Strong performance drives improved full year result
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Origin Energy Limited (Origin) has announced a Statutory Profit of $218 million for the 2018 full year, which includes impairment charges (after tax) of $533 million reported at 1H2018.
Underlying EBITDA from continuing operations was $2.95 billion, an increase of $774 million or 36 per cent on the prior year, driven by improved performance in both the Energy Markets and Integrated Gas businesses. This delivered a $438 million increase in Underlying Profit to $838 million.
Net cash flow from operating and investing activities (NCOIA) increased by $1,267 million or 92 per cent to $2.65 billion, reflecting increased earnings, asset sales and higher cash flow from Australia Pacific LNG.
|Statutory Profit||$218 million||$(2,226) million|
|Statutory EPS||12.4 cps||(126.9) cps|
|Underlying Profit – continuing operations||$838 million||$400 million|
|Underlying EPS – continuing operations||47.7 cps||22.8 cps|
|Underlying EBITDA – continuining operations||$2,947 million||$2,173 million|
|NCOIA||$2,645 million||$1,378 million|
|Underlying ROCE – continuiing operations||8.4%||5.5%|
Origin CEO Frank Calabria said, “We had strong performance across the board this year, with earnings growth in both Integrated Gas and Energy Markets driving increases in Underlying EBITDA and Underlying Profit.
“Operating cash flows increased and we also met our target to materially reduce debt, paying down $1.6 billion on the back of the Lattice Energy and Acumen sales with adjusted net debt now sitting at just below $6.5 billion.
“After a period of significant capital investment, Integrated Gas is making a material contribution to Origin, driven by a full year of operations from both LNG trains at Australia Pacific LNG and higher commodity prices. This year Australia Pacific LNG also hit the milestone of delivering net cash flows back to Origin of $363 million.
“Energy Markets growth was driven by our power generation portfolio which lifted output by 14 per cent and benefited from higher wholesale prices, and higher natural gas sales volumes, though this was partly offset by higher operating costs associated with a very competitive retail market.
“We have made significant progress over the past 18 months on our twin priorities of reducing debt and improving returns, which has put us in a good position to pursue opportunities for the future.
“At the core of our strategy is our ambition to connect customers to the energy and technologies of the future and we are fortunate that we have opportunities right across our business. We are well placed to meet the changing needs of customers, grow low cost renewables and enhance our existing portfolio of generation assets as well as pursuing exciting opportunities like the Beetaloo Basin to grow our gas resources.
“A stable regulatory environment will be key to enabling us to invest with confidence, with new supply a critical action to place further downward pressure on prices for Australian homes and businesses.
“The closure at relatively short notice of Hazelwood and Northern power stations sent wholesale prices sharply upwards in 2017 and put affordability front and centre of the energy debate. The market has responded by boosting supply and our Eraring Power Station significantly increased its output this year. This response has put downwards pressure on prices which has started to flow through to Origin customers, with flat or falling electricity tariffs from 1 July in NSW, Queensland, South Australia and the ACT.
“We believe we have turned the corner on prices, with significant renewable supply slated to come online by 2020 expected to drive further reductions in wholesale prices. Origin will pass these savings through to customers to help lower bills.
“We know we still have work to do to make energy more affordable for Australians. The ACCC has recommended how to achieve this goal across the energy supply chain, and we look forward to working with the federal government as it continues to consult with industry. We are aligned with government in wanting to pursue sensible recommendations that will directly reduce customers’ bills, while also ensuring no unintended consequences,” Mr Calabria said.
Chairman Gordon Cairns said, “Having materially reduced debt and lifted business performance, Origin is now in a much stronger financial position and more resilient to commodity cycles. However, as we have not yet reached our target capital structure the Board has determined not to pay a final dividend for FY2018.
“Subject to Board approval and no material adverse change in business conditions, our medium term outlook supports recommencement of regular dividends in FY2019."
|Business segment||FY2018 ($m)||FY2017 ($m)||Change ($m)||Change (%)|
|Energy Markets||$1,811 million||$1,492 million||$319 million||21%|
|Integrated Gas||$1,251 million||$747 million||$504 million||67%|
|Corporate||($115) million||($66) million||($49) million||74%|
|Underlying EBITDA||$2,947 million||$2,173 million||$774 million||36%|
Energy Markets Underlying EBITDA increased by 21 per cent to $1,811 million, driven by improved returns in the generation business as a result of increased output and higher wholesale prices, and a 13 per cent increase in natural gas sales.
Output at Eraring Power Station increased to 15.9 TWh, with an average availability of 85 per cent – well above the NEM average. Origin helped bring an additional 240 MW of generation back online in South Australia by supplying gas to Pelican Point, while 77 MW of large scale solar also came online.
In the retail market, increased competition driven by high prices and new entrants drove heightened activity across a range of sales channels. We won back 30,000 customers in the second half, recovering most of the losses reported at the half year. Origin finished the year with a net loss of 17,000 customers.
Our digital first-approach is driving more customer interactions online and making dealing with us easier, with online sales, eBilling and MyAccount registrations all increasing this year. We have simplified our offers by introducing dollar pricing into our online Compare Plans page, and launched Savernator, Origin’s online price comparison tool that makes it easier for customers to access our best offers. We also invested in our brand with a new ‘good energy’ campaign highlighting our efforts to make energy more affordable, easier and smarter, and more sustainable. All of this activity kept Origin at the top of the major retailers on Strategic Net Promoter Score (NPS) and helped deliver a 6-point increase in Interaction NPS to 21.7.
Underlying EBITDA in Integrated Gas increased by 67 per cent or $504 million to $1,251 million, underpinned by record production at Australia Pacific LNG of 676 PJ (254 PJ Origin’s share), up 11 per cent on FY2017, and a recovery in commodity prices.
This year, Australia Pacific LNG shipped 125 cargoes and made strong progress on plans to significantly reduce operating and capital costs. A flatter, smaller, asset-led operating model has been embedded and we are on track to meet our June 2019 run-rate target of a distribution breakeven of below US$40/boe.
Australia Pacific LNG is meeting its export contract commitments and is a major supplier to the domestic market, supplying close to 30 per cent of east coast demand in 2018.
Australia Pacific LNG reserves increased on the back of improved recovery estimates from operated areas and economic assumptions, including reductions in future unit costs.
1P reserves increased by 11 per cent to 7,679 PJ and 2P reserves increased 5 per cent before production to 12,453 PJ.
Origin continues to progress opportunities to bring on new gas supply, having entered FEED for a Stage 1 development at Ironbark. The lifting of the moratorium in the Northern Territory has paved the way for the completion of our existing farm-in commitments in the Beetaloo Basin over the next two to three years, including one vertical and two horizontal appraisal wells in the 2019 dry season.
Origin provides the following guidance for FY2019 provided that market conditions and the regulatory environment do not materially change.
Overall, Origin expects underlying profit to be higher and further debt reduction in FY2019.
In Energy Markets, modest growth in natural gas gross profit will be more than offset by the absorption of a 3 per cent electricity price increase in NSW and the impact of increased discounting associated with more intense competition. Energy Markets underlying earnings will also be impacted by the reclassification of the electricity hedge premiums previously classified outside of underlying earnings ($160 million). There is no change to statutory profit or net cash flow as a result of this classification change.
It is expected Energy Markets Underlying EBITDA will be lower at $1.50-$1.60 billion. Without the impact of the changed treatment of certain electricity hedge premiums and decision to absorb the price increase in NSW, Underlying EBITDA would have been broadly in line with FY2018 at $1.74-1.84 billion.
Australia Pacific LNG’s FY2019 production is expected to be 660-690 PJ.
Continued capital and operating cost savings are expected to be offset by higher one-off costs associated with non-operated capex scope changes from FY2018, increased exploration and appraisal activity and higher infrastructure spend to increase flexibility in gas processing and transport. Australia Pacific LNG is targeting operating breakeven of US$22-26/boe and distribution breakeven US$39-44/boe in FY2019.
Capital expenditure excluding Australia Pacific LNG is expected to be $385-445 million, comprising appraisal of the Beetaloo Basin resource, Ironbark and Power of Choice metering reforms. This also comprises $105-125 million on growth projects, including generation flexibility, digital systems and new customer-focused technologies.
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- This guidance is based on an average oil price US$52.90/bbl and a AUD/USD exchange rate of $0.74 and is dependent on the timing of production from Train 2. For APLNG, the effective oil price for oil-linked LNG sales will incorporate the lag in oil prices associated with LNG Sale and Purchase Agreements.
- Under agreements that APLNG entered into with QGC in 2010, APLNG will sell to QGC its entire share of gas production from the ATP620/648 fields for an initial ramp period.
- 100% APLNG