28 February 2007
Origin Energy announces a 20% increase in net profit after tax underpinned by healthy operating performance.
Appendix 4D/Directors’ Report and Financial Statements (30 pages)
Management Discussion & Analysis (20 pages)
Presentation to media, investors and analysts (51 slides)
Origin Energy today announced a net profit after tax of $233 million for the six months to 31 December 2006, up 20% on the prior corresponding period.
The result was achieved on a healthy underlying operating performance with strong contributions from the Exploration & Production, Retail and Generation segments. The half year also benefited from the impact of a number of specific developments including a positive mark-to-market valuation of the Retail electricity hedge book, a contract termination payment in relation to the Mount Stuart power station and lower exploration expenses.
In announcing the half year results Origin’s Chairman, Mr Kevin McCann said, “Origin Energy is entering a period of significant growth. We are now beginning to see the benefits of capital expenditure in our upstream business contributing to earnings. Our integrated strategy places us in a strong competitive position as evidenced by our recent acquisition of Sun Retail. Our Retail business continues to perform well despite high levels of competition and will be strengthened through the integration of Sun Retail.”
- Total revenue and other income 4% lower at $2,894 million
- EBITDA up 9% to $640 million
- Net profit after tax up 20% to $233 million
- Earnings per share increased 13% to 29.0 cents per share
- Dividend of 10 cents per share fully franked to be paid 30 March 2007 to shareholders of record on 9 March 2007.
Total revenue and other income increased by 5% across Origin Energy’s Australian operations during the six months. However, lower revenues from Contact Energy in New Zealand offset growth in Australia on a fully consolidated basis.
Earnings per share increased 13% to 29.0 cents per share on a capital base which expanded 6% following an equity placement with institutional investors in December to partially fund the acquisition of Sun Retail in Queensland.
Mr Kevin McCann said, “The Directors of Origin Energy today announced a fully franked dividend of 10 cents per share. This is an 11% increase over last year and continues Origin Energy’s record of steadily growing dividends paid to shareholders while retaining sufficient funds to reinvest in the growth of the Company.”
Managing Director Mr Grant King said “The half year saw a strong performance from the Australian business. This more than offset the anticipated decline in earnings from Contact Energy due to the non-recurrence of the profit from the sale of the Valley Power power station last year, a return to more normal weather conditions which reduced wholesale electricity revenues, and a weakening of the New Zealand dollar against the Australian dollar."
“The Exploration & Production business increased its EBITDA contribution by 38%. New investments such as the BassGas Project in Victoria and coal seam gas projects in Queensland are starting to deliver returns. Successful appraisal drilling in the Perth Basin has also reduced the decline in oil production from these fields."
“This half upstream expenditure was focussed on lower risk appraisal and development drilling around producing assets. We have benefited from higher success rates in our exploration program which, coupled with a lower level of overall expenditure, has resulted in exploration write-offs of only $6.8 million compared with $24.1 million in the prior corresponding period."
“In the Retail business our EBITDA grew by 30%. Our focus on business fundamentals continues to deliver improvements in revenues, customer numbers and margins despite increasing levels of customer churn. A positive mark-tomarket adjustment on the Retail hedge book added $27.5 million to earnings relative to last year, and our EBIT to sales margin has improved both with and without this benefit."
“In the Generation business our EBITDA grew by 52%. The focus on plant availability continues to deliver solid underlying contributions. The Company also received a $19.6 million payment on termination of the Mount Stuart power purchase agreement with Enertrade. This represented a prepayment of benefits which were expected to accrue under the contract over the remaining 18 months of its life. We will now be able to integrate the operation of Mount Stuart into our new electricity retail operations in Queensland and we are well placed to derive additional value from this asset.”
Commenting on the outlook for the Company for the remainder of the year Mr King said “At the beginning of the year we advised that there was uncertainty surrounding a number of key issues which could influence our full year result."
“These included the timing of the commencement of production from both the BassGas and the Otway Gas Projects, the rate of decline of the Perth Basin oil fields, and the likelihood of a reduced contribution from Contact Energy after an exceptional year to 30 June 2006."
“The BassGas Project is now in production and successful appraisal drilling in the Perth Basin has reduced declining production rates. The Otway gas project is unlikely to contribute to this financial year. While the contribution by Contact Energy has decreased in line with our expectations, the underlying business is performing well”, he said.
Consistent with prior years the natural seasonality in earnings of both the Retail business and Contact Energy will see second half earnings lower than the first half.
This effect may be exacerbated by movements in the mark-to-market value of electricity contracts. Higher levels of exploration expense may also occur in the second half as there is a higher level of seismic and drilling activity being undertaken. As advised around the time of the Sun Retail acquisition a number of one-off costs associated with the acquisition will also be expensed in the second half.
Notwithstanding these factors, the strong underlying performance of the Company will result in an increase in year on year earnings for financial year 2007.
During the first half Origin has also been successful with a number of important initiatives to strengthen the business and continue the growth of the Company, including:
- termination of the power purchase agreement with Enertrade for the Mount Stuart power station, delivering substantial benefits this half and paving the way for realising greater value in the future from this asset;
- acquisition of Sun Retail which has added to the depth of integration of our business in the fast-growing Queensland market, provides significant scale and purchasing benefits to our Retail business nationally and a unique power station development opportunity at Darling Downs;
- announcement of the sale of our Networks assets. With the growth of our other businesses realising the value in the Networks business and reinvesting the proceeds in our core business will create more value for shareholders; and
- acquisition of new exploration acreage in the Bass Basin in Australia and in New Zealand, together with substantial seismic acquisition in greenfields exploration permits. This creates additional opportunities for growth in our upstream business.
Commenting on the medium term outlook Mr King said “This year is a year of transition as the capital expenditure program on coal seam gas, BassGas and the offshore Otway is essentially completed. A full year contribution from these projects together with Sun Retail will significantly lift earnings in 2008."
“The Kupe project in New Zealand is progressing well and we have announced the acceleration of development efforts on the Darling Downs power station in Queensland. If approved this will also accelerate further coal seam gas production. Contact Energy has also announced a major increase in development opportunities in renewable energy in New Zealand."
“We are well positioned, as a fuel-integrated generator/retailer and we are looking forward with confidence to continued growth in returns to shareholders” Mr King said.
Mr Grant King
02 8345 5470
Origin Energy Key Financials
|2006 ($m)||2005 ($m)||Change %|
|Total revenue and other income||2,894||3,008||(4)|
|Profit before tax||394||355||11|
|Profit after tax||286||263||9|
|Profit after tax and outside equity interests||233||194||20|
|Free cash flow(1)||267||328||(19)|
|OCAT ratio(2) – Calendar year calculation||11.4%||13.6%||N/A|
|Adjusted net debt(3)||2,422||2,671||(9)|
|Earnings per share||29.0¢||25.5¢||13|
|Free cash flow per share(1)||33.1¢||43.2¢||(23)|
|Total dividend per share||10.0¢||9.0¢||11|
|Net asset backing per share||$5.26||$4.78||10|
|Adjusted net debt to debt plus equity(3)||35.0%||43.4%||N/A|
|Adjusted net debt to equity(3)||53.7%||70.6%||N/A|
|Return on equity||6.8%||7.1%||N/A|
|Segment Analysis (EBITDA)|
|Exploration & Production||136||99||38|
- Free cash flow is defined here as cash available to fund distributions to shareholders and growth capital. It includes deductions for stay-in-business capital, interest and tax.
- OCAT Ratio = (OCAT – interest tax shield) / funds employed.
- Adjusted to exclude mark-to-market fair value of debt.