Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2015 Earnings Presentation
59 slides from Origin Energy's earnings presentation, Feb 19, 2015
Slide 1: 2015 Half Year Results Announcement
2015 HALF YEAR RESULTS ANNOUNCEMENT Half Year Ended 31 December 2014 Grant King, Managing Director Karen Moses, Executive Director, Finance and Strategy 19 February 2015
Slide 2: Forward looking statements
Forward looking statements This presentation contains forward looking statements, including statements of current intention, statements of opinion and predictions as to possible future events. Such statements are not statements of fact and there can be no certainty of outcome in relation to the matt
Slide 3: Outline
Outline 1.Performance Highlights Grant King 2.Financial Review Karen Moses 3.Operational Review Grant King 4.Prospects Grant King 5.Appendix 3|
Slide 4: 1. Performance Highlights
1. PERFORMANCE HIGHLIGHTS Grant King, Managing Director 4|
Slide 5: Highlights
Highlights Statutory Loss* ($25m) down from $322m Statutory EPS* (2.3 cps) down from 29.3 cps Underlying Profit1* $346m down 9% Underlying EPS* 31.3 cps down 10% Group OCAT $905m down 13% Interim Dividend Unfranked 25 cps - - Total Recordable Injury Frequency Rate 4.8 improved from 5.32 Total Shareh
Slide 6: Stable Underlying EBITDA with increased Energy Markets contribution offset by E&P
Stable Underlying EBITDA with an increased contribution from Energy Markets offset by a decreased contribution from E&P Higher contribution from Energy Markets due to Retail Natural Gas and Electricity margin expansion and use of available ramp gas in QLD to Underlying EBITDA stable increase Busines
Slide 7: Energy Markets contribution increased $112 million
Energy Markets contribution increased $112 million primarily from Retail Natural Gas and Electricity margin expansion and use of available ramp gas in QLD to increase Business gas sales and Electricity generation Energy Markets Sources E&P Gas and Liquids of Gas Production PJe PJe 120 120 100 Ramp g
Slide 8: Solid operational performance with progress on key priorities
The current period has seen a solid operational performance with significant progress on implementation of key priorities Improving returns in energy markets businesses Deregulation of retail markets Improved margin management Reducing operational costs Expansion of Natural Gas margins Imp
Slide 9: Key priorities moderated to conserve cash flow and accelerate cost reductions
As prolonged low oil prices will reduce expected growth in earnings and cash flow, Origin’s key priorities will be moderated to conserve cash flow and accelerate cost reductions To this end, Origin has or will: • continue to limit capital expenditure in the energy markets businesses and is continuin
Slide 10: 2. Financial Review
2. FINANCIAL REVIEW Karen Moses, Executive Director, Finance and Strategy 10 |
Slide 11: 2015 Half Year Financial Highlights
2015 Half Year Financial Highlights ($ million) HY2015 HY2014 Change Statutory (Loss) / Profit (25) 322 (347) Statutory EPS (2.3 cps) 29.3 cps (31.6 cps) Revenue 6,950 7,238 (288) Underlying EBITDA* 1,080 1,082 (2) Underlying EBIT* 659 694 (35) Underlying net financing cost (105) (108) 3 Underlying
Slide 12: Underlying EBITDA stable at $1,080 million; EBIT down 5%
Underlying EBITDA stable at $1,080 million Underlying EBIT down 5% to $659 million Underlying EBITDA Underlying EBIT ($ million) HY2015 HY2014 Change HY2015 HY2014 Change Energy Markets 617 505 22% 466 372 25% Contact Energy 234 232 1% 142 150 (5%) E&P 208 302 (31%) 65 162 (60%) LNG 39 35 11% 4 2 10
Slide 13: Reconciliation of Statutory Profit to Underlying Profit
Reconciliation of Statutory Profit to Underlying Profit ($ million) HY2015 HY20141 Change Statutory (Loss) / Profit (25) 322 347 Items Excluded from Underlying Profit Decrease in fair value of financial instruments (279) (158) (121) Disposals, dilutions and impairments 82 227 (145) LNG related items
Slide 14: Group OCAT decreased to $905 million; free cash flow $707 million
Group OCAT decreased to $905 million Free cash flow decreased to $707 million ($ million) HY2015 HY2014 Change Underlying EBITDA 1,080 1,082 (2) Net impact of carbon payments under Change in working capital 103 217 (114) the Clean Energy Act 2011, which has now been repealed Stay-in-business capex (
Slide 15: $5.2 billion of committed undrawn debt facilities and cash
Following funding initiatives to extend debt maturities and improve liquidity position Origin has $5.2 billion1 of committed and undrawn debt facilities and cash as at 31 December 2014 Origin Debt & Bank Guarantee Maturity Profile as at 31 December 20142 6,000 Loans & Bank Guarantees - Undrawn Loans
Slide 16: Unfranked interim dividend, 80% payout of Underlying EPS
An unfranked1 interim dividend of 25 cps has been determined, representing a payout ratio of 80% of Underlying EPS Dividends and Underlying EPS Dividends and Free Cash Flow per share 150 150 125 125 100 100 cents per share cents per share 75 75 145 First Half 130 50 50 108 83 First Half 25 25 70 25
Slide 17: 3. Operational Review
3. OPERATIONAL REVIEW Grant King, Managing Director 17 |
Slide 18: Energy Markets
Energy Markets ($m) Underlying EBITDA ($m) Operating Cashflow Operating Cash Flow ($m) GrowthCapex Growth Capex Underlying EBITDA 800 800 80 600 600 659 60 67 617 639 62 505 400 400 40 200 200 20 0 0 0 HY2014 HY2015 HY2014 HY2015 HY2014 HY2015 Underlying EBITDA up 22% to $617 million primarily due
Slide 19: Energy Markets EBITDA up $112 million to $617 million
Energy Markets EBITDA up $112 million to $617 million primarily due to expanding Natural Gas and Electricity margins and higher Natural Gas volumes • Natural Gas Gross Profit up $67m due to: Energy Markets Underlying EBITDA Bridge • Expansion in Retail (Consumer & SME) 700 margins (+$42m) 600 51 • B
Slide 20: Natural Gas Unit Gross Profit up 15%
Natural Gas Unit Gross Profit up 15% ($0.40/GJ) as tariffs increase in line with rising East Coast market prices while underlying energy procurement costs remain flat External Volumes Sold (PJ) HY2015 HY2014 Change Retail (Consumer & SME) 22.5 22.4 0.1 Business 47.5 34.4 13.1 Business sales volumes
Slide 21: Flexible portfolio monetises available ramp gas in Queensland
Origin’s flexible portfolio and gas transportation arrangements have allowed Origin to monetise available ramp gas in Queensland, forgoing gas production until subsequent periods Energy Markets Sources and PJ Uses of Gas 120 Sources Uses 100 +28 PJ of ramp gas +6 PJ into 80 generation -14 PJ of inte
Slide 22: Increasing Natural Gas penetration and gross margin per customer
Origin is continuing to increase its Natural Gas penetration to benefit from expanding Natural Gas Gross Margins per customer Natural Gas Customer Accounts Natural Gas and Electricity Gross 1,100 Margin per Customer 116,000 customer 300 account gains since Natural Gas Customer Accounts ('000) 30 Jun
Slide 23: Electricity Gross Profit up 13%
Electricity Gross Profit up 13% ($4.10/MWh) primarily due to higher retail tariffs and stable black energy procurement costs Volumes Sold (TWh) HY2015 HY2014 Change Retail (Consumer & SME) 9.1 9.1 (0.0) Business 9.6 10.4 (0.8) Total 18.7 19.5 (0.8) Electricity Performance ($/MWh) HY2015 HY20141 Chan
Slide 24: Strong competition in VIC and NSW resulted in customer losses
Strong competition in VIC and increasing competition in NSW resulted in customer losses in the September Quarter following reduction in Origin discounts in July ... Origin’s Average Signed Discount Offers for Electricity and Natural Gas (%) VIC Customer Net Position in ‘000 4 2 VIC 0 -2 -4 -6 -8 NSW
Slide 25: Black cost of energy stable despite higher forward contract prices
Origin’s black cost of energy remained stable relative to the prior corresponding period despite a 10% increase in forward contract prices Average 6 Monthly NEM Prices Origin’s Electricity Portfolio $/MWh TWh 50 30 Average Price >$300/MWh 45 Gas Generation Average Price <$300/MWh 25 Coal Generation
Slide 26: Cash cost to serve per customer $4 lower
Natural Gas & Electricity cash cost to serve per customer $4 or 5% lower, reflecting improved operational efficiency and increased use of internal sales channels ... Operating costs HY2015 HY2014 Change Cash cost to serve ($ per average customer account) (81) (85) 4 Cost to maintain ($ per average c
Slide 27: Retention programs and internal sales channels improve cost to serve
Success of retention programs and increasing use of internal sales channels continue to improve cost to serve and customer experience Customer Wins and Retains Sales Channels Electricity and Natural Gas Churn Rates 1,000 1,000 Customer wins and retains ('000) 25% Customer wins and retains ('000) 800
Slide 28: Adapting processes, new products and technology investment
Origin is continuously adapting processes, introducing new products and investing in technology ... Improving the contract renewal pathway Dec 13 Dec 14 Strengthening our service offering to the Small to Medium Business segment Customers registered on My 265k 909k Account Continuing to build D
Slide 29: Solar and Energy Services opportunity
Through the Solar and Energy Services business Origin has an opportunity to engage more deeply with our customers... Origin has been participating in The Solar and Energy Services Origin will look to enhance the market for more than a opportunity is appealing product and service offerings decade I
Slide 30: Contact Energy
Contact Energy ($m) Underlying EBITDA Underlying EBITDA ($m) Operating OperatingCashflow Cash Flow ($m) Growth Capex Growth Capex 300 300 100 80 234 239 81 232 200 200 60 183 40 100 100 32 20 0 0 0 HY2014 HY2015 HY2014 HY2015 HY2014 HY2015 Contact’s Underlying EBITDA down 3% to NZ$257 million prim
Slide 31: Contact's Electricity Unit Gross Profit down 3%
Contact’s Electricity Unit Gross Profit down 3% due to retail price discounting eroding tariff increases to recover rising distribution costs Volumes Sold (GWh) HY2015 HY2014 Change Mass Market 2,067 2,029 38 C&I 2,250 2,303 (53) Total 4,317 4,332 (15) Electricity Performance (NZ$/MWh) HY2015 HY2014
Slide 32: Contact's renewable and thermal generation
While wholesale energy portfolio costs were lower during the period following the commissioning of Te Mihi, the reduction was lower than expected due to an extended plant outage Contact’s Renewable and Thermal Generation (based on TWh of generation) 100% 80% 60% 40% 20% 0% FY2012 FY2013 FY2014 FY201
Slide 33: Exploration & Production
Exploration & Production ($m) Underlying UnderlyingEBITDA EBITDA ($m) Operating OperatingCashflow Cash Flow ($m) Growth Capex Growth Capex 400 400 1,000 800 300 300 Acquisition 302 Growth 600 686 245 200 200 208 190 400 100 100 200 261 167 0 0 0 HY2014 HY2015 HY2014 HY2015 HY2014 HY2015 Underlying
Slide 34: E&P EBITDA down $94 million to $208 million
E&P EBITDA down $94 million to $208 million primarily due to lower liquids production and prices E&P EBITDA Bridge1 Gas and Liquids Production2 PJe 60 350 24 (23) Natural Gas & Ethane (28) Liquids 300 (34) 50 (20) 250 (7) (6) 200 40 150 302 (+$1m) (-$62m) 100 208 30 41 50 33 Lower gas volumes 20 off
Slide 35: Development activities at BassGas and exploration in Otway and Perth basins
Origin’s focus on offsetting natural field decline has resulted in development activities at BassGas and encouraging exploration results in Otway and Perth basins ... Bass Basin Otway Basin Perth Basin Ensign 931 rig Sapura 3000 heavy lift vessel with Compressor Module suspended • Speculant-1 explor
Slide 36: LNG
LNG Origin’s Cash Contributions ($m) ($m) UnderlyingEBITDA Underlying EBITDA to APLNG1 40 1,500 39 1,437 1,412 35 30 1,000 20 500 10 0 0 HY2014 HY2015 HY2014 HY2015 Substantial progress made on the project • Upstream 90% complete • Downstream 86% complete On track for sustained LNG production fr
Slide 37: Upstream Project Progress - 90% complete
Upstream Project Progress - 90% complete and on track Upstream Operated Goals FY2015 Plan Actual Progress to 31 Dec 2014 Orana Train 2 mechanical completion Q2 Accomplished Reedy Creek Train 2 mechanical completion Q2 Accomplished Condabri South Train 2 mechanical completion Q2 Accomplished First wa
Slide 38: Downstream Project Progress - 86% complete
Downstream Project Progress - 86% complete and on track Downstream Operated Goals FY2015 Plan Actual Progress to 31 Dec 2014 Complete loading platform for LNG jetty Q1 Accomplished Inlet Air Chiller Package received on Curtis Island Q1 Accomplished LNG Tank B hydrostatic test complete Q1 Accomplishe
Slide 39: APLNG capital expenditure and Origin's cash contribution
APLNG capital expenditure for the period was $3.9 billion, with Origin’s cash contribution $1.4 billion Cumulative 6 months to (A$m) from FID1 to 31 31 Dec 2014 Dec 2014 Estimated costs to complete are not Project Capex 2,8021 23,8062 expected to be materially different from budget3 Non-Project Cape
Slide 40: Commercial LNG production driven by downstream milestones
The commencement of commercial LNG production is driven by downstream milestones which are progressing to plan H2 FY2015 H2 FY2015 Upstream Operated Goals Downstream Operated Goals Plan Plan Condabri North Train 2 mechanical Accomplished Q3 Introduction of first gas to the facility completion Feb 20
Slide 41: Corporate
Corporate ($m) Underlying EBITDA ($m) Growth Capex 40 80 20 60 65 8 0 40 (18) -20 20 20 -40 0 HY2014 HY2015 HY2014 HY2015 Underlying EBITDA down $26 million reflecting higher corporate costs, lower cost recoveries from APLNG, and lower cost recoveries from International Development joint ventures
Slide 42: 4. Prospects
4. PROSPECTS Grant King, Managing Director 42 |
Slide 43: Key priorities moderated to conserve cash flow and increase distributions
As prolonged low oil prices will impact earnings and cash flow, Origin’s key priorities will be moderated to conserve cash flow to initially maintain and subsequently increase shareholder distributions in line with earnings growth Improving returns in energy markets businesses Increased Natural Ga
Slide 44: East Coast gas demand driven by LNG ramp up
Over the next 2 to 3 years gas demand on the East Coast of Australia will be driven by ramp up in production of LNG ... 2000 H1 FY2015 H2 FY2015 FY2016 1600 • Benefit from ramp • Continued benefit from • Continued Retail Natural Gas margin East Coast Gas Demand (PJ) gas and expansion ramp gas, start
Slide 45: Fuel and generation portfolio flexibility to manage market conditions
Origin’s fuel and generation portfolio has the flexibility to manage changing market conditions Origin Electricity Demand and Supply Average 6 monthly QLD NEM Net Supply and Demand1 6 months to 31 Dec 2014 Pool Prices TWh 120 16,000 Average NEM Pool Price ($/MWh) 20 Average Prices <$300/MWh Average
Slide 46: APLNG economics remain robust at current oil price expectations
In December Origin provided an update on the economics of its investment in APLNG which remain robust at current market expectations of oil prices1 Nevertheless, Origin is actively reviewing sustain and exploration activities and is focused on achieving planned reductions in APLNG’s total upstream c
Slide 47: RET policy uncertain; focus on new solar PV offerings
While RET policy remains uncertain in Australia, Origin is focusing on new solar PV offerings ... RET Target, Supplies and estimated Installed Cost of a 3kW Solar PV International Renewables REC bank depletion1 System in Australia2 12 45,000 40,000 10 35,000 Each year the target uses existing supply
Slide 48: Lower capex spend limited to higher returning projects
Origin will lower capex spend relative to prior plans, limiting investments to higher returning projects Growth Capital Expenditure by Segment and Origin’s Cash Contribution to APLNG1,2 5,000 • E&P capex focused on increasing gas production into growing Australian gas demand, predominantly in Cooper
Slide 49: Liquidity position remains strong
Origin’s liquidity position remains strong, with $5.2 billion1 of committed and undrawn debt facilities and cash sufficient to fund remaining commitments to APLNG until the project is self funding Given the potential for lower oil prices to reduce the expected increase in Origin’s earnings and cash
Slide 50: FY2015 and FY2016 are transitional years
FY2015 and FY2016 are transitional years for Origin with expanding gas margins and commencement of LNG production delivering increased earnings and cash flows, albeit at lower levels than previously expected if current low oil prices persist During the remainder of FY2015 and through to FY2016, Orig
Slide 51: 5. Appendix
O origin 5. APPENDIX
Slide 52: Important Information
Important Information All figures in this report relate to businesses of the Origin Energy Group (Origin, or the Company), being Origin Energy Limited and its controlled entities, for the half year ended 31 December 2014 (the period) compared with the half year ended 31 December 2013 (the prior corr
Slide 53: Important Information
Important Information All references to debt are a reference to interest bearing debt only (excludes Australia Pacific LNG shareholder loans). Individual items and totals are rounded to the nearest appropriate number or decimal. Some totals may not add down the page due to rounding of individual com
Slide 54: Glossary - Statutory Financial Measures
Glossary - Statutory Financial Measures Statutory Financial Measures are measures included in the Financial Statements for the Origin Consolidated Group, which are measured and disclosed in accordance with applicable Australian Accounting Standards. Statutory Financial Measures also include measures
Slide 55: Glossary - Non-IFRS Financial Measures
Glossary - Non-IFRS Financial Measures Non-IFRS Financial measures are defined as financial measures that are presented other than in accordance with all relevant Accounting Standards. Non-IFRS Financial measures are used internally by management to assess the performance of Origin’s business, and t
Slide 56: Glossary - Non-Financial Terms
Glossary - Non-Financial Terms Term Meaning Proved Reserves are those reserves which analysis of geological and engineering data can be estimated with reasonable certainty to be 1P reserves commercially recoverable. There should be at least a 90% probability that the quantities actually recovered wi
Slide 57: Additional APLNG Slide
O origin Additional APLNG Slide 57|
Slide 58: APLNG economics remain robust in current oil price environment
APLNG economics remain robust in current oil price environment Consistent with prior guidance, APLNG’s underlying economics are based on the following assumptions on project cash costs during steady state operations: • Volumes • 8.6 mtpa contracted at JCC linked prices – around 470 PJ pa of sales ga
Slide 59: Thank You
THANK YOU For more information Chau Le Group Manager, Investor Relations Email: [email protected] Office: +61 2 9375 5816 Mobile: + 61 467 799 642 www.originenergy.com.au 59 |