Origin Energy Limited · ASX:ORG
Origin Energy — FY2004 Earnings Presentation
43 slides from Origin Energy's earnings presentation, Aug 17, 2004
Slide 1: Final Results Announcement, Full year ended 30 June 2004
Final Results Announcement Full year ended 30 June 2004 17 August 2004 1
Slide 2: Outline
Outline • Performance Highlights • Financial Review • Operating Review • Outlook Unless otherwise stated, all comparative data are in relation to the prior corresponding period, the financial year ended 30 June, 2003. Page 2 2
Slide 3: Performance Highlights
Performance Highlights 3
Slide 4: Financial highlights
Financial highlights • Total Revenue $3.6 billion up 6 % • EBITDA $532 million up 8 % • PAT $205 million up27 % • Basic EPS 30.9¢ up 25 % • Free Cash Flow (FCF) $350 million stable • FCF per share 52.8¢ down 2 % • Capex (incl.acquisitions) $509 million down 3 % • Net Debt / Capitalisation 31 % up fr
Slide 5: Operating Review
Operating Review • Continued growth in Perth Basin oil production • Cooper Basin sales impacted by Moomba incident • Steady progress on major projects including BassGas, Otway and CSG • QAL gas contract signed and CSG gas swap agreed • Acquisition of OCA minorities, Kupe interest and RockGas • Conti
Slide 6: Financial Review
Financial Review 6
Slide 7: Profit & Loss
Profit & Loss Jun 04 Jun 03 % change ($m) ($m) Total Revenue 3,556 3,352 6% EBITDA 532 491 8% EBIT 329 295 11% Net interest expense (45) (49) (7%) Tax expense (77) (80) (4%) Outside equity interests (2) (4) PAT 205 162 27% Earnings per share (cents) 30.9¢ 24.8¢ 25% Free cash flow p s (cents) 52.8¢ 5
Slide 8: Group EBITDA is up 8% driven by Generation and Networks
Group EBITDA is up 8% driven by a strong contribution from Generation (Osborne, Mt Stuart) and Networks (SEA Gas)…... Segments Jun 04 Jun 03 % change ($m) ($m) Exploration & Production 197.2 187.6 5% Retail 236.2 232.1 2% Generation 69.4 48.3 44% Networks 29.4 23.4 25% Total 532.2 491.3 8% …….despit
Slide 9: Depreciation & Amortisation expense increased by only 4% to $203 million
Depreciation & Amortisation expense increased by only 4% to $203 million reflecting new E&P capital ……. Jun 04 ($m) Jun 03 ($m) Buildings, plant & equipment 101.4 93.5 Producing fields 51.7 46.5 Electricity hedging contracts 11.3 22.2 Licences & Goodwill 37.2 32.3 Other 1.3 1.6 Total 203.0 196.1 ……a
Slide 10: Group EBIT rose by 11% to $329 million
Group EBIT therefore rose by 11% to $329 million…….. Segments Jun 04 Jun 03 % change ($m) ($m) Exploration & Production 105.1 103.3 2% Retail 155.1 143.8 8% Generation 42.2 26.5 59% Networks 26.9 21.6 24% Total 329.2 295.3 11% …….with Retails EBIT improvement of 8% more accurately reflecting its per
Slide 11: Funding & Interest
Funding & Interest Jun 04 Jun 03 % change Net debt ($m) 861 732 18% Total equity ($m) 1,939 1,790 8% Net debt to equity (%) 44% 41% Debt to (debt + equity) (%) 31% 29% Net interest expense ($m) 45.4 48.7 (7%) Net interest cover (x EBIT) 6.2 6.0 4% Average interest rate (%) 6.6% 6.7% • The cost of fi
Slide 12: The effective tax rate declined from 33% to 27%
The effective tax rate declined from 33% to 27%....... Jun 04 Jun 03 ($m) ($m) Profit before tax 283.8 246.6 Prima facie tax 85.4 74.0 add non-deductible amortisation 20.2 12.6 less non-assessable income (10.0) (6.2) less net tax benefits recognised (18.7) (0.2) equals Tax expense 76.9 80.2 Net tax
Slide 13: Origin's effective tax rate has been lower than 30%
Apart from last year, Origin’s effective tax rate has been lower than 30%………. 40% • Prior to 2003 tax deductions transferred to Origin in respect of 35% 33% the Victorian gas business caused 29% tax expense to be less than prima- 30% 27% 27% facie tax 25% • In the 2003 financial year the ATO 20% cha
Slide 14: Little improvement in operating cash flow despite higher EBITDA
There has been little improvement in operating cash flow despite higher EBITDA and lower tax…….….. Jun 04 ($m) Jun 03($m) EBITDA 532 491 Change in Working Capital (48) 39 Stay in business Capex (net) (83) (94) Non-cash items (net) 2 13 Tax/Subvention Payments (2) (50) OCAT 402 399 Net Interest Paid
Slide 15: Capital expenditure on growth projects was higher
Capital expenditure on growth projects was higher while expenditure on acquisitions decreased Jun 04 ($m) Jun 03($m) Stay in business 86 97 Growth Exploration & Production 207 129 Retail 30 19 Generation - 4 Networks - - Total capital expenditure 323 249 Acquisitions 185 276 Capex including acquisit
Slide 16: E&P returns lower than target after Moomba incident
E&P returns are lower than target as a result of the Moomba incident, reduced benefits from Powercor contracts and working capital movements have impacted Retail …… Funds Operating OCFR OCFR Employed Cash flow Jun 04 Jun 03 ($m) ($m) (%) (%) Exploration & 1,065 144 13.5% 14.2% Production Retail 1,20
Slide 17: Improved returns per share over the last four years
Origin has improved returns per share significantly over the last four years………. Cents per share 60 • A final dividend per 54 FCFPS 53 share of 7¢ (fully 50 EPS franked) brings total DPS 40 dividend per share to 40 13¢ (fully franked) 30 31 30 • Total dividend payout 25 20 ratio of 42% is 19 20 17 c
Slide 18: Operating Review
Origin energy Operating Review
Slide 19: E&P: EBITDA of $197 million up 5%
E&P: EBITDA of $197 million was up 5% largely due to increase oil production from the Perth Basin………. 400 300 • Perth Basin oil sales of 1.2 million bbls (increase of 4.9 PJe) Jun-04 Total Sales Revenue & EBITDA ($m) 350 • Moomba incident resulted in lost sales of Jun-03 250 around 5 PJe. WA gas fie
Slide 20: Higher oil production from the Perth Basin
Higher oil production from the Perth Basin and co-mingling of condensate and crude in the Cooper lifted oil sales….. • Perth Basin delivered record production, 10.0 which will increase further as Jingemia 4 Liquids Sales by Product by Half Year (PJE) 9.0 is commissioned through August and 8.0 Septem
Slide 21: Net 2P reserves increased by 647 PJe
Net 2P reserves increased by 647 PJe (8 times production) Proved and Probable Reserves (PJe*) 2P reserves at 30 June, 2003 1,573 Net effect of additions, revisions & adjustments plus CSG 572 plus Kupe acquisition 169 plus other (WA, Otway, central Qld) 25 less Cooper Basin (39) less production (80)
Slide 22: Adding value to CSG assets
Origin continued to add value to its CSG assets by contracting gas, progressing development plans and adding reserves……. • Gas supply contract signed with QAL for 180 PJ of gas over 15 years from 2007, adding to the 340 PJ to be supplied to AGL from May 2005 • Engineering design for the Spring Gully
Slide 23: BassGas project completed offshore installation and first well
The BassGas project has successfully completed offshore installation and drilling of the first well…… • Platform installed successfully • Yolla 4 drilling complete with three major gas zones intersected much as anticipated with a new oil zone discovered • Production tests delivered strong flows from
Slide 24: Otway Gas Project approved to proceed
The Otway Gas Project (Thylacine & Geographe development) has been approved to proceed…… • Otway Gas Project development approved in May 04 and will produce – 60PJ of sales gas – 100,000 tonnes of LPG – 800,000 barrels of condensate • Origin has contracted to purchase 48.5% of gas output • The Antar
Slide 25: Perth Basin development increased oil production
Perth Basin development activities have delivered increasing oil production levels…….. • Oil production from the Perth Baisn increased to 1.2 million barrels (Origin net), or an average of 3,200 bopd • 10 appraisal/development wells were drilled on the Hovea, Eremia and Jingemia fields. Facilities w
Slide 26: Retail: EBITDA up 2% to $236 million
Retail: EBITDA increased 2% to $236 million while EBIT increased 8% to $155 million…….. • Total sales down 3% to 196 PJe, but 3,500 350 revenues up due to change in product mix Jun-04 3,000 300 • Natural gas margins increased as a Jun-03 result of higher tariffs and changes in Total Sales Revenue ($
Slide 27: Retail EBIT/sales margins constant at 5%
The diversity of the Retail business has seen EBIT/sales margins constant at 5%...... Natural Gas Electricity LPG Revenue (A$m) 856 1,663 398 Gross Margin (A$m) 142 243 131 Sales – (PJ) 114 Sales – (TWh) 15.9 LPG (Ktonnes) 490 Total Sales (PJe) 114 57 24 Customer # (‘000) 967 887 289 …….. despite cu
Slide 28: Integration cost reductions have reduced unit cost to serve
Integration cost reductions and efficiency gains have reduced the unit cost to serve……….. Mass Market Churn: Completed & Pending 25% Vic Elec Origin Natural Electricity Vic Gas Customer Gas % Churn: Monthly data annualised 20% SA Elec Numbers NSW Elec (‘000) NSW Gas 15% Jun ‘03 967 851 Jun ‘04 967 8
Slide 29: Colder winter weather led to increased retail gas sales
Colder winter weather in Victoria led to increased retail gas sales ……… Victorian Effective Degree Days Comparison of last two years to 10 year average • Cold weather in Victoria from 350 August through October and again from May through June resulted in 300 Effective Degree Days exceeding both last
Slide 30: Electricity supply costs increased as hedge book rolled off
Electricity supply costs increased as the favourable hedge book purchased from Powercor started to roll off…… Victorian Spot and Forward Contract Electricity Prices $70 • Electricity revenue was up 6% in line with increased sales volumes $60 Current • Electricity supply costs increased by Forward ar
Slide 31: LPG contributing solid returns
LPG is focussing on contributing solid returns through acquisition and improvements to existing businesses International Propane Contract Price (CP) • LPG volumes up 11,000 tonnes 900 compared to last year on 3 FY 02/03 FY 03/04 month contribution from 800 A$518 A$415 additional 50% of Rockgas, offs
Slide 32: Generation: EBITDA up 44% to $69.4 million
Generation: EBITDA up 44% to $69.4 million on contributions from Mt Stuart and Osborne’s entry into tax consolidation 150 30 • Availability of all plants except Ladbroke Grove was high during the Total Sales Revenue & EBITDA ($m) Jun-04 period Jun-03 • Pool prices have been depressed 100 20 across a
Slide 33: Generation plants performed within expectations
Generation plants performed within expectations with the exception of Ladbroke Grove (turbine failure)……….. Major Origin Capacity Type Operation Availabi Capacity Contracting Party Power Int. % MW lity (%) Factor (%) Plants Osborne 50 180 Cogen Base 98 77 NRG Flinders & Penrice Worsley 50 120 Cogen
Slide 34: Pursuing further growth in Generation and renewables
Origin is pursuing further growth in the Generation business through power plant development and renewables…… • Gas fired power generation: Development sites in Victoria and 30 4,000 4,000 Annual Demand and Generation dispatched (Twh) Energy Peak Queensland high-graded for permitting for new combine
Slide 35: Networks: EBITDA up 25% to $29.4 million
Networks: EBITDA up 25% to $29.4 million largely due to initial contribution from SEA Gas • Maiden contribution from SEA 35 2.0 Gas to EBIT of $4.5 million Jun-04 1.8 30 • Management fees from Envestra Jun-03 1.6 were consistent with last year 25 1.4 and the CAMS JV contributed EBITDA ($m) $0.5 mill
Slide 36: SEA Gas pipeline operational on time and on budget
The SEA Gas pipeline became operational on 1 January 2004, on time and on budget………… • Pipeline in place and operational in time to meet the gas supply crisis resulting from the fire in the Moomba processing plant on 1 January and has made a significant contribution to South Australian gas requireme
Slide 37: Acquisition of Edison Mission's 51.2% interest in Contact
The acquisition of Edison Mission’s 51.2% interest in Contact remains conditional but is progressing as expected • On July 20, 2004 Origin entered into an agreement to acquire Edison Mission Energy’s (EME) 51.2% interest in Contact Energy of New Zealand for NZ$5.67 per share, to be adjusted by any d
Slide 38: Outlook
Origin energy
Slide 39: Factors influencing the profit outlook for FY05
There are a number of factors influencing the profit outlook for FY ’05……….. • Cooper Basin production capacity will be fully restored • Full year contribution from SEA Gas and Rockgas • Perth Basin oil production will increase • The BassGas project will start contributing to earnings • Further redu
Slide 40: Growth driven largely by E&P projects already disclosed
Growth within Origin will continue to be driven largely by E&P projects already disclosed to the market… Growth capital expenditure estimates and acquisitions compared with free cash flow for FY ‘04 450 • FY ‘04 growth capex and Estimated Annual Expenditure (A$ million) 400 acquisitions totalling 35
Slide 41: Long term goal of EPS growth of 10-15% pa
Origin maintains the long term goal of achieving EPS growth of 10-15% pa through sound strategy, effective acquisitions and internally generated growth 1000 900 • The combined growth across growth across Origin’s existing businesses EBITDA by Segment (A$m) 800 700 remains strong 600 • The acquisitio
Slide 42: Origin Energy
Origin energy
Slide 43: Appendix: Restatement of Retail product splits from Jun 2003
Appendix: Restatement of Retail product splits from Jun 2003 Natural Gas Electricity LPG Revenue (A$m) 841 1,573 417 Gross Margin (A$m) 131 266 114 Sales – (PJ) 123 Sales – (TWh) 15.0 LPG (Ktonnes) 479 Total Sales (PJe) 123 54 24 Customer # (‘000) 967 851 200+ • Product revenue and gross margin for