Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2008 Earnings Presentation
57 slides from Origin Energy's earnings presentation, Feb 28, 2008
Slide 1: Interim Results Announcement, Half year ended 31 December 2007
Interim Results Announcement Half year ended 31 December 2007 28 February 2008 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 2006 to 31 December 2006, unless otherwise
Slide 3: Performance Highlights
origin energy Performance Highlights
Slide 4: Origin achieved an Underlying Profit of $200 million
Origin achieved an Underlying Profit of $200 million… • Steady earnings in line with expectations Profit, EBITDAF and cash flow consistent with prior corresponding period increasing CSG production and BassGas offsetting maturing assets and delays in Otway high revenues from Sun Retail partiall
Slide 5: Origin continues to build its business
Origin continues to build its business … Exploration and Production Retail Increased CSG production Tariff increases in electricity and gas Otway commissioning commenced On track with Sun Retail integration Halladale / Blackwatch and Swift Maintained customers numbers assets acquired M
Slide 6: Origin has delivered steady underlying earnings
Origin has delivered steady underlying earnings … • Revenue $3,817 million 33% • EBITDAF $608 million 3% • EBIT $634 million 31% • Statutory Profit $335 million 44% • Underlying Profit $200 million 3% • OCAT $385 million 5% • EPS – Statutory 38.3 cps 32% • EPS – Underlying 22.9 cps 11% • Interim div
Slide 7: Financial Review
origin energy Financial Review
Slide 8: Profit & Loss - Statutory
Profit & Loss - Statutory ($ million) Dec 07 Dec 06 % change Revenue 3,817 2,865 33 EBITDAF(1) 608 590 3 EBIT 634 482 31 Net financing costs (104) (96) (9) Tax expense (146) (108) (35) Minority Interests (49) (53) 6 Statutory Profit 335 233 44 Statutory EPS 38.3 cps 29.0 cps 32 Free cash flow per sh
Slide 9: Underlying Profit $200 million, 3% lower than prior half year
Underlying Profit $200 million, 3% lower than the prior half year ($ million) Dec 07 Dec 06 Impact Impact % after tax & NPAT after tax NPAT change OEI & OEI Statutory Profit 335 233 44 Significant items Asset sales - Networks 147 – Mokai geothermal assets 9 Change in FV of fin. Instruments - Commodi
Slide 10: Movements in fair value of financial instruments
Movements in fair value of financial instruments Reconciliation of Balance Sheet and Profit and Loss items associated with financial instruments movements ($ million) Dec 07 Change in net assets (2,380) Recognition of “effective” instruments in Balance Sheet (2,367) Recognised in Equity (Hedge Reser
Slide 11: EBITDAF $608 million, up 3%
EBITDAF $608 million, up 3% Divisions ($ million) Dec 07 Dec 06 % change Exploration & Production 133 140 (5) Generation 28 46 (38) Retail 201 166 21 Contact 246 238 4 Networks 16 Adjustment for discontinued business (16) EBITDAF 608 590 3 • E&P: Growth in BassGas and CSG offset decline in more matu
Slide 12: Depreciation & Amortisation
Depreciation & Amortisation ($ million) Dec 07 Dec 06 Generation property, plant and equipment 65 63 Other buildings, plant and equipment 62 62 Amortisation in producing areas(1) 42 32 Other 2 1 Total 171 157 • Higher D&A largely from E&P segment BassGas (full six months) and CSG ramp-up Perth B
Slide 13: Interest
Interest ($ million) Dec 07 Dec 06 Net financing costs 104 96 less Unwinding of discount on provisions (7) (7) Net interest expense 97 89 add Capitalised interest 24 15 Net interest expense + capitalised interest 121 104 Net interest cover (EBIT)(1) 5.3 4.7 Weighted average interest rate 7.8% 7.3% •
Slide 14: Tax Reconciliation
Tax Reconciliation ($ million) Dec 07 Dec 06 Profit before tax 530 394 Prima facie tax 163 122 less recognition of net loss position and gains not subject to tax (15) (14) less other differences (1) (1) equals Tax expense 146 108 Effective tax rate 27.5% 27.4% Tax paid 83 85 • Effective tax rate con
Slide 15: Capital Expenditure
Capital Expenditure ($ million) Dec 07 Dec 06 Stay-in-business 70 79 Growth Exploration & Production 305 172 Generation 240 13 Retail 38 16 Contact 56 23 Total capital expenditure 708 303 Acquisitions (net of cash) 6 16 Capex including acquisitions 714 320 • E&P: Predominantly Kupe ($122 million), C
Slide 16: Operating Cash Flow After Tax increased by 5%
Operating Cash Flow After Tax increased by 5% while funds employed increased by 20% as a result of the Sun Retail acquisition and continuing E&P capital expenditure ($ million) Dec 07 Dec 06 EBITDAF 608 590 Discontinued Networks Operations - 16 Change in working capital (48) (76) Stay-in-business ca
Slide 17: Cash flow return from the business segments
Cash flow return from the business segments is measured pre- tax and targets 14.2% per annum Av. Funds Operating OCFR OCFR Employed(1) Cash flow(2) 2007(2) 2006(2) ($m) ($m) (%) (%) E&P 1,113 255 22.9 24.0 Generation 301 91 30.3 21.6 Retail 2,392 221 9.2 15.6 Contact Energy 3,711 417 11.2 10.5 Netwo
Slide 18: Balance Sheet and Gearing
Balance Sheet and Gearing ($ million) Dec 07 Dec 06 Net debt 2,855 2,090 Added back fair value adjustment (m-t-m) 316 332 Adjusted net debt 3,171 2,422 Total equity 5,660 4,504 Equity adjustment to remove fair value reserves 584 147 Adjusted total equity 5,076 4,357 Net debt to (debt + equity) 34% 3
Slide 19: Less than 5% of debt portfolio maturing in next 12 months
Origin has less than 5% of its debt portfolio maturing in the next 12 months and… Origin Debt & Bank Guarantee Maturity Profile (Financial years, $ million) 2,000 MTN & PP Loans Contact 1,800 • Diversified funding base comprising domestic and US 1,600 bonds, syndicated bank 1,400 facilities and bila
Slide 20: Fully franked interim dividend of 12 cps declared
A fully franked interim dividend of 12 cps has been declared (prior period 10 cps fully franked)… Dividends - cents per share 25 Franking 100% 100% 40% 100% 100% 100% 100% 100% Payment and DRP 20 • Ex-dividend date 5 March 2008 • Date of record 11 March 2008 11 15 • Payable 4 April 2008 9 • DRP to a
Slide 21: Operating Review
origin energy Operating Review 21
Slide 22: Exploration & Production: major capital program delivering record production
Exploration & Production: Major capital program now delivering record production as new producing areas… • EBITDAF of $133m, down 5%, reflecting higher 350 350 exploration expenses (up $9m) Dec-07 • CSG and BassGas gas sales more than offset 300 Dec-06 300 decline from maturing areas such as Cooper
Slide 23: Series of investments in new production areas
Over the last decade Origin has made a series of investments in new production areas to offset the anticipated decline of the Cooper Basin and other traditional gas producing areas… 45 • The Cooper Basin is in decline as contract Origin Gas Production by Half Year volumes begin to ramp down 40 • Ori
Slide 24: Oil production from Perth Basin continues to decline
Oil production from the Perth Basin continues to decline, as is oil, condensate and LPG production from the Cooper Basin although at a more modest rate • Oil production from the mature Perth Basin oil fields 10 Origin Liquids Production by Half Year has followed a steep decline curve from its peak 9
Slide 25: Origin increasing CSG production to meet contracts
Origin has been increasing CSG production to meet contracted requirements • Origin’s equity share of CSG reached 100TJ/d in mid December 2007 25 • Spring Gully continues to ramp up & Origin's CSG Production achieved peak sales of 73TJ/d (Origin share 20 ~97%) • Fairview: The operator (Santos) announ
Slide 26: Growing gas reserves and monetising through channels to market
As well as growing its gas reserves Origin has been able to monetise these reserves through good channels to market… Origin's CSG Reserves Origin's CSG Production 2,500 120 Half Year ended 31 December 2,250 Half Year ended 30 June 100 2,000 Darling Downs up to 44 PJ/a 1,750 80 2P Reserves (PJ) Produ
Slide 27: Origin retains clear leadership in CSG production and reserves
Origin retains its clear leadership in CSG production, reserves and contracting… 3,000 35 CSG Reserves CSG Production 30 2,500 Production 12 Months to Dec 07 (PJ) 25 2,000 2P Reserves (PJ) 20 1,500 15 1,000 10 500 5 - 0 in al ui dn PB gy ie gy s w r 4 rp L s s CS ach lm opo gy GC s w L s h in os o C
Slide 28: BassGas stable production; Otway recommenced commissioning
BassGas has maintained stable production of sales gas and the Otway project has recommenced commissioning BassGas Project (42.5%) Otway Gas Project (30.75%) • Production of sales gas has been • Commissioning activities restricted to around 56 TJ/d for the half commenced in September with year (appro
Slide 29: Cooper Basin production declined as expected
Cooper Basin production declined in line with expectations for mature assets • Production of gas & gas liquids declined by 19% Cooper Production • Cooper Oil Program results were below expectations, but did limit crude decline to 13% 20 Origin Share (PJe) 19% decline Cooper Oil All Areas OE Areas OE
Slide 30: Steady progress on Kupe Gas Project and Swift acquisition
Steady progress has been made on the Kupe Gas Project in New Zealand, and acquisition of the Swift assets Kupe Gas Project (50%) • The well head platform jacket and topside was successfully installed in December 2007 • Drilling of the three production wells has commenced and is proceeding to plan •
Slide 31: Generation: operational performance steady
Generation: Operational performance steady with Mt Stuart moving from externally to internally contracted plant… • EBITDAF 38% lower – reflecting steady 80 250 operational performance and the transition of Dec-07 Mt Stuart from external to internal Dec-06 contracting Total Revenue & EBITDAF ($m) 200
Slide 32: Availability against plan for all plants was high
Availability against plan for all plants was high Major Origin Origin Capacity Type Operation Availability Comments Power Plants Int. % MW Worsley 50 120 Cogen Base 97% - Bulwer Is. 50 32 Cogen Base 96% Unplanned outage – minimal impact Osborne 50 180 Cogen Base 90% Hot Path Gas inspection & operati
Slide 33: Mt Stuart transitioned to an internally contracted plant
Mt Stuart transitioned from an externally to an internally contracted plant • Mt Stuart PPA with Enertrade terminated in Dec 06 for a fee of $19.6 million (recognised as a Significant Item) • Under PPA, Enertrade was required to take a minimum output. Failure to take resulted in a compensation payme
Slide 34: Committed to build additional 876 MW gas fired generation
Origin has committed to build an additional 876 MW of gas fired power generation, including Australia’s largest combined cycle gas turbine plant at Darling Downs… Darling Downs Power Station • 120MW expansion of Quarantine peaking power 4,000 station in Adelaide increasing Origin’s peaking Origin Th
Slide 35: Well positioned to capture value from climate change developments
Origin is well positioned to capture value from key climate change developments… Geothermal • Origin acquired a 30% stake in a JV with Geodynamics Ltd. The JV owns permits in South Australia • Geodynamics have drilled 3 wells to-date. Habanero 3 was completed in early 2008 and is currently being eva
Slide 36: Retail: Sun Retail contribution offset by higher energy costs
Retail: Contribution from Sun Retail was partially offset by higher energy purchasing costs 3,000 350 • EBITDAF of $201 million up 21% • Higher purchasing costs across all Dec-07 300 commodities 2,500 Dec-06 Higher average prices in the NEM EBITDAF & Capex ($m) 250 Higher gas costs and Otway del
Slide 37: Sun Retail has boosted scale of Retail business
Sun Retail has boosted the scale of the Retail business with commodity revenues up $935 million… Product information and % Natural Gas Electricity LPG change from Dec 06(1) Product Revenue ($m) 481 (+2%) 1,768 (+101%) 289 (-4%) Gross Profit ($m) 61 (-18%) 258 (+48%) 62 (-20%) EBITDAF ($m) 177 (+29%)
Slide 38: Victorian gas market higher wholesale gas costs
The gas market in Victoria experienced higher wholesale gas costs, accentuated by unexpected delays in Otway Gas Project commissioning after construction was complete Victorian Gas Weighted Average Spot Price and Demand 45 (01 Jan 2006 to 15 Feb 2008) 1,400,000 40 Daily weighted average spot market
Slide 39: Cold July offset by warmer weather
Cold weather in July was offset by warmer weather during the remainder of the half year 350 Victorian EDD Comparison FY08 300 FY07 Total EDDs (Jul-Dec) 10 year Ave 851 Jul-Dec 06 814 10 year Ave 250 Jul-Dec 07 799 200 150 100 50 0 July August September October November December Except in July, EDDs(
Slide 40: NEM prices and volatility
From low prices and little volatility in Dec 06 half the NEM experienced a period of higher prices and volatility in Jun 07 half as a result of the drought… NEM Average daily price maximum (Vic, SA, NSW, Qld) 1,000 1,000 NEM Pool Prices ($ per Megawatt - logarithmic scale) Legend Time period Average
Slide 41: Forward curve movements cause mark-to-market movements
Large movements in the forward curve have caused significant movements in mark-to-market values $180 $170 Victorian Spot and Forward Contract Electricity Prices $160 • Forward curve (FC) for Jun 07 high and $150 backwardated in response to drought conditions (large positive changes in $140 the fair
Slide 42: LPG contribution from Sun Retail and customer growth
Contribution from Sun Retail LPG, customer growth and active margin management have provided a solid result… Average Australian Dollar Propane Price • EBITDAF of $24 million, down 20%, 1000 mostly due to the sale of Rockgas Jul - Dec 2006 Jan - Jun 2007 Jul - Dec 2007 to Contact Energy 900 A$666 A$6
Slide 43: Churn rates easing; 236k new accounts acquired
Churn rates have started to ease over the 6 months period. Origin acquired over 236k new accounts for a net gain of 4k gas and electricity accounts Mass Market Churn: Completed and Pending# December 2007 Origin Energy Accounts Numbers 45% Vic Elec Vic Gas (‘000) Natural Qld Elec* Qld Gas Electricity
Slide 44: EBITDAF margin per customer lower than last half year
EBITDAF margin per customer was lower than last half year as gross margin impact more than offset cost to serve reduction Dec 07 Dec 06 Gas and Electricity YE customer numbers (’000) 2,707 1,840 EBITDAF / Sales - % 7.9% 10.2% Underlying EBIT / Sales % 7.3% 9.3% $ Per Customer: Half year Gross Margin
Slide 45: Good progress on Retail Systems Strategy
Good progress has been made in the Retail Systems Strategy • An upgraded CRM, Siebel, has been implemented as the sales front end for our mass market activities • Sun Retail integration is on track for completion by April 2008 • A decision has been made to replace our Retail billing systems and we a
Slide 46: Leadership position in green energy sales
Origin has clearly established its leadership position in green energy sales and carbon responsibility… A leading market position* and leading market products Origin Energy 33% • In December 2007 Origin had signed 361,000 GreenPower customers • Unit sales of grid-connected solar photovoltaic … resul
Slide 47: Contact Energy: higher retail price and generation
Contact Energy: Higher retail price and increased generation offset higher gas costs 1,200 300 Dec-07 • EBITDAF of $246 million, 4% higher Dec-06 1,000 250 • The main operating factors that contributed were: EBITDAF & Capex ($m) Total Revenue ($m) 800 200 an increase in electricity generation; a
Slide 48: Networks (Discontinued Business)
Networks (Discontinued Business): In April 2007, Origin entered into an agreement to sell its Networks business to APA for $556 million 120 20.0 • The Networks business was sold in two Total Revenue, EBITDAF & Capex ($m) Dec-07 18.0 parts: 100 Dec-06 Settlement for the sale of the SEA Gas 16.0 Pip
Slide 49: Outlook
origin energy Outlook 49
Slide 50: Second half expected to be stronger than first half
Based on prevailing market conditions Origin expects the second half of the financial year to deliver a stronger performance than the first half, due to: • an expected decrease in the wholesale cost of electricity as already observed in the past two months of the second half; • a return to more trad
Slide 51: Large forward schedule of major projects
Origin has a large forward schedule of major projects each of which will add to earnings and cash flow Major Project Timetable Financial Year FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Calendar Year 2007 2008 2009 2010 2011 BassGas CSG - SG Phase 4 Otway Gas Project Quarantine Expansion Mt Stuart Expansion
Slide 52: Projects and opportunities to deliver ongoing growth
Origin already has in place projects and opportunities that will deliver ongoing growth… Leading CSG reserves position and increasing production volumes Major liquids-rich offshore gas projects progressively coming on-line: BassGas producing, Otway commissioning, Kupe under construction Over 9
Slide 53: Appendix
origin energy Appendix 53
Slide 54: Reconciliation of Statutory and Underlying Profit, Dec 2007
Appendix 1 - Reconciliation six months ended 31 December 2007 of Statutory Profit and Underlying Profit Before Minority After Reconciliation six months ended tax Tax tax NPAT impact ($m) interests impact ($m) 31 December 2007 ($m) ($m) ($m) Statutory Profit 334.7 Significant items Asset sales - Netw
Slide 55: Reconciliation of Statutory and Underlying Profit, Dec 2006
Appendix 2 - Reconciliation six months ended 31 December 2006 of Statutory Profit and Underlying Profit Before Minority After Reconciliation six months ended tax Tax tax NPAT impact ($m) interests impact ($m) 31 December 2006 ($m) ($m) ($m) Statutory Profit 233.2 Significant items Change in FV of fi
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Slide 57: 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