Good morning, welcome to APA's 2019 half-year results presentation. I'm Mick McCormack, APA's Managing Director and Chief Executive Officer. With me in our Sydney office is APA's Chief Financial Officer, Peter Fredricson, 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, Group Executive of Strategy and Development, Rob Wheals, Group Executive Transmission, Sam Pearce, Group Executive, Networks and Power, Kevin Lester, Group Executive, Infrastructure Development, and Nevenka Codevelle, Group Executive, Governance, Risk, and Legal. The only one missing is Elise Manzer, may as well mention her. Sorry, Elise is here. Look like they're applying for a job or something. I'll start the call today with an overview of APA's results for the first half of FY 2019.
Peter will 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 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 18 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 AUD 1 billion 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 AUD 215 million per annum will occur from 2020, or FY 2020, as a result of the AUD 1.4 billion paths of growth CapEx investment since FY 2017. Net profit after tax was up 27%, and EBITDA grew 4.3% to AUD 787.7 million.
Operating cash flow was up 1.7% to AUD 470.2 million, but OCF per security was down 3.9%. This was due to the adjustment in the first half, FY 2018, for the issuance of new staple securities in March 2018 following APA's AUD 500 million capital raising to help fund APA's largest growth program to date. The board this morning confirmed the interim distribution for our investors of AUD 0.215 per security and an increase of 2.4%, or AUD 0.005 per security, over the previous corresponding period. We're able to attach franking credits of AUD 0.032 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.
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 for our customers? We've had this approach for many years now, which resulted in a three-year program totaling over AUD 1.4 billion 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 to Wallumbilla Pipeline in Queensland, which is underwritten by a 20-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 Mount 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.
In preparation for new gas to flow from Northern Territory sources into Eastern Australia in the second half of FY 2019, we 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 South West Queensland Pipeline and Moomba to 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. We continue to work with our customers, Santos in New South Wales, on the Western Slopes Pipeline, and AGL in Victoria on the Crib Point-Pakenham Pipeline.
Both of these APA projects are subject to FID approval of the gas projects by Santos and AGL respectively, 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 2018'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 APA.
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. It's the combination of these factors that has added to the depth and diversity of APA's energy infrastructure portfolio and our 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. 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 Goldfields Gas Pipeline, additional compression, some looping, as well as a 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. The linchpin of this expansion has been in 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 24 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 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 Gippsland Basin. With that, I'll hand over to Peter.
Thanks, Mick, and good morning, everybody. I'm on slide eight. As Mick's noted, we are pleased that the half-year result is delivered as we expected and as we guided to in August last year. 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 the EBITDA of in excess of 5%. Interest expense has come down as we have dropped off some more expensive debt, such as a whole half year without the subordinated notes. 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.
Operating cash flow has increased, notwithstanding an increase in tax paid for the period. The only impact on operating cash flow per security being the issue of the new securities at this time last year, when we raised AUD 500 million of new equity in support of that AUD 1.4 billion-plus growth CapEx program. We've seen revenue start to flow from these projects, but we will see larger inflows in the second half and in FY 2020, 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, where the VTS saw a new access arrangement that came into effect on the 1st of January 2018, deliver a first half result that had lower revenues than the previous access arrangement in the six months to the 31st of December 2017. Corporate costs have delivered a negative impact for the half as we booked in the order of AUD 11 million of costs associated with the CKI proposal and with the Managing Director's impending retirement.
Absent those costs, the annual corporate cost run rate continues around the AUD 60 odd 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've 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. New contracts or renewals achieved throughout the reporting period.
You will see from this slide the fact that variable revenues are down by around AUD 7 million period-on-period, in part due to a reduction of non-firm 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, combining with foreign exchange gains realized in the WGP revenues, more than offset reduced variable revenue and those one-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 in 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 12.5 years and all other qualitative measures 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 the 1st of August 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 years in FY 2019. Turning to Slide 13. We've spoken a lot in the last 12 to 18 months about the growth CapEx program that we have in front of us. Before August 2016, we were spending between AUD 300 million and AUD 400 million a year on growth CapEx. Then in August 2016, we said we thought it would be around AUD 1.5 billion 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 AUD 260 million spent in the first half, we're confident that the AUD 425 million spend we guided to in August last year will complete in FY 2019. That would complete that AUD 1.4 billion-plus spend. But beyond that, we remain confident of our AUD 300 million to AUD 400 million 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 timelines. In the first half, we made significant progress towards commissioning the Yamarna Gas Pipeline, associated Gruyere Power Station, Darling Downs Solar Farm, and the Badgingarra Wind and Solar Farms. We have around AUD 14 million 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 AUD 70 million of revenues in FY 2019 from these new assets. This is marginally below the AUD 75 million in revenue that we had guided to for these assets previously in FY 2019. 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 2019 will be at or around the numbers originally expected, and hence our guidance confirmation later in the presentation. I am now on slide 15. The half year was relatively quiet from a capital management perspective, as we put in place two new AUD 500 million syndicated debt facilities for periods of five and five and a half years respectively, out to July and December 2023. Through the CKI proposal timeframe, 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 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 EUR issue we undertook in 2015 into U.S. dollars. We reset those EUR into Australian dollar liabilities, received $151 million in cash, and were then free to convert all Wallumbilla Gladstone Pipeline revenues from March 2019 to March 2022 into AUD. We have put in place forward exchange cover in respect of net revenues out to June 2021 at this stage. As a result, we have locked in around AUD 18 million 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 AUD 600 million of U.S. Private Placements and Maple bonds to repay over the coming months.
With some AUD 1.2 billion 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 12 months to further term out those facilities. Moving to slide 16. The debt portfolio remains very efficient, with average tenor of 6.4 years and average cost of around 5.5%. You will see the green and gray bars on the maturity profile here. AUD 300 million of USPPs under FY 2019 and into FY 2020, and AUD 300 million of Maple bonds in the FY 2020 zone. Ultimately, we see the capability to issue seven-year bonds into FY 2026, 10-year bonds into FY 2029, or 12-year bonds into FY 2031, 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 tenors at Australian 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 2018, APA was a cash taxpayer. All in all, we paid some AUD 52 million in cash tax for the FY 2018 financial year, and we expect cash tax in the order of AUD 65 million to be payable in respect of the FY 2019 financial year.
Cash tax paid and to be paid allows us to attach AUD 0.032 per security to the interim distribution, meaning that AUD 0.074 of the APT profit distribution will be franked, with the remainder of the distribution being unfranked APT distributions, APT 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. Finally, as to the guidance on slide 18.
All the financial results that you've seen today allow us to 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 last year. EBITDA will fall into the upper end of the range of AUD 1.55 billion-AUD 1.575 billion. Interest costs will settle towards the lower end of the AUD 500 million-AUD 510 million range. Distributions are expected to settle at AUD 0.465 per security for the full year, that drives an expectation that the final distribution should be in the order of AUD 0.25 per security. Franking credits for the full year will depend on what credits over and above the interim AUD 0.032 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 AUD 425 million for the full year. 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 demands for services and their specific requirements that drive our operations. 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. 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. 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 other stakeholders, and evidence-based measures and metrics are required. A fairly robust and public process that customers will have access to. Vivanka Kodivail, 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 play. APA first advised the market that we were exploring opportunities outside 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 AUD 1.4 billion in new organic growth projects, all underwritten by long-term contracts with highly creditworthy counterparties. 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 18 years. That is why we now have an integrated grid of gas pipelines delivering unrivaled service flexibility across Australia. The objective for APA hooking 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. With that, I'll hand the meeting back to our operator to open up the Q&A session.
Thank you. I'll just take the opportunity to remind everyone it is star then one on their phone to register a question. First question comes from Ian Myles, Macquarie. Go ahead, please. Hello, Ian, you might be on mute there.
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, change in volumes on that pipe?
Ian, 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.
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 12.5 or a bit over 12.5 years. That chart, I think on the new chart which you've done, which is great info, on page 12, sort of increased that. In the commentary which you made, you were saying most people are signing contracts which are shorter. How does the math work that that contract then your average revenue tenor is growing?
Ian, what you gotta keep in mind is this. 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. We've also just entered into a contract that's a 20-year contract. The average of those two contracts, if the revenue is even or is the same in those two contracts, is 10 years. If the revenue on the contract that's terminating is higher than the revenue on the contract that's 20 years, then the average of those contracts on a weighted average basis is less than 10 years. If the revenue on the 20-year contract is higher, then the average is higher than 10 years.
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.
I see.
We've got a spreadsheet in the ether somewhere, and the commercial team run this, and each one of our contracts sits in there with the level of revenue, and these are the numbers that pop out. 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. Thank you 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.
No, sorry about that. You'll have seen the 6716 and the 7301 before. Well, in fact, you've seen the 6716 before. When you, in the previous results, you've seen the 6716 and the numbers before that. What we've said is that the revenues from March 2019 through to March 2022 were in a designated relationship with the U.S. dollars that we had converted the euros, the EUR 700 million 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 into euros, and then back into Aussie dollars. We got AUD 151 million 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 AUD 180 million, in respect of out to 2022 if we compare the rate we've hedged the euros back to AUD at versus the 0.78 that everything is otherwise, in our AUD books at. What you'd been seeing before was all those revenues from 2019 through to 2022 at 0.78. Remember, we said-
Yep.
We had those-
That's right. Yep.
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 2019, the first half, all of FY 2020, and all of FY 2021 at those rates, 7301, 7192, 7199.
Yep.
The balance of everything else, which is still in the designated relationships with US dollar debt is still determined at $0.78.
Okay. Going past in FY 2022, unless oil thing equals at $0.78.
That's correct, yeah. This just reflects what we said at the outset was the dynamic nature of this stuff. As we get into March 2019, what we were gonna be doing, is we were gonna be taking a month's revenue out of that designated debt relationship, converting it into AUD, and having to convert some of the liability into AUD. We did that all in one hit back in September last year because of what it gave us from a funding perspective, and I think we're better off to the tune of about AUD 18 million-AUD 20 million over the term in respect of that.
No. Well, that's great. One final question. You talk about the expansion or consideration of the expansion of the MSP and South West Queensland Pipeline. I just wonder how that falls in with the consideration of the LNG terminal, You guys are potentially developing for AGL and whether there's a need for both in your views.
Yeah. Rob Wheals. Really, what their comment is reflecting is discussions that we are having with customers and what we see in the market, and we can only respond to 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. Just to summarize, we talk to our customers and respond to what their requirements are.
Okay. That's great. Thanks. That's enough for me.
Yeah. Thanks, Ian.
Thank you. Your next question comes from James Byrne, Citi. Go ahead, please.
Morning, guys. 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 as to bet the company. If you could help us there understand the reality, that would be helpful.
Yeah. Look, Nick, I'll pass over to Ross.
You've actually answered your own question. That's exactly what I was going to say. It's not worth getting out of bed to go over to the U.S. and spend 50 million. 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. It's got to be big enough to move the dial, but not so big that it'll 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 that 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, so 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?
Because I think the right of use in respect of leases is something like AUD 50 million and you sort of put the other sides to that sort of stuff, it's not going to move the dial at all. 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 where 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. Just a last quick one. 6 months ago, at the result, you said you'd had line of sight on new projects for essentially a total contestable opportunity in the market of AUD 4 billion 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 to AUD 300 million-AUD 400 million in CapEx for the next few years.
It's Ross Gersbach. The renewable industry out there is struggling because of a lack of policy in terms of the type of investors such as APA, looking for certainty of cash flows. 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.
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? I appreciate that's a pretty open-ended question.
Thanks.
Hello?
Yes. We certainly would allocate. We like renewables. They give us consistent risk-return profiles to the ones we've invested in to date. If we can replicate more of those, then we certainly will under a clearer policy framework.
Got it. All right. That's all from me. Thank you very much.
Thanks.
Thank you. 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 this is a very nitpicking style question. The previous color on stay-in business CapEx levels was in the order of AUD 100 million a year. This year you're saying AUD 100 million plus. Just want to make sure we are understanding that correctly, if we can.
Rob, you've been looking at our wording like you look at the FOMC minutes and 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, we tend to think that we'll average AUD 100 million odd in stay in business CapEx over the longer term, now that we own a lot more sort of rotating kit with things like Diamantina and wind farms, et cetera. I think we're at about AUD 60 million so far this year. We may come in a touch over AUD 100 million. We're spending AUD 30 million-AUD 40 million a year on technology as much as anything else. There's a lot of stuff that falls into this nowadays. No, I think what we've said is, we'd expect to average over the longer term, AUD 100 million.
Sorry if the plus sort of sent you off on a bit of a wild goose chase.
No worries at all. Peter, I guess you don't leave me too much to question. I've got to look hard. Okay, next question. We can always take it offline. The restructure for the euro-dollar hedge, Peter, that you did. It's obviously got the cash benefits as you've explained. Was the catalyst for that really just the cash benefits and that's a kind of ongoing source of optionality for you post 2022?
Yeah, it is. 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. To be fair, the P&L impact of that, whilst it goes up and down because of that AUD 0.78 and off the end of 2021. If you looked at it now and put AUD 0.78, we'd arguably have less revenue in the P&L. We wouldn't have less revenue though in a cash flow sense. All we've done is we've locked the cash flow in for the next few years. We've locked the rate in, that would've been better than the AUD 0.78 that you would've seen otherwise.
Sure, it's not as good as the AUD 0.67 that we're booking this year. I think the Australian dollar to the U.S. has been under AUD 0.70, less than 8% of its total life. Anything that you've seen when we first got this stuff locked away was absolutely the best you could have gotten. AUD 0.70 looks like a pretty good number to us. 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 lot, which is I think some 2025s. We'll approach that and work through the monthly unwind as the strategy outlines.
All right. Excellent. Thank you so very much. 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 a 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 Wheals. Generally speaking, as Mick said, 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. 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. It's just about consistency all the way through. We've got some great feedback from them, both good and bad. I think that's all, feedback is the breakfast of champions and we know we can do better.
Okay, great. Thank you very much, Rob. Last question from me and, if the answer is no comment, I completely respect that. I guess, with the CKI 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, part of the initial proposal was some WA assets, but could it have gone further than that?
Robert, Mick here. Yeah, this is speculation after the fact. Who cares? It was knocked over by the treasurer on national interest grounds. Knowing CKI as well as I know them, I'm sure they would've turned over every rock possible to get that transaction done. You run up against politics and that's the outcome. Full stop.
Yeah. Okay, thanks very much, Mick. Understood. That's all from me.
Thank you. Your next question comes from Joseph Wong at UBS. Go ahead, please.
Hi, guys. Thanks for the time. Just a question on FY 2019 at the second half. If I just look at the first half numbers, annualize it, and take out the AUD 11 million for corporate costs relating to the CKI bid and the retirement of the MD, that takes it to AUD 1.59 billion. Just wondering if there's any headwinds 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 AUD 1,562.5 million and AUD 1,575 million. You can't always just 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.
The second question is in regards to, I guess, growth CapEx. You reiterated the growth CapEx will be AUD 300 million to AUD 400 million after FY 2019. Just wondering if you can give any more color in terms of which sector looks more attractive for you. Is it more in the processing clients, or is it possibly in potential minority stakes in LNG processing?
No. Again, what that is that's sort of going back, I think, to our pre-August 2016 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 AUD 4 billion that we talked about. I think when we talked about them in August last year, we said something like AUD 2.5 billion, AUD 4 billion of those were gas pipelines. We're continuing to talk to customers about that AUD 4 billion worth of stuff. We've said that those discussions give us confidence that we'll get AUD 300 million to AUD 400 million of growth out of the discussions we are having on an annual basis. As we said here today, we're not thinking that we'll spend X on something specific in FY 2020 and Y on something specific in FY 2021.
What we've said is that, we think that we'll generally get AUD 300 million-AUD 400 million. 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. That comes from the discussions that we're having with customers on an ongoing basis.
Okay. That's clear. All right, that's all from me.
Thank you. Your next question comes from Peter Wilson, Credit Suisse. Go ahead, please.
Thank you. Morning. A quick one on guidance. Can I just ask how much of the additional AUD 11 million in corporate costs were baked into the original guidance?
Zero.
Okay, great.
Absolutely nothing, Pete. Nothing.
Great. Can you comment on maybe what in your portfolio has performed better than expected, given that you're coming into 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 going to happen. When you look at what's happening to regulated assets in this country, you expect access arrangements that follow to give you less revenue than the previous one. 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. The contract renewals, you mentioned you've had 120 contracts renewed or varied for a total value of AUD 130 million in revenue. A big chunk of that, I believe, is the announcement you put out towards the end of December, which was a AUD 90 million revenue recontracting and new services, AUD 40 million of which was recontracting and AUD 50 million 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 new services, what's the kind of need that those things are providing, and any contracts on how the pricing of the recontracted services went?
Peter, Rob, I'll attempt to answer that question. Just by way of clarity, we've entered into, since the beginning of the new rules brought about by the Gas Market Reform Group, 120 contracts, which could be a mix of renewal of existing firm service contracts, of which the number is 30 over that period from August 2017. The remaining 90 relate to additional services added, new contracts entered into, new flexible services, extensions, changes in receipt points and delivery points. Those are all contractual changes. The thing I'd draw your attention to is that 30 of that 120 from the period 1 August 2017 relate to material renewal of firm services over that time. Your question, 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 terms as the expiring contracts. What I would say is also, don't mix the other statements that you might have read around AUD 130 million of other renewal and new services over a three-year period. That's just one example of what we've done with a number of customers. It doesn't give you the value of the 120 or the value of the 30 that I referred to earlier.
Okay. The AUD 50 million in revenue from new services from the agreement announced December 19th, can you give us an idea of what those new services were?
That's a combination of transportation, but a big part of it is new storage services on our grid.
Okay. Last one, slide 10, the AUD 8.6 million from new contract expiry and renewals. Can you unpack that at all? Is it East Coast, West Coast, Queensland?
Sorry, the what? Can you Eight point sorry?
slide 10, in the EBITDA bridge, you've attributed AUD 8.6 million of the EBITDA gain, new contract expiry and renewals. We're just wondering if there's any color you can give. Is this West Coast? Is it East Coast? Where's the positive effect coming from?
It's all pretty much East Coast, I would've thought, off the top of my head here. 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, we've got huge confidentiality clauses within these agreements. 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 AUD 8.6 million more revenue than we would have been in the past.
Okay, appreciate that. That's all from me. Thank you.
Sorry, EBITDA.
Thank you. Next question comes from Michael Morrison, Deutsche Bank. Go ahead, please.
Good morning. Can you hear me?
Sorry, yes, go ahead, please.
Yeah, thanks. Just with the new contracts and renewals, have there been any customers that went or used the new arbitration system to negotiate the new, or the changes for the new contracts?
Rob, answering your question, no is the answer.
No is the answer.
Thanks, Mick. Sorry, I've got a really crackly line, so difficult to hear you. Can you give us a bit of an update on the capacity trading platform that's due to kick-off in March?
The new capacity trading and also auction platform. There's two platforms that will be in place. That new market starts on the 1st of March, so two weeks away. We've been 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 1 March start. From an APA perspective, we feel pretty confident that we'll be ready for the operations, 1 March.
The big question there to be answered, and I look on it with much interest, is who actually uses it?
That was the next leg of my question. Yeah. What type of volumes do you think might go through?
This is my answer. Zero.
One and zero. That's pretty good so far. Just to expand a bit on the earlier question on the U.S., there's certainly lots of big projects on the East Coast of the U.S., 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 and the U.S., 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. Probably about it.
Okay, a last one from 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 km of pipeline on the outer metro of Victoria, of 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.
Okay. Reasonably small. Thanks, everyone.
All right, thank you.
Thank you. Next question comes from Nathan Lead, Morgans Financial. Go ahead, please.
Good morning, gents. Thanks for your presentation. Just first up, on the new assets. You're saying that they're gonna contribute AUD 70 million in FY 2019. Maybe I missed it, but how much did they contribute in revenue in the first half?
If you look at that AUD 13.8 and divide it by about 75, or that's about 75%, I suppose. That'll show you what it's got.
Okay, great. That's handy.
Sorry. The only reason I say that is I don't really have it off the top of my head.
Yeah. The AUD 215 of incremental revenue, that's purely margin-generating revenue, isn't it? There's no pass-through element, et cetera, to that?
No, that's what we've said now for a couple of results presentations. That AUD 215 million 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. A full year's annual revenue from each of those projects should add to AUD 215 million a year. It's not AUD 215 over the AUD 70. The AUD 70 is some of those projects and a portion of the year for some of those projects. What we're saying is that AUD 1.4 billion worth of projects we think will give us annually, and you'll see from the slide, we expect to be fully commissioned on everything by 1st of July. Annually, it should give us about AUD 215 million of revenue.
Can we use the same rule of thumb, Peter, the 75% EBITDA margin applied to it?
Yeah. Again, Nathan, that's the number we've sort of talked about over the last 18 months or so since that slide's been out. When you do look at our assets, we tend to be between that and maybe a little bit higher in terms of EBITDA operating margins.
Yep. 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 an AUD 125 million loan gone to a related party. Didn't see any chat on that in the briefing. Could you just provide a little bit of color on that, please?
Yeah. We didn't really chat on it because it's not that material to us. What we did during the period between the 1st of July and the 31st of December is that between ourselves and 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 SEA Gas that we just didn't think were warranted given the nature of the two shareholders.
We decided that we were better off to take the banks out and Rest and ourselves have jointly funded SEA Gas going forward.
Has that gone into senior debt or shareholder loans and you're going to put senior in later?
No, there's no debt in the business. It's in as senior debt.
Yeah. Okay. Just a final one. Just Ross, just on the North America market. North America is U.S. and Canada. Can you sort of talk about what you see has been the material differences between those two markets, if there is any?
We do talk about North America, I have to say our focus at the moment is the U.S.
Yep.
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. 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. We quite like the gas supply dynamics and the regulatory environment in the U.S.
Great. Okay, thank you. That's all for me for the moment.
Thanks, Nathan.
Thank you. Your next question comes from Rob Koh, Morgan Stanley. Go ahead, please.
Hi, guys. Sorry. I think I might have pressed star one twice by accident. No additional questions. Sorry about that.
No problem. Thank you. That wraps up all the questions that I've got for you today.
Great. Okay. As Rob had his second go, 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. The team and I look forward to catching up with you, hopefully in person, in due course. 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? Yeah, all the best, and we'll see you on the traps in the next few weeks, few months. Thanks, folks.