Origin Energy Limited · ASX:ORG
Origin Energy — H1 2010 Earnings Presentation
74 slides from Origin Energy's earnings presentation, Feb 25, 2010
Slide 1: 2010 Half Year Results: A Decade of Growth
Half Year Ended 31 December 2009 25 February 2010 Celebrating a decade of growth 2010 Half Year Results A Decade of Growth
Slide 2: Important Notice
Important Notice This presentation does not constitute investment advice, or an inducement or recommendation to acquire or dispose of any securities in Origin, in any jurisdiction (including the USA). This presentation is for information purposes only, is in a summary form, and does not purport to b
Slide 3: Outline
Outline 1. Performance Highlights 2. Financial Review 3. Operational Review 4. Outlook 5. The Next Decade 6. Appendix 3
Slide 4: 1. Performance Highlights
1. Performance Highlights @) origin
Slide 5: Ten years since ASX listing: a decade of growth
On 21st February ten years ago, Origin was first listed on the ASX and so began a decade of growth 10 Year CAGR: • Productive Capital: 16% • Underlying Profit: 24% • Earnings per Share: 18% • Dividends per Share: 27% • Total Shareholder Return: 30% That growth has resulted in Origin’s market capital
Slide 6: One of the top performing listed companies over the last decade
As a result of this growth, Origin has been one of the top performing listed companies over the last decade… Origin TSR 1,306% Indexed to 100 from 21 February 2000 to 19 February 2010 … and is now in the ASX top 20 companies by market capitalisation, from a low of around 125th around the time of dem
Slide 7: Origin enters its second decade with Underlying Profit up 28%
Origin enters its second decade with Underlying Profit up 28% to $355 million, continuing that record of growth Underlying Profit $355 million up 28% Underlying Earnings 40.5 cps up 28% per Share Statutory Profit(1) $371 million down 94% Statutory 42.3 cps down 94% Earnings per Share(1) Interim divi
Slide 8: Clear and simple strategy delivering growth opportunities
Origin’s performance has been driven by a clear and simple strategy that continues to deliver ongoing opportunities for growth • Progressed commissioning of the Kupe Project with steady production achieved • APLNG increased production capacity and 2P reserves • Committed to acquisition of increased
Slide 9: 2. Financial Review
2. Financial Review @) origin
Slide 10: 2010 Half Year Financial Highlights
2010 Half Year Financial Highlights Revenue $4,300 million up 2% Underlying EBITDA $706 million up 3% Underlying EBIT $489 million up 1% Underlying Profit $355 million up 28% EPS – Underlying 40.5 cps up 28% Statutory Profit $371 million down 94% EPS – Statutory 42.3 cps down 94% Group OCAT(1) $425
Slide 11: Profit & Loss
Profit & Loss ($ million) Dec 09 Dec 08 Change Revenue 4,300 4,216 2% Underlying EBITDA 706 686 3% Underlying EBIT 489 485 1% Underlying net financing income/(costs) 12 (60) 72m Underlying tax expense (110) (110) - Minority interests share of Underlying Profit (36) (38) 5% Underlying Profit 355 277
Slide 12: Underlying EBITDA by segment
Underlying EBITDA by segment Segment ($ million) Dec 09 Dec 08 Change Exploration & Production 104 174 (40%) Generation 98 22 345% Retail 320 300 7% Contact Energy 184 190 (3%) Total 706 686 3% • Exploration & Production: Impact of the dilution of Origin’s interest in APLNG ($17m), higher exploratio
Slide 13: Underlying Financing Income/Costs
Underlying Financing Income/Costs ($ million) Dec 09 Dec 08 Interest Revenue 74 55 Interest Expense (62) (115) Underlying Net Financing Income/(Costs) 12 (60) Financing Costs Capitalised 78 60 Weighted average interest rate on borrowings 5.9% 7.5% • Increase in interest revenue reflects cash balance
Slide 14: Tax Reconciliation
Tax Reconciliation ($ million) Dec 09 Dec 08 Underlying Profit before Tax 501 425 Prima facie tax on underlying profit 150 128 Recognition of tax benefits not previously brought to account (21) (14) Over provision in prior period (14) (1) Share of net profit of equity accounted investees (4) (3) Oth
Slide 15: Operating Cash Flow
Operating Cash Flow ($ million) Dec 09 Dec 08 Underlying EBITDA 706 686 Change in working capital (162) (73) Stay-in-business capex (85) (115) Share of APLNG OCAT net of EBITDA(4) 7 (4) Other 10 (12) Tax paid (51) (117) Group OCAT(1)(4) 425 365 Net interest paid (65) (147) Free cash flow(4) 360 218
Slide 16: Segment Cash Flow Returns
Segment Cash Flow Returns Operating Cash Flow Productive Capital OCFR (%) ($m) % Change ($m) % Change Dec 09 Dec 08 Exploration & Production 184 (40%) 1,410 2% 13.0 22.0 Generation 142 280% 1,087 270% 13.1 12.7 Retail 315 (15%) 2,517 5% 12.5 15.4 Contact Energy 270 (15%) 3,410 (1%) 7.9 9.3 Note: Pro
Slide 17: Capital Expenditure
Capital Expenditure Growth Capex • 23% lower than the prior half year • Major expenditure included the Darling Downs and Mortlake Power Stations, Kupe Gas Project, Bass Basin exploration and power generation development by Contact • ConocoPhillips is funding $2.3 billion of APLNG’s expenditure. APLN
Slide 18: Balance sheet capacity deployed to grow the business
Origin has deployed $1.4 billion of balance sheet capacity over the period to grow and develop the business… Balance Sheet Capacity as at 31 December 2009 $ billion Cash 2.8 Adjusted Gross Debt (3.5) Adjusted Net Debt(1) (0.7) Undrawn Committed Facilities 0.9 Available Funding Capacity 3.7 (1) Net D
Slide 19: Forward committed growth capital program is declining
Origin’s forward committed growth capital program is declining Source: Origin ConocoPhillips has funded $0.7 billion of APLNG’s capital spend to date with another $1.6 billion to be spent. Origin is not required to contribute any funding until this amount has been spent 19
Slide 20: Significant financial capacity and refinancing of maturing facilities
Origin has significant financial capacity to support its business… • Strong expressions of interest have been received from a number of lending banks in regards to refinancing the majority of the 2010 and 2011 maturing debt • Origin expects to refinance this debt prior to the end of the current fina
Slide 21: Fully franked interim dividend of 25 cps
A fully franked interim dividend of 25 cps, in line with the prior year, has been declared… • Ex-dividend date 2 March 2010 • Date of record 9 March 2010 • Payment Date 1 April 2010 • Dividend payout ratio of 62% of Underlying EPS • Dividend Reinvestment Plan will apply to this interim dividend with
Slide 22: 3. Operational Review
3. Operational Review @) origin
Slide 23: Exploration & Production
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Slide 24: Production in line with expectations; progress on Kupe and Talinga
Delivered production in line with expectations and continued progress on new developments including Kupe and Talinga… Exploration & Production Segment • Underlying EBITDA down 40% to $104 million, reflecting dilution of Origin’s interest in APLNG, higher exploration expenses, lower production volume
Slide 25: Gas production continues to increase as CSG grows
Gas production continues to increase as CSG production grows to meet domestic contracts… • APLNG’s CSG production continues to grow strongly and is up 24% on the Dec 08 half. APLNG’s production capacity now at more Coal Seam Gas than 240 TJ/day • Gas production commenced at the Kupe Project during D
Slide 26: Kupe and Otway will boost liquids production
Contribution from Kupe and increased share of Otway will boost liquids production going forward… • Liquids production commenced at the Kupe Project during December with LPG and light crude produced as part of the commissioning Kupe Project process • Cooper Basin production was lower primarily due to
Slide 27: APLNG grows reserves position, largest CSG holder in Australia
APLNG continues to grow its reserves position and remains the largest holder of CSG reserves in Australia • Current production capacity now exceeds 240 TJ/day (up to 87 PJ/year) • Optimised LNG train design now at 4.5 MTPA with each train expected to require 270 PJ/year of gas • Reserves maturation
Slide 28: APLNG and QGC agreements evidence project collaboration
APLNG and QGC agreements evidence the value of project collaboration… Field Development Framework • APLNG and QGC have agreed to work together to develop these jointly owned resources • Covers permits ATP 648P (APLNG interest 31.25%) and ATP 620P (APLNG interest 40.625%) • Provides mechanisms to pro
Slide 29: Origin increases interest in the Otway Gas Project
Origin will increase its interest in the Otway Gas Project… Otway Gas Project • Origin’s interest in the Otway Gas Project will increase to 67% following completion of acquisition of part of Woodside’s interest for $507 million • Origin to be appointed as project operator, subject to regulatory and
Slide 30: Kupe Project producing steadily; Ahuroa Gas Storage
In New Zealand, the Kupe Project is now producing steadily… Kupe Project • Construction complete and commissioning of facilities underway • Commissioning has progressed very well and the plant has achieved design throughput of gas sales • The second marine cargo of light crude oil is currently being
Slide 31: Offshore exploration program yields positive results in Bass Basin
Offshore exploration program has yielded positive results in the Bass Basin… Northland Basin Origin, as operator of permit PEP 38619, plans to drill the exploration wells Korimako 1 and Tarapunga 1. Drilling operations are expected to commence in Q2 2010. Otway Basin Woodside drilled Somerset-1 in N
Slide 32: Working with Anadarko in the Canterbury Basin
Origin is working with Anadarko to explore in the highly prospective Canterbury Basin in New Zealand… • Origin has attracted Anadarko Petroleum Corporation to farm in for a 50% interest in exploration permit PEP 38262 • Prior to agreement to farm in, Anadarko completed specialist processing of a 3D
Slide 33: Exploration opportunities in Asia
Exploration opportunities in the fast growing energy markets of Asia are being pursued… • Origin to farm in to portfolio of five exploration blocks operated by Salamander Energy across north east Thailand, Lao PDR and Vietnam • Salamander will also have the option to acquire an interest in one explo
Slide 34: Generation
Generation re) origin
Slide 35: Delivering new projects has led to significant earnings growth
Delivering new projects has led to significant earnings growth… Generation Segment • Underlying EBITDA increased from $22 million to $98 million, as operating capacity more than doubled compared to Dec 08 half • Operating capacity increased to 1,620 MW. Expected to increase to 2,800 MW by late 2010
Slide 36: Mt Stuart expansion and Cullerin Range Wind Farm
Peaking capacity at Mt Stuart has been increased… Mt Stuart Power Station Expansion Cullerin Range Wind Farm • Located in Townsville, Queensland • Located near Goulburn, New South Wales • 126 MW expansion • 30 MW across 15 turbines • 45% increase in plant capacity to 414 MW • $95 million project • $
Slide 37: Darling Downs commissioning and Mortlake construction
Commissioning of Darling Downs is now underway… Darling Downs PS Gas Turbine Hall Mortlake PS Darling Downs Power Station Mortlake Power Station • 630 MW Base Load plant • 550 MW Peaking plant • Largest CCGT plant in Australia • Expected to be completed in late 2010 • Commissioning well underway and
Slide 38: Developing power generation portfolio
Origin continues to develop its power generation portfolio both to support its Retail business and to respond to carbon policies 2,896 MW increase • Operating capacity increased to 1,620 since Dec 08 MW following acquisition of Uranquinty, completion of Mt Stuart and Quarantine expansions and Culler
Slide 39: Portfolio of wind generation development options
Origin has a portfolio of high quality wind generation development options that provide the flexibility to address long term requirements… • Origin has secured sufficient RECs to meet its mass market customer requirements for the medium term • Development of a number of Origin’s projects has progres
Slide 40: Development of geothermal power
Origin continues to pursue the development of geothermal power which could provide a long term base load solution to meeting renewable targets • Origin considers the Innamincka Joint Venture to have the most prospective acreage of its kind in Australia • Origin holds a 30% non-operated interest in t
Slide 41: Joint venture with Micron on photovoltaic development
Joint venture with Micron seeks to build on Origin’s photovoltaic development opportunities… • Transform Solar is a 50:50 joint venture between Origin and Micron Technology Inc to focus on the development of photovoltaic technologies • Micron is a US listed company and one of the world’s leading pro
Slide 42: Retail
Retail
Slide 43: Strong increase in Retail Underlying EBITDA
Strong increase in Underlying EBITDA driven by increased margins in gas and LPG, partially offset by increased wholesale electricity and network costs Retail Segment • Underlying EBITDA increased 7% to $320 million primarily due to improved gross profit for natural gas and LPG, partially offset by l
Slide 44: Improved Gross Profit in gas and LPG
Increased volumes together with lower purchase costs led to improved Gross Profit in gas and LPG… Performance Metrics and % change Natural Gas Electricity LPG from Dec 08 Commodity Revenue ($m) 590 +9% 2,102 +7% 321 -9% Gross Profit ($m) 116 +30% 329 -13% 83 +14% Underlying EBITDA ($m) 280 -4% 36 +3
Slide 45: Margin pressure offset by lower cost to serve
Margin pressure due to increased wholesale and network costs has been partly offset by a decrease in cost to serve… Gas & Electricity Customers Dec 09 Dec 08 Change Customer numbers (’000) 2,606 2,613 - Underlying EBITDA / Sales 10.4% 11.6% (1.2)% Underlying EBIT / Sales 9.7% 10.9% (1.2)% $ Per Cust
Slide 46: Customer numbers maintained despite increased competition
Customer numbers maintained, despite increased competition in most states Market Churn: 6 Month Average Account Numbers State Fuel Dec 08 Change Dec 09 (000’s) Natural Gas Electricity Total Vic Electricity 26% + 2% 28% Jun 2009 867 1,743 2,610 Vic Gas 24% + 6% 30% Change +1 -5 -4 QLD Electricity 21%
Slide 47: Leading retailer of green energy
Origin is the leading retailer of green energy with over 15% of its electricity and gas customers electing to purchase green energy products Market Share of GreenPower® Customers • Accredited green energy customer base grew to 516,000 Market Share of GreenPower Customers accounts (398,000 GreenPower
Slide 48: Retail transformation progressing with key milestones met
Retail transformation is progressing well with key milestones met to date • Origin is transforming its Retail business to improve business process efficiency, optimise cost to serve and further enhance customer service • Origin’s transformation includes the implementation of new technology together
Slide 49: LPG: significant increase in Underlying EBITDA
In LPG, lower wholesale costs and growth in sales volumes have provided a significant increase in Underlying EBITDA • Underlying EBITDA was $36 million, up $27 million on the prior half due primarily to a reduction in US dollar denominated costs • Sales volume of 262 ktonnes, up 7% on the prior half
Slide 50: Contact Energy
Contact Energy re) origin |
Slide 51: Contact Underlying EBITDA in line in local currency
Underlying EBITDA was in line with the prior half in local New Zealand currency… Contact Segment • Underlying EBITDA decreased by 3%. Operational performance in line with prior half in local currency. EBITDA lower on consolidation due to stronger Australian dollar • Non-recurrence of transmission co
Slide 52: Contact pursues opportunities to expand generation interests
Contact continues to pursue the development of a number of opportunities to expand its generation interests… Geothermal • Tauhara 1 (23 MW) – Expected to be operational in mid 2010 • Te Mihi (220 MW) – FEED being updated • Tauhara 2 (250 MW) – Consent application lodged • Taheke 8C – Emerging opport
Slide 53: 4. Outlook
4. Outlook @) origin
Slide 54: Full year profit expected around 15% higher
Previous guidance given was that the full year profit would be around 15% higher than the prior year. Excluded from that guidance was any expense arising from this year’s greenfield exploration program • In respect of this exploration program, Bass Basin wells found oil and gas and the drilling cost
Slide 55: 5. The Next Decade
5. The Next Decade @) origin
Slide 56: Clear and simple strategy as a fuel integrated generator retailer
Origin will continue to pursue a clear and simple strategy of being a fuel integrated generator retailer Electrification Continued economic growth, efficiency improvements and industrialisation in Asia are likely to increase electricity’s share of final energy consumption Decarbonisation Reduced car
Slide 57: Retail business has grown market share substantially
In Australia, Origin’s retail business has grown its market share substantially over the last decade and this growth has been a key driver of Origin’s growth Pre Demerger Retail Market Share(1) Origin: 4% Retail Market Share 2010(1) Origin: 21% Source: AEMO’s 2009 SOO Medium Economic Growth Scenario
Slide 58: Renewable energy target will drive significant investment
Whilst it remains unclear how the world will respond to climate change, in Australia the renewable energy target has been set and will drive significant investment in renewable energy… • Origin’s modelling suggests over 6,000 MW Represents mandated 2020 of new wind capacity to be built by 2020 in re
Slide 59: Substantial pipeline of generation opportunities
Origin has developed a substantial pipeline of generation opportunities to support a growing retail business • Baseload and peaking portfolio with a lower average emissions intensity than the market • Gas fired generation development options, provide Origin with opportunities meet growing demand • H
Slide 60: World energy demand projected to increase
World demand for energy is projected to increase by 1.4% a year on average, with electricity demand projected to grow more quickly at 2.5% a year… • World demand for gas is projected to grow by around 1.5% a year (BAU) • Asian electricity consumption is projected to grow at 4.7% a year, with China a
Slide 61: World LNG trade projected to triple by 2030
This increasing demand for gas is projected to result in world LNG trade tripling by 2030 as LNG is favoured over pipeline solutions due to supply security concerns Estimated Interregional Gas Flows 2030 (billion cubic metres) Gas will play an increasing role in providing the flexibility to balance
Slide 62: Developing resources near markets with increasing gas demand
In this context, Origin seeks to find and develop resources near markets with increasing demand for gas LNG is opening a significant channel to export markets 62 for gas which Origin will access through APLNG
Slide 63: Responding to demand for renewable energy
Origin is a also responding to the increasing demand for renewable energy both locally and globally… Geothermal • Conventional – Contact is pursuing the development of a number of geothermal opportunities • Shallows – Origin is seeking to develop shallow geothermal resources • Deeps – Origin is purs
Slide 64: Strong joint venture partners
Strong joint venture partners reflect the quality and potential of these new opportunities and complement Origin’s development capability Australia Pacific LNG – CSG to LNG joint venture with ConocoPhillips Transform Solar – Joint venture with Micron to focus on the development of solar photovoltaic
Slide 65: Many opportunities to grow over the next decade
Looking further ahead Origin has many opportunities to continue to grow and develop its business over the next decade • Increased share of growing energy markets in Australia and New Zealand • Continued development by APLNG of its CSG to LNG project which is a primary focus for activity in the comin
Slide 66: 2010 Half Year Results: A Decade of Growth
Half Year Ended 31 December 2009 25 February 2010 Celebrating a decade of growth 2010 Half Year Results A Decade of Growth
Slide 67: Further Information
Further Information Investors Angus Guthrie Group Manager, Investor Relations Email: [email protected] Office: +61 2 8345 5558 Mobile: + 61 4 1786 4255 Website www.originenergy.com.au 67
Slide 68: 6. Appendix
6. Appendix @) origin
Slide 69: Profit & Loss – Reconciliation of Statutory and Underlying
Profit & Loss – Reconciliation of Statutory and Underlying ($ million) Dec 09 Dec 08 Change Statutory NPAT 371 6,663 (94%) Significant items Pre Tax Post Tax Gain on dilution of Origin’s interest in subsidiaries 42 27 6,690 Unwinding of discounted receivables/payables in (1) 27 15 relation to APLNG
Slide 70: Asset Impairments
Asset Impairments Asset Impairments ($ million) Pre-tax Post-tax Hovea Assets 5 3 Jingemia Assets 3 2 Brompton Site 4 3 Impairment of Assets 12 8 70
Slide 71: Changes in fair value of financial instruments
Changes in fair value of financial instruments Reconciliation of Balance Sheet and Income Statement items associated with financial instruments movements ($ million) Dec 09 Change in net assets 20 Recognised in the Balance Sheet 42 Recognised in the Equity Hedge Reserve (post tax) 30 Recognised in D
Slide 72: Profit & Loss - APLNG
Profit & Loss - APLNG Summary of APLNG’s performance Total Origin’s 50% ($ million) Dec09 Dec 09 Dec08 Operating Revenue 121 Operating Expenses (74) Underlying EBITDA 47 24 6 Depreciation & Amortisation Expense (22) Income Tax Expense (12) Underlying Profit After Tax 13 6 2 Unwinding of discounted r
Slide 73: Capital Expenditure by Segment
Capital Expenditure by Segment ($ million) Dec 09 Dec 08 Stay-in-business 85 115 Growth Exploration & Production 119 286 Generation 477 555 Retail 45 59 Contact Energy 155 129 Total Capital Expenditure 881 1,144 Acquisitions (net of cash) 669 131 Capex including Acquisitions 1,550 1,275 • Growth cap
Slide 74: Depreciation & Amortisation
Depreciation & Amortisation ($ million) Dec 09 Dec 08 Exploration & Production 71 89 Generation 20 5 Retail 34 29 Contact Energy 69 66 Total 194 189 • Exploration & Production: Decrease due to impact of APLNG transaction, prior year impairments and lower production • Generation: Increase as a result