Earnings Call: H1 2019

Feb 19, 2019

Slides

Good morning, and welcome to APA's twenty nineteen Half Year Results Presentation. I'm Mick McCormack, APA's Managing Director and CEO. With me in our Sydney office is APA's Chief Financial Officer, Peter Fredriksen. And together, we'll take you through the presentation and results lodged with the ASX this morning. I also have my group executive team here to assist in answering any questions, in particular, Ross Gersbach, Strategy and Development Rob Wheels, Transmission Sam Pearce, Networks and Power Kevin Lester, Infrastructure Development and Ivanka Kodavall, Governance, Risk and Legal. And the only one missing is Elise Mans. I might as mention her. Oh, sorry, Elise is here. Look like applying for a job or something. Right. I'll start the call today with an overview of APA's results for the first half of FY twenty nineteen. Peter will then run through the numbers in more detail, including our full year guidance for 2019 before I conclude with some comments on our outlook. We'll then take questions from analysts and investors who are on the call. Questions from media will be addressed during the media interviews following today's results. Looking at Slide four, a brief summary of our first half financials. A solid set of interim results that confirm we are on track to achieve full year 2019 EBITDA guidance. The results are in line with our expectations. And despite the market possibly thinking we may have been distracted last half with the CKI transaction, our results show that we remained firmly focused on getting on and running the business despite the additional corporate activity going on. APA has always been an active business. You just have to look at our growth record over the last eighteen years. Indeed, you'd have to say one of APA's key strengths is that both the business and the 1,800 or so people that work for us dealing with change and managing multiple large scale projects at any one time is business as usual for us. Revenue excluding pass through revenue was up 6.1% and for the first time tipped over the $1,000,000,000 mark for the half year as a result of new assets coming online and contributing new revenue. We remain confident that the significant revenue uptick in the order of $215,000,000 per annum will occur from 2020 or FY 2020 as a result of the $1,400,000,000 plus of growth CapEx investment since FY 2017. Net profit after tax was up 27%, and EBITDA grew 4.3% to $787,700,000 Operating cash flow was up 1.7 to $470,200,000 but OCF per security was down 3.9%. This was due to the adjustment in the first half FY 'eighteen for the issuance of new staple securities in March 2018 following APA's $500,000,000 capital raising to help fund APA's largest growth program to date. The Board this morning confirmed interim distribution for our investors of $0.02 $15 per security and an increase of 2.4% or $0.5 per security over the previous corresponding period. And we're able to attach franking credits of $0.32 per security to the interim distribution to be paid in March, which, again, is good news for our investors. Given the solid first half results and looking ahead at the second half forecast, we are happy that we will deliver another set of solid results for the full year come June 30. Turning now to Slide five. So how have we delivered these results? Importantly, we put our customers front and center of our business and asked them as well as ourselves what is needed from APA to provide more flexibility and services to Australia's energy market? What improvements to our processes and systems can we make that will have a benefit to our for our customers? And we've had this approach for many years now, which resulted in a three year program totaling over 1,400,000,000 of committed capital organic growth projects. With many of those projects now commissioned, the incremental revenues are now starting to have a positive impact on our numbers. The new Reedy Creek Wollongbilla pipeline in Queensland, which is underwritten by a twenty year contract with APLNG, had its first full half period of contribution, providing APLNG with flexible access to the domestic gas market. In Western Australia, the new Mt Morgans gas pipeline has made a big difference to the reliability of power availability, generation and cost for the Dacian Gold mine. It might only be four kilometers in length, but its significance and benefit lies in its connection to APA's 1,200 kilometer interconnected grid that is now providing a reliable and cost effective supply of gas to several mine customers in the Goldfields region. 130 megawatts of new solar renewable energy is contributing new revenue for APA in the second half with Emu Downs in WA and Darling Downs in Queensland now fully operational. Importantly, the new energy sources are providing Synergy and Origin Energy, respectively, with access to renewable energy that their portfolios were seeking as well as the large scale generation certificates required under Australia's Renewable Energy Target Scheme. In preparation for new gas to flow from Northern Territory sources into Eastern Australia in the second half of FY 'nineteen, we've readied the Carpentaria gas pipeline by making it bidirectional during the first half. This is already providing the tight East Coast gas market with more flexibility in where gas supplies can be sourced from. In addition, we are in the process of reviewing pipeline capacity on the Southwest Queensland pipeline and Moomba Sydney pipeline in particular as this has become well and truly the gas highway that supports Eastern Australian domestic energy requirements. Access to new gas supplies is also critical to put downward pressure on domestic gas prices. And we continue to work with our customers, Santos in New South Wales on the Western Slopes Pipeline project and AGL in Victoria on the Crib Point Pakenham Pipeline project. Both of these APA projects are subject to FID approval of the gas projects by Santos and AGL, respectively, but we continue to work alongside our customers to progress those potential new gas supply sources. From an internal perspective during the half, we continued our dedicated focus on improving safety metrics and improving on FY 'eighteen's performance. The large amount of growth project work in recent years has meant an increase in contractor usage, and with that has come some challenges in ensuring their level of safety management is consistent with APA's stringent standards and processes. Pleasingly, for the half, we reported a significant improvement in our safety metrics period on period, with lost time injuries reducing from seven to three and medically treatable injuries dipping from 19 to 16. However, zero harm remains our target for anyone working for APO. Turning to Slide six and a review of where our three year committed CapEx program is at. Firstly, you can see from this slide that our growth has been both Australia wide and asset diverse. And it's the combination of these factors that has added to the depth and diversity of APO's energy infrastructure portfolio and their resilience to dynamic market conditions. We're not sector specific, asset type, resource, state or customer dependent. I've long talked about APA's growth focus through leveraging our expertise as well as APA's existing asset base, and the projects on this map are testimony to that successful strategy in action. Looking at Western Australia as an example. Since 2016, we've added just over 500 kilometers of new pipeline connected to the gas Goldfields gas pipeline. Additional compression, some looping as well as the power station to provide services for four new customers in that mining region. Each customer had specific needs, which we've been able to tailor our system to. But the linchpin of these expansions has been leveraging the Goldfields gas pipeline. For APA, this type of organic growth not only benefits our customers, who in this part of the Australian Outback can now rely on an uninterrupted supply of gas for their operations twenty four hours a day, seven days a week, but it grows our portfolio, and we add value to the long term existing assets within our portfolio. The majority of the CapEx projects remaining under the three year program are either in commissioning phase or heading towards commissioning in this current half. The Orbost gas processing plant will be the last of the projects to complete. It's been a huge refurbishment project and testament to our very experienced infrastructure development team headed by up by Kevin Lester. We're on track for commissioning and expect to deliver on spec gas from July. That asset is well located and holds excellent potential to produce new gas sources well into the future in support of gas exploration in the Gibson Basin. And with that, I'll hand over to Peter. Thanks, Mick, and good morning, everybody. I'm on Slide eight. As Mick noted, we are pleased that the half year result has delivered as we expected and as we guided to in August. The result shows the stability and predictability of the business as notwithstanding the CKI proposal that was on foot for the vast majority of the time, our 1,800 people delivered a solid result across the board. Generally, the Energy Infrastructure assets portfolio has performed well, delivering an increase in EBITDA of in excess of 5%. Interest expense has come down as we have dropped off some more expensive debt, such as the whole a whole half year without the subordinated notes. And the increased capital expenditure on major projects has seen a somewhat higher level of interest capitalization year on year. Tax expense continues to rise, as you would expect, against rising profits. And operating cash flow has increased, notwithstanding an increase in tax paid for the period, with the only impact on operating cash flow per security being the issue of the new securities at this time last year when We raised $500,000,000 of new equity in support of that $1,400,000,000 plus growth CapEx program. We've seen revenues start to flow from these projects, but we will see larger inflows in the second half and in FY 'twenty, as previously noted. Moving to Slide nine. The energy infrastructure portfolio has delivered 5.8% growth overall. As particularly in the East, we continue to see the benefit of the East Coast grid and the large number of multi asset, multi service contracts now in place. The only meaningful reduction in EBITDA was in Victoria due to a lower amount of gas powered generation and where the VTS saw a new access arrangement that came into effect on the 01/01/2018, deliver a first half result that had lower revenues than the previous access arrangement in the six months to the 12/31/2017. Corporate costs have delivered a negative impact for the half as we booked in the order of 11,000,000 of costs associated with the CKI proposal and with the managing directors' impending retirement. Absent those costs, the annual corporate cost run rate continues around the $60 million a year that we have delivered to over the past couple of years. Slide 10 is new to the presentation deck this half. In response to feedback from investors and analysts, we have tried to give you more detailed information with this set of results. We will look to maintain this level of information going forward as we are of the view that it will help investors better understand where the growth in our business is coming from. The waterfall shows the extent of tariff escalation from CPI related adjustments. Foreign exchange impacts year on year in respect of WGP revenues and EBITDA EBITDA contributions from new assets commissioned in the period and new contracts or renewals achieved throughout the reporting period. You will see from this slide the fact that variable revenues are down by around $7,000,000 period on period, in part due to a reduction of nonfirm services but also due to customers shifting services from variable to firm. We've always said that variable revenue was neither predictable nor taken for granted in our business. We also don't try or don't rely on it for our growth. The result shows growth from new assets, tariff escalation, new and renewing contracts plus modest increases in asset management and investment income, combined with foreign exchange gains realized in the WGP revenues, more than offset reduced variable revenue and those once off corporate costs within the reporting period. One of the more pleasing aspects of the result is that when we exclude the once off corporate costs, EBITDA grew by 5.8% over the previous corresponding period, demonstrating solid growth and ongoing momentum in the business. All of which leads to confirmation of our low risk business model on Slide 11. With an excess of 94% of revenues coming from investment grade counterparties and 92% of revenues coming from capacity charges, regulated and contracted fixed revenues, we have continued to drive business growth without changing the mix in these areas in any material sense over a significant period of time. Likewise, the industry breakdown has not changed materially over the last four or five years as we have added significant growth in the infrastructure portfolio. All in all, the average contract tenure remaining above twelve point five years and all other qualitative measures remain maintaining historic levels, investors can see what APA will deliver over the long term. From an owner and operator of energy infrastructure underwritten by long term contracts with highly creditworthy counterparties, investors have seen growth filter through into financial results without any material change to the longer term low risk investment profile. Slide 12 is another new slide that is looking to concentrate on what has been happening in the commercial space, that is our business, especially since the introduction of the GMRG rules in 2017. Since 08/01/2017, we have signed some 120 contracts for services with customers across our gas transportation network. Of these, 30 relate to recontracting of firm services with existing customers across our infrastructure. The other 90 odd contracts have been for new services or non firm flexible services or other variations such as the addition of a new delivery point across the East Coast grid in particular but across the whole portfolio in general. This confirms that we are getting on with business and delivering what our customers want with renewals and new contracts across the business. Notwithstanding that renewal contracts are generally for shorter periods than the new contracts that support significant capital spend, the growth in the business has seen the revenue weighted average term of contracts continue at levels above 12.5 in FY 'nineteen. Turning to Slide 13. We've spoken a bit we've spoken a lot in the last twelve to eighteen months about the growth CapEx program that we have in front of us. Before August 2016, we were spending between 300,000,000 and $400,000,000 a year on growth CapEx. Then in August 2016, we said we thought it would be around €1,500,000,000 over the next three years. We weren't certain as to the timing, but we were pretty sure that those projects were there and that growth was there. Our customers need the infrastructure, and we're happy to build it, own it and operate it if they are there for the long term. With $260,000,000 spent in the first half, we're confident that the $425,000,000 spend we guided to in August will complete in FY 2019. That would complete that $1,400,000,000 plus spend. But beyond that, we remain confident of our 300 to $400,000,000 per annum of growth CapEx over the next two to three years at least. Again, we have a track record for delivery of not only the financial results but the assets to enable our customers and APA to grow. You've seen this slide, Slide 14, since August 2017, and there have not been a lot of changes to it. The main changes are clearly in respect of completion and commissioning time lines. And in the first half, we made significant progress towards commissioning the Yamuna pipeline and associated Gruyere Power Station, Darling Down Solar Farm and the Badgingarra wind and solar farms. We have around $14,000,000 of EBITDA in the first half from assets that had not contributed in the prior corresponding period, and we will see revenues flow in over the remainder of the financial year that will bring us to around €70,000,000 of revenues in FY 'nineteen from these new assets. This is marginally below the €75,000,000 in revenue that we had guided to for these assets previously in FY 'nineteen, but the differential is timing of flows only, and we will ultimately pick up these revenues through the duration of the relevant contracts. We remain, though, comfortable that the EBITDA contributions in FY 'nineteen will be at or around the numbers originally expected, and hence, our guidance confirmation later in the presentation. I'm now on Slide 15. The half year was relatively quiet from a capital management perspective as we put in place two new $500,000,000 syndicated debt facilities for periods of five and five point five years, respectively, out to July and December 2023. Through the CKI proposal time frame, we saw both rating agencies put our ratings on positive outlook due to the credit support that would have come from the higher rated CKI if the transaction had have closed. When the proposal was terminated, both rating agencies were both ratings were returned to stable outlook, reflecting the fact that we remain in a comfortable position from a balance sheet and rating metrics perspective. During the period, we did unwind the cross currency interest rate swaps that had converted the 2022, the $20.22 euro euro issue we undertook in 2015 into U. S. Dollars. We reset those euros into Australian dollar liabilities, received $151,000,000 in cash and were then free to convert all Wollombilla Gladstone pipeline revenues from March 2019 to March 2022 into Aussie dollars. We put in place forward exchange cover in respect of net revenues out to June 2021 at this stage. And as a result, we have locked in around $18,000,000 of cash flow benefits relative to the previous position over that period of time. The second half will see more activity as we have some $600,000,000 of U. S. Private placements and Maple Bonds to repay over the coming months. With some $1,200,000,000 in committed and undrawn bank facilities available to us. We see no rush in this regard but expect that we will issue longer term bonds at some stage in the next twelve months to further term out those facilities. Moving to Slide 16. The debt portfolio remains very efficient with average tenure of 6.4 and average cost of around 5.5%. You'll see the green and gray bars on the maturity profile here. Dollars 300,000,000 of USPPs under FY 'nineteen and into FY 'twenty and $300,000,000 of Maple bonds in the FY 'twenty zone. Ultimately, we see the capability to issue seven year bonds into FY 'twenty six, ten year bonds into FY 'twenty nine or twelve year bonds into FY 'thirty one, all dependent on available markets and pricing. APA has a 144A program and both an AMTN and EMTN program in place, each of which gives us access to the most liquid debt capital markets globally. We remain of the view that we can issue into longer term bond markets in any of the aforementioned tenures at Aussie dollar swap rates that are below the cost of debt that we are repaying over the next six months. Looking at Slide 17. As with the last couple of years in FY 'eighteen, APA was a cash taxpayer. All in all, we paid some $52,000,000 in cash tax for the FY 'eighteen financial year, and we expect cash tax in the order of $65,000,000 to be payable in respect of the FY 'nineteen financial year. Cash tax paid and to be paid allows us to attach €0.32 per security to the interim distribution, meaning that $0.74 of the APT profit distribution will be franked, with the remainder of the distribution being unfranked APT distributions, aptit pass through profit distributions and a capital distribution from each of the two trusts. As per our distribution policy, the distribution is fully covered by operating cash flow. It includes growth that is substantially in line with the growth in operating cash flow, and it reflects the fact that we look to retain operating cash flows in the business to assist in the funding of our ongoing commitment to growth CapEx. So finally, as to the guidance on Page on Slide 18. All the financial results that you have seen today allow us to confirm reconfirm guidance for the full year, in line with the guidance ranges that we confirmed after the announcement of the termination of the CKI proposal in November. EBITDA will fall into the upper end of the range of 1,550,000,000 to $1,575,000,000 Interest costs will settle towards the lower end of the $500,000,000 to $510,000,000 range. Distributions are expected to settle at $0.04 $65 per security for the full year, so that drives an expectation that the final distribution should be in the order of $0.25 per security. Franking credits for the full year will depend on what credits over and above the interim $0.32 per security can be allocated to the final distribution in September. As we've already noted, we are confident that growth CapEx will settle around $425,000,000 for the full year. So with that, I'll hand back to Mick, and I look forward to taking questions at the end of the presentation. Thank you. Thanks, Peter. Let's now turn to Slide 20. Without the two Cs, customers and consumers, we wouldn't have a business. It's their demand for services and their specific requirements that drive our operations. And in this dynamic energy market, our customer satisfaction continues to be a critical factor to the delivery of our growth strategy. For some time now, we have been looking at how we can continue to improve the services we offer and how we deliver them to customers. There is always room for improvement, and our customers have told us so. We have very strong relationships with our customers, many of whom we have been working with for decades now. That longevity and familiarity allows for a very honest relationship. And so when we undertook a survey of our top 20 customers last half, we got some very honest and valuable feedback confirming the things we do well and highlighting the areas where we can and must do better. In this next half, we'll be rolling out our customer promise. That is what our customers can expect and should expect from us. The APA customer promise is all about ensuring that the whole of APA, not just our customer facing staff, put our customers first. And we can only do this well if all our people truly believe that what's good for the customer is good for the business and where the customer is at the heart of all our decisions. The APA promise aligns with the recently launched whole of industry initiative, the Energy Charter. APA is one of the 17 foundation signatories for the charter and has been instrumental in developing this principles based approach by the energy industry to put customers and consumers first in our respective businesses. Each signatory will be held accountable every year by having to submit a publicly available report against the charter's principles and a plan for how we are meeting or making progress towards the charter commitments. Reports will be evaluated by an independent panel and our and other stakeholders, and evidence based measures and metrics are required. So a fairly robust and public process that customers will have access to. Nawankar Kotabal, our Group Executive of Governance, Risk and Legal, is the Chair of the Industry Working Group and is on this call if you're after some more detail on the charter during question time. Turning to Slide 21 and my last slide before we open up to your questions. I'll give you an update on APA's due diligence work in North America given that it was put on hold during the first half with the CKI proposal in place. APA first advised the market that we were exploring opportunities outside of the Australian market in August 2017 on the full year results call. Specifically, we indicated North America as the target focus following a global review of possibilities. We do continue to see ongoing growth opportunities within Australia, which we've clearly demonstrated over the last three years by our investment of over $1,400,000,000 in new organic growth projects, all underwritten by long term contracts with highly creditworthy counterparties. But APA has a long term outlook, and therefore, it's only prudent that the company looks ahead at what other opportunities may meet to our long term strategy, whether that be new markets or new technology. This is exactly what we have done over the last eighteen years. That is why we now have an integrated grid of gas pipelines delivering unrivaled service flexibility across Australia. So the objective for APA looking globally is still the same objective that we've had domestically, that is looking at gas infrastructure businesses that would provide a strong platform for future growth and development and that have a similar or lower risk profile to our current business. So with that, I'll hand the meeting back to our operator to open up the Q and A session. Thank you. First question comes from Ian Myles, Macquarie. Go ahead please. Hello, Ian, you might be on mute Hello. Thank you. Hi, guys. First question for you. Just a quick one on Sea Gas. That was one contract which went through a major recontracting. I was just interested to know how the revenues on that contract sort of turned out post the sort of recontracting and changing volumes on that pipe? It's Ross Gersbach. We're pleased to renegotiate new contracts on that, and they're broadly in line with the revenue that we expected at the end of the foundation contracts. Okay. And just two other questions I just want to go through. Firstly, I was a bit confused when you talk about the extension of your contract lives to twelve point five or a bit over twelve point five years. And that chart, I think on the news chart which you've done, which is great info on Page 12, sort of increased that. And in the commentary which you made, you're saying most people are signing contracts which are shorter. How does the maths work that, that contract then your average revenue tenure is growing? Well, working in the I mean, what you've got to keep in mind is this. As we sit here today and I'll sort of keep it simple. But as we sit here today, we've got a contract, let's call it, that is due for repayment or is due to end tomorrow. And we've also just entered into a contract with a twenty year contract. So the average of those two contracts, if the revenue is even or is same in those two contracts, is ten years. But if the revenue on the contract that's terminating is higher than the revenue in the contract is twenty years, then the average of those contracts on a weighted average basis is less than ten years. If the revenue in the twenty year contract is higher, then the average is higher than ten years. And so all that happens here is that we're replacing contracts that are in last year's calculation of, let's call it 12 it was close to 12.5, to be fair. I think we're talking 12.5 last year. We're replacing a contract that's in there that might have two or three months with a contract that might be three to five years, three or five years. So it all I mean, we've got a spreadsheet in the ether somewhere in the commercial team that run this. And each one of our contracts sits in there with the level of revenue, and these are the numbers that pop out. But the mathematics will keep it generally up at that sort of level if we are adding longer term growth contracts of reasonable amounts of revenue, which we have been doing, of course. Okay. Well, that's great. Thanks for that explanation. Wallumbilla Gladstone Pipeline, you've taken a U. S. Dollar hedge and brought it back to Australian dollars and I think that allows you then to move to a different currency. The average forward rates you put in the slide pack on Page 34, is that what you're now applying to the conversion for the whole of the pipeline? Or is that for just the component which is being converted back? I just got a little bit confused about the wording in your document. Sorry about that. So you'll have seen the 6,716 and the 7,301 before. Well, in fact, you've seen the 6716 before. And as we unwound, what we did was we took the and when you in the previous results, you've seen the 6716 and the numbers before that, what we've seen is that the revenues from March 2019 through to March 2022. We're in a designated relationship with the U. S. Dollars that we had converted the euros, the €700,000,000 to through that process. What we did then was we unwound that hedge, converted the Aussie dollars the euros, sorry, from U. S. Dollars back in the euros and then back into Aussie dollars. We got $151,000,000 as a result of that transaction. That money came into the bank and is available to us to use over the next four years. It increased our liability for debt by about $180,000,000 in respect of out to 2022 if we compare the rate we've hedged the euros back to Aussie dollars at versus the 0.78% that everything is otherwise in our Aussie dollar books at. So what you've been seeing before was all those revenues in from 2019 through to 2022 at 0.78. Remember, said we had those we had the hedging plus everything else at 0.78. Now what we've done is we've hedged the FY the second half FY 'nineteen, the first half, all of FY 'twenty and all of FY 'twenty one at those rates, $14,302.92, $7.01 99. The balance of everything else, which is still in the designated relationships with U. S. Dollar debt, is still determined at $0.78 Okay. So going past in FY 'twenty two, unless oil being equal, is at $0.78 That's correct, yes. And this just reflects what we said at the outset with the dynamic nature of this stuff. As we get into March 2019, what we were going to be doing is we were going to be taking a month's revenue out of that designated debt relationship, converting into Aussie dollars and having to convert some of the liability into Aussie dollars. So we did that all in one hit back in September because of what it gave us from a funding perspective. And I think we're better off to the tune of about $38,000,000 over the term in respect of that. That's great. One final question. On the you talked about the expansion or consideration of the expansion of the MSP and Southwest Queensland pipeline. Just wondering how that falls in with the consideration of the LNG terminal, which you guys are potentially developing for AGL, and whether there's a need for both in your views? Rob Wheels. Really, what that comment is reflecting is discussions that we are having with customers and what we see in the market, and we can only respond to that's what our customers want. They'll be weighing up where they're going to get their gas from and what their transportation requirements are and whether or not they'll be accessing gas from proposed terminals or not. But just to summarize, we talk to our customers and respond to what their requirements Your next question comes from Jay Byrne, Citi. Just firstly on the American acquisition. Thanks for the disclosure there. I was just wondering if you might be able to help us understand the materiality. Would have thought that it would need to be a sizable enough acquisition to get a foothold in your chosen market, but clearly not so large, just a better company. So if you could help us there understand the reality, that would be helpful. Yes. Look, it's Nick. I'll pass over to Ross, but You've actually answered the your own question. That's exactly what I was going to say. It's not worth getting out of bed to go over The U. S. And spend $50,000,000 Equally, we don't want to look at an opportunity in The U. S. That is transforming APA from an Australian based company to something headquartered in Upstate New York. So it's got to be big enough to move the dial but not so big that it will cause APA indigestion. Ross, do you want to add something? The next thing I'd add is we're looking for a platform on which to grow, and that will direct us to the type of assets. We just don't want to go and invest in an asset that doesn't have a logical growth path from point. Got it. Okay. That's helpful. Secondly, AASB 16 looks like it's not adopted yet, but as I read the notes, the financial statements, it looks like the materiality isn't going to be that large, but presumably no impact to your credit metrics. Just wondering whether there'd be a bump at all to your adjusted gearing and whether you will, in fact, increase your gearing target when you adopt AASB 16 or whether you're going to hold that flat? No. I think the right of use in respect of leases is something like $50,000,000 And you sort of put the other sides to that sort of stuff, it's not going to move the dial at all. So we're not at all concerned about it. The issue for us in terms of this is the only thing we've got really is some real estate around the country with office blocks and stuff like that, office buildings where we're renting space and motor vehicles. There's nothing really else that falls into the space. Got it. Okay, helpful. And then just a last quick one. Six months ago, the result, you said you'd had line of sight on new projects for essentially a total contestable opportunity in the market of $4,000,000,000 across pipelines, renewables and gas processing. I guess renewables is looking a little bit harder than maybe the industry would have thought last year. I'm wondering whether that's still the right number to think about. And I acknowledge that you've said you probably got line of sight, 300 to $400,000,000 of CapEx for the next few years. It's Ross Gersbach. The renewable industry out there is struggling because of the lack of policy in terms of the type of investors such as APA looking for certainty of cash flows. So we will continue to look at the renewables, but changing our risk curve to match the uncertainty in the market at the moment is unlikely. Okay. So if you were to see a policy setting that you were comfortable with at the conclusion of a federal election, then you'd probably be more willing to allocate capital? Appreciate that's a pretty open ended question. Yes. We certainly would allocate. I mean we like renewables. They give us consistent risk return profiles, the ones we've invested in to date. And if we can replicate more of those, then we certainly will under a clearer policy framework. Your next question comes from Rob Koh, Morgan Stanley. Go ahead please. Good morning, everyone. Thanks very much for the presentation. Just a quick I acknowledge it's a very nitpicking style question. The previous color on Stain business CapEx levels was in the order of $100,000,000 a year. And then this year, you're kind of saying $100,000,000 plus. And just want to make sure we're understanding that correctly, if we can. Mean, Rob, you've been looking at our wording like you look at the FOMC minutes and see looking for subtle changes in language and finding them. We probably need to be more careful. I think what we've said in the past is that we tend to think that we'll average $100,000,000 odd in stay in business CapEx over the longer term now that we own some a lot more sort of rotating kit with things like Diamantina and wind farms, etcetera, etcetera. I think we're at about $60,000,000 so far this year, and we may come in a touch over $100,000,000 We're spending 30,000,000 to $40,000,000 a year on technology as much as anything else. So there's a lot of stuff that falls into this nowadays. But no, I think what we've said is we'd expect to average over the longer term $100,000,000 and sorry if the plus sort of sent you off on a bit of a wild goose chase. No worries at all, Peter. Guess you don't leave me too much to questions. Got to look hard. Okay. Okay. Next question. And I don't we can always take it offline. But the restructure for the Eurodollar hedge, Peter, that you did, and that's obviously got the cash benefits, as you've explained. But the catalyst for that really just the cash benefits, and that's a kind of ongoing source of optionality for you post 2022? Yes, it is. And we've sort of said in the past that this is a dynamic type of an environment for that particular debt and the revenue that it's sort of in a designated relationship with. We'll look at it on an ongoing basis and see when the benefits arise for us. What we know is that and to be fair, the P and L impact of that, whilst it goes up and down because of that $0.78 and off the end of twenty twenty one, if you looked at it now and put $0.78 we'd arguably have less revenue in the P and L. We wouldn't have less revenue though in a cash flow sense. So all we've done is we've locked the cash flow in for the next few years, and we've locked the rate in that would have been better than the $0.78 that you would have seen otherwise. Sure, it's not as good as the $0.67 that we're booking this year, but I think the Aussie dollar to The U. S. Has been under $0.70 less than 8% of its total life. So anything that you've seen when we first got this stuff locked away was absolutely the best you could have gotten. And $0.7 looks like a pretty good number to us. But we'll continue to look at it on an ongoing basis. And if things work for us, we'll do it. Otherwise, we'll approach the next slot, which is, I think, from 2025. We'll approach that and work through the monthly unwinding as the strategy outlines. Excellent. Okay. Just a question on the customer promise. And you mentioned that you surveyed your top 20 customers. I guess, given that you're not primarily a retail business, we'd probably be disappointed if your customers loved you. We're probably looking for more relationship of mutual respect. Could you give us some color on the kinds of criticisms that they had of you, fair or otherwise? Rob, thank you. It's Rob Wealds. Look, generally speaking, as Mick said and I think you've alluded to, we have good long term relationships with our customers that have been there for many years. They value the grid. They value the flexibility that we can offer them. But as the gas market gets more complex, services and the delivery of that gets more complex, they're looking for us to be more nimble, be more responsive and make sure that our systems, process and people can accommodate that. So it's just about consistency all the way through. And we've got some great feedback from them, both good and bad. And I think that's all feedbacks of champions, and we know we can do better. Last question from me. And if the answer is no comment, I completely respect that. I guess with the Sikai process now terminated, just wondering if it was contemplated or explored whether there are any scenarios where APA assets could have been divested to allow the transaction. Obviously, of the initial proposal was some WA assets, but could it have gone further than that? Rob, it's Nick here. Yes, this is speculation after the fact. Who cares? It was knocked over by the treasurer on National Interest Ground. So knowing CKI as well as I know them, I'm sure they would have turned over every rock possible to get that transaction done. But you run up against politics, and that's the outcome, full stop. Thank you. Your next question comes from Joseph Wong, UBS. Go ahead please. Hi guys. Thanks for the time. Just a question on FY19 at the second half. If I just look at the first half numbers and annualize it and take out the $11,000,000 for corporate costs related to the CCI bid and the retirement of the MD, that kind of takes it to $1,590,000,000 Just wondering if there's any headwind we should expect in the second half of the year? No. Well, we've given you the guidance that we have, and we're pretty comfortable that we'll fall within that range between, let's call it, 162.5 percent and 1,575 percent. So it's not you can't always just sort of annualize these things like that, so I apologize. We tend to be very clear in our guidance, and we're pretty happy with what we've said today. And then second question is in regards to, I guess, growth CapEx. You reiterated the growth CapEx will be 300 to $400,000,000 after FY 'nineteen. Just wondering if you can give any more color in terms of where which sector looks more attractive for you? Is it more in the processing plants? Or is it possibly in potential minority stakes in LNG processing? Again, what that is, is that sort of going back, I think, to our pre August 16 guidance where typically, what we've said is we've got a huge number of projects on our radar that we're talking to various customers about, and hence, the $4,000,000,000 that we talked about. I think when we talked about them in August, we said something like $2,500,000,000 $4,000,000,000 of those were gas pipelines. But we're continuing to talk to customers about that $4,000,000,000 worth of stuff. And we've said that, that those discussions give us confidence that we'll get 300 to $400,000,000 of growth out of the discussions we are having on an annual basis. And so as we sit here today, we're not thinking that we'll spend X on something specific in FY 'twenty and Y on something specific in FY 'twenty one. What we've said is that we think that we'll generally get 300 to $400,000,000 And I think what we've tried to do in that history of sort of talking about our CapEx is just confirm to the market that we've said that for a long time, and that's what's actually happened. And so that comes from the discussions that we're having from customers and with customers on an ongoing basis. Thank you. Your next question comes from Peter Wilson, Credit Suisse. Go ahead please. Thank you. Good morning. A quick one on guidance. Can I ask how much of the additional $11,000,000 in corporate costs were baked into the original guidance? Zero. Okay, great. Absolutely nothing, Pete, nothing. Right. Can you comment on maybe what's what in your portfolio has performed better than expected then, given that you're coming in top half even incurring those costs? I think we're pretty comfortable with the portfolio across the board. Maybe Rob might comment, but I don't think anything outperformed anything else. As we said, Victorian transmission system was off relative to the previous period. We knew that was the reason we knew that was going to happen. So when you look at what's happening to regulated assets in this country, you expect access arrangements that follow to be to give you less revenue than the previous ones. So that's not a surprise to us. Everything else, I think, is pretty much operating across the board pretty well. Peter, Rob here. I'd agree with what Peter has said. There's no one particular thing that's driven the difference. It's just a little bit of outperformance across the board. Okay, great. And the contract renewals, so you mentioned you've had 120 contracts renewed or varied for a total value of $130,000,000 in revenue. A big chunk of that, I believe, is the announcement you put out towards the December, which was a $90,000,000 revenue recontracting and new services, 40,000,000 of which was recontracting and $50,000,000 was new services. Can you just unpack that a little bit for us to the extent you can? Give us an idea of what were the services the new services, what's the kind of need that those things are providing? And any contracts on the how the pricing of the recontracted services went? Peter, Rob, I'll tend to answer that question. Just to by way of clarity, the we've entered into since beginning of the new rules brought about by the Gas Market Reform Group, 120 contracts, which could be or a mix of renewal of existing firm service contracts, of which the number is 30 over that period from August. And the remaining 90 relate to additional services added, new contracts entered into new flexible services, extensions, changes in receipt points and delivery points. So those are all contractual changes. The thing I draw your attention to is that 30,000,000 of that 120,000,000 from the period January relate to material renewal of firm services over that time. And your question, how much of that what was the nature of that renewal in terms of price, what I can say is that the lion's share of that majority, well in excess of 90%, was done at the same or similar pricing in terms of the expiring contracts. What I would say is also don't mix the other statements that you might have read around $130,000,000 of other renewal and new services over a three year period. That's just one example of what we've done with the number of customers. It doesn't give you the value of the 120,000,000 or the value of the 30,000,000 that I referred to earlier. Okay. And the $50,000,000 of in revenue from new services from the agreement announced December 19, Can you give us an idea of what those new services were? That's a combination of transportation and but a big part of it is new storage services on our grid. Okay. And last one, the $8,600,000 that you so Slide 10, the $8,600,000 from new contract expiring renewals, can you unpack that at all? Is it East Coast, West Coast, Queensland? Sorry, the what can you eight point sorry? So Slide 10, in the EBITDA bridge, you've attributed $8,600,000 of the EBITDA gain, new contract expiry and renewals. We're just wondering if there's any color you can give. Is it kind of is this West Coast? Is it East Coast? Where is the positive effect coming from? It's all pretty much East Coast, I would have thought, off the top of my head here. But very little has been renewed, if you like, on the West Coast in the past six months. It's very difficult, Peter, just to break something of that amount of money down without identifying who the customer is, and we've got huge confidentiality clauses within these agreements. So what we've tried to do is give you a sense as to where the growth is coming from. What that's saying is that in respect of contracts that expired and renewed, we're getting $8,600,000 more revenue than we would have been in the past. Next question comes from Michael Morrison, Deutsche Bank. Good morning. Can you hear me? Sorry. Yes. Go ahead, please. Yeah. Thanks. Just with the new contracts and renewal renewals, have there been any customers that went or used the new arbitration system to negotiate the new or the changes or the new contracts? Rob, answering your question, no is the answer. No is the answer. Thanks, Mick. Sorry, I'm just I've got a really crackly line, so difficult to hear you. And can you give us a bit of an update on the capacity trading platform that's due to kick off in March? Yes. The new capacity trading and also auction platforms, so there's two platforms that will be in place. That new market starts on March 1, so two weeks away. We're working along with the industry and the Australian energy market operator through market testing, and that's gone, for the most part, well. And I think the whole industry is ready for a January start. From an APA perspective, we feel pretty confident that we'll be ready for the operations January. The big question there to be answered, and I'll look on it with much interest, is who actually uses it. That was the next leg of my question. What type of volumes do you think might go through? This is my answer, zero. One of zero, that's pretty good so far. Just to expand a bit on the earlier question on The US, there's certainly lots of big projects on the East Coast Of The US, big pipeline projects and transmission projects that are looking for additional partners. Would you look at chunky assets like that or are you looking more say in the gas gathering or midstream space? There's difference between definitions of midstream between what we use here in The U. S, but we're certainly looking more at the traditional gas transmission assets and distribution. I think as Ross said earlier, we're wanting to get the right business, if you like, that provides us an opportunity to develop a business over there rather than a joint venture or a part of an asset. So probably about it. Okay. And the last one for me. Just can you give us a little color around the WORM project? Can you unpack the WORM project, please, Rob? The WORM project is an abbreviation for the Western Outer Ring main, and it's approximately 55 kilometers of pipeline on the outer metro of Victoria or the Victorian system, which, once constructed, will ensure that there's sufficient line pack closer to the city will support security of supply and also power generation in the Victorian market. Thank you. Your next question comes from Nathan Lead, Morgan Financial. Go ahead please. Good morning gents. Thanks for your presentation. Just to first up, just on the new assets, you're saying that they're going contribute $70,000,000 in FY 2019. Maybe I missed it, but how much did they contribute in revenue in the first half? Well, if you look at that 13.8 divide it by about 75% or that's about 75%, I suppose, that'll show you what it's got. Great. That's handy. Sorry. The only reason I say that is I don't really have it off the top of my head. Yes. And the $215,000,000 of incremental revenue, that's purely margin generating revenue, isn't it? There's no like pass through element, etcetera, to that? No. That's what we've seen now for a couple of results presentations. That $215,000,000 of revenue is what we expect to be approximately the annual run rate of revenue from all of those projects that you see on that list. So a full year's annual revenue from each of those projects should add to $215,000,000 a year. So it's not $215,000,000 over the 70 The 70,000,000 is already is some of those projects and a portion of the year for some of those projects. What we're saying is that $1,400,000,000 worth of projects, we think will give us annually, and you'll see from the slide, expect to be fully commissioned on everything by July 1, annually should give us about $215,000,000 of revenue. And can we use the same rule of thumb, Peter, the 75% EBITDA margin applied to it? Yes. Again, Nathan, that's the number we've sort of talked about over the last sort of eighteen months or so since that slide has been out. When you do look at our assets, we tend to be between sort of that and maybe a little bit higher in terms of EBITDA operating margins. Yes. I just wanted to check to make sure that hadn't changed. Next question, statement of cash flows. If I'm looking in the investing area, it looks like there's $125,000,000 loan going to a related party. Didn't see any chat on that in the briefing. So could you just provide a little bit of color on that, please? Yes. It's sort of we didn't really chat on it because it's not that material to us. But what we did during the period between the July 1 and the December 31 is that between ourselves and REST, we decided that REST being our partners in the Sea Gas joint venture, we decided that we would take the banks out of the funding of that business. If you think about what banks are doing in this market and some of the pressure the banks have been under, looking to move funding away from the sort of smaller corporate area, possibly more towards domestic business where they've got better margins. We were seeing that reflecting in higher costs for Seagas that we just didn't think were warranted given the nature of the two shareholders. So we decided that we were better off to take the banks out and rest and ourselves have jointly funded Seagas going forward. Has that gone in as senior debt or shareholder loans and you're to put senior in later? No, there's no debt in the business. It's in as senior debt. Yes. Okay. And just a final one. Just, Ross, just on the North American market. Mean North America is U. S. And Canada. Can you sort of talk about what you see as being the material differences between those two markets, if there is any? We did talk about North America, but I have to say our focus at the moment is The U. S. And we only have a small team and we'll look at The U. S. First and if we need to look at Canada, we will. But there's certainly more opportunities in The U. S. In terms of the depth of market versus competing with some of the big guys up in Canada. And we quite like the gas supply dynamics and the regulatory environment in The U. S. Your next question comes from Rob Koh, Morgan Stanley. Sorry, I think I might have pressed that one twice by accident, so no additional questions. Sorry about that. No problem. Thank you. That wraps up all the questions I've got for you today. Okay. As Rob's had a second go, that's I think that's the last one unless Rob's pressed the button again. Look, thanks very much for participating in this morning's results presentation. And the team and I look forward to catching up with you hopefully in person in due course. And if this is my last results presentation, thanks very much for number 28, I think, many years of support for the business or some of you mostly support the business. The rest doesn't matter, does it? So all the best, and we'll see you on the traps in the next few weeks, few months. Thanks, folks.