15 February 2018

Half Year Results 2018

Operational performance drives strong underlying earnings uplift
Improved outlook for FY18

Origin Energy Limited (Origin) today announced its half year 2018 results including a Statutory Loss of $207 million, driven by impairment charges after tax of $533 million.

Underlying EBITDA from continuing operations increased $502 million or 51 per cent to $1.49 billion and Underlying Profit increased by $255 million to $428 million, driven by earnings growth in Energy Markets and Australia Pacific LNG.

Operating cash flow increased by $166 million or 43 per cent to $552 million and Origin received net cash flow from Australia Pacific LNG of $116 million. 

Financial Summary 1H2018 1H2017
Statutory (Loss) ($207) million $(1,559) million
Statutory EPS (11.8) cps (88.9) cps
Underlying profit (continuing operations) $428 million $173 million
Underlying EPS (continuing operations) 24.3 cps 9.9 cps
Underlying EBITDA (continuing operations) $1,492 million $990 million
Operating cash flow (continuing operations) $552 million $386 million
Underlying ROCE 9.9%
4.5%
Final dividend unfranked Nil Nil
TRIFR 1.9 3.21

Origin CEO, Frank Calabria said, “We are seeing positive momentum in the performance of the business. Notwithstanding our Statutory Loss of $207 million, the improvement in Origin’s Underlying Profit reflects a strong operating performance by the business in the first half of FY2018.

“We continued to make significant progress on our twin priorities of reducing debt and improving returns. We have improved earnings from Energy Markets, while Australia Pacific LNG delivered higher production and revenue.

“A strong uplift in cash flow has assisted in the deleveraging of our balance sheet. The successful completion of the sale of Lattice Energy early in the second half will also contribute around $1 billion towards debt reduction.

“Origin remains focused on rebuilding the right to grow by reducing organisational complexity and cost, continuing to repair the balance sheet and adopting a disciplined approach to capital management.

“Origin is responding to heightened concerns about energy prices and security. We know our customers are concerned first and foremost about energy prices and we are helping them to reduce their costs. We made sure customers in financial hardship did not pay recent price rises and launched Origin Value, a new low priced-product for concession holders.

“We are competing actively for customers in the market and making it easier for them to get a better deal. By clearly stating the dollar value on our offers, and through tools including our online price comparator, we have helped hundreds of thousands of Australians save on their energy costs during the period.

“To enhance energy security and help cover the gap left by the closure of Hazelwood Power Station, we boosted owned and contracted generation through a significant increase in output from Eraring Power Station. Overall, our fleet has performed very reliably over the summer and we have also secured additional gas supply for the domestic market.

“There is clearly more to do to address energy security and affordability and this will remain a focus of Origin.

“Origin also continues to take steps towards a cleaner and smarter energy future. Our commitment to halve carbon emissions by 2032 signals our intention to shift to a cleaner energy portfolio, one in which renewables and gas feature strongly alongside a range of new technologies that will enable more efficient use of energy in homes and on a utility scale,” Mr Calabria said.

Chairman Gordon Cairns said, “Given the continued focus on debt reduction and prudent capital management, the Board has determined not to pay a dividend for the first half of 2018. We know dividends are important to our shareholders and remain of the view that it is in the best interests of all shareholders to continue to suspend the dividend at this time. Reinstatement of the dividend will be considered each six months by the Board.”

Operational performance (continuing operations)

Business segment 1H2018 ($m) 1H2017 ($m) Change ($m) Change (%)
Energy markets 891 735 156 21
Integrated Gas 630
287 343
120
Corporate (29)
(32)
3
9
Underlying EBITDA 1,492 990 502
51

Energy markets

Energy Markets Underlying EBITDA increased by $156 million or 21 per cent to $891 million.

Origin continued to take action to address energy affordability and reliability by increasing generation output by 33 per cent, sourcing more renewables and securing an additional 69 PJ of gas for domestic customers in 2018. Gas sales to customers and internally to power Origin’s generation fleet grew by 20 per cent. 

The retail market remains highly competitive, with rising prices and a national focus on energy affordability contributing to increased customer movement. While customer accounts decreased by 47,000, increased efforts to win and retain customers resulted in net gains in accounts in both December and January. A focus on improving the customer experience and making dealing with Origin easier is driving continued improvement in Interaction Net Promoter Score, which increased from 16.1 at the end of FY17 to 18.0.

Notwithstanding rising energy prices, Origin’s generation portfolio delivered a competitive cost of energy, increasing by less than the wholesale market. 

Integrated Gas

Integrated Gas Underlying EBITDA (excluding Lattice Energy) increased by $343 million to $630 million. This was partially offset by a $187 million increase in interest, tax, depreciation and amortisation.

Australia Pacific LNG performed strongly across both the upstream and downstream operations and has now shipped more than 200 LNG cargoes. Planned maintenance was successfully completed on both LNG trains during the half, with excess gas volumes directed to the domestic market during the period.   

Integrated Gas is in the process of implementing a flatter, simpler operating model as it aims to achieve a step change improvement in productivity and a reduction in operating and capital costs.

Outlook

Origin advises the following update to FY2018 guidance, provided that market conditions and the regulatory environment do not materially change.

The FY2018 guidance range for Energy Markets has improved, with Underlying EBITDA expected to be in the range of $1.78 to $1.85 billion, compared to previous guidance of $1.7 to $1.8 billion. The change has been driven by increased generation output at Eraring and improvements in natural gas volumes and margins, partially offset by increased pressure on operating costs in a highly competitive market.

Origin has reaffirmed guidance for its share of Australia Pacific LNG production, which is expected to be 245 to 265 PJ. Australia Pacific LNG is focused on achieving a step change reduction in its cost base and break-even within 18 months, as it aims to become a globally competitive, low cost gas producer. In FY2018, Australia Pacific LNG is expected to be cash flow break-even at around US$45/boe[1], compared to previous guidance of US$48/boe with the reduction primarily driven by revised non-operated development activity, deferral of some exploration activity and higher spot LNG and domestic revenues.

Capital expenditure (excluding Lattice Energy) is expected to be $360 to $420 million.

Following the successful divestment of Lattice Energy, Origin remains on track to reduce net debt to below $7 billion by the end of FY2018.

1 Prior comparative period is 30 June 2017.
2 Assuming an AUD:USD exchange rate of 0.78.


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Anneliis Allen
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