Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2003 Earnings Presentation
41 slides from Origin Energy's earnings presentation, Feb 20, 2003
Slide 1: Interim Results Announcement, Half year ended 31 December 2002
Interim Results Announcement Half year ended 31 December 2002 20 February 2003 Increasing cash flow funds growth
Slide 2: Outline
Outline • Performance Highlights • Financial Review • Operational Review • Outlook All comparative data are in relation to the prior corresponding period, July – December 2001, unless otherwise stated Page 2
Slide 3: Performance Highlights
Origin Performance Highlights
Slide 4: Financial highlights
Financial highlights • Revenue $1.67 billion up 35% • EBITDA $256 million up 33% • PAT $89.6 million up 64% • Basic EPS 13.8 cps up 59% • Free Cash Flow (FCF) $191 million up 74% • FCF per share 29.2 cps up 68% • Debt / (Debt + Equity) 30% at 31 Dec ’02 29% Jun 30 ’02 • OCAT Ratio* 16.5% target 9.7%
Slide 5: Operating highlights
Operating highlights • CitiPower acquisition and integration • Cessation of Gascor Agency Payments • SEA Gas construction started • Major new gas agreements for Cooper Basin and CSG – Cooper Basin 505 PJ over 15 years (OE 71 PJ net) – OE and OCA 340 PJ from CSG fields (OCA ~ 52% of sales) • BassGas
Slide 6: Financial Review
Financial Review
Slide 7: Profit & Loss
Profit & Loss Dec 02 Dec 01 % change ($m) ($m) Revenue 1,669.9 1,237.5 35% EBITDA 255.9 192.6 33% EBIT 163.7 105.5 55% Net interest expense (24.8) (22.5) 10% Tax expense (47.2) (25.8) 83% Outside equity interests (2.1) (2.6) (19%) PAT 89.6 54.7 64% Earnings per share (cents) 13.8 8.7 59% Free cash f
Slide 8: Gascor agency payments ceased on 1 October 2002
Gascor agency payments ceased on 1 October, 2002 Dec 02 Dec 01 ($m) ($m) Origin reported revenue 1,670 1,237 Retained by Gascor 61 84 Embedded Revenue 1,731 1,322 Natural gas gross margin reported 65 53 Profit Retained by Gascor 14 18 Embedded nat. gas gross margin 79 71 Page 8
Slide 9: EBITDA up 33% due to improvements from Retail and Generation
EBITDA up 33% on the previous year due to significant improvements from Retail and Generation……. Segments* Dec 02 Dec 01 % change ($m) ($m) Exploration & Production 90.2 102.3 (12%) Retail 133.8 67.7 98% Generation 19.5 10.4 87% Networks 12.3 12.2 1% Total 255.9 192.6 33% …….offset by lower contribu
Slide 10: Depreciation & Amortisation
Depreciation & Amortisation Dec 02 ($m) Dec 01 ($m) Buildings, plant & equipment 39.7 41.9 Exploration in producing fields 24.5 25.0 Electricity hedging contracts 9.5 7.1 Intangibles 11.9 12.2 Retail Systems for FRC 5.8 0.3 Other 0.8 0.6 Total 92.3 87.1 • Increase in D&A is due to initial depreciati
Slide 11: Profit & Loss
Profit & Loss Dec 02 Dec 01 % change ($m) ($m) Revenue 1,669.9 1,237.5 35% EBITDA 255.9 192.6 33% EBIT 163.7 105.5 55% Net interest expense (24.8) (22.5) 10% Tax expense (47.2) (25.8) 83% Outside equity interests (2.1) (2.6) (19%) PAT 89.6 54.7 64% Earnings per share (cents) 13.8 8.7 59% Free cash f
Slide 12: Funding & Interest
Funding & Interest Dec 02 Jun 02 Dec 01 ($m) ($m) ($m) Net debt ($m) 705 633 546 Total equity ($m) 1,731 1,626 1,569 Net debt to equity (%) 41% 39% 35% Debt to (debt + equity) (%) 30% 29% 27% Net interest expense ($m) 24.8 20.3 22.5 Net interest cover (x EBIT) 6.6 6.2 4.7 Average interest rate 6.5%
Slide 13: Tax reconciliation
Tax reconciliation Dec 02 Dec 01 ($m) ($m) Profit before tax 138.9 83.0 Prima facie tax 41.5 24.9 less tax loss benefit 0.0 (5.7) add non-deductible amortisation 6.5 8.4 less other permanent differences (0.8) (1.9) equals Tax expense 47.2 25.8 Tax paid (15.4) (14.1) Subvention payments (6.0) (10.0)
Slide 14: OCAT ratio exceeded prior year and targets
OCAT ratio exceeded prior year and targets despite significant expenditure on capital and acquisitions…. Dec 02 ($m) Dec 01 ($m) EBITDA 256 193 Non-cash items 31 11 Change in Working Capital (8) (11) Stay in business Capex (net) (42) (36) Tax/Subvention Payments (21) (24) OCAT 216 132 Net Interest P
Slide 15: Capital expenditure focussed on growth
Capital expenditure has focussed on growth with higher expenditure on E&P business activities…….. Dec 02 ($m) Dec 01 ($m) Stay in business 44 36 Growth Exploration & Production 56 43 Retail 12 27 Generation 1 31 Networks 0 1 Total capital expenditure 113 138 Acquisitions 269 8 Capex including acquis
Slide 16: All segments half way to annual 15% OCFR target
All segments are half way to achieving the annual target of 15% OCFR Funds Operating OCFR OCFR Employed Cash flow Dec 02 Dec 01 ($m) ($m) (%) (%) Exploration & 849 64 7.5% 9.7% Production Retail 1,124 134 11.9% 5.8% Generation 263 20 7.6% 5.7% Networks 148 17 11.4% 7.8% ……and the strategy of buildin
Slide 17: Origin has steadily improved returns per share
Origin has steadily improved returns per share Cents per share 35 • October 2002 new dividend CFPS EPS DPS 29 30 policy targeting 40% EPS payout ratio 25 23 • 5 cent per share interim 20 17 18 dividend franked to 2 cents 13 14 15 – EPS payout ratio of 36% 12 9 8 9 10 • DRP to apply with 5% 5 5 4 3 d
Slide 18: Operating Review
Operating Review
Slide 19: Exploration & Production: EBITDA decreased 12% to $90.2m
Exploration & Production: EBITDA decreased 12% to $90.2 m on lower oil volumes and higher costs 160 100 • Gas production steady at ~ 39 PJ External Sales Revenue & EBITDA ($m) Dec-02 90 as increase in CSG (up 13% to 4.7 140 PJ) offsets decline in other areas Dec-01 80 120 • Reduction in oil producti
Slide 20: Liquids production has fallen over the last few years
Liquids production has fallen over the last few years – including sale of our Eromanga oil fields last year…….. 8.0 Liquids Sales by Product by Half Year (PJE) • Oil production down 24% on 7.0 previous year to 335 kbbls reflecting Eromanga sale Petajoule Equivalent (PJE) 6.0 5.0 • Perth Basin produc
Slide 21: Origin added around 350 PJe net reserves to 2P
Origin has added around 350 PJe net reserves to the 2P category in the past six months……. Proved and Probable Reserves (PJe*) 2P reserves at Jun 30, ‘02 1,140 plus Otway reclassification 230 plus CSG Acquisition (July ’02) 160 less Production (45) Approximate 2P reserves at Dec 31, ‘02 1,485 Reserve
Slide 22: OCA builds CSG capabilities as largest CSG producer in Australia
OCA continues to build its CSG capabilities and enhance its position as the largest CSG producer in Australia • July ’02 - increased equity in the Fairview and Durham fields • July ’02 - appraisal of Fairview field increased 2P reserves across the Fairview and Durham fields to in excess of 1,100 PJ
Slide 23: Progress commercialising offshore gas resources in SE Australia
Steady progress has been made in the commercialisation of offshore gas resources in SE Australia BassGas Project (37.5%) Offshore Otway Basin (29.75%) • Origin Energy has entered • August 02 Woodside signed into GSA’s to purchase all conditional GSA with TXU sales gas from the JV • Operator has upgr
Slide 24: Perth Basin success followed up in the last half
Origin’s success in the Perth Basin in 01/02 has been followed up in the last half • Hovea 2 - discovered a separate gas pool and flowed 16.5 mmcfd • Hovea 3/3st – 26 m oil column and produced ~2000 bopd Oct-Dec 02 • Hovea 4/4st – 44 m oil column – initial flow rate of 2,600 bopd • Hovea 6 – 22 m oi
Slide 25: Retail: EBITDA up 98% to $133.8m
Retail: EBITDA up 98% to $133.8m on contributions from CitiPower, tariff increases and favourable margins on electricity purchasing costs 1,600 200 • Revenues higher due to Jan ’02 tariff increases and CitiPower sales Dec-02 180 1,400 Dec-01 • CitiPower integration has proceeded External Sales Reven
Slide 26: Retail business: all areas contributed to the result
Retail business: all areas contributed to the result Natural Gas Electricity LPG * Revenue (A$m) 459 744 211 Gross Margin (A$m) 79 151 55 Sales – (PJ) 68 - - Sales – (TWh) - 8 - LPG (Ktonnes) - - 257 Total Sales (PJe) 68 28 13 Customer # (‘000) 993 836 209 * Revenue and Gross Margin for natural gas
Slide 27: Electricity retail aided by lower wholesale prices
Electricity retail business contribution aided by lower wholesale prices in the December half………. Electricity Procurement Costs $10 • Electricity procurement Relative cost of electricity procurement costs are seasonal and Second half average tend to be lower than $5 average in the first half (Jul-De
Slide 28: LPG focus on operating costs and pricing
LPG focus on operating costs and pricing has maintained returns despite the cyclical rise in supply costs Average International • LPG benchmark CP up $40 Propane Price per tonne on pcp and $80 800 Jul-Dec 01 Jul-Dec 02 per tonne on prior half A$463 A$503 Jan-Jun 01 • Pacific volumes up but 600 A$423
Slide 29: Well advanced in implementation of FRC in mass markets
The company is well advanced in implementation of FRC in mass markets……. Electricity • Integration of CitiPower on schedule • Retail churn in Victoria is averaging 6% on an annual basis – well within expected ranges • Tariff decision in late 2002 likely to reduce earnings but also reduce churn Natur
Slide 30: Generation: EBITDA up 87% to $19.5m
Generation: EBITDA up 87% to $19.5m on higher pool prices and first year contribution from Quarantine 45 45 • Merchant plants benefited from External Sales Revenue & EBITDA ($m) Dec-02 higher wholesale prices in both 40 40 Dec-01 Queensland and South Australia 35 35 than the equivalent period last 3
Slide 31: Electricity prices significantly higher in all states
Electricity prices are significantly higher in all states compared to the prior year 60 • The Roma plant has benefited Average Price ($/Mwhr) from the high pool prices in 50 Queensland 40 • Quarantine and Ladbroke Grove have received modest prices due 30 to continuing mild weather in South Australia
Slide 32: Contract plant high availability, complemented by Mt Stuart
Contract plant has achieved high availability and is now complemented by the addition of Mt Stuart • Osborne and Worsley capacity factors over 95% • Higher availability at Bulwer Island on improved operating performance • Mt Stuart adds 288MW to the contract plant portfolio, increasing Origin’s over
Slide 33: Progress on solar and wind initiatives
Progress has been made on solar and wind initiatives • Solar R&D success in Sliver CellTM technology – 90% reduction in silicon and up to 30 times increase in silicon wafer productivity. Currently selecting site for pilot plant. • Origin Energy Solar retail product is focussed on grid-connected unit
Slide 34: Networks: EBITDA increased 1% to $12.3 million
Networks: EBITDA increased 1% to $12.3 million on marginally higher management fees and distributions from Envestra 16 1 • Nearly 12,000 new natural Dec-02 0.9 gas consumers were 14 Dec-01 connected to networks under 0.8 management (12% higher 12 0.7 than corresponding period last year) EBITDA ($m)
Slide 35: SEA Gas pipeline construction progressing on schedule
Construction of the SEA Gas pipeline commenced in October and is progressing on schedule at 3-5 km per day • SEA Gas consortium expanded in September 2002 to a $500 million joint venture between Origin, ANP and TXU • 680 km pipeline, fully compressed capacity 125 PJ/a • Origin has entered into long
Slide 36: Outlook
Outlook
Slide 37: Lower contribution from energy retailing expected in second half
Origin expects a lower contribution from energy retailing in the second half…….. Positives Negatives • Greater contribution from • Higher LPG supply costs the Perth Basin and higher • Higher electricity procurement oil prices costs & • Likely higher merchant • Higher cost of retail churn and power p
Slide 38: Medium term projects contributing to growth
In the medium term Origin will benefit from projects that will contribute to growth * Projects contributing Projects initiated but Jun-Dec ‘02 not yet contributing Mt Stuart power Acquisition of station: 288 MW Fairview / Durham * Perth Basin gas coal seam gas assets New CSG Contracts and oil discov
Slide 39: Strong cash flows cover acquisitions and future growth capex
Strong cash flows and balance sheet capacity will cover acquisitions to date and future growth capex 700 Growth capital expenditure estimates • Identified growth capex Estimated Annual Expenditure (A$ million) . compared with calendar 2002 free cash flow 600 through the next 4 years is likely to exc
Slide 40: Long term value delivery and EPS growth goal
In the long term Origin will continue to deliver value to shareholders through: 300 • A strategic position that has . differentiated Origin from Half Year EBITDA by Segment (A$m) 250 other energy companies in 200 Australia 150 • A focus on risk management and improving the 100 performance of existin
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