The Annual General Meeting will be held at the Sofitel Sydney Wentworth, 61-101 Philip Street, Sydney on Wednesday 17 October 2018 at 10:30am AEDT.
Good morning Ladies and Gentlemen.
It is my pleasure to address you again for the fifth year as Chairman.
Today I want to focus on four topics:
- Our relationship with Aboriginal communities
- Our membership of industry organisations
- The political landscape, and
- Lastly, what ‘good energy’ means at Origin.
Our relationship with Aboriginal communities
As a large Australian organisation, Origin operates in many regional communities. We pride ourselves on the strength of our relationships with the Traditional Owners and the communities whose lands we access to conduct our activities.
We actively seek to engage with those communities before any activity occurs to ensure that they are informed of our intentions. Also, as guided by our values, we care about our impact.
In the Northern Territory, our exploration activities in the Beetaloo Basin are undertaken with the agreement of Traditional Owners. This agreement was secured through the representative body of the Traditional Owners, the Northern Land Council.
The Northern Land Council has statutory obligations under the Land Rights Act and the Native Title Act to ensure the appropriate Traditional Owners are consulted and engaged with respect to our activities.
We are confident of our strong relationships with our Traditional Owners in the Northern Territory. We have acted respectfully with them, and within the parameters set by the Northern Land Council to provide environmental and cultural heritage protection, employment opportunities and exploration royalties.
I would emphasise that not only are we comfortable that we have respected the rights of the Traditional Owners and the requirements of the Northern Land Council, we will continue to do so.
We are aware that there are others who do not want us to operate in the Northern Territory because of their opposition to gas developments, and in particular, fracking.
We disagree with their position because we believe in the efficacy of gas as a firming fuel as we transition to a carbon reduced environment. And secondly, we accept the evidence of the past 40 years, and most recently the conclusions of the Northern Territory Government’s scientific inquiry into hydraulic fracture stimulation, that fracking can be safely conducted.
We believe that our Beetaloo project will ultimately bring economic benefits to the Northern Territory, and especially in the form of jobs and opportunities to those communities surrounding the development.
Our membership of industry associations
The second topic I’d like to address is in relation to our industry association memberships and the degree of alignment between their positions on relevant public policies and ours.
Membership of industry associations is an important part of our stakeholder engagement and policy advocacy on behalf of our customers and shareholders.
We continually assess the alignment of our own energy and climate policy positions with those of the industry associations of which we are members. Where there are differences, we make our position clear to the specific industry association and represent our own position to relevant governments and other stakeholders.
We understand that clarifying our involvement with industry associations is of considerable interest to our shareholder base. Therefore, we are very happy to improve the disclosure of our membership of industry associations, including describing our processes for engagement and our contribution to policy advocacy, in our future annual sustainability reports.
The political landscape
Now let me turn to my next topic, and comment on the political landscape. Here the company, through our CEO Frank Calabria, has played a constructive role in attempting to reach rational energy policy, most recently in our tangible support for the National Energy Guarantee (NEG). We are disappointed the NEG hasn’t progressed; it’s now time to move past the emotive rhetoric and work on solutions.
We remain resolute that Australia needs a rational energy framework that brings energy prices down, creates transparency of pricing through a reference pricing mechanism, delivers emission reductions in line with the Paris Agreement, and ensures reliability of supply.
Origin remains committed to working with government and our industry partners, and the ACCC to find the appropriate solution. Without it, the industry will be starved of much needed investment.
Can I now move on to ‘good energy’?
For the folks at Origin, ‘good energy’ involves five key planks:
- Making energy more affordable for our customers;
- Leading the transition to a cleaner energy future;
- Creating the right culture in our teams;
- Being a better community citizen; and
- Last but not least, delivering for our shareholders.
Let me address each of these in turn.
Making energy more affordable for our customers means increasing supply, which we did in 2018 by increasing electricity output at Eraring and Pelican Point as well as securing more gas for the domestic market.
And last year it meant absorbing network and green scheme tariff increases so we could keep prices flat for customers in NSW. It means providing hardship programs and special discounts for concession holders. It means providing an online service to do price comparisons, or an app that uses the data from smart meters to identify energy usage in the home.
We were the first Australian company to set an emissions reduction target endorsed by the global Science Based Targets Initiative. We have committed to halving our absolute Scope 1 and 2 emissions by 2032, and our Scope 3 emissions by 25 per cent.
We will increase the share of renewables in our business to 25 per cent by 2020, from 13 per cent today. Our strong gas position will support the growth in renewables as a lower emissions firming fuel.
We will exit coal fired generation by 2032. And through our participation as co-founder of Free Electrons and principal sponsor of EnergyLab, we are committed to incubating new, cleaner, smarter start-ups.
‘Good energy’ also means creating the right culture. Firstly that means being committed to providing a safe environment for our team members. I am proud that our Total Recordable Injury Frequency Rate (TRIFR) has come down every year, and now stands at 2.2, our best ever safety performance.
The right culture also means having a noble purpose, a vision and the appropriate values. This has been led vigorously by Frank and his executive team. At a time when confidence in big business is at an all-time low, and when the keynote message coming out of the Royal Commission into Banking is “dishonesty”, this is an imperative.
It means having a motivated team. And I am delighted at the improvement we are seeing in our team engagement score, and the lift in morale from the move to our new offices.
Having the right culture means a commitment to diversity, so that we represent the communities where we work. Our female participation is at 38 per cent, and we are committed through Career Trackers to providing internships to 10 indigenous employees every year, for 10 years.
The right culture means equal pay for team members in like for like jobs, which I am proud to say, Origin has achieved.
The right culture also means giving back. Since 2010, our Foundation has provided more than $23 million in the area of education, to enable young Australians to reach their potential. In this past year, our team members volunteered more than 8,000 hours of their time, and donated $340,000 of their own money which was matched by the Foundation.
Lastly, ‘good energy’ means delivering for our shareholders. As Frank will outline in his address, 2018 was a solid year for Origin. Our statutory profit was $218 million and our underlying profit from continuing operations of $838 million was up 110% year on year.
Adjusted net debt was reduced by $1.6 billion to just below $6.5 billion, and we had significant share price growth year on year. As a result of the above, subject to Board approval and no material adverse change in business conditions, our medium-term outlook supports recommencement of dividends in FY2019.
In conclusion ladies and gentlemen, a solid year for Origin across the board. We could not have achieved this without the outstanding leadership of our CEO and his executive team, the unwavering dedication of all 5,500 of our team members, and the commitment of the Board, who continue to go above and beyond.
On your behalf, I would like to thank all of them.
Good morning ladies and gentlemen. I appreciate you making the effort to come to our AGM, and I’m pleased to be able to update you on the performance of your business.
Since I took over as CEO of Origin two years ago, we have made important progress on our twin priorities of reducing debt and improving performance. Our balance sheet is now much stronger and we once again are able to carefully consider opportunities for growth as we pivot towards a cleaner and smarter energy future. As Gordon said, subject to board approval and no material adverse change in business conditions, our medium-term outlook supports recommencement of dividends in FY2019.
We sharpened our focus on our purpose: getting energy right for our customers, communities and planet. I firmly believe that if we put customers at the heart of everything we do, we will be in a strong position to improve outcomes for all our stakeholders, including our shareholders.
Earlier this year, we launched our new brand. Hopefully you saw the TV commercials or outdoor advertising. ‘Good energy’ is so much more than a new logo and brand campaign – it represents our intent in everything we do.
We also introduced new values to guide the 5,500 people who deliver good energy to our millions of customers each day.
I’m really pleased at how our people have embraced our new purpose, brand and values as it helped us achieve our highest ever employee engagement score of 61 per cent. And we have set our sights even higher for the year ahead, targeting engagement of 68 per cent. This would put us in the top quartile of organisations across Australia and New Zealand.
Against this backdrop, the energy sector has faced an unprecedented level of public scrutiny amid concerns over security and reliability of the nation’s electricity supply, a potential domestic shortfall of natural gas and rising energy prices.
We see our role as not only part of the solution to these challenges, but as an industry leader delivering many actions to address them.
As the Chairman noted, we had a strong financial performance over the period. I’m particularly proud of our safety performance, which Gordon also noted, achieving our lowest ever TRIFR, or total recordable injury frequency rate.
Generation and gas sales lifted Energy Markets earnings
I will now step through some of the performance highlights and priorities in both of our businesses, starting with Energy Markets.
Our power generation and natural gas portfolios drove growth in the Energy Markets business, with underlying EBITDA of $1.8 billion representing a 21 per cent increase on the prior year.
Our power generation portfolio performed strongly, achieving very high reliability rates and ensuring Origin could play its part in providing reliable supply to the market – a credit to the team that supports our power generation fleet.
We also secured a significant amount of gas for the domestic market, increasing gas sales to large customers during the year and it was good to see AEMO report that there is expected to be no shortfall of supply for 2019.
Energy affordability has been a big focus this year. The closure of Hazelwood at relatively short notice saw a surge in wholesale electricity prices in 2017. Energy is central to the economy and the rise in wholesale prices put pressure on household budgets and businesses alike.
Origin has taken decisive action in both generation and retail to deliver price relief for customers. We significantly boosted electricity supply at Eraring and worked with Engie on gas supply to help bring one of the units at Pelican Point in South Australia back online, both of which helped to put downward pressure on wholesale prices – one of the four main inputs to a household bill – there are several other components including network charges which we do not control.
We continued our rapid rollout of large scale renewables, with most of the contracted capacity to come online by 2020. New renewable supply from Origin and others in the market is one of the factors helping to put downward pressure on wholesale prices. We led the industry in delivering flat or falling tariffs for customers in New South Wales, Queensland, South Australia and the Australian Capital Territory.
While this resulted in only modest price relief, we believe we have turned the corner on prices.
Protecting vulnerable members of our society from rising energy prices is always a priority. By freezing tariffs, we made sure our customers in financial hardship have not seen a price increase since 2016.
This year was a step in the right direction however we acknowledge we have more to do to get prices down.
Making energy easier and simpler for customers
We also made important progress on simplifying how we present offers to customers and make it easier for them to deal with us.
Our digital-first approach is moving more customer interactions online, making it more convenient for customers to manage their accounts where and when it suits them. Online sales, eBilling, and My Account registrations all increased in FY2018.
We have also simplified our marketing by introducing dollar pricing to offers presented on our website and launched Savernator, our online price comparison tool that makes it easy for customers to find out if they can save with Origin.
These are all positive steps, but by taking further action we will help more people engage in the market and share in the benefits of competition.
We want to help customers take more control over their energy use, and to that end we launched a number of new initiatives this year, including Usage Buster, which itemises where you’re using energy on your bills. HomeHQ is another new offering, which is essentially a DIY smart home kit. We have also had a successful demand management trial with Tempus for large customers in South Australia, which we’re now looking to broaden to more customers nationally so we can fully understand how it might be brought to market in the future. We’re also bundling products like NBN and broadband and pay TV with energy to simplify things for our customers.
Increased contribution from Australia Pacific LNG
I’m pleased to report our Integrated Gas business continues to go from strength to strength.
A recovery in commodity prices and record production at Australia Pacific LNG saw underlying earnings increase by 67 per cent to $1.3 billion, and we hit the milestone of net cash flows back to Origin of $363 million.
Australia Pacific LNG shipped 125 LNG cargoes for the year and continued to be a major supplier of gas to the domestic market supplying close to 30 per cent of total annual east coast demand.
We continued to make progress on plans to be a lower cost, globally competitive gas producer, including implementing a simpler, flatter, asset-led operating model.
We also reduced well costs by lowering overheads, improving surface facilities design and re-pricing rig and construction contracts.
Australia Pacific LNG reserves increased on the back of improved recovery estimates from operated areas and economic assumptions.
Outside of Australia Pacific LNG, Origin continues to pursue opportunities to bring on new sources of gas supply.
We have entered the early project planning stages, called FEED or Front End Engineering and Design, for a Stage 1 development of Ironbark in the Surat Basin in Queensland. We are assessing our strategic options for Ironbark which will determine the optimum pathway to bring the gas to market while delivering the best overall value to Origin.
We are also continuing our highly prospective exploration and appraisal in the Beetaloo Basin in the Northern Territory. Following a thorough Scientific Inquiry into Hydraulic Fracturing, the Northern Territory Government lifted its moratorium on onshore production earlier this year. This has paved the way for entering stage two of our existing farm-in commitments in the Beetaloo Basin, including one vertical and two horizontal appraisal wells in the 2019 dry season.
Contributing to policy outcomes
While the business is performing very well, this year can also be characterised by the increasingly fractious debate over energy and climate policy.
Our actions to put downward pressure on prices have been acknowledged by governments, but as energy affordability is still a key concern, there is an increasing risk of intervention in the market.
The recent ACCC report in the electricity market provided a clear view on the challenges facing the transitioning energy market, and the reasons for price increases over the past decade. The ACCC made clear that addressing affordability must be a whole of industry effort, making 56 recommendations for reform across the supply chain. We agree this is the right approach given 43 per cent of the typical energy bill comprises network charges, 34 per cent is wholesale costs, 6 per cent green schemes and 16 per cent retail.
The government has adopted five recommendations, including the introduction of a default reference price.
We can support this action if it is a genuine reference price, with sufficient headroom for customer acquisition and retention, as this could deliver greater transparency for customers and help create more trust in their choice of retailer.
We do not support a return to price regulation, which would risk stifling investment and competition longer term.
We will, of course, work with government in an effort to ensure any reference price is set at the right level and delivers the right outcomes without having unintended consequences on the market.
We have advocated strongly for this action to form part of the blueprint for reform across the energy supply chain recommended by the ACCC. This is the key to delivering a more sustainable reduction in prices for customers.
We have strongly advocated for policy that ensures energy security and reliability.
The past few years have demonstrated what can happen when the objectives of energy policy get out of balance and how affordability is impacted if security isn’t addressed. What has been missing is a signal to invest in dispatchable generation and both the Finkel review and Energy Security Board did a lot of work on this and set out a sound pathway forward. We’re encouraged by the government’s intention to revive a reliability mechanism from the National Energy Guarantee and look forward to the Council of Australian Governments meeting later this month for more detail on how it will work.
FY2019 guidance reaffirmed
Now to the FY2019 outlook. I’ve just described the regulatory uncertainty and the increasing risk of intervention in the market. At the release of our full year results in August this year, we said:
- Overall, we expect underlying profit to be higher and further debt reduction in FY2019.
- In Energy Markets, Underlying EBITDA guidance will be $1.5-$1.6 billion, with modest growth in natural gas gross profit to be more than offset by the absorption of a 3 per cent electricity price increase in NSW and the impact of ongoing retail competition.
- Australia Pacific LNG’s FY2019 production guidance is expected to be 660-690 PJ.
- Australia Pacific LNG is targeting operating breakeven of US$22-26/boe and distribution breakeven US$39-44/boe in FY2019.
Today we confirm these statements for FY2019 on the basis that market conditions do not materially change and the regulatory and political environment does not adversely impact operations or performance.
In conclusion, I believe today Origin is in a solid position.
We have strengthened the balance sheet and improved the performance of our two businesses. While our focus on these priorities remain, we are now able to carefully consider growth opportunities.
We are facing pressures in our operating environment, in particular the threat of increasing regulatory intervention. We will continue to actively engage with governments to inform the development of sensible policy that does not distort the market.
We will also continue to reinforce the actions we have taken to make energy more affordable, secure and reliable, and sustainable – as well initiatives that are making it simpler and easier for customers to engage with us and access offers.
Putting customers at the heart of our business will be central to our success in the future, as will making sure we continue to deliver on the expectations of our other stakeholders – our people, communities and of course you, our shareholders.
Thank you for your continued support of Origin, a company which makes a significant contribution to the Australian community and that I am incredibly honoured to lead.
I look forward to speaking with as many of you as possible following today’s meeting.
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