Origin Energy : Annual General Meeting 2020 - Origin Energy

CEO'S ADDRESS

Good morning and thank you for joining us for our AGM, which is a little different to previous years.

This has been a very challenging year for our customers, communities and people. Many communities continued to face drought, we had a severe bushfire season, flooding occurred in some places, and finally, COVID-19 caused major disruption to pretty much every facet of life and work as we know it.

I'm proud of how our people stepped up and maintained safe and reliable energy supply under very challenging circumstances, particularly in the early days when restrictions were changing rapidly.

With the economic impacts and rising unemployment affecting many Australians, I'm incredibly proud of the care shown to our customers, with thousands of payment extensions granted and a commitment to not disconnecting any customers in financial hardship.

I have been moved by the generosity of our people, donating more than $870,000 to support communities affected by the bushfires and drought. At this stage, Australia seems to have fared well through the pandemic compared to other nations although sadly a number of people lost their lives. With the immediate health response to the pandemic having eased, the focus has rightly turned to the economic recovery and ways to stimulate investment and get people back in work. Origin has been supportive of government efforts to encourage investment that can kickstart the economy.

Operational performance

Turning to performance for the 2020 financial year. Despite the external challenges, our operational performance continued to improve driving growth in free cash flow, allowing further debt reduction, disciplined investment in growth opportunities and distributions to shareholders.

Strong field performance drove record production at Australia Pacific LNG which combined with efficiency improvements, contributed to record cash distributions of $1.3 billion, demonstrating the world-class nature of this asset. We resumed exploration in the Northern Territory, and with fracture stimulation now completed, we will progress to extended production testing. I look forward to sharing initial results of our exploration soon.

In Energy Markets, our efforts to assist customers and continued investment in our digital interfaces to make engaging with us easier, helped achieve Origin's best ever customer satisfaction, as measured by Net Promoter Score. Importantly, our customer satisfaction is ahead of our major competitors. We also passed on lower wholesale prices from 1 July across NSW, Qld, SA and the ACT, which meant most customers received some price relief.

The pandemic caused gas and electricity demand to fall, and Origin responded by utilising the flexibility of our generation assets and wholesale portfolio to adapt to market conditions and mitigate impacts on the business. We're currently completing maintenance across our generation fleet so we're ready to support the market and customers through the peak summer period.

With extraordinary changes to the way we work this year, it has been heartening to see our people pull together and support each other and this has been reflected in strong improvements in safety performance and engagement. Employee engagement rose to 75 per cent, our highest ever score, placing Origin in the top quartile of companies in Australia and New Zealand.

We paid total dividends of 25c per share in 2020, which was in line with the prior year but marginally below of our target range of 30 per cent to 50 per cent of free cash flow. We acknowledge the importance of dividends to our shareholders, and took a prudent decision reflecting the uncertainty of the current economic conditions.

Positioning Origin for the future

Successful execution of our strategy to connect customers to the energy and technologies of the future will enable Origin to continue to prosper in a world of increasingly decarbonised, decentralised and digitised energy.

With electrons increasingly flowing two ways, energy companies are evolving from their traditional role as suppliers of energy to aggregators, where customers will entrust us to manage their energy in a way that's most efficient for them - and the broader grid. Today, it's chiefly rooftop solar, but very soon it will be batteries and electric vehicles, and myriad other connected devices around the home.

I would like to highlight a few of the steps we have taken to position the business for this transition.

We have established a strategic partnership with UK technology company and retailer, Octopus Energy. What impressed us about Octopus was that everything was geared to the customer, including operational design and technology and this is reflected in satisfaction scores consistently ahead of competitors. The retail operating model is far more agile than that of traditional energy retailers, delivering costs that are 40 per cent lower than the closest major peer, and frontline employees are more empowered and engaged to solve customer queries. By adopting Octopus's operating model and Kraken platform, we aim to emulate their industry leading cost structure and customer satisfaction.

We are progressing well and expect our first cohort of 50,000 customers to be on the Kraken platform by the end of the calendar year.

We have been rapidly growing Origin's virtual power plant, where we are using AI and machine learning to run air-conditioning units, pool pumps, batteries, hot water systems and EV chargers to provide the best value for more than 11,000 customers, and looking at how we can utilise this decentralised capacity in the system to help stabilise the grid.

Industry-leading in-house cloud-based data and analytics capability is applied right across our business to enable us to make better decisions and operate our assets more efficiently. Applications of this include an AI-enabled production optimisation tool, where we have replaced one operator manually monitoring 30 gas wells a day with a system that can monitor thousands of wells at once, and real-time optimisation at Eraring power station, which is allowing us to reduce emissions.

We are continuing to utilise our strengths in unconventional gas development so we can help meet the market's needs for cleaner, affordable natural gas through the energy transition as a partner to growing intermittent renewables. This expertise is also advantageous as we progress our future fuels strategy, in particular focusing on opportunities in green hydrogen. Hydrogen is a very promising fuel because it can be produced with zero emissions, can be readily and safely stored and transported and the production process can contribute to grid management and stability.

FY2021 guidance

Today we have reaffirmed all FY2021 guidance and note the considerable uncertainty created by the ongoing impacts of COVID-19, which has contributed to a more challenging outlook for the year.

Energy Markets Underlying EBITDA guidance is expected to be $1.15-1.3 billion, reflecting lower electricity gross profit due to pass-through of lower wholesale prices to customers and higher network costs absorbed in the regulated tariffs and lower natural gas gross profit with legacy contracts rolling off and tariff repricing, partially offset by a targeted $70 million reduction in cost to serve.

Australia Pacific LNG production is expected to be 650-680 petajoules, reflecting anticipated lower demand, albeit with strong field capability to increase production in response to changes in demand. Distribution breakeven is expected to be in the range of US$27-31/bbl at an average AUD/USD exchange rate of 0.69.

Public policy

Contributing to the development of integrated energy and climate policy remains a priority. Our focus is on advocating for market structures and settings that can achieve balanced outcomes with respect to energy affordability, reliability and emissions reduction.

There has been much discussion about government announcements to support a gas-led recovery out of the pandemic. In general, we support actions to stimulate investment in gas supply and put downwards pressure on prices, including removal of duplicative and costly regulations and development of priority gas basins including the prospective Beetaloo. We support measures to increase transparency in the market and note numerous reports have confirmed the gas market is well supplied with domestic prices continuing to fall following the most recent ACCC report.

We continue to caution against arbitrary or unrealistic gas price expectations, noting the cost of domestic gas must reflect the lifecycle cost of production, and that gas producers, like any company, should be able to earn a return on the significant capital required to bring gas supply to market.

Conclusion

Finally, I would like to acknowledge Gordon, who has been chairman since 2013 and steps down today. Origin has continued to evolve through his tenure, embedding our position as Australia's leading energy retailer, becoming Australia's largest CSG producer and an exporter of LNG, and we've made strong progress in pivoting our business so it continues to thrive in a low-carbon world.

Personally, I have valued his guidance and admire his passion for Origin. I very much look forward to working with our new Chair, Scott, on Origin's next phase.

To conclude, while we face near-term headwinds due to COVID-19 and its impact on energy demand and commodity prices, I hope you share my confidence and optimism about our prospects. Today Origin is far more resilient to commodity cycles than it has been in the past, operationally our performance continues to improve, and we are making demonstrable progress on our decarbonisation journey and pivoting our business towards a cleaner, smarter energy future.

I thank you for your continued support.

Frank Calabria, CEO

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