Thank you for standing by, and welcome to the APA Group fiscal year 2023 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference, CEO and Managing Director, please go ahead.
Good morning, everyone, and thank you for joining us on what is an exciting day for APA. Let me start on slide three by acknowledging the Gadigal people of the Eora Nation, traditional custodians of the land on which I'm speaking today. First Nations people have taken care of our lands and waterways, our respects to their elders past, present, and emerging. Delivered another solid financial result with growth in earnings and distributions. Joining me, along with Darren Rogers, Group Executive, Energy Solutions, and APA's Investor Relations team. We'll split today's presentation into three parts, starting with our FY 2023 results, followed by an overview of the Alinta Energy Pilbara acquisition and equity raise, and we'll wrap it up with Q&A.
Before I start, as we always do, I'll begin on slide four with a customer share that's a clear demonstration of how our energy infrastructure keeps the lights on and industry thriving. For reasons not related to APA, in January this year, there was a 25% drop in gas supply across Western Australia. Fortunately, APA's customers were able to rely on our Mondarra gas storage facility to provide critical capacity and help bridge the supply gap. The Mondarra facility's total storage capacity is the energy equivalent of about 11,000 Victorian big batteries, and was critical to ensuring WA's energy network kept the lights on during these shortages. With the recent opening of our Northern Goldfields Interconnect Pipeline, we have established a West Coast grid, further boosting energy security for customers in WA. Let's get into today's presentation by starting on slide six.
In FY 2023, we delivered another solid result with ongoing EBITDA and distribution growth. We completed a range of infrastructure projects that are critical to delivering reliable and secure energy to our customers and our communities. We're executing our customer-led strategy. This is clearly evidenced by our recent acquisitions of Basslink and Alinta Pilbara, as well as organic developments with the likes of Tamboran Resources, Empire Energy, and Arafura. Slide seven summarizes our financial results, which Carmen will cover in more detail shortly. We continue to grow our revenue, earnings, and distributions, while at the same time making the necessary investments in capability to ensure we can achieve sustainable growth over the long term. Our confidence in the future is reflected by expectation of ongoing distribution growth in FY 2024.
As you can see on s lide eight, there have been many milestones this year in operations, in building capability, and with the delivery of critical infrastructure. We've also progressed our sustainability agenda, and you can clearly see we have great momentum with the execution of our strategy, which has been refreshed, as you can see on slide nine. As you know, our focus is to be the partner of choice in delivering infrastructure solutions for the energy transition. We're focused on asset classes where we have competitive advantages and can create value for our security holders, customers, and communities. I'll touch on some case studies later, but make no mistake, we're executing on this. To slide 10. We're actively working with a range of customers to supply energy to new mines, to unlock new gas basins, and to decarbonize industry more broadly.
We're also investing in our business to ensure we can deliver growth and meet the increasing requirements of our stakeholders, including our investors. You've heard me talk about this many times before. Investments in areas like technology, net zero, business development, operating systems, and sustainability are all critical to our future. They are investments that will drive productivity, create efficiencies, strengthen our social license, and positions us to execute our growth strategy. Moving now to slide 11. Our distribution guidance of AUD 0.56 per security in FY 2024 reflects our confidence in the future. At the same time, it reflects the balance we must maintain between the level of distribution growth and ensure we can also maintain strong investment-grade credit metrics, accommodate key investments in the business, and fund our organic growth opportunities. To slide 12. To lead the execution of our strategy, we've revitalized our executive leadership team.
Over the past year, we've welcomed Liz and Vin to the team, and we've also announced the appointment of Petrea and Garrick, who will both join APA in the coming weeks. These appointments complement the existing diverse skills and experiences of our ELT, and it's great to have such a strong team in place to lead APA. Moving now to our performance outcomes on slide 14. When I started as CEO, the executive leadership team set three priorities that we've rallied our organization around: our people, operational excellence, and creating value. Let me take you through some highlights, starting with our people on slide 15. From a safety perspective, our overall TRIFR is around the same level as last year, but within this, we've made significant progress with our contractors. We will continue to focus on improving these results.
We've also made strong progress in gender diversity and engagement, having now achieved over 30% representation of women across our workforce. Representation of women in senior leadership positions has also increased. Our employee engagement scores also improved in the last 12 months. On slide 16, we call out some highlights on how we're supporting our people. This includes implementing significant enhancements to our parental leave entitlements and completing a review where we've rectified gender pay equity in like-to-like roles, something I'm incredibly proud of. Turning now to slide 17. As I mentioned before, we've delivered another solid financial result. EBITDA increased by 2%. This reflects growth in revenue, which was largely driven by CPI escalation. It also reflects cost growth that is necessary to support long-term revenue growth and strengthen our business resilience. Distributions increased 3.8% in line with guidance.
We maintained strong free cash flow. It was down slightly due to a temporary step-up in our stay-in- business CapEx, but we anticipate that it will begin to normalize from FY 2026. Carmen provides more color on our cost programs later in the presentation. We maintained our investment-grade credit ratings at the same time as investing in the business, including AUD 845 million on growth CapEx that was all funded through cash or debt facilities. As you can see on slide 18, we've also made strong progress on our sustainability objectives. We've developed APA's first Reconciliation Action Plan, we're increasing our support to communities, we've delivered environment and heritage improvement programs, and we've made good progress with the implementation of our climate transition plan. Today, we extend our commitment in this space with a new methane emissions reduction target, as outlined on slide 19.
We're targeting a 30% reduction in methane emissions across our natural gas supply chain by 2030. We see this target as a starting point. Such as aerial surveys. There's a lot, a lot of detail on slide 20, but the slide captures our strategy on a page and illustrates the opportunity we have to be the partner of choice for customers in areas where we have a competitive advantage. The infrastructure required to decarbonize Australia's energy system is likely to be in hundreds of billions of dollars. It's not an issue of whether the opportunity exists, it's about where we focus. To bring this to life, I'll briefly touch on four case studies, starting on slide 21, which captures our resources customer segment.
Almost all of our mining customers have made commitments to reduce their own emissions, and transitioning their energy sources will play a big role in helping them meet their targets. The work we've done in Mount Isa in connecting solar with electricity, transmission, and gas-fired power generators highlights our capability to deliver this. The Alinta Energy Pilbara acquisition announced today further strengthens our capability in this $25 billion market segment. Slide 22 shows the significant opportunities we have in electricity transmission, a $54 billion market segment. With the deep operational and project delivery capability we've established in our new electricity transmission team, we have confidence we can play a meaningful role in this space. The third case study on slide 23 comes back to our more traditional business of gas transportation.
Here we see around AUD 8 billion of opportunities in improving capacity, reliability, and security of supply for our communities. The fourth and final example is on slide 24. It shows the significant market opportunity for the transportation and storage of future fuels, such as hydrogen and CO2. What does all this mean? It means we're executing our strategy and ensuring our business is sustainable for the long term. We have significant growth opportunities ahead. We have a strong momentum behind us. With that, I'm now gonna hand you over to Carmen to go through the financials before I come back to cover market insights.
Thanks, Adam. Good morning, everyone. To reiterate what Adam said, we are very pleased with our financial performance for FY 2023.
Starting with our P&L on slide 26. In FY 2023, we have delivered another solid financial performance. Revenue is up 5%, underlying EBITDA is up 2% or 3.5%, excluding Orbost. Free cash flow was down slightly, with the growth in underlying EBITDA and large tax offset by a higher stay in business CapEx. I'll cover off this in more detail in a moment. We increased our full-year distribution by 4% to AUD 0.55 per security. This is in line with our guidance, representing a payout ratio of 61%. This marks 19 years of growth in distribution for our security holders, something we are very proud of. We're investing in the business to set ourselves up for the future, and we've picked up momentum at the same time.
We have commissioned a number of critical infrastructure projects through the year, we've continued to execute our customer-led strategy. Moving on to the next slide, slide 27, our revenue bridge. We continue to benefit from the majority of our tariffs being linked to inflation, plus the new access arrangements for the VTS that came into effect in January. FX was a small drag relating to the hedge on the WGP U.S. dollar revenues. Operating revenue increased AUD 23 million, driven by our East Coast Gas Transmission assets, particularly the Roma, Brisbane and Carpentaria Gas pipelines, which responded to external market disruptions by providing short-term transportation to affected customers. This highlights the benefits of our interconnected grid and our ability to be able to respond to our customers' needs. If we look at FY 2024 revenue now, there are a number of considerations I'd like to highlight.
We expect to see inflation-linked tariffs continue. Basslink will make a full-year contribution. Our East Coast Grid Expansion will provide increased capacity during the winter peak. The NGI should continue its gradual ramp up over the coming years, with around 10% currently contracted. The NGI should also alleviate some of the congestion on the GGP as it offers an alternative supply route. Moving on to slide 28 and our costs. As Adam mentioned earlier, we are investing in our capability and this is reflected in both operating and corporate costs. This should not be a surprise, given clear commentary during previous engagements. It is important to note we are targeted and disciplined in making these necessary investments so we can achieve sustainable long-term growth and create sustainable long-term value for security holders.
The FY 2024 costs considerations to note are continued investment in our electricity generation and transmission business, given the significant opportunity ahead. Emissions reduction programs and in corporate, which we will grow at roughly half the rate seen in FY 2023 before tapering into FY 2025 and stabilizing in FY 2026. Moving to slide 29, which provides more detail on our segment results. EBITDA for the East Coast, excluding Orbost, was up 4%, with tariff benefiting from inflation and the new VTS access arrangement and some favorable short-term contracting, as I mentioned earlier. Young Lithgow pipeline repairs and costs associated with our emissions reduction program were also recorded. The West Coast performed well, with EBITDA up 6%, largely driven by inflation, and the Wallumbilla Gladstone Pipeline increased 7% from inflation with a small FX offset.
Our electricity generation and transmission segment was up 15%, with a first-time contribution from Basslink of AUD 29 million, a pleasing result. Moving on to slide 30, where we provide further detail on non-operating items. The key one to call out is our transformation projects. To strengthen our customer and employee experience, we are investing in systems and processes to drive efficiency. This includes new enterprise resource planning systems and the technology associated with our Secure Energy Program. You will also see AUD 12 million for accrued interest and revaluation gains on Basslink, partly offset by integration costs. The other items, including the WGP hedge unwind that currently runs until late calendar year 2025, are non-cash. Looking forward, we expect technology transformation costs to peak in FY 2024 at around AUD 100 million and then moderate in FY 2026.
This includes the projects mentioned above, as well as SaaS implementation costs. Moving on to slide 31. As I mentioned earlier, there was a small decline in free cash flow in FY 2023. You will see in this waterfall chart, the largest movement is a AUD 63 million increase in SIB CapEx. The increased spend was due to reliability and integrity works, especially on the Moomba Sydney, Roma Brisbane and Goldfields Gas Pipeline. The Moomba facility upgrade works on the South West Queensland Pipeline and enhancements to our national customer systems. We also saw lower cash tax due to accelerated depreciation allowances on three projects: the NGI, the East Coast Grid expansion, and the Dugald River Solar Farm. I also want to call out the net interest line, which continues to benefit from the refinancing we did in May 2021 with all our drawn debt fully hedged or fixed.
On to slide 32, you can see here the significant investments we made in FY 2023. We increased growth CapEx across both regulated and non-regulated assets, including AUD 120 million on the East Coast Gas Grid Expansion Plan, AUD 149 million on the Western Outer Ring Main, AUD 233 million on the NGI. These investments support our energy security and Australia's energy transition, and are key to delivering long-term value for our security holders, customers, and communities. We have a number of large maintenance programs underway, with a total SIB CapEx expected to peak in FY 2024 at around AUD 200 million, and then taper over the following two years. Foundational CapEx, needed to meet our legislative, regulatory, and environmental requirements, will also grow and is expected to peak in FY 2024 at around AUD 150 million.
Turning now to our balance sheet on slide 33. The key call-outs I'd like to make are: over the last three years, we have funded AUD 1.6 billion of organic growth and the acquisition of Basslink from our existing cash flow and debt, while maintaining our investment-grade credit rating. We have AUD 2 billion of cash and undrawn facilities, the majority of which, AUD 1.6 billion, supports our liquidity requirements. Our average cost of debt is 4.4%, with an average duration of 5.7 years. We have a healthy pipeline of in excess of AUD 1.4 billion in organic growth opportunities. Overall, we are very pleased with our financial performance, we are well-positioned to create value with the opportunities in front of us, setting us up for growth and value creation in the future. Thank you, with that, I'll hand you back to Adam.
Thanks, Carmen. I'll now share with you some market insights, starting on slide 35. An effective energy transition requires energy that is reliable, affordable, and low emissions. Australia has a significant challenge ahead to achieve this. A substantial amount of renewable generation must be developed and in renewables, powering manufacturing, and powering remote grids. Last week, BCG released a report that found that for every megawatt of new green energy that is brought into the system, the greatest and most efficient emissions reduction impact comes if you use it to replace the use of coal and liquid fuels. Let me talk through a few data points that back this up. Slide 36 confirms that the volume of renewables that we need to bring to market is huge.
If we move to slide 37, you can see the challenge Australia has to reach its target of 82% renewables by 2030. We've shown this slide many times now, but let me call out three things. First, that the NEM is heavily reliant on coal, which is our highest-emitting source of energy. Second, that those economies in Australia and overseas that have been successfully transitioning to renewables have done so by replacing coal generation with gas. Third, that with renewables proposed to deliver 82% of our energy by 2030, there is still 18% required from other sources to firm those renewables when the sun goes down and when the wind doesn't blow. Now, we all want a lower carbon future, and no one wants the 18% to be coal. We have a clear choice to make.
We can keep using coal, or we can build our renewables and firm it with gas. The chart on slide 38 demonstrates this through the projected future consumption of energy in Western Australia. The orange line on the chart reflects the predicted gas demand in the 2021 Western Australia GSOO. After the release of that report, the WA government announced a plan to accelerate the closure of its state-owned coal-fired power generators. These closures were incorporated in the 2022 GSOO, and you can see the significant spike in predicted gas demand under this scenario, as seen with the dark blue line on this chart. To put it simply, to successfully take coal out, gas must come in. Slide 39 further builds on this with a chart showing how critical gas is to manufacturing and in the mining industry's remote grid systems.
To ensure industries have the energy they need to remain viable, they need gas. As a society, or at least politically, we've seen a success with focusing on the household consumption of gas. Important, yes, it represents only 10% of Australia's domestic gas consumption. The rest of our gas consumption goes into making bricks, cement, and steel to build our homes, and it goes into making fertilizer to support agriculture and produce our food. These industries don't have a viable alternative energy source other than gas. Let's wrap this part of the presentation up on slide 41 with our key messages. One, we're executing our strategy. Two, we're investing in our business, so we have the platform and resilience to deliver.... Three, we believe we can strike the right balance between healthy distributions for our investors and positive outcomes for all of our stakeholders.
With that, I'd like to close our presentation on the full-year results and take you to the next presentation on the acquisition of Alinta Pilbara and the equity raising, which we also released today. Let's start on slide six. Before I start, I want to ensure we comply with U.S. securities laws. We're limited to only talking about the basic terms of the equity raise that's referred to in today's acquisition announcement and presentation. We therefore ask that you please keep your questions later on to the basic terms of the equity raising, as we are legally restricted from answering questions beyond that on this call. If you open your Alinta Pilbara acquisition investor presentation, we'll start on slide, slide seven.
This is a significant day in the history of APA as we announce the acquisition of Alinta Pilbara, an energy infrastructure business underpinned by high-quality assets in strategic locations, and with a team with a track record of delivering safe and reliable operations, as well as delivering growth. It's an established business with long-term contracts, with inflation-linked revenues, and a significant development pipeline for future growth. Its assets include solar and gas power generation, battery storage, and electricity and gas transmission infrastructure. The acquisition provides APA with a significant growth platform to expand our footprint in remote generation regions. It complements APA's already strong development operational capability in key resources areas such as Mount Isa and Gruyere. Importantly, the business is expected to be free-cash flow accretive in its first full financial year of ownership, and it will be value accretive.
Our FY 2024 distribution guidance of AUD 0.56 per security will remain unchanged, despite the additional securities on issue as a result of the equity raising. Moving now to slide eight, which provides a summary of the transaction. The business is being acquired for an enterprise value of AUD 1.72 billion, subject to certain conditions precedent outlined in the presentation. There's no question that we're buying a business on a strong financial footing. It has a strong record for delivering year-on-year earnings growth. The business's revenue for FY 2023 was AUD 235 million and EBITDA, AUD 124 million, which means it delivers strong earnings and cash flow from day one.
Most importantly, it's a platform for future growth, with a significant renewables development pipeline that will support the decarbonization of its customers and deliver long-term sustainable growth for APA. Moving to slide nine. We've also announced today an equity raise of AUD 750 million. Carmen will provide further details on this later. Again, importantly, we've been able to maintain our FY 2024 distribution guidance of AUD 0.56 per security, despite having the enlarged capital base following the equity raise. We turn now to slide 10. We're buying a strong business with a significant pipeline of growth projects that will support the Pilbara region to decarbonize. We've acquired a 60 MW solar farm and a 35 MW battery, as well as a 1 GW development pipeline of wind, solar, and battery projects.
There's 442 MW of operating gas plants, as well as a 60 MW development pipeline of gas firming already in the approval planning stage. There's more than 200 km of electricity transmission lines, and the development pipeline has over 600 km of electricity transmission. Plus, we're buying the balance of the APA-operated Goldfields Gas Pipeline, now making it 100% owned by APA. If you turn to slide 11, you can see the size of the footprint of these high-quality assets. There are two key takeaways on this slide. The first is that you can see the assets are spread right across the Pilbara in key customer locations.
Second, the business has been operating in the region for more than 20 years, and it has long-term relationships established with some of the most prominent and low-cost iron ore miners globally, including BHP, Roy Hill, and FMG. Moving now to slide 12. The acquisition leverages our existing skills in operating large-scale gas, renewables, and battery storage infrastructure. It provides the opportunity to capitalize on the increasing need for reliable, affordable, and low-emissions energy as our customers continue to decarbonize.
The fundamentals of the business are compelling: predictable earnings and cash flows, which are underpinned by inflation-linked contracts, strong and trusted operating and development credentials, an enviable foundation of blue-chip customers, and a significant renewables development pipeline with high-quality sites strategically located close to existing infrastructure and customers. With an AUD 15 billion market opportunity in the region, we know it's also going to position us well to support our climate transition plan commitments. Moving now to slide 13. As you heard earlier in the FY 2023 results presentation, our focus is to be the partner of choice in delivering infrastructure solutions for the energy transition, there's no, no question this acquisition is executing on this strategy. Slide 14 brings this to life. Mining customers across the Pilbara have committed to their own emissions reduction goals. Transitioning their energy sources will play a big role in achieving that.
We see an opportunity in the Pilbara to do what we've done in other remote regions like Mount Isa and Gruyere, and that's because we know our mining customers are looking for bundled energy solutions to meet their net zero commitments, and energy that is both reliable and affordable. We've got a competitive advantage in delivering this for our customers in the Pilbara. More broadly, acquiring this business will establish a market-leading position for APA as an independent Australian energy solutions provider in Australia's leading mining geographies. With that, I'll now hand you to Darren to take you through these opportunities in more detail.
Thanks, Adam. As Adam said, we are tremendously excited about this acquisition. It presents a significant opportunity for our business to be the partner of choice in one of the world's leading global mining regions. We turn to slide 16, I will set the scene about the region we are investing in. The Pilbara is the world's premier iron ore export region, and quite simply, it is known for its vast, low-cost, high-quality iron ore resources with access to high-demand Asian markets. This gives us huge confidence to invest and support these customers with the right energy solutions. Moving to slide 17. We know the sector can't prosper without reliable, affordable, and low-emissions energy, but they all have some way to go to meet their emissions targets.
By 2030, we're talking about some of the largest miners needing to cut their operational emissions by 30%, 50%, and even to net zero. As a trusted partner with a track record of owning, operating renewable power generation, electricity transmission, batteries, and gas-fired power generation, often in remote locations, we're well-placed to support these companies. If you turn to slide 18, you'll see that much of this will be achieved by reducing the reliance on diesel in the region. About 2/3 of the 2050 forecast for electricity demand in the Pilbara primarily results from the transition away from diesel fuel. This will, of course, drive renewable electricity demand to 2050 and require continued investment in bundled energy solutions to support the resources industry to achieve three outcomes: energy that is reliable, affordable, and low emissions. Moving to slide 19.
The decarbonization horizon after 2050 is expected to facilitate considerable growth in renewables, backed by gas firming. If you look at the bar chart on this slide, you can see the rapid growth in renewable electricity. To paint a picture, by 2040, we're expecting renewables demand in the Pilbara to grow by 30 times the demand you see today. Our forecast sees it growing further out to 2050. As I touched on earlier, we expect much of this future electricity demand to be underpinned by decarbonization of heavy haul trucks, machinery, and locomotives. As the requirement for new sources of renewable generation, such as solar, wind, and batteries grow, we also know it needs to be backed by gas generation. Moving to slide 20. The 24/7 nature of remote mine operations in the Pilbara means the demand for gas power generation is critical.
While we expect batteries and other technologies to play an important firming role in the Pilbara, we still see gas underpinning the region's reliability. That's because it's capable of being turned on in minutes and able to be sustained for days. This gives it a unique ability to deliver energy security when it's needed most. Turning now to slide 21. As Adam said, we're acquiring a business with strong foundations. The Alinta Pilbara business has a proven track record of operation and development of renewables and transmission assets, and about 70% of its contracted revenues are periodically adjusted for inflation. This puts it in a strong position to pursue the pipeline of growth projects. Moving to slide 22. The platform is significant.
We estimate the total investment in electricity generation infrastructure required to decarbonize the Pilbara to be about AUD 15 billion. This acquisition alone provides a potential AUD 3 billion pipeline of projects over the longer term. This pipeline already has momentum, with strategic sites and approvals secured for key growth projects, which include projects currently under construction, with remaining committed CapEx of approximately AUD 150 million over the next two years. It's a big platform for growth. Moving to slide 23. Pleasingly, this ongoing investment in renewables also supports our medium and long-term climate transition plan goals and targets. We have revised our emissions intensity baseline in line with industry practice. As you can see on this graph on the left, we will remain on track with our 2030 and 2040 energy intensity goals.
In relation to our gas infrastructure emissions intensity, the acquisition does not change our gas Scope 1 and 2 emissions. We remain on track with our 2030 and 2050 goal. To slide 24. In light of the change to APA's total emissions that come from this acquisition, the displacement of diesel in the Pilbara is critical to the overall decarbonization of the region. On to slide 25. Before I hand over to Carmen, I'll quickly recap on three key messages. First, we have huge confidence in the region with its low cost, high quality iron ore resources. Secondly, the platform for growth is significant. It already has momentum with projects under construction. Third, APA and the Alinta Pilbara business that we're acquiring is best positioned to be the leading independent energy provider in the Pilbara. Carmen, over to you.
Thanks, Darren. Let's go straight to slide 27. As Adam said earlier, we believe this transaction is accretive for our security holders. The business has predictable earnings and cash flows, with long-term contracts, largely inflation linked. It is expected to be free cash flow accretive in the first full financial year of ownership and value accretive for our security holders. Our FY 2024 distribution guidance remains unchanged on the enlarged capital base. Importantly, we believe it is appropriately funded, including the equity raised today, demonstrating our disciplined investment approach. Moving now to slide 28. This slide gives you a financial summary of the business and the split and revenue and EBITDA by asset location. I will make two important points. First, this demonstrates the strong growth that Alinta Pilbara has delivered in the recent years as new projects have come online.
As you will see in the tables, revenue and EBITDA growth has been strong across FY 2022 and FY 2023. This has been driven by the Chichester Solar Farm and the Newman expansion coming online in November 2021 and the first half of FY 2023, respectively. The second point is that it provides a solid uplift in APA's revenue and EBITDA base and our pipeline of growth opportunities. On a pro forma basis, FY 2023 would be an 8% increase to APA's FY 2023 revenue and a 7% uplift in EBITDA. With the successful acquisition of Alinta Pilbara, we also expect to see our pipeline of growth opportunities over FY 2024 to FY 2026 increase from more than AUD 1.4 billion to over AUD 1.8 billion.
The key message here is that Alinta Pilbara has delivered strong growth in recent years, and with the pipeline of growth projects in front of us, we see opportunity to keep delivering on this growth. Next slide, please. Slide 29, I won't go into detail here. These tables show how this acquisition diversifies our business and increases our exposure to the fast-growing Western Australian market. Moving now to slide 30. This slide shows we are funding the acquisition with the use of equity and debt. While it has been broadly acknowledged that we are in a strong position from a debt perspective, we believe this is an appropriate funding structure to support our growth initiatives and at the same time deliver sustainable growth for our security holders.
As we discussed in the full-year results presentation earlier, we have an AUD 1.4 billion organic growth pipeline that we need to fund, as well as our transformation projects. We've also spent AUD 845 million in FY 2023 alone to execute our development pipeline, which was funded by cash flow and debt. What we've done here is to ensure we've got the balance right, with an appropriate mix of debt and equity to execute on our strategy while delivering long-term sustainable value for our security holders. Moving now to the final two slides. I won't go through the next two slides in detail, however, they provide you with the information around the equity raise as it relates to the structure, price, and importantly, timetable. I will hand you back to Adam to make some final remarks before we get to Q&A.
Great. Thanks, Carmen. Look, we acknowledge that there is a significant amount that you have had to digest today, so we do appreciate your patience. To wrap it up, it's obviously a very big day for us at APA and one that we will shape our company for the decades ahead. We appreciate the time you've taken again and look forward to Q&A in a moment. As you can see, we've delivered another solid set of financial results, and we're investing in our business. Today's announcement in the Pilbara is a perfect example of that. We've acquired a business that has predictable cash flows and a strong platform for growth in the Pilbara regions, and it gives us the scale and capability to be the leading provider of energy infrastructure solutions for the remote regions of Australia.
This transaction, together with the recent acquisition of Basslink and the numerous organic growth projects we've announced in recent months, is demonstration we're building momentum and executing our strategy. Thanks again. What I'll do is hand it to the moderator, and we'll go to Q&A.
Thank you. If you wish to ask a question, please press star, then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you are on a speakerphone, please pick up the handset to ask your question. Our first question will come from Anthony Moulder of Jefferies. Please go ahead.
Good morning, all. Let's, I want to talk more about the Alinta than the FY 2023 results, if I could. If I start by asking some of the, I guess, points, I'm trying to get to the accretion that you see. If you can start with sort of the span business CapEx that you're expecting from Alinta going forward, please.
Yeah, sure. Thanks, Anthony, for your question. As we look at the Alinta portfolio and the CapEx outlook there, if I could kind of summarize it to say that on average, on an annual basis, that AUD 25 million-AUD 30 million would be a reasonable number to use.
All right, perfect. Thank you. Similarly, the funding would be at the group average of 4.4%. Is that a fair expectation that we should have?
For our debt?
Yes.
You're talking about our debt portfolio. I think you need to recognize that that was done at a time when interest rates were at a lower rate. All of our debt is fully hedged, that we have today or fixed. As we go out to secure, secure the funding for this acquisition, you would need to look at the current pricing of debt, taking into account our BBB, Baa2 credit rating.
Understood. Similarly, the tax position, how does this change the cash tax paying position of APA going forward, please?
I think I can... I'll answer that at the APA level. We've described how we've gone back into a tax paying position starting in FY 2024. Over the next 12 months, we will work through all of that information, and we'll provide you with that detail.
Okay, so to be determined, we shouldn't think about that as being part of a drag on the free cash flow accretion for the steel.
Well, that's absolutely part of the free cash flow calculation, so that's captured in that number. Happy to take you through the detail. We can do that in a later call, if you like. When we're looking at the free cash flow accretion for, in the first year of financial ownership, where we're talking about it being accretive, the tax is absolutely captured, as is stay in business CapEx. It's a standard way that we calculate free cash flow in our business, and you'll see it in the footnote there. The other point that I'd like to make there is when you're looking at the free cash flow accretion on a per security basis, we're using the full AUD 750 million.
Rather than just using the placement amount, which some companies do, we are taking the full AUD 750 million into the denominator, and we're saying it's free cash flow accretive.
Perfect. Thank you.
Thanks, Anthony. Next question, moderator.
The next question comes from Rob Koh of Morgan Stanley. Please go ahead.
Good morning. I'm not really sure where to start with the congratulations, but maybe with people and with your new appointments and in particularly your new CFO, who has some big shoes to fill. Congrats on that. Turning to the transaction, maybe can I just ask on the revenue, you mentioned that 70% of it is CPI linked, and if you could just give us color on how, how should we model the other 30%? I guess I'm presuming that there's no gas commodity risk in that.
I might get Darren Rogers to answer that one, Rob.
Yeah, that's right, Rob. Any gas commodity risk will look to be passed through or suitable arrangements with the customer where they provide the gas into the inlet of the station that we happen to be looking at. In terms of the other 30%, look, broad guidance would be around just looking at an average rate of return for the asset class that we deliver. Generally, it'll be a fixed period for a shorter time.
Okay. All right. Sounded pretty offshore, standard for infrastructure of this kind, I guess, is, is, how I'm hearing that.
That's right.
Okay. Yeah, cool, cool, cool. Then just if I can ask a more qualitative question on the due diligence that you've no doubt done with the age of these plants, some of them initially commissioned in the 90s. Also, in particular, there are some mining companies, none of your customers here, but there are some mining companies with Interior First Nations disputes. Just if you could comment on the, on age of plant and First Nations engagement that you've done.
Yeah, Rob, look, I'll, I'll just tee off, and then I'll hand it over to Darren. It's quite ironic that Darren actually worked on a number of these plants earlier on in his career, so he, he knows them very well. We've obviously undertaken a very extensive due diligence process, looking at all sorts of things, including the condition of the plants, and you'd expect us to do that, and it helps form all sorts of things, including our lifecycle management programs and the like. Obviously, we're very comfortable with how all of that plays out.
When you look at the life of these assets, you're also looking at the life of the mine and the valuations go to all those sorts of assumptions as well, which obviously we're not going to go into any of that sort of detail, but you can understand that we've been through that sort of process. The other thing I'd say from a First Nations perspective, I think, it's testament to the Alinta team and Alinta team, just generally, it's a really impressive outfit, and from their leadership all through to the people on the ground, it's been a really impressive group of people who have taken the business from what was quite small and embryonic not that long ago to a really impressive, successful business with significant growth opportunities.
They brought a number of projects to market. There's a number of agreements, including formal agreements, with the main First Nations peoples in each of those areas. One of the things that we are very keen to do as part of our program to integrate the business, is ensure that we also continue to work with the traditional owners and, and further strengthen the relationships with the people in the, in the, in the broader communities in those areas. Darren, I might just hand it to you if you just want to make a few comments on the actual fleet itself.
Yep. Thanks for the question. Probably, probably two parts to that question. You asked the diligence question, which is a good question. We had a really comprehensive, disciplined-based due diligence process that ran prior to the process starting, into the process, and then leading in the last week or so. A key line of inquiry for us certainly was fleet age. I would describe the fleet age as mixed. There are absolutely older frame machines that do date back some time. Of all of the machines of this age, the GE platform, that there are good machines to have of this age group. There are an aero derivative machine, which is a little newer than that, sort of a 15-20 year benchmark, and then some newer reciprocating engines, which are very efficient and in very good condition.
Part of the due diligence, we really looked at that fleet mix, combined with how the renewables will come into the portfolio. We have a view that with more renewables coming in, the older part of the fleet will more likely become more peaking over time. That's obviously driven by customers, but with the climate transition plans and goals and targets of the customer base, both the existing customers and new, we think there'll be strong demand for that firmed, renewable product that Alinta is providing today, and that we think we can grow.
All righty. Sounds very comprehensive. Thank you. Maybe just one final question. You've given us an indication of the average contract life of sven years for these acquired plants, and what will that do to the weighted average life of the APA Group, up or down?
Yeah, look, Rob, you know, it's something that we've sort of moved away from over the years because I think it's a bit misleading to throw out an average number, and then everyone just assumes that every, you know, I think we're still at around 10 years, so everyone just assumes that every contract is 10 years. I think the way to describe the region is typically they're longer-term PPAs, they're longer-term contracts, and, obviously, it's very different to being on the grid where you're providing energy into the market at effectively a spot rate. This is all about critical, reliable supply of energy for our customers. They're trying to wrap solutions across renewable power generation, gas peaking, gas transportation and storage, and also batteries. They are bundled solutions, generally long-term contracts.
As you go to renew them, often they're at... they're not necessarily at 15 years at renewal. You'd be renewing them at sort of around that three to five-year mark. It obviously depends on what the customer is looking for, but, no, we're I think over the time, this is going to be very consistent with the business profile that you've been accustomed to, which is principally, longer-term contracts, particularly with the new developments.
Great. Thank you so much, and, congrats on the transaction.
Thanks, Rob. Appreciate it.
Ian Myles of Macquarie Equity, please go ahead.
Hey, guys. Like, does your internal modeling mean it's EPS accretive as well, or is it just cash flow?
Hi, Ian. We're talking to the free cash flow accretion, so we focus, and that's the FY 2025 number that we've really highlighted there.
Mm-hmm. Okay. Can you tell us which contracts don't have the CPI ratchet clause in there? You highlighted 30% of the revenue doesn't it?
No, we're not getting into that level of detail. Ian, obviously, we're bound by confidentiality with our customer. Even if we wanted to, we couldn't.
Okay. On the MSP, back on the more mundane second half, is that the implications of the Origin repricing into the contract and should by 2024 as that rolls forward, or will the new expansion offset that?
Going on there. Of course, there's always the weather overlay. The MSP maintenance works on. Part of the increase in the SIB CapEx that you would have seen is on the MSP, just to keep it, you know, in tippy-top shape. You're right as well. The Origin contract started in January. As you look forward, what we've tried to draw out, where we've given you those points on out, that we're able to sell the capacity during those winter peaks, you'll need.
That's what I was going to ask you. Does that, that extra sale of capacity offset the impact of the contract repricing?
Our pricing has held up really well. In fact, our recontracting generally during the period has been really positive. We're seeing longer-term contracts come into play several weeks ago, with a large industrial user in New South Wales. I understand it's the ebbs and flows of the market, and, you know, it's been a pretty interesting time for the market and for us. See, concerns or, or whatever, it's we've had to move with our customers, and if they've been looking for shorter-term contracts, then we've been providing them with momentum in their own business. We, we work with them on that, and we're seeing longer-term contracts come through. For the audience is, from a recontracting perspective, we're in a good space. I think, and, and often you'll want to focus on the downs.
I think Carmen's described as, you know, they might be related to, again, MSP integrity works or, we'd had a good period in the last one, and it's normalized. Not a big proportion of our, of our earnings are revenue-based, sorry, volume-based, earnings, and, sometimes you're up, sometimes you're down, but over the, through the consistent, in terms of our growth profile.
Okay. corporate costs, you sort of give numbers. This year, it went up by sort of 27%. Should we be thinking 13%, 14% as the sort of range that you're sort of suggesting?
Mathematically, that... Ian?
No, that's okay. Make sure I'm, I'm dealing with the-
Yeah. No, no, no, you nailed it. No, no. Look, we've investment that we need to make in, in the business, and we're doing it, and we're getting results because of it. A lot of this is our expectations of our communities and our customers as well, and the work that we're doing around it and regulatory. You know, we're, we're really making sure that we right-size more clarity here than we've done before and, and likely to do again, is to, A, show you, give you the confidence that we are trying to right-size, but we also know that they've got to reset and rebase at an appropriate management perspective, where we're structuring the business in that way.
That will be a focus to investors.
Yeah.
In talking this higher number for FY 2025, what is a normalized... What do you see now in size of your business? It probably inclusive of that sort of Alinta business on that long run, long run basis.
Around sort of numbers, obviously we, we don't provide guidance beyond what we've. Our assets are getting older. I've said this a long time, but the older we get, there are a pipeline asset. We've got some assets that are aging and, for us, like we've got strong integrity programs in place to, to continue to do that. You know, you know, that will continue for a long time, but it is a very focused effort, if I can put it in that space.
When you look at some of the kit and some of the, the assets that we own and, and, things like power stations, you know, we're making investments over the coming 12, which goes, again, goes to the integrity of our assets, in part because we're growing renewable power, and that power generation is intermittent, which means your assets need to work hard, too. It is certainly going to be a step up, and again, we've been talking about that step. You know, we can't say to you. I think it's the days of gone, where you could put a number in, and it's going to be that number of.
Yeah, the only bit that I'd add to that is you can see what we've, we've spent in. Three includes the technology life cycle, life cycle, CapEx as well as our operational SIB CapEx. That AUD 200 million, in FY 2024, that includes both those buckets as well, and a lot of time looking at and optimizing to make sure that we get the balance, reliability that we want, need, and expect, as well as being very low, is, very, very manageable.
Thanks. That's great, guys.
The next question comes from Tom Allen of UBS.
Morning, Adam. Hey, hey, folks. Morning, Adam, Carmen, Darren, broader team. Congratulations on the transaction. I might sneak a question just on the base business before jumping to the transaction, if I can. I should say also congratulations on... I, I, I note that the uncontracted capacity outlook on that asset remains only 10%. Hearing that, that APA's outlook will increasingly include a lot of greenfield development. Can you share some detail on contracting risk going forward for new assets? Is, is, is there a level of underwriting we can expect?
Look, firstly, on the NGI, just to be crystal clear there, I think, well, I was a bit of a surprise because when you go back through the history of our business and our assets, these assets normally take three, four... When we commissioned that, it took, I think, four to five years before it got to, you know, deliver it at that high capacity level. What we're saying with NGI is that it is going to take some time, correct that. We're not saying it's 10% for the next three years. We're saying it's around 10% now, and it will slowly rise. As we've been announcing discussions that they're having with us around lateral small spurs or...
What we've got to do as an infrastructure company is, at times, build these so that we can back ourselves, to bring capacity to market. When you look at the work that we're doing, mining regions where we've got these assets are going to grow. We have every confidence with our advisors to confirm this as well, but we're very confident that they will grow over time. Look up to core markets, and you've got the work that we do in the remote grid regions that both large and smaller resources, customers, and effectively trying to help them. They're probably going to be more underwritten than, say, a pipeline.
They wanna know that you're, you're there, and then, obviously, the, the, the negotiate is more, I guess, consistent, in terms of the, the ramp up and the, and the, if you look at the electricity transmission space, again, they've, they've constructed the, the, activity is there because they're providing, almost like a baseload type on business. It's gonna be a bit of both. When we go out and develop further expansions in East Coast Grid, because we're building it effectively for peak periods. And we know that we can generate good return, than on some of the asset, other assets, but the returns are healthy, and we also know we'll be an organization that is going to be responsible for, for energy, so we've got confidence that the demand is there. We're trying to bring it to market ahead of demand value.
Thanks, Adam. I, I hear your example on the Goldfields, five years to lift capacity, but do, do you think the new policy environment, the regulatory environment, including for approvals, environmental gas developments, compared to historically? I guess the second part of that is, yeah, East Coast Grid, you know, recognizing you've got some assets there that can play a key role in bringing gas from Queensland to New South Wales and Victoria. I mean, there are some material commercial risks on the East Coast. Could that not offset a lot of the demand for that seasonal swing, on the-
A couple of things in that, Tom. Firstly, you know, working with more broadly has never been easy. It is getting harder, there is no question. Kilometers of pipelines to market. We've got very significant renewable power generation infrastructure that we've brought to market. We know that we need to continue to work closely with them to... Other things that we can do as an independent Australian company is also provide optionality. Saying it's easy, I'm saying that it's, it's just a, a part of doing business, and we'll continue to focus on that. I'll say two things. If you look at what's happening in Western Australia, I know, and you can read, that the support, online, and, and they simply don't work if they're regulated, because we're effectively providing guides become more, more a provider of support for gas peak.
You're going to need more service, not less. We all struggle to see how the saying that it certainly makes sense for those assets, and that's our focus, the assets that we deliver to be contracted. The communities are very confident we've got support of our customers. I know it's going to be hard. We've got to try and get the balance right, but the one thing we know is to decarbonize our energy system in Australia, we need generation and gas-fired power generation to market, and we've got to take the coal out. It just, it, energy source in the system, and in particular, when it's being subsidized by, because the governments are, are subsidizing those, those coal-fired generators.
Transaction. I'm just trying to interpret the EBITDA split of the Alinta assets on slide 28, come from the two large gas-fired power stations, supporting big industrial mining customers in the stake in the Goldfields pipeline.
For me, please.
Thanks, Carmen. I just, can we assume near term that most of the actual mining-
Yeah.
Yep. So the implied transaction multiple at 12.9x, that sounds akin to a pipeline transaction multiple. I'm sort of looking back at when APA acquired the supporting large industrial miners, you know, some growth in the region as well. I understand APA, and I'm just thinking about, some of the press reports over the last few months relating to the Alinta Energy assets that refer to supporting these assets. Considering all that, are you able, Carmen, to please outline why these particular, the value that APA has paid for the development pipeline?
Yeah, Tom, I, look, I might take that perspective. We are dealing with very large mining companies, who emissions energy. Of course, they're going to be very commercial in the way that they operate their business. That's who we deal with every day. Yeah, you can media, but what our job is to do is ensure that we continue to provide them with reliable energy and about what their priority is with their energy needs. They will always tell you reliability and safety is the key priority. I know that it's very topical, and I think you've summarized that. I'd love to be able to share with you, I'm not allowed to, but I'd love to be able to share with you what we've seen in the multiples paid for.
Obviously, a mix of gas pipelines, electricity transmission, that is, and renewable power generation. I think the other thing that you've got to reflect on, and even if you look at APA's organic growth pipeline, which you can even track that to APA, which has got, this has got a significant development pipeline. We need to be incredibly disciplined with that. One of the things that there's going to be no shortage of opportunities, it's about making sure that we work with our customers, and we're really disciplined, delivering the customers the solution they want. Equally, we need to make sure that we're creating value for our security holders. In a way where we can be selective, we wanna support our customers, but be selective in how we grow the business.
The next question, RBC, please go ahead.
Oh, good morning, and thanks for taking the question. I'd like just to extend on Tom's question there around the gas, the Diamantina power stations. Just looking at the per EBITDA split there, it looks like it's a slightly lower set on a sort of megawatt life-to-life basis. Is there an opportunity for some growth? I guess I'm just trying to understand what the difference there is between those two assets.
A couple of things. One is, certainly the planet sizes are different. Number one, Port Hedland station, it's actually two, Pardoo and Port Hedland, so they are actually physically separated. They are slightly older machines as well, so a little more expensive to maintain than Diamantina. Diamantina, so it's gas turbines with a heat recovery steam generator, so it's more efficient and per megawatt, and the Port machines are a little older.
Like the stage one of East Coast Grid Expansion is coming to a conclusion. Now, over AUD 90 million of revenue accretion over a three-year period. Following that, what the expected profile for that AUD 190 million being added might be? I think there was a, maybe an old release from around 2021, and I've got the release from 5th of May 2021. It says that there's an initial three-year gas-
That, that's not an East Coast Grid Expansion. That's the Origin contract.
Okay.
Yeah, a multi-asset service arrangement, that whilst it uses the capacity.
Right. Understood. Just another question. I focus on microgrids and bundled solutions for customers. I guess it's the last time you've, products evolved over the last six months?
Look, the first thing is that some, Yeah, actually, I won't name names, but that are looking to bring firm reliable energy to market first and then not a cogeneration plan or a gas-like power generator to start with, and then they'll transit the newer mines is that there is a lot less capacity to just start out, I guess, you used to more traditionally in the past, just because of the emissions. We're seeing the existing customers want to decarbonize, bring their renewable company with the Dugald River Solar Farm in Mount Isa, where it's been, it started out 88 MW. It's and it's being incrementally developed as the customers owed and how it's working with the gas peaker.
It is really different, and then there's also different sort of the outsource that, some customers want us to operate it, and they want to maintain a level of ownership, or we'll do this work with our customers at looking at all those type of solutions, and, if we can make it work well.
If I can just sneak one very quick last one on Basslink. Regulatory process, is there any timelines for, for that at the moment?
Yeah, there is. It's progressing how quickly those things progress. But we've done a lot of community consultation and engagement, and we're trying to do all the right things, as we progress that. I think we've got about eight minutes. I know we've got another couple, so we'll try and rapid-fire questions.
The next question comes from Michael Thomolaris of Jarden. Please go ahead.
Grid stage three expansion. Can you please provide an update on the project status, target timings, FID, and indicative costs?
I'm not going to provide any indicative costs at the moment. I might actually get Darren. Darren's all over this as well, so I'll get Darren to answer. We have commissioned the first stage, and the second stage is well in hand. We are seeing particularly through the winter periods of 2024, 2025. When we look more broadly than the three months, we are looking to define that a bit more towards six months. We will assess that demand against the cost deck that we can put up for the East Coast grid. As we step forward, we'll look to see whether that is a project that works for our customers and then works for us.
Thanks. Just on the Kurri Kurri Lateral Pipeline, has there been any updates, cost estimate, and lead time to completion and start up FID?
No, we're, we're getting close to that. We're making there, we'll be very soon talking about those, those sorts of things. It's, you take away.
Got it. Thanks.
Ed of Morgans, please go ahead.
G'day, team. First one for me. You've obviously online in that 4th quarter of FY 2023 to stage one of the East Coast Grid expansion, the NGI, your questions from them. First up, did it hit the criteria for getting the immediate expensing of CapEx? Is there a way that you can provide some, maybe some aggregate EBITDA contribution from those three projects?
I'll answer the second question first. No, sorry, we can't. As I highlighted before, the NGI, the East Coast expansion, and the Dugald River, which in just in case people haven't registered this, that used to be called the Mica Creek Solar Farm. It's been renamed Dugald River.
Great. Second question for me, moving across to the Pilbara business. Can you just talk through the existing, latent values, sort of surplus capacity within those assets that haven't been contracted?
Yeah. Look, I think the short answer is, we think there is, and we think there's some really nice adjacency that we can create some value there. Yes.
Great. Okay, then third, 2022 of the, of the acquisition pack, can you just talk through that those assets that are under construction left on those to, to do that? Can you give us a steer about how much incremental EBITDA they-
I might take the second question first, which is we outlined that there's around AUD 150 million to spend over the next 18 months or so.
Thank you.
Mr. Watson, for closing remarks.
Okay, well, thank you. To stem with this. In summary, I just want to reiterate what I said before. We're clearly executing our strategy. I think the results are solid, we continue to, and importantly, we've acquired a business here that not only has predictable cash flows and a strong growth play, uses a very strong platform for growth in the years and decades to come and absorb today. I also just wanna say a big thank you to the APA team for, putting this together, as well as with the transaction itself. With that, I will say...
That does conclude our conference for today.