Full Year Results 2012

Underlying business performance

Origin Managing Director, Mr Grant King said, "Origin's growth in Underlying Profit and Underlying EBIT was driven by a 27 per cent increase in Underlying EBITDA to $2,257 million. Operating Cash Flow After Tax also increased by 12 per cent to $1,781 million, reflecting the continued strength of Origin's underlying business."

Energy Markets Underlying EBITDA increased by 33 per cent or $388 million to $1,562 million, which was largely attributable to a full year contribution from the acquired NSW energy assets.

Exploration and Production Underlying EBITDA increased by 23 per cent or $61 million to $329 million, primarily due to lower exploration expense and higher commodity prices, partially offset by higher operating costs.

Australia Pacific LNG Underlying EBITDA decreased by 25 per cent or $16 million to $47 million, primarily due to the dilution of Origin's shareholding in Australia Pacific LNG from 50 per cent to 42.5 per cent following the first Sinopec subscription in July 2011, together with higher operating costs to support the expanded operations and meet increased regulatory requirements.

Contact Energy Underlying EBITDA increased by 16 per cent or $55 million to $400 million, primarily due to reductions in gas and carbon unit costs and improved commercial and industrial margins.

Corporate expenses increased by 19 per cent or $13 million resulting in an Underlying EBITDA loss of $81 million. The largest contributor was increased expenditure on development opportunities in Chile, Indonesia and Papua New Guinea.

Energy Markets

"We continued to make good progress on the integration of the NSW energy assets and have now successfully completed a major SAP billing and customer relationship management system implementation, which will increase the efficiency of our operations, improve competitiveness and allow us to respond more effectively to customer needs," Mr King said.

"In the first half, there were a range of factors constraining Origin in its ability to attract and retain customers relating to the SAP implementation. These constraints, which included a freeze on new product development and call centre system availability, have since been released. As a result, second half net customer losses were 48,000, a 57 per cent improvement on the first half.

"With new rate freeze and easy payment products and with technology supporting self service, electronic billing and smart energy management, Origin's intention is to maintain customer numbers throughout the coming year," Mr King said.

Australia Pacific LNG

"Significant progress continues to be made on the Australia Pacific LNG project. Australia Pacific LNG increased 2P reserves from 11,775 petajoules equivalent (PJe) at 30 June 2011 to 13,111 PJe at 30 June 2012, with 3P reserves increasing from 14,742 PJe to 16,047 PJe," Mr King said.

"Australia Pacific LNG remains on track to deliver first LNG in mid-2015. The overall progress of work completed to date is 14 per cent for the Upstream and 17 per cent complete for the Downstream.

"There has been no change to the $23 billion estimated project costs, and the ratio of fixed versus variable costs provides a high level of certainty and enables risks to be appropriately managed. More than two thirds of the total project cost is fixed or unit rate, with the remainder variable and already largely agreed with contractors," Mr King said.

Outlook

In looking ahead Mr King said, "A key focus of the Company over the next few years is delivering the Australia Pacific LNG project on schedule and budget. To fund Origin's share of that investment, we have been significantly reducing our committed capital expenditure on other projects, will be focusing on maximising cash flow from the existing business and managing the maturity of our existing debt facilities.

"We are today announcing the launch of a $625 million four and five year syndicated bank loan to refinance debt maturing in the 2013 financial year. The syndication is expected to close at the end of September 2012.

"The outlook for the coming year is more challenging than in prior years with less growth coming from new capital investments, regulatory uncertainty particularly related to pricing decisions made by the Queensland Competition Authority for which the Company has initiated a judicial review, as well as more uncertainty in forecasting earnings driven by volatile global commodity prices and changing patterns in the demand for energy in Australia.

"In the Energy Markets segment, we will respond to the uncertainties by focusing on reducing costs, winning and retaining customers, realising benefits of the new SAP billing and customer relationship management system and continuing to capture benefits from Origin's integrated portfolio. In this segment, we are targeting an Underlying EBIT margin⁶ of around 11 per cent.

"We expect a higher contribution from our Exploration and Production business with BassGas expected to recommence production in the September Quarter 2012. We are scheduling a shutdown for Otway to allow for the tie-in of the Geographe project.

"We are also expecting a higher contribution from Contact Energy as it continues to benefit from greater flexibility in its generation portfolio and its gas purchasing position," Mr King said.

Depreciation and amortisation costs will increase in line with the increased asset base, following the completion of Mortlake Power Station, upgrades to Eraring Power Station, implementation of the new SAP billing and customer relationship management system, a return to production at BassGas and increased production.

Underlying net financing costs⁶ are expected to increase substantially in the 2013 financial year compared with the prior year due to interest on completed projects and the Ironbark development no longer being capitalised. Interest associated with Origin's cash contributions via shareholder loan repayments to Australia Pacific LNG will continue to be excluded from Underlying Profit.

Origin's Underlying effective tax⁶ rate is expected to remain at around 30 per cent for the coming year.

"Taking all of these factors into account, and based on prevailing market conditions, Origin anticipates Underlying EBITDA for the 2013 financial year to increase by around 10 per cent and Underlying Profit to be in line with the 2012 financial year," Mr King said.

"While Origin intends to reduce its shareholding in Australia Pacific LNG to below 37.5 per cent, this guidance does not include any impact of a change in Origin's shareholding."

Future growth opportunities

Origin continues to pursue a number of opportunities in Australia and internationally that will drive growth in the medium to long-term.

"Origin is well positioned to capitalise on the expected rise in domestic gas prices, with a diverse and flexible portfolio of physical and contracted fuel resources, as evidenced by the recent gas sale to the GLNG project at international oil-linked pricing," Mr King said.

"Gas demand in eastern Australia is expected to triple over the next five years and Origin continues to invest in a targeted number of exploration opportunities in and around existing permits in anticipation of this growth.

"Origin is also exploring for resources in attractive international markets including New Zealand, South East Asia, Kenya and Botswana, providing access to both potential resources and growing demand.

"We continue to develop our portfolio of high quality, large-scale renewable energy opportunities in offshore markets which offer strong growth prospects. This includes a potential hydro project and geothermal exploration in Chile, geothermal exploration in Indonesia and a potential hydro project in Papua New Guinea.

"Looking to the long-term, Origin continues to target growth in Underlying earnings per share of 10 to 15 per cent per annum on average," Mr King said.