to 15cps fully franked Dividends - cents per share 20 Franking Payment and DRP 100% 100% 40% 100% 100% • Ex-dividend date 1 September 2005 15 • Date of record 7 September 2005 8 • Payable 26 September 2005 10 7 5 • DRP to ap
Slide 18: Operating Review
Origin energy Operating Review
Slide 19: Exploration & Production: EBITDA of $245.5m
Exploration & Production: EBITDA of $245.5m up 25% on higher liquids sales and sale of Carpentaria gas pipeline • Revenue from the sale of oil, liquids and 450 400 ethane increased over 40% to $184 million Jun-05 • Liquids production up on Perth Basin Total Sales Revenue & EBITDA ($m) 400 350 Jun-04
Slide 20: E&P sales volumes increased overall
Sales from the E&P segment increased overall led by higher Perth Basin oil sales and higher CSG sales…….. 100 • Total Cooper Basin sales lower. Reduced gas 90 E&P Sales Volumes sales reflecting lower contract volumes and 80 natural field decline more than offset higher liquids sales from return of M
Slide 21: Oil sales from Perth Basin continued to rise
Oil sales from the Perth Basin continued to rise and Moomba liquids production was restored 12.0 • Origin achieved its highest ever Liquids Sales by Product by Half Year (PJe) liquids production and sales during 10.0 the year • Perth Basin oil production averaged Petajoule Equivalent (PJe) over 4,50
Slide 22: 2P reserves remained constant year on year
Origin’s 2P reserves remained constant year on year with discoveries and upgrades offsetting production and revisions Proved and Probable Reserves (PJe)(1) 2P reserves at 30 June 2004 2,220 add reserves upgrades (Yolla, Kupe, Spring Gully) 123 add discoveries (Perth Basin) & misc adjustments 9 less
Slide 23: BassGas project delays
The BassGas project has experienced significant delays. Construction at the onshore plant is now essentially complete BassGas Project (42.5%) • Development drilling completed in September 2004. Field Reserves upgraded by 19% in June 05 to 453 PJe (100%). Some impurities were detected in the gas stre
Slide 24: Spring Gully Project completed on time and budget
The Spring Gully Project was completed on time and on budget, commencing gas delivery in June 05 • Total project costs to date $199 million to establish 13 PJ/annum of deliverability. • 42 wells drilled, 40 wells stimulated, and 35 wells completed with excellent production results • Infrastructure i
Slide 25: Otway Gas Project development
Development of the Otway Gas Project (Thylacine / Geographe) progressed steadily during the year….. Otway Gas Project (29.75%) • Project 42% complete at 30 June 2005 • Project currently on schedule for commissioning in mid 2006 • Origin has come to an agreement with CalEnergy to acquire an additiona
Slide 26: Kupe development planning and approvals
In New Zealand Origin continues to progress planning and approvals for the Kupe development……….. Kupe Gas Project (50%) • FEED work completed and tenders sought. Responses received and being evaluated • Confirmed (April 2005) that new purpose built onshore processing facilities will be constructed a
Slide 27: Retail: EBITDA of $254.1 million
Retail: EBITDA of $254.1 million up 7% despite generally challenging conditions…… • Segment revenues increased 3% on higher 3,500 350 LPG revenue Jun-05 • Customer churn and milder weather 3,000 300 Jun-04 reduced mass market gas volumes and Total Sales Revenue ($m) electricity volumes, while wholes
Slide 28: Increased electricity and LPG gross margin
Increased contribution in electricity and LPG at the gross margin level...... Product information and % Natural Gas Electricity LPG change from Jun 04 Product Revenue (A$m) 848 (-1%) 1,670 0% 485 (+22%) Gross margin (A$m) 134 (-6%) 276 (+14%) 147 (+12%) Sales (PJ) 117 (+2%) - - Sales (TWh) - 15.7 (-
Slide 29: Retail EBIT margin increase
The strength of the retail business is demonstrated by the increase in overall EBIT/Sales margin from 5.2% to 5.7%.... Retail Gross Margin ($) and EBIT Margin (%) • Natural gas sales volumes 600 6.0% marginally higher with mix of lower domestic volumes (weather, Product Gross Margin ($ million) (bar
Slide 30: Net gain of 39,000 customers in second half
After significant customer losses in the 1st half Origin has recorded a net gain of 39,000 customers in the 2nd half Origin Natural Gas Electricity Mass Market Churn: Completed & Pending # Customers (‘000) (‘000) 35% Vic Elec Jun ‘04 979* 894* Vic NG 30% Jun ‘05 900 913 % Churn: Monthly data annuali
Slide 31: Tariff structure adjusted for weather
Origin has moved to adjust its tariff structure to be less susceptible to the influence of weather……. 350 Victorian Effective Degree Days 300 Effective Degree Days FY ended June 2004 1,508 250 EDD's per month FY ended June 2005 1,315 Yr on Yr Reduction: 13% 200 04-05 03-04 150 10 year Ave 100 50 0 l
Slide 32: Contract electricity market continued to soften
Despite some periods of higher prices the contract market has continued to soften……….. $70 $65 Victorian Spot and Forward Contract Monthly Average Spot Electricity Prices Price 2008 Historical $60 Forward Price 2007 Historical $55 Forward Price $50 Forw ard 2006 Historical Curve Jun Forward Price 04
Slide 33: Escalating global LPG prices
Escalating global LPG prices (CP) and transport fuel costs placed pressure on LPG margins……. 900.00 Average International Propane Price (CP) • Cost of LPG (CP) averaged 800.00 Jul-Jun-05 A$519/tonne over period A$519 (increase of 25% on prior 700.00 year) Jul-Jun-04 600.00 A$416 • New Zealand volume
Slide 34: Generation: EBITDA of $52.7m
Generation: EBITDA of $52.7m, $15m lower than last year due mostly to non-recurrence of Dec 03 tax benefits……. 140 14 • Lower result for Jun 05 reflects Jun-05 Total Sales Revenue & EBITDA ($m) 120 Jun-04 12 – Non-recurrence of Osborne tax consolidation benefit ($9.4 m) 100 10 – Solar PV demonstrati
Slide 35: Power plant availability
Availability for externally contracted plants was high with the exception of Osborne (major planned outage Oct & Nov) Major Origin Origin Capacity Type Operation Availability Contracting Power Int. % MW Party Plants Worsley 50 120 Cogen Base 97% Western Power & Worsley Bulwer Is. 50 32 Cogen Base 95
Slide 36: Gas fired power station approvals progressing
Planning and permitting approvals for the option to develop high-efficiency gas fired power stations are progressing…….. • Two projects being progressed, each up to 1000 MW, following power site optimisation studies Potential Power Station – Mortlake in Victoria (shown) – Spring Gully in Queensland
Slide 37: Renewable energy technologies
Origin continues to support, invest in and develop renewable energy technologies..… 2nd Generation Solar 70W May ‘05 • Origin’s investment in the solar photovoltaic 40W SLIVER ® project continues to meet Mar ‘05 significant milestones 15W • Modules have been progressively scaled up Dec ‘04 • Key adv
Slide 38: Networks: EBITDA of $29.8 million
Networks: EBITDA of $29.8 million up 1% on full year contribution from SEA Gas………. • Lower revenues due to reduced capital 180 1.8 program and associated lower capital cost recoveries Total Sales Revenue & EBITDA ($m) 160 Jun-05 1.6 Jun-04 • Full year SEA Gas contribution of $6.7 140 1.4 million, co
Slide 39: Contact: EBITDA of $345.6 million
Contact: EBITDA of $345.6 million in line with Origin’s expectations at the time of acquisition….. • Acquisition of 51.4% interest 1,400 400 completed on 1 October 2004 Jun-05 Jun-04 350 • Acquisition funding (CUPS & bridging 1,200 finance) replaced through Rights Total Sales Revenue ($m) 300 Issue
Slide 40: Impact of A-IFRS
Origin energy Impact of A-IFRS
Slide 41: A-IFRS for Origin
A-IFRS for Origin • Australian equivalents of International Financial Reporting Standards (A-IFRS) will be implemented by Origin for the first time for the half year ending 31 December 2005, and year ending 30 June 2006. • In order to comply with A-IFRS, Origin must restate its comparative balances
Slide 42: Impact of A-IFRS on balance sheet and profit
The impact of A-IFRS on Origin’s balance sheet at 30 Jun 05 and profit for the year ended 30 Jun 05 is summarised below NPAT Total Total Total EBIT after OEI Equity Assets Liabilities $M $M $M $M $M 615.2 266.0 Total reported under Australian GAAP 3,989.9 8,014.7 4,024.8 A-IFRS adjustments (net of t
Slide 43: Consequences: goodwill and licence amortisation
Consequences for Origin Goodwill and licence amortisation • For the financial year ended 30 June 2005, goodwill and licence amortisation expense will decrease by $39.9 million. • The Goodwill and licences being amortised arose largely from the acquisition of gas and electricity retail businesses in
Slide 44: Consequences: dismantling, removal and restoration provisions
Consequences for Origin (continued) Dismantling, removal and restoration provisions • Under A-IFRS, the present value of restoration obligations is recognised and adjusted at each reporting date in line with changes in discount rates and timing or amount of the costs to be incurred (AGAAP uses undis
Slide 45: Consequences: deferred tax
Consequences for Origin (continued) Deferred tax • As a result of the acquisition of Contact Energy Origin has had a significant increase in deferred tax liabilities– created by the difference between accounting and tax values which arises from the revaluation of Contact’s generation assets. • Due t
Slide 46: Consequences: Moomba claim contingent asset
Consequences for Origin (continued) Contingent Asset – Moomba Claim • The criteria for recognising contingent assets on the balance sheet has increased from a “more probable than not” test under Australian GAAP to a “virtual certainty” test under A-IFRS. • At 30 June 2004, under Australian GAAP, Ori
Slide 47: Other A-IFRS Impacts
Other A-IFRS Impacts • Financial Instruments – AASB 132 & 139 - Effective from 1 July 2005 - Origin will elect not to restate comparatives - Listed investments are expected to be classified as “available for sale” with changes in fair value recognised in equity. - The application of AASB 139 is expe
Slide 48: Impact of A-IFRS on balance sheet and profit
The impact of A-IFRS on Origin’s balance sheet at 30 Jun 05 and profit for the year ended 30 Jun 05 is summarised below NPAT Total Total Total EBIT after OEI Equity Assets Liabilities $M $M $M $M $M 615.2 266.0 Total reported under Australian GAAP 3,989.9 8,014.7 4,024.8 A-IFRS adjustments (net of t
Slide 49: Ongoing application of A-IFRS
On an ongoing basis the application of A-IFRS: • does not impact Origin’s strategy or underlying business operations • does not impact future cash flows • does not impact capacity to pay dividends • increases after tax earnings by approximately $30 million • reduces equity resulting in: – Increased
Slide 50: Other Accounting Policy Considerations
Other Accounting Policy Considerations • Successful Efforts Accounting for Exploration and Evaluation – Origin is in the process of evaluating its current “full cost area of interest” accounting policy in relation to exploration and evaluation activities in the Exploration and Production business. –
Slide 51: Outlook
Origin energy Outlook
Slide 52: Major drivers of earnings in the coming year
In the coming year, major drivers of earnings will be: • Contact Energy will provide a full year of earnings • Spring Gully will provide a 12 month contribution through the ramp-up phase of supplying the AGL contract • The BassGas project will commence contributions through the commissioning phase i
Slide 53: A-IFRS uplift in reported earnings
The implementation of A-IFRS will see an uplift in reported earnings, but make forecasting earnings more difficult • While hedge accounting policies will be adopted there are expected to be some instruments which are regarded as ineffective and will introduce mark to market volatility to earnings No
Slide 54: Origin
Origin energy