Good morning to everyone, and thank you for joining this webcast of APA's 2019 full year results. I'm Jennifer Blake from APA's Investor Relations team. Today, we welcome APA's new CEO and Managing Director, Rob Wheals, to present the 2019 financial year results and outlook for FY 2020, alongside APA's CFO, Peter Fredricson, who will provide more depth on the financials. A Q&A session for analysts will follow the presentations. For any media on today's call, time has been separately set aside for your questions and interviews following the webcast. I'll now hand over to Rob.
Good morning, and welcome to APA's 2019 full year results presentation. I'm Rob Wheals, and I'm very pleased to be presenting my inaugural results presentation as APA's new Managing Director and CEO. I've been present for the last 20-year-plus full year and half year results announcement calls. Certainly, it is a bit different now that I'm the one out front with the microphone. With me in the Sydney office is Peter Fredricson, APA's Chief Financial Officer, who will be presenting our financial results in detail. Also present is my executive team, Ross Gersbach, our Chief Executive, Strategy and Development, Sam Pearce, Group Executive Networks and Power, Nevenka Codevelle, Group Executive Governance, Risk, and Legal, Elise Manns, Group Executive People, Safety, and Culture, Kevin Lester, Group Executive Infrastructure Development.
Lastly, I'd like to introduce Darren Rogers, who is currently acting in the role of Group Executive Transmission following my recent appointment. The team are available during the Q&A session if you have any specific questions for them. I'll begin with an overview of the full year results and then hand over to Peter to go through the financials in detail. I'll conclude with commentary on APA's strategy and growth opportunities, including guidance for full year 2020 before moving to Q&A. The 2019 financial year was a very active year with a number of key events and milestones, and I'll briefly highlight a few of them. Operationally, we commissioned a number of new infrastructure assets and invested over AUD 460 million in new growth projects. We also stepped up our focus on safety management, process safety in particular, as well as in the area of sustainability.
Financially, we replaced AUD 700 million of high cost maturing debt with lower cost, longer term debt, reducing APA's annual interest expense going forward. We also dealt with the CKI acquisition proposal process for almost six months, and we continue to run the business in this context. Culturally, we refreshed our code of conduct, developed and launched APA's customer promise. We've been highly proactive in developing and leading the energy industry's The Energy Charter, and we farewelled Mick McCormack, our longstanding CEO and Managing Director. All up, it's been a very, very busy year indeed. How does that activity reflect to the numbers on slide four? I'm pleased to report a good, solid set of results.
Indeed, I've been very fortunate to have taken over the reins of a business with very strong and stable financial foundations, a quality asset portfolio, and good growth opportunities in front of us. Earnings before interest, tax, depreciation, and amortization, or EBITDA, was up 3.6% on FY 2018 results to AUD 1,573.8 million. We gave guidance at the half year results of expecting EBITDA for FY 2019 to fall within the upper end of the guidance range of AUD 1,550 million-AUD 1,575 million. That's exactly where our result has landed. Given the stable nature of our cash flows and the nature of our contracts being long-term and majority take or pay, we have very good oversight of our financials. The new growth projects that have come online over the last two to three years contributed AUD 65 million of incremental revenues.
I'll speak a bit more on those projects a little later in the presentation. Other contributors to the increased revenues and EBITDA included general uplift on the Goldfields Gas Pipeline in Western Australia as a result of all the new expansion projects on APA's Eastern Goldfields Pipeline that is connected to the Goldfields Gas Pipeline. We were also pleased to be able to assist Incitec Pivot keep its Gibson Island manufacturing plant operating during 2019 by facilitating gas transportation over 3,000 kilometers while a longer term gas supply option was investigated. Pleasingly, we've been able to extend a delivery service until early 2023 on the back of new Queensland gas tenements being released that have been designated for domestic manufacturing use only.
A number of GTA variations and extensions on APA's East Coast Gas Grid also contributed to financial year 2019 earnings, which will continue into FY 2020. We continue to work very closely with each of our customers to meet the individual needs for both contract and service flexibility as well as for new energy infrastructure requirements. For security holders, APA's distributions for the full year increased 4.4% to AUD 0.47. Additional franking credits of AUD 0.0686 per security will also be attached to the total distribution. APA's total security holder return for the financial year was 15%. All in all, a solid result with growth in earnings, growth in our asset footprint, and importantly, growth in our returns to security holders. Turning to slide five and looking at our safety results first.
We were all very pleased to see the improved total reportable injury frequency rate, or TRIR, the TRIR metric reduced by a third on FY 2019 results to 5.98 injuries per million hours worked. As I mentioned earlier, we had renewed our efforts in FY 2019 on APA's approach to safety in an effort to improve on FY 2019 financial results, and so I'm therefore very pleased to be able to report that those efforts have made a difference. Zero harm is our goal, and during financial year 2020, we will continue our focus on safety to improve our standards and practices. It's been an active year for APA in the enterprise-wide sustainability or ESG improvement journey that APA commenced in FY 2018. Certainly, there is still more to do within our practices and our disclosure.
We believe that climate change is a significant issue facing the energy industry and all Australians, and we also believe that APA has an important role to play in how Australia gets the balance right between lower carbon energy, reliability, and importantly, affordability. We aligned our climate risk management with the recommendations of the Task Force on Climate-related Financial Disclosures, or the TCFD, and undertook a 10-year scenario analysis to assess the risks and opportunities for APA and our assets. As a result of this analysis, we are confident that APA is physically and financially resilient to climate-related transitional and physical risks, at least for the next 10 years to 2030. This is something that needs to be monitored and assessed on an ongoing basis as energy dynamics and energy policy evolve and more reliable and insightful data becomes available.
This financial year, you will see a much more comprehensive sustainability report as a result of this step up in focus on providing improved and consistent disclosure to stakeholders, particularly our investors, as they can make informed decisions regarding their investment choices. I'm now on slide six. I've spent the last 10 years or so working very closely with our transmission pipeline customers. Putting customers at the center of our thinking is definitely high on my priority list and something I'm extremely passionate about. So passionate, in fact, that I wanted APA and all our employees collectively to make a promise to each other and to every customer that we will deliver service that our customers value.
That promise has become known as APA's customer promise, and attached to it is a whole of organization program called Project Red Dot that is helping our people transition to a more customer-centric focus. How will we know if our efforts have made a difference? Well, our customers will tell us, and we will listen and learn and respond accordingly. We now have a regular customer feedback process in place, providing both quantitative and qualitative information to us. Also on the customer focus front, as I mentioned earlier, APA, and particularly being led by Nevenka Codevelle, has been instrumental in developing The Energy Charter alongside other energy businesses. Our joint goal is to together deliver energy for a better Australia, which means affordable, reliable, and sustainable energy for all Australians.
Each of the 18 signatories will be accountable to each other and to an independent accountability panel, who will assess individually and as an industry how we are performing against the charter principles that we all agree to. The panel will publish the first report by the end of November this year. Turning to slide seven. Well, as you can see, we've had an active year helping our customers to better manage their energy portfolio needs by building new energy infrastructure across East, West, and Southern Australia. You can see from the list of projects on the slide the diversity of the new infrastructure across transmission pipelines, gas-fired power generation, wind and solar renewables, as well as gas processing.
In the West, we connected both the Agnew Gold Mine and the Gruyere Gold Mine to gas with the construction of the Agnew Lateral and the Yamarna Gas Pipeline, providing a reliable and cost-effective energy supply to both mining operations. We also built the Gruyere Power Station to supply gas-fired power to the Gruyere Gold Mine. Importantly, these types of organic growth connections also provide an uplift on the other connected pipelines, such as the Goldfields Gas Pipeline and the Eastern Goldfields Pipeline. In WA, we added more wind and solar capacity adjacent to our existing Emu Downs renewable precinct, with the addition of the Badgingarra Wind and Solar Farms. Alinta Energy is our customer for the Badgingarra assets. Originally underwriting the wind farm, but then extending the request for solar energy and extending both power purchase agreements for another five years out to 2035.
The solar farm was recently completed and commenced commercial operations earlier this month. In Queensland, the Darling Downs Solar Farm commenced commercial operations on behalf of our customer, Origin Energy. In fact, we acquired the site from Origin Energy in 2017. It also has the Beelbie Solar Farm development site nearby, which has potential for an additional 150 megawatts of solar energy. All the renewable projects that APA has undertaken have been driven by customer demand, with customers wanting renewable energy generation as part of their energy mix. The projects have met APA's standard investment hurdles, and the customers for renewable energy are also our gas transmission customers. In terms of earnings, in FY 2019, renewables contributed around 3% of total revenue and EBITDA. All up, a very small contributing sector to the business financially, but importantly, very beneficial because renewables help our customers meet the energy mix requirements.
Combined with our gas infrastructure, APA's diverse infrastructure is contributing to a more reliable, lower carbon energy mix for Australia. One of the more complex growth projects undertaken was the refurbishment of the mothballed Orbost Gas Processing Plant in Victoria. Commissioning is scheduled to commence in early September, with first sales gas to be delivered during quarter four calendar year 2019. This complex plant ultimately facilitates the connection of a new offshore gas supply source into Eastern Australia. This is exactly what we need to help put a downward pressure on gas prices. I'm on slide eight, which is entitled Responding to Customers' Needs, and that's exactly what has driven APA's growth. At the end of financial year 2016 results, we flagged to investors a AUD 1.5 billion pool of organic growth opportunities that we could see as a result of working closely with our customers.
Today, three years on, it is extremely pleasing to be able to report that those projects have all come to fruition, and that there's still more to do and more that our customers continue to talk to us about, which I'll talk more on in the strategy and outlook section. Additionally, we've continued to announce significant contracts with customers, new contracts, variations, and extensions. During the reporting year, we also signed a memorandum of understanding with Comet Ridge Limited and Vintage Energy Limited to build, own, and operate the proposed 240-kilometer Galilee- Moranbah Pipeline that would connect new gas sources in the Galilee Basin to the gas processing and distribution hub of Moranbah in Central Queensland. The pipeline is subject to final investment decision by Comet and Vintage. However, we are now moving to infield investigations and working with relevant stakeholders following granting of the survey license earlier this month.
In Victoria, APA's proposed Dandenong Power project was announced by the federal government as one of the shortlisted projects under review for the government's underwriting new generation investment scheme, which aims to provide financial support to facilitate the development of new firm generation capacity in the NEM. This scheme is still in its very early investigative stages. We are working with the government on the project assessment, as well as continuing to work to identify a customer to underwrite the project. Whilst we've been working with our customers, we've also actively worked with regulators to improve information transparency and consistency and implement the Gas Market Reform Group changes introduced across the last couple of years. In FY 2019, these changes included the publishing of pipeline financial statements under Part 23 of the National Gas Rules.
Under Part 24 and Part 25 of the National Gas Rules, a new capacity trading platform and daily auction facility was established in March of this year, requiring extensive system developments. To date, the daily auction platform has supported additional liquidity into the East Coast gas market. The energy market continues to evolve, we will continue to work with the authorities to ensure Australia's energy market is operating for the benefit of all of its users. On that note, I'll hand over to Peter to run through the numbers.
Thanks, Rob. Good morning, everybody. I'm going to start on slide 10. As Rob's noted, we are certainly pleased that this year's result has shown the benefits of the growth that we've invested in over the last number of years to deliver energy infrastructure that our customers have been asking for. Across the board, we've seen outperformance with increases in revenue, increases in EBITDA, and reductions in interest costs, both as a result of reducing rates and higher capitalization associated with that well-discussed CapEx program. Whilst we've paid more tax in 2019, this flows through to security holders as franking credits, and whilst it has had a minor impact on operating cash flow for the year, we've been able to increase distributions off the back of our growth and earnings.
As we'll discuss later, we'll see more of that increase in FY 2020 as the revenues from that new infrastructure fully annualize going forward. The revenue increase for the year includes AUD 65 million from those new projects, slightly below the AUD 70 million that we had previously indicated, but that's purely as a result of timing of completion and connection of those assets. With the expected fourth quarter calendar 2019 commissioning of Orbost and the start-up in this month of the Badgingarra solar farm, we expect some AUD 190 million of revenues in FY 2020 from those projects stepping up to the full AUD 215 million that we've spoken of before in revenue in FY 2021. Just to be clear, that's AUD 135 million more revenue this year than last year, given that we achieved AUD 65 last year.
On slide 11, the results of the various assets across the states continue to reflect the changing nature of the dynamic gas market, particularly on the East Coast. Again, as in previous years of late, reduced performance year-on-year in one state is offset by outperformance in another. This year, with less gas transported for customers north out of Victoria through Culcairn and more gas transported south out of Wallumbilla, Queensland and New South Wales increases offset Victorian reductions. In particular, the performance in WA continues to support our ongoing investment there as our resources customers look to take advantage of more reliable and lower emissions gas fired out of the energy to support their own businesses. As Rob points out, the WA result includes contributions from the Emu Downs solar farm, the Yamarna gas pipeline, the Gruyere gas-fired electricity generation plant, and the Badgingarra wind farm.
Asset management saw a return to norms in FY 2019 with around AUD 12 million, that is the long-term average, of customer contributions against FY 2018's AUD 80-odd million. Energy investments delivered a solid year, as SEA Gas, in particular, delivered off a set of renewed contracts in the second half of the year, and interest income from shareholder funding of that business generated increased revenue year on year. Corporate costs, as noted at the half year, include around AUD 11.1 million of once-off costs associated with the CKI bid and Mick's retirement. Absent those costs, we maintain tight control over our costs, notwithstanding an increase in impact on costs due to compliance regimes in respect of various regulatory bodies. Turning to slide 12, the EBITDA bridge here or waterfall is provided to give investors a better understanding of where our income is coming from.
The vast majority of our long-term contracts have some form of CPI escalation clause in them, around 1.5% of revenue increase year-over-year came from that in FY 2019. Reductions in variable revenue in FY 2019 are substantially offset by new contracts, as in a number of cases, customers convert previous as-available services into contracted services going forward. The new assets contribution aligns with our previous guidance and discussion based on about AUD 65 million of revenues received in FY 2019. The FX impact of AUD 15.6 million arises because the revenues that we had hedged from the Wallumbilla gas, the Gladstone Pipeline in FY 2019, were at rates that were lower than the rates that we had for FY 2018.
There will be reduced EBITDA year-on-year in this area in FY 2020, as the locked-in rates that we have for FY 2020, as set out in the director's report, remain above those that we had achieved for FY 2019. One further point that we would note is that the cost of regulation for our business continued to rise. About AUD 3 million alone in extra external costs in FY 2019 just to put together and publish Part 23 pipeline financials, valuation, and tariff information, and to deal with the capacity trading and auction system that is now in place. These costs don't include the significant internal resources used to deliver this ongoing reporting. We see these costs as a part of what we do and unavoidable going forward, but they will become part of a somewhat higher cost base in the business from here on forward. Moving to slide 13.
Year on year, nothing much has changed in the risk profile that is APA's business. As in previous years, in excess of 90% of our revenues are contracted, regulated or take-or-pay capacity charges. We've a good spread of customers across the energy, utilities, resources, and industrial sectors. Most importantly, around 93% of our revenues are coming from customers with investment-grade credit ratings. Where a customer does not have an investment-grade credit rating, we look for other appropriate credit support arrangements to ensure that our risk profile does not change, and to ensure that the low risk, low return model that we run does not unduly expose security holder capital to further risk. As in previous years, our top 12 customers deliver us close to 90% of our revenues on an annual basis. Moving to slide 14.
As Rob noted, FY 2019 saw us substantially complete the three-year AUD 1.4 billion-plus growth capital expenditure program that we first talked about in August 2016, three years ago. All of the projects that we have talked about over that time period are now contributing revenues except the Orbost Gas Processing Plant, which is due to come online in the fourth quarter of calendar 2019. Stay-in-business CapEx came in around our expected AUD 100 million for this year. Additionally, IT CapEx was close to AUD 25 million, with much of that spent on continuing the ongoing enhancement of APA's grid system, which helps our customers easily and efficiently interact with APA to order the gas transportation and services they need. In FY 2019, we spent around AUD 7 million just on building the IT platforms for capacity trading and auction, which has now been running since March 1st of this year.
Rob will talk later on growth CapEx guidance, but we remain comfortable that our SIB CapEx will continue at around these levels into the foreseeable future. On to page 15. Rob will talk in detail again about strategy and outlook next, but an underlying precept to the strategy that we have at APA is that everything we do will be done whilst managing or maintaining APA's financial strength. The Baa2/BBB ratings from Moody's and Standard & Poor's are central to that. In FY 2019, we continued to strengthen the financial metrics that underpin those ratings. The operating results continue to improve FFO to debt, free funds from operations to debt, and FFO to interest metrics, allowing us to increase distributions both for the year and in the guidance for FY 2020.
Importantly, during FY 2019, we set out for the replacement of some AUD 700 million of higher-priced maturing debt with lower cost, longer-term funding out of the debt capital markets. We repaid AUD 315 million of USPPs in FY 2019. Then in July FY 2020 of this year, we repaid a further AUD 390 million of USPPs and Maple bonds using funds that we had raised in the sterling market in March. As a result, the average term to maturity of the portfolio remains around seven years, and the average interest rate across the portfolio for FY 2019 is around 5.5%. Moving to slide 16. The debt portfolio is an integral part of APA's financial strength, necessary to maintain our strategy going forward.
With debt issued out to 2035 across a broad cross-section of markets, we have four issues in the U.S. 144A market, two issues in the Euro market, three issues in the sterling market, and two issues in the AUD MTN market. We are steadily repaying funding in the USPP market as those issues mature. We recently undertook an opportunistic placement with a Japanese yen bond investor for a 15-year, AUD 130 million note. With the repayment of AUD 390 million of USPPs and Maple bond debt in July 2019, our next maturity is not until July 2020, when our inaugural AUD MTN matures. At this stage, we have in the order of AUD 1.4 billion of syndicated debt and bilateral facilities available to support our business going forward.
All in all, we remain confident that as rates again look like they will remain lower for longer, we can fund any level of expansion of our business with good support from a broad range of highly liquid global debt capital markets. We believe operating cash flow for FY 2020 will fully fund both increased distributions and our expected organic growth and SIB CapEx, our capital management policy remains that we will fund significant levels of growth, in particular acquisitions, with an appropriate amount of funds retained in the business, debt, and equity, with the objective of maintaining our Baa2/BBB ratings going forward. Finally, on Slide 17, the solid result for the year, the continuing growth in the business, and the strength of our financial position all affords APA the ability to continue to reward security holders with increasing distributions.
Whilst we continue to grow the profitability of the business off the back of ongoing growth driven by the needs of our customers, we will generally also now pay corporate tax, which has, in FY 2019, impacted the operating cash flow outcome. Nevertheless, we remain confident that increasing operating cash flows in FY 2020 will deliver us the ability to fund next year's growth and distributions, growth CapEx, and tax payments of around AUD 90 million without needing increased debt or equity. This year's 4.4% increase in distribution is supplemented by AUD 0.0686 per security of franking credits for the full year. With that, I'll hand back to Rob for him to take us through some strategic insights and the FY 2020 outlook.
Thanks, Peter. I'm now on Slide 21. It's the most common question that I've been asked since commencing in my new role in July: Will I be changing APA's strategy? That's an easy answer. No. APA has a longstanding and successful strategy of growing the business through leveraging our existing asset portfolio and skill sets. Therefore, to be very clear, I fully support APA's strategy, which was ratified by both the board and APA's leadership team earlier this year during our annual strategy review process, of which I was a part. What is new this year was the incorporating of APA's customer promise because we believe it is a key pillar to our strategy. APA has been consistent with its growth approach.
Over the last five years on average, we've spent AUD 421 million per annum on growth CapEx, and that average over the last 10 years is AUD 338 million per annum. We continue to expect in the order of AUD 300 million-AUD 400 million per annum growth capital expenditure over the next two to three years. As in FY 2016, when we provided comment on the oversight of a pool of potential projects, we will not specify those exact projects until we have signed agreements with our customers. APA does not build infrastructure or increase capacity unless it has been underwritten by customers. We do not build on spec and hope that someone will come and use what we build. This is one of the reasons why APA's guidance has been very reliable for many years.
When you take into consideration the supply-demand dynamics, you can see from AEMO's latest information on the top right-hand graph that the gas supply-demand balance remains tight, with adequate supply from committed gas developments only up until 2023. Weather-driven variances in consumption or electricity market activity could increase gas demand, creating potential peak day shortages. With gas prices continuing to be high, we strongly advocate for both the federal and state governments to support increasing exploration and production to provide more competition and liquidity into the market, especially for the benefit of domestic manufacturers and everyday consumers. APA has been doing its part in building new infrastructure to get new gas to market. Work on the Orbost Gas Processing Plant will complete before the end of the year. We continue to work with Santos on their Narrabri gas project to connect this new gas source to the domestic gas market.
We are working with AGL on the Crib Point LNG Import Terminal, another potential new source of gas supply for Eastern Australia. The other graph on the bottom right of the slide shows that energy generation from coal has decreased approximately 15% since 2006, while gas-generated energy has more than doubled in that time, as has renewables generation. We continue to believe that gas and gas peaking plants will serve a critical role in Australia's future energy mix and will be essential in supporting the integration of more renewables into Australia's National Energy Market to shore up reliability and on-demand energy. APA's strategy therefore continues to be appropriate and realistic as Australia looks to displace more carbon-intensive fuels such as black and brown coal, as well as oil and diesel. I'm now on the next slide, Slide 13.
This is all about our current recontracting environment given the recent gas market reform initiatives. Just in terms of gas market reforms and reviews, we do note that the ACCC's review has been extended through to 2025. It is very pleasing to see that generally the focus is shifting to what is the real issue, which is all about gas supply. In that context, we are continuing to do with our customers what we have always done. Contracts continue to be renewed with customers where customers have an ongoing need for energy solutions. We've said in the past, we're getting on with business delivering to our customers. Typically, contracts that are renewed are not for the same terms as foundation or initial contracts. Our customers today have less foresight as to where they will buy gas over the longer term.
The multi-asset, multi-service renewable contracts that we are entering into with our customers are generally for shorter terms than those initial contracts. Nevertheless, our revenue-weighted average contract tenure remains above 12 years as we add new assets with longer-term contracts, and expiring contracts are replaced with renewals. Our customers continue to benefit from APA Group's interconnected grid of energy assets, with now around 60 receipt points and 100 delivery points for gas around Australia. Looking at slide 21. I want to specifically call out the possible U.S. investment part of APA Group's strategy, as it's probably the second-most common question I've been asked about. Do I support the U.S. asset search? Absolutely, I do, as it makes sense given the U.S. is one of the largest gas infrastructure sectors in the world.
Combined with the attractive returns that regulated assets earn in the U.S., the stable regulatory framework, and that the U.S. is awash with accessible gas, it certainly makes sense for APA to be doing due diligence in that part of the world. We're looking for a platform to grow from with a management and operations team who can help us do that. We will apply the same disciplined and prudent investment approach to any overseas asset as we would to acquiring or investing in assets in Australia. Above all, any acquisition must pay its way and be accretive in its first full year of operations under APA ownership. This is not about increasing assets under ownership. We see genuine opportunity to apply our operating and management skills to similar gas transmission and distribution assets in the U.S.
To that end, Ross Gersbach, who is currently our Chief Executive, Strategy and Development, will be relocating in the next couple of months to our Houston office to progress our U.S. strategy alongside the small team that we have already had there over the last couple of years. I am on slide 22 now and looking at guidance for the year ahead. Financial Year 2019 has set APA up for another solid outcome in Financial Year 2020. As previously noted, around AUD 65 million of revenue has flowed through into FY 2019 from new projects that have commissioned at different stages throughout the year. We expect around AUD 190 million of revenue from those projects and Orbost in Financial Year 2020.
When other general movements in EBITDA that come from CPI changes, foreign exchange relativity, contract renewals, and the like, and we factor all that in into our plans, we expect EBITDA to fall within a range of AUD 1,660 million-AUD 1,690 million for the financial year 2020. Interest costs are expected to be in the range AUD 505 million-AUD 515 million, and distributions are expected to be in the order of AUD 0.50 per security, an increase of around 6% year-on-year before any allocation of ranking credits. Given the completion of the AUD 1.4 billion-plus of growth projects over the last three years, we return to our previous guidance of AUD 300 million-AUD 400 million of growth CapEx over the next two to three years based on the visibility we have of various projects that we expect to be able to bring to the market for our customers.
Finally, I thought it might be useful to summarize what I see are my priorities for the year ahead. I initiated a review in July of APA's purpose, vision, strategic imperatives, and operating model to ensure that we have the right structure and resources in place to execute our strategy and deliver on the guidance that I've just talked about. That review is underway, and we will update the market with any major outcomes resulting from that review. We are continuing to work on a number of growth projects domestically that have been announced, as well as talking with our customers about their future energy infrastructure requirements. APA's U.S. due diligence will actively continue under the leadership of Ross Gersbach in Houston.
Operationally, we'll step up the work we are doing on safety and sustainability whilst ensuring we deliver on APA's customer promise of providing services and service that our customers value. With that, I'll now go to questions, and my management team is here, as I said earlier, on standby to assist with those questions.
Thank you. We will now proceed to the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first questioner is James Byrne from Citigroup. Please go ahead.
Good morning, Rob and team. Look, I had a question for you, Rob, something that I am sure you hoped you wouldn't have to address as your tenure as CEO, but it surrounds further reviews into the pipeline sector by the government, given their hand has kind of been forced by the Centre Alliance. Centre Alliance obviously have a pretty strong opinion on pricing in the pipeline sector. I am not going to ask you to defend your position. I think everyone on the call knows where you stand on that. I want to just get a picture of what that could look like in terms of reviews, when they could start as well, just to help shareholders get an understanding perhaps of the risk on this front over the next couple of years.
James, thank you. Look, earlier this month, I think you're referring to the announcement by the government, not only looking at pipeline review, but in particular, looking to introduce a prospective gas reservation policy, a focus on a review on the gas market export mechanism, extending the ACCC's review of the gas market through to 2025, also made reference to further reviews into the pipeline sector. I think we don't have detail exactly what all of that will entail across all of those aspects that they announced. What we can say is that there is an existing regulatory impact statement review underway that's already been planned, we would expect that any additional reviews into the pipeline sector, should there be any further reviews, would be incorporated into that existing regulatory review.
Okay. That's helpful. Yeah. I appreciate that you don't want to speculate on what they may look like, but are you able to perhaps remind us of any recommendations made to the government in prior years that haven't been implemented, for whatever reason, which may again surface through this process?
James, if we go back to the review done back in 2015, 2016, which culminated in some recommendations and ultimately the setting up of the Gas Market Reform Group, headed by Michael Vertigan. Importantly, what came out of that review was to introduce a number of measures. One was increasing the amount of information. What's flowed from that is an increase in reporting and transparency to, I guess, balance the information asymmetry. The customers have got more information when they're dealing with pipeline operators. That's one initiative that is underway, and we've actively, as I said in my presentation, actively engaged in that. The other aspect of what came out as part of the gas market review was the introduction of secondary markets.
Again, we've actively engaged with that, and since March, we've had the platform available for capacity trading and also the auction platform, and we've seen quite a bit of activity on that auction platform. Thirdly, the other initiative recommended by Dr. Michael Vertigan was the introduction of a more formalized process of customers being able to formally ask for access, and should they not get access to pipelines on terms that they feel comfortable with, to go down a process of arbitration. That process again has been in place since August 2017, and as I pointed out in my presentation, we've actively engaged with our customers and continued doing what we've always done, which is negotiate outcomes that work for both ourselves and our customers.
Why I've gone back in a bit of history is it's fair to say that we need to let all those initiatives work and do their bit. I think it's really way too early to start to think about what else might be required. Those are the recommendations that came out of that detailed review, and those recommendations are in the process are either being implemented or have been implemented or are on their way to being implemented.
Okay, fine. Thanks. Just a second quick question on Dandenong. Would you proceed with that if the government didn't underwrite it?
Look, I think certainly that's a prospective site where it's located close to gas source, close to electricity transmission lines. What it needs is a customer, and we're working with number of parties in that regard. As we said, it's been shortlisted in the government process. Like any project for APA, it's got to meet our investment hurdles, and this one will be no different.
Fine. Okay. Thanks, Rob.
Thank you. Your next question comes from Ian Myles from Macquarie. Please go ahead.
Good morning, guys. Congratulations on the result. Just looking at your guidance, based on the comments, you've got about another AUD 120 million of sort of growth revenue from your historical CapEx program. Applying the margin that the program got this year, that sort of leads to about a AUD 100 million uplift. With the fact that you don't have the CK expenses and Mick's retirement in, there's another AUD 11, and you put a CPI increase in there of AUD 100, you get up to another AUD 20 million or AUD 30 million. That's a bit above your guidance. I was going, what are the headwinds in the business that are sort of working against some of that growth coming through?
Thanks, Ian, and thank you very much for your comments around the result, which is another solid result for APA. In terms of the guidance, I might just hand that question to Peter Fredricson, who can comment in some more detail.
Yeah. Thanks, Ian. Expect nothing more from you than the detail that you've gone into. What I've mentioned through the presentation is that FY 2020, the Wallumbilla Gladstone Pipeline.
Revenues that come through will be at a higher FX rate than what we had in FY 2018. If you have a look in the Directors Report, you'll see those rates there. There's between AUD 10 million-AUD 15 million of difference there alone. I think the other thing that we probably expect is that, as we look at inflation, you've seen from this, we said about 1.5% has come through in FY 2019. 1.5% is below what we have seen as the general CPI in both AUD and in both Australia and the U.S. in FY 2019. It means that we're not getting 100% of CPI across the board. We would also see CPI coming down in FY 2020 relative to FY 2019. There's a little bit there.
We've certainly got a number that sees that AUD 125-odd million of revenue coming through in FY 2020 contributing, and we've certainly got a number that sees the AUD 1,660 as a bottom end and the AUD 1,690 as a top end.
Okay. Two other questions. Firstly, Beelbie Solar Farm. I think you've got the development approval, what do you need to actually be able to progress that project further? Are there transmission capacity constraints existing up there as well for the farm?
Ian, I'll direct the question to Sam Pearce, who'll probably be able to give you a little bit of color.
Hi, Ian. Thank you for the question. The short answer is we need a customer who's willing to sign up for a long-term offtake on that asset. The position of that asset is very good in terms of grid, so that's not a particularly relevant issue for us. It would connect into the transmission grid, essentially at the same point as the Darling Downs Solar Farm. The primary issue for us to get that project away is making sure that we have a customer who's willing to provide us with the long-term contract that we would need to press the button on it.
Is that a practical expectation given the PPA lengths have been shortening and you're getting down as short as five years now?
That's certainly the case, that the market is changing. We continue to work with our customers and see what we can do to meet them. The market in Queensland in particular, for solar, there's lots of solar projects coming online, but a lot of them are struggling and a lot of them don't have the same benefits that Beelbie does in terms of its location on the transmission grid. We continue to talk to customers. There are some that remain interested in it, and we will continue to work with them.
Okay, one final question. With Ross heading off to the U.S., who runs the Australian strategy?
Ian, you would see in my last slide, where I talk about priorities in financially 2020. Alongside reviewing our purpose and vision and strategic imperatives, we're also doing a review of our operating model. As you can see, one of the first decisions I've made is to have asked Ross if he'd locate to sunny Houston. One of the fallouts of that is working out how we organize ourselves here for the rest of the business. Like I said in my comments earlier, that once we've completed that review, if there's something to announce, we'll be sharing that with the market.
Okay. Look, that's great. Thank you very much.
Thanks. Thanks, Ian.
Thank you. Your next question comes from Peter Wilson from Credit Suisse. Please go ahead.
Auctioned in the month of July. Quite a bit of volume, most traded at AUD 0.
Sorry-
My apologies, Peter. The speakers missed out on the first half of your question. If you could just repeat that one more time, please.
Okay, hopefully you can hear me. Just a question on the day at auction, there was five petajoules auctioned in July. Just wondering if you noticed any impact on your interruptible revenues. I'm assuming most of these trades were services which would otherwise not have happened. Just wondering if you've seen any impact at all.
Peter, thanks. I only caught about three-quarters of the question, but I think you're asking about auction activity on the platform since that kicked off in March. Is that correct?
As I see, there was five petajoules traded in July, so reasonable volumes. I'm wondering whether you've noticed any revenue impact on your interruptible revenues.
Peter, I think when you're looking at those numbers, and I don't have those numbers to hand, but we have to understand also that there's capacity traded on the multiple pipeline legs that actually help deliver gas to where it's going. Whether the 5 petajoules, as you referred to, is the sum of the capacity on all the separate pipelines or whether it's a number that's actually been traded from a net gas perspective, I can't comment on. What I can say is that, we fully expected this auction market to deliver some more liquidity into the market. We haven't had any noticeable impact just yet on our variable revenues as such. As you rightly pointed out, this auction relates to capacity that's already contracted but not been nominated for the next day on a day-ahead basis.
It's not revenue in so much as we're losing out on, it's additional services that customers are taking advantage of as part of the new market services.
I think, Peter, the other thing to think about is, clearly in the waterfall chart, we're seeing about AUD 12 million reduction in what we call variable revenue. If you have a look at slide 13, we are still getting around 1% of revenues in the business from that flexible and short-term other services. If you go back a couple of years, you go back three or four years, that number's been, I think, as high as 1.7%. It fluctuates, and it moves around, and we've always said that's not a number that we're going to live or die on because it's nice to have, but our business is about long-term contracts with our customers, and that's really where we come from.
Yeah, there's been some movement, but there's been movement every year for the last five in that number, and there'll be more movement next year, and it could go up, or it could go down. It depends on the things that our customers want that may not be accommodated by that Capacity Trading and Auction System.
Okay. If you can hear me, the Galilee Pipeline, so there's now two proposals, yours to connect to Moranbah and Jemena's to connect all the way to the East Coast Gas Grid via the QGP. Can you talk about the relative merits of the route that you're choosing and whether it's a case of only one pipeline gets up or both might go ahead?
Peter, it's Rob here. I can't necessarily comment on what Jemena's strategy is. That's for them to comment on. What I can say is that our focus is making sure that we connect supply source to a market. That's the focus of that proposed Galilee Moranbah Pipeline, and the next stage of that potentially is to connect that into the East Coast grid. First stage is about bringing gas supply, available supply to market demand. That's what we're focused on, which is why we've entered into that memorandum of understanding with Galilee and Vintage, sorry, Comet Ridge and Vintage, and why we're focused on putting people in the field to start working on that pipeline route.
Okay. I'll leave it there. Thank you.
Thank you, Peter.
Thank you. Your next question comes from Joseph Wong from UBS Equity Research. Please go ahead.
Hi, guys. Just two questions from me. Maybe we'll start, I guess, on the contracting book. The tenure looks like it's gone down this year. Just wanted to understand what's driving that. Is it a case of more new customers signing shorter-term contracts, or just contracts rolling off with a shorter tenure?
Good day. It's Rob here, and thanks for your question. Look, I think you probably answered your own question in the sense that we do have, from time to time, and every year will be a little bit different contracts coming off, others coming on. Contracting new infrastructure on longer-term contracts will generally drag that weighted average up. I don't think there's one particular reason, and as I made in some of my comments earlier, what we tend to find is that renewal contracts will be on a, given the state of the gas market as it is, renewal contracts typically are for a shorter period. You will start to see the variation from year to year in the weighted average contract tenure. No particular reason to note.
Okay. maybe if I can now switch to the U.S.
Maybe I could add to that. I think the other thing to keep in mind is this, that when you look at last year's number, we are now effectively, if you look at last year's number as being 12.7, absent any changes, this year's number should be 11.7 because we're a year further into those contracts that made up the 12.7 last year. We're at 12.3 this year. What's happened is that we've added more. The pure math of this will say that every contract we have tomorrow will be a day shorter than it was today. The important thing from our perspective is that we continue to add stuff, and we continue to stay in this sort of 10-plus area. We will continue to do that, and we've continued to do that for a number of years.
Okay. I guess if I move to the U.S. I guess there was a comment on terms of the U.S., the returns are looking quite attractive. I guess, where do you see the returns in the U.S. compared to Australia, and do you see risk of that returns coming down given the current FERC review on the ROE in the U.S.?
I think we have commented in the past on what we see as more attractive returns in the U.S., as you've rightly pointed out. I've got Ross Gersbach here. We've said that we'll be relocating to Houston in a short while, and I might just ask him to comment more specifically on that question.
Yeah. Thank you. I think all I could say is there's still a significant gap between the returns that are likely in the U.S. versus the returns in Australia. Part of where those returns are going will fundamentally be part of our due diligence.
Is there any guidance on what that spread is between the U.S. and Australia?
I think we've spoken in the past that your 9%-10% equity returns currently, which is almost double what you've got here.
Last time, it was 9%-10% in the U.S., and what was it in Australia?
Which is based on recent returns, almost double the type of returns that you're receiving here.
Okay. Those are the two questions from me. Thanks.
Thank you.
Thank you. Your next question comes from Daniel Butcher from CLSA. Please go ahead.
Thanks. Look, most of my questions were asked, but I just wanted to follow up quickly on the U.S., if I could. You spoke about the returns. Maybe you could speak about the opportunity set size in terms of have your criteria changed at all since we last spoke to Mick? Maybe you could outline to us how many things have come across your desk that are within the opportunity set and meet your criteria over the last two years that you haven't jumped at.
Thanks, Daniel. Rob here. Look, the criteria, what we're looking for, as I pointed out earlier in the presentation, I'm a big supporter of us doing the due diligence in the U.S. and the U.S. being a potential part of our growth strategy. In terms of size and scale, our thinking hasn't changed, and the way I would characterize it is, it's got to be big enough to make a difference, but not so big that we bet the farm. We've got a very robust business here in Australia that we want to continue to look after. Would you mind just repeating the second part of your question?
Oh, sorry. I was just wondering how many deals you've seen come across your desk in Houston so far in the last three years that you've been?
I think what I'd say is that one of the reasons we're sending Ross over to the U.S. is to increase our focus there. There is a fair bit of activity. Ross, did you want to comment further? Just remind that we were somewhat hamstrung during the CPI process. Rest assured that we're rich in opportunities in terms of the number that investment banks come through the door. We are quite particular in what we're looking for. Needless to say, we wouldn't be going there unless we thought there was a range of opportunities that fit the bill.
All right. Thanks. That's all from me.
Thank you, Daniel.
Thank you. Your next question comes from Rob Koh from Morgan Stanley. Please go ahead.
Good morning, guys. Can I just ask, I guess, a qualitative question about your EBITDA guidance, which you've increased the range from historically AUD 25 million to an AUD 30 million range, still an extraordinarily narrow range for a company of your size. Can you just remind us of the key moving parts in there? I guess U.S. CPI for Wallumbilla, Gladstone, timing of growth projects, and a bit of interruptible revenues. Is there anything else that drives whether you're at the higher or the lower bands?
You got it, mate. You've got the lot of them. At the end of the day, CPI is what CPI is, and you and I both know that it's at the low end of the range in terms of expectations. You can pretty much work out what the effects impact of the Wallumbilla, the Gladstone revenues are. Then it does comes down to timing of revenues, et cetera, including if Orbost comes on the 1st of October, it'll be different than if it comes on the 1st of December. That's where we're at. Probably all I can help you with, to be fair, Rob.
Yep, no worries. Thanks, Peter. Sounds good. One other small component of guidance, I guess, is the stay in business CapEx, which historically you've said is around the AUD 100 mil mark, and you beat that this year a little bit. Should we still be thinking that order of magnitude next year or so?
The guy that spends all that money is sitting in the front row here, he's just smiling that he's gonna get an uptick, the answer is yeah, probably that number is the long-term number. Our expectation is that it does fluctuate around there. It's pretty much dependent on when we're spending money on rotating kit above ground more than anything else. That's what drives it higher in any given year. We've got more of that stuff than we had five years ago, as you'll know. Look, AUD 100 million is as good a number as we can think about today, it will fluctuate around that.
Yep. Okay. Sounds like no change to previous sentiment. If I can turn to the other reporting that you guys have to do under Part 23, I guess it looks like you'll be needing to do some kind of RCM and RFM asset base on the light regulated assets too. Can you perhaps, in general terms, give us a sense of why those numbers can differ from statutory disclosures? I guess I'm really only asking because I'd hate for some investor to ask me to reconcile them, to be honest.
Rob, they're not reconcilable, you need to tell your investor that. The way those numbers are put together is we're required to come up with a methodology, which we've done. Effectively what we're looking to do is put together a set of pipeline financial statements as if each pipeline was operating as a standalone business in its own right. There are inputs into a set of financial results for those pipelines over many, many years from the beginning of time in respect of each pipeline that are determined by expert advice to us and applied in the context of the process that we have determined there should be. If we aligned all of those sets of accounts and added them up, you're not going to get to APA's financial outcomes. They're totally different things.
Thanks, Peter. They are for different purposes. It's very helpful what you've explained there. Just a last final question for me about long-run futures. Australia is, I guess, working up on a national hydrogen plan. Can you comment on the suitability of your asset base to a little bit of hydrogen going into the gas mix and any other future growth options that come out of that?
Rob, thanks. It's Rob responding to your question. Look, there's quite a bit of interest in hydrogen, not only in Australia but globally as well. We've got a number of our people following that quite closely. When you start talking in the hydrogen space, it depends whether you're talking hydrogen in its pure form or whether we're talking another option, which is renewable methane. The short answer is we're looking at it closely. We've got a couple of projects that we're kicking off to test how they can work in some of our assets and including also producing renewable methane. I think it's really early to say how that could work in the longer term and despite all the excitement that there is across the industry.
Okay. All right. Sounds good. Thank you very much, gents, and good luck. Cheers.
Thanks, Rob.
Thank you. Your next question comes from James Niven from RBC Capital Markets. Please go ahead.
Hi, everyone. I just had a question on the distribution payout ratio. At the moment, you're able to fund all your growth CapEx from operating cash flows. Then you talk about when you potentially make an acquisition, and that would be like funded appropriately between equity and debt. Just wondering, how that could evolve going forward. Is there like a drop-dead date potentially on when you might look at a U.S. acquisition? If you do look at some sort of external acquisition, and then would you revert to some other kind of payout ratio where you're funding the growth CapEx from a mix of equity and debt, and you could potentially increase that payout ratio?
It's Peter, Fred. I'll let Rob talk about whatever drop-dead dates there are. Philosophically, we've always said that we will fund. I think we've moved away from what's called a payout ratio. We don't talk about payout ratios anymore in the narrative. The reason for that is that we're looking to increase distributions to shareholders or security holders on a sustainable level in line with our policy. We're also looking to ensure that a standard CapEx year is funded on the balance sheet if it can be, because that adds better value to what our shareholders are receiving longer term. That's the way we've done things. I think we've said in the future, if we don't have things to spend the money on, we'll do nothing different. We'll continue to increase distributions generally in line with operating cash flow.
Will we pay out a whole lot more if we've got no growth CapEx? We've got to keep in mind that we've got a debt book of AUD 10 billion. Net, let's call it AUD 9 billion, which is over 20 years, AUD 500 million a year. My view is that if we didn't have stuff to spend on growth, which continues to support a debt portfolio like that, then we'd be allocating some of that extra cash flow to reducing our debt as well. You've got to keep a balance here. That's not saying we've got a policy of anything in the future. What we say is that we'll look at this on an annual basis based on what our capital needs are and what the economic conditions are, and that's the way we've evolved everything we've got now.
James, Rob here. Just to add to what Peter said, I think you had a question around a drop-dead date on a U.S. transaction. I can absolutely say we've got no drop-dead date. As Ross said a little earlier, we're quite particular around what we're looking for. We're going to make sure that what we do is straight down the fairway and it's accretive to adding incremental value to APA. Those are our criteria, and we're not going to set a timeline. We're going to make sure that we do what's right for our security holders in the long term.
Okay, thanks. Just a further question there on that growth, the CapEx growth pipeline, and just trying to get a feel on a few conversations on your renewable projects and the way the market is kind of moving towards maybe shorter-term PPAs. How does that affect your potential growth CapEx? Would you be maybe looking more then as more likely to be kind of gas infrastructure projects, and thus if the demand isn't there from customers for longer-term PPAs that APA would normally require to underwrite projects? Maybe there's less likely you're going to be able to fund renewable projects? Maybe if you could also, I don't know if you can comment on, it looks like there's potentially a lot of capital kind of chasing some of these renewable projects if there is a long-term PPA?
Is it harder to meet APA's requirements and investment hurdles there?
Right. James, I'll have a crack at trying to answer that. The way to think about this is, number one, if we go back a number of years before we announced that we had a pipeline of growth projects totaling in the order of AUD 1.5 billion. That was in the FY 2016 period, I think, from what I recall. The reason we did that is we had what we could see as a bigger pipeline of projects. Prior to that time, we talked about a 3 to AUD 400 million per annum growth CapEx range. What we're doing now is we're reverting to that same guidance. We've gotten past that larger pipeline of AUD 1.5 billion worth of projects. If you look at our long-term average, it's in that similar range, as I think I mentioned earlier.
As to what exactly that mix of projects is ultimately going to be, will be determined by what our customers want. We've got strict investment criteria as to how we think about things. We'll ultimately be driven by the mix of where our customers want energy solutions, whether it be wind, solar, gas pipelines, gas processing, or anything else for that matter.
Okay. Thank you.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Nathan Lead from Morgans. Please go ahead.
Hey, guys. Just a couple of clarification questions here. Corporate costs run rate at the moment. It was AUD 80.1 million, take out the AUD 11.1 million. Are we running at AUD 69 million or is there some lumps and bumps in there?
Nathan, there'll always be lumps or bumps, they're not AUD 11 million a year lumps and bumps. I think we've talked about AUD 70 million-ish. What you'll see in there, in that waterfall, you'll see another three that this year is an extra three that we didn't have last year that we talked about being in the context of putting together Part 23, and financial statements, et cetera. We've also said those become part of the cost base going forward. Might not be as high as that going forward, there's an incremental increase in cost. You look at what's the vast majority or a reasonable part of that 69 today, and that's personnel costs. Governments globally want to see personal wages go up. If you apply CPI to those sorts of things, it may be a little bit more.
It's always gonna be off that base, but I don't think you're gonna see it at AUD 80 million next year, absent an unexpected cost as we sit here today.
On Slide 14, the stay in business CapEx, you've broken that apart now with stay in business and IT CapEx. Previously we were sort of, I suppose, conditioned to thinking about the number from last year being sort of averaging around that AUD 100 million, and we've now got stay in business at 93 and the IT at 25. Are we thinking the 93 number this year should jump around the AUD 100 million and then there's a IT CapEx component separate to that?
Yeah. That's generally the thought process.
Yep. What's that run rate? You talked in the presentation, I think, about having AUD 7 million of abnormal this year. Is it the AUD 25 less the AUD 7 or is there always some sort of project coming through that'll keep that around that AUD 25 number?
That 25 number has probably been consistent over the last seven or eight years now, to be fair. There's a reasonable chunk of that 25 has been spent on the APA grid in itself. Again, 20 to 25 is not a bad number. I remember listening to one of the major banks tell us four or five years ago when they first set out on spending, thinking that they had to catch up with the market. They thought that spending AUD 1.5 billion a year, AUD 1.5 billion in the first year, and that'd be it. It's been AUD 1.5 billion every year since. From our perspective, I think that number is a reasonable rule of thumb, to be fair.
Yeah. Okay. The last one from me. Obviously, the big thing that's happened out there, probably since even the last result presentation, is this just rapid drop in the bond rates. How are you thinking about project returns going forward within that low interest rate environment? Are you recalibrating your thinking?
Nathan, Rob here. Look, I think, we obviously look at what's available in the market relative to what our cost of capital is and make sure that we're always, for every dollar we spend, we're adding value for our security holders. The fact is, if we are seeing a lower for longer future, then we will, in order to be able to respond to and compete in the marketplace, we will no doubt have to adjust our expectations going forward. That's just responding to what's available in the market.
Have you got a corporate cost of capital that you've to recalibrate every once in a while? Have you done that recently?
Yeah, we do, Nathan. The point is this, and I think it's sort of borne out by the fact that the average cost of debt for the year is 5.5%. People say to us, "Well, why haven't you refinanced the whole book, and why aren't you paying 3.5% now?" The thing about our business is because it's a long-term business and because we've been issuing debt in markets on a regular basis to ensure that we don't have a once-off sort of debt shock or repayment shock or refinancing shock in the future, what we've got is a portfolio of debt that's been raised, as we sit here today, between 2003 and 2019. We've got a portfolio of debt that's been raised over 16 years.
That means that there are 16 years of debt costs involved in what we've got in our book today, which means that we can't just sit here and say, we'll base our cost of capital on what AUD 10 billion of debt today is at today's rates. The answer is we play around with stuff. We look at it all the time. One of the messages that we send to anybody is that when we invest in a dollar, we expect that investment to be operating cash flow per security accretive. That's our guideline here.
Okay. That's it for me, guys. Thanks for your presentation.
Thank you, Nathan.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Wheals for closing remarks.
Well, thank you very much, everybody, for listening today. Appreciate your time and I'm sure we'll be catching up over the next couple of weeks to talk more about our results. Thank you very much.