Origin delivers record first half profit, doubles dividend and dramatically boosts capacity to fund growth
Appendix 4D/Directors’ Report and Financial Statements (38 pages)
Management Discussion & Analysis (36 pages)
Presentation to investors and analysts (68 slides)
Presentation to media (40 slides)
Origin Energy ("Origin") today announced a 38 per cent increase in Underlying Profit1 to $277 million for the six months to 31 December 2008, reflecting the robust performance of its integrated energy business.
During the first half, Origin significantly strengthened its balance sheet through the establishment of Australia Pacific LNG ("APLNG") with ConocoPhillips. Following completion of this transaction, Origin has $6.4 billion2 of cash and undrawn debt facilities to fund its current development program and ongoing growth.
The Statutory Net Profit after Tax was $6.7 billion for the period, compared with $335 million for the prior comparable period. This contained a number of significant items including the gain on the APLNG transaction, offset in part by impairment charges, the most significant of which related to lower oil prices.
|Financial Highlights||First Half 2009||First Half 2008|
|Total Revenue up 10%||$4,216 million||$3,817 million|
|EBITDAF3 up 12%||$686 million||$614 million|
|Statutory Net Profit after Tax||$6.7 billion||$335 million|
|Underlying Profit up 38%||$277 million||$200 million|
|Underlying EPS up 38%||31.6 cents||22.9 cents|
|Operating Cash Flow after Tax down 6%||$363 million||$385 million|
|First half fully franked dividend up 108%||25 cents per share||12 cents per share|
Commenting on the result, Origin’s Chairman, Mr Kevin McCann said, "The APLNG joint venture has created enormous value for shareholders. With $6.4 billion at our disposal, Origin is in an unparalleled position to pursue growth opportunities at a time when many other companies are financially constrained by the impact of the global crisis in liquidity.
"Based on the strength of Origin’s first half result and strong Balance Sheet, and consistent with the new dividend policy announced by the Board in October 2008, the Company’s Directors have declared a fully franked interim dividend of 25 cents per share.
"At a time when many companies are reducing dividends, we are delighted to more than double the 12 cents per share dividend paid during the prior corresponding period.
"The Board also reaffirms its intention to pay a final dividend of at least 25 cents per share in September, taking total dividends to at least 50 cents per share for the full year," said Mr McCann.
The interim dividend will be paid on 25 March 2009 to shareholders of record on 10 March 2009. Origin shares will trade ex-dividend from 3 March 2009.
Commenting on the Underlying Profit and the ongoing performance of the business, Origin’s Managing Director, Mr Grant King said, "Origin’s financial performance and business development activities this year have again demonstrated the strength and diversity of the Company’s fuel integrated generation and retail business.
"Record production, sales and revenues have resulted in higher earnings from the Exploration & Production segment. Contributions from new production assets in the Otway and Taranaki basins helped drive this growth, more than offsetting a production constraint in the Bass Basin and the 50 per cent dilution of our interest in coal seam gas ("CSG") from late October 2008.
"The Retail segment also significantly increased earnings as higher revenues in gas and electricity retailing recouped increased wholesale costs. Origin maintained its leadership position in green energy products during the period with approximately 480,000 customers and holds more than 35 per cent market share of accredited GreenPower accounts4 – double the nearest competitor.
"The increases in earnings from Exploration & Production and Retail significantly outweighed a lower contribution from the Generation segment due to a plant outage at Worsley in Western Australia, as well as a lower contribution from Contact Energy in New Zealand resulting predominantly from adverse hydrology and transmission constraints between the North and South Islands," he said.
APLNG Joint Venture
Mr King said, "The APLNG joint venture with ConocoPhillips has made substantial progress towards the goal of establishing the largest CSG to LNG project in Australia.
"The $2.3 billion work program required to reach a final investment decision in late 2010, is approved and underway, covering upstream planning and appraisal, frontend engineering and design, LNG site selection, marketing and project approvals. The executive team for the joint venture has also been appointed.
"In the six months to 31 December 2008, proved, probable and possible (3P) reserves of CSG attributable to APLNG have increased by almost 1,000 petajoules. LNG technology has been selected, an Initial Advice Statement seeking significant project status has been submitted to the Queensland Government and marketing and shipping studies are underway," he said.
The Board has determined that given the current market conditions, where availability of capital has been severely reduced, it is prudent for Origin to retain its funding capacity to enable it to invest in growth opportunities. Origin has consequently decided to terminate the on-market buyback program and will assess further capital management initiatives in the next financial year.
In the second half of the financial year, a number of development projects and acquisitions are expected to make initial, or significantly increased, contributions to Origin’s financial performance compared to the first half of the year. These include the Uranquinty Power Station and the expanded Quarantine Power Station as well as continuing increases in CSG production.
Following completion of the APLNG transaction, Origin has reduced debt and has a significant cash balance. As a result, second half earnings will also benefit from reduced interest expense and increased interest revenues although to a lesser extent than previously anticipated due to falling interest rates.
The following factors are likely to offset these increases:
- Margins in the retail business are expected to be substantially lower in the second half due to increases in the wholesale cost of electricity, although margins for the full year are expected to be consistent with the prior year;
- Exploration expense will be higher in the second half as a result of the renegotiation of a number of well commitments in future years into less expensive seismic exploration during this period; and
- Earnings from oil and condensate production in the second half are likely to be lower than previously expected due to the fall in oil prices during the past few months.
When compared with the prior year, it is now expected that Contact will make a materially lower contribution due to the impact of adverse hydrology and transmission constraints.
Taking all these factors into account and based on current market conditions, Origin now expects the Underlying Profit for 2009 financial year to be 20 to 25 per cent higher than the prior year.
Looking further ahead, Origin has a number of development projects that will contribute to earnings growth including the Kupe Gas Project in New Zealand, the 630 MW Darling Downs base load power station, the 126 MW Mt Stuart peaking power station expansion, the 550 MW Mortlake peaking power station and the 30 MW Cullerin Range wind farm. Continued development of domestic CSG production by APLNG is also expected to more than double from current levels by 2011.
In conclusion Mr King said, "Notwithstanding the current challenging economic environment the availability of $6.4 billion of cash and undrawn debt facilities, together with a growing cash flow, will enable Origin to fund its existing capital program as well as take advantage of opportunities which will emerge in the coming year".
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- Underlying Profit represents profit after tax and minority interest and before significant items.
- Excluding Contact Energy, New Zealand.
- EBITDAF represents earnings before interest, tax, depreciation, amortisation, financial instruments, and significant items. Origin now includes the EBITDAF contribution from equity accounted investees in this amount and EBITDAF from the prior year has been restated to reflect this. In fiscal 2009 it includes the 50% EBITDAF contribution of APLNG from 29 October 2008.
- GreenPower Quarterly Report September 2008