Across the company FY 2010 has been a year of acting for the future – delivering major projects, scaling up internal systems and capability, and engaging with the people who care most about the decisions we make. Many important and exciting things await us in FY 2011 and beyond.

(30 pages)

Message from our Managing Director

Welcome to Origin’s ninth Sustainability Report.

While Origin took a moment in February to mark the tenth anniversary of our listing on the ASX, much of our efforts in the 2010 financial year went towards building foundations for the decade to come.

During the year, we completed a suite of major asset developments. Significant progress was made on internal process improvements, for example on our Retail Transformation program and safety performance. We also invested a greater amount in listening to our customers, communities and employees’ views on a range of proposed major projects and on how to make our success sustainable.

We ended the year in a strong financial position and with a range of exciting growth options.

Marking our progress so far

There was much to celebrate at the tenth anniversary of our listing on 21 February 2000. We grew from a small number of gas customers on that day into what is now the second largest customer base in the Australian energy industry. We employed just over one thousand people at the time of listing, mainly in our LPG business – today we employ approximately 8,000 employees and contractors in a wide variety of roles across Australia, New Zealand and the Pacific. Total shareholder returns since listing have been consistently in the top quartile of ASX 100 companies.

With underlying EBIT up 9 per cent for FY 2010 at $896 million, an adjusted net debt to net debt plus equity ratio of 19.7 per cent, and $3.4 billion in available funds, we enter the next decade in a strong financial position.

Acting for the future

The tenth anniversary served to remind us of the scale of the challenge ahead if we are to maintain the same level of performance over the next 10 years.

We have recently delivered a series of major projects that will help form the backbone of Origin’s business over the next decade – the Kupe Gas Project in New Zealand, the Uranquinty Power Station in New South Wales and the Darling Downs Power Station in south central Queensland. We also acquired majority ownership and operatorship of the Otway gas field and processing plant, completed a major expansion of Mt Stuart Power Station and commenced operation of the Cullerin Range Wind Farm.

At the same time we actively pursued a diverse range of longer-term options. The Australia Pacific LNG joint venture is awaiting final federal approval of our Environmental Impact Statement (EIS). We are also awaiting final approval for the Stockyard Hill Wind Farm in Victoria.

Investment also continued in exploring long-term renewable energy options, for example in solar photovoltaic manufacturing with our joint venture partner Micron Technology Inc, in geothermal energy in Indonesia and with Geodynamics in the Cooper Basin, and in hydro electric power at Purari in Papua New Guinea. We brought a number of our wind farm development options closer to the permitting stage.

We also executed our biggest ever exploration program for new conventional gas resources, and acquired and began to develop very substantial new CSG acreage outside Australia Pacific LNG.

Caring, listening, learning and delivering – customers and communities

There was a heightened awareness during the year in the media and the broader community of the complex trade-offs involved in delivering lower-emission energy to support long-term economic growth. Aware of this, we participated actively in public debate.

There is bipartisan support in Australia for the goal of reducing carbon emissions by 5 per cent from 2000 levels by 2020. This target is unlikely to be met in the absence of a carbon price. Without one, there remains limited incentive for electricity generators to shift from coal to lower-emission fuels such as gas for baseload power. Nor is more coal-fired baseload being constructed, because of the expectation that a carbon price will be introduced in future. The result will be a more costly than necessary electricity system, relying more than necessary on intermittent new wind investment and ‘peaker’ gas plants.

More positive developments through the year were changes to the Renewable Energy Target in Australia that provided greater certainty for wind farm investments in particular, and New Zealand’s decision to proceed with an emissions trading scheme.

We also worked with government over the past year on plans for the taxation of major resource projects. A degree of certainty for investors was provided after intense and constructive discussion led to proposals for a Minerals Resource Rent Tax and inclusion of CSG to LNG projects in the existing Petroleum Resource Rent Tax. We look forward to working with government on important matters of detail in the months ahead.

At a local level, Origin undertook extensive consultation with communities directly affected by our activities. Not everyone will agree with the decisions we make on major projects, but we are committed to hearing different points of view and making decisions transparently. To this end, we increased our presence in local areas and now have people in place dedicated to community consultation at all of our major projects. Extensive consultation was undertaken in particular at Stockyard Hill and around the CSG fields, as the case studies on page 16-17 show.

We also invested in asking customers and communities, through focus groups and surveys, what it means to be a sustainable company in today’s fast-changing social and business environment. A consistent vision emerged, of a company that delivers value and good service to customers, treats its employees well, delivers value to shareholders and is actively involved in community issues. While a sustainable company was not always or even mainly ‘green’, all groups saw energy companies as having a particular obligation to care for the environment, and for carbon and water related issues in particular.

Our people worked on these issues throughout the year. We remained the market leader in providing ways for customers to take action on climate change. We were the largest provider of green energy solutions, with 46 per cent of all GreenPower customers, and the only provider of a green gas product. Retail sales of photovoltaic solar panels doubled to more than $100 million, and we acquired and fully integrated the Cogent trigeneration business. In March 2010 we signed a deal to provide electric vehicle customers of Chargepoint with 100 per cent green electricity.

We continued to make progress on Retail Transformation. This project will deliver simplified processes and an integrated billing and customer management system, facilitating new products and services and sustainable improvements to customer service. Outsourcing of selected support functions to our partner Wipro was successfully completed in December 2009, and build of the new SAP technology platform is expected to be completed by December 2010. In the meantime, Ombudsman complaints in our retail business stayed at around the same level as last year, as we report on page 10.

There was a significant increase throughout the year in customers reporting difficulty paying their bill. We retained our existing criteria for payment support through our Power On program and absorbed the resulting increase. At the end of FY 2010, 6,253 of our customers were being financially supported under a specialised payment plan and we provided more than $3 million in payment support. Ninety six per cent of these customers successfully paid their bills. Building on feedback from our National Consumer Consultative Council, we will more proactively increase customer awareness of the support available through Power On in 2011. We will continue to maintain the same eligibility criteria.

We also continued investing in programs and activities which address issues of concern for communities local to our operations and activities. In FY 2010, we contributed almost $3.1 million to local communities, as verified by the London Benchmarking Group, focussing on school energy efficiency and safety programs, local initiatives with our neighbours in regional communities and employee volunteering.

Caring, listening, learning and delivering – our employees

The safety of our people continues to be Origin’s first priority. We achieved a significant improvement in safety performance in FY 2010. Our Total Recordable Incident Frequency Rate was 5.6 as at 30 June 2010, an improvement of 38 per cent on the prior year. We achieved this with renewed efforts across all areas of safety, in particular transport, contractor safety, process safety, permit-to-work systems and safety leadership. Despite this progress, we recognise we have much more to do. During the year several employees and contractors were injured and we were deeply saddened by the death of one of our Queensland-based contractors as a result of a motor accident at the entrance to an Origin-operated Australia Pacific LNG site.

Our aspiration is for zero harm to our employees and contractors. We describe on pages 19 and 22 some of the activities we undertook this year to deliver ongoing improvement in our safety performance.

We also talked to employees during the year, about our progress in meeting the commitment we make to them. Growth and change such as we are proud to deliver at Origin create opportunities for employees. They also create pressures and require new ways of getting things done. A comprehensive engagement survey was conducted in November 2009, with followup sessions held in all business units over the ensuing months. I conducted sessions with supervisor-level representatives from around the company to listen directly. We report on pages 19-21 on our ongoing efforts to respond to what we heard.

During the year we made the decision to focus on increasing gender diversity across all levels of the workforce. Our actions will be guided by maintaining current high standards of competence and performance. We will, before June 2011, introduce a series of measurable targets designed to lead to a higher representation of women in senior management. Progress against these targets will be monitored directly by the Origin Board.

A brighter future

Origin announced at our tenth anniversary celebrations in February that we would put aside $50 million to create a capital base whose proceeds will be invested in philanthropic activities in our community. Governance and some initial work of the Foundation are described on page 26.

Guided by feedback from 1,200 employees who took the time to respond to an online survey, and from the hundreds who attended subsequent engagement sessions, the Board of the Origin Foundation has chosen education as the core theme to guide its divestments. Education, training and development transform the lives of individuals, and improve communities. The Foundation will support programs that use education, in its widest possible definition, as a pathway to a brighter future.

Across the company FY 2010 has been a year of acting for the future – delivering major projects, scaling up internal systems and capability, and engaging with the people who care most about the decisions we make. Many important and exciting things await us in FY 2011 and beyond.

Grant King
Managing Director