Origin posts $524 million Statutory Profit for the first half, issues revised guidance and announces strong progress on Australia Pacific LNG.
Appendix 4D/Directors’ Report and Financial Statements (37 pages)
Management Discussion & Analysis (50 pages)
Presentation to investors and analysts (64 slides)
Presentation to media (36 slides)
Origin Energy Limited (Origin) today announced a Statutory Profit of $524 million for the half year ended 31 December 2012. This was a decrease of $270 million compared to the corresponding period in the prior year.
The key factors contributing to the decrease in Statutory Profit included a lower Underlying Profit, a lower gain on items relating to Australia Pacific LNG and a decrease in the fair value of financial instruments, partially offset by a lower impairment of assets.
Underlying Profit for the half year was $362 million, down 26 per cent from $489 million in the prior first half, reflecting a 9 per cent reduction in Underlying EBITDA predominantly due to more challenging market conditions for the Energy Markets segment, higher depreciation and amortisation charges and an increase in Underlying net financing costs.
|Financial Highlights||Dec 2012||Dec 2011||Change|
|Statutory Profit||$524 million||$794 million||down 34%|
|Underlying Profit||$362 million||$489 million||down 26%|
|Underlying EBIT||$698 million||$832 million||down 16%|
|Underlying EBITDA||$1,055 million||$1,157 million||down 9%|
|Underlying EPS||33.2 cps||45.5 cps||down 27%|
|Group Operating Cash Flow After Tax||$461 million||$736 million||down 37%|
|Free Cash Flow||$527 million||$562 million||down 6%|
|Interim fully franked dividend||25 cps||25 cps||Steady|
|Capital expenditure inc. APLNG||$839 million||$1,036 million||down 19%|
Origin Chairman Mr Kevin McCann said, "The first half of the financial year was characterised by more challenging operating conditions in the Energy Markets segment, which has impacted profit and cash flow.
"The fundamentals of this business remain strong. We have taken steps to deal with the regulatory and market dynamics which have affected our results during the first half, and which we expect will benefit the 2014 financial year.
"Origin’s major focus continues to be the delivery of Australia Pacific LNG’s project and I am pleased to report substantial progress has been made during the first half. The CSG to LNG project is now approximately 30 per cent complete.
"Australia Pacific LNG has completed a review of the project schedule and costs, which confirms that Origin’s investment in Australia Pacific LNG stands to deliver a step change in earnings and cash flow to support the Company’s next phase of growth.
"Origin has undertaken a number of funding initiatives to further strengthen its balance sheet and liquidity position. These initiatives assisted in diversifying Origin’s funding in terms of currency, market and tenor.
"With $5.4 billion in cash and undrawn facilities, Origin has sufficient liquidity to fund its share of Australia Pacific LNG and support the ongoing needs of the business, without the need for refinancing until the 2015 financial year.
"The Board has determined to pay an interim fully franked dividend of 25 cents per share," Mr McCann said.
The interim dividend will be paid on 4 April 2013 to shareholders of record on 4 March 2013.
Origin’s Dividend Reinvestment Plan (DRP) will apply to this dividend. No discount will be applied in the calculation of the DRP price and the interim dividend will not be underwritten.
Underlying business performance
Origin Managing Director Mr Grant King said, "Origin reported Underlying EBITDA of $1.06 billion, down 9 per cent on the prior corresponding period. This reflects a 20 per cent reduction in Underlying EBITDA from our Energy Markets business, only partly offset by stronger contributions from all other parts of the business."
Underlying EBITDA was $660 million, a 20 per cent decrease on the prior corresponding half. This is due to a loss of volume in the mass market segment and a reduction in Underlying EBIT margin from 14.1 per cent to 9.4 per cent. The reduction in margin is driven mainly by the unfavourable Queensland Competition Authority tariff determination, increased wholesale energy costs and increased competition among retailers for mass market customers. Despite a more competitive market, the rate of electricity and natural gas customer losses was reduced from 112,000 in the prior corresponding period to 23,000 in the first half.
Exploration and Production
Underlying EBITDA increased by 12 per cent or $21 million to $200 million, primarily due to higher commodity prices and lower operating costs, which offset lower production as a result of extended plant outages due to the BassGas Mid Life enhancement project and acceleration into the first half of a planned shutdown at Otway.
Australia Pacific LNG
Underlying EBITDA increased by 19 per cent to $19 million, reflecting higher domestic gas sales and increased production, partly offset by Origin’s reduced shareholding in Australia Pacific LNG.
Underlying EBITDA increased by 9 per cent to $198 million, primarily due to a lower cost of generation, lower carbon costs and gains from wholesale energy markets. In addition, improved price competitiveness has stabilised customer numbers.
Corporate expenses decreased by 45 per cent resulting in an Underlying EBITDA loss of $22 million, due to lower site remediation expense and lower unallocated corporate costs, offset by a higher foreign exchange loss in the current half year.
"As Origin’s existing business matures, it is important that we improve our operational effectiveness. We are focused on lowering our cost base, meeting competition more effectively, and maximising cash flow from our existing business," Mr King said.
"We have been actively restructuring across the Company and have reduced employee numbers in our existing business by approximately 500 in the first half of the financial year.
"We expect to further reduce employee numbers by 350 taking total reductions to 850 by the end of the 2013 calendar year. This will result in more focused operations and a lower cost base in the 2014 financial year.
"We are actively defending our market leading position and have significantly improved customer win and retention rates during the half, and we are well positioned to realise the benefits of our legacy fuel position as we commence new contracts that reflect higher gas prices.
"Investment in our Retail Transformation program in the prior year is also beginning to show benefits with the launch of new products such as EasiPay, Rate Freeze, Smart and E-Billing and improved customer acquisition and retention.
"We also continue to review our activities and close, discontinue or divest non-core assets, which will improve our available cash flow in the short to medium term," Mr King said.
Australia Pacific LNG
Australia Pacific LNG’s CSG to LNG project is progressing well, with the Upstream component of the project 29 per cent complete and the Downstream component 31 per cent complete.
Origin today announced the results of a comprehensive schedule and cost review of Australia Pacific LNG’s project. The review concluded that to date, Train 1 is on track to be completed on or ahead of schedule, with the first LNG cargo expected in mid 2015. Train 2 is expected to be completed at least three months earlier than the FID schedule, and start up is now expected in the fourth quarter of calendar 2015. As a result of the improved schedule, revenues from this Train are expected to be generated earlier than previously anticipated.
The estimated cost of the project at the FID2 announcement in July 2012 was $23 billion. The current estimate is now $24.7 billion, a 7 per cent increase on the previously announced estimate.
"We are pleased with the progress that Australia Pacific LNG is making with its project. With project contingency exceeding 10 per cent of the forecast cost to complete, we are confident that the project can be delivered for the estimated expenditure of $24.7 billion. Our investment in Australia Pacific LNG will drive Origin’s growth over the coming years," Mr King said.
Origin expects the regulatory and market competitive pressures that have affected the first half result in Energy Markets to continue into the second half.
Energy Markets is focused on stabilising the recently implemented Retail Transformation project to improve billing and customer management processes, increase competitiveness and reduce costs. In the second half, Origin will also continue to invest to further improve its customer acquisition and retention rates as well as continue to work on restructuring this business.
It is also expected that improved billing and collection performance will also result in a strong increase in cash collections in the second half of the current financial year.
For the full year, Origin expects a strong increase in the contribution of its Exploration and Production business driven by higher levels of plant availability and production in the second half. It also expects Contact’s investment in improved fuel and generation flexibility to make a growing contribution to earnings. Australia Pacific LNG’s earnings are expected to grow in line with increased sales to domestic markets.
In November 2012, based on market conditions at that time, Origin issued revised guidance, which stated that it expected a reduction in full year Underlying Profit of 5 to 10 per cent compared to the prior year.
The results to December 2012, together with a review of expected performance in the second half, were consistent with the November 2012 guidance, with the exception of the consequence of an event that occurred in January 2013 in the Queensland wholesale electricity market.
In January 2013, a combination of weather, demand and plant availability resulted in an extended period of very high wholesale electricity prices in the Queensland market. Origin now estimates that the cost of this event, including additional hedges to reduce exposure to such events in the second half, is approximately $30 million to $35 million in Underlying Profit.
The consequence of this event cannot be absorbed in the guidance range issued in November 2012, and therefore based on prevailing market conditions, guidance for Underlying Profit for the financial year is now 10 to 15 per cent below the prior year.
"We believe that we have already implemented a number of initiatives that will contribute improved performance in 2014 and looking further forward, we are confident that our investment in Australia Pacific LNG will drive substantial growth in Origin’s earnings and cash flow," Mr King said.
Australia Pacific LNG funding
In the medium term, the primary driver for growth in Origin will be its investment in Australia Pacific LNG.
Following Australia Pacific LNG’s significant review of schedule and cost for its CSG to LNG project, Origin has confidence that the project will be delivered on or ahead of schedule at the estimated cost of $24.7 billion.
Based on project costs of $24.7 billion and other forecast expenditures and revenues for Australia Pacific LNG, Origin expects its funding requirement for Australia Pacific LNG to peak at $4.4 billion1.
The peak in funding occurs when cash flow begins from the start of production from the first train in 2015, as Australia Pacific LNG becomes self-funding from that time.
This increase from $3.6 billion which was previously advised in July 2012, reflects Origin’s share of increased project costs, which are also partially accelerated into the peak funding period due to earlier than scheduled completion of Train 2.
Origin’s current committed undrawn facilities, together with operating cash flow, provide sufficient liquidity to cover its Australia Pacific LNG funding commitment and the requirements of Origin’s existing businesses, without the need for any refinancing until the 2015 financial year.
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- To be made partially via loan repayments