Good morning ladies and gentleman. Thanks for coming to our AGM, it’s a pleasure to be here today.
Twelve months ago when I addressed the meeting as the CEO designate, I said if we got things right with our people, our customers and our community, we would increase shareholder value.
I set our key priorities – to reduce debt, lift performance and improve returns to give us the flexibility to again pursue growth and be a part of shaping a future where energy is cleaner and smarter.
Against this backdrop, Origin and the broader sector in which we operate has faced an unprecedented level of public scrutiny amid concerns over security of our electricity supply, a potential domestic shortfall of natural gas and rising energy prices.
We see our role as very much part of the solution to these challenges and we have already taken many actions to address them.
Delivering on our commitments
Looking back over the past year, we have made good progress against our priorities, reducing debt by $1 billion to $8.1 billion and improving business performance.
We delivered on our commitment to sell Lattice Energy, our conventional gas business, recently announcing the sale to Beach Energy for $1.585 billion. This included long-term agreements for Lattice to continue supplying gas to Origin. It also puts us on track to achieve a further material reduction in net debt by the end of FY2018.
We have formed a largely new leadership team, as we seek to adapt and transform our culture. We need to continue to attract and retain the best people at Origin – people who are passionate about getting energy right for our customers, communities and the planet. At Origin, we want to be part of the solution and it doesn’t matter whether you work in generation, in renewables, gas production or on the customer frontline – we are all aligned to this objective.
Our people have responded well to our changing culture, with improved employee engagement, safety performance and customer Net Promoter Score – which reflects whether our customers would recommend Origin to friends and families. Across each of these measures we achieved our highest ever scores in FY2017.
Origin is proud to be a leading Australian integrated energy company. We have simplified our business to focus on our key strengths – leadership in energy markets and our expertise in the development of unconventional gas resources. And we now have line of sight to greater financial flexibility, which means we are better positioned to consider the right opportunities to grow our business.
There is clearly more work to do, but we have created some very solid momentum.
FY2017 financial highlights
Now to financial performance.
Our statutory result – a loss of $2.2 billion – was heavily impacted by a non-cash impairment charge of $3.1 billion.
The impairments primarily related to Australia Pacific LNG, a write down in the value of the Browse Basin and a reduction in the carrying value of Lattice Energy.
Operationally we delivered strong increases in earnings and underlying profit. Underlying EBITDA increased by $834 million or 49 per cent to $2.5 billion. Our electricity and natural gas businesses performed well, and production increased by 40 per cent across our upstream operations.
Underlying Profit increased by $185 million or 51 per cent to $550 million.
Net cash flow from operating and investing activities increased by $163 million, or 13 per cent, to $1.4 billion, primarily driven by lower capital expenditure during the year.
I would now like to step through some of the important things we are doing across our business in the areas of Customers, Generation and Gas.
Delivering a cleaner, secure and affordable energy supply
At a time when rising energy prices have created financial pressure for many homes and businesses, we have taken action to assist customers.
We have supported those in financial hardship as a priority. We were the first major energy retailer to make sure customers in our hardship program did not pay the latest price increases. We already had established processes to write to our customers with details of new plans ahead of their current discount expiring. We also committed to writing to customers on lapsed deals again, as well as to our customers on standing offers.
We acknowledge that the many energy offers in the market can be complex, and we have strongly supported the adoption of an industry-wide comparison rate so customers can easily compare offers and make a confident choice in energy provider.
In generation, we are increasing renewable supply in our portfolio, boosting output from Eraring and leveraging our peaking gas portfolio to help put downwards pressure on prices and maintain energy security.
Eraring ran harder over the winter peak and we will continue to run it harder – increasing output by 5-10 per cent this year– to help cover the gap left by the closure of ageing coal fired plant. We have sourced more coal supply and in September, we received record coal deliveries to Eraring by rail to ensure we are ready for summer.
Since March 2016, we have committed to 1,200 MW of new solar and wind generation, including the 200 MW Bungala project located in Port Augusta, South Australia, the 530 MW Stockyard Hill wind farm in Victoria and the 110 MW Darling Downs solar farm in Queensland. By 2020, we are targeting renewables growing to more than 25 per cent of our generation mix – up from 10 per cent today.
I’m proud to say that Origin is backing more than a quarter of the 4,000 MW of renewables coming into the National Electricity Market by 2020 to meet the Renewable Energy Target, which as Gordon has mentioned is already driving down the forward curve for wholesale electricity prices.
We own the largest portfolio of peaking gas power stations in Australia which means we are well-positioned to support the growth in intermittent renewables to maintain security of electricity supply for Australian homes and businesses.
Earlier this year, we also signed an agreement with Engie to supply gas to get another 240 MW of generation back online at Pelican Point in South Australia, boosting security of electricity supply in that state.
Gas will continue to be a core part of Origin and has always been a key differentiator for our business.
At a time when gas supply has been tight, we have continued to write contracts with large customers such as manufacturers. In FY2017, we increased volumes of gas sold to industrial customers by 12 per cent, with more than 760 supply agreements signed with customers and we are actively looking to bring on more gas supply this year.
We are also looking to future development opportunities to bring more supply to the market, including targeting FEED on Ironbark during FY2018. This work will help us understand what the future development options and timeframes might look like.
In February this year, we announced the discovery of a material contingent shale resource in the Northern Territory’s Beetaloo Basin – the most prospective underdeveloped onshore basin for unconventional gas. We also increased our interest to 70 per cent.
It’s been a watershed year for Australia Pacific LNG. Train 2 was brought online and we completed the two-train Lenders’ Test – running both trains at more than 10 per cent above nameplate capacity for 90 days.
The lenders test is the culmination of many years and thousands of people building a world-class facility and resource. It is a tremendous achievement.
Australia Pacific LNG has both met its export LNG contract commitments and continued to be a major supplier of gas to the domestic market, supplying around 20 per cent of total annual demand on the east coast.
In a low oil price environment, productivity and cost reduction remain the key priority so Australia Pacific LNG can continue to drive value for Origin. We want to drive a major and sustainable reduction in our break-even price and new techniques and technology will facilitate this step change.
As we look a little further towards the future, new technology is changing how we interact with energy. A wave of new technologies primarily behind the meter will fundamentally change the way our energy system operates. We see this as a huge opportunity to help customers use energy smarter and more efficiently.
We are trialling technology by California-based tech start up, Bidgely, that provides customers with an itemised breakdown of where energy is used in the home, similar to the breakdown of what you have spent on your credit card bill. Giving customers visibility of where energy is being used in the home can give them more control over their energy costs.
We’re working with US-based software company People Power, which is at the forefront of using artificial intelligence to interpret real-time data. We have a demand management trial with Tempus for large users in South Australia over summer that will allow them to shift usage to off-peak times or when renewable supply generation is up. We are also doing a desktop trial of peer-to-peer energy trading technology with Power Ledger.
There are some very exciting developments on the horizon, and we’re determined to be at the forefront of rapidly developing, prototyping and trialling new technologies with customers.
I hope I have demonstrated that across Origin, everyone is embracing and adapting to the rapid change underway as we transition to a cleaner, smarter and more customer-centric energy future.
Now to the outlook. For FY2018, we aim to continue our momentum and further reduce debt and improve returns to shareholders.
Notwithstanding continued challenges and uncertainty relating to the regulatory environment in particular, Origin is today [reaffirming Energy Markets Underlying EBITDA guidance for FY2018 to be $1.7 billion to $1.8 billion, provided that market conditions and the regulatory environment do not materially change. This represents a 14 to 21 per cent increase on FY2017.
As part of the sale of Lattice Energy, Origin entered into long-term gas sales agreements to provide certainty of ongoing gas supply for our business. The pricing of these agreements is consistent with the FY2018 Energy Markets guidance range.
Today Origin is also reaffirming production guidance of its share of Australia Pacific LNG of 245 to 265 PJ in FY2018.
Given our continued focus on debt reduction, we have targeted adjusted net debt of below $7 billion by the end of FY2018. As I mentioned earlier, Origin is on track to achieve this, having announced the sale of Lattice Energy.
To conclude, energy markets around the world are in transition as we grapple with the challenge of shifting to a low emissions energy supply while maintaining energy security and affordability for customers. These three objectives are not mutually exclusive, they are best addressed collectively.
We want to be part of the solution.
We believe that by leading the transition to a cleaner and smarter energy future, Origin can help address the challenges of energy affordability and security as well as emissions reduction.
The success of Origin, the broader industry and our governments in achieving the smoothest possible transition for our energy market will ultimately be judged in the outcomes to stakeholders. And the outcomes achieved not just today or tomorrow, but well into the future.
We believe if we succeed in delivering the best outcomes to stakeholders – our people, our customers and the community – we will be best placed to improve returns to you, our shareholders.
I would like to thank you for your continued support of Origin, and reiterate my pride at being able to lead this great company which makes a huge contribution to the Australian community.
I look forward to meeting as many of you as possible following the meeting.
Frank Calabria, CEO