Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2007 Earnings Presentation
51 slides from Origin Energy's earnings presentation, Feb 28, 2007
Slide 1: Interim Results Announcement, Half-year ended 31 December 2006
Interim Results Announcement Half-year ended 31 December 2006 28 February 2007 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 2005 to 31 December 2005, unless otherwis
Slide 3: 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 4: Performance Highlights
Origin energy Performance Highlights
Slide 5: Strong half year result
Strong half year result… • Revenue $2,894 million down 4% • EBITDA $640 million up 9% • NPAT $233 million up 20% • EPS – Basic 29.0 cps up 13% • Final dividend fully franked 10.0 cps up 11% • Gearing(1) 35% down from 43% • Free cash flow(2) $267 million down 19% • Free cash flow per share 33.1 cps d
Slide 6: Significant steps in the development of the business
Significant steps in the development of the business • BassGas Project commenced sales • Continued ramp-up of production from coal seam gas projects • Successful appraisal drilling in the Perth Basin • Awarded contract for development of the Kupe Gas Project • Higher retail margins and customer acco
Slide 7: Financial Review
Financial Review 7
Slide 8: Profit & Loss
Profit & Loss ($ million) Dec 06 Dec 05 % change Revenue 2,894 3,008 (4) EBITDA 640 589 9 EBIT 482 442 9 Net financing costs(1) 88 87 2 Tax expense 108 92 17 Minority Interests 53 69 (24) NPAT 233 194 20 ROE 6.8% 7.1% - EPS - Basic 29.0 cps 25.5 cps 13 Free cash flow per share 33.1 cps 43.2 cps (23)
Slide 9: EBITDA of $640m was up 9%
EBITDA of $640m was up 9% on strong performance by E&P, Retail and Generation… Divisions ($ million) Dec 06 Dec 05 % change Exploration & Production 136 99 38 Retail 186 142 30 Generation 66 43 52 Networks 14 16 (9) Contact 238 289 (18) Total 640 589 9 • Corporate costs of $34 million have been allo
Slide 10: Depreciation & Amortisation
Depreciation & Amortisation ($ million) Dec 06 Dec 05 Generation property, plant and equipment 63 64 Other buildings, plant and equipment 62 54 Amortisation in producing areas(1) 32 29 Other 1 1 Total 157 148 • The increase in D&A is due largely to the commencement of production from the BassGas Pro
Slide 11: Interest
Interest ($ million) Dec 06 Dec 05 Net financing costs (A-IFRS) 88 87 Less: Unwinding of discount on provisions (7) (6) Mark-to-market on interest rate swaps 8 6 Net interest expense 89 87 Capitalised interest 15 12 Net interest expense + capitalised interest 104 99 Adjusted net interest cover (x EB
Slide 12: Tax Reconciliation
Tax Reconciliation ($ million) Dec 06 Dec 05 Profit before tax 394 355 Prima facie tax 122 112 Less: Recognition of change in net loss (14) (15) . position Tax exempt profit on disposal of - (9) . Valley Power by Contact Energy Other differences (1) 4 Equals: Tax expense 108 92 Effective tax rate 27
Slide 13: Growth capex was lower as BassGas commenced production
Growth capex was lower as the BassGas Project commenced production and key elements of the Otway Gas Project were completed… ($ million) Dec 06 Dec 05 Stay-In-Business (SIB) 79 106 Growth Exploration & Production 172 224 Retail 16 11 Generation 13 7 Networks - - Contact 23 12 Total capital expenditu
Slide 14: Cash flow: EBITDA to free cash flow
Favourable movements in EBITDA and SIB capex have been more than offset by higher working capital across Contact and E&P, unfavourable FX impacts and higher tax payments ($ million) Dec 06 Dec 05 EBITDA 640 589 Change in working capital (76) (9) Stay-in-business capex(1) (79) (134) Other(2) (31) 19
Slide 15: Cash flow return from the business segments
Cash flow return from the business segments is measured pre-tax and targets 14.2% per annum (7.1% per half year) Funds Operating OCFR OCFR Employed Cash Flow Dec 06 Dec 05 ($m) ($m) (%) (%) E&P 1,766 95 5.4 7.7 Retail 1,437 116 8.1 7.5 Generation 321 47 14.8 7.1 Networks 157 13 8.3 9.9 Contact Energ
Slide 16: Additional 62.6 million shares issued
During the half year an additional 62.6 million shares were issued… • Equity Placement: 56.3 million shares were issued to raise a net $395 million in an equity placement to institutional investors. • Dividend Reinvestment Plan: 3.4 million shares. • Exercise of Options: 2.9 million shares. • Share
Slide 17: Balance Sheet and Gearing
Balance Sheet and Gearing ($ million) Dec 06 Dec 05 Net debt (A-IFRS) 2,090 2,378 Added back fair value adjustment (m-t-m) 332 293 Adjusted net debt 2,422 2,671 Total equity 4,504 3,782 Adjusted net debt to (debt + equity) 35% 43% • Net debt under A-IFRS includes a mark-to-market adjustment on forei
Slide 18: Fully franked interim dividend of 10 cents per share
A fully franked interim dividend of 10 cents per share has been declared (prior period 9 cents fully franked)… 25 Dividends - cents per share Payment and DRP Franking • Ex-dividend date 5 March 2007 20 100% 100% 40% 100% 100% 100% 100% • Date of record 9 March 2007 15 • Payable 30 March 2007 9 • DRP
Slide 19: Operating Review
Origin energy Operating Review
Slide 20: Exploration & Production: EBITDA of $136.4m up 38%
Exploration & Production: EBITDA of $136.4m up 38% as BassGas commenced sales and continued growth of CSG production… 300 300 • Total production up 11% to 43.8 PJe, sales volume up 13% to 47.6 PJe Total Sales Revenue, Capex & EBITDA Dec-06 • BassGas sales commenced and sales from 250 Dec-05 250 CSG
Slide 21: Perth Basin oil decline slowed; liquids sales
The rate of decline in Perth Basin oil production has been slowed while BassGas condensate and LPG has added to liquids production 1,800 • Successful appraisal drilling in Perth Basin Liquids sales by half year (boe, thousands) has lifted daily production rates from 1,600 around 2,200 bopd in Octobe
Slide 22: CSG performance exceeds expectations
CSG performance continues to exceed expectations with production rates now in excess of 45 TJ/d Gas Production Water Production (Mscfd) (BWPD) 50,000 50,000 Spring Gully Project • $114m Phase 4 Spring Gully project Gas and Water Production forecast to be delivered on time and 45,000 45,000 within bu
Slide 23: BassGas on line and production booked since September
BassGas on line and production has been booked since Sept 06 once consistent production levels were achieved BassGas Production Profile BassGas Project (42.5%) - seven day running average 120 Steady production level of 55 TJ/d sales gas • Project construction complete in June 2006 with initial booki
Slide 24: Otway Gas Project commissioning expected in June quarter
Otway Gas Project is expected to commence commissioning in the June quarter… Otway Gas Project (30.75%) • Project nearing completion with offshore platform and all pipelines (offshore & onshore) completed – construction of the onshore gas plant remains the main focus • Gas introduced to the offshore
Slide 25: Kupe Gas Project contract awarded
In New Zealand the contract for development of the Kupe Gas Project has been awarded… Kupe Gas Project (50%) • Contract of the overall development of the project awarded in September 2006 • Fabrication of platform jacket in Thailand nearing completion • Manufacturing of topsides commenced • Ensco 10
Slide 26: Additional permits and seismic acquisition
… while additional permits have been acquired in the Canterbury Basin off the South Island of New Zealand… … in the Bass Basin near the Yolla, Trefoil and White Ibis discoveries… … and seismic acquisition has been completed in the Lamu Basin in Kenya Page 26 26
Slide 27: Retail: EBITDA $185.6m up 30%
Retail: EBITDA $185.6m up 30% on higher aggregate revenues, customer numbers and margins… • Revenues higher on increased sales 1,800 350 volume for electricity and natural gas together with higher LPG selling price 1,600 Dec-06 300 • Market churn increased again, but Dec-05 1,400 Origin continues to
Slide 28: Origin selectively winning customers and increasing margins
Origin is selectively winning customers and is continuing to increase margins… Product information and % Natural Gas Electricity LPG change from Dec 05 Product Revenue (A$m)* 450 (+2%) 879 (+4%) 302 (+9%) Gross profit (A$m) 75 (-13%) 166 (+19%) 77 (+6%) EBITDA (A$m) 157 (+34%) 29 (+14%) EBIT (A$m) 1
Slide 29: Churn rates have again increased
Churn rates have again increased. Origin acquired ~200k new gas and electricity accounts for a gain of 5k over 6 months… Mass Market Churn: Completed & Pending* December 2006 Origin Energy Customer Numbers 45% VI C Elec Natural (‘000) Electricity Total 40% Gas Vic Gas Jun-06 880 955 1,840 % Churn: M
Slide 30: Customer numbers and margins support long term value
Maintaining and increasing both customer numbers and customer margins supports growth in long term value Dec 06 Dec 05 Jun 06 Gas and Electricity Pre MtM Pre MtM (Full year) Customer Numbers (’000) 1,840 1,813 1,835 EBITDA / Sales - % 9.8% 9.1% 8.7% EBIT / Sales % 8.8% 8.2% 7.8% $ Per Customer: Gros
Slide 31: Sun Retail transition progressing well
Sun Retail transition is progressing well and provides an option to accelerate IT retail systems strategy • Integration of the Sun Retail business required by April 2008 is possible on our existing retail platforms. • Existing billing systems have been positioned to be sustainable until at least 201
Slide 32: Leadership position in green energy sales and carbon responsibility
Origin has clearly established its leadership position in green energy sales and carbon responsibility… 400,000 Other, 1% Green Pow er Customers in Australia Integral, 2% 350,000 TRU, 6% M arket Country Energy, 6% Origin Energy, 26% 300,000 Origin 250,000 200,000 Energy Australia, 21% 150,000 Sun Re
Slide 33: Forward contract prices have risen significantly
Forward contract prices have risen significantly which has provided a $27.5 million mark-to-market benefit… $70 $65 Victorian Spot and Forward Contract Monthly Electricity Prices Average Spot Price $60 FPC end Dec 06 $55 FPC end Jun 06 Forward Curve Dec 06 $50 2008 Historical Forward Curve Forward P
Slide 34: Gas contracting leverages additional upstream development
Origin has managed its gas contracting to leverage additional upstream development… ToP to ACQ 250 Buy from Origin Buy from Origin JV partners Buy from 3rd parties Power Generation Retail Sales Origin Retail Natural Gas Supplies (PJ) 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 … an
Slide 35: LPG: EBITDA growth despite higher global LPG prices
Contribution from acquisitions and active margin management has provided EBITDA growth despite an 8% increase in global LPG Prices • Average purchasing cost rose again in line with international prices - +A$51/tonne • Sales in all segments remain strong against competitive forces (eg Natural Gas in
Slide 36: Generation: EBITDA of $65.6m, up 52%
Generation: EBITDA of $65.6m, up 52% from $43.1m 120 32 • $19.6 million received as payment for the Dec-06 termination of the power purchase Total Sales Revenue & EBITDA ($m) 28 agreement with Enertrade 100 Dec-05 24 • Second unit of the Ladbroke Grove plant converted to run on gas from the SESA 80
Slide 37: Mt Stuart power purchase arrangements concluded
Mt Stuart power purchase arrangements with Enertrade have now concluded and significantly boosted the first half results… • Under the Mt Stuart power purchase arrangement with Enertrade, Origin earned returns when the plant ran subject to a minimum annual payment • On the termination of the contract
Slide 38: 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 95% Western Power & Worsley Bulwer Is. 50 32 Cogen Base 98% BP Osborne 50 180 Cogen Base 92% NRG Flinders & Penrice Mt St
Slide 39: Planning and permitting for gas fired power stations
Planning and permitting for the option to develop gas fired power stations are progressing at Mortlake, Spring Gully and Darling Downs… Power Plant Developments Solar • Three power projects being evaluated: • SLIVER modules continue to be scaled up – Mortlake in Victoria • Reliability testing of 75W
Slide 40: Networks: EBITDA of $14.4m
Networks: EBITDA of $14.4m down from $15.8m last half year and reflects higher operating costs and lower interest distribution from Envestra 100 5.0 90 4.5 • Sales revenue in line with prior period Total Sales Revenue & EBITDA ($m) Dec-06 80 Dec-05 4.0 • EBITDA was lower due to higher South Australi
Slide 41: Contact: EBITDA of $237.5m down 18%
Contact: EBITDA of $237.5m down 18% on non-recurrence of Valley Power sale, lower wholesale electricity prices and foreign currency translation variance… 1,200 350 • Non-recurrence of a $31 million before Dec-06 tax benefit from the sale of Valley Power Dec-05 300 1,000 • Foreign currency translatio
Slide 42: Contact renewable energy projects
Contact has announced a range of renewable energy projects focused on geothermal and wind resources… • Geothermal plans: – Planning two new stations, up to 260 MW of new capacity – NZ$1 billion investment programme subject to economic viability and discussion with Government • Wind generation option
Slide 43: AGL nil premium merger proposal rejected
Late in the Dec half Origin was approached by AGL to consider the notion of a nil premium merger of equals • The Board of Origin has carefully considered this proposal and its impact on the value of shareholders’ investment in Origin • Important considerations in this regard include: – An assessment
Slide 44: Outlook
Onen energy
Slide 45: Uncertainty surrounding key contributors to profit
At the full year results Origin advised there was uncertainty surrounding several key contributors to profit… • Timing of the commencement of production from the BassGas Project: – production commenced in September • Timing of the Otway Gas Project: – project is not likely to contribute significantl
Slide 46: Seasonality in earnings and lower June half
Consistent with prior years, the natural seasonality in earnings of both the Retail business and Contact Energy will see lower June half earnings • This trend may be exacerbated by: – Mark-to-market movements – Higher exploration expenses – Acquisition expenses for Sun Retail Notwithstanding these f
Slide 47: Initiatives to strengthen strategic position
During the half the company has also undertaken a number of initiatives to strengthen its strategic position… • Integration of Mt Stuart power station; • Acquisition of Sun Retail; • Sale of our Networks business; • Acquisition of new exploration acreage; and • Commitment to additional CSG developme
Slide 48: Substantial development projects committed
Looking further ahead the Company has a number of substantial development projects committed and under development… • The Kupe Project in New Zealand is progressing well; • Continued expansion of coal seam gas operations; • Acceleration of development efforts on the Darling Downs power station in Qu
Slide 49: In summary
In summary… • 2007 year of transition • 2008 significant lift in earnings • Further developments to strengthen strategic positioning • Well positioned for further rationalisation and structural changes Page 49 49
Slide 50: Origin energy
Origin energy
Slide 51: For more information
For more information For more information on Origin Energy please contact Angus Guthrie Manager, Investor Relations Email: [email protected] Office: +61-2-8345 5558 Mobile: + 61-4-1786 4255 Alternatively visit our website www.originenergy.com.au and follow the prompts to the Investor