Origin Energy Limited (ORG) Earnings Call Transcript

Okay. Good morning, everyone, and welcome to Origin Energy's results for the 2026 financial year. It's Frank Calabria here, and I'm joined by my executive leadership team. I want to welcome a few people. Firstly, you'll all know Andrew Thornton but welcoming his new role of Executive General Manager and Energy Supply and Operations. We welcome Aleta Nicoll as the Energy General Manager for Integrated Gas. And also welcome Alicia Purtell, our new Executive General Manager of People and Culture. I'll provide a brief overview of performance and outlooks. Tony will speak to the financial results, and this will be followed by an opportunity for all of you to ask questions. Turning to Slide 2. Origins delivered a good result for the 2026 financial year. The Energy Markets EBITDA of $1,701 million EBITDA is towards the upper end of guidance. Integrated gas at $1,620 million EBITDA is in line with expectations for APLNG and LNG trading. And in relation to Octopus Energy and Kraken it recorded a combined EBITDA of minus $8 million, with the U.K. Retail contributing $134 million, and that's enabled funding investment in growth as they scale the non-U.K. retail markets energy services and also Kraken migrations. There are a number of business highlights for the year. Customer accounts increased by 243,000. We achieved our $100 million to $150 million cost out target. The batteries are on time and budget, and we now have 1.3 gigawatts operational. Origin received $911 million fully franked dividends from APLNG and increased its 2P reserves at 100% there by 332 petajoules, and that's before production. The Octopus Energy team have grown their customer accounts by 2.2 million, 800,000 of those in the U.K. but now 1.4 million of them are outside the U.K. Kraken increased its revenue by 19% through the year and now has contracted accounts at 95 million at the end of June. The Kraken and Octopus legal separation is complete. And as part of that, the equity raise of $1 billion by Kraken was completed in July. On the back of that, the Board have determined a $0.30 fully franked interim dividend, and that's obviously supported by strong cash flow and balance sheet strength. Turning to the financial highlights. You can see there that the statutory profit is $1.574 billion. The underlying profit is $1.159 billion , and the underlying EBITDA of $3.22 billion, which comprises improvements in Energy Markets and Octopus Energy and the expected lower earnings in Integrated Gas. The adjusted free cash flow was very strong. It increased by over $700 million to be in excess of $2 billion for the year. That strong cash flow has led to a reduction in our net debt to EBITDA metric, which now sits at 1.6x. And I mentioned the final dividend that takes the full year dividends for the year consistent with 2025 to be $0.60 fully franked. I wanted to touch on the data security incident. In July, we advised there'd been an unauthorized access to customer information to 900,000 customers. Our priority right now is supporting those affected customers initial notifications have gone out. We're continuing to communicate with them. We're providing support through extended customer support hours, dedicated contact number, web page and access to specialist identity and cyber support services. We've taken steps to secure our systems. We've been working with cybersecurity and forensic specialists. We continue our review, continue to work closely with the authorities and regulators. And as I commented when I last spoke to this, the matter does remain subject to an ongoing criminal investigation, which does -- will limit some of the things I can say today, but I understand there will be some interest in that. Turning to our purpose on the next Slide 5, of getting energy right for our customers, communities and planet. And firstly, for customers, our focus right now is on supporting those impacted by the data security incident. I'm pleased that we were able to pass through our lower average prices in July for the 2027 financial year. We continue to support customers in hardship spending $40 million. And we have new energy plans being introduced that are tailored to customer usage patterns, and we remain 1 of the largest East Coast gas suppliers through APLNG. For the communities, it's good to see that we continue to support regional procurement and First Nation suppliers in a meaningful way and also community benefits through our Eraring Community Fund and our foundation where we contribute both dollars and also volunteer hours by our employees. It continues to be a key part of what Origin stands for. I'm also pleased to advise that our recordable injury frequency rate at 2.9 is an improvement on last year. When it comes to Planet, our Scope 1 to 3 equity emissions are down 2% and included in that is a reduction of our Scope 1 emissions by 7%. Our batteries, it's good to see both Supernode 2 and Mortlake are now operational, and that's earlier than anticipated. Also pleased to see that the ash reuse at Eraring has jumped to 77%, up from 61% last year. And we continue to apply 85% of the produced water at APLNG to a beneficial use, including agriculture. And we now have 50 megawatts of community batteries under operation. Turning to Slide 6. We have established assets and capabilities that we continue to build on, but differentiate us. They span customer, energy supply, energy resource international markets through Octopus and also global technology through Kraken, and that's something we continue to focus on as we want to deliver the best outcomes through the energy transition. Our investment proposition on Slide 7 remains consistent. We have energy markets and APLNG, both leading Australian energy business is generating strong cash flows, fully franked dividends and an ability to continue to invest in the energy transition and our dividend yield is 5.7% before franking benefit. And in addition to that, we now have significant global growth potential through 2 independent businesses following separation, Octopus and Kraken. I wanted to turn just to the commodity markets because they have shifted significantly so far in 2026, and that's highlighted by the charts on Slide 8. Recent electricity prices have been impacted by both cyclical and structural drivers. We've seen unseasonably mild weather, very high base load availability and also increased renewables and battery storage. And at the same time, what we're seeing is the cost of new build is rising, and that just makes it more challenging to invest at these prices. In the relation to East Coast gas prices, while there's been a rise in global LNG prices, you can see the East Coast remains well supplied and has been insulated from those rises and we've seen the domestic demand be lower over the last 12 months, particularly when it relates to gas-fired generation and the demand from LNG producers. Now we also include the Japanese customs cleared crude and for people that most will be familiar, that's the index that actually flows through to our long-term LNG export contracts. It's obviously risen sharply since the commencement of the Middle East crisis, you can see on the right-hand chart. But given the time lag that exists in our LNG export contracts those higher oil prices will be realized in the 2027 financial year. And based on the current forward prices, Origin expects continued strong cash flows from APLNG in FY '27 and there will be some losses from the oil hedges in place that will partially offset this. And then just a reminder, we've communicated this previously as part of our quarterly presentation, but it's a significant event. The separation of Octopus and Kraken has now been completed. You can see there the stake in Origin economically in both of those businesses remains at 22.7%. The graphic on the left though, is to highlight the fact that Octopus holds a 13.7% stake in Kraken when you're calculating that. Both of those businesses are well positioned to pursue ambitious growth, and it was pleasing that Kraken was able to raise that $1 billion equity and that was completed in July at a look-through valuation of USD 8.65 billion. We'll talk more about those businesses later. So on that note, I'm going to hand over to Tony Lucas to talk through the financial review.

Thank you, Frank. Tony Lucas here, CFO of Origin. Good morning, everyone, and thank you for joining. I'll spend the next few minutes on the segment results, our cash generation and then our balance sheet. Today's strong result reflects 3 consistent themes. Firstly, we delivered what we said we would on earnings, on cost and on the battery program. Second, we had strong cash conversion, and we strengthened an already strong balance sheet. And finally, we kept investing in the portfolio through the energy transition for what it needs while maintaining disciplined sustainable returns to shareholders. So starting with the EBITDA. Group EBITDA of $3.2 billion reflects strong growth in energy markets and an improved contribution from Octopus and as expected, a reduction from Integrated Gas. Energy Markets EBITDA of $1.7 billion was up 21% and at the upper end of guidance. Electricity was $179 million higher. There was really 3 drivers. We had higher wholesale costs flowing through to tariffs with the lag. We had a lower cost of energy and that lower cost of energy was partially offset by last year's unusually strong wholesale portfolio benefits, which didn't repeat. Gas was $20 million higher as both the sale and purchase contracts repriced and partially offset by lower trading volumes. Cost to serve reduced a further $56 million this year. That's against our fin year '24 baseline, we delivered $126 million of savings before the 2 retail acquisitions, and that's delivering the $100 million to $150 million cost out target we set 2 years ago. With the customer base growing, the battery fleet now operating and cost discipline embedded the business enters fin year '27 well positioned. We expect battery ramp -- with the battery ramp-up, we expect that to offset lower wholesale prices flowing through customer tariffs. Turning to Integrated Gas. APLNG delivered operationally well availability improved to 96%, 82 wells driven and 2P reserves increased 332 petajoules before production, and that's at 100% APLNG level. Earnings were in line with expectations, reflecting a realized oil price of USD 72 per barrel, the full year effect of the Sinopec price review and LNG trading gains of $140 million. As Frank indicated, the higher oil prices we've seen since February are expected to be realized in fin year '27, and that supports a continued strong fully franked distribution from APLNG. And finally, Octopus and Kraken, our share of EBITDA improved $80 million on fin year '25 to a loss of $8 million. U.K. Retail contributed $134 million. That's the fourth consecutive year of profitability for U.K. retail, inclusive of the continued investment in smart tariffs to grow connected customers. Non-U.K. Accounts grew to -- grew by more than 50%. Energy Services improved materially on productivity and is trending towards breakeven and Kraken grew revenue 19% while investing in migration capacity or capability and product development. As Frank indicated, legal separation complete and the equity raise finalized in July, both businesses are well set up for growth, and Origin continues to build substantial long-term value through these investments. Just turning to cash flow, which is the standout of this result. Cash from operating activities, $1.9 billion. That's up almost $1.5 billion on the prior year. We saw energy markets cash conversion above 100% with strong credit and collections activity, the warmer winter weather driving lower working capital also, and we have much lower cash tax paid. You remember in fin year '24, we had a large balancing payment in that year. We received $911 million in fully franked dividends from APLNG the CapEx expenditure reduced by $500 million as the battery build program passed its peak. So adjusted free cash flow of $2.1 billion which is up $867 million. So the underlying story here is 2 strong businesses converting those earnings to cash. Now to focus on the balance sheet. So strong operating cash flows and dividends from APLNG more than covered the CapEx program and shareholder dividends. Adjusted net debt at 30 June '26 of $4.85 billion increased slightly over the prior year, and that's once the battery tolling increases are included. Adjusted net debt to adjusted underlying EBITDA was 1.6x. That's below our 2x to 3x target range, again driven by strong cash performance. So just as a reminder, the metric now includes the franked credits attached to APLNG distribution. We think this better reflects the pretax nature of that metric and better aligns with our Moody's credit rating. Over fin year '27, we expect to move into the lower end of the target range. This will be reflecting completion of the battery program and the remaining battery leases and the crack investment made in July and we will have lower LNG trading gains in fin year '27. The balance sheet settings remain prudent given market conditions. Overall, the balance sheet is strong and flexible, with capacity to continue to fund the portfolio through the transition. And finally, capital allocation. The Board has determined a fully franked dividend of $0.30 per share. As Frank said, that brings fin year '26 distributions to $0.60 fully franked. That's a yield of 5.6% before the franking benefit. And this represents 50% of adjusted free cash flow. It was an exceptionally strong cash year. If you look at the cash -- the dividend payout average over fin year '24 to '26, it's more like 70% of adjusted free cash flow. And over this period, we've been able to review 62% of our adjusted free cash flow has been directed to major growth projects, and that's predominantly the battery fleet, which is now generating earnings. The dividend is consistent with our policy of delivering sustainable distributions through the business cycle. So my reflection on the result is our consistency in delivering what we said we would, earnings at the upper end of guidance battery program on time, on budget and now earning and converting to cash and a balance sheet that lets us invest through the transition while sustaining fully franked returns. I'll hand back to Frank to take us through the business detail.

Thanks very much. Tony now turning to business performance, and we're on Slide 16. And in Energy Markets, we have delivered on our short- and medium-term targets in 2026. On the left-hand side, the electricity gross profit continues to sit above the medium-term target of $25 to $40 a megawatt hour. In 2027, it's expected to remain above the target range with the batteries coming online, and that will be partially offset by lower wholesale prices flowing into tariffs. In 2028, we do expect a moderation of gross profit as lower forward prices flow through to tariffs. For gas earnings, they're also above the medium-term target of $3 to $4 a gigajoule. There were lower trading volumes in the 2026 financial year with the 35 petajoule GLNG contract ending just prior to it in May 2025. And in 2027, we do expect our oil JKM linked supply costs to be lower with our current contract positions. And just a reminder, the Beach Otway contract is subject to price review, which hasn't yet concluded but on conclusion is effective from July 2026. And then just lastly, the cost to serve target, as we said in 2024, has been achieved between $100 million to $150 million. And that also is achieved even including the 2 new acquisitions that were made this year. And we also were able to lower our bad and doubtful debt with improved collections through our automated credit decision engine. Turning to customer on the next slide. The growth momentum continues. We've added 243,000 customer accounts this year. That's both been organic and inorganic. The acquisitions of 1st Energy and Energy Locals added 135,000 of those accounts. We have a community energy services business, which may otherwise known as embedded networks in the residential space and businesses at 484,000 customers and we've achieved a 46% compound annual growth in Internet account customers over the last 3 years. Our churn continues to be lowest in the market, and we continued improvement in customer experience as measured by the customer happiness index. We've introduced new propositions as distributed assets increase. We have increased the number of interactions that are now being fully digital, and we continue to scale AI across our business and our virtual power plant once again grew to 1.6 gigawatts. Now just turning to what's happening in the market over the last 12 months, in particular, what's happened with batteries, you'll see that grid scale batteries in the NEM have more than doubled in the last 12 months and they're able to meet about 25% of peak demand. At the same time, you can see there's greater than 4x growth in behind-the-meter batteries in the last 12 months, and that's having an impact on the shape of residential grid demand. The role of batteries and gas work well together with batteries being suited to managing those evening peaks and the short chart spikes. That means that we start our gas fleet less, that defers maintenance costs and gas peak has continued to play an important role in managing extreme and long-duration volatility events. We build on that further on the next slide, which shows the batteries will save most days, while gas peakers and hydro will firm the seasons. And in the context of a market with the growing renewable energy there'll be more variability, meaning there will be both daily and seasonal periods of both over and under supply. So batteries will solve most days in summer and spring where we have an abundance of renewable energy. However, they cannot shift energy between seasons. And then if you turn to winter and autumn, the renewable output is less, meaning batteries are more often depleted before the demand is met. The long-duration firming of gas peakers and hydro will be required to solve those seasonal swings. And I just note that in winter we're going through now, it's been very mild conditions and we've also had very high coal availability, the highest in the last 5 years. So Origin holds the battery and gas peaking portfolio that positions it well to manage both daily and seasonal variability in a changing energy market. Turning to APLNG, and some of this information was provided in the quarterly, but APLNG revenues declined in line with expectations. We've had lower sales volumes and realized prices. As I stated earlier, the recent high oil prices will be realized in the 2027 financial year. And costs have increased to by 5% to $3 billion as we've continued to drive increased investment in our well optimization projects, development infrastructure and exploration program. And they were partially offset by some lower payout costs. We've stated before that the cash distribution was $911 million. Just worth noting that $335 million of those dividends related to the cash generated in the 2025 financial year. And based on about a week or so ago, 40% of APLNG's JCC oil exposure for the next financial year or the 27th financial year, I should say, has been priced at USD 100 a barrel, and that's before any Origin hedging. Turning to Slide 21. APLNG has 2P reserves of 9,619 petajoules, 61% operated 2P reserves replacement in the financial year 2016. And as you can see on the left-hand chart, greater than 50% of our reserves and resources extend beyond the existing export contracts and we also have further reserves growth potential through exploration success. On the right-hand side, you can see production of 668 petajoules for the year. The team have done a very good job delivering their program through the year. And you can see that base optimization, which we set out to achieve has now improved well availability to 96%. We now have our workover inventory to optimal levels and we've completed a number of infrastructure projects that have had benefits to debottleneck to enable that production. We drilled 82 operated wells during the year. We commissioned 92 wells and freely to note that in 2027 financial year, we'll be ramping up our drilling. Slide 22 just highlights the way we think about our production levers. And the first 3 of those blocks really just do talk about more of that optimization activity as we focus for the 2027 financial year, probably just want to make note of the ramp-up of new well development. Our increased drilling that I just noted before will include new asset East fields. And just to note that it takes approximately 2 years for new wells to reach peak production. In relation to midterm investment, we do continue to evaluate opportunities to unlock reserves in the Asset West joint venture approval would be required for those, and that will be informed by both market and regulatory outlook. In terms of midterm investment, we do also remain very focused on growing reserves and resources through exploration and appraisal opportunities, including the Taroom Trough. We're very excited by the Taroom Trough, and APLNG holds a large 10-year footprint across both operated and non-operated holdings. And just to note that most of that is near existing gas infrastructure. Turning to Octopus Energy. And you can really see that the optimal brand and service just underpins impressive growth. The brand in the U.K. is a standout market leader, as you can see in that top left, and that's driving their continued growth in the U.K. market on the top right, where it really is leading the market and has grown another 800,000 customers to have 26% market share. You can see that replicating now through to the non-U.K. markets where they now have 4.1 million customer accounts. And when we think about energy services, what they're doing there is building an ecosystem of assets and platform that enables them to meet all those customer needs, and that really extends across scaling installations. It's an electric vehicle leasing fleet, and they've grown their VPP to 3.2 gigawatts. The development of that business then links back into continuing to grow value and customers in the U.K. retail business and other markets in the markets that are rapidly transitioning. On the next slide for U.K. retail really just highlights how we and they think about the business with the U.K. retail strength, and as Tony said earlier, they've reported their fourth consecutive year of profitability. And this year they earned GBP 39 per customer on that 7.8 million average customers, and that's enabling them to invest in growth. It's funding customer growth that you can see on the dark color on the right-hand bar chart in the non-U.K. markets. They've invested in smart retail tariffs in the U.K., and they've also then invested in their energy services business. Each of these businesses have a strong growth outlook. The brand and service drives customer growth in the U.K. And when you think about the large addressable market, they're now going for across non-U.K. markets, that represents another significant growth opportunity. And what we're seeing now is it's only firmed in fact, over the last 6 months is strong government and customer support for electrification and increased adoption of distributed assets. And in the U.K., that's in particular, the electric vehicles, they are catalyst for ongoing growth in the Energy Services business. Now turning to the Kraken business on Slide 25. I said earlier, they've got 95 million contracted to customer accounts. That growth of 21 million includes the entry into the Saudi market through Saudi Energy partnership that's added 10 million accounts. And of that 95 million accounts, 52 million alive. And what that means is that they're what's generating revenue. And that translates into the revenue growth. You can see on the right-hand chart that's grown by 19% to GBP 300 million. Clearly, they continue to get contract annual revenue growth and the pull-through to the P&L is really driven by that live revenue. And they're expanding products now. They're really working across now C&I markets, water telecoms, flexibility and field services. So that continues to widen their addressable market. In terms of financial results for the Kraken in FY '26, they certainly invested more heavily to accelerate customer migrations that particularly plays out when you are going into new markets, but also when you're accelerating migration of large accounts that they're bringing on line for live revenue. And so those costs around GBP 64 million have been incurred ahead of the revenue. And what we've done is highlight the EBITDA with and without those accelerated migration investment costs that you can see on the left-hand chart. There are a number of achievements in FY '26. So I'll just draw out a couple. They grew the contracted annual recurring revenue by 44%, and the average EBITDA margin since '23, even including all of our delivery investment has been 35%. You can see then we've also highlighted what the underlying subscription gross margin is for that business, which is very strong as well. So I'll now go to guidance. So I'm now on Slide 28. Energy Markets EBITDA for the 2027 financial year is between $1.55 billion and $1.85 billion. The total CapEx, you'll see as reduced since this financial year as we complete more of the batteries, and that's between $450 million and $650 million. We provided the APLNG guidance in our quarterly results, but for completeness, you can see the guidance on production is between 625 and 670 petajoules, and the CapEx and OpEx guidance, excluding purchases is between $3 billion and $3.3 billion. We've provided guidance here for both Octopus and Kraken. On Octopus, we've guided the U.K. retail EBITDA per customer, and that's a guidance of between GBP 25 and GBP 50 a customer. And I'll just make a couple of comments as to why we've chosen that. You would have seen on the earlier slide that really optimal energy comprises a number of businesses. One, the ongoing operations and growth of the U.K. retail business but then it's making choices as to how fast it invests in non-U.K. retail and energy services. And because they do drive a lot of that growth through organic means that goes through the P&L. So we think it's more meaningful for you to understand the ongoing profitability for U.K. Retail EBITDA, and they will continue to make decisions based on the way they want to grow those other businesses and as more of that information unfolds, we're happy to share that, but we think this is a more meaningful way of understanding the profitability of the core business. And secondly, we've now provided guidance on Kraken revenue, which is growing at greater than 20% is the guidance for FY '27. And just to wrap up, we continue to believe we have advantaged assets and capabilities for the energy transition. We've got strong cash flows and returns from Energy Markets and Integrated Gas. We've got global growth potential between -- from 2 now independent businesses. Pleased with the balance sheet strength. We've declared stable dividends at a good yield and that continues to position us well to allocate capital to the right opportunities for shareholders over the coming years. So on that note, I will now open up the discussion for questions.

[Operator Instructions] Your first question comes from Tom Allen from UBS.

You've noted the strength of the balance sheet and free cash flow result. And FY '27 group CapEx looks to be guided materially lower than market expectations. So considering this, the Board appears to have heard on the side of conservatism in the final dividend for FY '26? So given the strength of the balance sheet, the tailwind in APLNG cash flows coming through at least in the first half this year that you've called out. What are the main upside and downside drivers we should be focused on with respect to the Board's discretion on dividends this year. So particularly keen to understand if there are key headwinds that the Board is cautious of or whether there's scale growth that Origin wants to pursue?

Thanks, Tom. Yes, we looked quite hard at the dividend this year. I think you'll see that the cash flow is very strong this year on much higher than 100% cash conversion out of energy markets. And really, we wanted to and we've always stated that we want to keep the dividend not swing the absolute cents per share around. So when we look at the sort of 3-year average of the dividend, it is about 70% of free -- adjusted free cash flow it's about 80% of NPAT. And so just given where the cash flow was for the year, we know we'll probably end up with some of that working capital swing coming back into next year. We chose to leave the dividend where it is. I did highlight that we do expect with the tail of the CapEx and the lower LNG trading gains fin year '27 and into fin year '28 that we expect to move into the lower range of our sort of target range. And just given where the environment is at the moment, we're probably preferring to be at the lower end of our target range.

And then on the outlook for the Energy Markets divisions. Are you noting likely moderation in electricity gross profit into FY '28 as lower current futures prices coming to regulated pricing. So I'd estimate there's about 30% of the FY '28 DMO and VDO prices already factored in. So can you comment on how to frame the spread of outcomes for Energy Markets on a 2-year view? Maybe the key drivers and potential down drivers?

Yes. I think that's probably more like 40% priced into the DMO. But so you'll have a fair indication from the curves of what that number is and an indication of where the curves are for the balance. And the way to think about it is our sort of fixed energy supply costs, so that's really a rating and the renewables PPAs has been exposed as sort of that absolute price. We buy a lot of the cover for C&I from the market from swap contracts. So I don't expect that to be flowing through. So you can probably broadly use the best market sort of sales number times those sort of deltas on the forward curve to get a sort of indication of where that's heading Yes, there's still 60% to go. And we're sort of looking at the market and can obviously move around people are predicting maybe an El Nino over the summer. So it's still a fair bit to run, but I could use those numbers as an indication at the moment.

Okay. That's good. And can you just comment on Eraring in particular? Do you expect to undertake the typical annual change out that you've done in quarter of the calendar year in years gone by. And now that the government is going to support the ongoing operation of Tomago smelter that's a big source of power demand in New South Wales that will now extend beyond December '28. There's still an uncertain time line for the commissioning of Snowy 2.0. Can you to understand the potential for Eraring to operate longer than the scheduled exit date at April '29?

Sure. So look, firstly, our plans aren't any different to the April '29. That remains the case today. I'll get Andrew to talk a little bit about Eraring, and then we can talk a little bit further about the market because you're right to point out there's few dynamics going on, including the announcement today, but that's worth reflecting on. So firstly, just to you, Andrew.

Proved for a while that we can flex Eraring pretty well from the 720-megawatt nameplate down to about 180 megawatts. And that's been the way of operating for a while. We've actually been having done -- having to do less of that recently with the batteries coming in and the mild weather that we've been talking about. We're not going to do any major maintenance. So the large turnarounds that we've done in the past that were every 5 years or so, but we're still continuing to do all the maintenance you'd want us and you'd expect around to continue reliability through for the next few years. So nothing has really changed from that perspective.

I mean, Tom, you opened up on a broader question about demand growth and clearly, there's a bit playing out. You can see recent announcements around the additionality are really driven by data centers and that's flowing through over time. You've got the announcement today, which is really an announcement for government around ongoing support for the Tomago. So clearly, we think a bit about that demand growth and how we meet that over time and have to respond to that. We've got the ability to respond to the way we operate Eraring today and then we have to think of it about the decisions we make in terms of how we supply the portfolio going forward. But they all go into the mix, Tom. I don't know if you had anything else, Tony?

No. I think that covers it. .

That's really the way we think about it. You're right. The it's likely to be electricity demand growth, and therefore, our job is to capture that and create value.

Your next question comes from Rob Koh from Morgan Stanley.

Congratulations on the results. Can I, I guess, just ask a question about Australian electricity retail. We've had, I guess, a number of regulatory proposals in Victoria. Inevitably, there's more requirements for customers on older offers. Is it still the case in your intention to maintain VDO and DMO as a general ceiling on your customer book?

Rob, it's Jon here. We've got a broad spectrum of products and customers sitting across those different products, and we will to have that. We may, in fact, have customers that achieve other types of benefits like, for example, higher solar feed-in tariffs that may actually sit above those tariffs. So we look at that as we sort of think through all of our products. As you know, we also let customers know across each of the bills, whether they can be on a better offer. And what we're trying to do over time is just continue to offer them value add multiproduct services. So yes, that don't think about that as an absolute ceiling, but it's absolutely a guide.

I guess the ACCC is going to be focused a lot more on this and something like 38% of top 3 customers were above DMO at their last review. So yes, just wondering specifically if you're changing your settings against that backdrop.

I mean, Rob, we're always mindful about -- it is a competitive market, and we continue to make sure we're passing through all the sort of lower cost that we can, in particular as we lower the cost of the retail business. We're -- I don't think I can sort of add more, to be honest, around where regulation may go other than to say that I think we're in a good position being a lowest cost provider, having a great brand and continuing to offer good products.

Yes. Well you're doing something right with the customer growth. So moving to the Kraken. Just wondering how we think about the Kraken Technologies kind of revenue and EBITDA in the past we've talked about kind of GBP 6 per live sub. I think you've done 619 and rule of 40. Are those -- and I know those were only other rules of thumb, but any extra color you could provide on thinking about that?

I think those rules of thumb remain appropriate, rob. What you can see now is just as they move into more growth and more migrations, you've got a bit of lumpiness as they implement those, and they'll come in because you don't generate the revenue until you migrate the customers. And I'd really -- that was the only idea of just sort of trying to guide that last 6 months. But in terms of the contracted, you'd look at the -- a couple of things. You look at contracted revenue growing pull-through and timing of live revenue will probably drive that. But the underlying margin and pricing for those customers I think, still remains appropriate. And so I don't think anything shifted in terms of how they think about the business.

Okay. That's super helpful. And then just within the Octopus Energy side, there's that Energy Services team. And I think you -- correct me if I'm wrong, I think you said they were kind of heading towards breakeven. Should we be thinking that that's just a function of heat pump in stores, I'm sure it's more complicated than that, but just to draw out the underlying trend?

They made quite a bit of improvement this year, and we'd expect further improvement. It's both scale and operational efficiency, and they've been -- it's both those levers. They've certainly achieved benefits as more smart meters and installation of assets has occurred over time, and that's pulled through unit economic benefits. But also they've really worked hard on the operating model in an installation business, and they made a lot of improvements there. So it's going to be through both of those. And pleasingly, you continue to see good support for that electrification agenda and the growth of those distributed assets. So those market signals, if anything, over time have only strengthened. But they're the 2 levers that are really going to go into it. It's -- you've got to do both to get the improvements they want and that's what they're working on.

Your next question comes from Ian Myles from Macquarie.

Look, just on the Energy Market side, can we just talk a little bit more about the gas side of the business? You did really well this period, but we're seeing gas pricing falling, the government reservation scheme potentially pushes the marketing to oversupply. How do you -- or are you resilient to that? Or do you face pressures on the gas side as well?

I wanted Tony to talk a bit about gas outlook for us.

Yes. Maybe I'll sort of give you a bit of the sort of Energy Markets, I guess, gas outlook. We're sort of into '27 versus say, '26 result, we would expect it to be maybe broadly the same sort of maybe just sort of slightly lower. In terms of margin, we're finding that there's sort of maybe a slight rotation out of, say, domestic gas use into power, but it's very low at the moment. What we're tending to find is we're just getting lower volumes really through power generation probably at the moment that have not much of a margin impact in the energy markets, gas book because we don't put a lot of margin into the gas book from power sales. So at the moment, that's proving to be pretty resilient. Maybe I'll hand to Frank for the reservation.

Yes. Just on the gas market review, we've been supportive for a well-designed one, and that really means that it needs to operate in a fashion that gives certainty over a bit longer time rather than an annual discretion. So that's where we really are focused and it should be calibrated to demand, which has got a lot of independent data, as you know, and through AER, AMO, everyone, they sort of know everything about the gas market. So those would be good features that we think if it's to achieve the objective of modest oversupply. So we're really focused on that and equitable contribution between players. But really that ability to actually not be subject to an annual discretion that creates uncertainty because that's not going to drive certainly for investment, but it also won't drive certainly for contracting by the large customers. So that's where we're focused on and we just continue to advocate for it. Clearly, just -- yes.

Do you see there's risk to the downside there in terms of the profitability out of that business, given the way the government is pushing it?

Well, gas prices -- effectively gas prices and Tony can talk to that, they've been pretty modest over the last year in the domestic market, so reasonably resilient, but we should add some color to that?

Yes. I mean I think it's sort of a fine balance, I think, for the government to put supply into the domestic market and then get the right sort of gas price. If you think about the sort of level of coal that's coming out of the market and sort of the price of renewables, it's a the last thing you do is want to incentivize baseload running a gas because of that price sort of differential heads in that direction. So I think it is sort of finally balanced. The gas book in the short term is a bit resilient to it. Ultimately, the Energy Markets gas book does benefit from long-term fixed pricing. So that does have a benefit from sort of slightly higher pricing, but then a lot of a reasonable amount of it is margin driven. So I think there's still a lot to play in gas reservation and how, I guess, indigenous supply can be also incentivized to come into the market over the medium and long term.

And I'd just add 1 and obviously, getting the designer, that's right. And that's an important outcome for the a well-functioning market. So whilst it remains that outstanding, that's a key look through as to when we get the design for that, which will be out in the coming weeks and months.

Okay. Actually raised another interesting issue. With the Eraring, is there a decision date or is there a point where there's no going back that you reach a stage in the life cycle that you can actually extend the life?

I think there will always be a date because you'll be making forward-looking decisions. We haven't reached that date. And just further the comment, a question earlier, I think it came from Tom or someone else that asked about, are you doing large overhauls? And when do you get to that point? So we've indicated we're not going to do 1 this year. We're continuing to maintain. But we have to assess that in an ongoing way and to make sure that we they will need to be forward-looking. And so I think there will be a time in advance of April '29, where we'll have to make a call. But at the moment, the plan really is the 1 we've articulated previously. We'll continue to maintain no large overhauls, but we'll have to assess that through time. But yes, that would be I won't put a precise timing on it, but it's certainly going to be in advance. You think about that in respect of both capital decisions and probably also people decisions and everything we give certainty to it. And I think that's worked well to date, but we have to continue to think about things in advance. We just haven't hit that point yet.

Is it fair to think it's a 12-month sort of lead time? Or is it even longer than that?

I won't be -- it might be a little bit longer than that. It might be a little bit long -- it might be a little bit longer than that. I don't have a precise time, but I probably have it. I mean I don't know if I was guessing 18 months, you know what I mean, but I don't -- I mean like 18 months in the model or anything you know what I mean, like it's that's. But essentially, if you're looking for the fact that if you're doing anything with a large asset and your forward planning, if you're thinking about 12 months and you wanted to make a decision, you just wouldn't want to put -- you wouldn't want to put that on critical path if you had to do it. So I think I would -- my sort of overarching message would be about 18 months.

Okay. You've made a big promotion, Origin is very much skewed towards the volatility side of the market that you've got lots of flexible assets and the likes. We've probably seen most of the pain in the cap market occurring out there. Just sort of intrigued what's the implications to the profitability of your gas plants and probably this is more forward-looking the profitability of the gas plants and the batteries as we're seeing sort of caps come down, energy arbs come down, FCAS going towards nothing. What's been the impact for the business?

Yes. No, good questions, and there's a number of drivers in the marketing and particularly the cat market that interplays with batteries a bit more broadly in the way we set our portfolio. So I might -- maybe, Tony, just make a couple of comments about the cap market and that and then we can open up on that, Ian.