Origin Energy Limited · ASX:ORG
Origin Energy — FY2006 Earnings Presentation
42 slides from Origin Energy's earnings presentation, Aug 30, 2006
Slide 1: Final Results Announcement Full-year ended 30 June 2006
Final Results Announcement Full-year ended 30 June 2006 30 August 2006 1
Slide 2: Outline
Outline • Performance Highlights • Financial Review • Operating Review • Outlook - All references to $ are references to Australian dollars unless otherwise specifically marked - All comparative data are in relation to the prior corresponding period, 1 July 2004 to 30 June 2005, unless otherwise sta
Slide 3: Consolidation of Contact changes presentation of Origin's 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 – Minority interests are recognised in reporting of net profi
Slide 4: Disclaimer
Disclaimer Any forward looking information in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect and these statements speak only as of the date of this presentation. This presentation should not be relied upon as a recommendation to buy or sel
Slide 5: Performance Highlights
Origin energy Performance Highlights
Slide 6: Financial Highlights
Financial Highlights • Revenue $5,950 million up 21% • EBITDA $1,087 million up 18% • NPAT $332 million up 10% • Free cash flow(1) $583 million up 30% • OCAT Ratio 12.5% target 9.4% • Gearing(2) 42% down from 44% • EPS – Basic 41.9 cps down 0.4% • EPS - Normalised(3) 41.9 cps up 6% • Free cash flow
Slide 7: Significant Operational Events
Significant Operational Events • A full 12 month contribution and strong performance by Contact Energy • Higher retail margins despite higher market churn and higher LPG purchasing costs • Lower production from Perth Basin oil fields • Doubling of CSG sales and Spring Gully performing above expectat
Slide 8: Financial Review
Financial Review 8
Slide 9: Recurring A-IFRS profit of $288 million for FY2005
At the interim results we advised a recurring A-IFRS profit of $288 million for FY2005 taking into account the introduction of successful efforts NPAT after ($ million) June 2005 Minorities Total under A-GAAP 266 Total A-IFRS adjustments (pre-successful efforts) 45 Successful efforts (10) A-IFRS NPA
Slide 10: Profit & Loss
Profit & Loss ($ million) Jun 06 Jun 05 % change Revenue 5,950 4,902 21 EBITDA 1,087 918 18 EBIT 791 656 20 Net financing costs(1) 167 148 13 Tax expense 169 137 23 Minority Interests 122 70 74 NPAT 332 301 10 ROE 12.3% 11.9% - EPS - Basic 41.9 cps 42.1 cps (0.4) EPS - Normalised 41.9 cps 39.5 cps 6
Slide 11: EBITDA of $1,087m up 18%
EBITDA of $1,087m up 18% on full 12 month contribution from Contact and strong Retail performance Divisions ($ million) Jun 06 Jun 05 % change Exploration & Production 205 230 (11) Retail 273 257 6 Generation 60 52 14 Networks 30 34 (14) Contact 519 346 50 Total 1,087 918 18 • E&P: Lower oil product
Slide 12: Depreciation & Amortisation
Depreciation & Amortisation ($ million) Jun 06 Jun 05 Generation property, plant and equipment 125 97 Other buildings, plant and equipment 110 98 Amortisation in producing areas(1) 59 56 Electricity hedging contracts - 7 Other 3 4 Total 297 262 • Increase in D&A are mostly due to a full 12 months of
Slide 13: Interest
Interest ($ million) Jun 06 Jun 05 Net financing costs (A-IFRS) 167 148 Unwinding of discount on provisions (12) (13) Mark-to-market on interest rates swaps 7 - Net interest expense 163 135 Capitalised interest 27 20 Net interest expense + capitalised interest 190 155 Adjusted net interest cover (x
Slide 14: Tax Reconciliation
Tax Reconciliation ($ million) Jun 06 Jun 05 Profit before tax 623 509 Prima facie tax 197 158 less recognition of change in net loss (12) (11) . position less other differences (16) (10) equals Tax expense 169 137 Effective tax rate 27.1% 27.0% Tax paid 119 181 • Increase in Tax expense primarily d
Slide 15: Growth capital increased as BassGas and Otway neared completion
Growth capital increased as BassGas and Otway projects neared completion and Spring Gully completed Stage II development… ($ million) Jun 06 Jun 05 Stay-in-business 209 132 Growth Exploration & Production 452 315 Retail 24 39 Generation 11 3 Networks 0 0 Contact 20 18 Total capital expenditure 716 5
Slide 16: Operating cash flow after tax has increased
Operating cash flow after tax has increased with a full 12 months of Contact… ($ million) Jun 06 Jun 05 EBITDA 1,087 918 Change in working capital 16 (31) Stay-in-business capex(1) (206) (111) Other(2) (10) 4 Tax paid (119) (181) OCAT 768 599 Net interest paid (185) (150) Free cash flow 583 448 Fund
Slide 17: Cash flow return from the business segments
Cash flow return from the business segments is measured pre-tax and targets 14.2% over a full year Funds Operating OCFR OCFR Employed Cash flow Jun 06 Jun 05 ($m) ($m) (%) (%) Exploration & 1,465 197 13.4 13.7 Production Retail 1,229 183 14.9 17.5 Generation 319 42 13.2 14.4 Networks 167 44 26.2 17.
Slide 18: Balance Sheet and Gearing
Balance Sheet and Gearing ($ million) Jun 06 Jun 05 Net debt (A-IFRS) 2,410 2,743 Added back fair value adjustment (m-t-m) 226 - Adjusted net debt 2,636 2,743 Total equity 3,646 3,519 Adjusted net debt to (debt + equity) 42% 44% • Net debt under A-IFRS includes a mark-to-market adjustment on foreign
Slide 19: Final dividend of 9cps declared; full year 18cps
A final dividend of 9cps has been declared, bringing the full year dividend to 18cps fully franked Dividends - cents per share Payment and DRP 25 Franking • Ex-dividend date 4 September 2006 100% 100% 40% 100% 100% 100% 20 • Date of record 8 September 2006 • Payable 29 September 2006 15 9 • DRP to a
Slide 20: Operating Review
Origin energy Operating Review
Slide 21: Exploration & Production: EBITDA of $205m
Exploration & Production: EBITDA of $205m down 11% as Perth Basin oil fields commenced decline… 600 600 • 27% decline in Perth Basin oil production largely offsets higher liquids prices Jun-06 Total Sales Revenue & EBITDA ($m) Jun-05 • First year of production from Spring Gully 500 500 CSG ahead of
Slide 22: Perth Basin oil production decline
Oil production from the Perth Basin declined from the peak of last year and liquids yields from gas production fell… 12.0 Liquids Sales by Product by Half Year (PJE) • Perth Basin scale precipitate impacted production early in the year 10.0 and water influx has led to earlier than anticipated onset
Slide 23: Spring Gully CSG production and reserves
Initial production from the Spring Gully field has started to monetise Origin’s substantial reserve base… 1600 CSG Reserves • CSG developments initially required long lead 1400 times to establish reserves prior to contracting 1200 2P Reserves (PJ) 1000 • Reserves supporting contracts signed from 200
Slide 24: 2P reserves increased significantly year on year
Origin’s 2P reserves increased significantly year on year with reserves additions in Spring Gully adding 170 PJe… Proved and Probable Reserves (PJe)(1) 2P reserves at 30 June 2005 2,220 add field appraisal (Spring Gully) 170 add acquisitions (Pangea CSG, BassGas, Otway) 171 less production (78) less
Slide 25: BassGas and Otway Gas projects
BassGas commenced production during June 2006 while the Otway Gas Project is expected to commence commissioning late in the December quarter BassGas Project (42.5%) Otway Gas Project (30.75%) • Project construction complete with • Project nearing completion with all initial sales of gas in June and
Slide 26: Kupe gas project approved; NZ exploration
In New Zealand the Kupe gas project has been approved, new exploration seismic has been acquired… Kupe Gas Project (50%) • Final investment decision approved on 28 June • Contract for drilling rig awarded • Technip favoured offshore and onshore contractor under Alliance arrangement • Capex increased
Slide 27: Retail: EBITDA of $273m up 6%
Retail: EBITDA of $273m up 6% in challenging conditions. Despite high churn, customer numbers and margins increased 3,500 350 • Revenues higher on increased sales volume for gas and LPG and higher energy tariffs Jun-06 3,000 300 • After deducting cost of goods sold the Jun-05 gross margin increased
Slide 28: Gross margin for all products increased
The Gross margin for all products increased year on year… Retail Gross Margin ($) and EBIT Margin (%) • Gas gross margin increased on 700 7.0% higher tariffs and strong second half due to cool weather Product Gross Margin ($ million) (bars) 600 6.0% • Electricity gross margin higher on EBIT Margin (
Slide 29: Cooler weather boosted sales
Cooler weather conditions in the second half boosted sales and reversed the normal seasonality of sales volumes… 350 Victorian EDD Comparison 300 EDD's per month 250 FY 2006 200 FY 2005 150 10 year Ave 100 50 - ly ay ne ch l F e a ry ry p t u st Ja e r Oc e r r ce r ri N o ob e De be Ju M Ap ua ar b
Slide 30: Wholesale contract prices stable; spot prices rose
Wholesale contract prices have been stable. While spot prices rose through the second half… $100 $95 Victorian Spot and Forward Contract $90 Electricity Prices Monthly $85 Average Spot Price $80 2008 Historical Forward Price $75 2007 Historical $70 Forward Price $65 2006 Historical Forward Price $60
Slide 31: Speed-E-Gas acquisition and colder weather lift LPG
The acquisition of Speed-E-Gas and colder weather has seen LPG volumes and EBIT increase… Average International Propane Price (CP) 1,200 Jul04 - Jun05 Jul05 - Jun06 • Active price management A$519 A$655 helped control margins squeeze 1,000 as wholesale purchasing costs rose. 800 • Speed-E-Gas improv
Slide 32: Churn rates remain high; customer numbers
Churn rates remain high. Origin acquired over 325,000 new accounts for a net gain of 22,000 gas and electricity accounts June 2006 Origin Energy Customer Numbers Mass Market Churn: Completed & Pending* (in thousands) 60% Natural 55% VI C Elec Electricity Total Gas % Churn: Monthly data annualised 50
Slide 33: Gas and electricity margins increased
Despite higher costs associated with winning customers Origin has increased its gas and electricity margins…. Product information and % Natural Gas Electricity LPG change from Jun 05 Product Revenue (A$m) 909 (+7%) 1,678 (+1%) 557 (+15%) Gross margin (A$m) 148 (+11%) 291 (+6%) 145 (+3%) EBITDA (A$m)
Slide 34: Generation: EBITDA of $60m up 14%
Generation: EBITDA of $60m, up 14% from $52m 180 18 • Scheduled maintenance at Worsley Jun-06 and gas refit at Ladbroke Grove 160 16 Total Sales Revenue & EBITDA ($m) Jun-05 resulted in lower electricity 140 14 generated (1.6 TWh – down 9%) and 120 12 lower revenues Capex ($m) • Higher capacity paym
Slide 35: High planned availability across all plants
There was high planned availability across all plants… Major Origin Origin Capacity Type Operation Availability Contracting Power Int. % MW Party Plants Worsley 50 120 Cogen Base 85% Western Power & Worsley Bulwer Is. 50 32 Cogen Base 95% BP Osborne 50 180 Cogen Base 97% NRG Flinders & Penrice Mt St
Slide 36: Planning and permitting for gas fired power stations
Planning and permitting for the option to develop gas fired power stations are progressing at Mortlake and Spring Gully… Power Plant Developments Solar • Two power projects being progressed, • SLIVER modules continue to be scaled each up to 1000 MW at: up – Mortlake in Victoria • 75W module undergoi
Slide 37: Networks: EBITDA of $30m
Networks: EBITDA of $30m down from $34m last year and reflects effective yield accounting treatment of Envestra distribution… 200 20.0 180 18.0 • Higher sales resulting from colder weather Total Sales Revenue & EBITDA ($m) Jun-06 Jun-05 together with higher capital and operating 160 16.0 recoveries
Slide 38: Contact: EBITDA contribution of $519m
Contact: 12 month EBITDA contribution to Origin of $519m up 50% on last year (9 months only)… 2,500 600 • Acquisition of 51.4% interest completed Jun-06 on 1 October 2004 – nine months included Jun-05# in FY2005 vs 12 months in FY2006 500 2,000 • Earnings benefited from: Total Sales Revenue ($m) EBI
Slide 39: Outlook
Onen energy
Slide 40: Australian Operations EBITDA likely to grow around 15%
In the coming year, EBITDA from Australian Operations is likely to grow by around 15% • Spring Gully will continue ramp-up • BassGas Project will be on-line • Otway Gas Project commissioning is anticipated to commence in December quarter 2006 • Steady contributions expected from Retail, Generation a
Slide 41: Contact Energy faces challenging conditions
Contact Energy will face challenging conditions which may offset the growth in Australian operations • Contact will face challenging conditions – Favourable weather conditions from FY2006 are unlikely to repeat – Wholesale gas contract prices will increase significantly restricting generation and pu
Slide 42: Origin
Origin energy