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Imperial Oil2019
Annual
Report
“ Good energy is
delivering cleaner
and smarter energy
to our customers”
Amber Fennell
General Manager
Business Energy and Energy Services
Annual Report 2019
Featured on our front cover is Amber Fennell
Amber is General Manager, Business Energy and
Energy Services and says good energy is about
striking a balance between getting the basics right and
delivering innovative products and services.
Amber was photographed at the Stockyard Hill Wind
Farm in Victoria. In May 2017, Origin entered into
a long-term power purchase agreement with Goldwind
for 100 per cent of the output from the wind farm.
Directory
Registered Office
Level 32, Tower 1
100 Barangaroo Avenue
Barangaroo, NSW 2000
GPO Box 5376
Sydney NSW 2001
T (02) 8345 5000
F (02) 9252 9244
shareholder.enquiries@originenergy.com.au
Secretaries
Helen Hardy
Share Registry
Shareholders wishing to receive their
shareholder communications electronically,
including annual reports, notices of
meeting, dividend statements and other
company related information should
contact the share registry.
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
T Australia 1300 664 446
T International (+61 2) 8016 2896
F (02) 9279 0664
boardroomlimited.com.au
origin@boardroomlimited.com.au
Auditor
KPMG
Further information about Origin’s
performance can be found on our website:
Contents
1
Contents
Welcome to the 2019 Annual Report
About Origin
Board of Directors
Executive Leadership Team
Directors’ Report
Operating and Financial Review
Remuneration Report
Lead Auditor’s Independence Declaration
Corporate Governance Statement
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Share and Shareholder Information
Exploration and Production Permits and Data
Annual Reserves Report
Five Year Financial History
Glossary and Interpretation
2
4
6
8
9
12
56
87
88
95
163
164
174
176
178
184
186
2
Our purpose
Getting energy right for our
customers, communities
and planet.
Our values
•
Work as one team,
one Origin
• Be the customer champion
• Care about our impact
• Being accountable
• Find a better way
A message from Gordon and Frank
Welcome to the 2019 Annual Report
Just over a year ago, we launched our new
purpose and values to align and guide the
5,500 people who work for Origin in their
daily work of getting energy right for our
customers, communities and planet.
Origin is a diverse business spanning
generation, upstream gas and retail
operations. Every day our people engage
with customers, suppliers and members
of the community all over Australia,
listening to how we can make energy work
better for them.
Our purpose and five values were
developed because we wanted to make
clear that every decision and action that
takes place in our business – be it at a
power station, in a customer-facing role, out
in our gas fields, or in a corporate office –
must demonstrate our principles in action.
It has been great to see our people so
supportive and engaged in our purpose and
the new values. Amber Fennell, who is on
the cover of this report, is someone who
exemplifies Origin’s values. Amber works
with our business customers to deliver
energy solutions. Amber and the future
energy team are showing customers how
they can harness emerging technologies
that will help them reduce their energy
costs and support sustainability, such as
virtual power plants. We would like to thank
Amber for appearing on the cover of this
report and telling the story of how ‘good
energy’ is about delivering products and
services that make life easier and are value
for money.
On that note, we know energy affordability
is top of mind for many of our customers.
Our teams have been working on improving
affordability, adding more contracted
renewables to our generation capacity, as
well as investing to make our generation
assets more flexible to support more wind
and solar in the market, delivering more gas
to domestic customers and working on ways
Annual Report 2019 Welcome to the 2019 Annual Report
3
Australia Pacific LNG’s FY2020
production is expected to be 680 to
700 petajoules. Integrated Gas expects
to achieve a distribution breakeven
of US$33 to US$36/boe.
The sale of the Ironbark asset to Australia
Pacific LNG for $231 million, settled on
5 August 2019, will contribute to reducing
the debt balance in FY2020.
Looking forward
We were pleased to welcome Greg
Lalicker to our board as an independent
non-executive director earlier this year.
Greg brings extensive oil and gas industry
and strategic experience to Origin along
with a global perspective to our board.
The Australian economy’s transition to
lower emissions will present new challenges
and opportunities for Origin and we are
well positioned to meet those.
All our decisions are guided by our purpose
and meeting the expectations of our
customers and shareholders into the future.
We look forward to speaking with many
of you at our forthcoming Annual General
Meeting on 16 October. Thank you for your
continued support.
Gordon Cairns
Chairman
Frank Calabria
Chief Executive Officer
to get it out of the ground at a lower cost.
These are only a few of the many actions we
have taken, and we will continue to look at
ways we can make energy more affordable.
We hope the 2019 Annual Report will give
you a sense of how we are working every
day to deliver on our purpose.
Origin has an important role in the
economy’s transition towards a clean
energy future. Our focus continues
to be delivering affordable energy by
running our generation assets reliably and
efficiently, bringing more renewable energy
online and maintaining our competitive
gas supply portfolio.
Progress on our commitments
Origin’s performance
We are pleased to have delivered this
financial result, with contributions from
two strong cash generating businesses.
The reduction of debt by more than
$1 billion to $5.4 billion as at 30 June 2019
means we have achieved the lower end
of our target capital structure range.
Our efforts to simplify the organisation
and apply a disciplined approach to
capital means we are now in a position
to deliver returns to shareholders
through the dividend and focus on
growth opportunities.
Over FY2019, Integrated Gas benefited
from higher commodity prices, cost
efficiencies and continued reliable
production at Australia Pacific LNG.
Energy Markets faced headwinds,
with a highly competitive retail market
and regulatory intervention impacting
electricity margins.
After many years of improved safety
performance across Origin, disappointingly
our Total Recordable Injury Frequency Rate
(TRIFR) increased to 4.5, from 2.2 last year.
This is an unacceptable outcome, and
our efforts are focused on making sure
our people return home to their families
safely every day.
Supporting customers
and the community
Origin knows affordability is the most
pressing issue for our customers, and in
response we are playing our part to put
downward pressure on energy prices.
On 1 July 2019, we went beyond what
was required of us with the introduction
of the Commonwealth’s Default Market
Offer and extended the same pricing to
our customers on non-discounted plans
with a flat rate tariff. This move meant more
than half a million residential and small
business customers are now paying less for
their electricity.
We also continue to be proud of the
efforts of our philanthropic foundation,
the Origin Foundation, which is entering
its 10th year of empowering young
Australians through education. In FY2019,
the Origin Foundation contributed
$1.5 million to education initiatives and
1,800 of our people volunteered through
the foundation’s Give Time program.
Over the decade, the Origin Foundation
has provided more than $25 million to
good causes across Australia.
Across Energy Markets, the profitability
of the electricity portfolio was impacted
by price relief measures provided to
customers, the continued impact of retail
competition and lower average customer
numbers and usage. Underlying EBITDA
in Energy Markets was $1,574 million,
a decline of $77 million from FY2018.
In light of this, we have focussed on
enhancing the customer experience,
simplifying our Retail business by targeting
cost savings of greater than $100 million by
FY2021, and growing new revenue streams
in centralised energy services, solar and
storage and broadband.
Over FY2019, we also delivered record
generation at Eraring Power Station and
the introduction of almost 500 megawatts
of new contracted renewables. And we are
on track to meet our target for more than
25 per cent of our owned and contracted
generation capacity to come from
renewables and storage solutions by 2020.
Australia Pacific LNG continued its strong
operational and financial performance
in FY2019. Higher effective commodity
prices and stable production, despite
planned upstream maintenance, resulted
in net cash flow to Origin of $943 million.
The Integrated Gas business increased
Underlying EBITDA by $641 million or
51 per cent to $1,892 million.
Outlook
The political and regulatory environment
continues to be fluid and we will remain
a committed advocate for good energy
policy. The outlook for our business
that we gave at our annual results on
22 August 2019 was premised on the basis
that market conditions and the regulatory
and political environments do not result in
further adverse impacts on operations.
On that basis, we said Energy Markets
Underlying EBITDA is expected to be in
the range of $1.35 billion to $1.45 billion.
The gross profit of the natural gas portfolio
is expected to be relatively stable, while it
is estimated that there will be a reduction
in electricity gross profit reflecting the
impacts of government default market
offers, lower green scheme prices flowing
through to business customer tariffs and
lower customer usage.
4
Annual Report 2019
About Origin
Energy Markets
Integrated Gas
Share of APLNG (37.5%)
Leading
energy retailer
Growing renewables
and storage supply
Australia’s largest
CSG reserves base
Supplier to domestic
and export markets
• Supplier of ~30%
of domestic east
coast gas demand
in FY2019
• ~8.6 mtpa LNG
export contracts
to 2035
4.2 million gas,
electricity and LPG
customer accounts
From ~19% of Origin’s
owned and contracted
generation capacity
today to more than
25% by 2020
2P reserves of 11,920
PJ1 (APLNG 100%)
Largest LNG facility
on the Australian
east coast
9 mtpa
nameplate capacity
Large and flexible
gas supply
Contract length,
cost and transportation
flexibility
Significant
generation portfolio
~7,500 MW with
fuel and geographic
diversity
Growth opportunities
• Increase generation flexibility and capacity
– brownfield growth and integrate storage
Other exploration
and development interests
• New revenue streams – centralised energy
services, adjacencies (e.g. Origin Broadband)
and solar and storage
• Beetaloo Basin – multi-decade opportunity
• Exploring multiple plays in APLNG
• New interest in Cooper-Eromanga Basin
1
At 30 June 2019. For further information refer to Origin’s Annual Reserves Report for the year ended 30 June 2019, on page 178 of this report. Some of APLNG’s reserves
and resources are subject to reversionary rights and an ongoing royalty interest in favour of Tri-Star. Refer to section 7 of the Operating and Financial Review for further
information.
About Origin
Operations
Browse
Basin
Beetaloo
Basin
5
229k
208k
660k
182k
Bowen
Surat
Basin
1193k
312k
Gladstone
LNG Export
Brisbane
Adelaide
Melbourne
Sydney
558k
474k
Hobart
15k
South East Queensland
Gladstone
Bowen
Surat
Basin
Roma
Brisbane
Exploration acreage
Origin upstream acreage
Generation
Gas
APLNG upstream acreage
Pumped hydro
Production facility
APLNG pipeline
Office
Solar (contracted)
Wind (contracted)
Coal
Under construction
LPG seaboard terminal
Electricity customer accounts
Natural gas customer accounts
Pacific Islands LPG
Rabaul
Lae
Port Moresby
Honiara
Santo
Port Vila
Apia
Labasa
Tafuna
Rarotonga
Lautoka
Suva
Origin also has one LPG seaboard terminal in Cam Ranh, Vietnam.
6
Board of
Directors
Gordon Cairns
Independent
Non-executive Chairman
John Akehurst
Independent
Non-executive Director
Maxine Brenner
Independent
Non-executive Director
Frank Calabria
Managing Director and
Chief Executive Officer
Teresa Engelhard
Independent
Non-executive Director
Tenure 12 years, 2 months
Tenure 10 years, 4 months
Tenure 5 years, 9 months
Tenure 2 years, 10 months
Tenure 2 years, 3 months
Gordon Cairns joined
the Board in June 2007
and became Chairman
in October 2013. He is
Chairman of the Nomination
Committee and a member
of the Risk, Remuneration
and People, Audit and
Health, Safety and
Environment committees.
Gordon has extensive
Australian and international
experience as a senior
executive, as Chief
Executive Officer of Lion
Nathan Ltd, and has
held senior management
positions in marketing,
operations and finance
with PepsiCo, Cadbury Ltd
and Nestlé.
Gordon is Chairman of
Woolworths Group Limited
(since September 2015),
a Non-executive Director
of Macquarie Group
Limited and Macquarie
Bank Limited (since
November 2014) and World
Education Australia (since
November 2007).
Gordon was previously
Chairman of the Origin
Foundation, David Jones
Limited (March 2014–
August 2014) and Rebel
Group (2010–2012),
Director of The Centre for
Independent Studies (May
2006–August 2011), Quick
Service Restaurant Group
(October 2011–May 2017)
and Westpac Banking
Corporation (July 2004–
December 2013). He was
also a senior advisor to
McKinsey & Company.
Gordon holds a Master of
Arts (Honours) from the
University of Edinburgh.
John Akehurst joined the
Board in April 2009. He is
Chairman of the Health,
Safety and Environment
Committee and a member
of the Nomination and
Risk committees.
Maxine Brenner joined
the Board in November
2013. She is Chairman of
the Risk Committee and a
member of the Audit and
Nomination committees.
John’s executive career was
in the upstream oil and gas
and LNG industries, initially
with Royal Dutch Shell and
then as Chief Executive
Officer of Woodside
Petroleum Limited.
John is Chairman of
the National Centre
for Asbestos Related
Diseases and the Fortitude
Foundation and a Director
of Human Nature Adventure
Therapy Ltd (since
February 2018).
John was previously
Chairman of Transform
Exploration Pty Ltd
(February 2012–
December 2017), Alinta
Limited (January 2007–
September 2007) and
Coogee Resources Ltd
(2008–2009) and a
former Board member
of the Reserve Bank of
Australia (September
2007–September 2017),
Director of CSL Limited
(April 2004–October
2016), Oil Search Limited
(1998-2003), Securency
Ltd (2008–2012), Murdoch
Film Studios Pty Ltd and
the University of Western
Australia Business School.
John holds a Masters in
Engineering Science from
Oxford University and is a
Fellow of the Institution of
Mechanical Engineers.
Maxine was previously
a Managing Director
of Investment Banking
at Investec Bank
(Australia) Ltd. Prior to
Investec, Maxine was a
Lecturer in Law at the
University of New South
Wales and a lawyer at
Freehills, specialising in
corporate law.
Maxine is a Non-executive
Director of Orica Ltd
(since April 2013) and
Qantas Airways Ltd (since
August 2013). She is also
an Independent Director
and Chairman of the Audit
and Risk Committee for
Growthpoint Properties
Australia and a member of
the University of New South
Wales Council.
Maxine’s former
directorships include
Treasury Corporation of
NSW, Bulmer Australia Ltd,
Neverfail Springwater Ltd
(1999–2003) and Federal
Airports Corporation,
where she was Deputy
Chair. In addition,
Maxine has served as a
Council Member of the
State Library of NSW
and as a member of the
Takeovers Panel.
Maxine holds a
Bachelor of Arts and
a Bachelor of Laws.
Teresa Engelhard joined
the Board in May 2017.
She is a member of the
Audit and Remuneration
and People committees.
Teresa has more than
20 years’ experience
in the information,
communication, technology
and energy sectors as
a senior executive and
venture capitalist.
Teresa is a Non-executive
Director of Wisetech Global
(since March 2018), Planet
Innovation Ltd (since April
2016), StartupAUS (since
March 2016), and Redkite
(since February 2017).
Teresa started her career at
McKinsey & Company in
California where she served
energy and retail clients.
More recently, she focused
on energy sector innovation
as a Managing Partner at
Jolimont Capital.
Teresa’s former
directorships include
Daintree Networks and
RedBubble Limited (July
2011–October 2017).
Teresa holds a Bachelor
of Science (Hons) degree
from the California Institute
of Technology (Caltech),
an MBA from Stanford
University and is a graduate
of the Australian Institute of
Company Directors.
Frank Calabria was
appointed Managing
Director & Chief Executive
Officer in October 2016.
Frank is a member of
the Health, Safety and
Environment Committee
and a Director of the Origin
Foundation.
Frank first joined Origin as
Chief Financial Officer in
November 2001 and was
appointed Chief Executive
Officer, Energy Markets in
March 2009. In that latter
role, Frank was responsible
for the integrated business
within Australia including
retailing and trading of
natural gas, electricity and
LPG, power generation and
solar and energy services.
Frank is a Director of
the Australian Energy
Council and the Australian
Petroleum Production &
Exploration Association.
He is a former Chairman
of the Australian Energy
Council and former Director
of the Australian Energy
Market Operator.
Frank holds a Bachelor of
Economics from Macquarie
University and a Master of
Business Administration
(Executive) from the
Australian Graduate School
of Management. Frank
is also a Fellow of the
Chartered Accountants
Australia and New Zealand
and a Fellow of the
Financial Services Institute
of Australasia.
Annual Report 2019 Board of Directors
7
Greg Lalicker
Independent
Non-executive Director
(appointed 1 March 2019)
Tenure 4 months
Greg Lalicker joined the
Board in March 2019.
Greg is the Chief Executive
Officer of Hilcorp Energy
Company, based in
Houston, USA. Hilcorp is
the largest privately held
independent oil and gas
exploration and production
company in the USA.
Greg joined Hilcorp’s
leadership team in 2006 as
Executive Vice President
where he was responsible
for all exploration and
production activities. He
was appointed President in
2011 and Chief Executive
Officer in 2018. Prior to
working for Hilcorp, Greg
was with BHP Petroleum
based in Midland, Houston,
London and Melbourne
as well as McKinsey &
Company where he worked
in its Houston, Abu Dhabi
and London offices.
Greg graduated as a
petroleum engineer from
the University of Tulsa.
He also holds a Master of
Business Administration and
a law degree.
Bruce Morgan
Independent
Non-executive Director
Scott Perkins
Independent
Non-executive Director
Steven Sargent
Independent
Non-executive Director
Tenure 6 years, 9 months
Tenure 3 years, 11 months
Tenure 4 years, 3 months
Bruce Morgan joined the
Board in November 2012.
He is Chairman of the Audit
Committee and a member
of the Health, Safety and
Environment, Nomination
and Risk committees.
Scott Perkins joined the
Board in September 2015.
He is Chairman of the
Remuneration and People
Committee and a member
of the Audit, Risk and
Nomination committees.
Steven Sargent joined
the Board in May 2015.
He is Chairman of the
Origin Foundation and
a member of the Health,
Safety and Environment and
Remuneration and People
committees.
Bruce served as
Chairman of the Board of
PricewaterhouseCoopers
(PwC) Australia between
2005 and 2012. In 2009,
he was elected as a member
of the PwC International
Board, serving a four-year
term. He was previously
Managing Partner of PwC’s
Sydney and Brisbane
offices. An audit partner
of the firm for over 25
years, he was focused on
the financial services and
energy and mining sectors
leading some of the firm’s
most significant clients in
Australia and internationally.
Bruce is Chairman of
Sydney Water Corporation
(since October 2013),
a Director of Caltex
Australia Ltd (since June
2013), a Director of
Redkite, the University
of NSW Foundation and
the European Australian
Business Council.
Bruce holds a Bachelor of
Commerce (Accounting
and Finance) from the
University of NSW and is
an adjunct Professor of
the University. Bruce is a
Fellow of the Chartered
Accountants Australia
and New Zealand and of
the Australian Institute of
Company Directors.
Scott has extensive
Australian and international
experience as a leading
corporate adviser. He was
formerly Head of Corporate
Finance for Deutsche
Bank Australia and New
Zealand and a member of
the Executive Committee
with overall responsibility
for the Bank’s activities in
this region. Prior to that he
was Chief Executive Officer
of Deutsche Bank New
Zealand and Deputy CEO of
Bankers Trust New Zealand.
Scott is a Non-executive
Director of Woolworths
Limited (since September
2014) and Brambles
Limited (since May 2015).
He is Chairman of Sweet
Louise (since 2005), a
Director of the Museum
of Contemporary Art in
Sydney (since 2011) and
the New Zealand Initiative
(since 2012). Scott was
previously a Non-executive
Director of Meridian Energy
(1999–2002).
Scott has a longstanding
commitment to breast
cancer causes, the visual
arts and public policy
development.
Scott holds a Bachelor of
Commerce and a Bachelor
of Laws (Hons) from
Auckland University.
Steven’s executive career
included 22 years at
General Electric, where
he led businesses across
the USA, Europe and
Asia Pacific. Steven was
President and CEO of
GE Mining, GE’s global
mining technology and
services business. Prior
to this he was President
and CEO of GE Australia,
NZ & PNG where he
had local responsibility
for GE’s Energy, Oil and
Gas, Aviation, Healthcare
and Financial Services
businesses.
Steven is Chairman of OFX
Group Ltd (since November
2016) and Deputy
Chairman of Nanosonics
Ltd (since July 2016). Over
recent years Steven has
been a Non-executive
Director of Veda Group Ltd
(2015–2016).
Steven holds a Bachelor of
Business from Charles Sturt
University and is a Fellow
of the Australian Institute
of Company Directors and
a Fellow of the Australian
Academy of Technological
Sciences and Engineering.
8
Executive
Leadership Team
Jon Briskin
Executive General
Manager, Retail
Greg Jarvis
Executive General Manager,
Energy Supply and Operations
Tony Lucas
Executive General Manager,
Future Energy and Business
Development
Sharon Ridgway
Executive General Manager,
People and Culture
Jon Briskin joined Origin in
2010 and was appointed
Executive General Manager,
Retail in December 2016. Jon
leads the teams responsible
for energy sales, marketing,
product development and
service experience for
Origin’s residential and SME
customers. Jon has held
various roles at Origin, leading
customer operations, service
transformation and customer
experience and prior to Origin
worked as a management
consultant.
Greg Jarvis joined Origin in
2002 as Electricity Trading
Manager and was appointed
General Manager, Wholesale,
Trading and Business Sales
in February 2011. Greg is
responsible for Wholesale,
Trading, Business Energy, Solar,
Generation and LPG. Greg has
over 20 years’ experience in the
financial and energy markets.
Tony Lucas joined Origin
as Risk Analysis Manager in
2002 and was appointed as
General Manager, Energy Risk
Management in February 2011.
Tony leads the team responsible
for Future Energy, Strategy
and Technology, ensuring that
Origin is well positioned to lead
the transition into a low-carbon,
technology-enabled world.
Tony began his career in the
banking industry before moving
into the energy sector.
Sharon Ridgway joined Origin in
2009 and has been responsible
for People and Culture and
the Origin Foundation since
December 2016. Sharon’s team
provide strategic support to
the business in key areas such
as engagement, diversity,
talent management and culture
change. Prior to Origin, Sharon
developed a wide range of
experience across operational
and human resources roles
while working at Dixons, a large
European electrical retailer.
Mark Schubert
Executive General Manager,
Integrated Gas
Samantha Stevens
Executive General Manager,
Corporate Affairs
Lawrie Tremaine
Chief Financial Officer
Mark Schubert joined Origin in
April 2015 and was appointed
Executive General Manager, IG,
in April, 2017. He is responsible
for Origin’s Integrated Gas
business, which manages the
Company’s portfolio of natural
gas and LNG interests. Mark
has also held a number of senior
positions during an 18-year
career with Shell, including
having direct accountability
for developing the world’s
first floating LNG facility –
Prelude FLNG.
Samantha Stevens joined Origin
in March 2018 as Executive
General Manager, Corporate
Affairs. Samantha is responsible
for Origin’s external affairs,
government and public policy
and employee communication
functions. Samantha has more
than 20 years’ experience in
corporate affairs, mainly in
the resources, industrials and
financial services sectors. Prior
to joining Origin, Samantha
headed up Corporate Affairs
for the global mining services
company, Orica, and previously
led the global media function
and all Corporate Affairs
M&A activity at global mining
house, BHP.
Lawrie Tremaine joined Origin
in June 2017 as Chief Financial
Officer. Lawrie leads the teams
responsible for all finance
activities, corporate strategy,
corporate development,
procurement, investor relations,
HSE and risk. Lawrie has over
30 years’ experience in financial
and commercial leadership,
predominantly in the resource,
oil and gas and minerals
processing industries having
previously worked at Woodside
Petroleum and Alcoa.
Annual Report 2019
Directors' Report
9
Directors’
Report
For the year ended 30 June 2019
In accordance with the Corporations Act
2001 (Cth), the Directors of Origin Energy
Limited (Company) report on the Company
and the consolidated entity Origin Energy
Group (Origin), being the Company and
its controlled entities, for the year ended
30 June 2019.
The Operating and Financial Review and
Remuneration Report form part of this
Directors’ Report.
1. Principal activities,
review of operations and
significant change in
state of affairs
During the year, the principal activity
of Origin was the operation of energy
businesses, including exploration and
production of natural gas, electricity
generation, wholesale and retail sale of
electricity and gas, and sale of liquefied
natural gas. There have been no significant
changes in the nature of those activities
during the year and no significant changes
in the state of affairs of the Company
during the year.
The Operating and Financial Review, which
forms part of this Directors’ Report, contains
a review of operations during the year and
the results of those operations, the financial
position of Origin, its business strategies,
and prospects for future financial years.
3. Dividends
Dividends paid during the year by the
Company were as follows:
2. Events subsequent to
balance date
4. Directors and
Company Secretary
Other than the matters described below,
no matters or circumstances have
arisen since 30 June 2019, which have
significantly affected, or may significantly
affect the Company’s operations, the results
of those operations or the Company’s state
of affairs in future financial years.
The Directors of the Company at any time
during or since the end of the financial
year are set out below. Their qualifications,
experience and special responsibilities are
set out on page 6. The Company Secretary
and her qualifications and experience are
also set out below.
On 25 July 2019, Origin announced that
notice had been given to redeem the
€1 billion Capital Securities due in 2074,
issued by Origin Energy Finance Limited,
at their first call date of 16 September 2019.
On 19 February 2019, Origin announced
that it had entered into an agreement
with APLNG to sell its Ironbark asset for
$231 million. Settlement of the transaction
occurred on 5 August 2019 and a net nil
profit or loss is expected to be realised in
the year ending 30 June 2020.
On 22 August 2019, the directors
determined a final dividend of 15 cents
per share, fully franked at 30 per cent, on
ordinary shares. The dividend will be paid
on 27 September 2019.
Gordon Cairns
Independent Non-executive Chairman
John Akehurst
Independent Non-executive Director
Maxine Brenner
Independent Non-executive Director
Frank Calabria
Managing Director & Chief
Executive Officer
Teresa Engelhard
Independent Non-executive Director
Greg Lalicker (appointed 1 March 2019)
Independent Non-executive Director
Bruce Morgan
Independent Non-executive Director
Scott Perkins
Independent Non-executive Director
Steven Sargent
Independent Non-executive Director
$ million
176
Helen Hardy
Company Secretary
10 cents per ordinary share,
fully franked, for the half year
ended 31 December 2018, paid
29 March 2019
In respect of the current financial year, the
Directors have determined a final dividend
as follows:
$ million
264
15 cents per ordinary share,
fully franked, for the year
ended 30 June 2019, payable
27 September 2019
The Dividend Reinvestment Plan (DRP) will
apply to this final dividend at no discount.
Helen Hardy joined Origin in March 2010.
She was previously General Manager,
Company Secretariat of a large ASX-listed
company, and has advised on governance,
financial reporting and corporate law at
PwC and Freehills. Helen is a Chartered
Accountant, Chartered Secretary and a
Graduate Member of the Australian Institute
of Company Directors. Helen is a Fellow of
the Governance Institute of Australia and is
the Chair of its NSW Council and a member
of its Legislative Review Committee. She
holds a Bachelor of Laws and a Bachelor
of Commerce from the University of
Melbourne, a Graduate Diploma in Applied
Corporate Governance and is admitted
to legal practice in New South Wales
and Victoria.
10
5. Directors’ meetings
The number of Directors’ meetings, including Board committee meetings, and the number of meetings attended by each Director during
the financial year are shown in the table below:
Board Meetings
Committee Meetings
Scheduled
Additional
Audit
Health,
Safety and
Environment
(HSE)
Nomination
Remuneration
& People
Risk
Directors
J Akehurst
M Brenner
G Cairns
F Calabria
T Engelhard
G Lalicker
B Morgan
S Perkins
S Sargent
H
10
10
10
10
10
4
10
10
10
A
10
10
10
10
10
4
10
10
10
H
A
1
1
1
1
1
0
1
1
1
1
1
1
1
1
0
1
1
1
H
–
4
4
–
4
–
4
4
–
A
–
4
4
–
4
–
4
4
–
H
4
–
4
4
–
–
4
–
4
A
4
–
4
4
–
–
4
–
4
H
A
H
1
1
1
–
–
–
1
1
–
1
1
1
–
–
–
1
1
–
–
–
6
–
6
–
–
6
6
A
–
–
6
–
6
–
–
6
6
H
4
4
4
–
–
–
4
4
–
A
4
4
4
–
–
–
4
4
–
H
A
Number of scheduled meetings held during the time that the Director held office or was a member of the committee during the year.
Number of meetings attended.
The Board held 10 scheduled meetings, including a two-day strategic review meeting and one additional meeting to deal with urgent
matters. There were also seven Board or Committee workshops to consider matters of particular relevance. In addition, the Board
conducted visits of Company operations at various sites and met with operational management during the year.
6. Directors’ interests in Shares, Options and Rights
The relevant interests of each Director as at 30 June 2019 in the shares and Options or Rights over such instruments issued by the
companies within the consolidated entity and other related bodies corporate at the date of this report are as follows:
Director
J Akehurst
M Brenner
G Cairns
F Calabria
T Engelhard
G Lalicker3
B Morgan
S Perkins
S Sargent
Ordinary shares held
directly and indirectly
Options over
ordinary shares
Deferred Share Rights
(DSR) over ordinary shares
Performance Share Rights
(PSR) over ordinary shares
Restricted
Shares
71,200
28,367
163,660
–
–
–
–
–
–
–
–
–
–
–
–
232,117
1,203,1451
176,0022
563,8692
106,6842
34,421
100,000
47,143
30,000
31,429
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Exercise price for Options and Rights:
1 570,150: $6.78; 231,707: $5.67; 401,288: $7.37.
2 Nil.
3 From the date of appointment on 1 March 2019.
No Director other than the Chief Executive Officer & Managing Director participates in the Company’s Equity Incentive Plan.
Annual Report 2019 Directors' Report
11
Securities granted by Origin
Non-executive Directors do not receive
Options or Rights as part of their
remuneration. The following securities
were granted to the five most highly
remunerated officers (other than Directors)
of the Company during the year ended
30 June 2019:
J Briskin
A Clarke
G Jarvis
M Schubert
L Tremaine
PSRs
61,990
55,408
66,490
66,490
122,449
Each of these awards was made in
accordance with the Company’s Equity
Incentive Plan as part of the relevant
executive’s remuneration. Further details
on Options and Rights granted during
the financial year, and unissued shares
under Options and Rights, are included
in section 7 of the Remuneration Report.
No Options or Rights were granted since
the end of the financial year.
Origin Shares issued on the exercise
of Options and Rights
Options
No Options granted under the Equity
Incentive Plan were exercised during or
since the year ended 30 June 2019, so
no ordinary shares in Origin were issued
as a result.
Rights
285,259 ordinary shares of Origin were
issued during the year ended 30 June
2019 on the vesting and exercise of DSRs
granted under the Equity Incentive Plan.
No amounts were payable on the vesting
of those DSRs and, accordingly, no
amounts remain unpaid in respect of any of
those shares.
Since 30 June 2019, no ordinary shares
were issued on the vesting of DSRs granted
under the Equity Incentive Plan.
7. Environmental regulation
and performance
The Company’s operations are subject
to environmental regulation under
Commonwealth, State and Territory
legislation. For the year ended 30 June
2019, the Company’s Australian operations
recorded some environmental incidents
arising from Origin’s activities, including
those where Origin was the operator of
a joint venture. These incidents resulted
in environmental impacts of a minor and
temporary nature. Regulators were notified
of reportable environmental incidents.
For FY2019, the Company received
one formal environmental notice from a
regulator arising from Origin’s activities.
One of these notices resulted in a $15,000
fine for an infringement at the Eraring
Power Station within the Energy Markets
Generation business. Appropriate remedial
actions have been taken or are being
undertaken in response to the notices.
8. Indemnities and insurance
for Directors and Officers
Under its Constitution, the Company may
indemnify current and past Directors and
Officers for losses or liabilities incurred
by them as a Director or Officer of the
Company or its related bodies corporate
to the extent allowed under law. The
Constitution also permits the Company
to purchase and maintain a Directors’ and
Officers’ insurance policy. No indemnity has
been granted to an auditor of the Company
in their capacity as auditor of the Company.
The Company has entered into agreements
with current Directors and certain former
Directors whereby it will indemnify those
Directors from all losses or liabilities in
accordance with the terms of, and subject
to the limits set by, the constitution.
The agreements stipulate that the Company
will meet the full amount of any such
liability, including costs and expenses to
the extent allowed under law. The Company
is not aware of any liability having arisen,
and no claim has been made against the
Company during or since the year ended
30 June 2019 under these agreements.
During the year, the Company has paid
insurance premiums in respect of Directors’
and Officers’ liability, and legal expense
insurance contracts for the year ended
30 June 2019.
The insurance contracts insure against
certain liability (subject to exclusions) of
persons who are or have been Directors or
Officers of the Company and its controlled
entities. A condition of the contracts is that
the nature of the liability indemnified and
the premium payable not be disclosed.
10. Non-audit services
The amounts paid or payable to KPMG for
non-audit services provided during the year
was $421,000 (shown to nearest thousand
dollar). Amounts paid to KPMG are included
in G7 to the full Financial Statements.
Based on written advice received from the
Audit Committee Chairman pursuant to a
resolution passed by the Audit Committee,
the Board has formed the view that the
provision of those non-audit services by
KPMG is compatible with, and did not
compromise, the general standards of
independence for auditors imposed by the
Corporations Act 2001 (Cth). The Board’s
reasons for concluding that the non-
audit services provided by KPMG did not
compromise its independence are:
• all non-audit services provided were
subjected to the Company’s corporate
governance procedures and were either
below the pre-approved limits imposed
by the Audit Committee or separately
approved by the Audit Committee;
• all non-audit services provided did
not, and do not, undermine the
general principles relating to auditor
independence as they did not involve
reviewing or auditing the auditor’s
own work, acting in a management
or decision-making capacity for the
Company, acting as an advocate for the
Company or jointly sharing risks and
rewards; and
• there were no known conflict of interest
situations nor any other circumstance
arising out of a relationship between
Origin (including its Directors and
officers) and KPMG which may impact
on auditor independence.
11. Proceedings on
behalf of the Company
The Company is not aware of any
proceedings being brought on behalf of
the Company, nor any applications having
been made in respect of the Company
under section 237 of the Corporations
Act 2001 (Cth).
9. Auditor independence
12. Rounding of amounts
There is no former partner or director of
KPMG, the Company’s auditors, who is
or was at any time during the year ended
30 June 2019 an officer of the Origin
Energy Group. The auditor’s independence
declaration for the financial year (made
under section 307C of the Corporations
Act 2001 (Cth)) is attached to and forms
part of this Report.
The Company is of a kind referred to in
ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191
dated 24 March 2016 and in accordance
with that class order, amounts in the
financial report and Directors’ Report have
been rounded off to the nearest million
dollars unless otherwise stated.
13. Remuneration
The Remuneration Report forms part of this
Directors’ Report.
12
Annual Report 2019
Operating and
Financial Review
For the year ended 30 June 2019
This report is attached to and forms part of the Directors’ Report.
1. Highlights1
Delivering value to shareholders
Statutory Profit
Underlying Profit
$1,211M
68.8 cps
$726M
41.3 cps
$1,028M
58.4 cps
$280M
15.9 cps
FY18
Free Cash Flow
$1,955M
FY19
FY18
FY19
Up $931 million on FY2018
Up $302 million on FY2018; growth in APLNG earnings
offset reductions in Energy Markets and Corporate
Adjusted net debt
$6,529M
$5,417M
$1,539M
FY18
FY19
FY18
FY19
Disposals
Origin excl. disposals
Down $1,112 million on FY2018
Underlying ROCE
Final Dividend
7.7%
9.1%
FY18
FY19
15 cps
Fully franked
Full year dividend of 25 cps
Distribution policy
30%–50% Free Cash Flow
1 Financial information in this report is shown on a continuing operations basis unless stated otherwise. For comparability, FY2018 has been restated to include premiums
relating to certain electricity hedges within Underlying Profit ($160 million pre-tax).
Operating and Financial Review
13
Underlying Profit
$726M
41.3 cps
FY18
FY19
Up $302 million on FY2018; growth in APLNG earnings
offset reductions in Energy Markets and Corporate
Keeping our people safe and engaged
TRIFR
5.0
4.0
3.0
2.0
1.0
0.0
2.2
Staff engagement
61%
61%
4.5
65
60
55
50
FY18
FY19
FY18
FY19
$1,028M
58.4 cps
Getting energy right for our customers
Strategic net promoter score
Interaction net promoter score
0
-2
-4
-6
-8
-10
-12
-14
FY18
-13
FY19
-6
23
22
21
20
21.7
22.0
FY18
FY19
Caring about our impact
Regional procurement spend
as % of total spend
Renewable + storage as % of total owned
and contracted generation capacity
14%
12%
10%
8%
6%
4%
2%
0%
5.0%
FY18
12.1%
25%
20%
15%
10%
5%
0%
17%
19%
FY19
FY18
FY19
14
1. Highlights (continued)
Energy Markets performance
Underlying EBITDA
Operating cash flow
Record output at Eraring
$1,574M
Down $77m or 5% vs FY2018
$1,707M
Up $362m vs FY2018. Cash
conversion of 108% due to
working capital movements
16.5 TWh
Offset by less gas-fired
generation
External gas sales
Cost to Serve
222 PJ
Up 3% vs FY2018
$610M
Down $15m
or 2% vs FY2018
12.2%
Underlying ROCE
Down 1.4%
vs FY2018
Integrated Gas performance
Underlying EBITDA
Net cash from APLNG
APLNG Production (37.5%)
$1,892M
Up $641m or 51% vs FY2018
$943M
Up $580m or 160% vs FY2018
255 PJ
In line with FY2018
Operating breakeven
Distribution breakeven
US$21
/BOE
US$36
/BOE
8.2%
Underlying ROCE
Up 4.1%
vs FY2018
Annual Report 2019 Operating and Financial Review
15
15
Operating and Financial Review 16
2. Strategy and prospects
Origin’s strategy is underpinned by our overarching purpose of getting energy right for our customers, communities and planet.
We operate in an evolving energy market shaped by global trends of decarbonisation, decentralisation of supply and digitisation, and our
strategy is designed to deliver value in this context.
Business context
In recent years, the Australian east coast energy market has been characterised by higher wholesale electricity and gas prices, heightened
levels of retail competition, and regulatory intervention, change and uncertainty. Origin has taken a leading role in addressing affordability
by increasing supply of gas and baseload electricity, implementing a range of price relief measures and advocating for stable policy that
adopts a whole of industry approach to affordable, reliable and lower emissions energy.
Domestic market context
Wholesale markets have been characterised
by higher electricity and gas prices flowing
through to customer bills, regulatory
interventions and uncertainty
Retail markets are highly competitive and
are undergoing regulatory change aimed at
addressing transparency and affordability
Origin’s electricity margin is predominantly driven by
outperforming the wholesale market cost of energy through
our generation portfolio (power stations and supply contracts).
Although Origin generates less electricity than it sells, a
significant portion of its wholesale costs are relatively fixed
and so margins are leveraged to movements in wholesale
market prices.
In natural gas, Origin’s margin is driven by long-term gas supply
and transportation contracts, which underpinned investment
in power stations and by historical gas exploration and
development.
Profitability in energy retailing is driven by attracting and
retaining customers through superior customer experience and
service at low cost.
Regulation has been introduced from July 2019 that places a
cap on electricity prices for “standing offers” – default contracts
for customers who have not signed up to a retailer’s market
offer.1 This will reduce margins in FY2020. The regulation also
requires electricity offers to be compared to a “reference bill”
based on the regulated cap prices. We expect this to improve
transparency.
The Australian Federal Government has indicated it intends to
underwrite new generation, either directly through government
owned assets (e.g. Snowy 2.0) or indirectly through financial
support. In this context, Origin will be cautious in deploying
capital for new investments.
International market context
The international LNG market is expected to be well supplied near term. The majority of APLNG
volumes are sold under long-term oil-linked export contracts to 2035 and long-term legacy
domestic contracts that roll-off over time
International oil and LNG markets are characterised by a high degree of volatility. Origin is the upstream operator and has a 37.5% interest
in APLNG which is a significant supplier to both domestic and international LNG markets. In FY2019, approximately 70% of APLNG gas
volumes were sold as LNG (of which more than 95% was under long-term oil-linked contracts), with the remaining 30% sold domestically
via a mix of long-term and short-term contracts. This contracting strategy minimises our exposure to the short-term LNG market.
As is typical in long-term LNG contracts, APLNG’s LNG contracts contain periodic price reviews every 5–7 years. The first opportunity
for such a price review will arise under APLNG’s LNG contract with Sinopec within the next 18 months and requires the parties to use
reasonable endeavours to agree on any changes required to achieve the objective of in-market pricing. In the absence of agreement,
neither party is permitted to request this first price review to be determined by an expert. Subsequent price reviews can be referred to
expert determination in the absence of agreement between the parties.
1 Some exclusions apply, such as solar customers in NSW, south east Queensland and SA, customers in an embedded network, customers on time of use tariffs or small
business customers on a controlled load tariff.
Annual Report 2019 17
17
Market outlook
We expect:
• renewables to reduce electricity
prices, but increase the need for
firming capacity
• volatility in oil and LNG
to continue
• near-term pressure on LNG
prices, but long term growth in
global LNG demand
Going forward we expect:
• renewable generation in the NEM to almost double over 2019 and
2020, placing downward pressure on average wholesale electricity and
renewable certificate prices but increasing volatility and the need for
more reliable, dispatchable (‘firming’) capacity such as flexible gas-fired
generation which Origin is well placed to supply;
• volatility in global oil and LNG markets to continue;
• near-term pressure on global LNG prices with significant new US supply
expected over 2020–2022;
•
long-term growth in global gas and LNG demand (particularly out of Asia);
• east coast domestic gas prices to be linked to medium term LNG
prices; and
• retail energy markets to remain competitive, but with improved
transparency due to market reference bill requirements.
Our strategy
“Connecting customers to the energy and technologies of the future”
Our strategy is centred around
our core beliefs:
Decarbonisation: Replacement of
coal by renewables, partnered with
firming capacity from gas, pumped
hydro and storage will support
emission reductions.
Decentralisation: Technological
advancement and consumer desire
for greater control will result in an
increase in distributed generation
and storage.
Digitisation: More connected
homes and businesses will change all
aspects of operations and customer
experience.
The right
energy
Accelerate towards
clean energy
Low cost operator
developing and growing
gas resources
The right
technologies
Embracing a decentralised
and digital future
The right
customer
solutions
Leading customer
experience and solutions
Underpinned by a commitment to capital discipline
Operating and Financial Review 18
The right energy
We believe our generation and fuel supply portfolios provide flexibility to adapt
and prosper in a changing energy market. We are targeting renewables and
storage to account for more than 25% of our owned and contracted generation
capacity by 2020.
We own Australia’s largest peaking gas generation fleet which is well placed
to provide firming capacity to support renewables and to supply a critical peak
demand in periods of extreme weather events or baseload supply shortages.
Coal currently plays a critical role for baseload supply. As coal retires and
renewables increase, the market will require investment in reliability. We are
progressing a range of brownfield generation opportunities in fast-start gas,
pumped hydro and batteries which would further increase our flexibility and
capacity to support the increase in renewables. Subject to market signals and
regulatory certainty, these can be quickly implemented at the appropriate time.
Our Integrated Gas business is well placed to meet growing global gas demand
with existing liquefaction capacity and upstream opportunities. We are maturing
new resources at APLNG and at other Origin upstream assets and are focused on
being a globally competitive supplier of LNG into Asia.
As APLNG upstream operator, over the last 18 months, we have implemented
a smaller, leaner asset-led structure. We have simplified our well designs and
embedded drilling execution efficiencies, lowered our power costs and optimised
our maintenance activities.
Beyond APLNG, we have the opportunity to scale the low cost operating model
to new upstream development opportunities. In the Beetaloo Basin, we have a
70% interest in exploration permits over 18,500km2 and in late 2018 commenced
Stage 2 of a farm-in work program targeting two independent potentially liquids
rich shale gas plays. Over FY2020, we plan to drill and fracture stimulate two
horizontal wells and then undertake extended flow testing of both liquids and gas.
We have also recently entered into agreements with Bridgeport Energy to
farm into a 75% equity position and operatorship of five permits located in the
Cooper-Eromanga Basin in southwest Queensland. The staged farm-in work
program involves the drilling of up to five exploration wells to be completed by
the end of 2024 targeting both unconventional liquids and gas. Origin will carry
up to the first $49 million of the staged exploration program.
Accelerate towards
clean energy
Low cost operator
developing & growing gas
resources
Annual Report 2019 19
The right technologies
The energy markets around the world are rapidly transforming with both
low-cost renewables and new digital technologies, and Australia is no exception.
The continued penetration of decentralised generation and storage, combined
with the rise of internet enabled devices, are changing the way our customers
interact with us and use energy at home and in business. We are developing
a leading digital platform and analytics capability to connect millions of distributed
assets and data points in order to provide more personalised and value-add
services to our customers, both in front of and behind the meter.
We are working with other businesses to source technical solutions and
capabilities. We are a co-founding member of The Free Electrons Global Energy
group which brings together global utilities and leading start-ups looking to
deploy new technology. Domestically, we sponsor EnergyLab, Australia’s leading
platform for launching energy startups. We have internally developed and
trialled an artificial intelligence platform to connect and orchestrate distributed
assets such as air conditioning units, batteries and hot water systems. Through
technology such as this, we expect to be able to manage distributed assets at
critical times of market volatility.
The right customer solutions
Origin is Australia’s largest energy retailer by customer accounts and is well
placed to harness opportunities to deliver value to customers in a changing
energy market. Customers are at the heart of everything we do and our
immediate focus is on transforming their experience to one which is simple,
seamless and increasingly digital. We are simplifying our product offerings –
reducing complexity for customers. Our focus is on balancing share and
managing value by targeting customer segments with different products,
pricing and channels, and minimising cost to serve. We expanded Origin
Broadband allowing customers to benefit from organising their energy and
broadband with one call. We also acquired OC Energy which expands our
business in the growing centralised energy services sector. We launched new
multi-channel experiences making it easier for customers to interact with us.
Our digital first approach is driving more customer interactions through our
on-line channels.
At the same time, we are targeting retail cost savings of more than $100 million by
FY2021 compared with FY2018 and are focused on growing new revenue streams
such as centralised energy services, solar and storage, and adjacencies such
as broadband.
Embracing a decentralised
and digital future
Leading customer
experience and solutions
Operating and Financial Review 20
3. FY2020 Guidance
Guidance is provided on the basis that market conditions do not materially change and that the regulatory and political environment do
not result in further adverse impacts on operations.
Energy Markets
Underlying EBITDA
Integrated Gas – APLNG 100%
Production
Capex and opex, excluding purchases(a)
Corporate
Underlying costs
Capital expenditure (including investments)
FY2019
FY2020
guidance
A$m
1,574
1,350–1,450
PJ
A$m
A$m
A$m
679
680–700
2,691
2,800–3,000
(234)
(70–80)
(405)
(530–580)
(a) Operating cash costs excludes purchases and reflects royalties paid at the breakeven oil price. Royalties increase as oil price increases.
Energy Markets
FY2020 Underlying EBITDA is estimated to be lower at $1,350–$1,450 million driven by:
• Electricity gross profit reduction of $180–$220 million reflecting the impact of the DMO/VDO ($100 million), lower green scheme
prices flowing through to Business tariffs, continued impacts of lower usage and increased generation operating costs associated with
the Eraring ash dam;
• Gas gross profit remaining relatively stable; and
• Cost to serve savings of $40–$50 million reflecting ongoing transformation efforts in the Retail business.
On 8 July 2019, there was an electrical fault at one unit at the Mortlake power station. The power station continues to operate with the
remaining unit and we are working to bring the damaged unit back online for the summer peak period. We have provided guidance on the
basis it is back online for summer and insurance claims are recouped in FY2020.
Integrated Gas
We estimate APLNG (100%) FY2020 production of 680–700 PJ and total cash costs of $2.8–$3.0 billion1 reflecting:
•
Increased operated production with Eurombah Reedy Creek Interconnect (ERIC) pipeline online;
• Higher well costs due to a larger proportion of fracked and horizontal wells and preparatory spend on FY2021 wells; and
• Higher workovers due to more wells online and spend on downstream major maintenance and spares.
APLNG is targeting FY2020 distribution breakeven (post servicing project finance) of US$33–36/boe2. For every US$10/boe
realised above distribution breakeven, Origin’s share of APLNG distributable cash flow is estimated to be approximately US$200 million.
We continue to focus on cost reduction and value enhancement initiatives.
The current estimate of FY2020 oil and LNG hedging and trading costs is $84 million. Refer to Section 4.6 for details.
Corporate
FY2020 corporate costs are estimated to be $70–$80 million.
Capital expenditure (including investments) is estimated to be $530–$580 million including $110–$120 million exploration and appraisal
spend, primarily relating to Beetaloo Stage 2 appraisal and preparation for Stage 3.
1 Excludes purchases and reflects royalties payable at the breakeven oil price.
2 FX Rate: 0.70 AUD/USD, royalties payable at the breakeven oil price, excluding Ironbark acquisition costs.
Annual Report 2019 21
4. Financial update
Comparative financial information in this report is shown on a continuing operations basis unless stated otherwise. For the purpose
of comparison, FY2018 has been restated to include premiums relating to certain electricity hedges within Underlying Profit ($160
million pre-tax) and to reflect a reclassification of movements in electricity futures exchange collateral balances to operating cash flows,
previously in financing cash flows ($170 million outflow).
4.1 Financial summary
Year ended 30 June
Statutory Profit/(Loss) – total operations
Statutory Profit/(Loss) – continuing operations
Underlying EBITDA – continuing operations
Energy Markets
Integrated Gas
Corporate
Underlying Profit – continuing operations
Underlying ROCE
Energy Markets
Integrated Gas
Cash flow from operating activities – continuing operations
Net cash from APLNG
Free Cash Flow
Adjusted Net Debt(a)
Adjusted Net Debt/Adjusted Underlying EBITDA
2019
($m)
1,211
1,211
3,232
1,574
1,892
2018
($m)
218
280
2,787
1,651
1,251
(234)
(115)
1,028
9.1%
12.2%
8.2%
1,325
943
1,539
5,417
2.6x
726
7.7%
13.6%
4.1%
983
363
1,955
6,529
3.7x
Change
($m)
Change
(%)
993
931
445
(77)
641
(119)
302
342
580
(416)
(1,112)
456
333
16
(5)
51
103
42
1.4%
(1.4%)
4.1%
35
160
(21)
(17)
(30)
(a) FY2018 Adjusted Net Debt is restated to remove cash held by Origin, as Upstream Operator, to fund APLNG day-to-day operations
FY2019 statutory profit increased $931 million to $1,211 million, reflecting higher effective A$ oil price in APLNG, lower financing costs,
lower impairment charges and favourable movements in fair value and foreign exchange expense.
Higher APLNG earnings and lower interest costs more than offset reduced Energy Markets earnings, higher corporate costs and higher
APLNG related hedging costs, to underpin a 42% increase in Underlying Profit to $1,028 million and a 1.4% increase in Underlying ROCE
to 9.1% in FY2019.
Operating cash flows increased $342 million to $1,325 million primarily due to working capital improvements, and net cash flows from
APLNG which increased by $580 million to $943 million. Free cash flow reduced by $416 million reflecting the $1,585 million sale of
Lattice Energy in the prior period.
Adjusted Net Debt reduced by $1.1 billion to $5.4 billion, this represents 2.6x Adjusted Net Debt/Adjusted Underlying EBITDA – at the
lower end of our target capital structure range of 2.5–3.0x. Refer to section 4.6 for details.
4.2 Dividends
The Board has determined to pay a 15 cps fully franked dividend in respect of the second half of FY2019.
Origin will seek to pay sustainable shareholder distributions through the business cycle and will target an ordinary dividend payout range
of 30% to 50% of free cash flow per annum. Distributions will take the form of franked dividends, subject to the company’s franking
credit balance. Free cash flow is defined as cash from operating activities and investing activities (excluding major growth projects),
less interest paid.
Remaining cash flow after ordinary dividends will be applied to further debt reduction, value accretive organic growth and acquisition
opportunities and/or additional capital management initiatives.
The Board maintains discretion to adjust shareholder distributions for economic conditions.
The dividend reinvestment plan (DRP) will operate with nil discount, and the requirements of the DRP shares will be satisfied through on-
market purchase. The DRP price of shares will be the average purchase price of shares, rounded to two decimal places, bought on market
over a period of 10 trading days commencing on the third trading day immediately following the Record Date.
Operating and Financial Review 22
4.3 Reconciliation from Statutory to Underlying Profit
Year ended 30 June
Statutory Profit/(Loss) – continuing operations
Statutory Profit/(Loss) – discontinued operations
Statutory Profit/(Loss) – total operations
Items Excluded from Underlying Profit (post-tax):
Increase/(decrease) in fair value and foreign exchange movements
Oil and gas
Electricity
FX and interest rate
Other financial assets/liabilities
FX on LNG related financing
Disposals, impairments and business restructuring
Total Items Excluded from Underlying Profit (post-tax)
Underlying Profit – total operations
Underlying Profit – discontinued operations
Underlying Profit – continuing operations
2019
($m)
1,211
–
1,211
139
59
(88)
(43)
274
(63)
44
183
1,028
–
1,028
2018
($m)
280
(62)
218
(298)
(113)
(175)
(5)
(32)
27
(394)
(692)
910
184
726
Change
($m)
Change
(%)
931
62
993
437
172
87
(38)
306
(90)
438
875
118
(184)
302
333
(100)
456
(147)
(152)
(50)
760
(956)
(333)
(111)
(126)
13
(100)
42
Fair value and foreign exchange movements reflect unrealised, fair value gains/(losses) associated with commodity hedging, interest
rate swaps and other financial instruments. These amounts are excluded from Underlying Profit to remove the volatility caused by
timing mismatches in valuing financial instruments and the underlying transactions to which they relate. See below and Appendix 1 for
further details.
• Oil and gas derivatives manage exposure to fluctuations in the underlying commodity price to which Origin is exposed through its gas
portfolio and indirectly through Origin’s investment in APLNG. See section 4.6 for details of oil hedging carried out in relation to Origin’s
investment in APLNG.
• Electricity derivatives including swaps, options, power purchase arrangements and forward purchase contracts are used to manage
fluctuations in wholesale electricity and environmental certificate prices in respect of electricity purchased to meet customer demand.
• FX and interest rate derivatives manage exposure to foreign exchange and interest rate risk associated with the debt portfolio.
A significant portion of debt is Euro denominated and cross currency interest rate swap derivatives hedge that debt to AUD or USD.
A portion of the foreign debt is swapped to USD as a natural offset to the investment in APLNG which has a USD functional currency
and delivers USD distributions.
• Other financial assets/liabilities include investments held by Origin including MRCPS issued by APLNG.1
• Foreign exchange loss on LNG financing relates to FX fluctuations from US dollar and Euro debt instruments swapped to US dollars.
The foreign exchange movement provides a partial economic hedge against Origin’s US dollar MRCPS issued by APLNG included
within other financial assets/liabilities above.
Disposals, impairments and business restructuring items are either non-cash or non-recurring items and are excluded from Underlying
Profit to provide a better reflection of the underlying performance of the business and include:
• Gain on disposal of non-core assets ($8 million post-tax) and gain on sale of Denison ($13 million post-tax, share of APLNG);
• Tax benefit recognised in respect of Ironbark being held for sale ($68 million) partly offset by an impairment of Ironbark ($34 million
post-tax) which results in a net benefit of $34 million;
• Finalisation of the tax position related to the sale of Lattice Energy in FY2018 ($25 million benefit);
•
Impairment reversal ($9 million post-tax) in relation to Heytesbury permits; and
• One-off building lease exit costs ($13 million post-tax), restructuring and transaction costs ($27 million post-tax).
1
Under AASB 9, from 1 July 2018, MRCPS is held at fair value, rather than at cost.
Annual Report 2019 23
4.4 Underlying Profit
Year ended 30 June
Continuing operations:
Energy Markets
Integrated Gas – Share of APLNG
Integrated Gas – Other
Corporate
Underlying EBITDA
Underlying depreciation and amortisation
Underlying share of ITDA
Underlying EBIT
Underlying interest income – MRCPS
Underlying net financing costs – other
Underlying profit before income tax and non-controlling interests
Underlying income tax expense
Non-controlling interests’ share of underlying profit
Underlying profit
Discontinued operations:
Underlying profit
Total operations:
Underlying profit
2019
($m)
2018
($m)
Change
($m)
Change
(%)
1,574
2,123
(231)
(234)
1,651
1,405
(154)
(115)
3,232
2,787
(419)
(1,504)
1,308
226
(380)
1,154
(123)
(3)
1,028
(381)
(1,194)
1,212
227
(497)
942
(213)
(3)
726
(77)
718
(77)
(119)
445
(38)
(310)
96
(1)
117
212
90
–
302
(5)
51
50
103
16
10
26
8
(0)
(24)
23
(42)
–
42
–
184
(184)
(100)
1,028
910
118
13
Movements in Underlying Profit ($m)
(77)
(119)
(38)
116
/
90
1,028
408
(77)
726
FY2018
EM EBITDA
IG – Share of
APLNG Profit
IG – Other
EBITDA
Corporate
EBITDA
Depreciation
& amortisation
Net financing
costs
Tax
expense
FY2019
Refer to sections 5.1 and 5.2 respectively for Energy Markets and Integrated Gas analysis.
Origin corporate costs increased by $119 million due to a non-cash provision increase of $170 million ($70 million in FY2018) primarily
relating to remediation of the Osborne site in South Australia that operated as a former gasworks as well as FY2018 FX gains not repeated
($17 million). After adjusting for these one-off items, corporate costs remained stable in FY2019.
Origin depreciation and amortisation increased by $38 million primarily reflecting a revision of asset useful lives implemented from
1 January 2018.
Underlying share of ITDA increased primarily due to higher tax expense on higher earnings at APLNG and lower AUD/USD exchange rate
in the conversion of APLNG’s costs to Australian dollars.
The $116 million reduction in net financing costs is as a result of a lower net debt balance and a lower average cost of debt due to
refinancing activities.
6
Operating and Financial Review 24
4.5 Cash flows
Operating cash flow
Year ended 30 June
Underlying EBITDA
APLNG Underlying EBITDA (non-cash)
Other non-cash items in Underlying EBITDA(a)
Change in working capital(a)
Energy Markets(a)
Energy Markets – electricity futures exchange collateral(a)
Integrated Gas – excluding APLNG
Corporate
Other(a)
Tax (paid)/refunded
Cash flow from operating activities (continuing operations)
Discontinued operations
Total cash flow from operating activities
2019
($m)
3,232
(2,123)
277
84
(63)
125
17
5
(35)
(110)
1,325
–
1,325
2018
($m)
2,787
(1,405)
250
(503)
(225)
(170)
(55)
(53)
(108)
(38)
983
140
1,123
Change
($m)
Change
(%)
445
(718)
27
587
162
295
72
58
73
(72)
342
(140)
202
16
51
11
(117)
(72)
(174)
(131)
(109)
(68)
189
35
(100)
18
(a) Items reclassed to align with the statutory cash flow and to include electricity futures collateral movements, previously in financing activities. See Appendix 1 for details.
Cash flow from operating activities increased $342 million due to improvements in working capital (+$587 million), partly offset by a
reduction in Underlying EBITDA after adjusting for non-cash items (–$246 million).
FY2019 working capital decreased by $84 million, primarily relating to Energy Markets reflecting movements in futures exchange collateral
(+$125 million); improvements in Business collections (+$157 million) and lower coal inventory (+$66 million), partially offset by Retail net
movements (–$62 million), higher Green inventory (–$114 million) and lower AEMO creditors and coal payables (–$88 million).
Other non-cash items include provision increases for legacy site remediation ($170 million; FY2018: $70 million), and bad and doubtful
debts ($84 million; FY2018: $88 million), share-based remuneration ($21 million; FY2018: $25 million), amortisation of oil hedge premiums
paid in FY2017 (FY2018: $64 million), and exploration write-offs.
Other cash flows include restructuring and transaction costs excluded from Underlying Profit.
Annual Report 2019 2525
Investing cash flow
Year ended 30 June
Capital expenditure
Distribution from APLNG
Interest received from other parties
Investments/acquisitions
Disposals
Cash flow from investing activities (continuing operations)
Discontinued operations
Total cash flow from investing activities
2019
($m)
(341)
974
2
(64)
18
589
–
589
2018
($m)
(318)
287
2
(10)
1,485
1,446
(94)
1,352
Change
($m)
Change
(%)
(23)
687
–
(54)
(1,467)
(857)
94
(763)
7
239
–
540
(99)
(59)
(100)
(56)
FY2019 capex of $341 million was lower than guidance of $385–$445 million mostly due to timing and comprised:
• Generation sustain ($111 million) primarily related to Eraring Power Station maintenance ($80 million);
• Other sustain ($128 million) including costs associated with regulatory market reforms ($31 million), LPG ($29 million), and Solar &
Energy Services ($16 million);
• Productivity/Growth ($84 million), including Quarantine upgrade ($17 million), and IT investments ($33 million);
• Exploration and appraisal spend ($18 million) primarily related to Beetaloo.
Distributions from APLNG amounted to $974 million comprising $229 million of MRCPS interest and $745 million of MRCPS buy backs.
Origin separately repaid $31 million of a loan relating to project finance debt service reserve accounts (included in financing activities
below). Total net cash from APLNG amounted to $943 million.
Investments/acquisitions comprised investments in OC Energy ($29 million, net of cash acquired), Intertrust Technologies Corporation
($28 million) and other Future Energy investments.
Financing cash flow
Year ended 30 June
Net proceeds/(repayment) of debt
Operator cash call movements
Close out of oil forward sale agreements
On-market purchase of employee shares
Close out of foreign currency contracts
APLNG loan (repayment)/proceeds(a)
Interest paid
Dividends paid
Total cash flow from financing activities
Effect of exchange rate changes on cash
2019
($m)
2018
($m)
Change
($m)
Change
(%)
185
(1,675)
1,860
7
–
(77)
(64)
(31)
(375)
(165)
(520)
2
(81)
(265)
–
(56)
76
(474)
(2)
88
265
(77)
(8)
(107)
99
(163)
(2,477)
1,957
1
1
(111)
(109)
(100)
n/a
14
(141)
(21)
8,150
(79)
100
(a) Represents funds distributed by APLNG upon issuance of a bank guarantee to APLNG by Origin in respect of project finance debt service reserve accounts. $31 million of
the loan was repaid in FY2019 in line with changes to project finance requirements.
Operator cash call movements represents the movement in funds held and other balances relating to Origin’s role as upstream operator
of APLNG. On-market purchase of employee shares represents the purchase of shares associated with FY2016 to FY2019 employee
share remuneration schemes. Close out of foreign currency contracts represents the partial closure of contracts executed in prior periods
to monetise the value in certain cross currency interest rate swap contracts. The value of outstanding contracts as at 30 June 2019 is
$201 million, included within Economic hedges in Note D4 of the Origin Energy Financial Statements.
Operating and Financial Review 26
Free cash flow
Free cash flow represents cash flow available to repay debt, invest in major growth projects or return cash to shareholders and is prepared
on the basis of equity accounting for APLNG.
Year Ended 30 June ($m)
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Energy
Markets
Integrated Gas
– Share of APLNG
Integrated Gas
– Other
Corporate
Total
Underlying EBITDA
1,574
1,651
2,123
1,405
(231)
(154)
(234)
(115)
3,232
2,787
Non-cash items
Change in working capital
Other
Tax (paid)/refunded
90
62
(20)
–
93
(2,123)
(1,405)
(395)
(5)
–
7
17
(1)
–
77
(55)
(15)
–
180
81
(1,845)
(1,154)
5
(15)
(110)
(53)
(88)
(38)
84
(503)
(35)
(108)
(110)
(38)
Operating cash flow
1,707
1,345
–
–
(208)
(149)
(174)
(213)
1,325
983
Capital expenditure
(304)
(293)
Distribution from APLNG
–
–
(Acquisitions)/disposals
(53)
258
Interest received
–
–
Investing cash flow
(357)
(35)
Interest paid
–
–
Free cash flow
1,350
1,310
(28)
(21)
974
287
1
–
–
–
946
266
(9)
–
7
2
–
(5)
–
(341)
(318)
974
287
1,217
(46)
1,475
2
2
2
1,214
589
1,446
–
–
(375)
(474)
(375)
(474)
737
117
(548)
527
1,539
1,955
–
–
–
–
Proportionate free cash flow
Free cash flow prepared on the basis of proportionate consolidation of APLNG.
Year Ended 30 June ($m)
2019
2018
2019
2018(a)
2019
2018
2019
2018
2019
2018
Energy
Markets
Integrated Gas
– Share of APLNG
Integrated Gas
– Other
Corporate
Proportionate
Total
Operating cash flow
1,707
1,345
2,076
1,472
(208)
(149)
(174)
(213)
3,401
2,456
Investing cash flow(b)
(357)
(35)
(487)
(480)
(27)
Interest paid
–
–
(192)
(157)
–
(21)
–
–
1,214
(871)
678
(375)
(474)
(567)
(630)
Proportionate free cash flow
1,350
1,310
1,397
836
(235)
(170)
(548)
527
1,963
2,504
(a) FY2018 has been reclassified to align to statutory financial statement classification.
(b) Cash flow from investing activities has been adjusted to remove cash flows between Shareholders and APLNG.
Presenting free cash flow on this basis highlights cash generation on an unlevered basis prior to the impact of APLNG’s project finance
debt which is serviced by APLNG prior to shareholder distributions.
Proportionate Free Cash Flow was $1,963 million in FY2019 representing a yield of 15% as at 20 August 2019.1
APLNG generated free cash flow of $3.7 billion on a 100% basis in FY2019, of which $2.6 billion was distributed to shareholders and
$0.8 billion was directed to paying down project finance principal. The balance of cash was retained by APLNG to meet the settlement on
the Ironbark acquisition and other operational funding requirements.
1 Proportionate FCF Yield based on 30 day VWAP for Origin of $7.48 per share at 20 August 2019.
Annual Report 2019 27
4.6 Capital management
Origin’s Adjusted Net Debt reduced from $6,529 million to $5,417 million during the 12 months ending 30 June 2019, driven by strong
operating cash flow, increased cash received from APLNG and lower interest paid.
During FY2019 we completed the following capital management initiatives:
• Announced the sale of Ironbark to APLNG for $231 million which completed on 5 August 2019;
• Sale of two non-core assets, the Heytesbury depleted gas fields and our interest in a Vietnamese LPG business;
• Maintained relatively stable capital expenditure;
• Reintroduced a base dividend; and
• Refinanced debt to manage term and cost:
– Raised US$525 million (A$749 million) of 10 year debt via the US Private Placement;
– Raised ~A$555 million debt via a term loan facility with maturities ranging from 7.0 to 7.4 years; and
– Repaid US$800 million (A$853 million) debt obligation.
We announced the acquisition of OC Energy for an upfront payment of $33 million and deferred payments of $25 million. This acquisition
has expanded our business in the growing centralised energy services sector. We also agreed to farm into a 75% equity position and
operatorship of five upstream permits in southwest Queensland. Origin will carry up to the first $49 million of a staged exploration program
targeting both unconventional liquids and gas.
During FY2019, APLNG refinanced a total of US$4.5 billion of project finance debt; US$2.0 billion via a new 12-year US Private Placement
note and US$2.5 billion via a new bank loan agreement with a syndicate of international and domestic banks. The estimated impact of
the refinancing is a reduction in the distribution breakeven of ~US$3.5/boe and a higher cash distribution to Origin of ~A$100 million per
annum on average over the FY2020 to FY2025 period, driven by lower interest cost and principal amortisation deferral.
Adjusted net debt
(1,325)
Movements in Adjusted Net Debt ($m)
6,529
(943)
46
341
373
165
230
5,417
30 June 2018
Operating
cash flow
Net cash
from APLNG
Capex
Net acquisition
proceeds
Net interest
payments
Dividend
FX/Other
30 June 2019
Strong cash generation from both Energy Markets and Integrated Gas, combined with lower interest cost contributed to a $1.1 billion
reduction in Adjusted Net Debt to $5,417 million.
FX/Other primarily relates to non-cash translation of unhedged USD denominated debt (A$93 million), the on-market purchase of
employee shares ($77 million) and the closing out of foreign currency contracts ($64 million).
Operating and Financial Review
28
Origin’s objective is to achieve an Adjusted Net Debt/Adjusted
Underlying EBITDA ratio at the low end of the 2.5–3.0x
range which translates to a gearing target at the low end of
~25%–30% range.
As at 30 June 2019, this ratio was 2.6x and gearing was 29%,
down from 3.7x and 36% respectively at 30 June 2018.
Reflecting the deleveraging and the strong cash flow generated
during the period, the Company’s long-term credit ratings were
upgraded to BBB (stable) from S&P and Baa2 (stable) from
Moody’s – consistent with the target credit rating.
Debt portfolio management
Average term to maturity decreased from 3.1 years at June 2018
to 3.0 years at 30 June 2019. Average interest rate on drawn debt
decreased from 6.5% in FY2018 to 5.9% in FY2019.
As at 30 June 2019, Origin held $1.5 billion of cash and $3.8 billion
in committed undrawn debt facilities. This total liquidity position of
$5.3 billion is held to repay $3.9 billion of drawn debt, guarantee
and hybrid facilities maturing by December 2020, which primarily
reflects debt raised during construction of the APLNG project.
The hybrid has a legal maturity of 2074, which is reflected in the
Company’s financial statements. However, the Company has the
right to call the hybrid at par on 16 September 2019 (“first call
date”) and has notified noteholders of its intention to do so. For
this reason, its maturity in the chart reflects the first call date. This
is estimated to reduce FY2020 interest paid by $60 million.
APLNG funding
6x
5x
4x
3x
2x
3.0
2.5
2.0
1.5
1.0
0.5
Adjusted Net Debt/Adjusted Underlying EBITDA
Target (2.5–3.0x)
FY17
FY18
FY19
Target
Debt/EBITDA
Debt maturity profile ($b)
FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30+
Loans and Bank Guarantees – Undrawn
Loans and Bank Guarantees –Drawn
Hybrid
Capital Markets Debt
During the construction phase of APLNG, shareholders contributed capital into APLNG via ordinary equity and the investment in
preference shares (termed MRCPS) issued by APLNG. APLNG distributes funds to shareholders firstly via fixed dividends of 6.37% p.a. on
the MRCPS, recognised as interest income by Origin, and second via buy-backs of MRCPS, refer to section 4.5 above. The fair value of
MRCPS held by Origin at 30 June 2019 was A$3,045 million.
APLNG also funded construction via a US$8.5 billion project finance facility, signed in 2012. The outstanding balance at 30 June 2019
was US$6,939 million (A$9,896 million), gross of unamortised debt fees of US$98 million (A$139 million). As at 30 June 2019, gearing1
in APLNG was 30%, down from 35% at 30 June 2018.
The table below outlines APLNG’s project finance debt amortisation profile following the refinancing activity. APLNG’s average interest
rate associated with its project finance debt portfolio for FY2020 is estimated to be ~3.6%.
Closing balance as
at 30 June (US$bn)
Bank loan
US Exim
USPP
Total
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2.5
2.4
2.0
6.9
2.3
2.2
2.0
6.5
2.0
2.0
2.0
6.0
1.7
1.8
2.0
5.5
1.4
1.5
2.0
4.9
1.2
1.2
1.9
4.3
0.9
1.0
1.9
3.8
0.6
0.7
1.8
3.1
0.3
0.4
1.7
2.4
–
0.2
1.4
1.6
–
–
0.9
0.9
–
–
0.3
0.3
1
Gearing is defined as project finance debt less cash to project finance debt less cash plus equity.
Annual Report 2019
29
Oil hedging
FY2020 Oil hedging
Origin has entered into oil hedging instruments to manage its
share of APLNG oil price risk based on the primary principle of
protecting the Company’s investment grade credit rating.
In FY2020, Origin’s share of APLNG related JCC oil price
exposure is estimated to be approximately 23 mmbbl. 11.6
mmbbl has been hedged at a floor of US$48/bbl, 2.5 mmbbl
has been capped at US$85/bbl and 3 mmbbl has been fixed
via a swap at A$97/bbl. These transactions were executed for a
total premium cost of $28 million and based on forward market
prices1, the value of the hedge contracts in FY2020 is a gain of
$21 million.
)
l
b
b
/
$
S
U
(
e
c
i
r
p
l
i
o
e
v
i
t
c
e
f
f
E
85
80
75
70
65
60
55
50
45
45
50
55
60
65
70
75
80
85
FY20 average market oil price (US$/bbl)
FY20 effective price
FY20 effective price after hedging
Effective oil prices are in JCC crude oil equivalents and are inclusive of
contract pricing lags, hedging gains/(losses) and premium costs.
LNG hedging and trading
Uncontracted gas volumes produced by APLNG are sold to the domestic and spot LNG markets. To manage price risk associated with the
LNG spot volumes, Origin entered into forward fixed price hedge contracts that settle over the period to the end of FY2020. FY2019 LNG
hedging and trading costs were $84 million reflecting higher realised JKM prices. A previous hedge position for FY2020 has been fully
closed out at a cost of $60 million. There are no LNG hedge positions related to APLNG’s uncontracted sales exposure beyond FY2020.
In 2013, Origin established a Henry Hub linked contract to purchase 0.25 mtpa from Cameron LNG for a period of 20 years, which is
expected to commence in FY2020 as commercial operations begin at that project. In 2016 Origin established a contract with ENN Energy
Trading Company Limited to sell 0.28 mtpa on a Brent oil-linked basis commencing in FY2019 and ending in December 2023. The ENN
contract provides a volumetric hedge for LNG from the Cameron contract for the period to December 2023. Based on forward market
prices1 the value of the contracts in FY2020 is a $17 million loss. The net present value of the combined contractual position, based on
forward market and independent forecast prices, over the life of the contracts is not material.
1
As at 20 August 2019.
Operating and Financial Review
30
5. Review of segment operations
5.1 Energy Markets
Overview
Underlying EBITDA
Record output at Eraring
$1,574M
Down $77m or
5% vs FY2018
16.5 TWh
Offset by less
gas-fired generation
476 MW
new contracted
renewable supply
online in FY2019
Fuel Supply
•
•
Gas
Coal
Transportation
• Flexible contracted
gas trnasport
arrangements
Generation
•
1 black coal generator
•
•
Australia’s largest
gas–fired fleet
Growing contracted
renewables
Networks
• Regulated
Customers
•
Retail (consumer and SME)
•
Business (commercial
and industrial)
•
Wholesale
Energy Markets operations
Energy Markets comprises Australia’s largest energy retail business by customer accounts, Australia’s largest fleet of gas-fired peaking
power stations supported by a substantial contracted fuel position, a growing supply of contracted renewable energy and Australia’s
largest power station, the Eraring black coal-fired power station. Energy Markets reports on an integrated portfolio basis. Electricity and
Natural Gas gross profit and retail costs to serve are reported separately, as are the EBITDA of the Solar and Energy Services, Future
Energy and LPG divisions.
Operations
Wholesale energy prices remained elevated during FY2019. Electricity prices were impacted by low hydro storage levels in drought
conditions, unplanned generation outages, delays in commissioning renewable capacity and extreme weather events. East coast gas
prices continue to be impacted by tightening supply and strong medium term regional demand, partially offset by less demand for gas-
fired generation. We have taken a leading role by increasing supply, including record output at Eraring despite an 11 week unit outage,
and 476 MW of contracted renewable supply coming online.
Retail markets were highly competitive with margins reduced by actions to address customer affordability and the growth in discounts,
primarily carried forward from FY2018. During FY2019, our customer accounts grew by 18,000 following the acquisition of 55,000 OC
Energy customers. We focused on balancing share and managing value by targeting customer segments with different products, pricing
and channels and minimising low value segments and pricing. Market churn reduced in the second half and we maintained a churn rate
of 6% better than the market. Our price relief measures for customers included absorbing cost increases in New South Wales, low rates
for hardship customers, a low rate concession product, and ensuring that no electricity customers on flat tariffs are paying above the
Commonwealth Government’s Default Market Offer introduced from 1 July 2019.
We commenced our Retail transformation program and we have lifted customer experience, reduced costs and grown in Solar, Broadband
and Centralised Energy Services, including acquiring OC Energy. Our product suite has simplified with the retirement of ~38 products,
63% of customers on e-billing, digital interactions and self service increased to 83%, from 63% with service call volumes reducing by
20%. Onshore headcount has reduced by 10% throughout the year with a leaner operating model and expanded offshore capabilities.
We remain on track to reduce cost to serve by $100 million from FY2018 to FY2021.
Annual Report 2019
31
2019
($m)
1,390
715
(610)
68
26
(15)
1,574
1,173
2018
($m)
1,544
649
(624)
91
11
(19)
1,651
1,293
Change
($m)
Change
(%)
(154)
66
15
(23)
15
4
(77)
(120)
(10)
10
(2)
(25)
142
(20)
(5)
(9)
Financial summary
Underlying EBITDA
Year ended 30 June
Electricity gross profit
Natural Gas gross profit
Electricity & Natural Gas cost to serve
LPG EBITDA
Solar & Energy Services EBITDA
Future Energy costs
Underlying EBITDA
Underlying EBIT
Movements in Energy Markets Underlying EBITDA ($m)
(41)
(1,325)
(100)
67
22
(80)
44
15
(4)
Electricity -$154 million
Gas +$66 million
1,574
1,800
1,600
1,400
1,200
1,000
800
1,651
600
400
200
FY2018
Volume
Price relief
Competition/
Activity
Wholesale
margin
Volume
Wholesale
margin
Cost to serve
Other
FY2019
5.1.1 Electricity
Volume Summary
Year ended 30 June
Volumes sold (TWh)
NSW(a)
Queensland
Victoria
South Australia
2019
2018
Retail
Business
Total
Retail
Business
Total
Change
TWh
Change
%
8.4
4.6
3.1
1.3
9.4
3.5
4.0
1.9
17.8
8.1
7.1
3.2
8.4
4.9
3.2
1.2
9.2
4.0
4.8
1.8
17.6
8.9
8.0
3.0
0.2
(0.8)
(1.0)
0.2
(1.4)
1
(9)
(12)
7
(4)
Total volumes sold
17.4
18.8
36.2
17.7
19.8
37.5
(a) Australian Capital Territory customers are included in New South Wales.
Operating and Financial Review 32
Gross profit summary
Year ended 30 June
$m
$/MWh
$m
$/MWh
Change
%
Change
$/MWh
2019
2018
Revenue ($m)
Retail (consumer & SME)
Business
Cost of goods sold ($m)
Network costs
Energy procurement costs
Gross profit ($m)
Gross margin %
8,264
5,056
3,208
228.4
290.5
170.7
8,573
5,262
3,311
228.7
297.9
167.0
(6,874)
(189.9)
(7,028)
(187.5)
(3,287)
(3,587)
1,390
16.8%
(90.8)
(99.1)
38.4
(3,417)
(3,612)
1,544
18.0%
(91.1)
(96.3)
41.2
(4)
(4)
(3)
2
4
1
(10)
(7)
(0.3)
(7.4)
3.7
(2.6)
0.3
(2.8)
(2.8)
Electricity gross profit declined by $154 million driven by:
• $2.80/MWh reduction in unit margins comprising:
Sources and uses of Electricity (TWh)
– –$100 million from absorbing cost increases in NSW ($80 million) and price relief for
concession customers from January 2019 ($20 million);
– –$80 million from competition, primarily the full year impact of FY2018 discounting
activity; partially offset by
– A net +$67 million in wholesale margin, reflecting a higher contribution from Eraring
and Business volumes repricing to market, partially offset by lower gas generation and
LREC trading gains in the prior period not repeating.
• 1.4 TWh decrease in volumes (–$41 million) relating to fewer Business customer sites and
lower Retail customer numbers and usage.
Owned and contracted generation decreased by 0.9 TWh, in line with sales volumes,
reflecting lower gas-fired generation (-2.0 TWh) as gas was directed to wholesale
customers, partially offset by record output at Eraring (+0.7 TWh), and increased output
from contracted renewable supply coming online (+0.4 TWh).
Energy procurement costs increased by $2.80/MWh driven primarily by green
regulatory schemes.
45
40
35
30
25
20
15
10
5
FY18
FY19
FY18
FY19
Sources
Uses
Renewables
Solar FiT
Coal (Eraring)
Gas
Spot
Losses
Other
Retail
Contracts
Business
Wholesale energy costs
2019
2018
Year ended 30 June
$m
TWh
$/MWh
Fuel cost(a)
Generation operating costs
Owned generation(a)
Net pool costs(b)
Market contracts & bundled PPAs(c)
Solar feed-in tariff
Capacity hedge contracts
Green schemes (excl. PPAs)
1,132
230
1,363
449
763
127
317
569
21.8
21.8
21.8
5.0
10.0
1.2
51.9
10.6
62.4
90.5
76.1
103.3
$m
1,186
215
1,401
447
792
131
376
465
TWh
$/MWh
23.1
23.1
23.1
5.1
10.1
1.1
51.4
9.3
60.7
88.3
78.1
117.1
Energy procurement costs
3,587
38.0(d)
94.4
3,612
39.4(d)
91.6
(a) Includes volume and cost from Pelican Point contracted generation.
(b) Net pool costs includes gross pool purchase costs net of pool revenue from generation, PPAs, and other contracts.
(c) Bundled PPAs includes cost of electricity and LRECs.
(d) Volume differs from sales volume due to energy losses of 1.8 TWh (2018: 1.9 TWh).
Annual Report 2019
33
Electricity supply
Year ended 30 June
Nameplate
Capacity
(MW)
Type(a)
Pool Revenue
Pool Revenue
Pool Revenue
Output
(GWh)
($m) ($/MWh)
Output
(GWh)
($m) ($/MWh)
Output
(GWh)
($m) ($/MWh)
2019
2018
Change
Eraring
2,922
Units 1-4
2,880
Black Coal
16,513
1,494
90
15,854
1,331
–
931
759
333
GT
42
OCGT
Darling Downs
644
CCGT
Osborne(b)
Uranquinty
Mortlake
180
CCGT
664
OCGT
566
OCGT
1,204
Mount Stuart
423
OCGT
Quarantine
230
OCGT
Ladbroke Grove
80
OCGT
Roma
80
OCGT
Shoalhaven
240
Pump/Hydro
9
194
157
24
157
–
92
105
53
207
1
45
29
3
20
–
98
138
160
172
132
232
182
130
130
–
2,107
1,279
565
1,280
10
189
168
30
99
–
154
132
62
157
1
31
24
3
12
83
–
74
659
–
(1,176)
103
(520)
110
124
123
165
145
107
121
(232)
(76)
(1)
5
(11)
(6)
58
163
–
(62)
(27)
(9)
50
–
14
5
–
8
Internal Generation
6,029
20,281
2,050
101
21,581
1,907
88
(1,300)
143
Pelican Point
240
CCGT
Renewable PPAs(c)
1,207
Solar/Wind
Owned and
contracted
Generation
7,476
1,548
2,744
24,574
1,512
2,333
25,426
36
411
(852)
(a) OCGT = Open cycle gas turbine; CCGT = Combined cycle gas turbine.
(b) Origin has a 50 per cent interest in the 180 MW plant and contracts 100 per cent of the output.
(c) Reflects new contracted capacity coming online during the period, offset by legacy PPAs terminating.
7
–
24
35
50
48
9
67
37
23
8
13
Operating and Financial Review 34
5.1.2 Natural gas
Volume summary
Year ended 30 June
Volumes sold (PJ)
NSW(a)
Queensland
Victoria
South Australia(b)
External volumes sold
Internal sales (generation)
Total volumes sold
2019
2018
Retail
Business
Total
Retail
Business
Total
Change
PJ
Change
%
10.1
3.3
22.4
5.6
41.4
19.7
92.3
57.5
11.0
29.8
95.5
79.9
16.7
180.5
222.0
49.4
271.3
9.5
3.1
24.9
5.5
43.1
22.3
83.7
53.0
12.4
171.4
31.8
86.5
77.9
17.9
214.4
66.6
281.0
(2.0)
8.7
2.0
(1.2)
7.5
(17.2)
(9.7)
(6)
10
3
(7)
3
(26)
(3)
(a) Australian Capital Territory customers are included in New South Wales.
(b) Northern Territory and Western Australia customers are included in South Australia.
Gross profit summary
Year ended 30 June
$m
$/GJ
$m
$/GJ
2019
2018
Revenue ($m)
Retail (consumer & SME)
Business
Cost of goods sold ($m)
Network costs
Energy procurement costs
Gross profit ($m)
Gross margin %
2,926
1,064
1,862
13.2
25.7
10.3
2,644
1,097
1,547
(2,211)
(10.0)
(1,995)
(739)
(1,472)
715
24.4%
(3.3)
(6.6)
3.2
(764)
(1,231)
649
24.5%
12.3
25.5
9.0
(9.3)
(3.6)
(5.7)
3.0
Change
%
Change
$/GJ
0.8
0.2
1.3
(0.7)
0.2
(0.9)
0.2
11
(3)
20
(11)
3
(20)
10
–
Natural gas gross profit increased $66 million driven by:
Sources and uses of Gas (PJ)
• 7.5 PJ increase in external sales ($22 million) due to higher volumes directed to
short-term wholesale contracts in Queensland and Victoria, partially offset by
Business customer losses and lower retail usage in Victoria; and
• $0.2/GJ increase in unit margins ($44 million) despite an increase in procurement
costs reflecting market driven price increases to wholesale customers, including
higher oil prices.
300
250
200
150
100
50
FY18
FY19
FY18
FY19
Sources
Uses
Losses
Oil linked
Generation
Business – Wholesale
Other Fixed Price
Business – C&I
APLNG – Fixed Price
Retail
Annual Report 2019
35
5.1.3 Electricity and natural gas cost to serve
Year ended 30 June
Cost to maintain ($ per average customer(a))
Cost to acquire/retain ($ per average customer(a))
Elec & Natural Gas cost to serve ($ per average customer(a))
Maintenance Costs ($m)
Acquisition & Retention Costs(b) ($m)
Elec & Natural Gas cost to serve ($m)
2019
2018
Change
$
Change
%
(126)
(43)
(169)
(455)
(155)
(610)
(124)
(46)
(171)
(455)
(170)
(624)
(1)
4
3
–
15
15
1
(9)
(2)
–
(10)
(2)
(a) Represents cost to serve per average customer account, excluding CES accounts.
(b) Customer wins (FY2019: 527,000; FY2018: 631,000) and retains (FY2019: 1,796,000; FY2018: 1,894,000).
Year ended 30 June
Retail and Business
Wholesale
Corporate services and IT
Elec & Natural Gas cost to serve ($m)
2019
2018
Change
$
Change
%
(411)
(62)
(136)
(610)
(428)
(63)
(134)
(624)
17
1
(3)
15
(4)
(1)
2
(2)
During the year we commenced our transformation activities and are on track to deliver the target of >$100 million cost reduction by
FY2021. Electricity and natural gas cost to serve reduced with the benefits of transformational activities beginning to be realised, with
lower headcount, bad and doubtful debt, commissions and advertising. Bad debt expense as a percentage of total Electricity and Natural
Gas revenue has decreased to 0.71% from 0.74% in FY2018.
30 June 2019
30 June 2018
Electricity
Natural Gas
Total
Electricity
Natural Gas
Total
Change
Customer accounts
As at
Customer
Accounts (’000)(c)
NSW(a)
Queensland
Victoria
South Australia(b)
Total
Average
1,193
660
558
229
2,639
2,645
312
182
474
223
1,191
1,157
1,505
842
1,032
451
3,830
3,802
(a) Australian Capital Territory customers are included in New South Wales.
(b) Northern Territory and Western Australia customers are included in South Australia.
(c) Includes 233,000 CES customers (FY2018: 159,000).
Electricity customers reduced by 27,000, reflecting losses of 66,000 due
to heightened competition in Queensland, Victoria and New South Wales,
partially offset by 39,000 embedded network customers acquired as part
of the OC Energy acquisition. Natural Gas customers increased by 46,000,
primarily in NSW and South Australia, including 16,000 OC Energy serviced
hot water customers.
We competed actively during the period, with churn of 16.3% compared
to market churn of 22.3%. Since December 2018, market activity has
moderated slightly.
In addition, at 30 June 2019, Origin had 8,000 Broadband customer accounts.
1,200
696
545
225
2,666
2,678
60
50
40
30
20
10
–
(10)
(20)
(30)
(40)
(50)
284
176
472
213
1,145
1,125
1,483
872
1,018
438
3,811
3,802
Customer Movement (’000)
22
(30)
14
13
18
–
NSW
QLD
VIC
SA
Electricity
Gas
CES
Operating and Financial Review 36
5.1.4 LPG
Our LPG business is one of Australia’s largest LPG and propane suppliers, and we procure and distribute LPG to residential and business
locations across Australia and the Pacific. As at 30 June 2019, Origin had 362,000 LPG customer accounts, down from 370,000
customer accounts at 30 June 2018.
Year ended 30 June
Volumes (kT)
Revenue ($m)
Cost of Goods Sold ($m)
Gross Profit ($m)
Operating Costs ($m)
Underlying EBITDA ($m)
2019
2018
Change
Change
(%)
426
674
(470)
204
(136)
68
450
654
(434)
220
(129)
91
(24)
20
(37)
(17)
(6)
(23)
(5)
3
8
(8)
5
(25)
Gross Profit decreased by $17 million due to higher shipping and fuel costs ($9 million) and lower volumes and margin in both Australia
and Asia Pacific ($6 million). Operating costs increased $6 million due to labour and terminal maintenance cost increases.
5.1.5 Solar and Energy Services
Our Solar business provides installation of solar PV systems and batteries to residential and business customers, and provides ongoing
support and maintenance services. Centralised Energy Services supplies both electricity and gas to owners and Body Corporates of
buildings through embedded networks and centralised serviced hot water. During the period we acquired OC Energy, which added
55,000 customers, primarily in New South Wales and Victoria.
Year ended 30 June
Revenue
CES Gross profit
Solar Gross profit
Other Gross profit
Gross Profit
Operating Costs
Underlying EBITDA
2019
($m)
216
57
26
6
89
(64)
26
2018
($m)
186
44
22
21
87
(76)
11
Change
($m)
Change
(%)
30
14
3
(15)
2
13
15
16
30
18
(71)
2
(16)
136
Underlying EBITDA increased by $15 million primarily driven by CES including the acquisition of OC Energy in February 2019. The sale of
Acumen resulted in a reduction in Other gross profit, offset by a reduction in operating costs.
5.1.6 Future Energy
Our Future Energy business is focussed on new business models to connect distributed assets and data to customers through:
• Developing a platform to connect millions of distributed assets
• Developing leading digital and analytics capability
•
Investing in technology for new customer solutions both in front of and behind the meter
Year ended 30 June
Operating Costs
Investments
2019
($m)
(15)
(35)
2018
($m)
Change
($m)
Change
(%)
(19)
(9)
4
(26)
(21)
289
Lower operating costs during the period driven by lower consultancy costs. Investments comprise primarily the US$20 million minority
equity investment in Intertrust Technologies Corporation, a US based private technology company aimed at developing new data driven
products for the energy market.
Annual Report 2019 37
2019
($m)
2,123
(231)
1,892
(18)
(1,504)
370
2018
($m)
1,405
(154)
1,251
(22)
(1,194)
34
Change
($m)
Change
(%)
718
(77)
641
4
(310)
336
51
50
51
(18)
26
997
5.2 Integrated Gas
Financial summary
Year ended 30 June
Share of APLNG
Integrated Gas Other (see section 5.2.2)
Underlying EBITDA
Underlying depreciation and amortisation
Underlying share of ITDA
Underlying EBIT
5.2.1 Share of APLNG
Underlying EBITDA
Production (37.5%)
Commodity revenue
$2,123M
Up $718m or 51% vs FY2018
255 PJ
In line with FY2018
36% ↑
vs FY2018
Operating cost
Well cost
$1.0/GJ
$1.4m/well
Down 17% vs FY2018
(upstream operated)
Down 26% vs FY2018
(standard unfracked vertical Surat well)
$943M
Net cash to Origin,
up from $363
million in FY2018
Overview
Exploration and
Appraisal
Drilling and
Gathering
Processing and
Transportation
Domestic
customers
Liquefaction and
export customers
Origin has a 37.5% shareholding in APLNG (an equity accounted incorporated joint venture). APLNG operates Australia’s largest CSG
to LNG export project (by nameplate capacity) and has Australia’s largest 2P CSG reserves1. Origin is the operator of the upstream CSG
exploration and appraisal, development and production activities. ConocoPhillips is the operator of the two train LNG liquefaction facility
at Gladstone in Queensland.
As APLNG is an incorporated joint venture, Integrated Gas reports its share of APLNG EBITDA. The share of APLNG ITDA is recorded as
one line item between EBITDA and EBIT.
1 As per EnergyQuest EnergyQuarterly, June 2019. Approximately 21% of APLNG’s 2P and 3P CSG reserves respectively (as at 30 June 2019), are subject to reversionary
rights and an ongoing interest in favour of Tri-Star. Refer to section 7 for further information.
Operating and Financial Review
38
Operations
APLNG continued to deliver stable production in FY2019, despite planned upstream maintenance. APLNG shipped 124 cargoes in FY2019
and remains a large contributor to the Australian east coast domestic gas market, supplying 195 PJ in FY2019 (100% APLNG), ~30% of
domestic east coast gas demand.
Under a smaller, leaner, asset-led structure, Origin, as upstream operator of APLNG, has been able to achieve its June 2019 run-rate targets
of $1.0/GJ for operating costs and $1.2 million per standard unfracked vertical Surat well for Origin-operated areas.
Operating cost (A$/GJ)
(upstream operated)
Cost per well (A$m/well)
(standard unfracked vertical Surat well)
1.3
1.2
1.0
1.0
2.4
1.9
1.4
1.2
FY2018
Baseline
FY2018
(Actual)
FY2019
(Actual)
Run Rate
(June-19)
FY2018
Baseline
FY2018
(Actual)
FY2019
(Actual)
Run Rate
(June-19)
Target
Origin’s operating cost per GJ has decreased
from $1.2/GJ (FY2018) to target of $1.0/
GJ for FY2019 and June run rate, reflecting
lower overheads, reduced electricity costs and
streamlined maintenance activities.
Cost per well decreased from $1.9 million/well
(FY2018) to $1.4 million/well (FY2019), with a June
2019 run rate of $1.2 million/well reflecting lower
owners’ costs, simplified well design, competitive
tendering for rig and gathering contracts and
execution efficiencies.
APLNG commenced the planned four yearly maintenance of 15 upstream operated gas processing facility trains during the year.
Maintenance on 12 trains was completed during FY2019 and the remaining three are expected to be completed by the end of CY2019.
Construction of the Eurombah Reedy Creek Interconnect (ERIC) pipeline was finalised in FY2019 and brought online in July 2019,
enabling connection of excess gas supply to processing capacity between Reedy Creek and Spring Gully fields.
During the year, APLNG announced a number of commercial agreements:
• New gas sales of more than 50 PJ to domestic manufacturing customers from development of a tender block in close proximity to
existing Talinga infrastructure. Armour Energy is a 10% joint venture partner.
• Agreements for sharing QGC infrastructure and an oil-linked gas purchase of up to 350 PJ (2024–2034).
• An LNG customer has elected to defer delivery of 30 cargoes over six years (2019–2024). The customer will pay for the deferred
cargoes and APLNG expects to re-sell the gas during the period 2019–2024, and then deliver the deferred cargoes during the period
from 2025 to the end of the LNG sale and purchase agreement.
APLNG acquired various CSG interests from Tri-Star in 2002 that are subject to reversionary rights and an ongoing royalty in favour of
Tri-Star. These interests represent approximately 21% of both APLNG’s 2P and 3P CSG reserves (as at 30 June 2019), refer to section 7 for
disclosure relating to Tri-Star litigation associated with these CSG interests.
Annual Report 2019 39
2019
2018
100% APLNG
Origin share
100% APLNG
Origin share
7,443
(1,781)
5,662
(2,116)
(602)
(590)
(72)
51
(699)
2,791
(668)
2,123
(794)
(226)
(221)
(27)
19
(262)
5,528
(1,782)
3,746
(1,853)
(605)
(449)
(83)
17
(222)
2,073
(668)
1,405
(695)
(227)
(168)
(31)
6
(83)
(4,027)
(1,510)
(3,195)
(1,198)
1,635
613
551
207
Financial Summary
Profit and Loss
Year ended 30 June
($m)
Commodity and other revenue(a)
Operating expenses
Underlying EBITDA
Depreciation and amortisation
MRCPS interest expense
Project finance interest expense
Other financing expense
Interest income
Income tax expense
Underlying ITDA(b)
Underlying Profit
(a) Includes commodity revenue as reported in the Quarterly Report plus other revenue of $5 million (100%) in FY2019 related to cost recoveries (FY2018: $50 million
(100%) primarily related to gas bank settlement and cost recoveries).
(b) See Origin 30 June 2019 Financial Statements note B1 for details relating to the $6 million difference between APLNG ITDA and Origin’s reported share of ITDA.
Origin share of depreciation and amortisation increased $99 million to $794 million primarily driven by a lower AUD/USD rate as well as a
review of future workover frequency impacting amortisation from April to June 2019.
Project finance interest expense increased due to write-off of unamortised fees from refinancing, foreign exchange movements and an
increase in USD floating interest rates, partly offset by lower USD interest expense from refinancing and a reduction in debt during FY2019.
See Section 4.6 for details relating to APLNG funding.
APLNG Underlying EBITDA (Origin share)
Movements in Origin Share of APLNG EBITDA ($m)
22
(16)
688
24
1,405
2,123
FY2018
LNG volume
LNG price
Domestic
revenue
Operating expenses &
other income
FY2019
Origin share of APLNG Underlying EBITDA increased by $718 million primarily reflecting higher realised LNG prices and domestic oil linked
gas prices as well as a lower AUD/USD rate.
Operating expenses and other income increase of $16 million primarily relates to increased royalties due to higher effective oil prices
(–$73 million), FY2019 planned four yearly maintenance program costs (–$24 million) and lower other income (–$17 million), partly offset
by one-off FY2018 write offs (+$65 million) including Gilbert Gully, FY2019 unit cost savings (+$27 million) and lower purchase costs
(+$10 million).
Operating and Financial Review 40
APLNG Volume Summary
Year ended 30 June
Volumes (PJ)
Production volumes
Operated
Non-operated
Total production
Purchases
Liquefaction/other
Sales volumes
Domestic gas sales volumes
LNG contract sales volumes
LNG spot sales volumes
Commodity revenue (A$m)
Domestic gas sales
LNG sales
Realised price (A$/GJ)
Domestic Gas (A$/GJ)
LNG (US$/mmbtu)
2019
2018
100% APLNG
Origin share
100% APLNG
Origin share
196
59
255
12
(13)
254
73
174
7
2,789
369
2,420
522
157
679
32
(35)
676
195
464
17
7,436
983
6,453
11.00
5.04
10.12
193
61
254
17
(15)
255
77
162
16
2,054
346
1,708
515
162
676
45
(41)
680
205
433
42
5,478
923
4,555
8.06
4.50
7.90
APLNG – source and uses
of gas (Origin share) (PJe)
APLNG LNG price
(US$/mmbtu)
APLNG domestic gas
price (A$/GJ)
2
61
59
193
196
77
16
162
73
7
174
(1)
FY19
FY18
Sources
FY18
FY19
Uses
Domestic sales
LNG spot sales
LNG contract sales
Purchases/Liquefaction/Other
Non-operated production
Operated production
10.12
7.90
4.50
5.04
FY18
FY19
FY18
FY19
Origin’s share of APLNG production was stable in FY2019 at 255 PJ, reflecting an increase in operated production despite four yearly
planned maintenance on gas processing facilities, partially offset by a decrease in non-operated production.
The average realised LNG price increased 28% to US$10.12/mmbtu reflecting higher oil and spot LNG prices, despite lower prices towards
the end of the year.
The average realised domestic gas price increased 12% to $5.04/GJ primarily from higher revenue on oil-linked sales.
Annual Report 2019 41
2018(a)
Change
Change
2019
($m)
($m)
5,662
3,746
(4)
(34)
(88)
5,536
(1,277)
(101)
50
30
31
9
159
49
(30)
3,924
(1,186)
(109)
16
–
(76)
33
(1,258)
(1,322)
(513)
(808)
(85)
(611)
(1,987)
–
(418)
(915)
(70)
(603)
(360)
198
($m)
1,916
(163)
(83)
(58)
1,612
(91)
8
34
30
107
(24)
64
(95)
107
(15)
(8)
(1,627)
(198)
(4,004)
(2,168)
(1,836)
274
113
387
434
41
476
(160)
72
(89)
(%)
51
(103)
(169)
193
41
8
(7)
213
n/a
(141)
(72)
(5)
23
(12)
21
1
452
(100)
85
(37)
176
(17)
129
Cash flow – APLNG 100%
Year ended 30 June
Underlying EBITDA
Non-cash items in underlying EBITDA
Change in working capital
Other
Operating cash flow*
Capital expenditure*
Capitalised de-watering costs*
Interest income*
Proceeds from sale of assets*
Loan repaid by/(advanced to) Origin
Loans paid by other shareholders
Investing cash flow
Project Finance interest and transaction costs*
Repayment of project finance*
Other financing activities*
MRCPS interest
MRCPS buy-back
Shareholder cash calls
Financing cash flow
Net increase in cash and cash equivalents
Effect of exchange rate changes on cash*
Net increase in cash including FX movement
Distributable cash flow*
2,945
1,284
1,661
*
Included in distributable cash flow. Distributable cash flow represents net increase in cash including FX movements before MRCPS interest and buy backs and
transactions with shareholders.
(a) FY2018 has been reclassified to align to statutory financial statement classifications, no change to net increase in cash and cash equivalents.
APLNG generated distributable cash flow of $2,945 million (Origin’s 37.5% share: $1,104
million) at an effective oil price of US$73/bbl for FY2019 (FY2018: US$56/bbl) and after
servicing project finance interest and principal. Net cash to Origin amounted to $943
million with surplus cash retained for operational and project finance requirements as well
as consideration for the acquisition of Ironbark in August 2019.
APLNG breakeven
APLNG FY2019 distribution breakeven of US$36/boe is lower than FY2019 guidance of
US$39–42/boe driven by:
• Lower Sustain and E&A capital expenditure spend due to deferral of activity and
reduced scope including fewer wells requiring fracture stimulation from better than
expected flow rates in Combabula/Reedy Creek
• Higher non-oil linked spot LNG and domestic revenue driven by a higher volume of
domestic sales
Distribution Breakeven (US$/boe)
AUD/USD 0.72
39-42
16
23-26
36
15
21
FY19
Guidance
FY19
Actual
Project finance
Operating breakeven
Operating and Financial Review 42
APLNG operating cash costs (100%)
Year ended 30 June
Operated upstream operating expenses(a)
APLNG Corporate operating expenses(b)
Purchases
Downstream operating expenses
Royalties and tariffs(c)
Non-operated operating expenses
Other(b)
Total operating cash costs
Capitalised and other costs
Total operating costs per Profit and Loss
2019
($m)
634
94
235
228
433
225
94
1,943
(162)
1,781
2018
($m)
649
82
262
227
239
199
74
1,732
50
1,782
Change
($m)
Change
(%)
(15)
12
(27)
1
194
26
20
211
(212)
(1)
(2)
15
(10)
0
81
13
27
12
n/a
–
(a) Production from operated areas during the period was 522 PJ, equating to unit operating costs of $1.0/GJ (excluding pipeline and major turnaround costs).
(b) FY2018 reclassification of $39 million to include IT and marketing related costs within Corporate from Other.
(c) Reflects actual royalties paid. At break-even prices royalties and tariffs amounted to $139m (FY2018: $179 million).
Total operating cash costs increased $211 million primarily driven by higher royalties and tariffs of $194 million due to higher effective
commodity prices and restructuring payments ($25 million). Operated upstream operating expenses decreased $15 million with $/GJ
savings ($71 million) partly offset by major maintenance costs ($64 million).
Capitalised and other costs includes capitalised de-watering costs of $101 million (FY2018: $109 million). The $212 million reduction from
FY2018 is driven by FY2018 write offs including Gilbert Gully ($109 million) not repeated and restructuring costs accrued in FY2018, but
paid in FY2019.
APLNG capital expenditure (100%)
Year ended 30 June
Operated upstream – sustain
Operated upstream – infrastructure
Exploration & appraisal (E&A)
Operated SIB – including workover costs
Downstream
Non-operated
Other
Total capital expenditure
2018
($m)
Change
($m)
Change
(%)
2019
($m)
515
122
102
179
39
336
722
39
65
105
49
189
(16)
17
1,277
1,186
(207)
83
37
74
(10)
147
35
90
(29)
213
57
71
(21)
78
n/a
8
Total capital expenditure increased by $90 million due to increased non-operated development spend ($147 million) primarily on Arcadia,
Angry Jungle and Fairview, an increase in infrastructure spend due to the construction of the ERIC pipeline ($62 million) and Talinga-
Orana Gas Gathering Station ($32 million), an increase in operated SIB primarily due to higher workover spend ($83 million) and higher
E&A due to drilling of deep conventional wells Burunga South 2 and Westgrove 9 and seismic surveys and drilling in Peat Flank, offset by a
$207 million reduction in Operated upstream – sustain due to dollar per well savings, reduction in required scope and phasing of activity.
Operated upstream – sustain includes the cost of drilling 251 wells in FY2019 (FY2018: 290 wells) including 243 Surat vertical wells
(FY2018: 273 wells) as well as costs of fracture stimulation of 91 wells (FY2018: 79 wells), completion, gathering, electrification,
commissioning and owners’ costs.
Annual Report 2019 43
5.2.2 Integrated Gas – Other
This division comprises unconventional exploration interests in the Beetaloo Basin, the southwest Queensland Cooper Basin and a
potential conventional development resource in the offshore Browse Basin. It also includes costs (net of recoveries) incurred as upstream
operator and corporate service provider to APLNG, other costs incurred in managing Origin’s investment in APLNG and exposure to LNG
pricing risk and impacts of LNG trading positions held by Origin.
Operations
Beetaloo (Northern Territory)
Origin has a 70% interest in exploration permits over 18,500 km2 in the Beetaloo Basin. In February 2017, a 2C contingent resource
of 6.6TCF1 (100%) relating to the Velkerri B shale dry gas play was booked following a production test of the Amungee NW-1H well.
Interpretation of data obtained from the Amungee well, and other wells drilled in the Beetaloo Basin indicates a promising exploration
opportunity with four stacked, unconventional hydrocarbon plays.
Stage 2 appraisal is underway, targeting the Kyalla and Velkerri shale liquids rich gas plays. Two horizontal appraisal wells are planned to be
drilled, fracture stimulated and put on extended production testing during FY2020. A number of preparatory activities were completed
during the year including sacred site clearances, other access negotiations, water bore drilling to obtain baseline data, well pad and access
road preparation, environmental approvals, and securing all services required for the campaign including the Ensign 963 rig. Current
well status:
• Kyalla – drilling and stimulation, water bore and civils Environment Management Plans have been approved and water extraction licence
is in place. Water bores have been drilled and access road and well pad construction are nearing completion.
• Velkerri – water bore and access roads Environmental Management Plans have been approved and water extraction licence is in place.
Awaiting well pad civils and drilling and stimulation approvals. Survey work is being completed and water bores are being drilled.
The objective of the Stage 2 campaign is to test the ability to flow liquids-rich gas from the two independent liquids-rich gas plays.
Financial Summary
Year ended 30 June
Origin only commodity hedging and trading
Other Origin only costs
Underlying EBITDA
Underlying depreciation and amortisation/ITDA
Interest income – MRCPS
Underlying profit/(loss)
Commodity hedging and trading reflects:
2019
($m)
(199)
(32)
(231)
(12)
226
(17)
2018
($m)
Change
($m)
Change
(%)
(111)
(43)
(154)
(18)
227
54
(88)
11
(77)
6
(1)
(72)
79
(25)
50
(34)
–
(131)
• Oil hedging costs of $115 million, inclusive of $34 million in premiums (FY2018: $95 million, inclusive of $68 million premiums); and
• LNG hedging and trading costs of $84 million (FY2018: $16 million) reflecting higher realised JKM prices.
Other Origin only costs reflect recoveries relating to Origin’s upstream operatorship of APLNG.
1 Origin is not aware of any new information or data that materially affects the information included in the announcement to the ASX on 15 February 2017 and all material
assumptions and technical parameters underpinning these estimates continue to apply and have not materially changed.
Operating and Financial Review 44
6. Sustainability performance
6.1 Climate: Getting energy right for the planet
Renewable + storage as % of total
owned and contracted generation capacity
We unequivocally support the United Nations Framework Convention on
Climate Change’s Paris Agreement to limiting the world’s temperature rise to
well below 2 degrees Celsius above pre-industrial levels. In October 2017, we
released a paper on the resilience of our wholesale electricity portfolio to a
low-carbon economy. We are in the process of updating our scenario analysis
and the impact of a trajectory which limits the rise to less than 1.5°C and will be
publishing this report in the second half of 2019.
30%
25%
20%
15%
10%
5%
0%
Target >25% by 2020
We have a five-pillar approach to progressively decarbonise our business:
FY18
FY19
1. Exit coal-fired generation by 2032.
2. Significantly grow renewables in our portfolio.
3. Utilise our strong gas position as a lower-emissions firming fuel.
4. Empower customers with cleaner, smarter energy solutions.
5. Demonstrate leadership in climate change advocacy.
In line with this approach, we have made the following commitments:
• Reduce Scope 1 and Scope 2 greenhouse gas emissions1 by 50% and value
chain Scope 3 emissions2 by 25% by 2032, targets approved by the Science
Based Targets initiative; and
• Have more than 25% of our owned and contracted generation capacity from
renewables and storage by 2020.
Australia is on track to become the world’s largest exporter of LNG and is
playing an important role in meeting energy demand while facilitating the
global shift to lower emissions. Exports of LNG from APLNG to Asia contribute
to lowering greenhouse gas emissions and reducing air pollution when
replacing coal-fired generation and coal heating.
What have we done:
• Commenced offtake from the second stage of the 220 MW Bungala Solar
Farm in South Australia and from Daydream Solar (150 MW), Clare Solar
(100 MW) and Darling Downs Solar (110 MW) in Queensland.
•
Installed the largest commercial office battery in Australia in our
Melbourne office.
• Commenced an optimisation project at Eraring Power Station that yielded
a 136,000 tonne3 reduction in CO2-e emissions in FY2019, and is targeting
1 million tonnes reduction in CO2-e emissions by 2025.
• Held methane emissions from venting and leaks to approximately 0.1 per
cent of metered sales from operated areas.
• Commenced a program to transition our small to medium passenger vehicle
fleet to electric vehicles. Three vehicles have been ordered to date with up
to 10 vehicles expected in our fleet by the end of 2019.
1 Scope 1 emissions are from sources that are owned or operated by Origin, in particular
electricity generation and gas development. Scope 2 emissions result from the electricity that
we consume to power our offices and operating sites.
2 Scope 3 encompasses indirect emissions, other than Scope 2, relating to our value chain that
we do not own or control, including wholesale purchases of electricity from the NEM. LPG and
corporate Scope 3 emissions are excluded as their emissions are not material.
3 Compared to FY2016 baseline performance.
441,000
Origin customers had solar
installed at their properties as at
end of FY2019
136,000
tonnes CO2-e
Reduction at Eraring
Taskforce on Climate-related
Financial Disclosures (TCFD)
Report consistent with
TCFD guidelines
Refer to our Sustainability Report released on
13 September 2019 for our FY2019 disclosures
under TCFD: originenergy.com.au/about/
sustainability/sustainability-reports
Annual Report 2019
45
6.2 Getting energy right for our customers
More affordable energy
• We went beyond what is required by the Commonwealth Government’s
Default Market Offer (DMO) and ensured that no electricity customers on
flat rate tariffs pay more than the DMO.
• Supported over 43,000 customers experiencing financial hardship with our
Power On program.
• Co-developed and committed to an industry wide Energy Charter to embed
a customer centric culture throughout the industry to create improvements
in affordability and service.
• We continued to deliver the South Australian Government’s SA Concessions
Energy Discount Offer and increased the level of support by uplifting the
discount from 18 per cent of usage and supply to 20 per cent on both gas
and electricity.
Simpler, easier and more sustainable energy
• Rolled out the Usage Buster tool which splits customers’ electricity usage by
appliance.
• Expanded Origin Broadband allowing customers to easily organise their
energy and broadband in one call.
• Launched multi-channel experiences across web and mobile apps, making it
easier for customers to interact with us.
• Simplified the customer journey in moving houses or renewing a plan.
• Trialled a demand response initiative where customers can opt to have
their air-conditioning temperature automatically adjusted on hot days while
assisting to reduce peak electricity prices.
Origin’s strategic NPS improved by seven points from FY2018 to a result of –6
in FY2019 including an eight point increase in the measure that Origin provides
“good value for money”.
APLNG remains committed to supporting the domestic market, supplying
approximately 30% of east coast gas demand during FY2019 and entering into
gas sale agreements with three Australian manufacturers to supply more than
50 PJ of gas.
6.3 Getting energy right for our communities
We respect the rights and interests of the communities in which we operate, by
listening to them, understanding and managing the environmental, economic
and social impacts of our activities. This support is reflected in our response to
community feedback, which includes our Regional Buy program.
In FY2019, we spent $247 million with regional suppliers and we procured
goods and services from 34 Indigenous businesses.
In the Beetaloo Basin in the Northern Territory, our host Traditional Owners
are supportive of our project and are optimistic about the economic and
employment opportunities it can deliver to their families and communities into
the future.
We worked with the Northern Land Council and the Native Title holders to
complete sacred site clearance and avoidance surveys, secured Aboriginal
Areas Protection Authority certification for nine potential exploration locations
and participated in seven on-country meetings with Native Title holder
families. Our agreements with Native Title holders are secured through mutual
negotiations guided by the principles of free, prior and informed consent.
We exceeded our environmental performance target with no environmental
consequence incidents occurring during FY2019. An environmental
consequence incident is an incident that results in an actual consequence of a
moderate short-term impact to the environment (or above).
43,600
Customers on Power On
hardship program
Net Promoter Score (NPS)
FY18
FY19
Strategic
Interaction
Top energy retailer
Rated by Reader’s Digest
Top for customer
satisfaction
Rated by Canstar Blue
Regional Procurement Spend
as % of total spend
FY18
FY19
30
20
10
0
-10
-20
15%
10%
5%
0%
Operating and Financial Review
46
Through the Origin Foundation we support programs which enable equality of
educational opportunity for young people – particularly those from rural and
regional locations, Aboriginal and Torres Strait Islander heritage.
The Foundation’s volunteer program was recognised at the 2018 Workplace
Giving Excellence Awards, winning GOLD in the ‘Best Pro Bono/Volunteering’
category. We were also recognised by GoodCompany, who ranked Origin
number one in their Top 40 Workplaces to Give Back survey for 2019, in
recognition of our matched giving and volunteering programs.
6.4 People
Our people are critical to Origin’s success. We employed 5,360 people at the
end of FY2019, 63 per cent were males and 37 per cent were females.
Our engagement score was 61 per cent, consistent with last year’s result
despite organisational changes throughout the year. We remain ahead of the
energy and utilities industry engagement score, however, below our FY2019
target of 68 per cent.
We achieved 30 per cent of women in senior roles in FY2019 and continue to
deliver gender pay equality on an equal pay for equal work basis.
Origin continues to be recognised as an Employer of Choice for Gender
Equality by the national Workplace Gender Equality Agency and remains
accredited by the Australian Breastfeeding Association as a Breastfeeding
Friendly organisation.
6.4.1 Personal safety
Everyone has a part to play in making Origin a safe workplace so we, and
those impacted by our activities, can all return home safe and well at the end
of every workday.
Following an improvement in our TRIFR performance over the previous
two years, in FY2019 we did not meet the expectation we set for ourselves.
Disappointingly, our TRIFR increased to 4.5 – which means 35 more people
were injured than in FY2018.
This decline in personal safety performance has reinforced the need for us
to do better. We all remain committed to preventing injuries and maintaining
zero fatalities in our workplace. We are consolidating our Safety Leadership
Programs into one Origin-wide program that equips our people with
consistent knowledge and understanding of the tools and techniques that drive
an HSE focused culture where everyone is accountable, mindful of risk and
continuously learning.
In FY2019, there were no Tier 1 and eight Tier 2 process safety events, an
improvement on the FY2018 performance. A contributing factor was the
introduction of a company-wide process safety dashboard to improve the
reporting and visibility of key process safety indicators.
$25
million
Origin Foundation support
for communities since 2010
2,000
instances of volunteering
Origin employees participated
70
65
60
55
50
5.0
4.0
3.0
2.0
1.0
0.0
Staff engagement
FY18
FY19
TRIFR
FY18
FY19
Annual Report 2019
47
7. Risks related to Origin’s future financial prospects
The scope of operations and activities means that Origin is exposed to risks that can have a material impact on our future financial
prospects. Material risks, and the Company’s approach to managing them, are summarised below.
Risk management framework
Overseen by the Board and the Board Risk Committee, Origin’s risk management framework supports the identification, management
and reporting of material risks. Risks are identified that have the potential to impact the delivery of business plans and objectives. Risks are
assessed using a risk toolkit that considers the level of consequence and likelihood of occurrence.
The risk framework incorporates a “three lines of defence” model for managing risks and controls in areas such as health and safety,
environment (including climate change), finance, reputation and brand, legal and compliance and social impacts. All employees are
responsible for making risk-based decisions and managing risk within approved risk appetite and specific limits.
The Board reviews Origin’s material risks each quarter and assesses the effectiveness of the Company’s risk management framework
annually in accordance with the ASX Corporate Governance Principles and Recommendations.
Three lines of defence
Line of defence
Responsibility
Primary Accountability
First line
Lines of business
Identifies, assesses, records, prioritises, manages and monitors risks.
Management
Second line
Oversight functions
Provides the risk management framework, tools and systems to support effective
risk management.
Management
Third line
Internal audit
Provides assurance on the effectiveness of governance, risk management and
internal controls.
Board, Board Committees
and Management
Material risks
The risks identified in this section have the potential to materially affect Origin’s ability to meet its business objectives and impact its future
financial prospects. These risks are not exhaustive and are not arranged in order of significance.
Strategic risks
Strategic risks arise from uncertainties that may emerge in the medium to longer term and, while they may not necessarily impact on
short-term profits, can have an immediate impact on the value of the Company. These strategic risks are managed through continuous
monitoring and reviewing of emerging and escalating risks, ongoing planning and the allocation of resources and evaluation from
management and the Board.
Operating and Financial Review 48
Risk
Consequences
Management
Competition
Origin operates in a highly competitive retail environment
which can result in pressure on margins and customer losses.
Competition also impacts Origin’s wholesale business, with
generators competing for capacity and fuel and the potential
for gas markets to be impacted by new domestic gas resources,
LNG imports and the volume of gas exports.
Technological
developments/
disruption
Distributed generation is empowering consumers to own,
generate and store electricity, consuming less energy from
the grid. Technology is allowing consumers to understand and
manage their power usage through smart appliances, having
the potential to disrupt the existing utility relationship with
consumers. Advances in technology have the potential to
create new business models and introduce new competitors.
Changes in demand
for energy
Any decrease in energy demand driven by price, consumer
behaviour, mandatory energy efficiency schemes, Government
policy, weather and other factors can reduce Origin’s revenues
and adversely affect Origin’s future financial performance.
• Our strategy to mitigate the impact of this risk on
our retail business is to effectively manage customer
lifetime value and build customer loyalty and trust by
delivering simple, seamless and personalised customer
experiences and offering innovative and differentiated
products and services.
• We endeavour to mitigate the impact of this risk on
our wholesale business by sourcing competitively
priced fuel to operate our generation fleet and
through efficient operations optimising flexibility in our
fuel, transportation and generation portfolio.
• Origin actively monitors and participates in
technological developments through local and
global start-up accelerator programs, trialling new
energy technology and exploring investments in new
products or business models.
• In parallel, Origin is growing its distributed
generation and home energy services businesses and
endeavouring to mitigate the impact of this risk on its
core energy businesses by offering superior service
and innovative products and reducing cost to serve.
• Origin is partially mitigating the impact of this risk
by applying advanced data analytics capability to
smart meter data to better predict customer demand
and enable Origin to develop data-based customer
propositions.
Conversely, failure to adequately prepare for any increases
in future energy demands, including the emergence of new
sources of demand, may restrict Origin in optimising our future
financial opportunities.
• Our strategy of growing our gas reserves, increasing
our supply of renewables, and investing in new
technology supports Origin’s ability to meet future
increases in energy demand.
Regulatory policy
Origin has broad exposure to regulatory policy change and
other government interventions. Changes to policy and other
government interventions will impact financial outcomes and,
in some cases, change the commercial viability of existing
or proposed projects or operations. Specific areas subject
to review and development include government subsidising
building of new generation capacity, government direct
investment in generation, energy market design, climate
change policies, domestic gas market interventions, and
royalties and taxation policy.
Climate change
Climate change impacts many parts of Origin’s business.
Key risks and opportunities include ongoing decarbonisation
of energy markets, decreased demand for fossil fuels in some
markets, reduced lifespan of carbon-intensive assets, changes
to energy market dynamics caused by the intermittency
of renewables and community demand for lower-carbon
sources of energy.
There is also increased risk of climate change related litigation
against Origin and/or regulatory bodies that grant licences
or approvals to Origin which could potentially result in
more onerous licence/approval conditions, non-renewal of
licences/approvals or other adverse consequences.
• Origin contributes to the policy process at federal,
state and territory governments by actively
participating in public policy debate, proactively
engaging with policy makers and participating in
public forums, industry associations, think tanks
and research.
• Origin advocates directly with key members of
governments, opposition parties and bureaucrats
to achieve sound policy outcomes aligned with our
commercial objectives. Origin also makes formal
submissions to relevant government policy inquiries.
• Origin actively promotes the customer and economic
benefits publicly that flow from our activities in
deregulated energy markets.
• Our strategy for transitioning to a carbon constrained
future is focused on growth in renewables, gas and
cleaner, smarter customer solutions. Origin has
prepared for a range of decarbonisation scenarios.
• Origin has committed to significantly growing supply
of renewable generation, including 1,200 MW of
committed large scale solar and wind energy since
March 2016.
• Origin uses the flexibility in its gas supply and peaking
generation capacity to manage the intermittency of
renewables.
• Origin is using the framework recommended by the
Financial Stability Board’s Taskforce on Climate-
related Financial Disclosures (TCFD) for governance
oversight and reporting of our climate change risks.
• Committed to halving Scope 1 and Scope 2
greenhouse gas emissions and reducing value chain
Scope 3 emission1 by 25% by 2032 in a science-
based target.
1
Incurred within the domestic market; excluding LPG and corporate as their emissions are not material.
Annual Report 2019 49
Financial risks
Financial risks are the risks that directly impact the financial performance and resilience of Origin.
Risk
Consequences
Management
Commodity
Foreign exchange
and interest rates
Origin has a long-term exposure to international oil, LNG and
gas prices through the sale of gas and LPG, and its investment
in APLNG. Pricing can be volatile and downward price
movements can impact cash flow, financial performance,
reserves and asset carrying values. Some of Origin’s long-
term domestic gas purchase agreements and APLNG’s LNG
sale agreements contain periodic price reviews. Following
each review, pricing may be adjusted upwards or downwards
or it may remain unchanged.
Prices and volumes for electricity that Origin sources to
on-sell to customers are volatile and are influenced by many
factors that are difficult to predict. Long-term fluctuations
in coal and gas prices also impact the margins of Origin’s
generation portfolio.
Origin has exposures through principal debt and interest
payments in foreign currency long-term borrowings, through
the sale and purchase of gas and LPG, and through its
investments in APLNG and the Company’s foreign operations.
Interest rate movements and foreign exchange fluctuations
could lead to a decrease in Australian dollar revenues or
increased payments in Australian dollar terms.
• Commodity exposure limits are set by the Board to
manage the overall financial exposure that Origin is
prepared to take.
• Origin’s commodity risk management process monitors
and reports performance against defined limits.
• Commodity price risk is managed through
a combination of physical positions and
derivatives contracts.
• For each periodic price review, a negotiation strategy
is developed, which takes into account external market
advice and utilises both external and in-house expertise.
• Risk limits are set by the Board to manage the
overall exposure.
• Origin’s treasury risk management process monitors and
reports performance against defined limits.
• Foreign exchange and interest rate risks are managed
through a combination of physical positions and
derivatives.
Liquidity and access
to capital markets
Origin’s business, prospects and financial flexibility could be
adversely affected by a failure to appropriately manage its
liquidity position, or if markets are not available at the time of
any financing or refinancing requirement.
• Origin actively manages its liquidity position through
cash flow forecasting and maintenance of minimum
levels of liquidity as determined under Board
approved limits.
Credit and
counterparty
Some counterparties may fail to fulfil their obligations (in
whole or part) under major contracts.
• Counterparty risk assessments are regularly undertaken
and where appropriate, credit support is obtained to
manage counterparty risk.
Operational risks
Operational risks arise from inadequate or failed internal processes, people or systems or from external events.
Risk
Consequences
Management
Safe and reliable
operations
Malfunctioning plant, major infrastructure failure, incorrect
application of procedures, unsafe practices, a physical
security breach, a cyber attack or a major weather event such
as a cyclone, flood or earthquake may lead to the loss of lives,
asset damage, environmental damage and other impacts to
third parties.
A production outage or constraint, network or IT systems
outage, would affect Origin’s ability to deliver electricity and
gas to its customers. A serious incident or a prolonged outage
may also damage Origin’s financial prospects and reputation.
• Core operations are subject to comprehensive
operational, safety and maintenance procedures and
directives.
• Origin personnel are appropriately trained and licensed
to perform their operational activities.
• Origin maintains an extensive insurance program
to mitigate consequences by transferring financial
risk exposure to third parties where commercially
appropriate.
Environmental
and Social
An environmental incident or Origin’s failure to consider and
adequately mitigate the environmental, social and socio-
economic impacts on communities and the environment has
the potential to cause environmental impact, community
action, regulatory intervention, legal action, reduced access
to resources and markets, impacts to Origin’s reputation and
increased operating costs.
A third party’s actions may result in delay in Origin carrying
out its approved development and operational activities.
NGOs, landholders, community members and other affected
parties can seek to prevent or delay Origin’s activities through
court litigation, preventing access to land and extending
approval pathway timeframes.
• Origin engages with communities to understand,
mitigate and report on environmental and social risks
associated with its projects and operations.
• At a minimum, the management of environmental
and social risks meets regulatory requirements.
Where practical, their management extends to the
improvement of environmental values and the creation
of socio-economic benefits.
• A dedicated Board Committee oversees health, safety
and environment risk. The Committee receives regular
reporting of the highest rated environmental risks
and mitigants, and reviews significant incidents and
near misses.
• Origin engages with its stakeholders prior to seeking
relevant approvals for its development and operational
activities, and this engagement continues through the
life of the project.
Operating and Financial Review 50
Risk
Consequences
Management
Cyber security
A cyber security incident could lead to a breach of privacy,
loss of and/or corruption of commercially sensitive data,
and/or a disruption of critical business processes. This may
adversely impact customers and the Company’s business
activities.
APLNG gas reserves,
resources and
deliverability
There is uncertainty about the productivity, and therefore
economic viability, of resources and developed and
undeveloped reserves. As a result, there is a risk that actual
production may vary from that estimated, and in the longer
term, that there will be insufficient reserves to supply the full
duration and volumes to meet contractual commitments.
As at 30 June 2019, APLNG’s total resources are estimated
to be greater than its contractual supply commitments on a
volume basis. However, under certain scenarios of production
and deliverability of gas over time, there is a risk that the rate
of gas delivery required to meet APLNG’s committed gas
supply agreements may not be able to be met for the later
years in the life of existing contracts.
Conduct
Unethical business practice or failure to comply with
Origin’s Values may affect Origin’s risk profile by impacting
its business operations, financial prospects or reputation,
particularly with customers and community stakeholders.
Joint venture
Third party joint venture operators may have economic or
other business interests that are inconsistent with Origin’s
own and may take actions contrary to the Company’s
objectives, interests or standards. This may lead to potential
financial, reputational and environmental damage in the event
of a serious incident.
• A dedicated cyber risk team, reporting directly to
the executive responsible for Risk, is responsible for
implementing a Board-approved cyber strategy.
• External cyber security specialists are regularly
employed to assess our cyber security profile, including
penetration testing.
• Employees undertake compulsory cyber awareness
training, including how to identify phishing emails and
keep data safe; and are subject to a regular program of
random testing.
• APLNG employs established industry procedures to
identify and consider areas for exploration to mature
contingent and prospective resources.
• APLNG monitors reservoir performance and adjusts
development plans accordingly and/or acquires
reserves from alternate sources.
• APLNG is progressing an exploration campaign to test
high materiality plays that, if successful, could mitigate
the deliverability risk.
• APLNG continues to progress commercial
arrangements for long-term gas supply, and has the
ability to substitute gas or LNG to meet contractual
requirements if required.
• Origin’s Purpose, Values, Behaviours and Code
of Conduct guide conduct and decision making
across Origin.
• All Origin’s people are trained every two years in Origin’s
Code of Conduct, and we conduct training for insider
trading, privacy and competition and consumer law.
• Conduct risk is identified as a material risk within
Origin’s risk management framework and is regularly
reported to the appropriate Board Committee. Controls
specific to the different parts of Origin’s business are
the accountability of Business Units and are subject to
Internal Audit.
• Origin applies a number of governance and
management standards across its various joint
venture interests to provide a consistent approach to
managing them.
• Origin actively monitors and participates in its joint
ventures through participation in their respective boards
and governance committees.
APLNG reversion
In 2002, APLNG acquired various CSG interests from Tri-Star that are subject to reversionary rights and an ongoing royalty in favour
of Tri-Star. If triggered, the reversionary rights require APLNG to transfer back to Tri-Star a 45% interest in those CSG interests for no
additional consideration. The reversion trigger will occur when the revenue from the sale of petroleum from those CSG interests, plus any
other revenue derived from or in connection with those CSG interests, exceeds the aggregate of all expenditure relating to those CSG
interests plus interest on that expenditure, royalty payments and the original acquisition price.
The affected CSG interests represent approximately 21% of APLNG’s 3P CSG reserves (as at 30 June 2019), and approximately 21% of
APLNG’s 2P CSG reserves (as at 30 June 2019).
Tri-Star served proceedings on APLNG in 2015 (“reversion proceeding”) claiming that reversion occurred as early as 1 November 2008
following ConocoPhillips’ investment in APLNG, on the assertion that the equity subscription monies paid by ConocoPhillips was
revenue for purposes of the trigger. Tri-Star has also claimed in the alternative that reversion occurred in 2011 or 2012 following Sinopec’s
investment in APLNG. These claims are referred to in this document as Tri-Star’s “past reversion” claims.
Tri-Star has made other claims in the reversion proceeding against APLNG. These relate to other aspects of the reversion trigger (including
as to the calculation of interest) and the calculation of the royalty payable by APLNG to Tri-Star. The outcome of these other claims may
impact when reversion may occur in the future but will not result, if determined in favour of Tri-Star, in reversion having already occurred.
APLNG denies these claims and filed its defence and counter-claim in April 2016. Tri-Star responded with its reply and answer to APLNG’s
defence and counter-claim in March 2018.
Annual Report 2019 51
If Tri-Star’s past reversion claims are successful, then Tri-Star may be entitled to an order that reversion occurred as early as 1 November
2008. If the court determines that reversion has occurred, then APLNG may no longer have access to the reserves and resources that
are subject to Tri-Star’s reversionary interests and may need to source alternative supplies of gas (including from third parties) to meet its
contracted commitments. There are also likely to be a number of further complex issues that would need to be resolved as a consequence
of any such finding in favour of Tri-Star. These matters will need to be determined by the court (either in the current or in separate
proceedings) or by agreement between the parties, and they include:
• the terms under which some of the affected CSG interests will be operated where currently there are no joint operating agreements in place;
• the amount of Tri-Star’s contribution to the costs incurred by APLNG in exploring and developing the affected CSG interests between
the date of reversion and the date of judgment, which APLNG has stated in its defence and counter-claim are in the order of $3.1 billion
(as at 31 December 2015); and
• the consequences of APLNG having dealt with Tri-Star’s reversionary interests between the date of reversion and the date of judgment,
including the gas produced from them. Tri-Star has, in its reply and answer:
– estimated the value of such gas to be $2.06 billion (as at 31 December 2017) and approximately $1.08 billion per annum thereafter.
Tri-Star has sought leave of the court to update its estimate of the value of such gas to be approximately $3.37 billion (as at 31 March
2019) and approximately $1.3 billion per annum thereafter in an amended statement of claim (discussed further below); and
– alleged that it should be entitled to set-off the value of such gas from any amount owing to APLNG arising from its counter-claim for
contribution to the costs incurred by APLNG in exploring and developing the affected CSG interests between the date of reversion
and the date of judgment.
If APLNG is successful in defending Tri-Star’s past reversion claims in the reversion proceeding, the potential for reversion to otherwise
occur in the future in accordance with the reversion trigger will remain.
Tri-Star has also commenced proceedings against APLNG (‘markets proceeding’) which allege that APLNG breached three CSG joint
venture agreements by failing to offer Tri-Star (and the other minority participants in those agreements) an opportunity to participate in
the “markets” alleged to be constituted by certain of its LNG and domestic gas sales agreements, including the Sinopec and Kansai LNG
sale agreements entered into by APLNG in 2011 and 2012. Tri-Star has alleged that it should have been offered participation in those
sales agreements for its share of production from those three CSG joint ventures referable to both its small participating interests and its
reversionary interests in those joint ventures. Tri-Star is seeking damages and/or an order that APLNG offer Tri-Star (and the other minority
participants in those CSG joint venture agreements) the opportunity to participate in those sales agreements for their proportionate share
of production from those three CSG joint ventures.
In July 2019, Tri-Star filed applications for the leave of the court to file an amended statement of claim in each of the reversion proceeding
and the markets proceeding. APLNG has objected to Tri-Star’s application for leave and the amended claims being filed in the form
proposed by Tri-Star because they seek to (among other things) add new claims that APLNG consider to be statute-barred.
Tri-Star’s draft amended statement of claim in the reversion proceeding:
•
includes a new claim for damages for the value of the gas taken and sold by APLNG since the alleged past reversion dates (a claim
originally pleaded by Tri-Star in its reply and answer); and
• seeks additional determinations from the court in relation to (amongst other things) the calculation of aspects of the reversion trigger
including the calculation of interest and the nature and quantum of APLNG’s expenditures that can be included, the calculation of
royalty payable by APLNG to Tri-Star and, if reversion occurs, the extent of the reversionary interests principally with respect to Tri-Star’s
ownership and/or rights to use or access certain project infrastructure.
Tri-Star’s draft amended statement of claim in the markets proceeding seeks additional declarations and/or other relief in respect of:
• the nature and scope of the obligations of APLNG as operator pursuant to the CSG joint venture agreements;
• Tri-Star’s ownership and/or rights to use or access certain project infrastructure; and
• APLNG’s entitlement as operator to charge (both historically and in the future) certain categories of costs under the relevant CSG joint
venture agreements.
The court hearing to decide the extent to which the amendments proposed by Tri-Star are permitted to be included in its pleadings is
scheduled to occur in September 2019.
APLNG intends to defend the claims in both proceedings (as amended, to the extent that leave of the court is granted for amendments
to be made).
If APLNG is not successful in defending all or some of the claims being made in the proceedings by Tri-Star, APLNG’s financial
performance may be materially adversely impacted and the amount and timing of cash flows from APLNG to its shareholders, including
Origin, may be significantly affected.
Once Tri-Star’s amended pleadings have been finalised, APLNG will file its response in each of the markets proceeding and reversion
proceeding. Once the pleadings have closed, the usual court process would involve a period of document disclosure, potentially court-
ordered mediation and then finally a hearing. The timing for each of these steps is difficult to predict at this stage. APLNG expects that the
two proceedings will be managed in parallel.
Operating and Financial Review 52
8. Important information
Forward looking statements
This Operating and Financial Review (OFR) contains forward looking statements, including statements of current intention, statements of
opinion and predictions as to possible future events and future financial prospects. Such statements are not statements of fact and there
can be no certainty of outcome in relation to the matters to which the statements relate. Forward looking statements involve known and
unknown risks, uncertainties, assumptions and other important factors that could cause the actual outcomes to be materially different from
the events or results expressed or implied by such statements, and the outcomes are not all within the control of Origin. Statements about
past performance are not necessarily indicative of future performance.
Neither the Company nor any of its subsidiaries, affiliates and associated companies (or any of their respective officers, employees or
agents) (the “Relevant Persons”) makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of any
forward looking statement or any outcomes expressed or implied in any forward looking statement. The forward looking statements in
this OFR reflect views held only at the date of this report and except as required by applicable law or the ASX Listing Rules, the Relevant
Persons disclaim any obligation or undertaking to publicly update any forward looking statements, or discussion of future financial
prospects, whether as a result of new information or future events.
Non-IFRS financial measures
This OFR and Directors’ Report refers to Origin’s financial results, including Origin’s Statutory Profit and Underlying Profit. Origin’s Statutory
Profit contains a number of items that when excluded provide a different perspective on the financial and operational performance of
the business. Income Statement amounts, presented on an underlying basis such as Underlying Profit, are non-IFRS financial measures,
and exclude the impact of these items consistent with the manner in which senior management reviews the financial and operating
performance of the business. Each underlying measure disclosed has been adjusted to remove the impact of these items on a consistent
basis. A reconciliation and description of the items that contribute to the difference between Statutory Profit and Underlying Profit is
provided in section 4.3 of this OFR.
Certain other non-IFRS financial measures are also included in this OFR. These non-IFRS financial measures are used internally by
management to assess the performance of Origin’s business and make decisions on allocation of resources. Further information regarding
the non-IFRS financial measures is included in the Glossary. Non-IFRS measures have not been subject to audit or review. Certain
comparative amounts from the prior corresponding period have been re-presented to conform to the current period’s presentation.
Annual Report 2019 53
Appendices
Appendix 1: Financial instruments and fair value adjustments
Balance Sheet Impact
Income Statement Impact
Financial asset/(liability)
Inc/(dec)
in financial
instrument
Inc/(dec)
in other
net assets
Total
inc/(dec)
in net
assets
Gain/(loss)
included in
Underlying
Profit
Pre-tax
Gain/(loss)
excluded
from
Underlying
Profit
Post-tax
Gain/(loss)
excluded
from
Underlying
Profit
($m)
30 Jun 2019 30 Jun 2018
Oil and gas derivatives
Oil and gas hedges –
Integrated Gas
Oil and gas hedges –
Energy Markets
Other commodity hedges
Electricity derivatives
Electricity swaps and options
Power purchase agreements
Environmental derivatives
FX and interest rate derivatives
Foreign exchange contracts
Foreign currency debt hedges
Interest rate swaps
(60)
(160)
100
(159)
(59)
(146)
87
60
21
(8)
(47)
172
(512)
(127)
(467)
(195)
658
(18)
92
14
(54)
13
(405)
(123)
(515)
(249)
805
(6)
(71)
(22)
7
159
(107)
(4)
48
54
(147)
(12)
74
33
(52)
2
104
–
106
(64)
109
–
45
3
11
5
11
(45)
(130)
161
(3)
(4)
154
(10)
(38)
(12)
(60)
176
104
–
280
1
–
–
1
(2)
–
85
(15)
(107)
(4)
(126)
(11)
(38)
(12)
(61)
(102)
(1)
–
59
(11)
(75)
(3)
(88)
(8)
(27)
(8)
(43)
(72)
Decrease in fair value of derivatives (Note A1(a))
Other financial assets/liabilities
445
550
(105)
MRCPS issued by APLNG1
3,045
3,465
(419)
970
551
226
325
228
Environmental certificates and
surrender obligation
Settlement Residue Distribution
Agreement units
Other investments
2
53
61
(151)
153
(824)
(671)
(715)
46
131
7
(70)
(5)
70
2
–
(20)
–
Increase/(decrease) in fair value of other financial assets/liabilities (financial statements Note A1(b))
Foreign exchange loss on LNG-related financing
Total fair value and foreign exchange movements
Reconciliation of net derivative liability to financial statements
Derivative assets
1,434
1,639
Derivative liabilities
(1,503)
(1,658)
Net derivative liability
(69)
(19)
44
22
–
391
(90)
199
31
15
–
274
(63)
139
1
June 2018 MRCPS has been restated for comparative purposes only. Under AASB 9, from 1 July 2018, MRCPS is held at fair value, rather than at cost.
Operating and Financial Review 54
Appendix 2: Reconciliation to FY2018 cash flow
Year Ended 30 June
($m)
Underlying EBITDA
APLNG Underlying EBITDA (non-cash)
Non-cash items in Underlying EBITDA
Change in working capital
Other
Tax/Other
2018
2018
Pre-reclass
Electricity
futures
collateral
Share based
remuneration
Bad debt
Expense
Post-reclass
2,787
(1,405)
136
(245)
(82)
(38)
–
–
–
(170)
–
–
–
–
25
–
(25)
–
–
–
–
–
88
(88)
–
–
–
–
2,787
(1,405)
250
(503)
(108)
(38)
983
–
Cash flow from operating activities
1,153
(170)
Electricity Futures Collateral
(previously in financing activities)
(170)
170
Appendix 3: Energy Markets segment revenue reconciliation
The table below reconciles the difference between segment revenue and customer revenue disclosed in the Electricity, Natural Gas, LPG and
Solar & Energy Services tables.
Year ended 30 June
Energy Markets Segment Revenue
Less pool and other revenue:
Internal Generation
Renewable PPAs(a)
Other PPAs(a)
Pool Revenue
Other(b)
Total Customer Revenue
2019
($m)
2018
($m)
Change
($m)
Change
(%)
14,293
14,344
(51)
(2,050)
(1,907)
(40)
(27)
(190)
(80)
(2,117)
(2,177)
(96)
(111)
12,080
12,057
(143)
150
53
60
14
23
–
8
(79)
(66)
(3)
(13)
–
(a) FY2019 includes only gross settled PPAs, following a change in the revenue recognition policy from 1 July 2019. FY2018 included both net settled and gross settled PPAs.
(b) Other includes ancillary services, transmission use of system and other items which are partially offset in cost of energy.
Annual Report 2019 Operating and Financial Review
55
56
Remuneration
Report
For the year ended 30 June 2019
Letter from the Chairman of the Remuneration
and People Committee
On behalf of the Remuneration and People Committee (RPC) and the
Board, I am pleased to present the Remuneration Report for FY2019.
FY2019 remuneration outcomes
Remuneration outcomes for FY2019 for the CEO are summarised below.
The CEO’s Short Term Incentive (STI) scorecard outcome for the year was
113.9% of target (which also represents 113.9% of his Fixed Remuneration
(FR) or $2.05m) compared to 123.0% of FR in the prior year. The average
Executive KMP STI payout as a percentage of the dollar target values was
123.0%, compared to 129.1% in the prior year. These outcomes reflect
strong outperformance for financial metrics, above target for customer
metrics and below target for people metrics.
No vesting occurred in FY2019 from prior year Long Term Incentive (LTI)
allocations. This reflects the fact that recent strong short term outcomes are
yet to be translated into sustained long-term share price growth.
The share price decline during the year impacted the value of
management’s deferred compensation, unvested incentives and equity
holdings. This reflects the inherent shareholder alignment created by the
various equity components of our framework, which we believe responded
appropriately. The creation of sustainable shareholder value remains of
utmost focus. The failure to meet the shareholder return tests resulted in
zero vesting for Options and for PSRs awarded in October 2014, and these
were forfeited during FY2019.
The diagram below illustrates the amounts awarded for FY2019, including
conditional pay that may vest in the future, as detailed in section 4.5.
This corresponds to a level just above target total remuneration. The
remuneration actually received during FY2019 (which includes vesting of
prior years’ deferred remuneration, as detailed in section 4.6) corresponded
to a level between minimum and target of the CEO’s total remuneration
(section 3.6).
The Remuneration Report (Report) for
the year ended 30 June 2019 (FY2019)
forms part of the Directors’ Report, and
has been prepared in accordance with the
Corporations Act 2001 (Cth) (the Act) and
in compliance with AASB 124 Related Party
Disclosures, and audited as required by
section 308(3C) of the Act.
CEO pay received in and awarded for FY2019, relative to remuneration package range
Minimum
Target
Maximum
1,800
5,220
8,046
Awarded
1,800
1,025
1,025
1,620
5,470
Received
1,800
1,025
332 3,157
$’000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FR
STI cash
STI deferred
LTI
Annual Report 2019
57
FY2019 changes
During the year, no material changes were made to our remuneration framework. We reviewed the framework
to ensure alignment with our purpose, strategy, values and behaviours. We balanced metrics which were within
management’s control and those which were not, but materially influence our shareholders’ experience, such as
commodity prices. We ensured our focus on long-term decision making was reflected in the choice of short-term
metrics and long-term measures of success consistent with that focus. We reviewed the balance of fixed versus
at risk remuneration and undertook comprehensive benchmarking to ensure competitive levels of remuneration
opportunity. We incorporated a specific metric that reflects how our executives model our values and behaviours,
and considered non-financial risks as inputs into the overall exercise of discretion that remained a key element of
our framework.
LTI metrics continue to reflect belief that sustainable creation of shareholder value is the most reliable evidence
of the effectiveness of all the strategic inputs, including customer, people and sustainability initiatives. ROCE is
similarly retained as an internal metric predictive of value creation.
As disclosed in the FY2018 report, after two years in the role, the CEO’s FR was realigned to market benchmarks
effective 1 July 2018. The 5.9% uplift in fixed remuneration was offset by a reduction in STI target opportunity.
Other Executive Leadership Team (ELT) members’ FR was also realigned to market benchmarks reflecting their
tenure in the roles. The details are outlined in section 4.3.
Greg Lalicker was appointed as an independent, Non-executive Director during the year. There were no other
changes to KMP during the year or to the date of preparation of the report.
FY2020 plans and focus
FR changes effective early in FY2020 for Executive KMP are expected to average less than 2% in line with
general executive market movements, compared with general uplifts of around 2.5% for the broader organisation.
No changes are envisaged to incentive structure or opportunity levels in FY2020.
Following a review of fee levels, the RPC recommended no changes to base fees for the Chairman or Non-
executive Directors, or for the Chairman and members of the Audit Committee for FY2020. Reflecting the increase
in other Committee workloads and to bring closer alignment across Committees, the Chairman fees for the Risk
Committee and the Health, Safety & Environment Committee were aligned with those for the RPC, and for those
three Committees the Member fees were set at half the respective Chair fee. Total fees remain well within the cap
approved by shareholders in October 2017.
A key focus of the RPC is to ensure that our remuneration policy is fit for purpose. It needs to generate outcomes
that appropriately reflect the performance of the Company and our executives as well as retain, attract and fairly
reward talented executives and promote discretionary effort. As our strategy develops, so too will elements of the
remuneration framework to ensure alignment. The RPC continues to test the remuneration framework against these
objectives. We review various alternative structures, engage openly with our major shareholders, proxy advisers
and remuneration experts, and seek to simplify and refine the framework in line with changing industry conditions.
This process will result in refinements to the annual STI metrics and potential further simplification of our framework
going forward.
Scott Perkins
Chairman, Remuneration and People Committee
Remuneration Report 58
Report structure
The report is divided into the following sections:
1 Key Management Personnel (KMP)
This section provides details of the
Directors and named Executives subject
to the disclosure requirements above who
form the focus of this report.
2
Remuneration link with Company
performance and strategy
This section describes the connection
between the remuneration framework,
the Company’s strategy and performance
against that strategy.
4
Company performance and
remuneration outcomes
This section summarises Company
performance over the last five years,
with particular focus on FY2019, and
corresponding remuneration outcomes.
Outcomes are expressed in terms of
amounts paid and awarded in respect of
FY2019, and amounts actually received
in FY2019 that relate to both current and
prior years’ awards.
5 Governance
3 Remuneration framework details
This section explains each element of the
framework. This includes the process for
setting KMP remuneration arrangements,
the potential value range of those
arrangements, and fixed versus variable
nature of each remuneration element.
This section describes the control of
the remuneration process exercised by
the Board and the RPC. Through their
respective oversight, discretionary powers,
risk management, and plan design, these
serve to ensure that the framework is fit
for purpose and prevents the award (or
retention) of inappropriate benefits.
6 Non-executive Director (NED) fees
This section describes the basis for the
payment of fees to NEDs for the services
they provide.
7 Statutory tables and disclosures
This section includes an overview of
executive service agreements, other
statutory disclosures not covered in earlier
sections, and remuneration information
prepared in accordance with accounting
standards. Those standards require equity-
related items to be shown on the basis
of amortised fair values. Those values
are not actually provided to executives
and therefore differ from the allocated
and received amounts shown in the
sections above.
1. Key Management Personnel (KMP)
The report discloses the remuneration arrangements and outcomes for people listed below, who are those individuals who have been
determined as KMP as defined by AASB 124 Related Party Disclosures. Members of the RPC are identified in the last column.
Name
Role
G Cairns
Chairman, independent
d
r
a
o
B
J Akehurst
Independent
M Brenner
Independent
T Engelhard
Independent
G Lalicker
B Morgan
S Perkins
Independent
Independent
Independent
S Sargent*
Independent
Appointment
23 October 2013
29 April 2009
15 November 2013
RPC
✓
1 May 2017
✓
1 March 2019
16 November 2012
1 September 2015
Chair
29 May 2015
✓
F Calabria
Chief Executive Officer (CEO)
L Tremaine
Chief Financial Officer (CFO)
19 October 2016
10 July 2017
J Briskin
G Jarvis
Executive General Manager (EGM), Retail
5 December 2016
EGM Energy Supply & Operations
5 December 2016
M Schubert
EGM Integrated Gas
1 May 2017
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* Steve Sargent is also Chair of the Origin Foundation
Although focused on the remuneration arrangements and outcomes for the KMP listed in the table above, the report also provides a
perspective across the broader ELT.
The term “senior executives” in this report is a collective reference to the ELT excluding the CEO. The term “Other Executive KMP”
(abbreviated “Other” in tables and charts) refers to the three Executive General Managers (EGMs) (for Retail, Energy Supply & Operations,
and Integrated Gas).
Annual Report 2019
59
2. Remuneration link with Company performance and strategy
2.1 Overview of remuneration framework
Our remuneration framework is designed to support the Company’s strategy and to reward our people for its successful execution. It is
designed around three principles and summarised in the diagram below.
Connecting customers to the energy and technologies of the future; Leading customer experience and solutions; Accelerating towards clean
energy; Embracing a decentralised and digital future; Striving to be a low-cost operator; Developing resources to meet growing gas demand;
Maintaining disciplined capital management.
Leading the transition to a cleaner, smarter and customer-centric future
Strategy
Remuneration principles
Attract and retain the right people
Pay fairly
The framework secures high calibre
individuals from diverse backgrounds
and industries, with the talent to
execute the strategy.
The framework is market competitive.
Outcomes are a function of Company
performance, reflect our behavioural
expectations and our values, and align
with shareholder expectations.
Drive focus and discretionary effort
The framework encourages executives to
think and act like owners and to deliver against
long-term strategies and the short-term
business priorities that are expected to drive
long-term outcomes.
Remuneration framework
Element
Performance measures
Link to principles and strategy
Fixed Remuneration (FR)
Comprises cash salary, superannuation
and benefits.
Determined by the scope of the role and
its responsibilities and benchmarked
annually against similar roles.
Set at competitive levels to attract and retain
the right people and to pay fairly.
Details in section 3.1
Variable Remuneration (VR)
A significant proportion of total pay is
“at risk” to reward outperformance, the
majority delivered in deferred equity to
build executive shareholding.
Details in sections 3.2 and 3.6
Short Term Incentive (STI)
Annual bonus opportunity, half paid
in cash, half in shares restricted
for two years
Details in section 3.3 and 3.5
Long Term Incentive (LTI)
Granted in performance share rights
allocated at face value, deferred for a
total of four years.
Details in section 3.4 and 3.5
Divided into short term and long term as
set out below.
A significant proportion of total remuneration
is set as VR (“at risk”), tied to the achievement
of specific strategy related objectives in order
to drive focus and discretionary effort.
Metrics arising from a balanced
scorecard of objectives (generally 60%
financial, 40% non-financial) including a
behaviour assessment.
Internal (return on capital employed)
and external (relative total shareholder
return) performance metrics measured
over three years.
Metrics are shorter-term milestones that are
expected to contribute to longer-term value
creation. Metrics link to financial performance,
operating efficiency, customer experience,
safety, and measures supporting the attraction
and retention of the right people.
Metrics reflect belief that sustainable creation of
shareholder value is the most reliable evidence
of all the strategic inputs, including customer,
people and sustainability initiatives. ROCE
similarly included as internal metric predictive
of shareholder value creation.
Minimum shareholding
requirement (MSR)
Relatively high shareholding requirements result in executives thinking like owners, thereby
aligning with shareholders (details in section 2.3)
Robust governance
Manages risk and protects against reward for failure (details in section 5)
Remuneration Report 60
2.2 Behaviour assessment
Remuneration is aligned to market benchmarks for delivering against both short and long-term metrics that are expected to drive
sustained creation of shareholder value. Origin believes that observance of our values and behaviours and the quality of the relationships
with our customers and the broader community are inextricably linked to the creation of shareholder value. A formal behaviour assessment
(based on behaviourally anchored rating scales or BARS methodology) now forms part of the framework.
2.3 Minimum shareholding requirement (MSR) for senior executives
A key objective of the framework is to promote employee share ownership and to encourage employees to think and act as owners. This in
turn drives focus and incentivises discretionary effort. Equity is therefore a key element of both the STI and LTI plans. This is supplemented
by other share plan arrangements that incorporate concessional tax provisions, salary sacrifice, and share purchase and matching plans
(section 3.7).
All senior executives are required to build and maintain a minimum shareholding in the Company within four years of ELT appointment.
The MSR is the equivalent of 200% of FR for the CEO, and 100% of FR for ELT members. A disposal restriction applies until the MSR
is met. The restriction is in addition to any other trading or holding lock restriction and applies to shares released or vested from equity
incentive grants after 1 July 2017, except to the extent reasonably required to meet taxation obligations. Restricted Shares (RS) and
unvested equity that is not subject to performance hurdles, may be counted towards the MSR. Executive KMP shareholdings are shown
in section 7 (table 7-3).
2.4 Framework review
The RPC reviews the operation of the framework on an ongoing basis to verify that remuneration outcomes are consistent with its
principles. As part of that process the RPC monitors regulatory and market developments both domestically and internationally, takes
expert advice, and engages with stakeholders including proxy advisors and major shareholders (see section 5).
Annual Report 2019 61
3. Remuneration framework details
3.1 Fixed Remuneration (FR)
FR comprises cash salary, employer contributions to superannuation and salary sacrifice benefits. It takes into account the size and
complexity of the role, the skills and experience required for success, and individual qualifications.
FR is reviewed annually. ELT roles are benchmarked with reference to the S&P/ASX 50 (excluding the six largest organisations), and other
roles are benchmarked against independent third party references (primarily Korn Ferry’s “all organisations” dataset). The policy is for FR to
approximate the 50th percentile (P50) of these markets. In the absence of special factors, new or newly promoted incumbents commence
below this reference and move to P50 over time. Roles are positioned above this reference where it is appropriate for key talent retention
purposes or where it is necessary to attract and secure key skills to fill a business-critical role.
FR levels and movements for FY2019 are identified in section 4.3.
3.2 Total Remuneration (TR) and benchmarks
Total Remuneration (TR) is the sum of FR and VR. The range of possible TR values is calculated according to the table below.
TR
TR minimum
TR target (TRT)
TR maximum (TRM)
=
=
=
=
FR
Yes
Yes
Yes
+
+
+
+
STI
None awarded
STI awarded at the
target level
STI awarded at the
maximum level
+
+
+
+
LTI
None awarded
Full face value awarded; on the assumption that 50%
will vest (this is the risked or “expected” value). See
section 3.4
Full face value awarded; on the assumption that 100%
will vest (this is the unrisked or maximum value)
The calculations represent “present day values”. They exclude the potential impact of future share price movements on equity values which
can reduce or increase the ultimate value of the equity components (deferred STI and LTI).
TR is benchmarked against the same peer group markets as for FR, measured at TRT. Origin’s TRT and TRM are benchmarked to be at
approximately P50 and the 75th percentile (P75) of market TRT respectively. When Origin strongly performs it is intended to provide a
total reward that matches upper quartile market target outcomes.
When considering market positioning of remuneration the RPC considers three references FR at P50, and TRT at P50 and P75. Market
variation means that exact alignment with all three is rarely possible.
In setting VR opportunity levels, the RPC also has regard for market practice for the split between STI and LTI, and increasing the weighting
toward LTI for the more senior roles (which tend to be longer-term focused).
3.3 STI details
A detailed description of the STI plan operation is provided in the table below.
Parameter
Details
Award basis
The annual performance cycle is 1 July to 30 June. Individual balanced scorecards are agreed comprising both shared
Group objectives as well as targeted divisional objectives. Objectives are set across financial, customer and people
categories. The CEO’s FY2019 scorecard detail and Other Executive KMP summary scorecard outcomes are shown in
section 4.2.
Opportunity amount
The STI opportunity level varies according to the executive’s role, increasing with role size, accountability and the capacity
to influence business outcomes. They are set with reference to market benchmarks (see section 3.2). The FY2019
opportunity levels at minimum, target and at maximum (which operates as a cap) are set out below.
STI opportunity (% FR)
Executive KMP
Minimum
Target
Maximum
CEO
CFO
Other Executive KMP
0
0
0
100
100
75
167
167
125
Remuneration Report 62
Parameter
Details
Award calculation
$ FR
(at 30 June)
✕
STI target
opportunity
(% FR)
✕
=
STI award ($)
Balanced
scorecard
outcome
(% target)
↑
Discretion including
behaviour assessment
(see below)
Scorecard operation
Target represents the expectation for achieving robust annual plans. Threshold performance is that which results in
satisfactory outcomes, usually representing year-on-year improvement and contribution towards delivery of annual plans
but failing to meet the target level. Failure to reach a threshold measure is not rewarded.
Stretch targets are those that would deliver exceptional outcomes well above expectations.
The spread of results below or above the target will result in different remuneration outcomes for ELT members,
notwithstanding that a material element of remuneration metrics are shared. The incentive and corresponding reward for
out-performance is capped at 167% of the target level. This represents the maximum result (for individual objectives and
for the total scorecard). Achieving threshold measures results in a reward of 33% of the target level, with pro-rata between
these points.
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Maximum 167%
Target 100%
Threshold 33%
Minimum 0%
Threshold
Target
Stretch
Increasing performance level →
Assessment
Achievement and performance against each executive’s scorecard is assessed annually as part of the Company’s broader
performance review process. The RPC also considers how remuneration outcomes have been achieved. This includes an
assessment of factors such as conduct, regulatory compliance, and other non-financial risks.
A behaviour assessment (based on BARS methodology, see section 2.2) was introduced in FY2019 to ensure that
executives met the requirements of the new Origin values and behavioural requirements. In addition to Board discretion,
this allows scorecard outcomes to be adjusted downward to reflect the impact of behaviours that are not aligned to Origin’s
values. In extraordinary cases of exceptional demonstration of model behaviours formulaic outcomes may be varied
upwards, within the maximum prescribed levels.
A failure to meet behavioural or conduct requirements during or after the performance period may result in more serious
sanctions (see section 5.5).
Delivery
The STI award is delivered half in cash, and half in equity that is deferred for two years. The cash component is generally
paid in September following the end of the financial year in which it was earned.
The equity component (deferred STI) is awarded in the form of RS which are subject to a two-year holding lock. RSs are
granted to executives for no cost as they represent part of the recipient’s remuneration. Prior to FY2018 deferred STI was
awarded in the form of Deferred Share Rights (DSRs), this was changed in FY2018 at the time practice was changed to
source shares for equity awards on market.
Service conditions
Unless the Board determines otherwise, the whole of the STI award is forfeited if the executive resigns or is dismissed
for cause during the performance year, and the deferred component is forfeited if such a cessation occurs during the
restriction period.
RS allocation
Deferred
STI amount ($)
(50% of STI Award)
÷
Face value
share price ($)
(30 day VWAP to
30 June, no discount)
=
Number of RSs
(rounded to
nearest whole)
Annual Report 2019
63
Parameter
Details
Equity grants
Except for the CEO, equity grants are made as soon as practicable after Board approval, which is generally at the end of
August following the end of the financial year.
For the CEO, the Board’s recommendation for the deferred STI award is submitted for approval at the AGM following the
end of the financial year, and the equity grant is made as soon as practicable after shareholder approval has been obtained.
Shareholder approval for the CEO is not required where RSs are to be purchased on market. However, in the interests of
good governance and to preserve flexibility to issue shares where it may be appropriate to do so, the Board’s practice is to
seek shareholder approval.
Vesting release
and exercise
RSs are released (and DSRs are vested) when the service conditions are met (or else as described under Employment
cessation below). Exercise of DSRs is automatic on vesting and there is no exercise price.
Dividends
RSs carry dividend entitlements and voting rights. DSRs do not.
Employment
cessation
No STI award is made where the service conditions have not been met in full, except where the Board decides otherwise,
which it generally does in “good leaver” circumstances. Those are typically in cases of death, disability, redundancy, and
genuine retirement. The requirement for deferral is waived in such circumstances.
Previously awarded but unvested deferred awards vest at cessation of employment in good leaver circumstances, unless the
Board determines otherwise.
Sourcing
The Board’s preferred approach is to purchase RSs on market (unless circumstances arise where the Board determines
otherwise). Otherwise, the Board may issue equity or make the award in alternative forms (including cash or deferred cash)
where appropriate to do so.
Governance and MSR Trading in vested or released shares is subject to minimum shareholding requirements (section 2.3) and all incentive awards
are subject to the governance provisions in section 5.5.
3.4 LTI details
A detailed description of the LTI plan operation is provided in the tables below.
Parameter
Details
Award basis
LTI is an award of conditional equity that may have future value, subject to the company meeting or exceeding performance
conditions, and subject also to the executive meeting service and personal conduct and performance requirements. Awards
are considered annually.
Opportunity amount,
and minimum and
maximum value
The LTI opportunity level reflects the capacity of the role to influence long-term sustainable growth and performance, and
is set with reference to market benchmarks (see section 3.2). It represents the face value of an equity award (not discounted
for hurdles or for dividends).
An award may be granted at a face value anywhere between zero and the maximum in the table below (the Award Face
Value), but in the absence of special reasons is normally granted at the standard role-based level (i.e. the standard is
the maximum).
Executive KMP
CEO
CFO and Other Executive KMP
LTI opportunity (% FR)
Minimum
Maximum
0
0
180
120
The maximum value of the LTI is the maximum face value from the table above, assuming 100% of the award vests.
This represents a “present day value” because it is not possible to predict the ultimate value without assuming a future
share price.
The actual future value of the award will depend on the proportion that vests (which depends on the company’s
performance relative to the performance conditions) and the future share price.
The minimum value of the award is zero, which will be the case where PSRs are not granted, or where service conditions are
not met, or where performance conditions are not met and there is no vesting.
The expected value (also referred to as the target value) is the risked value. For market-based hurdles this is the expected
value of the vesting outcome obtained through a Monte Carlo simulation applied to a Black-Scholes option pricing model.
For non-market hurdles, the vesting expectation is determined from reasonable operating forecasts and estimates of the
degree of difficulty in achieving the hurdle. Origin uses both a market and non-market hurdle and has previously determined
the risk factor as approximately 50% for both. Therefore a face value LTI allocation of 180% FR to the CEO has an expected
(risked) value of 90% FR (see section 3.2).
Behaviour Assessment The behaviour assessment referred to in section 3.3 may be taken into account by the RPC when recommending LTI
awards, or when considering the application of the governance provisions to awards made (section 5.5).
Delivery
Performance Share Rights (PSRs). A PSR is a right to a fully paid ordinary share in the company, subject to the fulfilment of
performance and service conditions. The PSRs are granted at no cost because they are awarded as remuneration.
Remuneration Report 64
Parameter
Details
PSR allocation
$ FR
(at 30 June)
✕
Award face value
(%FR)
÷
Face value
share price ($)
(30 day VWAP to
30 June, no discount)
=
Number of PSRs
(rounded to
nearest whole)
Performance period
and deferral length
The deferral period is a total of four years, made up of a three-year performance period (three financial years) followed by a
holding lock of one year.
Service conditions
Unless the Board determines otherwise, unvested LTI awards are forfeited if the executive resigns or is dismissed for cause
prior to the end of the relevant vesting period.
Performance
conditions
Two performance conditions have been chosen to provide a balance between internal and external metrics. The two
tranches are tested separately and vest separately. These are described in the graphic on the following page, together with
commentary on the nature of the metrics, why they have been chosen, how they operate, and how each tranche vests.
The same tranches and performance conditions (and therefore vesting outcomes) apply to all LTI participants.
Grant
Except for the CEO, equity grants are made as soon as practicable after Board approval, which is generally at the end of
August following the end of the financial year.
The CEO’s LTI equity award is submitted for approval at the Annual General Meeting, and the equity grant is made as soon
as practicable after shareholder approval has been obtained.
Shareholder approval for CEO LTI equity awards is not required where vested shares are to be purchased on market.
However, in the interests of good governance and to preserve flexibility to issue shares where it may be appropriate to do
so, the Board’s practice is to always seek shareholder approval.
Vesting release
and exercise
PSRs vest according to the level at which each of the performance conditions have been met. Exercise of PSRs is automatic
on vesting and there is no exercise price. Shares allocated after vesting are subject to a holding lock for one year and may
not be traded until released from the holding lock.
In exceptional circumstances (for example, an LTI recipient residing in an international jurisdiction, or where it is
inappropriate to provide shares) the Board may determine to cash settle an award.
Dividends
PSRs carry no dividend entitlements or voting rights. Vested shares, while under holding lock and following the lifting of
restrictions, carry dividend entitlements and voting rights.
Employment cessation Unvested LTI awards held at cessation of employment will lapse on the date of cessation, unless the Board determines
otherwise.
Typically the Board will exercise such discretion only in limited “good leaver” circumstances, those which arise in
consequence of death, disability, redundancy, genuine retirement or other exceptional circumstances as approved by
the Board.
In good leaver circumstances, unvested LTI awards may be held “on foot” subject to their original performance conditions
and other terms and conditions being met (except for the waived service condition) or dealt with in an appropriate manner
as determined by the Board.
Sourcing
The Board’s preferred approach is to satisfy vesting by purchasing shares on market (unless circumstances arise where the
Board determines otherwise). Otherwise, the Board may issue equity or make the award in alternative forms (including cash
or deferred cash) where appropriate to do so.
Governance and MSR Trading in released shares is subject to minimum shareholding requirements (section 2.3), and all incentive awards (whether
paid, vested, unvested, restricted or released) are subject to the governance provisions in section 5.5.
Annual Report 2019 65
LTI tranches and performance conditions
Number of PSRs to be awarded
50%1
↓
50%1
↓
Internal hurdle
External hurdle
Return on capital employed (ROCE) tranche
Relative total shareholder return (RTSR) tranche
50%
↓
50%
↓
Energy Markets (EM)
hurdle
Integrated Gas (IG)
hurdle
Rationale
ROCE is a profitability ratio that measures the efficiency of
profit generation from capital employed.
It predicts superior shareholder returns over the long term
and reflects the importance of prudent capital allocation to
generate sufficient returns.
Definition
Vesting
The ROCE tranche is split into two equal parts, one for the EM
business and the other for the IG business. Separate ROCE
targets are set for each, recognising their differing capital
characteristics, risk and growth profiles. The average ROCE
over three years must equal or exceed the average of three
annual targets which are reflective of delivering WACC for
each business.
The starting point for the ROCE calculation is statutory EBIT
divided by average capital employed for the relevant business.
Statutory EBIT is adjusted for fair value and foreign exchange
movements in financial instruments which are highly volatile
and outside the control of management. Other adjustments to
the ROCE calculation may be made in limited circumstances
where the Board considers it to be appropriate. For example,
it may be appropriate to adjust EBIT when it is adversely
impacted by short-term factors associated with value creating
initiatives (for example, acquisitions).
Testing and vesting is independent for the two parts. In each
case, half of the relevant PSRs will vest if the target is met, and
all of the relevant PSRs will vest if the target is exceeded by
two percentage points or more. Straight-line pro-rata vesting
applies between these two points.
Full vesting occurs only when both targets are exceeded by
two percentage points or more.
TSR measures the growth in capital of a purchased share
assuming reinvestment of dividends. Relative TSR measures
a company’s TSR performance relative to a reference group.
It is an objective assessment of shareholder value, albeit with
limitations reflecting the relative risk and expected return of
each company compared to the reference group. It aligns
executive reward to shareholder returns and does not reward
general market uplifts. Vesting occurs only when Origin
outperforms the market.
The reference group is the S&P/ASX 50 (as constituted at the
start of the performance period).
This represents the most meaningful group with which
Origin competes for shareholder investment and executive
talent. There is an insufficient number of operationally similar
competitors to provide a useful ‘selected’ comparator group.
Share prices are determined from three-month volume
weighted average prices (VWAPs) ended on the start and
end (respectively) of the performance period.
Vesting occurs only if Origin’s TSR over the performance
period ranks it higher than the 50th percentile (P50) of the
reference group of companies. Half of the PSRs vest on
satisfying that condition, and all of the PSRs vest if Origin’s
ranks at or above the 75th percentile (P75). Straight-line
pro-rata vesting applies between these two points.
1 Where the number of PSRs to be allocated is an uneven number, the number allocated to the ROCE tranche is rounded to the nearest even number,
and the balance of the PSRs is allocated to the RTSR tranche.
Remuneration Report
66
3.5 Remuneration cycle timelines
The FY2019 remuneration cycle and timelines are summarised graphically in the chart below. The cycle runs across five years from
the beginning of the STI performance year in July 2018 through to August 2023 when the holding lock on vested LTI (if any) is lifted.
MSR and clawback provisions continue beyond this date.
FY2019
Fixed remuneration
paid through year
STI performance year
LTI
Jul
2019
Oct
2019
Aug
2020
Aug
2021
Aug
2022
Aug
2023
→ Cash 50%
→
Deferred STI
50% (D-STI)
Restricted
Shares allocated
Released after 2 years
MSR
LTI allocation
determined;
performance
period starts
PSRs granted
Vest after 3 years
Holding
lock
MSR
Governance map (see section 5)
STI metrics and
targets chosen
Discretion
Malus/discretion D-STI
Clawback D-STI
Clawback cash STI
LTI hurdles chosen
Malus/discretion LTI
→
→
Clawback
LTI
→
The governance map illustrates the periods in which the Board is able to cancel, adjust or recover VR awards as detailed in section 5.
These periods span the full cycle.
Annual Report 2019 67
3.6 Remuneration range and mix
FR and STI-LTI opportunity levels at 30 June 2019 are summarised in the table below, together with the possible value range of those
arrangements (based on the definitions in section 3.2).
VR opportunity (% FR)
Executive KMP
FR
($000)
STI
LTI
TR ($000)
Minimum
Target Maximum Minimum
Target1 Maximum1 Minimum
Target Maximum
CEO
CFO
1,800
1,000
Other (average)
783
0
0
0
100
100
75
167
167
125
0
0
0
90
60
60
180
120
120
1,800
5,220
8,046
1,000
2,600
783
1,841
3,870
2,703
1 See sections 3.2 and 3.4 for derivation of LTI values.
Half of the STI award is in cash, and half is awarded as deferred equity. The remuneration ranges for Executive KMP, broken into the
component elements, are shown schematically in the chart below.
Minimum
CEO
CFO
1,800
1,000
Other
783
Target
CEO
CFO
1,800
900
900
1,620
5,220
1,000
500 500
600
2,600
Other
783
294 294 470 1,841
Maximum
CEO
CFO
1,800
1,530
1,530
3,240
8,046
1,000
835
835
1,200
3,870
Other
783
490 490
940
2,703
$’000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FR
STI cash
STI deferred
LTI
Remuneration Report
68
The remuneration mix expressed in percentages of TR at target (TRT), and broken down into the elements of STI cash, STI deferred and LTI
is summarised in the table and chart below.
Role
CEO
CFO
$000
1,800
proportion % TRT
35
$000
1,000
proportion % TRT
Other (average)
$000
proportion % TRT
39
783
43
FR
STI cash STI deferred
900
17
500
19
294
16
900
17
500
19
294
16
LTI
1,620
31
600
23
470
25
TRT
Variable
Deferred
5,220
100
2,600
100
1,841
100
3,420
2,520
65
48
1,600
1,100
61
1,058
57
42
764
41
CEO
CFO
Other
(average)
FR
35%
39%
43%
Cash VR
17%
Deferred equity VR
48%
19%
16%
42%
41%
Note: “Deferred equity” is the sum of Deferred STI and LTI allocations. Percentages may be rounded.
The proportion of the package that is variable (VR) increases (and the proportion that is FR correspondingly decreases) with higher roles.
At target, the CEO’s package is 35% fixed and 65% variable, and almost half of it is in deferred pay (deferred STI and LTI) that is conditional
and subject to forfeiture subsequent to award.
3.7 Other equity/share plans
The company operates a universal employee share plan in which all full-time and part-time employees can choose to be eligible for
awards of up to $1,000 worth of company shares annually, or else participate in a salary sacrifice scheme to purchase up to $4,800
of shares annually.
Under the $1,000 scheme, shares are restricted for three years (or until cessation of employment, whichever occurs first). Shares
purchased under the sacrifice scheme are restricted for up to two years (or until cessation, whichever occurs first).
For every two shares purchased under the sacrifice scheme, participants are granted one matching share right at no cost which vests on
the second trading day following the release of the Company’s FY2020 full year results, provided that the participant remains employed
by the Company at this time. Each matching share right generally entitles the participant to one fully-paid ordinary share in the Company
(or in certain limited circumstances a cash equivalent payment). The matching share rights do not have any performance hurdles as they
have been granted to encourage broad participation in the scheme across the Company and to encourage employee share ownership.
All shares are currently purchased on market.
Directors are not eligible to participate in the above schemes, but, following approval by shareholders at the 2018 AGM, may participate
in a new NED Share Acquisition Plan via salary sacrifice of Board fees. All NEDs currently meet their minimum shareholding requirements,
and as yet no shares have been acquired under the new scheme.
The Committee regularly assesses the risk of the Company losing key people in areas of intense market activity, for example critical
employees who manage core activities or have skills that are being actively solicited in the market. Where appropriate it may consider the
selected use of deferred payment arrangements to reduce the risk of such critical loss. No deferred cash or retention equity was awarded
to KMP during the current or the prior period.
From time to time it may be necessary to offer remuneration to offset amounts forfeited when a new executive leaves another employer
in order to take up employment with Origin. In general, foregone equity awards would be replaced with Origin equity of the same fair
value and with conditions and vesting periods that mirror those of the forfeit. No “sign-on” awards were granted to Executive KMP during
the period.
Annual Report 2019 69
4. Company performance and remuneration outcomes
This section summarises remuneration outcomes for FY2019 and provides commentary on their alignment with company outcomes.
4.1 Five-year company performance and remuneration outcomes
The table below summarises key financial and non-financial performance for the company from FY2015 to FY2019, grouped and
compared with short-term and long-term remuneration outcomes.
Key performance metrics FY2015-FY20191
Operational measures
Underlying EPS cents per share2
Underlying EPS cents per share2 (continuing activities3)
Net cash from/(used in) operating and investing activities
(NCOIA) ($m)
Energy Markets EBITDA (underlying) ($m)
Integrated Gas EBITDA (underlying, total operations) ($m)
Strategic Net Promoter Score (sNPS)4
Total Recordable Injury Frequency Rate (TRIFR)5
Female representation in senior roles6 (%)
Origin engagement score7
STI award outcomes
FY2015
FY2016
FY2017
FY2018
FY2019
54.0
47.7
(2,081)
1,260
498
(39)
3.8
28
52
23.2
18.1
1,215
1,330
386
(16)
4.2
27
53
31.3
22.8
1,378
1,492
1,104
(16)
3.2
29
58
58.2
47.7
2,645
1,811
1,521
(13)
2.2
32
61
58.4
58.4
1,914
1,574
1,892
(6)
4.5
30
61
Executive KMP outcome (% of $ target)
81.0
43.8
91.7
129.1
123.0
Return measures
Closing share price2 at end June ($)
Weighted average share price2 during year ($)
Dividends (cents per share)8
Annual TSR (%)
3-year TSR (CAGR % p.a.)9
Group Statutory EBIT ($m)
Group Statutory EBIT (continuing activities3) ($m)
LTI outcomes
LTI vesting % in the year
10.47
11.22
50.0
(15.0)
2.8
(280)
(257)
5.75
5.67
10.0
(42.0)
(18.5)
(411)
47
6.86
6.39
0.0
19.3
(14.2)
(1,958)
(1,746)
10.03
8.55
0.0
46.2
(2.6)
480
473
7.31
7.64
25.0
(26.1)
12.0
1,432
1,432
0
0
0
0
0
1 Except as noted in (2) below, FY2018 and prior year financials shown are those as previously reported. They have not been restated for the presentation of certain
electricity hedge premiums which are included in underlying profit from FY2019; or for the reclassification of futures collateral balances to operating cashflows
(previously in financing cash flows in prior periods). For comparability purposes only, for FY2018 a restatement for these factors is provided in the Consolidated Financial
Statements at note A1 Segments and the Statement of cash flows, for each item respectively.
2 EPS and share price have been restated for the bonus element of the rights issue completed in October 2015. The opening share price at the commencement of FY2015
was $12.79.
3 Excludes Contact Energy (FY2015–FY2016) and Lattice Energy (FY2016–FY2018).
4 sNPS is measured at the business level and is an industry-recognised measure of customer advocacy.
5 TRIFR is the total number injuries resulting in lost time, restricted work duties or medical treatment per million hours worked.
6 Senior roles refers to all those people in specific job grades (standard Korn Ferry Hay Grades), currently corresponding to a TRT of approximately $180,000 pa.
7 Employee engagement is measured as a score through an annual Company-wide survey conducted independently, based on AON-Hewitt methodology.
8 Dividends represent the interim and final dividends determined for each FY. This includes the final dividend for FY2019 determined on 22 August 2019 to be paid
on 27 September 2019. The amounts paid within each FY are 50.0c, 35.0c, 0.0c, 0.0c and 10.0c respectively.
9 For TSR calculation purposes, share prices at 30 June are based on a three-month VWAP, reflecting the LTI methodology for calculating TSRs for Origin and the
comparator group companies.
Remuneration Report 70
The remuneration metric outcomes for FY2019 reflect strong financial performance, on target customer outcomes and below target
people outcomes.
The financial metrics reflected outperformance against targets, favourable commodity prices, significant progress in APLNG operating
efficiency, improvements in working capital, debt reduction, and disciplined capital management. The Energy Markets’ results were above
target reflecting improved results from the gas business driven by the inherent flexibility of its long-term supply and downstream strategy,
and the impacts of the robust response to increasingly challenging retail market conditions. During the year, the two main credit rating
agencies lifted their ratings for the Company in response to these improvements.
The customer metrics reflected a small decline in market share, above target NPS performance and close to target customer value.
People results were below target. Engagement was flat following a year of significant restructuring. The proportion of females in senior
roles declined slightly, and the opportunity for improvement was limited due to low hiring rates during a year of consolidation. The decline
in the TRIFR measure countered the improvements in recent years although progress was recorded in other important safety metrics such
as process safety and incident levels.
The table above shows that overall awarded STI outcomes for Executive KMP were 123.0% of target on a dollar-weighted basis. Awards
have varied from 43.8% to 129.1% of target over the last five years, underlining the variability of STI outcomes with company performance.
The share price declined 11% over the year measured on a weighted average basis, and 27% on a year-end basis. This followed increases of
34% and 46% (respectively) for the prior year. No LTI vested during the year. Options and PSRs awarded in October 2014 were forfeited,
reflecting the share price underperformance of recent years. This highlights the inherent shareholder alignment created by the various
equity components of our framework, which we believe responded appropriately. The creation of sustainable shareholder value remains of
utmost focus. Improving annual business performance under the current management team has laid the foundations that are expected in
due course to be reflected in stronger share price performance and in the LTI vesting pattern.
The specific performance metrics for the CEO scorecard, together with individual results for FY2019 STI are provided in the table below.
The Board has adopted governing principles to apply when considering adjustments to financial measures that are used for remuneration
purposes. Targets set at the beginning of the year may be subject to events materially outside the course of business and outside the
control of the current management, and discretion may be required to vary targets or outcomes to reflect the intended purpose and/or the
actual results and achievements. The governing principles emphasise fairness and symmetry – fairness to shareholders and executives, and
symmetry of treatment between favourable and unfavourable events.
Annual Report 2019 71
4.2 STI awards and scorecard details for FY2019
STI awards are calculated on the basis of a balanced scorecard using the concepts of setting requirements at threshold, target and stretch
achievement levels. The CEO’s scorecard was weighted 60% to financial measures and 20% each to Customer and People measures, with
FY2019 results as set out below.
CEO FY2019 STI scorecard
Scorecard result
Weight Measure, rationale and FY2019 performance
Threshold
Target
Stretch
EPS (underlying) cents per share
40.9
46.3
51.7
12.5%
Measure of Origin’s earnings and profitability
Strong operational results and favourable commodity prices and FX
58.4
Net cash from operating and investing activities $m
1241
1358
1476
12.5%
Measure of effective cash flow generation
Strong earnings combined with disciplined capital investment.
1914
FY2019 distribution breakeven US$/boe
42.5
40.9
37.5
8.75%
Measure of global competitiveness which reflects the oil price above
which APLNG generates cash distributions. Strong performance reflects
a comprehensive efficiency program
36.2
Operating cost at FY2019 end (APLNG) $/GJ
1.15
1.00
0.85
4.38%
Measure of global competitiveness. Around target performance reflects
material major improvements in operational efficiency
Well costs at FY2019 end (APLNG) ($m/well)
4.37%
Measure of global competitiveness. At target performance reflects
reduction in finding and development costs
EM EBITDA ($m)
17.5%
Measure of operating performance of the Energy Markets business.
Above target performance notwithstanding impact of regulatory
changes and competitive conditions. Reflects tight cost management
and competitive offers for customers
60%
Financial
1.4
1435
1.004
1.2
1.18
1512
1.0
1589
1574
Strategic Net Promoter Score
–13
–10
–4
10%
Measure of customer experience and advocacy. Result represents a
7-point improvement from prior year
–6
Customer value (retail gross margin including solar)
775
817
859
5%
Measure of value created by product offering. Performance below target,
impacted by regulatory changes and competitive conditions (excludes
OC acquisition and new products)
801.6
Customer market share (retail customer movement)
–25k
–12k
+ve
5%
Reflects a disciplined approach to market conditions, customer value
management and improved customer experience
–39.6
20%
Customer
Includes Origin engagement score, female representation in senior roles,
Origin total recordable injury frequency rate, behavioural alignment
and culture
20%
Targeted improvements in engagement were not achieved reflecting
organisational change and uncertainty. Increasing the representation
of women in senior roles was not achieved during the year. TRIFR
results declined disappointingly after several years of improvement.
New Purpose, Values and Behaviours metric embedded and tested at
meeting expectations
20% People
100% TOTAL
consolidated metrics
Outcome
(% target)
167.0
167.0
167.0
98.2
106.7
153.9
153.8
145.0
75.4
0.0
91.5
16.5
16.5
113.9
Remuneration Report 72
The remuneration awards were approved after consideration of a range of other non-formulaic inputs, including advice from the Risk and
Audit Committees, and reflection on the overall appropriateness of the STI framework outcomes. Results from an inaugural management
behaviours review were also considered (section 2.2).
The majority of the CEO’s scorecard objectives are shared across Other Executive KMP however, their weightings will differ according to
the incorporation of specific divisional metrics. This will lead to a degree of variability of outcomes across Executive KMP. For FY2019 the
overall scorecard outcomes ranged between 113.9% and 136.1% of target as summarised below.
Executive KMP
Scorecard result
Outcome
(% target)
Threshold
33
Target
100
Stretch
167
F Calabria
L Tremaine
J Briskin
G Jarvis
M Schubert
113.9
136.1
118.8
131.2
124.7
The average scorecard outcome for Executive KMP was 124.9% of target, and the payout outcome (dollar-weighted) was 123.0% of target.
4.3 FR paid for FY2019
The table below summarises FR changes during the year and the actual FR paid for FY2019. The changes implemented during the year
reflect our policy to shift recent appointees closer to P50 over a period of two to three years, with most of the management team reaching
that tenure level over the last year.
FR ($000)
30 June
2018
30 June
2019
Received
in FY2019 1
Changes
F Calabria
1,700
1,800
1,800 As disclosed in the FY2018 report, after two years in the role the CEO’s package
was realigned to market benchmarks effective 1 July 2018. The 5.9% uplift in FR
was offset by a reduction in STI target opportunity also from 1 July 2018.
L Tremaine
1,000
1,000
1,000 No change, aligned with external benchmarks
J Briskin
G Jarvis
M Schubert
675
724
724
750
800
800
750 Realigned to benchmarks after two years in the role.
788 Realigned to benchmarks after two years in the role.
788 Realigned to benchmarks after two years in the role.
1 FR received represents payments received over the year taking into account salary changes occurring during the year. It includes salary sacrifice amounts.
FR changes for Executive KMP for FY2020 are expected to average less than 2% in line with general executive market movements,
compared with general uplifts of around 2.5% for the broader organisation.
Annual Report 2019 73
4.4 VR awarded for FY2019
The table below summarises the STI and LTI awards for FY2019 performance by Executive KMP. The STI award represents the total award
amount, half of which will be paid in cash (including superannuation) during September 2019 and the other half awarded in the form
of Restricted Shares (restricted for 2 years) shortly thereafter. The CEO’s Restricted Share award and LTI face value award will be put to
shareholders for approval in October 2019.
STI
target
($000)1
STI
Scorecard
(% target)2
STI
award
($000)
STI
awarded
% max1
STI
forfeited
% max1
LTI
award
% FR1
LTI face
value
($000)1
F Calabria
L Tremaine
J Briskin
G Jarvis
M Schubert
1,800
1,000
562.5
600
600
113.9
136.1
118.8
131.2
124.7
2,050
1,361
668
787
748
68.2
81.5
71.3
78.7
74.8
31.8
18.5
28.7
21.3
25.2
180
120
120
120
120
3,240
1,200
900
960
960
LTI
expected
value
($000)3
1,620
600
450
480
480
1 The derivation of STI target values, STI maximum values, and standard LTI face value allocations are covered in section 3.6.
2 Scorecard results are as tabled in section 4.2.
3 The derivation of LTI expected (risked) values is covered in section 3.2, and is one-half of the (unrisked) face value.
The total STI payment outcome for Executive KMP ($5,614,000) as a percentage of their total STI target amounts ($4,562,500)
represented 123.0% of target.
4.5 TR awarded for FY2019
The Total Remuneration awarded for FY2019 comprises the FR tabulated in section 4.3 and the STI and LTI awards as described in section
4.4, as summarised in the table below.
FY2019
($000)
F Calabria
L Tremaine
J Briskin
G Jarvis
M Schubert
VR awarded
FR
received1
STI
cash2
STI
deferred3
LTI
expected
value4
1,800
1,000
750
788
788
1,025
1,025
1,620
681
334
394
374
681
334
394
374
600
450
480
480
TR
5,470
2,962
1,868
2,056
2,016
1 FR received is the amount shown in section 4.3.
2 STI cash represents half of the “STI award” from section 4.4. The STI cash is allocated to the earning year even though it is physically paid in September 2019 after the end
of FY2019.
3 STI deferred is the balance of the “STI award” from section 4.4, and represents the undiscounted face value that will be allocated as Restricted Shares in September 2019
(or, for the CEO, following shareholder approval to be sought in October 2019).
4 The LTI expected value is from the table in section 4.4 and will be allocated (on the basis of undiscounted face value) as PSRs in September 2019 (or, for the CEO,
following shareholder approval to be sought in October 2019).
Remuneration Report 74
4.6 Pay received in FY2019
In line with general market practice a (non-AASB) presentation of actual pay received in FY2019 is provided below, as a summary of real or
“take home” pay. The (AASB) statutory remuneration presentation is provided in table 7-1.
Pay received (real “take home” pay) includes FR plus the cash component of the FY2019 STI award, plus equity that has vested from equity
grants made in prior periods, whether from Deferred STI or from LTI vesting.
The value of vested Deferred STI depends on the company’s share price at the time of vesting (or on the lifting of restrictions on restricted
shares). This ensures that the original award is exposed to variability in Origin’s share price throughout the deferral period, aligning with
shareholder experience.
The table shows that no value was obtained in FY2019 from prior year LTI allocations. Amounts that were previously reported as statutory
remuneration from those allocations and were forfeited during the year are shown in the equity forfeited column.
Executive KMP
F Calabria
L Tremaine
J Briskin
G Jarvis
M Schubert
Variable pay received
FR
received1
1,800
1,000
750
788
788
STI
cash1
1,025
681
334
394
374
DSRs
vested2
LTI
vested3
Actual pay
received4
Equity
forfeited5
332
1,433
100
188
238
0
0
0
0
0
3,157
3,114
1,184
1,370
1,400
(660)
0
(65)
(124)
0
1 FR received and STI cash are as shown in section 4.5.
2 DSRs vested were from Deferred STI grants awarded in 2015, 2016 and for L Tremaine from a sign-on grant in 2017. The vested value is calculated as the number of
vested securities multiplied by the closing price of Origin ordinary shares on the day of vesting (or the date of release of restriction where applicable).
3 LTI vested represents the value of LTI awards from prior years that vested wholly or partially during the year. Options and PSRs awarded in October 2014 were the only LTI
tests during FY2019, and these were forfeited with nil vesting. Additional information about the nature of these awards and applicable vesting criteria can be found in the
2014 Annual Report.
4 Actual pay received is the sum of FR received, STI cash, DSRs vested and LTI vested.
5 LTI that was awarded for FY2014, granted in October 2014, was tested and 100% forfeited in October 2018. The forfeited value represents the original LTI allocation value
that was attributed to remuneration (for the CEO, as reported in Table 14 of the 2014 Remuneration Report).
Annual Report 2019 75
4.7 Pay awarded and pay received in FY2019 relative to remuneration range
To summarise the preceding sections and to provide an overall context, the charts below compare the remuneration range (section 3.6)
with the pay awarded for FY2019 (section 4.5) and the actual pay received for FY2019 (from section 4.6).
CEO
The chart below illustrates that for the CEO the pay awarded was slightly above target TR, and the pay received was between the minimum
and target TR.
FR
STI cash
STI deferred
LTI
1,800
5,220
8,046
1,800
1,800
1,025
1,025
1,620
5,470
1,025
332 3,157
$’000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Minimum
Target
Maximum
Awarded
Received
CFO
The chart below compares the CFO’s FY2019 pay awarded and pay received, both above target TR. The pay received was inclusive of the
vesting of sign-on equity that substituted equity that was forfeited from a previous employer in consequence of accepting employment
with Origin.
Minimum
Target
Maximum
Awarded
Received
1,000
2,600
3,870
1,000
1,000
681
681
681
600
2,962
1,433
3,114
$’000
1,000
2,000
3,000
4,000
Other Executive KMP (average)
The chart below represents an average of the Other Executive KMP, showing that the pay awarded in FY2019 was slightly above target,
and the pay received was between minimum and target.
Minimum
Target
Maximum
Awarded
Received
783
1,841
2,703
775
775
367
367
470
1,979
367
175
1,317
$’000
1,000
2,000
3,000
Remuneration Report
76
5. Governance
5.1 Role of the Remuneration and People Committee (RPC)
The RPC supports the Board by overseeing Origin’s remuneration policies and practices. It operates under a Charter (published on the
company’s website at originenergy.com.au).
The RPC has four members (including its Chairman) who are all independent NEDs (see section 1 for details). The RPC’s Charter requires a
minimum of three NEDs. In addition, there is a standing invitation to all Board members to attend the RPC’s meetings. Management may
attend RPC meetings by invitation but will not be present at times when their own remuneration is under discussion.
The role of the RPC and its operational relationships with the Board, management, stakeholders and external advisors is depicted in the
diagram below.
Board
The Board approves
• executive remuneration policy
• remuneration for the CEO and ELT
• STI and LTI targets and hurdles
• NED fees
• CEO and ELT succession and appointments
Remuneration and People Committee (RPC)
The RPC makes recommendations to the Board on
the matters subject to its approval (above). The RPC
approves remuneration scales, movements and equity
allocations for employees other than the CEO and ELT.
In addition, the RPC stewards and advises the Board
and management on remuneration and people
matters, including:
• future leader talent pipelines and
development processes
• people strategies and culture development
• corporate governance and risk matters relating
to people and remuneration (including conduct,
diversity and gender pay equity)
• effectiveness of remuneration policy and
implementation
Management
Management provides data and information
relevant for RPC consideration (practice insights,
legal, tax, accounting and actuarial advice) and
makes recommendations to the RPC concerning
remuneration and people matters.
Information exchange with other board
committees notably Audit and Risk Committees
to ensure that all relevant matters are
considered prior to RPC making remuneration
recommendations and decisions
Consultation with external stakeholders
and shareholders
Regular dialogue with shareholders and
proxy advisors
Independent remuneration advisors
The RPC appoints an external independent advisor
to assist it with market and governance issues,
benchmarking, best practice observations and
general advice
Annual Report 2019 77
5.2 Remuneration advisors
The RPC engages external advisors from time to time to conduct benchmarking, to advise on regulatory and market developments, and to
review proposals and reports. Protocols have been established for engaging and dealing with external advisors, including those defined as
remuneration consultants for the purposes of the Act. The protocols are to ensure independence and the avoidance of conflicts of interest.
The protocols require that remuneration advisors are directly engaged by the RPC and act on instruction from its Chairman. Reports
must be delivered directly to the RPC Chairman. The advisor is prohibited from communication with company management except as
authorised by the Chairman and limited to the provision or validation of factual and policy data. The advisor must furnish a statement
confirming the absence of any undue influence from management.
The RPC generally seeks information rather than specific remuneration recommendations within the definition of the Act, and this was
the case during FY2019. EY was appointed its advisor during FY2019, however EY did not provide any remuneration recommendations as
defined under the Act.
In addition, the RPC makes use of general market trend information from a variety of commercial and industry sources and has access to
in-house remuneration professionals who provide it with guidance and analysis on request.
The recommendations that the RPC makes to the Board are based on its own independent assessment of the advice and information
received from these multiple sources, using its experience and having careful regard to the principles and objectives of the remuneration
framework, company performance, shareholder and community expectations, and good governance.
5.3 RPC activities in FY2019
The RPC met formally six times during the reporting period. In addition, the RPC Chairman and Origin Chairman consulted with external
stakeholders and reported back to the RPC. The activities are summarised below.
RPC activities FY2019
Remuneration framework
Remuneration recommendations/decisions
• Reviewed the operation of the remuneration
• Reviewed performance and behavioural alignment for
framework relative to its objectives
CEO and ELT members
• Reviewed FY2019 performance metrics and progress
through the year, and considered changes for FY2020
• Reviewed market data and made recommendations for
CEO and ELT remuneration and incentive awards
• Reviewed benchmarks and made adjustments
to variable pay arrangements at lower
organisational levels
• Continued to monitor market trends and
developments
• Oversaw review and simplification of incentive plan
rules and documentation and recommended for
Board approval
• Reviewed market data and workload requirements and
recommended minor changes to committee fee levels
• Approved annual FR adjustments and cash STI
awards below ELT based on review of benchmark
data, performance outcomes and management
recommendations; and recommended equity awards
below ELT for deferred STI and LTI for approval by Board
Other remuneration matters
Other People matters
• Reviewed gender pay gap data and initiatives to
• Raised committee awareness and deepened its
ensure equal pay for equal work
• Oversaw new trust arrangements for implementing
new policy to acquire shares on market to satisfy STI
equity awards, vesting LTI, and matching share plan
• Reviewed operation of universal share plans and
authorised FY2020 continuation of arrangements
• Sought external advice on improved governance for
non-financial risk
• Met with shareholders and proxy advisors
involvement with management on general people
matters, particularly surrounding pipeline talent,
cultural issues and leadership development, coaching
and mentoring
• Reviewed and provided input to management on
behavioural assessments and diversity initiatives
Remuneration Report 78
5.4 Conduct, risk management and accountability framework
The remuneration framework, while substantially defined by specific metrics that relate to the Company’s strategy and are measured
objectively, also requires the exercise of judgement, which may result in the utilisation of discretion to adjust formulaic outcomes.
In addition, the framework has a number of features that serve to manage risk, and to encourage good conduct while preserving the
opportunity for reward even in the presence of external headwinds and adverse business conditions. These features and their relevance
to the management of risk and conduct are summarised in the table below.
Framework feature
Link to conduct and risk management
1
2
3
4
5
Performance metrics are aligned with the long-term financial plan
and the Company’s strategic priorities
Focuses effort on the most critical aspects of Origin’s operations
and strategy
Performance metrics are balanced between controllable and non-
controllable items
Ensures that reward for strong performance is not limited to a
favourable external environment
Performance metrics are largely shared and common,
supplemented by relevant divisional measures as appropriate
Encourages the ELT to act as one team while also rewarding specific
divisional results
Short and long-term measures are separated into the STI and LTI
remuneration elements
Ensures a dual focus on annual deliverables and long-term decisions.
STI metrics are consistent with longer-term strategy. Avoids outcomes
where LTI vests in the absence of longer-term performance
The LTI element uses a combination of internal and
external metrics
Aligns executives’ interests with both long-term business performance
and operational efficiency and with shareholder experience
6 Metrics results are reviewed by the RPC and substantiated
independently and/or subject to other assurance processes
including audits
7
Prior to the determination of incentive awards a Behaviour
Assessment is undertaken by RPC, which includes taking input
from Risk and Audit Committee chairmen
8
The substantial part of incentive awards is deferred and
delivered in equity
9 Hedging of unvested equity is prohibited
10 A minimum shareholding obligation (section 2.3) is imposed
on executives (and NEDs), additional to disposal restrictions
associated with deferral
Provides transparency and consistency
Ensures that awards are determined in a holistic context that considers
financial and non-financial risk
Establishes an accountability framework for applying consistent
remuneration consequence where behaviour and conduct
requirements are not fully met, plus further sanctions for more
serious matters
Incentivises the taking of a long-term approach to decision making
Discourages excessive risk-taking and/or short-term bias
Delivery in equity ensures that the reward is “time-tested” (exposed to
share price movements subsequent to grant) and provides alignment
with shareholders
Avoids the limitation of the economic risk intended under equity award
arrangements, and provides for alignment with shareholders
Facilitates the building and maintaining of a meaningful equity stake
in the Company and provides for alignment with shareholders
11 Overarching discretion, malus and clawback provisions are
incorporated into plan rules
Prevents the award (or the retention) of inappropriate benefits
(see section 5.5)
The Committee has increased its focus in the area of assessment of people behaviours in parallel with the Company’s launch of restated
new values and behaviours during the year.
During FY2019 a more structured approach was adopted with clearer remuneration consequences for any deficiency or inconsistency
in meeting required behavioural standards, and greater clarification of consequences attaching to more serious breaches. This approach
does not represent a change in standards, rather it added rigour and consistency in terms of application.
Annual Report 2019 79
5.5 Overarching discretion, malus and clawback
The RPC is guided by a set of overarching principles to apply in the assessment of items or events that impact risk (including non-financial
risk) or performance (both positive and negative) and to ensure a consistent approach to determining whether discretionary adjustments
are warranted to achieve fairness to executives and to shareholders. More generally, the RPC and Board have wide discretionary tools to
prevent the award (or retention) of inappropriate benefits.
The governance map shown in section 3.5 identifies periods throughout the remuneration cycle at which the Board has powers to set
targets and to cancel or vary outcomes or awards.
In exercising discretion the Board may take into account any factor that it reasonably considers appropriate, including personal
performance and/or conduct, the performance of a person’s business unit or function or for which they have accountability, the
performance of the company, or matters impacting the reputation of the company.
Fraud, dishonesty, gross misconduct, negligence, breach of duties and other serious matters will have consequences additional to the
remuneration discretions referred to in this section.
Pre-grant/pre-payment discretion
The RPC reviews and approves STI performance metrics each year when they are chosen and when their corresponding targets are set.
This is to ensure that the metrics and targets are appropriate to focus effort on the right priorities and business objectives. Similarly, the
RPC considers LTI performance hurdles regularly and in particular when confirming the hurdles to apply to LTI equity grants. The Board
can vary results up (but capped to the specified maximum) or down (including to zero) before advising or confirming payments and
awards to participants.
Malus
Malus refers to reduction or cancellation of advised awards, or of unvested/unreleased equity or shares, or to a determination to reduce the
level of vesting that would otherwise apply, or to extend the existing period of a holding lock or trading restriction.
The Board has, from time to time, applied malus. For example, it awarded zero STI and LTI allocations for some executives in both FY15 and
FY16 to ensure that outcomes were aligned to the overall circumstances of the company, even though some of the relevant performance
conditions had been met and preliminary award advice had been given.
Clawback
Clawback is a reference to the recovery of benefits after they have been paid, vested or released. The Board has power to exercise
clawback to recover or cancel shares arising from equity awards, and to recover cash proceeds from the sale of such shares, or to recover
cash awards. Recovery may be limited by law or regulation. There have been no circumstances to date in which the Board has sought to
apply clawback.
5.6 Change of control
The Board may determine that all or a specified number of unvested securities will vest or cease to be subject to restrictions where there is
a change of control event.
5.7 Capital reorganisation
On a capital reorganisation, the number of unvested share rights and Options held by participants may be adjusted in a manner
determined by the Board to minimise or eliminate any material advantage or disadvantage to the participant. If new awards are granted,
they will, unless the Board determines otherwise, be subject to the same terms and conditions as the original awards.
Remuneration Report 80
6. Non-executive Director (NED) fees
6.1 Remuneration policy and structure for NEDs
NED remuneration comprises fixed fees with no bonus or incentive-based payments. This ensures that NEDs are able to independently
and objectively assess both executive and company performance.
The aggregate cap for overall NED remuneration is $3,200,000 per annum, as approved by shareholders on 18 October 2017.
Board and committee fees take into account market rates for similar positions at relevant Australian organisations (those of comparable size
and complexity) that fairly reflect the time commitments and responsibilities involved.
The Origin Chairman receives a single fee that is inclusive of committee activities, while other NEDs receive a NED Base Fee and separate
fees for their role on specific committees, other than the Nomination Committee, which is considered within the NED Base Fee. All fees
include superannuation contributions.
The table below summarises the structure and level of NED fees. There has been no change to the Chairman or NED Base Fee since
FY2013. Minor adjustments have been made for FY2020 to simplify and align committee fees as shown in the table below. These changes
reflect the substantial increase in workload in the respective committee.
NED and committee fees ($’000)
Office
FY2019
FY2020
Changes for FY20-20
Board – Chairman (inclusive of committee fees)
NED Base Fee (exclusive of committee fees)
Audit – Chairman
Audit – Member
RPC – Chairman
RPC – Member
Health, Safety and Environment – Chairman
Health, Safety and Environment – Member
Risk – Chairman
Risk – Member
Nomination – Chairman
Nomination – Member
Origin Foundation – Chairman
677
196
57
29
47
21
42
21
42
21
nil
nil
nil
677
196
57
29
47
23.5
Member fee moved to half Chair fee
47
Alignment to RPC
23.5
Alignment to RPC
47
Alignment to RPC
23.5
Alignment to RPC
nil
nil
nil
6.2 Minimum shareholding requirement (MSR) for NEDs
To align the interests of the Board and shareholders, NEDs are required to build and then maintain a minimum shareholding in the
company. The MSR requirement for the Chairman is 200% of the NED Base Fee, and for all other NEDs it is 100% of the NED Base Fee.
The MSR must be reached within three years of appointment, or, where the requirement has been increased, within two years of the
increase. At the date of this Remuneration Report, all NEDs met the minimum requirement. Details on NED shareholdings are included in
table 7-3.
A new Non-executive Director Share Plan (NEDSP) was approved by shareholders at the 2018 AGM. The NEDSP is a salary sacrifice plan,
which allows NEDs to sacrifice up to 50 per cent of their annual NED Base Fee to acquire share rights. Each share right is a right to receive
a fully paid ordinary share in Origin, subject to the terms of the grant. As at the date of the report, no share rights have been purchased and
no shares allotted under this NEDSP. There are no participants remaining in Origin’s legacy Non-executive Director Share Plan which was
suspended in 2013.
Annual Report 2019 8181
81
7. Statutory tables and disclosures
Table 7-1 Executive KMP and NED statutory remuneration ($’000)
Short term
Long term
PEB1
FR1
Base
salary
Super-
annuation
Non-
monetary
benefits3
Cash
STI2
Leave
accrual6
Matching
Share
Rights
Share based
Deferred STI4
RS
DSR
LTI5
Totals
Total
accounting
remuneration
At
risk
(%)
Share
based
(%)
Executive Director
F Calabria
2019
1,710
2018
1,646
Other Executive KMP
J Briskin
G Jarvis
M Schubert
L Tremaine7
2019
2018
2019
2018
2019
2018
2019
2018
Former Executive KMP
G Mallett7
2019
2018
715
655
730
684
752
704
934
961
–
70
Executive Total8
2019 4,841
2018 4,720
Non-Executive Directors
J Akehurst
M Brenner
G Cairns
T Engelhard
G Lalicker9
B Morgan
S Perkins
S Sargent
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
233
239
241
247
642
657
220
221
54
–
268
275
266
273
212
218
Non-Executive Total 2019 2,136
2018 2,130
21
24
21
20
22
27
21
20
21
20
–
1
106
112
21
20
21
20
21
20
21
20
7
–
21
20
21
20
21
20
154
140
39 1,025
33 1,046
16
11
32
27
12
10
42
11
–
1
334
328
394
347
374
330
681
697
–
0
141 2,808
93 2,748
0.2
0
0.2
0
16
13
0.2
0
0.1
–
0.2
0
0.2
0
0.2
0
17
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86
43
21
68
51
18
13
9
12
12
–
0
183
150
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
0.6
–
–
–
601
–
194
–
218
–
208
–
407
–
–
–
303
697
59
188
68
220
58
223
624
812
612
143
110
191
161
179
121
245
221
1,784
–
1
–
5
1.2
1,628
1,112 1,570
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,550 2,793
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,597
4,101
1,503
1,380
1,707
1,484
1,617
1,417
2,967
3,706
–
78
12,390
12,166
254
259
262
267
679
690
241
241
61
–
289
295
287
293
233
238
2,306
2,283
60
57
49
45
51
49
51
48
66
73
–
8
57
58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37
32
26
22
28
26
28
24
43
54
–
8
35
36
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 FR comprises base remuneration and superannuation (post-employment benefit “PEB”).
2 STI cash represents one half of the STI award. The STI cash is paid after the end of the financial year to which it relates but allocated to the earning year. The balance of
the STI award is Deferred STI.
3 Non-monetary benefits include insurance premiums and fringe benefits such as car parking and expenses associated with travel.
4 Deferred STI is that portion of the accounting value of equity granted or to be granted (RSs and/or DSRs) under the STI plan for the current and prior periods attributable
to the reporting period. In following reporting periods the accumulated expense is adjusted for the number of instruments then expected to be released or vested.
In good leaver circumstances, a ‘bring-forward’ of future-period accounting expense may occur where a cessation of employment occurs before the normal vesting date.
5 LTI includes all long-term incentives (i.e. those not awarded under the STI plan) and represents that portion of the accounting value of the awards made, or
to be made, for the current and prior periods, which is attributable to the reporting period. See note G3 in the financial statements for details on share-based
remuneration accounting.
6 Movement in long service leave provision over the reporting period.
7 For FY2018, pro-rata periods for KMP office are: G Mallett 1 July 2017 to 9 July 2017, and L Tremaine 10 July 2017 to 30 June 2018.
8 FY2018 totals represent the sums of rounded ($’000) line items that were previously disclosed in whole dollars. The totals here may vary slightly from totals in those
disclosures.
9 For FY2019, pro-rata period for G Lalicker was 1 March 2019 to 30 June 2019.
Remuneration Report 8282
Annual Report 2019
Annual Report 2019 83
Key for Tables 7-2 to 7-4
DSR – Deferred Share Rights
PSR – Performance Share Rights (TSR and/or ROCE hurdles)
PSR (TSR) – Performance Share Rights with relative TSR performance hurdle
PSR (ROCE) – Performance Share Rights with ROCE hurdles
RS-STI – Restricted Shares held in trust under the Deferred STI arrangements
MR – Matching Rights under the Employee Share Purchase and Matching Rights plan (see section 3.7)
Table 7-2 Details of equity grants made over the reporting period
Rights to equity and restricted shares in the Company granted to Executive KMP during the reporting period are listed below. These were
provided at no cost to the recipients.
Type
Number
granted
Grant date
fair value1($)
Exercise
price($)
Grant
date
Vest
date
Expiry
date2
Executive Director
F Calabria
PSR (TSR)
PSR (ROCE)
RS-STI
Other Executive KMP
J Briskin
PSR (TSR)
PSR (ROCE)
RS-STI
G Jarvis
PSR (TSR)
PSRs (ROCE)
RS-STI
MR
M Schubert
PSR (TSR)
PSR (ROCE)
RS-STI
L Tremaine
PSR (TSR)
PSR (ROCE)
RS-STI
MR
156,123
156,122
106,684
30,995
30,995
33,435
33,245
33,245
35,375
3.65
7.71
8.15
3.14
7.38
8.33
3.14
7.38
8.33
163
0.473
33,245
33,245
33,717
61,225
61,224
72,500
3.14
7.38
8.33
3.14
7.38
8.33
163
0.473
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17-Oct-18
23-Aug-21
22-Aug-22
17-Oct-18
23-Aug-21
22-Aug-22
17-Oct-18
24-Aug-20
–
10-Sep-18
23-Aug-21
22-Aug-22
10-Sep-18
23-Aug-21
22-Aug-22
14-Sep-18
24-Aug-20
–
10-Sep-18
23-Aug-21
22-Aug-22
10-Sep-18
23-Aug-21
22-Aug-22
14-Sep-18
24-Aug-20
26-Sep-18
31-Oct-20
–
–
10-Sep-18
23-Aug-21
22-Aug-22
10-Sep-18
23-Aug-21
22-Aug-22
14-Sep-18
24-Aug-20
–
10-Sep-18
23-Aug-21
22-Aug-22
10-Sep-18
23-Aug-21
22-Aug-22
14-Sep-18
24-Aug-20
26-Sep-18
31-Oct-20
–
–
1 For MR, fair value is per $1 contributed by the executive.
2 Rights may expire earlier, for example if they fail to vest on testing, they will lapse on the test date.
Remuneration Report 84
Table 7-3 Details of, and movements in, equity rights and ordinary shares of the company
This table covers holdings and movements for rights and ordinary shares held (directly, indirectly or beneficially including by related
parties) over the reporting period (or KMP portion of the period), including grants, transactions and forfeits, by value and by number.
Details of the terms and vesting and exercise conditions attaching to the rights are set out in table 7-4.
Type
Held at
start1
No.
granted2,11
acquired3,9
Value
($)
No.
vested
No.
exercised/
shares
received on
exercise of
DSRs4
Value at
exercise5
($)
No.
forfeited6/
shares
disposed7
Value
Held at
forfeited8
($)
end1,9,10
MSR11
Executive Director
F Calabria
Options
1,430,210
–
–
312,245
1,773,550
0
0
0
0
0
0
227,065
495,000 1,203,145
Met
20,271
165,000 563,869
–
–
40,212
40,212
332,434
PSRs
DSRs
RS-STI
Shares
Other Executive KMP
J Briskin
Options
PSRs
DSRs
RS-STI
Shares
G Jarvis
Options
PSRs
DSRs
RS-STI
MRs
Shares
PSRs
DSRs
RS-STI
Shares
L Tremaine Options
PSRs
DSRs
RS-STI
MRs
Shares
271,895
216,214
191,905
86,910
88,210
34,888
29,051
278,811
83,790
47,810
0
0
35,315
72,136
47,884
43,911
81,441
24,415
335,875
0
0
0
M Schubert Options
237,410
0
106,684
869,475
0
–
–
–
61,990
352,103
0
33,435
278,514
123
–
–
–
66,490
377,663
0
–
0
0
0
40,212
0
0
0
–
0
0
0
–
0
0
0
11,548
0
0
0
–
0
0
–
–
11,548
11,548
99,775
–
–
21,817
21,817
188,499
35,375
294,674
163
929
–
1,135
–
–
66,490
377,663
0
0
–
0
0
0
0
21,817
0
0
0
0
–
0
0
–
–
28,939
28,939
237,649
0
33,717
280,863
123
–
–
–
122,449
695,508
72,500
603,925
–
–
165,860
165,860 1,433,030
163
449
0
6,250
0
Non-executive Directors12
J Akehurst
Shares
M Brenner
Shares
71,200
22,117
G Cairns
Shares
163,660
T Engelhard Shares
G Lalicker
B Morgan
S Perkins
S Sargent
Shares
Shares
Shares
Shares
0
0
34,421
100,000
47,143
30,000
31,429
0
0
0
1,135
–
–
–
–
–
–
–
–
–
0
–
0
0
0
28,939
0
0
0
–
0
0
0
0
–
–
–
–
–
–
–
–
–
0
0
165,860
–
–
–
–
–
–
–
–
0
0
–
–
–
–
–
–
–
–
–
0
0
0
0
0 176,002
0 106,684
–
0
232,117
86,910
Met
7,986
65,000
142,214
0
0
0
0
0
–
23,340
33,435
40,722
28,384
7,602
61,875
250,427
Met
61,875
142,678
0
0
0
22,000
0
0
0
0
17,000
0
0
0
0
0
–
0
0
0
0
0
0
0
0
0
0
0
–
0
0
0
0
–
0
0
0
0
0
–
–
–
–
–
25,993
35,375
163
36,061
237,410
138,626
18,945
33,717
55,973
81,441
146,864
170,015
72,500
163
166,309
71,200
28,367
163,660
34,421
– 100,000
–
–
–
47,143
30,000
31,429
Met
Met
Met
Met
Met
Met
Met
Met
Met
Met
1 The number of instruments that are held at the start/end of the period, or, where the holder is KMP for part-year only, on the relevant start/end dates of holding KMP office.
2 Rights to equity and restricted shares in the Company granted to Executive KMP during the reporting period under the equity incentive plan, as listed in table 7-2.
These were provided at no cost to the recipients.
3 Purchases and transfers in. For Other Executive KMP this includes allotments of fully paid ordinary shares granted under the General Employee Share Plan (GESP) and
allotments of fully paid ordinary shares acquired under the Matching Share Plan (MSP). Executive Directors do not participate in the ESP.
4 After vesting and after payment of the exercise price (the exercise price for DSRs is nil).
5 The value of rights exercised is calculated as the closing market price of the company’s shares on the Australian Securities Exchange (ASX) on the date of exercise,
after deducting any exercise price. The exercise price for PSRs and DSRs is nil. DSRs vesting in the Period were granted on 22 October 2015 (vested 22 October 2018),
30 August 2016 (vested 20 August 2018), 30 August 2017 (vested 10 July 2018) and 7 December 2015 (vested 15 January 2019).
6 Forfeited Options and PSRs were granted in October 2014.
7 Sales and transfers out.
8 The value of equity forfeited represents prior year Origin equity allocations that were forfeited during the year (i.e. the relevant grants realised no benefit and lapsed
without value). The forfeited value represents the grant date value that was disclosed and attributed to remuneration at the time of the grant.
9 Rights are automatically exercised on vesting. There were no vested options as at the end of the period.
10 Other than rights and restricted shares disclosed elsewhere in this Report, no other equity instruments including shares in the company were granted to KMP during the period.
11 Minimum shareholding requirements are set out in sections 2.3 and 6.2. The test applied here uses the weighted average share price during the period of $7.64 (as tabled
in section 4.1).
12 NEDs are not issued shares under any incentive or equity plans. Acquisitions include purchases of shares on-market, or pursuant to the company’s dividend reinvestment
plan or the August 2015 Entitlement Offer.
Annual Report 2019 85
Table 7-4 Details of equity granted
The table below lists all unissued shares potentially arising from equity-based incentive grants current at 30 June 2019 held by current
or former employees (including Executive Directors and Executive KMP). Equity-based incentives are not granted to NEDs. No terms
of equity-settled share-based transactions have been altered or modified subsequent to grant. Equity grants that failed to meet their
performance hurdles on their final test dates prior to 30 June 2019 have all been lapsed.
Granted
Legacy Options
22 October 2015
30 August 2016
19 October 2016
30 August 2017
30 August 2017
18 October 2017
Performance Share Rights
22 October 2015
30 August 2016
19 October 2016
30 August 2017
30 August 2017
18 October 2017
10 September 2018
17 October 2018
Deferred Share Rights
30 August 2016
30 August 2016
30 August 2017
30 August 2017
30 August 2017
30 August 2017
30 August 2017
18 October 2017
18 October 2017
18 October 2017
Matching Share Rights
26 September 2018
Number Outstanding
Exercise Price
Last possible expiry1
2,199,410
1,484,094
450,000
81,441
949,570
401,288
1,120,138
1,184,706
129,558
841,583
24,415
126,866
1,387,159
312,245
38,404
38,404
93,813
76,202
1,478,161
42,627
16,570
45,556
45,556
45,556
73,999
$6.78
$5.67
$5.21
$7.37
$7.37
$7.37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21 October 2025
28 August 2026
28 August 2026
28 August 2026
23 August 2027
23 August 2027
21 October 2019
24 August 2020
24 August 2020
23 August 2021
24 August 2020
23 August 2021
23 August 2021
23 August 2021
26 August 2019
24 August 2020
10 July 2019
10 July 2020
26 August 2019
24 August 2020
23 August 2021
26 August 2019
24 August 2020
23 August 2021
31 October 2020
1 The expiry date is the same as the vesting date where the terms of the grant apply automatic exercise on vesting. Where there is no automatic exercise on vesting, the
expiry date is the last possible expiry. Rights and options may expire earlier, for example if the rights/options fail to vest on testing, they will lapse on the vesting date.
Remuneration Report 86
Table 7-5 Executive service agreements
The main terms of executive service agreements at 30 June 2019 are set out in the table below.
Item
Details
Basis of contract
Ongoing (no fixed term)
Notice period
CEO – 12 months by either party
CFO – 6 months by either party
Other Executive KMP – 3 months by either party
Shorter notice may apply by agreement
No notice for defined circumstances which include but are not limited to serious or persistent or wilful
misconduct, or breach of contract, or conduct likely to seriously injure the reputation of the Company
Termination benefits for cause
Statutory entitlements only
Termination benefits for resignation
Notice as above or payment in lieu of notice that is not worked; current-year STI forfeited; all unvested
equity lapses; statutory entitlements
Termination benefits for other than
resignation or cause
Notice worked (or payment in lieu of any portion not worked); prorata STI for the period worked
(no deferral applicable); all unvested equity lapses unless held “on foot” in accordance with Equity
Incentive Plan Rules (for example in cases of death, disability, genuine retirement or extraordinary
circumstance); and statutory entitlements
All except CEO – For redundancy, payment in accordance with the company’s general redundancy policy
of three weeks FR per year of service with a minimum of 18 weeks and a maximum of 78 weeks
Remuneration
As set out in section 3.1, remuneration is reviewed annually or as required to maintain alignment with
policy and benchmarks
Table 9-5 Loans and transactions with KMP
No KMP held any loans with the Company during the financial year. See Notes G4 and G5 in the Notes to the Financial Statements.
Signed in accordance with a resolution of Directors
Gordon Cairns
Chairman
Sydney, 22 August 2019
Annual Report 2019 Lead Auditor’s Independence Declaration
87
Lead Auditor’s Independence Declaration
88
Corporate
Governance
Statement
For the year ended 30 June 2019
Origin personnel are also prohibited from
entering into hedging transactions that
operate to limit the economic risk of any
of their unvested equity-based incentives.
The Dealing in Securities Policy is available
on the Company’s website.
Diversity
Origin’s Diversity and Inclusion policy
applies to all aspects of employment
including recruitment, selection,
promotion, training, remuneration benefits
and performance management. There
are also procedures in place to prevent
and eliminate unlawful discrimination
and harassment. The Diversity and
Inclusion Policy is available on the
Company’s website.
Origin promotes a culture where managers
and employees proactively apply the
diversity policies and programs through
effective leadership and communication.
Details of Origin’s diversity practices and
performance during FY2019 can be found
in the Sustainability Report.
Gender diversity
The Board and the Remuneration and
People Committee oversees Origin’s
strategies on gender diversity, including
monitoring achievement against gender
targets set by the Board.
This statement has been approved by the
Board and summarises the Company’s
governance practices which were in
place throughout the financial year ended
30 June 2019. During the financial year
and to the date of this Report, Origin
has complied with all the ASX Corporate
Governance Principles.
People and culture
Purpose, values and behaviours
Origin’s purpose, “Getting energy right for
our customers, communities and planet”,
was launched in FY2018, and is supported
by five values:
1. Work as one team, one Origin.
2. Be the customer champion.
3. Care about our impact.
4. Find a better way.
5. Being accountable.
During FY2019, a set of behaviours, linked
to each value, was implemented to set
expectations for how Origin asks its people
to work every day and with each other.
Policies
Origin has a number of policies that set out
conduct expectations and decision-making
rights across the Group.
Code of Conduct
Origin’s Code of Conduct is based on its
purpose and values and outlines how all
directors, employees and other persons
that act on behalf of Origin are expected to
care for its people, business and reputation,
and to perform their job in line with high
ethical standards and applicable legal
requirements.
The Board, through the Remuneration
and People Committee, is informed of any
material breaches of the Code of Conduct
and its consequences.
A summary of the Code of Conduct is
available on Origin’s website.
Reporting and escalating concerns
Origin is committed to a culture that
encourages its people and others to
speak up about issues or conduct that
concerns them.
Origin has a policy for eligible individuals
to report concerns, either through their
manager, People & Culture, nominated
officers within the Group, or an external
reporting service where the person may
remain anonymous. Those who report are
protected from retaliation or victimisation,
including protection from termination
of employment, harassment and
discrimination.
Anti-bribery and facilitation payments
Origin prohibits the offer, payment,
solicitation or acceptance of bribes and
facilitation payments in any form. It also
provides appropriate controls around
the provision of gifts and gratuities, both
directly and indirectly, to public officials
or relatives or associates of public officials.
The giving or receiving of gifts or hospitality
is prohibited in all circumstances that do
not align with Origin’s Code of Conduct.
Dealing in Securities Policy
Origin’s Dealing in Securities Policy
prohibits Origin and its personnel from
dealing in the securities of Origin or other
companies in a way that breaches the law
prohibiting insider trading, harms Origin’s
reputation, or compromises confidence in
Origin’s practices in relation to securities
dealings. It precludes any Origin personnel
from engaging in short-term dealings in
the Company’s securities and margin loans
should not be entered into if they could
cause a dealing that requires, or allows
for, Origin securities to be disposed of
at a time that would be a breach of the
policy, or is in breach of the general insider
trading provisions of the Corporations Act
2001 (Cth).
Annual Report 2019 Corporate Governance Statement
89
Origin’s diversity targets for FY2019 and the performance against these targets are set out below.
Target
Performance
1.
2.
3.
Deliver equal average pay for men and women
at each job grade
On an equal-pay-for-equal-work basis1 the pay gap was within Origin’s policy
tolerance of ±1 percentage point variation at the conclusion of the 2018–19 annual
remuneration review process.
Improve the rate of appointment of women
to senior roles by 15 per cent compared to
FY2018 (i.e. from 31.5% to 36.2%)
Reduce the gap between male and female
turnover to zero
The FY2019 result was the in line with prior year (maintained at 31.5%).
Total turnover gap moved from –11 percentage points in the prior year to +6 points. While the
“gap” reduced and moved closer to zero, it moved from a more favourable female retention
to more favourable male retention. A more focused target has been adopted going forward to
directly measure female retention, thus complementing the appointment target.
The Remuneration and People Committee monitors the progress towards achieving these gender diversity objectives, including gender
pay, and oversees the Company’s initiatives to promote broad diversity and inclusion and assess the effectiveness of these programs.
Definition of seniority
For the purpose of gender diversity targets, ‘senior roles’ includes all people in Hay Pay Scale job grades that pay approximately $180,000
per annum in Fixed Remuneration.2
Seniority is defined by reference to standard Hay Pay Scale job grades, rather than reporting relationship to the CEO, for two reasons:
• to make genuine comparisons of seniority. A large number of senior people in corporate support areas such as legal, company
secretary, human resources, strategy and communications are only two or three levels below the CEO, while in the operating
businesses there are many roles with significant line management responsibility that are more than three levels below; and
• to make analysis comparable over time. Any restructure that changes ELT roles also changes the reporting relationships for hundreds
of people at lower levels, making it less valid to accurately compare progress on gender pay equality at those levels before and after the
restructure. While Origin does not use reporting relationship to the CEO to define Origin’s gender diversity targets, the gender profile
of these cohorts is of interest to some external stakeholders and is presented in the cohorts by gender table below.
Female representation within Origin (%)
Female representation (%)
Board 3
CEO-1 4
CEO-2 5
Senior roles
Origin Group
FY2020 targets
2017
25.0
11.1
26.2
28.9
35.1
2018
25.0
22.2
33.8
32.3
37.5
2019
25.0
22.2
40.6
30.3
36.6
Origin’s diversity targets for FY2020 will be to increase the proportion of women in senior roles by:
1. delivering equal average pay for men and women at each job grade
2. improving the appointment rate of women to senior roles by 15% year-on-year (to 36.2%)
3. improving the retention rate for women in senior roles from 79% (FY2019) to 85%
The Board has set itself a target of females being at least 40 per cent of the Board by end 2020.
Remuneration
The Remuneration Report sets out details of the Company’s policies and practices for remunerating Directors, key management personnel
and employees. It also sets out the Remuneration and People Committee’s activities.
The remuneration of Non-executive Directors is structured separately from that of the Executive Directors and senior executives.
1
2
Equal work is defined in terms of the same job grade, measured using Korn Ferry Hay job evaluation methodology.
The dollar number is approximate because the boundary is defined by Korn Ferry Hay Group position grading methodology. The corresponding market rate varies
with time.
3 Board includes Executive and Non-executive Directors.
4 “CEO-1” is a classification within the WGEA guidelines, which equates to the ELT excluding the CEO.
5
“CEO-2” is a classification within the WGEA guidelines which equates to CEO-1 and their direct reports who are themselves responsible for managing people.
90
Board and Committees
Board composition, independence and skills
The Board’s size and composition is determined by the Directors, within limits set by Origin’s Constitution, which requires a Board of
between five and 12 Directors. The composition of the Board shall:
• take into account the needs of the Company, including diversity in all respects;
• be of an appropriate size; and
• collectively have the skills, commitment and knowledge of the Company and the industry in which it operates, to enable it to discharge
its duties effectively and to add value.
Directors’ names, tenure, profiles and details of their skills, experience and special expertise are set out in the Directors’ Report.
The Company’s policy on the Independence of Directors requires that the Board is comprised of a majority of independent Directors.
The Board reviews each Director’s independence annually. At its review for the FY2019 reporting period, the Board formed the view
that all Non-executive Directors were independent. In defining the characteristics of an independent Director, the Board uses the ASX
Principles, together with its own considerations of the Company’s operations and businesses and appropriate materiality thresholds.
The Independence of Directors Policy which is part of the Board Charter, is available on the Company’s website.
The Board reviews the skills matrix periodically to ensure it covers the skills needed to address existing and emerging business and
governance issues relevant to the entity.
Together, the Directors contribute the following key skills and experience:
Board skills and experience
0
1
2
3
4
5
6
7
8
9
10
Governance
Industry
Diversity
International
Strategy
Financial and risk management
Sustainability
Regulatory and public policy
People
Customer
Disruption
Low
Moderate
Extensive
Skills and experience
Governance
A commitment to and experience in setting
best practice corporate governance policies,
practices and standards. Ability to assess the
effectiveness of senior management.
Industry
Experience in the energy or oil and gas
industry, or upstream or integrated exploration
and production company including in-depth
knowledge of the Company’s strategy,
markets, competitors, operational issues,
technology and regulatory concerns. This
includes advisory roles for these industries.
Diversity
Diversity in gender, background, geographic
origin, experience (industry and public,
private and non-profit sectors).
International
Exposure to international regions either
through experience working in an
organisation with global operations or through
management of international stakeholder
relationships. Understanding of different
cultural, political, regulatory and business
requirements.
developments and to set and monitor
sustainability aspirations, including relating to
climate change.
Strategy
Regulatory and public policy
Senior executive and directorship experience,
dealing with complex business models and
projects. Experience in developing, setting
and executing strategic direction and
driving growth.
Financial and risk management
Senior executive experience in financial
accounting and reporting, corporate finance,
risk and internal controls. Experience in
anticipating and evaluating risks that could
impact the business, recognising and
managing these risks through sound risk
governance policies and frameworks.
Sustainability
Experience in programs implementing
health, safety and environment, including
mental health and physical wellbeing.
Ability to identify economically, socially
and environmentally sustainable
Experience in the identification and resolution
of legal and regulatory issues. Experience in
public and regulatory policy, including how it
affects corporations.
People
Experience in building workforce capability,
setting a remuneration framework which
attracts and retains a high calibre of
executives, promotion of diversity and
inclusion.
Customer
Experience in industries which have high
degrees of customer centricity.
Disruption
Background in an industry that has faced
significant disruptive change.
Annual Report 2019 Corporate Governance Statement
91
Roles and responsibilities
The Board’s roles and responsibilities are
formalised in a Board Charter, which is
available on the Company’s website. The
Charter sets out those functions that are
delegated to management and those that
are reserved for the Board.
The Board selects and appoints the
Chairman from the independent Directors.
The Chairman, Mr Cairns, is independent
and his role and responsibilities are separate
from those of the Managing Director and
Chief Executive Officer (CEO).
The Company Secretary is accountable
directly to the Board, through the
Chairman, on all matters to do with the
proper functioning of the Board.
Prior to joining Origin, Directors and senior
executives are provided with letters of
appointment, together with key Company
documents and information, setting out
their term of office, duties, rights and
responsibilities, entitlements on termination,
and the requirement to notify the Company
of, or to seek the Company’s approval
before accepting, any new role that
could impact upon the time commitment
expected of the Director or give rise to a
conflict of interest. Directors are also asked
to specifically acknowledge to Origin that
they will have sufficient time to fulfil their
responsibilities as a director.
Board and senior executive appointment
and re-election
Prior to considering the appointment of a
new Director, the Committee evaluates the
balance of skills, knowledge, experience,
independence and diversity on the Board,
and identifies the appropriate capabilities
required based on that assessment. If these
criteria are met and the Board appoints the
candidate as a Director, that Director will
stand for election by shareholders at the
following Annual General Meeting (AGM).
Before a Director is appointed, Origin
undertakes appropriate evaluations.
These include independent checks of
a candidate’s character, experience,
education, criminal record, bankruptcy
history, and any other factors which
would affect the Company’s or the
individual’s reputation.
Prior to the engagement of senior
executives, appropriate background checks
are also carried out, in accordance with
Origin’s recruitment policies.
Each year the performance of the Directors
retiring by rotation and seeking re-election
under the Constitution is reviewed by the
Nomination Committee (other than the
relevant Director), the results of which form
the basis of the Board’s recommendation
to shareholders. The review considers a
Director’s expertise, skill and experience,
along with his/her understanding of the
Company’s business, preparation for
meetings, relationships with other Directors
and management, awareness of ethical
and governance issues, independence of
thought and overall contribution.
Where a candidate is standing for election
or re-election as Director, the notice
of meeting will set out information on
the candidate including biographical
details, qualifications and experience,
independence status, outside interests
and the recommendation of the rest of the
Board on the resolution. It will confirm that
the Company has conducted appropriate
checks into the candidate’s background and
experience and will advise if those checks
had revealed any information of concern.
Director induction and professional
development
New Directors undertake induction training,
tailored to their existing skills, knowledge
and experience on Origin’s strategy,
structure, operations, culture and key risks.
New Directors are provided with copies of
Origin’s key governance documents and
policies and participate in comprehensive
briefings with the Chairman of the Board,
Chairs of each Board Committee, the CEO
and the ELT, the Company Secretary, and
the internal and external auditor. New
Directors also undertake visits to Origin’s
major sites.
Directors also receive continuing
professional education through ongoing
briefings and workshops on industry,
regulatory or other relevant topics and
attendance at industry or governance
conferences to deal with new emerging
business and governance issues.
Performance review
Each year, the Directors review the
performance of the whole Board, Board
committees and individual Directors.
This year, a full review was undertaken
with assistance from an independent
external consultant, covering individual
Director performance, the Board and
Committees’ activities and work program,
time commitments, meeting efficiency
and Board contribution to Company
strategy, monitoring, compliance and the
governance processes which support
the Board. The results of the review
were discussed by the whole Board, and
initiatives to improve or enhance Board
performance and effectiveness were
considered and recommended. Individual
Director feedback was discussed directly
between that Director and the Chairman.
The Chairman’s performance feedback is
shared with the Board for discussion.
The performance of all key executives,
including the CEO, is reviewed
annually against:
• a set of personal financial and non-
financial goals;
• Company and Business-Unit specific
goals; and
• adherence to the Company’s culture and
behaviour standards.
The Remuneration and People Committee
and the Board consider the performance of
the CEO and all members of the Executive
Leadership Team (ELT) when deciding
whether to award performance-related
remuneration through short-term and
long-term incentives for the year completed
and when assessing fixed remuneration
for future periods. Further information on
the outcomes of the FY2019 assessment
of executive remuneration is set out in the
Remuneration Report.
Board Committees
Five Committees assist the Board in
executing its duties. Each Committee has
its own Charter which sets out its role,
responsibilities, composition, structure,
membership requirements and operation.
These are available on the Company’s
website. From time to time, other special
Committees are convened to assist the
Board with particular matters or to exercise
the delegated authority of the Board.
Each Committee’s Chairman reports to the
Board on the Committee’s deliberations
at the following Board meeting where
the Committee meeting minutes are
also tabled. All Directors have access
to Committee papers and may attend
Committee meetings unless there is a
conflict of interest.
The members of each Committee and
their attendance at Board and Committee
meetings during FY2019 is set out in the
Directors’ Report.
92
Audit
Remuneration and People HSE
Nomination
Risk
Each of the Committees assists the Board on matters relating to:
– the integrity and adequacy
of the Company’s
accounting and corporate
reporting systems, policies
and processes;
– the internal control
framework; and
– the external and internal
audit functions.
– Origin’s people strategies,
policies, practices and
Company culture;
– the remuneration strategy,
policy and structure and
specific remuneration
outcomes for the CEO
and ELT; and
– senior executive
appointments,
development and
succession planning
including diversity.
– Origin’s HSE risks and/or
impacts arising out of the
activities and operations
of Origin;
– the composition of the
Board, including Board
skills, independence and
diversity;
– compliance with statutory
– Board and CEO succession
planning including the
process for identifying and
appointing new directors
and the CEO;
– Board and director
performance
evaluation; and
HSE obligations and
internal HSE requirements;
– specific HSE risks and/
or impacts and learnings
from those;
– activities of executive
management to enhance
the HSE culture of
Origin; and
– environment (emissions
reduction).
– Origin’s risk management
framework;
– the performance against
the risk management
framework;
– material and emerging
risks, such as conduct risk,
digital disruption, cyber-
security, privacy and data
breaches, sustainability and
climate change;
– the Company’s compliance
– Director induction and
continuing professional
development.
framework;
– fraud; and
– sustainability disclosures.
The Committee’s membership consists of:
– four Non-executive
– four Non-executive
– the CEO and four
Directors, all of whom are
independent, including
the Chairman.
Directors, all of whom are
independent, including
the Chairman, who has
significant financial
expertise and is not the
Chairman of the Board. All
members of the Committee
are financially literate and
the Committee possesses
sufficient accounting and
financial expertise and
knowledge of the industry
in which Origin operates.
independent Non-executive
Directors. The direct
impact the deliberations
of the Committee can
have on the day-to-day
operations of Origin makes
it appropriate for the CEO
to be a member of the
Committee. The majority
of the Committee, and its
Chairman, are independent.
– the Chairman of the Board
and the Chair of each other
Board Committee, all of
whom are independent.
– the Chairman of the Board
and the Chair of each other
Board Committee, all of
whom are independent.
Board and Committee meetings
In FY2019, the Board had 10 scheduled
meetings, including a two-day strategic
planning meeting. The Board and
committees also had seven separate
scheduled workshops to consider matters of
particular relevance. Outside of scheduled
meetings, the full Board met on one other
occasion to consider urgent matters. In
addition, the Board and individual directors
conducted visits of Company operations
and met with operational management
during the year on various matters. The
Board also undertook visits to the US during
the year to meet with Origin’s current and
potential partners.
From time to time, the Board delegates its
authority to non-standing committees of
Directors to consider transactional or other
matters. In the 12 months to 30 June 2019,
one such additional Board Committee
meeting was held.
At Board meetings, Directors receive
reports from executive management on
financial and operational performance, risk,
strategy, people, HSE, and major projects
or initiatives in which Origin is involved. In
addition, the Directors receive reports from
Board committees and, as appropriate,
presentations on opportunities and risks for
the Company.
Non-executive Directors also meet
without the presence of the CEO or other
management to address such matters as
succession planning, key strategic issues,
and Board operation and effectiveness.
Access to advice and information
All Directors have access to Company
employees, advisers and records. In carrying
out their duties and responsibilities, Directors
have access to advice and counsel from the
Chairman and the Company Secretary, and
are able to seek independent professional
advice at the Company’s expense, after
consultation with the Chairman.
Shareholders
Disclosure
Origin has adopted policies and procedures
designed to ensure compliance with its
continuous disclosure obligations under
ASX Listing Rule 3.1 and make senior
management and the Board accountable
for that compliance. The Continuous
Disclosure Policy is available on the
Company’s website.
All material matters are disclosed
immediately to the stock exchanges on
which Origin’s securities are listed (and
subsequently to the media, where relevant),
as required by the relevant listing rules.
All material investor presentations are
released to the stock exchanges and are
posted on the Company’s website. Other
reports or media statements that do not
contain price sensitive information are
included on the Company’s website.
Shareholders can subscribe to an email
notification service and receive notice
of any stock exchange announcements
released by the Company. The Board
receives copies of all material market
announcements promptly after they have
been made.
Origin also provides periodic disclosure
that keeps the market informed, including
quarterly releases detailing exploration,
development and production, and half and
full year reports to shareholders.
Origin also participates in industry
conferences and hosts investor briefings.
Copies of presentation materials of any
new and substantive investor or analyst
presentations are released to the stock
exchanges ahead of the presentation.
Investor relations
Origin has a wide stakeholder engagement
program and a dedicated investor relations
function to facilitate effective two-way
communication with investors. The
Company participates in regular surveys
to garner feedback from investors on how
this function is performing and can be
Annual Report 2019 Corporate Governance Statement
93
improved. The Chairman and the Chairman
of the Remuneration and People Committee
meet with investors and proxy advisors
twice a year.
Website and electronic communications
Origin respects the rights of its shareholders
and has adopted policies to facilitate the
effective exercise of those rights through
participation at general meetings and with
the provision of information about Origin
and its operations.
All communications from, and most
communications to, Origin’s share registry
are available electronically and shareholders
are encouraged to take up the option of
e-communications.
Shareholders can review the financial
and non-financial performance of Origin
via a half year report, shareholder review,
annual report, sustainability report, investor
presentations and Annual General Meeting
materials. These reports are also available
on the ASX and on Origin’s website.
Shareholders may also request hard copies.
Origin’s website contains a list of key
dates and all recent announcements,
presentations, past and current company
reports and notices of meetings.
Shareholder meetings and results
announcements are webcast and an archive
of these meetings is published on the
Company’s website.
Annual General Meeting
Origin encourages shareholders to attend
and participate in its AGM, either in person,
by proxy or attorney, or by other means
adopted by the Board. At the AGM, the
Chairman allows a reasonable opportunity
for shareholders to ask questions of the
Board and the external auditors. The
external auditor attends the Company’s
AGM and is available to answer questions
from shareholders relevant to the audit.
Shareholders who are unable to attend the
AGM can view a webcast of the meeting on
the Company’s website.
All substantive resolutions at an Origin
meeting of shareholders are decided by
a poll rather than by a show of hands.
Risk and assurance
Risk framework
Origin’s approach to risk management
aims to embed a risk-aware culture in
all decision-making and to manage risk
in a proactive and effective manner.
The Board has an overarching policy
governing the Company’s approach
to risk oversight and management and
internal control systems. This policy and
further information on Origin’s approach to
managing its material risks is available on
the Company’s website.
The Company’s risk policies are designed
to identify, assess, manage and monitor
strategic, operational, financial and
project risks and mitigate the impact in
the event that they materialise. The Board
has also approved policies for hedging
interest rates, foreign exchange rates and
commodities. Certain specific risks are
covered by insurance.
Management is responsible for the design
and implementation of the risk management
and internal control systems to manage the
Company’s risks. Management reports to
the Risk Committee on how material risks
are being managed and the effectiveness of
controls in place to mitigate those risks. The
Risk Committee has an annual calendar that
includes regular detailed risk profile reviews.
The Risk Committee reviews the Company’s
risk management framework annually
to satisfy itself that it continues to be
sound and that the entity is operating
with due regard to the risk appetite set by
the Board. This includes the Committee
satisfying itself that the risk management
framework deals adequately with
emerging risks such as conduct risk, digital
disruption, cyber-security, privacy and
data breaches, sustainability and climate
change. The Risk Committee oversees the
Company’s insurance program, having
regard to the Company’s business and
associated insurable risks.
An independent review of the risk
management framework was completed
during the financial year and it found the
framework to be sound. Management
has reported to the Risk Committee
and the Board that, as at 30 June 2019,
the framework is sound based on this
review and the subsequent framework
improvements completed.
Assurance
Origin’s approach to the management
of risks and controls reflects the ‘three
lines of defence’ model. The first line of
defence comprises operational business
managers that own and manage risks.
The second line of defence comprises the
corporate functions that oversee/monitor/
challenge risks. The third line of defence
comprises the Origin Group’s internal audit
function that assures compliance with
policies and standards.
The internal audit function utilises both
internal and external resources to provide
an independent appraisal of the adequacy
and effectiveness of the Company’s risk
management and internal control systems.
The internal auditor has direct access to
the Chairman of the Audit Committee and
management, and has the right to seek
information. A risk-based approach is used
to develop the annual internal audit plan,
aligning planned internal audit activities to
the Company’s material risks. The internal
audit plan is approved by the Audit and
HSE Committees annually and reviewed
quarterly for the effectiveness of its
governance, risk management and internal
control processes.
In addition to internal audit activities,
second line assurance activity is undertaken
across the business in the management
of risk. The findings of this activity
are reported through to the relevant
executive and, where appropriate, relevant
Board Committees.
CEO/CFO sign-off
Prior to approval of the Company’s financial
statements for each financial period, the
Managing Director and Chief Executive
Officer and the Chief Financial Officer
give the Board a declaration that, in their
opinion, the financial records have been
properly maintained, that the financial
statements complied with the accounting
standards and gave a true and fair view, and
that their opinion had been formed on the
basis of a sound system of risk management
and internal compliance and control which
was operating effectively.
External audit
The external auditors have direct access to
the Chairman of the Audit Committee and
meet separately with the Audit Committee
without management present.
The Committee reviews the independence
of the external auditor, including the nature
and level of non-audit services provided,
and reports its findings to the Board
every six months.
Environmental, Social and
Governance (ESG) matters
Beyond the financial results, Origin
is witnessing changes in community
attitudes and increased focus on local and
global environmental challenges. Origin
recognises the need for disclosure and
transparency of decision making to help
investors assess both short-term and long-
term risks and prospects.
Origin assesses the environmental and
social risks associated with projects
and operations. Projects are developed
with precautionary engineering and
management measures in place to
mitigate or manage key environmental and
social risks, and operations are managed
using policies and procedures to control
remaining environmental and social risks.
Environmental and social risk management
is subject to periodic audits and assurance.
94
One source of environmental risks relates
to climate change. As one of Australia’s
largest power generators, Origin closely
measures, manages and reports on the
greenhouse gas emissions associated
with its operations. These emissions are
governed by laws and regulations. Origin
has set emissions reductions targets and
has a five-pillar strategy to decarbonise
its business and achieve these targets,
including exiting coal-fired generation by
2032 and significantly growing renewable
generation in its portfolio.
Further information on Origin’s
management and performance in the social
and environmental aspects in operating
its business, including further details
on its emissions reduction targets and
decarbonisation strategy, is contained in
the FY2019 Sustainability Report.
Origin measures its reputation, that is, how
Origin is perceived by Australians (including
shareholders) using RepTrak® methodology.
Origin’s reputation performance and
reputation risk issues are periodically
reported to the Board.
In addition to stakeholder measurement
through RepTrak®, Origin also engages
external advisors to provide real-time
monitoring of mainstream and social
media to evaluate the external operating
environment and ensure emerging risks,
issues and shifting public and policy
debates are identified and addressed
accordingly. Quarterly quantitative and
qualitative mainstream media analysis
is undertaken to better understand
external trends, and sentiment and key
public influencers.
These insights influence and inform
Origin’s external affairs and stakeholder
engagement strategies, as well as customer
facing positioning and community
engagement programs.
Sustainability reporting
Stakeholder engagement
Origin is a supporter of the Financial
Stability Board’s Taskforce on Climate
related Financial Disclosures (TCFD)
and commenced implementing the
recommendations in FY2018. FY2019
disclosures aligned with the TCFD
recommendations are contained in the
FY2019 Sustainability Report.
Sustainability reporting is guided by the
Global Reporting Initiative and includes
disclosures of material ESG aspects of
the Company’s business activities. This
year, Origin has reported the sustainability
aspects which are considered the most
important to our stakeholders. We have
identified where each of these aspects
aligns with the Sustainable Development
Goals of the United Nation’s 2030 Agenda
for Sustainable Development.
Origin also discloses other ESG information
via regulated National Greenhouse
Emissions Reporting, as well as voluntary
disclosure platforms such as the Carbon
Disclosure Project. Origin regularly engages
with and provides requested information to
research firms. Origin was again included in
the FTSE4Good Index and again received
MSCI ESG’s AA rating during the period.
Customers
Customers are a central part of Origin’s
engagement, innovation and value
creation. Origin continues to adapt
processes, introduce new products and
invest in technology to provide customers
with greater choice, better value and
an improved customer experience.
The Sustainability Report provides further
information on Origin’s interaction with
its customers.
Origin’s projects and operations necessitate
interaction with a range of stakeholders
including local communities, business
partners, government, industry, media,
suppliers and NGOs. Origin has a program
to support these stakeholder interactions
and facilitate constructive relationships,
including:
• dedicated community advisors to
help facilitate and implement Origin’s
engagement with local communities and
regular dialogue with the communities in
which Origin operates;
• a government relations team which
regularly interacts with policy makers to
help develop sound and stable policy to
ensure business certainty;
• dedicated external affairs team with
regular interaction with media and NGOs
to create a better understanding of
Origin’s business; and
• making a contribution to the formulation
of public policy through submissions to
various inquiries.
Further information on Origin’s approach to
its people, communities and governments
can be found in the Sustainability Report.
Origin’s approach to industry association
memberships can also be found in the
Sustainability Report and its website.
Information referred to in this Corporate
Governance Statement as being on the
Company’s website may be found at the
web address: originenergy.com.au under
the section ‘About Origin – Investors &
media – Governance’.
Annual Report 2019 Financial Statements
30 June 2019
9595
Primary statements
Income statement
C
Operating assets
and liabilities
F Group structure
F1
Joint arrangements
Statement of comprehensive income
C1
Trade and other receivables
F2
Business combinations
Statement of financial position
C2 Exploration and evaluation assets
F3 Controlled entities
Statement of changes in equity
C3 Property, plant and equipment
F4 Disposals and assets and liabilities
held for sale
Statement of cash flows
C4
Intangible assets
Notes to the financial
statements
Overview
A Results for the year
A1
Segments
A2 Revenue
A3 Other income
A4 Expenses
A5
Earnings per share
A6 Dividends
B
Investment in
Australia Pacific
LNG Pty Ltd
B1
Summary APLNG income statement
B2
B3
B4
Summary APLNG statement
of financial position
Summary APLNG statement
of cash flows
Transactions between the
Group and APLNG
C5 Provisions
G Other information
C6 Other financial assets and liabilities
G1 Contingent liabilities
D
Capital, funding and
risk management
D1 Capital management
D2
Interest-bearing liabilities
D3 Contributed equity
D4 Financial risk management
D5
Fair value of financial assets and
liabilities
E Taxation
E1
Income tax expense
E2 Deferred tax
G2 Commitments
G3 Share-based payments
G4 Related party disclosures
G5 Key management personnel
G6 Notes to the statement of cash flows
G7 Auditors’ remuneration
G8 Master netting or similar agreements
G9 Deed of Cross Guarantee
G10 Parent entity disclosures
G11 New standards and interpretations
not yet adopted
G12 Subsequent events
Directors’ declaration
Independent
auditor’s report
Financial Statements 9696
Income Statement
For the year ended 30 June
Continuing operations
Revenue
Other income
Expenses
Results of equity accounted investees
Interest income
Interest expense
Profit before income tax
Income tax (expense)/benefit
Profit for the year from continuing operations
Discontinued operations
Loss from discontinued operations
Profit for the year
Profit for the year attributable to:
Members of the parent entity
Non-controlling interests
Profit for the year
Earnings per share
Basic earnings per share
Diluted earnings per share
Profit from continuing operations attributable to:
Members of the parent entity
Non-controlling interests
Profit for the year from continuing operations
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
Note
2019
$m
2018
$m
A2
A3
A4
B1
A3
A4
E1
14,727
14,604
26
253
(13,953)
(14,589)
632
234
(388)
1,278
(64)
1,214
–
1,214
1,211
3
1,214
205
229
(500)
202
81
283
(62)
221
218
3
221
A5
A5
68.8 cents
12.4 cents
68.7 cents
12.3 cents
1,211
3
1,214
280
3
283
A5
A5
68.8 cents
15.9 cents
68.7 cents
15.9 cents
The income statement should be read in conjunction with the accompanying notes set out on pages 101 to 162.
Annual Report 2019 Statement of Comprehensive Income
For the year ended 30 June
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Investment valuation changes
Items that can be reclassified to profit or loss
Translation of foreign operations
Cash flow hedges
Reclassified to income statement
Effective portion of change in fair value
Investment valuation changes
Total other comprehensive income, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Members of the parent entity
Non-controlling interests
Total comprehensive income for the year
Total comprehensive income for the year attributable
to members of the parent entity arising from:
Continuing operations
Discontinued operations
9797
Note
2019
$m
1,214
2018
$m
221
D4
D4
5
–
341
278
(122)
223
–
447
1,661
1,662
(1)
1,661
1,661
1,662
–
(75)
(31)
(6)
166
387
383
4
387
387
462
(79)
The statement of comprehensive income should be read in conjunction with the accompanying notes set out on pages 101 to 162.
Financial Statements 9898
Statement of Financial Position
as at 30 June
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivatives
Other financial assets
Assets classified as held for sale
Other assets
Total current assets
Non-current assets
Trade and other receivables
Derivatives
Other financial assets
Investments accounted for using the equity method
Property, plant and equipment (PP&E)
Exploration and evaluation assets
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Payables to joint ventures
Interest-bearing liabilities
Derivatives
Other financial liabilities
Provision for income tax
Employee benefits
Provisions
Liabilities classified as held for sale
Total current liabilities
Non-current liabilities
Trade and other payables
Interest-bearing liabilities
Derivatives
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total parent entity interest
Non-controlling interests
Total equity
Note
C1
D4
C6
F4
C1
D4
C6
B2
C3
C2
C4
E2
D2
D4
C6
C5
F4
D2
D4
C5
D3
2019
$m
1,546
2,324
137
472
318
254
112
2018
Restated(1)
$m
150
2,537
196
522
267
–
94
5,163
3,766
7
962
3,152
6,960
3,597
98
5,381
380
43
4
1,117
3,683
5,988
3,696
363
5,328
277
35
20,580
20,491
25,743
24,257
2,006
204
948
384
308
160
189
45
23
2,068
221
1,089
424
304
115
175
53
–
4,267
4,449
2
6,648
1,119
31
527
8,327
5
6,350
1,234
30
361
7,980
12,594
12,429
13,149
11,828
7,125
1,089
4,915
7,150
629
4,025
13,129
11,804
20
24
13,149
11,828
(1) Refer to Overview for a discussion of reclassifications.
The statement of financial position should be read in conjunction with the accompanying notes set out on pages 101 to 162.
Annual Report 2019 Statement of Changes in Equity
For the year ended 30 June
9999
Contributed
equity
Share-based
payments
reserve
Foreign
currency
translation
reserve
Hedge
reserve
Fair
value
reserve
Retained
earnings
Non-
controlling
interests
Total
equity
7,150
247
391
–
–
–
13
–
13
–
–
101
–
391
–
345
–
–
345
101
345
101
–
–
–
–
–
–
–
–
114
–
277
–
–
–
–
(106)
–
277
(106)
277
(106)
–
–
–
–
–
–
7,150
247
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(25)
–
–
(13)
(25)
(13)
7,150
222
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25
25
(22)
4,025
24
11,828
22
(145)
–
(123)
–
–
–
–
5
5
5
–
–
–
–
5
3,880
1,211
24
3
11,705
1,214
–
–
–
–
1,211
(176)
–
–
(4)
–
–
(4)
(1)
(3)
–
–
341
101
5
447
1,661
(179)
(25)
(13)
(176)
(3)
(217)
4,915
20
13,149
–
–
–
(6)
(6)
(6)
–
–
–
218
–
–
–
–
218
–
–
–
22
3
11,418
221
1
–
–
1
4
(2)
–
278
(106)
(6)
166
387
(2)
25
(2)
23
7,125
234
736
114
119
(16)
3,807
$m
Balance as at
30 June 2018
Adoption of AASB9
(refer Overview)
Balance as at
1 July 2018
Profit
Translation of
foreign operations
Cash flow hedges
Investment
valuation changes
Total other
comprehensive income
Total comprehensive
income for the year
Dividends provided
for or paid
Movement in
contributed equity
(refer to note D3)
Share-based payments
Total transactions
with owners recorded
directly in equity
Balance as at
30 June 2019
Balance as at
1 July 2017
Profit
Translation of
foreign operations
Cash flow hedges
Investment
valuation changes
Total other
comprehensive income
Total comprehensive
income for the year
Dividends provided
for or paid
Share-based payments
Total transactions
with owners recorded
directly in equity
Balance as at
30 June 2018
The statement of changes in equity should be read in conjunction with the accompanying notes set out on pages 101 to 162.
7,150
247
391
13
(22)
4,025
24
11,828
Financial Statements 100100
Statement of Cash Flows
For the year ended 30 June
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Cash generated from operations
Income taxes paid, net of refunds received
Net cash from operating activities
Cash flows from investing activities
Acquisition of PP&E
Acquisition of exploration and development assets
Acquisition of other assets
Acquisition of OC Energy, net of cash acquired
Acquisition of other investments
Interest received from other parties
Net proceeds from sale of non-current assets
Net proceeds from sale of investment in Acumen Energy
Net proceeds from sale of investment in Lattice Energy
Australia Pacific LNG (APLNG) investing cash flows
– Contributions to APLNG
– Receipt of Mandatorily Redeemable Cumulative Preference Shares (MRCPS) interest
– Proceeds from APLNG buy-back of MRCPS
Net cash from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Joint venture operator cash call movements
Settlement of foreign currency contracts
Interest paid
Dividends paid to shareholders of Origin Energy Ltd, net of Dividend Reinvestment Plan
Dividends paid to non-controlling interests
Early settlement of forward oil sale
Repayment of Debt Service Reserve Account (DSRA) loan to equity accounted investees
Loan from equity accounted investees
Purchase of shares on-market (treasury shares)
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of exchange rate changes on cash
Cash and cash equivalents at the end of the period(2)
(1) Refer to Overview for a discussion of reclassifications.
Note
2019
$m
2018
Restated(1)
$m
G6
16,552
(15,117)
1,435
(110)
1,325
(190)
(18)
(133)
(29)
(35)
2
18
–
–
–
229
745
589
16,171
(15,010)
1,161
(38)
1,123
(314)
(11)
(87)
–
(10)
2
1
267
1,217
(74)
227
134
1,352
2,063
(1,878)
925
(2,600)
7
(64)
(375)
(162)
(3)
–
(31)
–
(77)
(81)
(56)
(474)
–
(2)
(265)
–
76
–
(520)
(2,477)
1,394
150
2
1,546
(2)
151
1
150
(2) This balance includes $1,246 million (2018: Nil) of deposits that will be used to redeem the €1 billion Hybrid in September 2019 (refer note G12) and the €500 million
Euro Medium Term Note maturing in October 2019.
The statement of cash flows should be read in conjunction with the accompanying notes set out on pages 101 to 162.
Annual Report 2019 Notes to the Financial Statements
101101
Overview
Origin Energy Limited (the Company) is a
for-profit company domiciled in Australia.
The address of the Company’s registered
office is Level 32, Tower 1, 100 Barangaroo
Avenue, Barangaroo NSW 2000. The
nature of the operations and principal
activities of the Company and its controlled
entities (the Group) are described in the
segment information in note A1.
On 22 August 2019, the Directors resolved
to authorise the issue of these consolidated
general purpose financial statements for the
year ended 30 June 2019.
Basis of preparation
The financial statements have
been prepared:
•
in accordance with the requirements
of the Corporations Act 2001 (Cth),
Australian Accounting Standards and
other authoritative pronouncements of
the Australian Accounting Standards
Board (AASB) and International
Financial Reporting Standards as
issued by the International Accounting
Standards Board;
• on a historical cost basis, except for
derivatives and other financial assets
and liabilities that are measured at fair
value; and
• on a going concern basis.
The financial statements:
• are presented in Australian dollars;
• are rounded to the nearest million
dollars, unless otherwise stated, in
accordance with Australian Securities
and Investments Commission (ASIC)
Corporations (Rounding in Financial/
Directors’ Reports) Instrument
2016/191; and
• do not early adopt any Accounting
Standards and Interpretations that
have been issued or amended but are
not yet effective. Refer to note G11 for
further details.
Use of judgements
and estimates
AASB 15 Revenue from
Contracts with Customers
AASB 15 supersedes AASB 118 Revenue
and AASB 111 Construction Contracts
and applies to all revenue arising from
contracts with customers. The adoption
of AASB 15 from 1 July 2018 did not have
a material impact on the recognition,
timing or measurement of the Group’s
revenue. Under the new standard, amounts
previously recorded within revenue
in respect of certain power purchase
arrangements and gas swaps are now
recorded on a net basis within cost of sales.
The new standard has been applied using
the modified retrospective method and
accordingly prior period amounts have not
been restated.
The preparation of financial statements
in conformity with AASBs requires
management to make judgements and
apply estimates and assumptions that affect
the reported amounts of assets, liabilities,
income and expenses. The estimates and
associated assumptions, which are based
on historical experience and various other
factors believed to be reasonable under
the circumstances, form the basis of
judgements about carrying values of assets
and liabilities that are not readily apparent
from other sources. Actual results may differ
from these estimates.
Throughout the notes to the financial
statements further information is provided
about key management judgements and
estimates that we consider material to the
financial statements.
Reclassifications
The following comparative amounts have
been reclassified for consistency with
current period presentation:
Balance sheet
• a $59 million increase in other financial
assets – current and a corresponding
decrease in other assets – current
to better reflect the nature of the
Group’s collateral held by the Sydney
Futures Exchange; and
• a $57 million increase in other payables
– current and a corresponding decrease
in other financial liabilities – current
to better reflect the nature of accrued
option premiums.
Cash flows
• a decrease of $56 million in repayment
of borrowings to separately disclose
the settlement of foreign exchange
contracts within cash flows from
financing activities;
• a decrease of $81 million in repayment of
borrowings to separately disclose joint
venture operator cash calls within cash
flows from financing activities; and
• a decrease of $170 million in repayment
of borrowings and a corresponding
increase in payments to suppliers and
employees to better reflect the nature of
collateral deposited with, and returned
by, the Sydney Futures Exchange as
cash flows from operating activities.
Financial Statements 102102
Overview (continued)
Adoption of AASB 9 Financial Instruments
AASB 9 replaces the provisions of the former accounting standard AASB 139 Financial Instruments that relate to recognition, classification
and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting.
The adoption of AASB 9 from 1 July 2018 has resulted in changes to the Group’s accounting policies and adjustments to the amounts
recognised in the financial statements, most significantly to the carrying value of mandatorily redeemable cumulative preference shares
(MRCPS) issued by APLNG. In accordance with the transitional provisions in AASB 9 comparative figures have not been restated.
The impacts on the equity of the Parent entity and the Group as at 1 July 2018 are set out below.
$m
Opening balance – AASB 139
Reclassification and remeasurement of MRCPS issued by APLNG
Reclassification of Settlement Residue Distribution Agreement units
Increase in provision for trade receivables and unbilled revenue
(a)
(a)
(b)
Total impact
Opening balance – AASB 9
Parent entity
Group
Ref.
Retained
earnings
Fair value
reserve
Retained
earnings
2,880
(108)
–
–
(108)
2,772
(22)
4,025
–
22
–
22
–
(108)
(22)
(15)
(145)
3,880
(a) Classification and measurement of financial assets and liabilities
From 1 July 2018, the Group classifies its financial assets in the following measurement categories:
• those to be measured at amortised cost;
• those to be measured subsequently at fair value through profit or loss (FVPL); and
• those to be measured subsequently at fair value through other comprehensive income (FVOCI).
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.
Generally, under AASB 9 financial assets must be recorded at fair value unless their cash flows represent solely payments of principal and interest.
The table below sets out the previous measurement categories under AASB 139 and the new measurement categories under AASB 9 for
each class of the Group’s financial assets as at 1 July 2018. AASB 9 has not had a significant impact on the Group’s accounting policies
related to financial liabilities and derivatives.
$m
Previous
New
Previous
New
Classification
Carrying amount
Trade receivables and unbilled revenue(1)
Amortised cost
Amortised cost
MRCPS issued by APLNG
Settlement Residue Distribution Agreement units
Origin Foundation investment fund units
Equity securities
Environmental scheme certificates
Amortised cost
Available-for-sale
Available-for-sale
Available-for-sale
FVPL
FVPL
FVPL
FVPL
FVOCI(2)
FVPL
Futures collateral
Amortised cost
Amortised cost
(1) Amount excludes the impairment adjustment recognised on adoption of AASB9.
(2) As permitted by the standard, the Group has elected to present changes in the fair value of its equity securities in OCI.
(b) Impairment of financial assets
2,541
3,620
46
57
15
153
59
2,541
3,465
46
57
15
153
59
The Group’s trade receivables and unbilled revenue are subject to a new expected credit loss model for impairment of financial assets. On adoption
of AASB 9, the Group was required to revise its impairment methodologies resulting in a $21 million ($15 million post-tax) increase in the impairment
allowance recorded at 1 July 2018.
Hedging
The Group elected to adopt the new AASB 9 hedge accounting model. All existing hedge relationships as at 30 June 2018 met the criteria for hedge
accounting under AASB 9 and are therefore regarded as continuing hedging relationships.
Annual Report 2019 103103
Items excluded from the calculation of
underlying profit are reported to the
Managing Director as not representing the
underlying performance of the business
and thus excluded from underlying profit
or underlying EBITDA. These items are
determined after consideration of the
nature of the item, the significance of the
amount and the consistency in treatment
from period to period.
The nature of items excluded from
underlying profit and underlying EBITDA
are shown below.
• Changes in the fair value of financial
instruments not in accounting hedge
relationships to remove the significant
volatility caused by timing mismatches in
valuing financial instruments and the related
underlying transactions;
• Realised and unrealised foreign
exchange gains/losses on debt held to
hedge USD denominated APLNG MRCPS
for which fair value changes are excluded
from underlying profit;
• Redundancies and other costs in relation
to business restructuring, transformation
or integration activities;
• Gains/losses on the sale or acquisition of
an asset/entity;
• Transaction costs incurred in relation to
the sale or acquisition of an entity; and
•
Impairments of assets.
A Results for the year
This section highlights the performance of
the Group for the year, including results by
operating segment, income and expenses,
earnings per share and dividends.
A1 Segments
The Group’s operating segments are
presented on a basis that is consistent
with the information provided internally
to the Managing Director, who is the chief
operating decision maker. This reflects the
way the Group’s businesses are managed,
rather than the legal structure of the Group.
The reporting segments are organised
according to the nature of the activities
undertaken and are detailed below.
• Energy Markets: Energy retailing,
power generation and LPG operations
predominantly in Australia.
• Integrated Gas: Origin’s investment
in APLNG, growth assets business
and management of LNG price risk
through hedging and trading activities.
The investment in APLNG is presented
separately from the residual component
of the segment in the following tables for
greater transparency.
• Corporate: Various business
development and support activities that
are not allocated to operating segments.
Underlying profit and underlying EBITDA
are the primary alternative performance
measures used by the Managing Director
for the purpose of assessing performance
of each operating segment and the
Group. The objective of measuring and
reporting underlying profit and underlying
EBITDA is to provide a more meaningful
and consistent representation of financial
performance by removing items which
distort that performance or are non-
recurring in nature.
Financial Statements 104
104
105105
A1 Segments (continued)
Segment result for the year ended 30 June
$m
Revenue
Segment revenue
Eliminations(2)
External revenue
EBITDA
Depreciation and amortisation
Energy Markets(1)
Share of APLNG
Other
Corporate
Total continuing
operations
Discontinued
operations
Consolidated
Integrated Gas
Integrated Gas
Ref.
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
14,293
14,344
–
–
14,293
14,344
–
–
–
–
–
–
1,492
1,592
2,142
1,397
(401)
(359)
–
–
Share of ITDA of equity accounted investees
–
–
(1,516)
(1,196)
EBIT
Interest income(3)
Interest expense(3)
Income tax (expense)/benefit(4)
Non-controlling interests (NCI)
1,091
1,233
626
201
434
260
–
–
434
260
–
–
–
–
–
–
14,727
14,604
–
–
14,727
14,604
2
(18)
6
(10)
226
(764)
(275)
(179)
3,361
2,046
(22)
4
(782)
227
–
–
–
–
(419)
(381)
(1,510)
(1,192)
(275)
(179)
1,432
8
2
(388)
(500)
(64)
(3)
81
(3)
234
(388)
(64)
(3)
473
229
(500)
81
(3)
Statutory profit/(loss) attributable to members of the parent entity
1,091
1,233
626
201
216
(555)
(722)
(599)
1,211
280
Reconciliation of statutory profit/(loss) to segment result
and underlying profit/(loss)
Fair value and foreign exchange movements
Disposals, impairments and business restructurin
Tax and NCI on items excluded from underlying profit
Total significant items
Segment result and underlying profit/(loss)
(a)
(b)
(61)
(21)
(299)
239
(82)
(60)
1,173
1,293
–
13
13
613
–
(6)
(6)
207
Underlying EBITDA
1,574
1,651
2,123
1,405
(1) For the purpose of comparability, the June 2018 period has been restated to include $160 million ($112 million post-tax) of premiums relating to certain electricity hedges
within underlying earnings.
(2) In the comparative period, discontinued Lattice Energy entities sold gas and LPG to the Energy Markets segment on an arm’s-length basis.
(3) Interest income earned on MRCPS has been allocated to the Integrated Gas – Other segment. Interest expense related to general financing is allocated to the Corporate
segment, with the exception of amounts allocated to discontinued operations in the prior year.
(4) Income tax expense for entities in the Origin tax consolidated group is allocated to the Corporate segment with the exception of amounts related to discontinued
operations in the prior year.
271
(38)
233
(17)
(231)
(89)
(520)
(609)
54
(154)
(11)
(29)
59
19
(741)
(234)
(3)
(63)
295
229
199
(75)
59
183
(828)
1,028
(391)
(350)
295
(446)
726
(115)
3,232
2,787
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
477
(198)
14,727
15,081
–
(198)
279
14,727
14,883
3,361
2,053
(419)
(381)
(1,510)
(1,192)
7
–
–
7
–
(8)
(61)
–
(35)
(228)
17
(246)
184
270
(62)
1,211
1,432
234
(388)
(64)
(3)
199
(75)
59
183
1,028
480
229
(508)
20
(3)
218
(426)
(578)
312
(692)
910
3,232
3,057
Annual Report 2019Financial Statements 106106
A1 Segments (continued)
$m
Gross
Tax and NCI
Gross
Tax and NCI
2019
2018
(a) Fair value and foreign exchange movements
Decrease in fair value of derivatives(1)(2)
Increase/(decrease) in fair value of other financial assets/liabilities
Foreign exchange (loss)/gain on LNG-related financing
Fair value and foreign exchange movements
(b) Disposals, impairments and business restructuring
Capital tax loss recognition – Ironbark
Gain on sale of Denison – share of APLNG(3)
Gain on sale – Origin LPG (Vietnam) LLC
Gain on sale – Energia Austral SpA
Loss on sale – Dandenong Cogent assets
Gain on sale – Acumen
Recycling of foreign currency translation reserve to profit or loss –
Lattice Energy(4)
Gain on sale – Jingemia(4)
Loss on sale – Lattice Energy(4)
Gain on sale – Javiera solar project
Disposals
(102)
391
(90)
199
–
13
5
5
(2)
–
–
–
–
–
21
30
(117)
27
(60)
68
–
(1)
(1)
–
–
–
–
–
–
(418)
(46)
38
(426)
–
–
–
–
–
239
(27)
7
(10)
1
125
14
(11)
128
–
–
–
–
–
–
–
(2)
(8)
–
66
210
(10)
(1) For the purpose of comparability, the June 2018 period has been restated to exclude $160 million ($112 million post-tax) of premiums relating to certain
electricity hedges.
(2) $Nil (pre-tax) (2018: ($35) million (pre-tax)) relates to discontinued operations.
(3) Amounts presented post-tax as the Group equity accounts for its share of net profit after tax of APLNG.
(4) Amounts relating to discontinued operations in the comparative period.
Annual Report 2019 107107
A1 Segments (continued)
$m
Gross
Tax and NCI
Gross
Tax and NCI
2019
2018
(b) Disposals, impairments and business restructuring (continued)
Integrated Gas impairments and impairment reversals
Impairment – Ironbark permit areas
Impairment reversal – Heytesbury permit areas
Impairment – Lattice Energy(1)
Impairment reversal – share of APLNG assets held for sale(2)
Impairment – share of APLNG(2)
Corporate impairments
Impairment – goodwill and other intangibles on Pleiades
investment in Chile
Impairments
One–off building lease exit costs
Restructuring costs
Restructuring costs – share of APLNG(2)
Transaction costs – Energy Markets
Transaction costs – Lattice Energy divestment
De–recognition of tax assets – Lattice Energy divestment(1)
Finalisation of tax position – Lattice Energy divestment
Business restructuring
Total disposals, impairments and business restructuring
(49)
13
–
–
–
(3)
(39)
(19)
(29)
–
(9)
–
–
–
(57)
(75)
15
(4)
–
–
–
–
11
6
8
–
3
–
–
25
42
119
(514)
–
(198)
4
(2)
–
(710)
–
(18)
(8)
(8)
(44)
–
–
(78)
(578)
154
–
25
–
–
–
179
–
7
–
4
13
(9)
–
15
184
(1) Amounts relating to discontinued operations in the prior year.
(2) Amounts presented post-tax as the Group equity accounts for its share of net profit after tax of APLNG.
Financial Statements
108
108
109109
A1 Segments (continued)
Segment assets and liabilities as at 30 June
$m
Assets
Segment assets
Investments accounted for using the equity method
(refer to note B2)
Cash, funding related derivatives and tax assets
Total assets
Liabilities
Segment liabilities
Financial liabilities, interest-bearing liabilities,
funding-related derivatives and tax liabilities
Total liabilities
Net assets
Energy Markets
Share of APLNG
Other
Corporate
Total continuing
operations
Total assets and
liabilities held for sale
Consolidated
Integrated Gas
Integrated Gas
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
12,378
12,447
–
–
276
745
133
156
12,787
13,348
254
–
–
7,103
6,136
(143)
(148)
–
–
6,960
3,045
3,620
2,697
1,301
5,742
5,988
4,921
–
–
12,378
12,447
7,103
6,136
3,178
4,217
2,830
1,457
25,489
24,257
254
(3,299)
(3,205)
(3,299)
(3,205)
–
–
–
–
(369)
(695)
(821)
(653)
(4,489)
(4,553)
(23)
(8,082)
(7,876)
(8,082)
(7,876)
(369)
(695)
(8,903)
(8,529)
(12,571)
(12,429)
–
(23)
231
9,079
9,242
7,103
6,136
2,809
3,522
(6,073)
(7,072)
12,918
11,828
–
–
–
–
–
–
–
–
13,041
13,348
6,960
5,742
5,988
4,921
25,743
24,257
(4,512)
(4,553)
(8,082)
(7,876)
(12,594)
(12,429)
13,149
11,828
Acquisitions of non-current assets (includes capital expenditure)(1)(2)
382
329
–
–
30
107
7
16
419
452
–
68
419
520
(1) The Integrated Gas segment includes $74 million of cash contributions to APLNG in the prior year.
(2) The Energy Markets segment includes $58 million relating to the acquisition of OC Energy Pty Ltd in the current year.
Annual Report 2019Financial Statements
110110
A1 Segments (continued)
Geographical information
Detailed below is revenue based on the location of the customer and non-current assets (excluding derivatives, other financial assets and
deferred tax assets) based on the location of the assets.
For the year ended 30 June
Australia
Other
Revenue from continuing operations
Australia
New Zealand
Revenue from discontinued operations
External revenue
As at 30 June
Australia
Other
Non-current assets(1)
(1) Excludes amounts that are classified as held for sale at 30 June 2019.
2019
$m
2018
$m
14,612
14,476
115
128
14,727
14,604
–
–
–
198
81
279
14,727
14,883
16,053
15,363
33
51
16,086
15,414
A2 Revenue
2019
$m
Sale of electricity
Sale of gas
Pool revenue
Other revenue
2018(1)
$m
Sale of electricity
Sale of gas
Pool revenue
Other revenue
Retail
5,056
1,064
–
44
Business and
Wholesale
3,208
1,862
2,117
52
LPG
–
674
–
–
Solar and
Energy
Integrated
Gas
216
–
–
–
–
434
–
–
Total
8,480
4,034
2,117
96
6,164
7,239
674
216
434
14,727
5,262
1,097
–
29
6,388
3,311
1,547
2,177
82
7,117
–
654
–
–
185
–
–
–
–
260
–
–
8,758
3,558
2,177
111
654
185
260
14,604
(1) Excludes amounts classified as discontinued operations.
Annual Report 2019 111111
The Group’s primary revenue streams relate to the sale of electricity and natural gas to retail (Consumer and small to medium enterprise),
business and wholesale customers, and the sale of generated electricity into the National Electricity Market (NEM).
Key judgements and estimates: The Group recognises revenue from electricity and gas sales once the energy has been consumed
by the customer. When determining revenue for the financial period, management estimates the volume of energy supplied since a
customer’s last bill. The estimation of unbilled consumption requires judgement and is based on various assumptions including:
• volume and timing of energy consumed by customers
• allocation of estimated electricity and gas volumes to various pricing plans
• discounts linked to customer payment patterns
•
loss factors
The unbilled consumption volumes are also used by management to accrue network expenses incurred by the Group for unread
customer electricity and gas meters.
Retail contracts
Retail electricity service is generally marketed through standard service offers that provide customers with discounts on published tariff
rates. Contracts have no fixed duration, generally require no minimum consumption, and can be terminated by the customer at any time
without significant penalty. The supply of energy is considered a single performance obligation for which revenue is recognised upon
delivery to customers at the offered rate. Where customers are eligible to receive additional behavioural discounts (for example pay on
time discounts), Origin considers this to be variable consideration which is estimated as part of the unbilled process.
Business and wholesale contracts
Contracts with business and wholesale customers are generally medium to long-term, higher volume arrangements with fixed energy rates
that have been commercially negotiated. The nature and accounting treatment of this revenue stream is largely consistent with retail sales.
Some business and wholesale sales arrangements also include the transfer of renewable energy certificates (RECs) which can, in some
instances, represent an additional performance obligation. Revenue is recognised for these contracts, when Origin has the ‘right to invoice’
the customer for consideration that corresponds directly with the value of units of energy delivered to the customer.
Pool revenue
Pool revenue relates to sales by Origin generation assets into the NEM, as well as revenue associated with gross settled Power Purchase
Agreements. Origin has assessed it is acting as the principal in relation to transactions with the NEM and therefore recognises pool sales
on a ‘gross’ basis. Revenue from these sales is recognised at the spot price achieved when control of the electricity passes to the grid.
LPG and LNG sales
Revenue from the sale of LPG (from Origin’s Energy Markets segment) and LNG (from Origin’s Integrated Gas segment) is recognised
at the point in time that the customer takes physical possession of the commodity. Revenue is recognised at an amount that reflects the
consideration expected to be received.
A3 Other income
Other income from continuing operations
Net gain on sale of assets
Fees and services
Other income
Interest earned from other parties
Interest earned on APLNG MRCPS (refer to note B1)
Interest income(2)
(1) Excludes amounts classified as discontinued operations.
(2) Interest income is recognised as it accrues.
2019
$m
2018
$m(1)
–
26
26
8
226
234
237
16
253
2
227
229
Financial Statements 112112
A4 Expenses
Expenses from continuing operations
Cost of sales
Employee expenses(2)
Depreciation and amortisation
Impairment of non-current assets(3)
Impairment of trade receivables (net of bad debts recovered)
Decrease in fair value of derivatives
(Increase)/decrease in fair value of other financial assets/liabilities
Net foreign exchange loss/(gain)
Other(4)
Expenses
Interest on interest-bearing liabilities
Unwind of discounting on long-term provisions
Interest expense
Financing costs capitalised
2019
$m
2018
$m(1)
12,130
11,834
664
419
39
84
102
(391)
89
817
648
381
514
88
418
11
(44)
739
13,953
14,589
385
3
388
–
496
4
500
1
(1) Excludes amounts classified as discontinued operations. For the purpose of comparability certain amounts have been restated in relation to premiums relating to certain
electricity hedges to conform with current year presentation.
(2) Includes contributions to defined contribution superannuation funds from continuing operations of $61 million (2018: $65 million).
(3) Included in the current period is a $49 million (tax benefit $15 million) impairment of the Ironbark permit areas and a $3 million (tax benefit $nil) impairment of goodwill
and other intangibles on the Pleiades investment in Chile. There is also a $13 million (tax expense $4 million) reversal of the previous impairment of Heytesbury permit
assets, following classification to held for sale at 31 December 2018. The Ironbark impairment in the current period is based on the sale price achieved. The comparative
period amount included Ironbark impairments of $514 million (tax benefit $154 million) based on the estimated value of the permit areas at that time.
(4) Includes operating lease rental expense of $81 million (2018: $119 million).
Annual Report 2019 Financial Statements
113113
A5 Earnings per share
Weighted average number of shares on issue – basic(1)
Weighted average number of shares on issue – diluted(2)
STATUTORY PROFIT/(LOSS)
Earnings per share based on statutory consolidated profit/(loss)
Statutory profit/(loss) – $m
Basic earnings per share
Diluted earnings per share
Continuing operations
Statutory profit/(loss) – $m
Basic earnings per share
Diluted earnings per share
Discontinued operations
Statutory profit/(loss) – $m
Basic earnings per share
Diluted earnings per share
UNDERLYING PROFIT/(LOSS)
Earnings per share based on underlying consolidated profit
Underlying profit – $m(3),(4)
Underlying basic earnings per share(4)
Underlying diluted earnings per share(4)
Continuing operations
Underlying profit – $m(3),(4)
Underlying basic earnings per share(4)
Discontinued operations
Underlying profit – $m(3)
Underlying basic earnings per share
2019
2018
1,758,935,655
1,757,442,268
1,762,450,733
1,765,715,232
1,211
218
68.8 cents
12.4 cents
68.7 cents
12.3 cents
1,211
280
68.8 cents
15.9 cents
68.7 cents
15.9 cents
–
–
–
(62)
(3.5) cents
(3.5) cents
1,028
910
58.4 cents
51.8 cents
58.3 cents
51.5 cents
1,028
726
58.4 cents
41.3 cents
–
–
184
10.5 cents
(1) The basic earnings per share calculation uses the weighted average number of shares on issue during the period excluding Treasury shares held.
(2) The diluted earnings per share calculation uses the weighted average number of shares on issue during the period excluding Treasury shares held and is
adjusted to reflect the number of shares which would be issued if outstanding options, performance share rights and deferred shares rights were to be exercised
(2019: 3,515,078; 2018: 8,272,964).
(3) Refer to note A1 for a reconciliation of statutory profit to underlying consolidated profit.
(4) For the purpose of comparability, the June 2018 period has been restated to include $160 million ($112 million post-tax) of premiums relating to certain electricity hedges
within underlying earnings. As a result, underlying earnings per share have also been restated.
Financial Statements 114114
A6 Dividends
The Directors have determined to pay a final dividend of 15 cents per share, fully franked at 30 per cent, payable on 27 September 2019.
Dividends paid during the year ended 30 June are detailed below.
Nil final dividend (2018: Nil final dividend)
Interim dividend of 10 cents per share, fully franked at 30 per cent, paid 29 March 2019
(2018: Nil interim dividend)
Total dividends provided for or paid
Dividend franking account
Franking credits available to shareholders of Origin Energy Limited for subsequent financial years
are shown below.
Australian franking credits available at 30 per cent
New Zealand franking credits available at 28 per cent (in NZD)
2019
$m
–
176
176
2018
$m
–
–
–
205
304
116
304
Annual Report 2019 115115
B Investment in Australia Pacific LNG Pty Ltd
This section provides information on the Group’s equity accounted investment in Australia Pacific LNG Pty Ltd (APLNG).
B1 Summary APLNG income statement
$m
Operating revenue
Operating expenses
Impairment reversal – assets held for sale
Impairment expense
EBITDA
Depreciation and amortisation expense
Interest income
Interest expense – MRCPS
Other interest expense
Income tax expense
ITDA
Statutory result for the period
Other comprehensive income
Statutory total comprehensive income(1)
Items excluded from segment result
Gain on sale of assets – Denison
Impairment reversal – assets held for sale
Impairment expense
Restructuring costs
Items excluded from segment result (net of tax)
Underlying profit for the period
Underlying EBITDA for the period
2019
2018
Total
APLNG
Origin
interest
Total
APLNG
Origin
interest
7,491
(1,781)
–
–
5,528
(1,811)
16
(8)
5,710
2,142
3,725
1,397
(2,116)
51
(602)
(662)
(711)
(794)
19
(226)
(248)
(267)
(1,853)
17
(605)
(532)
(216)
(695)
6
(227)
(200)
(80)
(4,040)
(1,516)
(3,189)
(1,196)
1,670
–
1,670
35
–
–
–
35
1,635
5,662
626
–
626
13
–
–
–
13
613
536
–
536
–
11
(5)
(21)
(15)
551
2,123
3,746
201
–
201
–
4
(2)
(8)
(6)
207
1,405
(1) Excluded from the above is $6 million (2018: $4 million) (Origin share) relating to an MRCPS depreciation elimination for amounts that have already been reflected in
Origin’s income statement in prior years. This adjustment is disclosed under the ‘Other – Integrated Gas’ segment on the ‘share of ITDA of equity accounted investees’ line
in note A1. Taking this amount into account results in a total ‘results of equity accounted investees’ amount of $632 million as detailed in the income statement.
Income and expense amounts are converted from USD to AUD using the average rate prevailing for the relevant period.
Financial Statements 116116
B2 Summary APLNG statement of financial position
100 per cent APLNG
$m
Cash and cash equivalents
Assets classified as held for sale
Other assets
Current assets
Receivables from shareholders
Property, plant and equipment
Exploration, evaluation and development assets
Other assets
Non-current assets
Total assets
Bank loans – secured
Payable to shareholders (MRCPS)
Liabilities classified as held for sale
Other liabilities
Current liabilities
Bank loans – secured
Payable to shareholders (MRCPS)
Other liabilities
Non–current liabilities
Total liabilities
Net assets
Group’s interest of 37.5 per cent of APLNG net assets
Group’s own costs
MRCPS elimination(1)
Investment in APLNG Pty Ltd
2019
2018
1,610
1,223
5
644
2,259
375
65
607
1,895
394
35,971
34,865
326
1,641
256
2,282
38,313
37,797
40,572
39,692
673
91
–
761
1,525
9,084
8,078
2,946
872
98
76
841
1,887
9,077
9,556
2,810
20,108
21,443
21,633
23,330
18,939
16,362
7,103
6,136
25
(168)
25
(173)
6,960
5,988
(1) During project construction, when the Group received interest on the MRCPS from APLNG, it recorded the interest as income after eliminating a proportion of this
interest which related to its ownership interest in APLNG. At the same time, when APLNG paid interest to the Group on MRCPS, the amount was capitalised by APLNG.
Therefore, these capitalised interest amounts form part of the cost of APLNG’s assets and these assets have been depreciated since commencement of operations. The
proportion attributable to the Group’s own interest (37.5 per cent) is eliminated through the equity accounted investment balance as this has previously been recorded in
Origin’s income statement.
Reporting date balances are converted from USD to AUD using an end of period exchange rate of 0.7012 (2018: 0.7384).
Following a change in legislation in the current period to remove onshore projects from the Petroleum Resource Rent Tax (PRRT) regime,
APLNG no longer has an unrecognised deferred tax asset balance (2018: $6,220 million).
Annual Report 2019 B3 Summary APLNG statement of cash flows
100 per cent APLNG
$m
Cash flow from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Net cash from operating activities
Cash flows from investing activities
Loan repaid by/(advanced to) Origin
Loans repaid by other shareholders
Proceeds from sale of assets
Acquisition of property, plant and equipment
Acquisition of exploration and development assets
Other investing activities
Net cash used in investing activities
Cash flows from financing activities
Payments of other financing activities
Proceeds from borrowings
Repayment of borrowings
Payments of transaction and interest costs relating to borrowings
Payments for buy-back of MRCPS
Payments of interest on MRCPS
Proceeds received from Shareholders’ capital contributions
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes on cash
117117
2019
2018
7,538
(2,002)
5,662
(1,738)
5,536
3,924
31
9
30
(76)
33
–
(1,321)
(1,269)
(57)
50
(26)
16
(1,258)
(1,322)
(85)
6,346
(7,154)
(513)
(1,987)
(611)
–
(70)
–
(915)
(418)
(360)
(603)
198
(4,004)
(2,168)
274
1,223
113
434
748
41
Cash and cash equivalents at the end of the year
1,610
1,223
Cash flow amounts are converted from USD to AUD using the exchange rate that approximates the actual rate on the date of the
cash flows.
Financial Statements 118118
B4 Transactions between the Group and APLNG
Service transactions
The Group provides services to APLNG including corporate services, upstream operating services related to the development and
operation of APLNG’s natural gas assets, and marketing services relating to coal seam gas (CSG). The Group incurs costs in providing
these services and charges APLNG for them in accordance with the terms of the contracts governing those services.
Commodity transactions
Separately, the Group has entered agreements to purchase gas from (2019: $475 million; 2018: $476 million), and sell gas, to APLNG
(2019: $69 million; 2018: $118 million). At 30 June 2019, the Group’s outstanding payable balance for purchases from APLNG was $45
million (2018: $56 million) and outstanding receivable balance for sales to APLNG was $3 million (2018: $7 million).
Funding transactions
The Group has invested in USD issued by APLNG. The MRCPS are the mechanism by which the funding for the CSG to LNG Project has
been provided by the shareholders of APLNG in proportion to their ordinary equity interests. The MRCPS have a 6.37 per cent fixed rate
dividend obligation based on the relevant observable market interest rates and estimated credit margin at the date of issue. Dividends are
paid twice per annum and recognised as interest income (refer note A3). During the year Origin’s share of the MRCPS balance reduced to
US$2.1 billion following APLNG share buy-backs of US$0.5 billion. The mandatory redemption date for the MRCPS is 30 June 2026.
The MRCPS are measured at fair value through profit and loss in Origin’s financial statements as disclosed in note C6. The carrying value
was $3,045 million as at 30 June 2019 (2018: $3,620 million) reflecting the Group’s view that APLNG will utilise cash flows generated
from operations to redeem the MRCPS for their full issue price prior to their mandatory redemption date. In APLNG’s financial statements
the related liability is carried at amortised cost.
Annual Report 2019 119119
C Operating assets and liabilities
This section provides information on the assets used to generate the Group’s trading performance and the liabilities incurred as a result.
C1 Trade and other receivables
The following balances are amounts which are due from the Group’s customers and other parties.
Current
Trade receivables net of allowance for impairment
Unbilled revenue net of allowance for impairment
Other receivables
Non-current
Trade receivables
2019
$m
2018
$m
735
1,226
363
888
1,288
361
2,324
2,537
7
7
4
4
Trade and other receivables are initially recorded at the amount billed to customers or other counterparties. Unbilled receivables represent
estimated gas and electricity supplied to customers since their previous bill was issued. The carrying value of all receivables (including
unbilled revenue) reflect the amount anticipated to be collected.
Key judgements and estimates
Recoverability of trade receivables: Judgement is required in determining the level of provisioning for customer debts. Impairment
allowances take into account the age of the debt, historic collection trends and expectations about future economic conditions.
Unbilled revenue: Unbilled gas and electricity revenue is not collectable until customers’ meters are read and invoices issued. Refer to
note A2 for judgement applied in determining the amount of unbilled energy revenue to recognise.
Credit risk and collectability
The Group minimises the concentration of credit risk by undertaking transactions with a large number of customers from across a broad
range of industries. Credit approval processes are in place for large customers and all customers are required to pay in accordance with
agreed payment terms. Depending on the customer segment, settlement terms are generally 14 to 30 days from the date of the invoice.
For some debtors, the Group may also obtain security in the form of deposits, guarantees, deeds of undertaking or letters of credit which
can be called upon if the counterparty defaults.
Debtor collectability is assessed on an ongoing basis and any resulting impairment losses are recognised in the income statement. The
Group applies the simplified approach to providing for trade receivable and unbilled revenue impairment, which requires the ‘expected
lifetime credit losses’ to be recognised when the receivable is initially recognised. To measure expected lifetime credit losses, trade
receivables and unbilled revenue balances have been grouped based on shared credit risk characteristics and ageing profiles. A debtor
balance is written-off when recovery is no longer assessed to be possible.
The average age of trade receivables is 21 days (2018: 21 days). Other receivables are neither past due nor impaired and relate principally
to generation and hedge contract receivables. The ageing of trade receivables and unbilled revenue at the reporting date is detailed below.
Financial Statements 120120
C1 Trade and other receivables (continued)
$m
Unbilled revenue
Not yet due
Less than 30 days
31–60 days past due
61–90 days past due
Greater than 91 days
2019
2018
Gross
1,233
497
102
65
32
167
2,096
Impairment
allowance
(7)
(7)
(7)
(7)
(9)
(98)
(135)
Gross
1,289
598
146
68
31
158
2,290
The movement in the allowance for impairment in respect of trade receivables and unbilled revenue during the year is shown below.
114
21
84
(84)
135
Balance as at 1 July
Adoption of AASB 9 (refer Overview)
Impairment losses recognised
Amounts written off
Balance as at 30 June
C2 Exploration and evaluation assets
Balance as at 1 July
Additions
Exploration expense – continuing operations
Exploration expense – discontinued operations
Net impairment loss(1)
Transfers to held for sale(2)
Balance as at 30 June
Impairment
allowance
(1)
(6)
(6)
(7)
(6)
(88)
(114)
110
–
88
(84)
114
Exploration and
evaluation assets
2019
$m
363
33
(2)
–
(49)
(247)
98
2018
$m
858
19
(3)
(5)
(506)
–
363
(1) Reflects impairment of the Ironbark permit areas of $49 million (tax benefit $15 million) (2018: Ironbark impairment of $514 million (tax benefit $154 million), of which
$506 million relates to exploration and evaluation assets).
(2) The closing balance excludes $247 million in relation to Ironbark permit areas.
Annual Report 2019 121121
C2 Exploration and evaluation assets (continued)
The Group holds a number of exploration permits that are grouped into areas of interest according to geographical and geological
attributes. Expenditure incurred in each area of interest is accounted for using the successful efforts method. Under this method all general
exploration and evaluation costs are expensed as incurred except the direct costs of acquiring the rights to explore, drill exploratory wells
and evaluate the results of drilling. These direct costs are capitalised as exploration and evaluation assets pending the determination of the
success of the well. If a well does not result in a successful discovery, the previously capitalised costs are immediately expensed.
The carrying amounts of exploration and evaluation assets are reviewed at each reporting date to determine whether any of the following
indicators of impairment are present:
• the right to explore has expired, or will expire in the near future, and is not expected to be renewed;
• further exploration for and evaluation of resources in the specific area is not budgeted or planned;
• the Group has decided to discontinue activities in the area; or
• there is sufficient data to indicate the carrying value is unlikely to be recovered in full from successful development or by sale.
Where an indicator of impairment exists, the asset’s recoverable amount is estimated. If it is concluded that the carrying value of an
exploration and evaluation asset is unlikely to be recovered by future exploitation or sale, an impairment is recognised in the income
statement for the difference.
Key judgement: recoverability of exploration and evaluation assets
Assessment of the recoverability of capitalised exploration and evaluation expenditure requires certain estimates and assumptions
to be made as to future events and circumstances, particularly in relation to whether economic quantities of reserves have been
discovered. Such estimates and assumptions may change as new information becomes available.
Upon approval of the commercial development of a project, the exploration and evaluation asset is classified as a development asset.
Once production commences, development assets are transferred to PP&E.
Financial Statements 122122
C3 Property, plant and equipment
$m
2019(1)
Cost
Accumulated depreciation
Balance as at 1 July 2018
Additions
Additions through acquisition of entities
Depreciation/amortisation
Impairment reversal(2)
Transfers within PP&E
Transfers to intangibles
Transfers to held for sale
Effect of movements in foreign exchange rates
Plant and
equipment
Land and
buildings
Capital work
in progress
5,447
(2,179)
3,268
3,284
122
21
(289)
13
148
(3)
(29)
1
204
(63)
141
149
–
–
(2)
–
–
–
(6)
–
188
–
188
263
96
–
–
–
(148)
(23)
–
–
Total
5,839
(2,242)
3,597
3,696
218
21
(291)
13
–
(26)
(35)
1
Balance as at 30 June 2019
3,268
141
188
3,597
2018(1)
Cost
Accumulated depreciation
Balance as at 1 July 2017
Additions
Disposals
Depreciation/amortisation – continuing operations
Net impairment loss(3)
Transfers from inventory
Transfers within PP&E
Transfers to intangibles
Effect of movements in foreign exchange rates
5,185
(1,901)
3,284
3,353
230
(19)
(256)
(8)
17
14
(48)
1
210
(61)
149
156
15
(15)
(7)
–
–
–
–
–
263
–
263
205
72
–
–
–
–
(14)
–
–
5,658
(1,962)
3,696
3,714
317
(34)
(263)
(8)
17
–
(48)
1
Balance as at 30 June 2018
3,284
149
263
3,696
(1) Amounts previously disclosed as Generation PP&E have been reclassified into the plant and equipment and land and buildings categories to simplify the disclosure
following the sale of Lattice Energy in the prior period.
(2) Reversal of the Heytesbury impairment of $13 million (tax expense $4 million).
(3) Reflects impairment of the Ironbark permit areas of $514 million (tax benefit $154 million), of which $8 million relates to PP&E.)
PP&E is recorded at cost less accumulated depreciation, depletion, amortisation and impairment charges. Cost includes the estimated
future cost of required closure and rehabilitation.
The carrying amounts of assets are reviewed to determine if there is any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated and if required, an impairment is recognised in the income statement.
Annual Report 2019 123123
C3 Property, plant and equipment (continued)
Depreciation is calculated on a straight-line basis so as to write-off the cost of each asset over its expected useful life. Leasehold
improvements are amortised over the period of the relevant lease or estimated useful life, whichever is the shorter. Land and capital work in
progress are not depreciated.
The estimated useful lives used in the calculation of depreciation are shown below.
Buildings, including leasehold improvements
10 to 50 years
Plant and equipment
3 to 30 years
At 30 June 2019, the Group reassessed the carrying amounts of its non-current assets for indicators of impairment.
Estimates of recoverable amounts are based on an asset’s value-in-use or fair value less costs to sell (whichever is higher). The recoverable
amount of these assets is most sensitive to those assumptions highlighted in the key judgements and estimates below.
Key judgements and estimates
Recoverability of carrying values: Assets are grouped together into the smallest group of individual assets that generate largely
independent cash inflows (cash generating unit). A cash generating unit’s (CGU) recoverable amount comprises the present value
of the future cash flows that will arise from use of the assets. Assessment of a CGU’s recoverable amount requires estimates and
assumptions to be made about highly uncertain external factors such as future commodity prices, foreign exchange rates, discount
rates, regulatory policies and the outlook for global or regional market supply-and-demand conditions. Such estimates and assumptions
may change as new information becomes available. If it is concluded that the carrying value of a CGU is not likely to be recovered by
use or sale, the relevant amount will be written off to the income statement.
Estimation of commodity prices: The Group’s estimate of future commodity prices is made with reference to internally derived
forecast data, current spot prices, external market analysts’ forecasts and forward curves. Where volumes are contracted, future prices
reflect the contracted price. Future commodity price assumptions impact the recoverability of carrying values and are reviewed at
least annually.
Estimation of useful economic lives: A technical assessment of the operating life of an asset requires significant judgement. Useful
lives are amended prospectively when a change in the operating life is determined.
Restoration provisions: An asset’s carrying value includes the estimated future cost of required closure and rehabilitation activities.
Refer to note C5 for a judgement related to restoration provisions.
Financial Statements 124124
C4 Intangible assets
Goodwill
Software and other intangible assets
Accumulated amortisation
Reconciliations of the carrying amounts of each class of intangible asset are set out below.
$m
Balance as at 1 July 2018
Additions
Additions through acquisition of entities
Transfers from PP&E
Disposals
Net impairment loss(1)
Amortisation expense
Balance as at 30 June 2019
Balance as at 1 July 2017
Additions
Transfers from PP&E
Disposals
Net impairment loss(2)
Amortisation expense – continuing operations
Balance as at 30 June 2018
(1) Impairment of goodwill and other intangibles on Pleiades investment in Chile.
(2) Amounts relating to discontinued operations.
2019
$m
4,818
1,407
(844)
2018
$m
4,820
1,303
(795)
5,381
5,328
Software and
other
intangibles
Goodwill
Total
4,820
508
5,328
–
–
–
–
(2)
–
4,818
119
43
26
(4)
(1)
(128)
563
119
43
26
(4)
(3)
(128)
5,381
4,827
498
5,325
–
–
–
(7)
–
4,820
91
48
(10)
(1)
(118)
508
91
48
(10)
(8)
(118)
5,328
Goodwill is stated at cost less any accumulated impairment losses and is not amortised. Software and other intangible assets are stated at
cost less any accumulated impairment losses and accumulated amortisation. Amortisation is recognised as an expense on a straight-line
basis over the estimated useful lives of the intangible assets.
The average amortisation rate for software and other intangibles (excluding capital work in progress) was 11% (2018: 12%).
Annual Report 2019 125125
C4 Intangible assets (continued)
Key judgements and estimates
All goodwill of the Group is allocated to the Energy Markets segment. The recoverable amount of the Energy Markets goodwill has been
determined using a value-in-use model that includes an appropriate terminal value. The value-in-use calculation is sensitive to a number
of key assumptions requiring management judgement, including: future commodity prices, regulatory policies and the outlook for the
market supply-and-demand conditions. Management do not believe that any reasonably possible change in these assumptions would
result in an impairment. More information about the key inputs and assumptions in the value-in-use calculation are set out below.
Key input assumptions
Energy Markets
Long-term growth rates
Cash flows are projected for either 40 years, or the life of each Generation asset, based on the Group’s five-year
business plan.
The Energy Markets business is considered a long-term business and as such projection of long-term cash flows
is appropriate for a more accurate forecast. The growth rate used to extrapolate cash flow projections beyond the
five-year plan averages 2.5 per cent.
Customer numbers
Based on review of actual customer numbers and historical data regarding levels of customer churn. The historical
analysis is considered against current and expected market trends and competition for customers.
Gross margin and
operating costs
Based on review of actual gross margins and cost per customer, and consideration of current and expected market
movements and impacts.
Discount rate
Pre-tax discount rate of 9.7 per cent (2018: 10.3 per cent).
C5 Provisions
$m
Balance as at 1 July 2018
Provisions recognised
Provisions released
Payments/utilisation
Impact of discounting
Transfers to held for sale(1)
Balance as at 30 June 2019
Current
Non-current
Restoration
Other
Total
271
209
(29)
(3)
3
(23)
428
15
413
428
143
33
(10)
(22)
–
–
144
30
114
144
414
242
(39)
(25)
3
(23)
572
45
527
572
(1) The closing balance excludes $23 million in relation to restoration obligations for the Ironbark permit areas.
Restoration provisions are initially recognised at the best estimate of the costs to be incurred in settling the obligation. Where restoration
activities are expected to occur more than 12 months from the reporting period, the provision is discounted using a risk-free rate that
reflects current market assessments of the time value of money.
At each reporting date, the restoration provision is remeasured in line with changes in discount rates, and changes to the timing or amount
of costs to be incurred based on current legal requirements and technology. Any changes in the estimated future costs associated with:
• restoration and dismantling are added to or deducted from the related asset; and
• environmental rehabilitation is expensed in the current period.
The unwinding of the discount is recognised in each period as interest expense.
Key estimate: restoration, rehabilitation and dismantling costs
The Group estimates the cost of future site restoration activities at the time of installation or construction of an asset, or when an
obligation arises. Restoration often does not occur for many years and thus significant judgement is required as to the extent of work,
cost and timing of future activities.
Financial Statements 126126
C6 Other financial assets and liabilities
The Group has applied AASB 9 Financial Instruments (AASB 9) from 1 July 2018 as discussed in the Overview section. Under the transition
methods chosen, comparative information is not restated.
$m
Other financial assets
Measured at fair value through profit or loss
MRCPS issued by APLNG
Settlement Residue Distribution Agreement units
Environmental scheme certificates
Investment fund units
Measured at fair value through other
comprehensive income
Equity securities(2)
Measured at amortised cost
Futures collateral
Previous disclosure under AASB 139
MRCPS issued by APLNG
Environmental scheme certificates
Available-for-sale financial assets
Futures collateral
Other financial liabilities
Measured at fair value through profit or loss
Environmental scheme surrender obligations
Measured at amortised cost
Futures collateral
2019
2018(1)
Current
Non-current
Current
Non–current
34
24
244
–
–
16
3,011
30
–
57
54
–
318
3,152
241
67
308
–
–
–
Not applicable prior to
adoption of AASB 9
37
153
18
59
267
304
–
304
3,583
–
100
–
3,683
–
–
–
(1) Refer to Overview for a discussion of reclassifications.
(2) The Group has elected to present changes in the fair value of its investments in equity securities through other comprehensive income because they are held for strategic
purposes and are not expected to be sold in the short to medium term.
Annual Report 2019
127127
D Capital, funding and risk management
This section focuses on the Group’s capital structure and related financing costs. Information is also presented about how the Group
manages capital, and the various financial risks to which the Group is exposed through its operating and financing activities.
D1 Capital management
The Group’s objectives when managing capital are to make disciplined capital allocation decisions between debt reduction, reinvestment
and distributions to shareholders and maintain an optimal structure that minimises the cost of capital. A strong investment grade credit
rating (BBB/Baa2) and an appropriate level of net debt are required to meet these objectives. The Group’s current credit rating is BBB
(stable outlook) from S&P, and Baa2 (stable outlook) from Moody’s.
Key factors considered in determining the Group’s capital structure and funding strategy at any point in time include expected operating
cash flows, capital expenditure plans, maturity profile of existing debt facilities, dividend policy and the ability to access funding from
banks, capital markets and other sources.
The Group monitors its capital requirements through a number of metrics including the gearing ratio (target range of approximately
25%–30%) and an adjusted net debt to adjusted underlying EBITDA ratio (target range of 2.5x – 3.0x). These targets are consistent with
attaining a strong investment grade rating.
The gearing ratio is calculated as adjusted net debt divided by (adjusted net debt plus total equity). Net debt, which excludes cash held
by Origin to fund APLNG related operations, is adjusted to take into account the effect of FX hedging transactions on the Group’s foreign
currency debt obligations. The adjusted net debt to adjusted underlying EBITDA ratio is calculated as adjusted net debt divided by (Origin
underlying EBITDA less Origin’s share of APLNG underlying EBITDA plus net cash flow from APLNG) over the relevant 12-month period.
The Group monitors its current and future funding requirements for at least the next five years and regularly assesses a range of funding
alternatives to meet these requirements in advance of when the funds are required.
Total interest-bearing liabilities
Less: Cash and cash equivalents excluding APLNG related cash(1)
Net debt
Fair value adjustments on FX hedging transactions
Adjusted net debt
Total equity
Total capital
Gearing ratio
Ratio of adjusted net debt to adjusted underlying EBITDA
(1) This balance excludes $34 million (2018: $33 million) of cash held by Origin, as Upstream Operator, to fund APLNG
related operations.
2019
$m
7,596
(1,512)
6,084
(667)
5,417
13,149
2018
$m
7,439
(117)
7,322
(793)
6,529
11,828
18,566
18,357
29%
2.6x
36%
3.7x
Financial Statements
128128
D2 Interest-bearing liabilities
Current
Bank loans – unsecured
Capital market borrowings – unsecured
Total current borrowings
Lease liabilities – secured
Total current interest-bearing liabilities
Non-current
Bank loans – unsecured
Capital market borrowings – unsecured(1)
Total non-current borrowings
Lease liabilities – secured
Total non-current interest-bearing liabilities
2019
$m
–
947
947
1
948
525
6,117
2018
$m
7
1,081
1,088
1
1,089
220
6,124
6,642
6,344
6
6
6,648
6,350
(1) Includes €1 billion Capital Securities to be redeemed at their first call date of 16 September 2019 as announced on 26 July 2019 (refer note G12).
Interest-bearing liabilities are initially recorded at the amount of proceeds received (fair value) less transaction costs. After that date,
the liability is amortised to face value at maturity using an effective interest rate method with any gains or losses recognised in the
income statement.
The contractual maturities of non-current borrowings are as set out below.
One to two years
Two to five years
Over five years
Total non-current borrowings
Lease liabilities
Total non-current interest-bearing liabilities
2019
$m
1,325
2,405
2,912
2018
$m
915
3,742
1,687
6,642
6,344
6
6
6,648
6,350
Some of the Group’s borrowings are subject to terms that allow the lender to call on the debt in the event of a breach of covenants. As at
30 June 2019, these terms had not been triggered.
Significant funding transactions
Repayment of US144A US$800 million debt
Origin repaid the US144A US$800 million (A$1,123 million) debt on its 9 October 2018 maturity date. The debt had been swapped to AUD
resulting in a net settlement of A$853 million. The repayment had a neutral impact on Adjusted Net Debt as the settlement was refinanced
with cash flows from operating activities and draw-downs on medium-term bank debt.
New debt facilities raised during the year
• US$525 million (A$749 million) via US Private Placements maturing in 2029. This facility has not been swapped back to AUD because it
economically hedges Origin’s exposure to USD arising from its investment in APLNG; and
• A$526 million and US$20 million (A$29 million) via a term loan facility maturing in 2026.
Annual Report 2019 129129
D3 Contributed equity
Ordinary share capital
Opening balance
2019
2018
2019
2018
Number of shares
$m
1,759,156,516
1,755,333,517
7,150
7,150
Shares issued in accordance with the Dividend Reinvestment Plan
1,769,296
–
Shares issued in accordance with Incentive Plans
285,259
3,822,999
13
–
–
–
1,761,211,071
1,759,156,516
7,163
7,150
Less Treasury shares:
Opening balance
Shares purchased on-market
–
(9,611,526)
Utilisation of treasury shares on vesting of employee share schemes
4,801,909
(4,809,617)
–
–
–
–
–
(77)
39
(38)
–
–
–
–
Closing balance
Ordinary shares
1,756,401,454
1,759,156,516
7,125
7,150
Holders of ordinary shares are entitled to receive dividends as determined from time to time and are entitled to one vote per share at
shareholders’ meetings. In the event of the winding up of the Group, ordinary shareholders rank after creditors, and are fully entitled to any
proceeds of liquidation. The Group does not have authorised capital or par value in respect of its issued shares.
Treasury shares
Where the Group or other members of the Group purchase shares in the Company, the consideration paid is deducted from the total
shareholders’ equity and the shares are treated as treasury shares until they are subsequently sold, reissued or cancelled. Treasury shares
are purchased primarily for use on vesting of employee share schemes. Shares are accounted for at a weighted average cost.
D4 Financial risk management
Overview
The Group’s day-to-day operations, new investment opportunities and funding activities introduce financial risks, which are actively
managed by the Board Risk Committee. These risks are grouped into the following categories:
• Credit: The risk that a counterparty will not fulfil its financial obligations under a contract or other arrangement.
• Market: The risk that fluctuations in commodity prices, foreign exchange and interest rates adversely impact the Group’s result.
• Liquidity: The risk that the Group will not be able to meet its financial obligations as they fall due.
Risk
Credit
Sources
Risk management framework
Financial exposure
Sale of goods
and services and
hedging activities
The Board approves credit risk management
policies that determine the level of exposures it is
prepared to accept and allocates credit limits to
counterparties based on publicly available credit
information from recognised providers where
available.
Notes C1, C6 and D4 disclose the carrying amounts
of financial assets, which represent the Group’s
maximum exposure to credit risk at the reporting
date. The Group utilises International Swaps and
Derivatives Association (ISDA) agreements to
limit exposure to credit risk through the netting of
amounts receivable from and payable to individual
counterparties (refer note G8).
Refer below for further discussion of market risk.
Analysis of the Group’s liquidity profile as at
the reporting date is presented at the end of
this section.
Market
Purchase and sale
of commodities and
funding risks
Liquidity
Ongoing business
obligations and
new investment
opportunities
The Board approves policies that ensure the Group
is not exposed to excess risk from market volatility,
including active hedging of price and volume
exposures within prescribed ‘Profit at Risk’ and
‘Value at Risk’ limits.
The Group centrally manages its liquidity position
through cash flow forecasting and maintenance
of minimum levels of liquidity determined by the
Board. The debt portfolio is periodically reviewed to
ensure there is funding flexibility and an appropriate
maturity profile.
Financial Statements 130130
D4 Financial risk management (continued)
Market risk
The scope of the Group’s operations and activities exposes it to multiple markets risks. The table below summarises these risks by nature of
exposure and provides information about the risk mitigation strategies being applied.
Nature
Sources of financial exposure
Risk management strategy
Commodity price
Future commercial transactions and recognised assets and
liabilities exposed to changes in electricity, oil, gas, coal or
environmental scheme certificate prices
Due to vertical integration, a significant portion of the Group’s
spot electricity purchases from the NEM are ‘naturally
hedged’ by generation sales into the NEM at spot prices.
Foreign exchange
Foreign currency denominated borrowings and investments
(e.g. APLNG MRCPS); and
Future foreign currency denominated commercial
transactions
Interest rate
Variable-rate borrowings (cash flow risk); and
Fixed-rate borrowings (fair value risk)
Derivatives to manage market risks
The Group manages its remaining exposure to commodity
price fluctuations beyond Board approved limits using a mix
of commercial contracts (e.g. fixed-price purchase contracts)
and derivative instruments (described below).
The Group limits its exposure to changes in foreign exchange
rates through forward foreign exchange contracts and cross-
currency interest rate swaps.
In certain circumstances, borrowings are left in a foreign
currency, or swapped from one foreign currency to
another, to hedge expected future business cash flows in
that currency. Significant foreign currency denominated
transactions undertaken in the normal course of operations
are managed on a case-by-case basis.
Interest rate exposures are kept within an acceptable range
as determined by the Board. Risk limits are managed through
a combination of ‘fixed-rate’ and ‘fixed-to-floating’ interest
rate swaps.
Derivative instruments are contracts whose value is derived from an underlying price index (or other variable) that require little or no initial
net investment, and that are settled at a future date.
The Group uses the following types of derivative instruments listed below to mitigate market risk.
Forwards
Futures
Swaps
Options
A contract documenting the underlying reference rate (e.g. benchmark price, exchange rate) to be paid/received on a
notional principal obligation at a future date.
An exchange-traded contract to buy or sell an asset for an agreed price at a future date. Futures are net-settled in cash
without physical delivery of the underlying asset.
A contract in which two parties exchange a series of cash flows for another (e.g. fixed-for-floating interest rate).
A contract in which the buyer has the right, but not the obligation, to buy (a ‘call option’) or sell (a ‘put option’) an
instrument at a fixed price in the future. The seller has the corresponding obligation to fulfil the transaction if the buyer
exercises the option.
Structured
electricity products
A non-standardised contract, generally with an energy market participant, to acquire long-term capacity. These
contracts typically contain features similar to swaps and call options.
PPAs
A contract in which two parties agree to settle the difference between a fixed price and the spot electricity price (similar
to a swap). Typically these contracts are long-term and either include a fixed notional electricity volume or reference the
output of a specific generation asset.
Derivatives are carried on the balance sheet at fair value. Movements in the price of the underlying variables, which cause the value of the
contract to fluctuate, are reflected in the fair value of the derivative.
The method of recognising changes in fair value depends on whether the derivative is designated in an ‘accounting’ hedge relationship.
Derivatives not designated as accounting hedges are referred to as ‘economic’ hedges.
Fair value gains and losses attributable to economic hedges are recognised in the income statement and resulted in a $107 million loss for
the year ended 30 June 2019 (2018: $563 million loss, which included a $35 million loss related to discontinued operations). Fair value
gains and losses attributable to accounting hedges are discussed in the Hedge Accounting section.
Annual Report 2019 131131
Assets
Liabilities
Current
Non-current
Current
Non-current
69
6
75
160
237
397
472
210
1
210
82
230
312
522
315
–
315
119
528
647
962
329
–
329
146
642
788
1,117
(220)
(107)
(327)
(57)
–
(57)
(848)
(219)
(1,067)
(52)
–
(52)
(384)
(1,119)
(325)
–
(325)
(99)
–
(99)
(829)
(320)
(1,149)
(83)
(2)
(85)
(424)
(1,234)
D4 Financial risk management (continued)
$m
2019
Economic hedges
Commodity contracts
Foreign exchange and interest rate contracts
Accounting hedges
Commodity contracts
Foreign exchange and interest rate contracts
Derivatives
2018
Economic hedges
Commodity contracts
Foreign exchange and interest rate contracts
Accounting hedges
Commodity contracts
Foreign exchange and interest rate contracts
Derivatives
Hedge accounting
The Group currently utilises two types of hedge accounting relationships as detailed below.
Fair value hedge
Cash flow hedge
Objective of hedging
arrangement
To hedge our exposure to changes in the fair value
of a recognised asset or liability or unrecognised
firm commitment caused by interest rate or foreign
currency movements
To hedge our exposure to variability in the cash flows
of a recognised asset or liability or a highly probable
forecast transaction caused by commodity price, interest
rate, and foreign currency movements
Effective hedge portion
The following are recognised in profit or loss at the
same time:
– all changes in the fair value of the underlying
item relating to the hedged risk; and
– the change in fair value of derivatives
The effective portion of changes in the fair value
of derivatives designated as cash flow hedges are
recognised in the hedge reserve
Hedge ineffectiveness
Certain determinants of fair value, such as credit charges included in derivatives or mismatches between the
timing of the instrument and the underlying item in the hedge relationship, can cause hedge ineffectiveness.
Any ineffectiveness is recognised immediately in profit or loss as a change in the fair value of derivatives.
Hedged item sold or repaid
The unamortised fair value adjustment is
recognised immediately in profit or loss
Amounts accumulated in the hedge reserve are
transferred immediately to profit or loss
Hedging instrument expires or
is sold, terminated or no longer
qualifies for hedge accounting
The unamortised fair value adjustment is
recognised in profit or loss when the hedged item
is recognised in profit or loss. This may occur over
time if the hedged item is amortised over the
period to maturity
The amount previously deferred in the hedge reserve is
only transferred to profit or loss when the hedged item is
also recognised in profit or loss
Financial Statements 132132
D4 Financial risk management (continued)
Hedge accounting (continued)
Set out below are the fair values of derivatives designated in hedge accounting relationships at reporting date.
2019
$m
Fair value hedges
Cash flow hedges
Accounting hedges
Fair value hedges
Assets
Liabilities
Current
Non-current
Current
Non-current
–
397
397
475
172
647
–
(57)
(57)
–
(52)
(52)
Certain cross-currency interest rate swaps (CCIRSs) have been designated as fair value hedges of the Group’s Euro denominated debt.
CCIRSs
Nominal hedge volumes
Hedge rates
Timing of cash flows
Carrying amounts
Hedging instrument(1)
Hedged debt(2)
Fair value increase/(decrease)
Hedging instrument
Hedged debt
Hedge ineffectiveness(3)
FX and interest
EUR 1,550m
AUD/EUR
0.69–0.79;
BBSW
Up to Oct-21
$m
475
(2,588)
$m
59
(59)
–
(1) Hedging instruments are located within Derivatives on the statement of financial position.
(2) Hedged items are located within Interest-bearing liabilities on the statement of financial position. Included in this value are $76 million of accumulated fair value hedge
adjustments.
(3) Hedge ineffectiveness is recognised within expenses in the income statement.
Annual Report 2019 133133
D4 Financial risk management (continued)
Hedge accounting (continued)
Cash flow hedges
A number of derivative contracts have been designated as cash flow hedges of the Group’s exposure to foreign exchange, interest rate and
commodity price fluctuations. Designated derivatives include swaps, options, futures and forwards.
The Group’s structured electricity PPAs, whilst important to the overall risk management strategy, do not qualify for hedge accounting. As
such, they are not represented in the summary information below.
2019
FX & interest
FX & interest
Electricity
Crude oil
Propane
Nominal hedge volumes
EUR 1,150m
NZD 141m
9.9 TWh
780k barrels
110k mt
Hedge rates
AUD/EUR
0.72–0.81;
Fixed 6.6%–7.9%
AUD/NZD 1.12;
BBSW
$46–$145
US$51–US$80 US$340–US$523
Timing of cash flows
Up to Apr–23
Up to Jun–20
Up to Jun–22
Up to Oct–22
Up to Dec–21
Carrying amounts – $m
FX & interest
Electricity
Crude oil
Propane
Total
Hedging instrument(1) – assets
Hedging instrument(1) – liabilities
Hedge reserve(2)
Fair value increase/(decrease) – $m
Hedging instrument
Hedged item
Hedge ineffectiveness(3)
Reconciliation of hedge reserve – $m
Effective portion of hedge gains/(losses)
Transfer of deferred losses/(gains) to:
– Revenue
– Cost of sales
– Finance costs
– Foreign exchange
Tax on above items
Change in hedge reserve (post-tax)
290
–
16
63
(61)
2
61
–
–
3
(61)
(1)
2
213
(45)
(168)
294
(294)
–
294
–
(123)
–
–
(51)
120
65
(55)
(22)
(26)
28
2
(26)
29
(9)
–
–
–
(6)
1
(9)
8
(11)
11
–
(11)
–
(11)
–
–
7
(15)
569
(109)
(166)
320
(316)
4
318
29
(143)
3
(61)
(45)
101
(1) Hedging instruments are located within Derivatives on the statement of financial position.
(2) No hedges have been discontinued or de-designated in the current period.
(3) Hedge ineffectiveness is recognised within expenses in the income statement as a change in fair value of derivatives.
Financial Statements 134134
D4 Financial risk management (continued)
Residual market risk
After hedging, the Group’s financial instruments remain exposed to changes in market pricing. The following is a summary of the
Group’s residual market risk and the sensitivity of financial instrument fair values to reasonably possible changes in market pricing at the
reporting date.
Risk
Residual exposure
Relationship to financial instruments value
USD exchange rate
– MRCPS financial asset
– USD debt
– Euro debt and related USD CCIRSs
– FX and commodity derivatives with
USD pricing
A 10 per cent increase/decrease in the USD exchange rate would
decrease/increase fair value by $102 million (June 2018: $160 million).
Euro exchange rate
– Currency basis on the CCIRSs swapping
Euro debt to AUD
A 10 per cent increase/decrease in the Euro exchange rate would
decrease/increase fair value by $22 million (June 2018: $26 million).
Interest rates
– Interest rate swaps
– Long-term derivatives and other
financial assets/liabilities for which
discounting is significant
A 100 basis point increase/decrease in interest rates would impact fair
value by ($14)/$11 million (June 2018: ($10)/$3 million).
Electricity forward price
– Commodity derivatives including
structured electricity products and PPAs
A 10 per cent increase/decrease in electricity forward prices would
increase/decrease fair value by $264 million (June 2018: $294 million).
Oil forward price
– Commodity derivatives
Renewable Energy
Certificates (REC)
forward price
– REC forwards
– Environmental scheme certificates
– Environmental scheme surrender
obligations
A 10 per cent increase/decrease in oil forward prices would decrease/
increase fair value by $3 million (June 2018: $18 million).
A 10 per cent increase/decrease in renewable energy certificate
forward prices would increase/decrease fair value by $16 million
(June 2018: $33 million).
Annual Report 2019 135135
D4 Financial risk management (continued)
Liquidity risk
The table below sets out the timing of the Group’s payment obligations, as compared to the receipts expected from the Group’s financial
assets, and available undrawn facilities. Amounts are presented on an undiscounted basis and include cash flows not recorded on the
statement of financial position such as interest payments for borrowings.
2019
$m
Less than
one year
One to
two years
Two to
five years
Over
five years
Bank loans and capital markets borrowings(1)
(2,692)
(1,526)
(2,724)
(1,508)
Lease liabilities
Net other financial assets/liabilities
Derivative liabilities
Derivative assets
Net liquidity exposure
Cash and committed undrawn floating rate borrowing facilities
expiring beyond 1 year
(1)
1,194
(333)
(360)
518
158
(175)
(4)
1,287
(1,441)
(233)
459
226
(4)
–
(1,512)
(471)
304
(167)
(1,215)
(1,679)
(1)
1,321
(1,372)
(582)
708
126
(1,246)
5,335
2018
$m
Less than
one year
One to
two years
Two to
five years
Over
five years
Bank loans and capital markets borrowings(1)
(1,084)
(2,511)
(4,072)
Lease liabilities
Net other financial assets/liabilities
Derivative liabilities
Derivative assets
Net liquidity exposure
Cash and committed undrawn floating rate borrowing facilities
expiring beyond one year
(1)
1,005
(1,507)
(385)
497
112
(4)
2,172
(1,904)
(419)
588
169
(1,395)
(1,735)
(1)
1,426
341
(500)
601
101
442
3,624
(1) All facilities are deemed to be repaid at the earlier of their contractual maturity date or first call/intended repayment date.
(179)
(6)
–
(185)
(216)
257
41
(144)
Financial Statements 136136
D5 Fair value of financial assets and liabilities
Financial assets and liabilities measured at fair value are grouped into the following categories based on the level of observable market data
used in determining that fair value:
• Level 1: The fair value of financial instruments traded in active markets (such as exchange traded derivatives and renewable energy
certificates) is the quoted market price at the end of the reporting period. These instruments are included in level 1.
• Level 2: The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is
determined using valuation techniques which maximise the use of observable market data. If all significant inputs required to fair value
an instrument are observable, either directly (as prices) or indirectly (derived from prices), the instrument is included in level 2.
• Level 3: If one or more of the significant inputs required to fair value an instrument is not based on observable market data, the
instrument is included in level 3.
2019
Derivative financial assets
Other financial assets at fair value
Financial assets carried at fair value
Derivative financial liabilities
Other financial liabilities at fair value
Financial liabilities carried at fair value
2018
Derivative financial assets
Environmental scheme certificates
Available-for-sale financial assets
Financial assets carried at fair value
Derivative financial liabilities
Environmental scheme surrender obligations
Financial liabilities carried at fair value
Note
Level 1
$m
Level 2
$m
D4
C6
D4
C6
131
298
429
(30)
(241)
(271)
1,088
57
1,145
(763)
–
(763)
Level 3
$m
215
3,099
3,314
(710)
–
(710)
Note
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
1,434
3,454
4,888
(1,503)
(241)
(1,744)
Total
$m
D4
C6
C6
D4
C6
21
153
103
277
(15)
(304)
(319)
1,388
230
1,639
–
15
–
–
153
118
1,403
230
1,910
(988)
–
(988)
(655)
–
(655)
The following table shows a reconciliation of movements in the fair value of level 3 instruments during the period.
Balance as at 1 July 2018
Impact of AASB 9 – MRCPS
New instruments
Net cash settlements paid/(received)
Gains/(losses) recognised in OCI
Gains/(losses) recognised in profit or loss:
– Change in fair value
– Cost of sales
– Interest income
Balance as at 30 June 2019
(1,658)
(304)
(1,962)
$m
(425)
3,465
49
(1,121)
6
278
126
226
2,604
Annual Report 2019 137137
D5 Fair value of financial assets and liabilities (continued)
Valuation techniques used to determine fair values
The various techniques used to value the Group’s financial instruments are summarised in the following table. To the maximum extent
possible, valuations are based on assumptions which are supported by independent and observable market data. For instruments that
settle greater than 12 months from reporting date, cash flows are discounted at the applicable market yield adjusted to reflect the credit
risk of the specific counterparty.
Instrument
Fair value methodology
Financial instruments
traded in active markets
Interest rate swaps and
cross currency interest
rate swaps
Forward foreign
exchange contracts
Electricity, oil and
other commodity
derivatives (not traded
in active markets)
Quoted market prices at reporting date.
Present value of expected future cash flows based on observable yield curves and forward exchange rates
at reporting date.
Present value of future cash flows based on observable forward exchange rates at reporting date.
Present value of expected future cash flows based on observable forward commodity price curves (where available).
The majority of the Group’s level 3 instruments are commodity contracts for which further detail on the significant
unobservable inputs is included below.
Other financial instruments
Discounted cash flow analysis.
Long-term borrowings
Present value of future contract cash flows.
Fair value measurements using significant unobservable inputs (level 3):
The following is a summary of the Group’s level 3 financial instruments, the significant inputs for which market observable data is
unavailable, and the sensitivity of the estimated fair values to the assumptions applied by management.
Instrument(1)
Unobservable inputs
Relationship to fair value
Electricity derivatives
– Forward electricity spot market
price curve
– Forward electricity cap price curve
– Forecast renewable energy
certificate prices
– Contract volumes
– Generation operating costs
A 10 per cent increase/decrease in the unobservable inputs would
increase/decrease fair value by $299 million (June 2018: $327 million).
Oil derivatives
– Forward Japanese Customs-cleared
Crude (JCC) price curve
A 10 per cent increase/decrease in the JCC price would decrease/
increase fair value by $15 million (June 2018: $1 million).
MRCPS issued by APLNG
– Forecast Australia Pacific LNG free
cash flows
A 10 per cent increase/decrease in APLNG forecast cash flows would
impact fair value by $3/($4) million.
(1) Excludes $54 million of unlisted equity securities for which management have assessed the investment cost to be a reasonable reflection of fair value at reporting date.
Financial Statements 138138
D5 Fair value of financial assets and liabilities (continued)
Day 1 fair value adjustments
For certain complex financial instruments, such as the structured electricity products and PPAs, the fair value that is determined at
inception of the contract does not equal the transaction price. When this occurs, the difference is deferred to the statement of financial
position and recognised in the income statement over the life of the contract in a manner consistent with the valuation methodology
initially applied.
Reconciliation of net deferred gain
Balance as at 1 July 2018
Value recognised in the income statement
New derivatives recognised
Derivatives derecognised in the period
Balance as at 30 June 2019
Location of net deferred gain
Derivative assets
Derivative liabilities
Balance as at 30 June 2019
$m
723
(82)
7
(75)
573
317
256
573
Financial instruments measured at amortised cost
Except as noted below, the carrying amounts of financial assets and liabilities measured at amortised cost are reasonable approximations
of their fair values.
Carrying value
Fair value
Fair value
hierarchy level
2019
$m
2018
$m
2019
$m
2018
$m
Assets
Other financial assets – MRCPS(1)
Liabilities
Bank loans – unsecured
Capital markets borrowings – unsecured
3
2
2
–
3,583
–
3,428
525
6,117
220
6,124
6,642
6,344
559
6,392
6,951
244
6,387
6,631
(1) From 1 July 2018 the MRCPS issued by APLNG are carried at fair value and no longer measured at amortised cost.
The fair value of these financial instruments reflect the present value of expected future cash flows based on market pricing data for the
relevant underlying interest and foreign exchange rates. Cash flows are discounted at the applicable credit adjusted market yield.
Annual Report 2019 139139
E Taxation
This section provides details of the Group’s income tax expense, current tax provision and deferred tax balances and the Group’s tax
accounting policies.
E1 Income tax expense
Income tax
Current tax expense
Deferred tax benefit
(Over)/under provided in prior years
Total income tax expense/(benefit)
Income tax expense/(benefit) attributable to:
Profit from continuing operations
Profit/(loss) from discontinued operations
Reconciliation between tax expense and pre-tax net profit
Profit from continuing operations before income tax
Loss from discontinued operations
Income tax using the domestic corporation tax rate of 30 per cent (2018: 30 per cent)
Prima facie income tax expense on pre-tax accounting profit:
– at Australian tax rate of 30 per cent
– adjustment for tax exempt charity (Origin Foundation Limited)
– adjustment for difference between Australian and overseas tax rates
Income tax expense on pre-tax accounting profit at standard rates
Increase/(decrease) in income tax expense due to:
Lattice disposal
Acumen disposal
Entity wind-up
Capital loss recognition
Share of results of equity accounted investees
Temporary differences no longer expected to be realised
Other
(Over)/under provided in prior years
Total income tax expense/(benefit)
Deferred tax movements recognised directly in other comprehensive income
(including foreign currency translation)
Financial instruments at fair value
Property, plant and equipment
Provisions
2019
$m
2018
$m
180
(95)
(21)
64
64
–
64
1,278
–
1,278
383
–
(1)
382
–
–
–
(68)
(188)
(29)
(12)
(297)
(21)
64
45
–
–
45
174
(195)
1
(20)
(81)
61
(20)
202
(1)
201
60
(17)
(2)
41
55
(72)
9
–
(60)
–
6
(62)
1
(20)
(51)
5
(1)
(47)
Financial Statements 140140
E1 Income tax expense (continued)
The Company and its wholly owned Australian resident entities, which met the membership requirements, formed a tax-consolidated
group with effect from 1 July 2003. The head entity within the tax-consolidated group is Origin Energy Limited. Tax funding arrangement
amounts are recognised as inter-entity amounts.
Income tax expense is made up of current tax expense and deferred tax expense. Current tax expense represents the expected tax
payable on the taxable income for the year, using current tax rates and any adjustment to tax payable in respect of previous years. Deferred
tax expense reflects the temporary differences between the accounting carrying amount of an asset or liability in the statement of financial
position and its tax base.
Key judgements
Tax balances: Tax balances reflect a current understanding and interpretation of existing tax laws. Uncertainty arises due to the
possibility that changes in tax law or other future circumstances can impact the tax balances recognised in the financial statements.
Ultimate outcomes may vary.
Deferred taxes: The recognition of deferred tax balances requires judgement as to whether it is probable such balances will be utilised
and/or reversed in the foreseeable future.
PRRT: From 1 July 2019 PRRT applies only to offshore Australian oil and gas projects. The application of PRRT legislation involves
significant judgement around the taxing point of projects and the transfer price used for determining PRRT income. In assessing the
recoverability of deferred tax assets, estimates are required in respect of future augmentation (escalation) of expenditure, the sequence
in which current and future deductible amounts are expected to be utilised, and the probable cash flows used in determining the
recoverability of deferred tax assets.
Income tax expense recognised in other comprehensive income
2019
2018
$m
Investment valuation changes
Cash flow hedges:
Reclassified to income statement
Effective portion of change in
fair value
Translation of foreign operations
Other comprehensive income
for the year
Gross
5
(172)
318
341
Tax
–
50
(95)
Net
5
(122)
223
Gross
(10)
(107)
(46)
–
341
278
492
(45)
447
115
Tax
4
32
15
–
51
Net
(6)
(75)
(31)
278
166
Annual Report 2019
141141
E2 Deferred tax
Deferred tax balances arise when there are temporary differences between accounting carrying amounts and the tax bases of assets and
liabilities, other than for the following:
• where the difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and
affects neither the accounting profit nor taxable profit or loss;
• where temporary differences relate to investments in subsidiaries, associates and interests in joint arrangements to the extent the Group
is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable
future; and
• where temporary differences arise on initial recognition of goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced if it is no longer probable that the related tax benefit will be realised.
Movement in temporary differences during the year
Asset/(liability)
$m
Employee benefits
Provisions
Tax value of carry-forward tax
losses recognised
Property, plant and equipment
Exploration and
evaluation assets
Financial instruments at
fair value
APLNG MRCPS elimination
(refer note B1)
Business-related costs
(deductible under
s.40-880 ITAA97)
Other items
Net deferred tax assets
1 July
2017
Recognised
in income
Recognised
in equity
30 June
2018
Adoption
of AASB 9
Recognised
in income
Recognised
in equity
30 June
2019
62
101
9
(420)
(85)
248
53
23
44
35
(1)
44
(9)
8
136
10
(1)
30
(22)
195
–
1
–
(5)
–
61
146
–
(417)
51
–
6
–
–
–
4
56
1
11
69
–
–
–
–
–
65
208
1
(406)
120
51
309
47
(26)
(45)
285
–
–
–
47
52
53
22
277
–
–
–
53
(2)
(10)
(8)
95
–
–
–
(45)
50
43
14
380
Financial Statements 142142
E2 Deferred tax (continued)
Unrecognised deferred tax assets and liabilities
Deferred tax assets have not been recognised in respect of the following items:
Revenue losses – non-Australian
Capital losses
PRRT, net of income tax(1)
Acquisition transaction costs
Investment in joint ventures
Intangible assets
Deferred tax liabilities have not been recognised in respect of the following items:
Investment in APLNG(2)
2019
$m
2018
$m
32
213
131
57
67
8
42
280
690
57
67
8
508
1,144
(1,611)
(1,611)
(1,320)
(1,320)
(1) PRRT is considered, for accounting purposes, to be a tax based on income under AASB 112 Income Taxes. Accordingly, any current and deferred PRRT expense is
measured and disclosed on the same basis as income tax. The application of PRRT legislation relies on a forecast of future years expenditure in order to determine
whether the utilisation of the PRRT base will be required. As the forecast indicates that no utilisation is required, no deferred tax asset has been recognised with respect
to PRRT in these financial statements. The decrease of $559 million for this item is primarily due to the removal of onshore projects (i.e. Ironbark and Beetaloo) from the
PRRT regime as a result of legislative changes with effect from 1 July 2019.
(2) A deferred tax liability has not been recorded in respect of the investment in APLNG as the Group is able to control the timing of the reversal of the temporary difference
through its voting rights and it is not expected that the temporary difference will reverse in the foreseeable future. It is possible that the temporary difference could
reverse partly or in full at some point in the future, if and when unfranked dividends or capital returns are expected to be paid, or if the investment is expected to be
disposed of.
Annual Report 2019 143143
F Group structure
The following section provides information on the Group’s structure and how this impacts the results of the Group as a whole, including
details of joint arrangements, controlled entities, transactions with non-controlling interests and changes made to the Group structure
during the year.
F1 Joint arrangements
Joint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement and require
consent of two or more parties for strategic, financial and operating decisions. The Group classifies its interests in joint arrangements as
either joint operations or joint ventures depending on its rights to the assets and obligations for the liabilities of the arrangements.
Interests in joint ventures
Interests in joint ventures are initially recognised at cost and are subsequently adjusted for changes in the Group’s share of the joint
venture’s net assets.
Joint venture entity
Australia Pacific LNG Pty Ltd(1)
Energia Andina Geothermal SpA(2)
Energia Austral SpA(3)
Reporting date
Country of
incorporation
30 June
Australia
31 December
Chile
31 December
Chile
KUBU Energy Resources (Pty) Limited
30 June
Botswana
PNG Energy Developments Limited
31 December
PNG
Venn Energy Trading Pte Limited(4)
31 March
Singapore
Ownership interest (%)
2019
37.5
–
–
50.0
50.0
–
2018
37.5
49.9
34.0
50.0
50.0
50.0
(1) Australia Pacific LNG Pty Ltd (APLNG) is a separate legal entity. Operating, management and funding decisions require the unanimous support of the Foundation
Shareholders, which includes the Group and ConocoPhillips. Accordingly, joint control exists and the Group has classified the investment in APLNG as a joint venture.
(2) The sale of Origin’s shares in Energia Andina Geothermal SpA was completed on 24 August 2018.
(3) The sale of Origin’s shares in Energia Austral SpA was completed on 8 January 2019.
(4) Venn Energy Trading Pte Limited was wound up on 10 July 2018.
Of the above joint arrangements, only APLNG has a material impact to the Group. Refer to section B.
Interests in unincorporated joint operations
The Group’s interests in unincorporated joint operations are brought to account on a line-by-line basis in the income statement and
statement of financial position. These interests are held on the following assets whose principal activities are oil and/or gas exploration,
development and production, power generation and geothermal power technology:
• Beetaloo Basin
• Browse Basin
•
Innamincka Deeps Geothermal
Financial Statements 144144
F2 Business combinations
2019
Acquisition of OC Energy Pty Ltd
On 1 March 2019 the Group completed the acquisition of 100 per cent of the formerly privately held OC Energy Pty Ltd (OCE) under
a Share Sale Agreement. The acquisition adds serviced hot water and embedded electricity network customers to Origin’s centralised
energy services business.
Considering the timing of the transaction and the size of the operations, the overall impact of the acquisition to the Group’s consolidated
revenue and profit and loss since the acquisition date, is not significant.
Purchase consideration of $33 million was paid on the completion date, and was subject to the settlement of working capital and
other balances as part of the typical completion adjustments. Considering the acquired cash balance ($4 million), the net cash impact
from the acquisition at the reporting date was $29 million. The Group expects to make further payments of $25 million in total, subject
to adjustment once certain conditions are met. Inclusive of these payments, as well as any completion adjustment amounts, total
consideration is estimated at $59 million and the net cash impact after excluding the acquired cash balance is $55 million.
Purchase consideration
Cash acquired
Acquisition-related cash outflow at the reporting date
The fair values of the net assets acquired as part of the business combination are detailed below.
Cash and cash equivalents
Trade and other receivables
PP&E
Other financial assets
Customer related intangible assets
Trade and other payables – current
Trade and other payables – non-current
2019
$m
33
4
29
2019
Fair value(1)
$m
4
11
14
7
43
(14)
(6)
59
(1) In accordance with the Group’s accounting policies the fair value of assets and liabilities acquired are provisional and will be subject to further review for a period of up to
12 months from the date of acquisition.
2018
There were no significant business combinations during the year ended 30 June 2018.
Annual Report 2019 145145
F3 Controlled entities
The financial statements of the Group include the consolidation of Origin Energy Limited and controlled entities. Controlled entities are the
following entities controlled by the parent entity (Origin Energy Limited).
2019
Ownership
interest
per cent
2018
Ownership
interest
per cent
Incorporated in
Origin Energy Limited
Origin Energy Finance Limited
Huddart Parker Pty Limited <
Origin Energy NZ Share Plan Limited
FRL Pty Ltd <
B.T.S. Pty Ltd <
Origin Energy Power Limited <
Origin Energy SWC Limited <
BESP Pty Ltd
Origin Energy Eraring Pty Limited <
Origin Energy Eraring Services Pty Limited <
Darling Downs Solar Farm Asset Holding Pty Ltd
Darling Downs Solar Farm Asset Pty Ltd
Origin Energy Upstream Holdings Pty Ltd
Origin Energy B2 Pty Ltd
Origin Energy Petroleum Pty Limited <
Origin Energy Browse Pty Ltd
Origin Energy CSG 2 Pty Limited
Origin Energy ATP 788P Pty Limited
Origin Energy C5 Pty Limited
Origin Energy Upstream Operator Pty Ltd
Origin Energy Holdings Pty Limited <
Origin Energy Retail Limited <
Origin Energy (Vic) Pty Limited <
Gasmart (Vic) Pty Ltd <
Origin Energy (TM) Pty Limited <
Cogent Energy Pty Ltd
Origin Energy Retail No. 1 Pty Limited
Origin Energy Retail No. 2 Pty Limited
Horan & Bird Energy Pty Ltd
Origin Energy Electricity Limited <
Eraring Gentrader Depositor Pty Limited
Sun Retail Pty Ltd <
OE Power Pty Limited <
Origin Energy Uranquinty Power Pty Ltd <
OC Energy Pty Ltd
Origin Energy Mortlake Terminal Station No. 1 Pty Limited
Origin Energy Mortlake Terminal Station No. 2 Pty Limited
NSW
Vic
Vic
NZ
WA
WA
SA
WA
Vic
NSW
NSW
NSW
NSW
Vic
Vic
Qld
Vic
Vic
Qld
Vic
Vic
Vic
SA
Vic
Vic
Vic
Vic
Vic
Vic
Qld
Vic
Vic
Qld
Vic
Vic
Vic
Vic
Vic
100
100
–
100
100
100
100
100
100
100
–
–
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
Financial Statements
146146
Origin Energy PNG Ltd #
Origin Energy PNG Holdings Limited #
Origin Energy Tasmania Pty Limited <
The Fiji Gas Co Ltd
Origin Energy Contracting Limited <
Origin Energy LPG Limited <
Origin (LGC) (Aust) Pty Limited <
Origin Energy SA Pty Limited <
Hylemit Pty Limited
Origin Energy LPG Retail (NSW) Pty Limited
Origin Energy WA Pty Limited <
Origin Energy Services Limited <
OEL US Inc.
Origin Energy NSW Pty Limited <
Origin Energy Asset Management Limited <
Origin Energy Pipelines Pty Limited <
Origin Energy Pipelines (SESA) Pty Limited
Origin Energy Pipelines (Vic) Holdings Pty Limited <
Origin Energy Pipelines (Vic) Pty Limited <
Origin LPG (Vietnam) LLC
Origin Energy Solomons Ltd
Origin Energy Cook Islands Ltd
Origin Energy Vanuatu Ltd
Origin Energy Samoa Ltd
Origin Energy American Samoa Inc
Origin Energy Insurance Singapore Pte Ltd
Angari Pty Limited <
Oil Investments Pty Limited <
Origin Energy Southern Africa Holdings Pty Limited
Origin Energy Kenya Pty Limited
Origin Energy Zoca 91-08 Pty Limited <
Sagasco NT Pty Ltd <
Sagasco Amadeus Pty Ltd <
Origin Energy Amadeus Pty Limited <
Amadeus United States Pty Limited <
Origin Energy Vietnam Pty Limited
Origin Energy Singapore Holdings Pte Limited
Origin Energy (Song Hong) Pte Limited
Origin Future Energy Pty Limited
Origin Energy Rewards Pty Ltd
Origin Energy Metering Coordinator Pty Ltd
Origin Energy Resources NZ (Rimu) Limited
2019
Ownership
interest
per cent
2018
Ownership
interest
per cent
66.7
66.7
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
80
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
80
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Incorporated in
PNG
PNG
Tas
Fiji
Qld
NSW
NSW
SA
Vic
NSW
WA
SA
USA
NSW
SA
NT
Vic
Vic
Vic
Vietnam
Solomon Islands
Cook Islands
Vanuatu
Western Samoa
American Samoa
Singapore
SA
SA
Qld
Vic
SA
SA
SA
Qld
Qld
Vic
Singapore
Singapore
NSW
Vic
NSW
NZ
Annual Report 2019
147147
2019
Ownership
interest
per cent
2018
Ownership
interest
per cent
Incorporated in
Origin Energy VIC Holdings Pty Limited <
Origin Energy New Zealand Limited
Origin Energy Universal Holdings Limited
Origin Energy Five Star Holdings Limited
Origin Energy Contact Finance Limited
Origin Energy Contact Finance No.2 Limited
Origin Energy Pacific Holdings Limited
Origin Energy Capital Ltd <
Origin Energy Finance Company Pty Limited <
OE JV Co Pty Limited <
OE JV Holdings Pty Limited
Origin Energy LNG Holdings Pte Limited
Origin Energy LNG Portfolio Pty Ltd <
Origin Energy Australia Holding BV #
Origin Energy Mt Stuart BV #
OE Mt Stuart General Partnership #
Parbond Pty Limited
Origin Education Foundation Pty Limited
Origin Foundation Limited
Origin Renewable Energy Investments No 1 Pty Ltd
Origin Renewable Energy Investments No 2 Pty Ltd
Origin Renewable Energy Pty Ltd
Origin Energy Geothermal Holdings Pty Ltd
Origin Energy Geothermal Pty Ltd
Origin Energy Chile Holdings Pty Limited
Origin Energy Chile S.A. #
Origin Energy Geothermal Chile Limitada #
Pleiades S.A.
Vic
NZ
NZ
NZ
NZ
NZ
NZ
Vic
Vic
Vic
Vic
Singapore
Victoria
Netherlands
Netherlands
Netherlands
NSW
Vic
NSW
Vic
Vic
Vic
Vic
Vic
Vic
Chile
Chile
Chile
Origin Energy Geothermal Singapore Pte Limited
Singapore
Origin Energy Wind Holdings Pty Ltd
Crystal Brook Wind Farm Pty Limited
Wind Power Pty Ltd
Wind Power Management Pty Ltd
Tuki Wind Farm Pty Ltd
Dundas Tablelands Wind Farm Pty Limited
Origin Energy Hydro Bermuda Limited
Origin Energy Hydro Chile SpA #
Vic
NSW
Vic
Vic
Vic
Vic
Bermuda
Chile
100
–
–
–
–
–
–
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
< Entered into ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 and related deed of cross guarantee with Origin Energy Limited.
# Controlled entity has a financial reporting period ending 31 December.
Financial Statements
148148
F3 Controlled entities (continued)
Changes in controlled entities
2019
2018
Darling Downs Solar Farm Asset Pty Ltd was
deregistered on 3 October 2018.
Darling Downs Solar Farm Asset
Holding Pty Ltd was deregistered on
3 October 2018.
OE JV Holdings Pty Limited was
deregistered on 5 December 2018.
On 31 January 2019 Origin Energy New
Zealand Limited, Origin Energy Universal
Holdings Limited, Origin Energy Pacific
Holdings Limited, Origin Energy Contact
Finance Limited, Origin Energy Contact
Finance No.2 Limited, Origin Energy
Five Star Holdings Limited, Origin
Energy NZ Share Plan Limited and Origin
Energy Resources NZ (Rimu) Limited
were amalgamated into one company,
being Origin Energy Resources NZ
(Rimu) Limited.
Origin LPG (Vietnam) LLC was sold on
21 February 2019.
Lattice Energy Limited transferred its
shares in Origin Energy Browse Pty Ltd and
Origin Energy Petroleum Pty Ltd to Origin
Energy Upstream Holdings Pty Ltd on
31 August 2017.
Origin Energy Power Limited transferred
its shares in Darling Downs Solar Farm
Operating Holding Pty Ltd to Origin Energy
Holdings Pty Limited on 27 July 2017.
Darling Downs Solar Farm Operating
Holding Pty Ltd changed its name to
Origin Future Energy Pty Limited on
7 August 2017.
Origin Future Energy Pty Ltd transferred
its shares in Darling Downs Solar Farm
Operating Pty Ltd to Origin Energy
Holdings Pty Ltd on 24 August 2017.
Darling Downs Solar Farm Operating
Pty Ltd changed its name to Origin
Energy Metering Coordinator Pty Ltd on
24 August 2017.
OC Energy Pty Ltd was acquired on
1 March 2019.
Origin Energy Kenya Pty Limited was
deregistered on 18 March 2019.
Lattice Energy Resources NZ (Holdings)
Limited transferred its shares in Origin
Energy Resources NZ (Rimu) Limited
to Origin Energy Holdings Pty Ltd on
25 September 2017.
Origin Energy Petroleum Pty Ltd was sold
on 11 April 2019.
Origin Energy Upstream Operator Pty
Limited transferred its shares in Origin
Energy Upstream Operator 2 Pty Limited
to Origin Future Energy Pty Limited on
24 June 2019.
Lattice Energy Limited transferred its
shares in Origin Energy CSG 2 Pty Ltd and
Origin Energy ATP 788P Pty Ltd to Origin
Energy Upstream Holdings Pty Ltd on
26 September 2017.
Origin Foundation Pty Limited changed its
name to Origin Education Foundation Pty
Limited on 11 January 2018.
Origin Energy Upstream Operator 2 Pty Ltd
changed its name to Origin Energy Rewards
Pty Ltd on 25 June 2019.
Origin Foundation Limited was incorporated
on 12 January 2018.
Lexton Wind Farm Pty Ltd changed its
name to Origin Energy C5 Pty Limited on
25 June 2019.
On 31 January 2018 Lattice Energy Limited
ceased to be controlled by the Group
(refer note E4).
Wind Power Pty Ltd transferred its shares
in Lexton Wind Farm Pty Ltd to Origin
Energy Upstream Holdings Pty Ltd on
24 June 2019.
Acumen Metering Pty Ltd was sold on
19 June 2018.
Annual Report 2019 149149
F4 Disposals and assets and liabilities held for sale
Disposals
Vietnam
On 21 February 2019, Origin Energy Holdings Pty Limited (OEH) and PNX (Vietnam) Pte Ltd completed the sale and purchase of OEH’s
51% interest in Origin LPG (Vietnam) Limited Liability Company for a cash consideration of $12 million. The principal activities of the
company were the import, export, extraction and distribution of LPG in Vietnam. The net assets disposed was $7 million, resulting in a gain
on sale before tax and transaction costs of $5 million. Cash disposed as part of the transaction was $1 million, resulting in an overall cash
consideration net of cash disposed of $11 million. Transaction costs of approximately $2 million were incurred in relation to the transaction.
Heytesbury
On 11 April 2019, Origin Energy Upstream Holdings Pty Ltd (OEUH) and Lochard Energy (Iona Gas Storage) Pty Ltd completed the sale
and purchase of OEUH’s 100% interest in Origin Energy Petroleum Pty Ltd for a cash consideration of $1 million. The principal activities of
the company were oil and gas exploration services. The company also held exploration permits in relation to the Heytesbury asset in the
Otway Basin. The net assets disposed was $1 million, resulting in a net nil gain/loss on sale before tax and transaction costs. There was no
cash disposed as part of the transaction. Transaction costs of approximately $1 million were incurred in relation to the transaction.
Chile
On 8 January 2019, Origin Energy Hydro Chile SpA (OECSA) and Glencore Canada Corporation completed the sale and purchase of
OECSA’s 34% interest in Energia Austral SpA for a cash consideration of $5 million. Energia Austral SpA is a hydroelectric power generation
company located in Chile. The net assets disposed were valued at nil at the time of disposal, resulting in a gain on sale of $5 million before
tax and transaction costs. There was no cash disposed as part of the transaction.
Assets and liabilities held for sale
Origin Energy ATP 788P Pty Limited holds the interests in the Ironbark permits. On 19 February 2019, the Group entered into an agreement
to sell its Ironbark assets to APLNG for $231 million. As Foreign Investment Review Board (FIRB) approval had not been received by 30
June 2019, the assets and liabilities remain classified as held for sale. Refer to note G12 for subsequent FIRB approval and settlement of the
transaction on 5 August 2019.
Assets and liabilities classified as held for sale
Property, plant and equipment
Exploration and evaluation assets
Assets classified as held for sale
Provisions
Liabilities classified as held for sale
2019
$m
7
247
254
23
23
Financial Statements 150150
G Other information
This section includes other information to assist in understanding the financial performance and position of the Group, or items required to
be disclosed to comply with accounting standards and other pronouncements.
G1 Contingent liabilities
Discussed below are items where either it is not probable that the Group will have to make future payments or the amount of the future
payments are not able to be measured reliably.
Guarantees
Bank guarantees and letters of credit have been provided mainly to Australian Energy Market Operator Limited to support the Group’s
obligations to purchase electricity from the NEM.
Bank guarantees – unsecured
(1) Includes unsecured bank guarantees of $9 million related to discontinued operations.
2019
$m
378
2018
$m(1)
408
The Group’s share of guarantees for certain contractual commitments of its joint ventures is shown at note G2. The Group has also given
letters of comfort to its bankers in respect of financial arrangements provided by the banks to certain partly owned controlled entities.
Joint arrangements
As a participant in certain joint arrangements, the Group is liable for its share of liabilities incurred by these arrangements. In some
circumstances the Group may incur more than its proportionate share of such liabilities, but will have the right to recover the excess
liability from the other joint arrangement participants.
The Group continues to provide parent company guarantees in excess of its 37.5 per cent shareholding in APLNG in respect of certain
historical domestic contracts.
In October 2018, Origin and the other APLNG shareholders agreed to indemnify one of APLNG’s long term LNG customers (following
that customer’s election to defer delivery of 30 cargoes over six years (2019–2024)) should APLNG fail to supply make-up cargoes to
that customer prior to the expiry of the LNG supply contract. The customer will pay APLNG for the deferred cargoes and APLNG expects
to resell the gas to other customers and deliver the deferred cargoes to the long-term LNG customer between 2025 and the end of the
LNG supply contract. The indemnity was provided severally in accordance with each shareholder’s proportionate shareholding in APLNG.
At the inception of the agreement, any obligation or liability on the part of the shareholders will only be confirmed by the occurrence or
non-occurrence of future events and cannot be measured with sufficient reliability.
Legal and regulatory
Certain entities within the Group (and joint venture entities, such as APLNG) are subject to various lawsuits and claims, as well as audits
and reviews by government, regulatory bodies or other joint venture partners. In most instances it is not possible to reasonably predict the
outcome of these matters or their impact on the Group. Where outcomes can be reasonably predicted, provisions are recorded.
A number of sites owned/operated (or previously owned/operated) by the Group have been identified as potentially contaminated.
For sites where it is likely that a present obligation exists and it is probable that an outflow of resource will be required to settle the
obligation, such costs have been expensed or provided for.
Warranties and indemnities have also been given and/or received by entities in the Group in relation to environmental liabilities for certain
properties divested and/or acquired.
Capital expenditure
As part of the acquisition of Browse Basin exploration permits in 2015, the Group agreed to pay cash consideration of US$75 million
contingent upon a project Final Investment Decision (FID) and US$75 million contingent upon first production. The Group will pay
further contingent consideration of up to US$50 million upon first production if 2P reserves, at the time of FID, reach certain thresholds.
These obligations have not been provided for at the reporting date as they are dependent upon uncertain future events not wholly
within the Group’s control.
Annual Report 2019 151151
G2 Commitments
Detailed below are the Group’s contractual commitments that are not recognised as liabilities as the relevant assets have not yet
been received.
Capital expenditure commitments
Joint venture commitments(2)
Operating lease commitments
2019
$m(1)
63
459
543
2018
$m
87
452
505
(1) Excludes Agreement to Lease for 321 Exhibition Street, Melbourne which was executed on 22 July 2019. The gross operating lease commitment for the agreement
amounts to $106 million.
(2) Includes $386 million (2018: $441 million) in relation to the Group’s share of APLNG’s capital, joint venture and operating lease commitments.
The Group leases property, plant and equipment under operating leases. The future minimum lease payments under non-cancellable
operating leases are shown below.
Less than one year
Between one and five years
More than five years
G3 Share-based payments
2019
$m
90
223
230
543
2018
$m
85
191
229
505
This section sets out details of the Group’s share-based remuneration arrangements, including details of the Company’s Equity Incentive
Plan and Employee Share Plan.
The table below shows share-based remuneration expense that was recognised during the year.
Equity Incentive Plan
Employee Share Plan
2019
$m
21
5
26
2018
$m
25
5
30
Financial Statements 152152
The fair value of the awards granted is
recognised as an employee expense,
with a corresponding increase in equity,
over the vesting period. In exceptional
circumstances(2) unvested PSRs may be
held ‘on foot’ subject to the specified
performance hurdles and other plan
conditions being met, or dealt with in an
appropriate manner determined by the
Board. For PSRs subject to the relative
TSR condition fair value is measured at
grant date using a Monte Carlo simulation
model that takes into account the
exercise price, share price at grant date,
price volatility, dividend yield, risk-free
interest rate for the term of the security
and the likelihood of meeting the TSR
market condition. The expected volatility
reflects the assumption that the historical
volatility over a period similar to the life of
the options is indicative of future trends,
which may not necessarily be the actual
outcome. The amount recognised as an
expense is adjusted to reflect the actual
number of awards that vest except where
due to non-achievement of the TSR market
condition. Set out below are the inputs
used to determine the fair value of the PSRs
granted during the year. For PSRs subject to
the ROCE condition, the initial fair value at
grant date is the market value of an Origin
share less the discounted value of dividends
foregone, and the expensing value is trued-
up at each reporting period to the expected
outcome as assessed at that time.
G3 Share-based payments
(continued)
Equity Incentive Plan
Eligible employees are granted share-based
remuneration under the Origin Energy
Limited Equity Incentive Plan. Participation
in the plan is at the Board’s discretion and
no individual has a contractual right to
participate or to receive any guaranteed
benefits. Equity incentives granted prior
to 18 October 2018 were offered in the
form of Options and/or Share Rights since
that date in the form of Share Rights and/
or Restricted Shares. Share Rights don’t
carry dividend or voting entitlements and
Restricted Shares do.
(i) Short-Term Incentive (STI)
STI includes the award of Restricted Shares,
which are unrestricted where the employee
remains employed with satisfactory
performance for a set period (generally after
two years). Once unrestricted, the shares
are transferred into the employee’s name at
no cost. The face value of Restricted Shares
measured at grant date is recognised as an
employee expense over the related service
period. Restricted Shares are forfeited if the
service and performance conditions are
not met(1).
(ii) Long-Term Incentive (LTI)
LTI includes the award of Performance
Share Rights (PSRs), which will only vest if
certain company performance conditions
and personal performance standards
are met. FY2019 PSR grants have a
performance period of three years. Half of
each LTI award is subject to a market hurdle,
namely Origin’s Total Shareholder Return
(TSR) relative to a Reference Group of ASX-
listed companies identified in the relevant
Remuneration Report. The remaining
half of each LTI award is subject to an
internal hurdle, namely Return on Capital
Employed (ROCE) as set out in the relevant
Remuneration Report.
The number of awards that may vest
depends on performance against each
hurdle, considered separately.
For awards subject to the relative TSR
hurdle, vesting only occurs if Origin’s TSR
over the performance period ranks higher
than the 50th percentile of the Reference
Group. Half of the PSRs vest if that
condition is satisfied. All the PSRs vest if
Origin ranks at or above the 75th percentile
of the Reference. For awards granted in
respect of FY2016 and FY2017 that are
subject to the ROCE hurdle, vesting only
occurs if two conditions are satisfied:
• the average of the actual annual ROCE
outcomes over the performance period
meets or exceeds the average of the
annual targets set in advance by the
Board (Gate 1); and
• the actual ROCE in either of the last two
years of the performance period meets
or exceeds Origin’s pre-tax weighted
average cost of capital (WACC) (Gate 2).
Half of the relevant PSRs will vest if Gate 1
is met and Origin’s pre-tax WACC is met
under Gate 2. All the PSRs will vest if
Gate 1 is met and Origin’s pre-tax WACC
is exceeded by two percentage points or
more under Gate 2. Straight-line pro-rata
vesting applies in between.
For awards granted in respect of FY2018
and FY2019 that are subject to the ROCE
hurdle, half of the ROCE tranche will be
allocated to Energy Markets and the other
half of the ROCE tranche will be allocated
to Integrated Gas. Each tranche will be
tested separately and vest separately.
Vesting for each tranche only occurs if the
average actual annual ROCE outcomes
over the performance period for the
relevant business meets or exceeds the
average of the annual ROCE targets which
are reflective of delivering WACC for the
relevant business. Half of the relevant PSRs
will vest if the ROCE target is met. All the
relevant PSRs will vest if the ROCE target
is exceeded by two percentage points or
more. Straight-line pro-rata vesting applies
in between.
As there is no exercise price for PSRs, once
vested they are exercised automatically.
When exercised, a vested award is
converted into one fully paid ordinary share
that is subject to a post-vesting holding lock
for a set period (generally one year) and also
carries voting and dividend entitlements.
(1) The Equity Incentive Plan Rules set out exceptional circumstances such as death, disability, redundancy or
genuine retirement under which DSRs vest at cessation unless the Board determines otherwise.
(2) The Equity Incentive Plan Rules provide that Rights and Restricted Shares are forfeited on cessation of
employment unless the Board determines otherwise. The offer terms provide guidance for the exercise of that
discretion, specifically that the Rights and Restricted Shares will not normally forfeit in cases of “good leavers”
(e.g. death, disability, redundancy or genuine retirement).
Annual Report 2019 153153
PSRs
10-Sep-18
10-Sep-18
17-Oct-18
17-Oct-18
$7.82
Nil
37%
2.0%
–
$7.38
$7.82
Nil
37%
2.0%
2.01%
$3.14
$8.15
Nil
36%
2.0%
–
$7.71
$8.15
Nil
36%
2.0%
2.06%
$3.65
RSs
–
G3 Share-based payments (continued)
Set out below is a summary of PSRs issued during the financial year.
Grant date
Grant date share price
Exercise price
Volatility (per cent)
Dividend yield (per cent)(1)
Risk-free rate (per cent)(2)
Grant date fair value (per award)
(1) Dividend yield assumptions are based on the average dividend yield rate over the vesting period of three years.
(2) Where the risk free rate is nil, these PSR tranches are ROCE-tested, therefore, the risk free rate is not relevant to their valuation.
Equity Incentive Plan awards outstanding
Set out below is a summary of awards outstanding at the beginning and end of the financial year.
Outstanding at 1 July 2018
7,475,601
$8.84
4,086,642
4,402,736
Weighted
average
exercise price
Options
PSRs
DSRs
Granted
Exercised
Forfeited
–
–
–
–
1,793,349
–
2,059,842
–
2,380,513
121,425
1,909,798
$15.65
753,321
101,374
70,941
Outstanding at 30 June 2019
5,565,803
$6.51
5,126,670
1,920,849
1,867,476
Exercisable at 30 June 2019
–
–
–
–
Outstanding at 1 July 2017
9,886,114
$10.35
3,486,357
5,434,657
Granted
Exercised
Forfeited
1,432,299
$7.37
1,117,385
2,943,713
–
–
–
3,822,999
3,842,812
$12.18
517,100
152,635
Outstanding at 30 June 2018
7,475,601
$8.84
4,086,642
4,402,736
Exercisable at 30 June 2018
–
–
–
–
–
–
–
–
–
–
–
The weighted average share price during 2019 was $7.64 (2018: $8.55). The options outstanding at 30 June 2019 have an exercise price
in the range of $5.21 to $7.37 (2018: $5.21 to $15.65) and a weighted average contractual life of 7.1 years (2018: 6.9 years).
For more information on these share plans and performance rights issued to KMPs, refer to the Remuneration Report.
Financial Statements 154154
G3 Share-based payments (continued)
Employee Share Plan (ESP)
Under the ESP, all eligible employees have a choice of either participating in the $1,000 General Employee Share Plan (GESP) or the
Matching Share Plan (MSP).
Under the GESP, all full-time and permanent part-time employees of the Company who are based in Australia and commenced
employment on or before 1 March of the performance year, are granted up to $1,000 of fully paid Origin shares conditional upon Board
approval. The shares are granted for no consideration. Shares awarded under the ESP are purchased on-market, registered in the name
of the employee, and are restricted for three years, or until cessation of employment, whichever occurs first.
Under the MSP, all eligible employees may elect to purchase shares via a salary sacrifice arrangement which commences on 1 October
of the performance year. The shares under this plan are allotted quarterly and are subject to trading restriction for a set period (generally
2 years) or until cessation of employment. The Company matches the purchased shares on a one-for-two basis with allocation of additional
Matching Share Rights (MRs) which vest at the same time when the restriction is lifted for the purchased shares. Vesting of MRs is
conditional upon the employee remaining in continuous employment at that time. MRs are forfeited if the service conditions are not met(1).
(1) The Equity Incentive Plan Rules provide that Rights and Restricted Shares are forfeited on cessation of employment unless the Board determines otherwise. The offer
terms provide guidance for the exercise of that discretion, specifically that the Rights and Restricted Shares will not normally forfeit in cases of “good leavers” (e.g. death,
disability, redundancy or genuine retirement).
Details of the shares awarded under the GESP during the year are set out below.
Grant
date
Shares
granted
Cost per
share(1)
Total cost
$’000
2019
2018
5-Sep-18
561,126
$8.12
561,126
28-Aug-17
620,116
$7.43
620,116
(1) The cost per share represents the weighted average market price of the Company’s shares on the grant date.
Set out below is a summary of MRs outstanding at the beginning and end of the financial year.
Outstanding at 1 July 2018
Granted
Exercised/Released
Forfeited
Expired
Outstanding at 30 June 2019
Exercisable at 30 June 2019
4,556
4,556
4,607
4,607
MRs
–
77,451
1,830
1,622
–
73,999
–
Annual Report 2019 155155
G4 Related party disclosures
The Group’s interests in equity accounted entities and details of transactions with these entities are set out in notes B4 and F1.
Certain Directors of Origin Energy Limited are also directors of other companies that supply Origin Energy Limited with goods and
services or acquire goods or services from Origin Energy Limited. Those transactions are approved by management within delegated
limits of authority and the Directors do not participate in the decisions to enter into such transactions. If the decision to enter into
those transactions should require approval of the Board, the Director concerned will not vote upon that decision nor take part in the
consideration of it.
G5 Key management personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
2019
$
2018
$
9,941,352
9,704,215
255,313
252,588
182,927
150,525
4,311,013
4,343,944
14,690,605
14,451,272
Loans and other transactions with key management personnel
There were no loans with key management personnel during the year.
Transactions entered into during the year with key management personnel are normal employee, customer or supplier relationships
and have terms and conditions which are no more favourable than dealings in the same circumstances on an arm’s length basis.
These transactions include:
• the receipt of dividends from Origin Energy Limited or participation in the Dividend Reinvestment Plan;
• participation in the Employee Share Plan, Equity Incentive Plan and Non-Executive Director Share Plan;
• terms and conditions of employment or directorship appointment;
• reimbursement of expenses incurred in the normal course of employment; and
• purchases of goods and services.
Financial Statements 156156
G6 Notes to the statement of cash flows
Cash includes cash on hand, at bank and short-term deposits, net of outstanding bank overdrafts.
The following table reconciles profit to net cash provided by operating activities.
Profit for the period
Adjustments for non-cash ITDA
Depreciation and amortisation
Net financing costs
Tax expense
2019
$m
1,214
419
154
64
2018
$m
221
381
279
(20)
Non-cash share of ITDA of equity accounted investees(1)
1,510
1,192
Adjustments for other non-cash items
Decrease in fair value of derivatives
(Increase)/decrease in fair value of financial instruments
Unrealised foreign exchange loss/(gain)
Impairment of assets
Gain on sale of assets
Impairment losses recognised – trade and other receivables
102
(391)
80
39
–
84
418
46
(41)
712
(234)
88
Non-cash share of EBITDA of equity accounted investees
(2,142)
(1,397)
Exploration expense
Amortisation of oil option premiums
Executive share-based payment expense
Oil forward sale settlements (pre-early termination)
Changes in assets and liabilities
– Receivables
– Inventories
– Payables
– Provisions
– Other
– Futures collateral
Tax paid
Total adjustments
Net cash from operating activities
(1) The balance is comprised of our share of APLNG and other components of the Integrated Gas segment. Refer to note A1.
2
–
21
–
207
58
(175)
179
(115)
125
(110)
111
1,325
8
64
25
(86)
(321)
(66)
128
(15)
(51)
(170)
(38)
902
1,123
Annual Report 2019 157157
Total
6,500
2,063
(1,878)
80
–
186
Liabilities from financing activities
Current
borrowings
Non-current
borrowings
Other financial
(assets)/
liabilities
1,089
–
(1,129)
71
917
–
6,350
2,063
(1,014)
168
(917)
(2)
(939)
–
265
(159)
–
188
948
6,648
(645)
6,951
G6 Notes to the statement of cash flows (continued)
Reconciliation of movements of liabilities to cash flows arising from financing activities
$m
Balance as at 1 July 2018
Proceeds from borrowings
Repayment of borrowings/other liabilities
Foreign exchange adjustments
Reclassification
Other non-cash movements
Balance as at 30 June 2019
G7 Auditors’ remuneration
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and
non-related audit firms.
Audit and review services of the financial reports by:
Auditors of the Group (KPMG)
Other auditors
Other services by:
Auditors of the Group (KPMG)
Taxation services
Legal services
Lattice related services(1)
Advisory services
Other
2019
$’000
2018
$’000
1,912
96
2,360
88
2,008
2,448
78
–
–
185
158
421
2,429
97
37
1,184
61
179
1,558
4,006
(1) This amount in the prior period relates to a potential IPO transaction; US 144A advisory, accounting advice, legal advisory and taxation services for Lattice Energy.
Financial Statements 158158
G8 Master netting or similar agreements
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements.
In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in
the same currency are aggregated into a net amount payable by one party to the other.
In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in
the same currency are aggregated into a net amount payable by one party to the other.
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, where the Group has a legally
enforceable right to offset recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability
simultaneously. The Group has also entered into arrangements that do not meet the criteria for offsetting, but still allow for the related
amounts to be offset in certain circumstances, such as a loan default or the termination of a contract.
The following table presents the recognised financial instruments that are offset, or subject to master netting arrangements but not offset,
as at reporting date. The column ‘net amount’ shows the impact on the Group’s statement of financial position if all set-off rights were
exercised.
2019
Derivative assets
Derivative liabilities
2018
Derivative assets
Derivative liabilities
Amount
offset in the
statement
of financial
position
$m
Amount
in the
statement
of financial
position
$m
Related
amount
not offset
$m
Net
amount
$m
(320)
320
(254)
254
1,434
(1,503)
1,639
(1,658)
(398)
398
(678)
678
1,036
(1,105)
961
(980)
Gross
amount
$m
1,754
(1,823)
1,893
(1,912)
Annual Report 2019 159159
G9 Deed of Cross Guarantee
The parent entity has entered into a Deed of Cross Guarantee through which the Group guarantees the debts of certain controlled entities.
The controlled entities that are party to the Deed are shown in note F3.
The following consolidated statement of comprehensive income and retained profits, and statement of financial position comprises the
Company and its controlled entities which are party to the Deed of Cross Guarantee after eliminating all transactions between parties
to the Deed.
For the year ended 30 June
Consolidated statement of comprehensive income and retained profits
Revenue
Other income
Expenses
Share of results of equity accounted investees
Impairment
Interest income
Interest expense
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Retained earnings at the beginning of the year
Adjustments for entities entering the Deed of Cross Guarantee
Retained earnings at the beginning of the year
Impact of AASB 9 adoption
Dividends paid
Retained earnings at the end of the year
2019
$m
2018
$m
14,510
14,297
26
95
(13,606)
(13,554)
632
(360)
234
(453)
983
(119)
864
–
864
205
–
228
(544)
727
(65)
662
–
662
4,890
4,232
–
(4)
4,890
4,228
(145)
(176)
–
–
5,433
4,890
Financial Statements 160160
G9 Deed of cross guarantee (continued)
As at 30 June
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivatives
Other financial assets
Other assets
Total current assets
Non-current assets
Trade and other receivables
Derivatives
Other financial assets(1)
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Payables to joint ventures
Interest-bearing liabilities
Derivatives
Other financial liabilities
Provision for income tax
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest-bearing liabilities
Derivatives
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
(1) Includes investment in subsidiaries relating to entities outside of the deed of cross guarantee.
2019
$m
2018
$m
1,455
2,950
126
454
318
110
56
3,146
183
406
208
151
5,413
4,150
2,135
962
3,161
6,960
3,337
5,309
227
43
22,134
27,547
2,120
204
137
381
275
160
132
56
1,966
1,109
4,274
5,988
3,391
5,130
152
38
22,048
26,198
2,204
221
–
182
61
114
118
34
3,465
2,934
8,227
605
1,115
21
484
10,452
13,917
13,630
7,125
1,072
5,433
13,630
8,315
713
1,234
19
321
10,602
13,536
12,662
7,150
622
4,890
12,662
Annual Report 2019 G10 Parent entity disclosures
The following table sets out the results and financial position of the parent entity, Origin Energy Limited.
Origin Energy Limited
Profit/(loss) for the year
Other comprehensive income, net of income tax
Total comprehensive income for the year
Financial position of the parent entity at year end
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Contributed equity
Share-based payments reserve
Foreign currency translation reserve
Hedge reserve
Retained earnings(1)
Total equity
161161
2019
$m
1,118
342
2018
$m
(1,390)
258
1,460
(1,132)
2,668
1,193
20,560
20,164
23,228
21,357
4,677
6,770
3,596
7,118
11,447
10,714
7,125
7,150
234
720
(12)
247
379
(13)
3,714
2,880
11,781
10,643
(1) Refer to Overview for impact of adoption of AASB 9 of $108 million and to note A6 for dividends provided for or paid of $176 million.
The parent entity has entered into a deed of indemnity for the cross-guarantee of liabilities of a number of controlled entities.
Refer to note F3.
Financial Statements 162162
G11 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2019,
which have not been applied in preparing the Group’s financial statements. None of these are expected to have a significant effect on the
Group with the exception of AASB 16 Leases.
AASB 16 Leases
AASB 16 is effective for the Group for the reporting period beginning 1 July 2019 and requires lessees to account for all leases under a
single on-balance sheet model similar to the way finance leases are treated under the current standard.
As at the reporting date, the Group is in the final stages of assessing the impact of the new leasing standard on the financial statements.
The below table sets out the expected impact on the statement of financial position as at 1 July 2019.
Estimated impact on the statement of financial position
New lease liabilities
Right-of-use (ROU) assets(1)
$m
450 to 500
375 to 425
(1) Includes rent receivable related to sub-leases for which the Group is the intermediate lessor.
The Group’s operating lease portfolio is predominantly comprised of commercial offices, terminals, power generating assets and fleet
vehicles. New lease liabilities and ROU assets will be recognised for these operating leases. The corresponding interest expense and
depreciation charge will be recognised in the income statement. No significant impact is expected for the Group’s existing finance leases.
The Group plans to apply AASB 16 initially on 1 July 2019, using the modified retrospective approach. Under this approach, the cumulative
effect of adopting the new standard will be recognised as an adjustment to the opening balance of retained earnings at 1 July 2019.
No restatement of comparative information is required.
The Group will take advantage of recognition exemptions for leases that are less than 12 months and leases for which the underlying asset
is of low value.
G12 Subsequent events
Other than the matters described below, no item, transaction or event of a material nature has arisen since 30 June 2019 that
would significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future
financial periods.
On 25 July 2019 Origin announced that notice had been given to redeem the €1 billion Capital Securities due in 2074, issued by
Origin Energy Finance Limited, at their first call date of 16 September 2019.
On 19 February 2019 Origin announced that it had entered into an agreement with APLNG to sell its Ironbark asset for $231 million.
Settlement of the transaction occurred on 5 August 2019 and a net nil profit or loss is expected to be realised in the year ending
30 June 2020.
On 22 August 2019 the directors determined a final dividend of 15 cents per share, fully franked at 30 per cent, on ordinary shares.
The dividend will be paid on 27 September 2019. The financial effect of this dividend has not been brought to account in the financial
statements for the year ended 30 June 2019 and will be recognised in subsequent financial statements.
Annual Report 2019 Directors’ Declaration
163
163
Directors’ Declaration
1
In the opinion of the Directors of Origin Energy Limited (the Company):
(a) the Consolidated Financial Statements and notes are in accordance with the
Corporations Act 2001 (Cth), including:
(i) giving a true and fair view of the financial position of the Group as at
30 June 2019 and of its performance, for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001 (Cth).
(b) the Consolidated Financial Statements also comply with International Financial
Reporting Standards as disclosed in the Overview of the Consolidated
Financial Statements.
(c) there are reasonable grounds to believe that the Company will be able to pay its
debts as and when they become due and payable.
2
There are reasonable grounds to believe that the Company and the controlled entities
identified in note F3 will be able to meet any obligations or liabilities to which they
are or may become subject to by virtue of the Deed of Cross Guarantee between the
Company and those controlled entities pursuant to ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785.
3
The Directors have been given the declarations required by section 295A of the
Corporations Act 2001 (Cth) from the Chief Executive Officer and the Chief Financial
Officer for the financial year ended 30 June 2019.
Signed in accordance with a resolution of the Directors:
Gordon Cairns
Chairman Director
Sydney, 22 August 2019
164164
Independent Auditor’s Report
30 June 2019
Annual Report 2019 Independent Auditor’s Report
165
165
166166
Annual Report 2019 Independent Auditor’s Report
167
167
168168
Annual Report 2019 Independent Auditor’s Report
169
169
170170
Annual Report 2019 Independent Auditor’s Report
171
171
172172
Annual Report 2019 Independent Auditor’s Report
173
173
Remuneration Report 174
Share and Shareholder
Information
Information set out below was applicable as at 22 August 2019.
As at 22 August 2019, there were:
• 139,357 holders of ordinary shares in the Company; and
• 26 holders of 5,565,803 Options, 99 holders of 5,126,670 Performance Share Rights, 305 holders of 1,776,783 Deferred Share Rights
granted under the Origin Energy Equity Incentive Plan and 487 holders of 72,313 Maturing Share Plan Rights granted under the Origin
Maturing Plan.
There is not a current on-market buy-back of Origin shares.
During the reporting period, 9,611,526 Origin shares were purchased on-market for the purpose of Origin employee share and equity
schemes. The average price per share purchased was $7.94 exclusive of brokerage.
Analysis of shares
Holdings Ranges
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001–99,999,999,999
Totals
Holders
Total Units
56,977
59,470
14,108
8,568
234
25,070,627
143,747,108
99,393,522
174,234,686
1,318,765,128
139,357
1,761,211,071
%
1.423
8.162
5.643
9.893
74.878
100.000
6,252 shareholders hold less than a marketable parcel as at 22 August 2019.
Substantial shareholders
There were no substantial shareholders as disclosed by notices received by the Company as at 22 August 2019.
Top 20 holdings
Shareholder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
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