Origin Energy Limited · ASX:ORG
Origin Energy — FY2014 Earnings Presentation
67 slides from Origin Energy's earnings presentation, Aug 21, 2014
Slide 1: 2014 Full Year Results Announcement
2014 FULL YEAR RESULTS ANNOUNCEMENT Financial Year Ended 30 June 2014 Grant King, Managing Director Karen Moses, Executive Director, Finance and Strategy 21 August 2014
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 Profit* $530 m up 40% Statutory EPS* 48.1 cps up 39% Underlying Profit1* $713m down 6% Underlying EPS* 64.8 cps down 7% Group OCAT $2,041m up 79% Total Recordable Injury Frequency Rate 5.0 down from 6.52 Total Recordable Injury Total Shareholder Return Frequency Rate 25% 10.0 50
Slide 6: Lower Underlying Profit with reduced Energy Markets contribution, OCAT up 79%
Lower Underlying Profit with reduced contribution from Energy Markets partly offset by increased contributions from E&P and Contact, underpinned by a 79% increase in OCAT Lower contribution from Energy Markets primarily due to lower volumes Underlying Profit down Higher contribution from E&P due to
Slide 7: Origin intends to raise hybrid securities to refinance Browse acquisition debt
Origin intends to raise hybrid securities to refinance drawdown of debt used to fund the Browse acquisition • Origin is preparing for a European hybrid securities issuance as an alternative to ordinary equity, provided appropriate market conditions prevail • Any hybrid securities would be structured
Slide 8: Strong progress on four key priorities
Origin has made strong progress on its four key priorities … Improving the Performance of the Existing Businesses Retail Transformation complete, Expansion of gas margins Increased availability and delivering operational and cash production from upstream assets flow improvements Value captur
Slide 9: Priorities to deliver Origin's strategy are changing
As APLNG delivers first LNG in mid-2015, and the energy markets businesses mature, priorities to deliver Origin’s strategy are changing … Improving returns in energy markets businesses Deregulation of retail Improving customer Regional leader markets experience in energy Capital Margin managem
Slide 10: 2. Financial Review
2. FINANCIAL REVIEW Karen Moses, Executive Director, Finance and Strategy 10 |
Slide 11: 2014 Full Year Financial Highlights
2014 Full Year Financial Highlights ($ million) FY2014 FY2013 Change Statutory Profit 530 378 152 Statutory EPS 48.1 cps 34.6 cps 13.5 Revenue 14,518 14,747 (229) Underlying EBITDA* 2,139 2,181 (42) Underlying EBIT* 1,353 1,438 (85) Underlying net financing cost (192) (255) 63 Underlying income tax
Slide 12: Underlying EBITDA and EBIT by segment
Underlying EBITDA down 2% to $2,139 million Underlying EBIT down 6% to $1,353 million Underlying EBITDA Underlying EBIT ($ million) FY2014 FY2013 Change FY2014 FY2013 Change Energy Markets 1,053 1,333 (21%) 787 1,038 (24%) Exploration & Production 487 395 23% 210 162 30% LNG 83 60 38% 12 5 140% Cont
Slide 13: Reconciliation of Statutory Profit to Underlying Profit
Reconciliation of Statutory Profit to Underlying Profit ($ million) FY2014 FY2013 Change Statutory Profit 530 378 152 Items Excluded from Underlying Profit Decrease in fair value of financial instruments (196) (243) 47 Asset disposals, dilution and impairments 157 352 (195) LNG related items (192) (
Slide 14: Group OCAT and free cash flow
Group OCAT increased to $2 billion Free cash flow increased to $1.6 billion ($ million) FY2014 FY2013 Change Underlying EBITDA 2,139 2,181 (42) Reduced Energy Markets debtors due to significantly improved billing Change in working capital 163 (298) 461 and collections performance and Stay-in-busines
Slide 15: Segment Cash Flow Returns
Segment Cash Flow Returns Operating Cash Flow* Productive Capital OCFR* (%) FY2014 FY2013 % FY2014 FY2013 % FY2014 FY2013 ($m) ($m) Change ($m) ($m) Change Energy Markets 1,035 812 27% 9,565 9,849 (3%) 10.8% 8.2% Exploration & 529 233 127% 2,249 2,063 9% 23.5% 11.3% Production Contact Energy 416 373
Slide 16: Browse acquisition financed by drawdown of committed facilities
The Browse acquisition was initially financed by drawdown of committed undrawn bank facilities in place to fund Origin’s commitments to APLNG Origin Debt & Bank Guarantee Maturity Profile as at 30 June 20141 • The acquisition of a 40% interest 4,500 in the Poseidon exploration joint 4,000 Loans & Ba
Slide 17: Unfranked final dividend determined
An unfranked final dividend of 25 cps1 has been determined, representing a payout ratio of 77% of annual Underlying EPS Dividends and Underlying EPS Dividends and Free Cash Flow g y per share 160 160 Dividend per share Free Cash Flow per share • First full year of 140 Underlying EPS Dividend per sha
Slide 18: 3. Operational Review
3. OPERATIONAL REVIEW Grant King, Managing Director 18 |
Slide 19: Energy Markets
Energy Markets ($m) Underlying UnderlyingEBITDA EBITDA ($m) OperatingCashflow Operating Cash Flow ($m) Growth GrowthCapex Capex 1,400 1,400 1,400 1,333 1,200 1,200 1,200 1,000 1,053 1,000 1,000 1,035 800 800 800 812 600 600 600 400 400 400 200 200 200 155 96 0 0 0 FY2013 FY2014 FY2013 FY2014 FY2013
Slide 20: Energy Markets EBITDA bridge
Energy Markets EBITDA down $280 million to $1,053 million primarily due to lower contribution from Electricity and higher operating costs • Electricity Gross Profit down due to: Energy Markets Underlying EBITDA Bridge – Volumes - warm winter weather 1,400 (-$27m); energy efficiency and solar PV (-$5
Slide 21: Electricity unit gross profit
Improved margin management in second half results in year on year Electricity Unit Gross Profit down 3% ($1/MWh) compared to 9% down ($3.20/MWh) at the first half Volumes Sold (TWh) FY2014 FY2013 Change Mass Market 18.0 20.1 (2.1) C&I 20.3 22.2 (1.9) Total 38.3 42.3 (4.0) Electricity Performance ($/
Slide 22: Electricity Mass Market volumes impacted by weather, efficiency, solar PV
Electricity Mass Market volumes impacted by weather, energy efficiency, solar PV and prior year customer losses … NEM Mass Market Electricity Consumption Origin’s Average Signed Discount Offers for per Capita1 Electricity and Natural Gas (%)2 7.50 Usage trend includes effects of 7.00 energy efficien
Slide 23: Increased hedging and internal generation raised energy procurement cost
Increased hedging and use of internal generation increased Origin’s energy procurement cost1 by $1.70/MWh, broadly in line with the forward contract market Origin’s Internal Generation Average Annual Prices TWh $/MWh 80 20,000 Spot prices down Contract prices 70 $6.40/MWh up $2.25/MWh 15,000 60 50 C
Slide 24: Natural Gas Unit Gross Profit expanded by 19%
Natural Gas Unit Gross Profit expanded by 19% ($0.40/GJ) reflecting the benefit of Origin’s diverse gas supply portfolio … Volumes Sold (PJ) FY2014 FY2013 Change Mass Market 37.1 39.4 (2.3) C&I 71.1 87.8 (16.7) Total 108.2 127.2 (19.0) Natural Gas Performance ($/GJ) FY2014 FY2013 Change Mass Market
Slide 25: Natural Gas penetration up and customer accounts stabilised
Origin has continued to increase its Natural Gas penetration and stabilised net customer accounts … FY2014 Electricity and Natural Gas Electricity and Natural Gas Customer Accounts Customer Account Movements by State 4,500 4,500 By Commodity By State 25 • 38,000 Natural Gas 4,000 4,000 20 customer g
Slide 26: Reduced churn in the market
The market has seen reduced churn driven by the withdrawal from door-to-door by Tier 1 retailers … Electricity and Natural Gas Churn Rates Customer Wins and Retains Sales Channels 40% 2,000 2,000 Customer wins and retains ('000) Customer wins and retains ('000) Origin, FY2013 Origin, FY2014 35% Mark
Slide 27: Cash cost to serve per customer lower
Cash cost to serve per customer $11 or 6% lower, reflecting operational improvements … Cost to serve FY2014 FY2013 Change Cost to serve ($ per average customer account) (169) (180) 11 Cost to maintain ($ per average customer account) (144) (150) 6 Cost to acquire/retain ($ per average customer accou
Slide 28: Retail Transformation complete and delivering improvements
Investment in Retail Transformation complete and beginning to deliver operational improvements and enhanced customer experience … Operating Cash Flow Operating metrics FY2014 FY2013 1,200 Up 27% Billing performance 99.8% 99.2% 1,000 1,035 Doubtful Debt expense as a 800 1.0% 1.8% 812 percentage of re
Slide 29: Contact Energy
Contact Energy ($m) Underlying EBITDA Underlying EBITDA ($m) Operating Cashflow Cash Flow ($m) Growth Growth Capex Capex 600 600 600 500 533 500 500 400 435 400 400 416 373 300 300 300 200 200 200 255 183 100 100 100 0 0 0 FY2013 FY2014 FY2013 FY2014 FY2013 FY2014 Contact’s Underlying EBITDA up 9%
Slide 30: Contact's Electricity Unit Gross Profit margin up 6%
Contact’s Electricity Unit Gross Profit margin up 6% driven by lower energy costs following investments in generation and fuel flexibility Volumes Sold (GWh) FY2014 FY2013 Change Mass Market 3,852 4,067 (215) C&I 4,526 4,210 316 Total 8,378 8,277 101 Electricity Performance ($/MWh) FY2014 FY2013 Cha
Slide 31: Contact benefitted from lower generation costs with more renewables
Contact has benefitted from lower costs of generation with higher levels of renewable generation … Contact’s Renewable and Thermal Generation (based on TWh of generation) 100% Flexibility of Contact’s portfolio allows management of variable 80% operating conditions Increased production from 60% ex
Slide 32: Exploration & Production
Exploration & Production ($m) Underlying EBITDA Underlying EBITDA ($m) Operating Cash Operating Cashflow Flow ($m) Growth Capex Growth Capex 600 600 600 500 500 529 500 487 400 400 400 426 395 365 300 300 300 200 200 233 200 100 100 100 0 0 0 FY2013 FY2014 FY2013 FY2014 FY2013 FY2014 Underlying EB
Slide 33: Upstream investments delivered increased availability and production
Investments in upstream assets have delivered increased availability and production, appraisal at Ironbark has seen reserves replace production … Origin Gas and Liquids Origin 2P Reserves1,2 Opportunities PJe PJe Production1 mmboe 120 20.6 1,200 Origin has recently secured Production up 17% three pr
Slide 34: LNG
LNG Origin’s Cash Contributions ($m) Underlying EBITDA Underlying EBITDA ($m) to APLNG1 100 3,000 2,821 2,500 80 83 2,000 60 60 1,500 40 1,000 20 500 561 0 0 FY2013 FY2014 FY2013 FY2014 Substantial progress made on the project • Upstream 76% complete • Downstream 75% complete On track for first
Slide 35: APLNG capital expenditure and Origin cash contribution
APLNG capital expenditure for the year was $9.9 billion, with Origin’s cash contribution $2.8 billion Cumulative Estimate from FID1 to Year to 30 from FID1 to (A$m) 1st sales from Train 2 June 2014 30 June (A$b) 2014 Project Capex 8,5071 21,004 24.73 Non-Project Capex: Capitalised O&M 345 Domestic 9
Slide 36: Upstream Project Progress - 76% complete
Upstream Project Progress - 76% complete and on track FY2014 Upstream Operated Goals Actual Progress to 30 June 2014 Plan First gas and water production from Reedy Creek (western area) Q3 Accomplished Main pipelines complete Q3 Accomplished Condabri Central Train 1 commissioned Q4 Accomplished First
Slide 37: APLNG continues to mature reserves
APLNG continues to mature reserves to support domestic contracts and a minimum 20 years of production from 2 trains PJ 100% APLNG Reserves and Resources1 • APLNG’s 3P reserves have increased to 20,000 17,459 PJe3 and 2P reserves to 14,091 PJe (net of production) • Reserves are more than sufficient t
Slide 38: Downstream Project Progress - 75% complete
Downstream Project Progress - 75% complete and on track FY2014 Downstream Operated Goals Actual Progress to 30 June 2014 Plan First cryo modules set Q3 Accomplished Last Train 2 refrigeration compressor set Q3 Accomplished Expected Q1-FY15 Complete loading platform for LNG jetty Q4 (no consequential
Slide 39: Key near term project goals and milestones
Construction, commissioning and operations of upstream assets will continue through calendar year 2014 … Key near term project goals and milestones HY2015 HY2015 Upstream Operated Downstream Plan Plan Inlet Air Chiller Package received on Curtis Orana Train 2 mechanical completion Q2 Q1 Island Reedy
Slide 40: 4. Prospects
4. PROSPECTS Grant King, Managing Director 40 |
Slide 41: Priorities to deliver Origin's strategy are changing
As APLNG delivers first LNG in mid-2015, and the energy markets businesses mature, priorities to deliver Origin’s strategy are changing … Improving returns in energy markets businesses Deregulation of retail Improving customer Regional leader markets experience in energy Capital Margin managem
Slide 42: Australian wholesale electricity prices suppressed by oversupply
In Australia, wholesale electricity prices are currently suppressed by generation over supply, driving generators into retail markets and intensifying competition NEM Supply and Demand (Capacity)1 • LNG production in Gladstone will help 50,000 20,000 to alleviate the generation over supply 45,000 18
Slide 43: New Zealand flat demand and excess supply
Similarly in New Zealand flat demand and prior investments in generation have resulted in excess supply, with this imbalance addressed through gas being redirected to recently restarted methanol production Sources of New Zealand Gas Demand1 NZ Geothermal and Thermal Energy Supply1 PJ (based on TWh o
Slide 44: Consumption decline to moderate; policy settings to be reviewed
Rate of decline in consumption expected to moderate however this trend will require review of policy and regulatory settings to ensure the market operates on an economically efficient basis NEM Mass Market Electricity Review policy and regulatory settings 7.50 Consumption per Capita1 Retail price
Slide 45: Well positioned to manage costs and improve customer experience
With completion of Retail Transformation Origin is well positioned to manage costs and improve customer experience Cost to Serve Electricity and Natural Gas 800 Cash Cost Cost incl. TSA Lower cash 40% Churn Rates 700 cost to Origin, FY2013 Origin, FY2014 serve offset 35% Market, FY2013 Market, FY201
Slide 46: Capturing benefits of rising gas prices via oil-linked gas sales
In Australia, Origin has captured the benefits of rising gas prices through oil-linked gas sale agreements and increasing penetration of Mass Market customers Sources of Origin Energy Markets’ Retail market PJ/a East Coast Contracted Gas Portfolio 300 2 NSW regulated prices provide for an Ironbark
Slide 47: Te Mihi to increase Contact's low cost fuel mix
In New Zealand, the completion of Te Mihi geothermal power station will increase Contact’s proportion of low cost fuel in its generation mix, resulting in improved margins Contact’s Renewable and Thermal Generation Contact’s Generation as a % of (based on TWh of generation) Total Electricity Sales 1
Slide 48: Investment focused on retail systems and flexible generation
Investment in the energy markets businesses has been focused on retail systems to improve operational efficiency and customer experience and in flexible, low cost generation Segment Operating Cash Flow less Segment Growth Capital Expenditure Growth Capital Expenditure 1,200 1,200 1,000 1,000 800 800
Slide 49: Australia forecast to become world's largest LNG exporter
Australia is forecast to emerge as the world’s largest LNG exporter with around 85 mtpa1 directed to offshore markets by 2017, four times domestic gas demand Darwin LNG Ichthys Exporting to Asia Pacific ~12 mtpa markets where demand is set to almost double from 175 mtpa in 2013 Prelude ~ 3.5 mtpa to
Slide 50: APLNG on track for first LNG in mid-2015
APLNG is on track to deliver first LNG in mid-2015, with distributable cash flow to Origin expected to be around US$1 billion on average per year1 Upstream 76% Complete Downstream APLNG tenure in the Surat and Bowen basins at 30 April 2014 75% Complete APLNG 3P reserves up 8% to 17,459 PJe2 while 2P
Slide 51: Offsetting natural field decline in Otway, Bass and Cooper basins
Origin’s short to medium term focus will be on offsetting natural field decline through in field and near field developments in Otway, Bass and Cooper basins Otway Basin • Drilling of Halladale development well expected in Q1 FY2015 and planning for drilling Geographe 3 development well is underway
Slide 52: Growth opportunities in Cooper, Beetaloo and Browse basins
Medium to longer term growth opportunities expanded through three recent transactions in Cooper, Beetaloo and Browse basins … Cooper Basin – JV with Senex and Planet Gas • Targeting tight sands, shale and deep coal • Close to existing infrastructure • Up to 50% interest in permit areas Beetaloo Basi
Slide 53: Leveraging renewables base of 1,213 MW
Origin is focused on leveraging its existing renewables base of 1,213 MW to increase investments in renewable energy … Portfolio of Renewable Renewable Development Opportunities Operational Generation MW 1,500 1,000 Indonesia New Zealand 47.5% interest in Sorik 250 MW geothermal Marapi geothermal po
Slide 54: Completion of APLNG creates step change in earnings and cash flow
Completion of APLNG creates a step change in Origin’s earnings and cash flow Priorities post APLNG: The first full year of contribution 1. Increase distributions to from APLNG is expected to be shareholders FY2017, with distributable cash 2. Maintain investment grade credit flow to Origin expected t
Slide 55: FY2015 and FY2016 are transitional years
Looking forward, FY2015 and FY2016 are transitional years for Origin with first contribution from LNG from mid-2015, expanding gas margins and an improving supply/demand balance in electricity markets During the next two years Origin expects: Increased contribution from the Energy Markets business
Slide 56: 5. Appendix
‘e) origin 5. APPENDIX
Slide 57: 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 full year ended 30 June 2014 (the period) compared with the full year ended 30 June 2013 (the prior correspondin
Slide 58: 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 59: 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 60: 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 61: 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 commercially 1P reserves recoverable. There should be at least a 90% probability that the quantities actually recovered wi
Slide 62: Additional APLNG Slides
O origin Additional APLNG Slides 62|
Slide 63: Gas and Water Processing Facilities completion is a key priority
Gas and Water Processing Facilities completion is a key priority … Gas Processing Facilities Progress • Condabri Central Train 1 commissioned • Condabri Central Train 2, Condabri South Train 1, Orana Train 1 and Reedy Creek Train 1 mechanically complete Orana Gas Processing Facility, July 2014 Water
Slide 64: Drilling and gathering progressing in line with plan
Drilling and gathering is progressing in line with plan … • 821 Phase 1 development wells drilled to 30 June 2014 • Well commissioning and dewatering is on track to deliver ramp up for first LNG in mid-2015 • Well productivity is ramping up in line with expectations • Maximum Well Deliverability at
Slide 65: Construction of the main gas pipeline is complete
Construction of the main gas pipeline is complete … • 530 km main transportation line to Curtis Island completed • 73 km Condabri lateral and 88 km Woleebee lateral are both complete to collect production from the Gas Processing Facilities • Talinga pipeline compression commissioning and Spring Gull
Slide 66: Downstream Project progressing with Train 1 and OSBL modules in place
The Downstream Project is progressing with all Train 1 and Outside Battery Limit modules in place … • Workforce is nearing peak manning levels and will be sustained through to early 2015 • Camp has been successfully expanded to accommodate the additional workforce • Tank A has been hydro-tested, Tan
Slide 67: Thank you
Thank you For more information David Moon Group Manager, Investor Relations Email: [email protected] Office: +61 2 9375 5816 Mobile: + 61 437 039 310 www.originenergy.com.au 67 |