Thank you for standing by, and welcome to NEXTDC Limited M3 power supply update conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star, one, and one on your telephone keypad. Please be advised that today's conference call is being recorded. I will now hand the conference over to your first speaker today, Mr. Craig Scroggie, CEO and managing director. Please go ahead.
Thank you, and good morning, ladies and gentlemen. Appreciate you making the time to join us at short notice. The purpose of today's call is to discuss our revised FY 2027 guidance. The main reason is M3 Melbourne. The timing of power to that site is no longer certain, and I will explain why, what it will do to our numbers, and what we are doing about it. I have Oskar, our CFO, and Simon Cooper, our Group Chief Development Officer, with me, and we will take questions after my overview remarks. Let us start with what has happened. Jemena in Victoria is the distributor that supplies power to M3. Jemena suspended parts of network works that deliver the next step up in grid supply to the site.
Jemena have attributed the suspension to community and stakeholder opposition to the works, and to the local council not giving its consent until more community consultation takes place on the program for installation of poles and wires. Jemena told us formally they do not expect to restart before February next year. On their current indicative estimate, we expect the next increase in supply during FY 2028. Separately to this, the Victorian government's planning decision on M3 stages six and seven is also now expected after the state election on the 28th of November. Let us go through the numbers. We have taken the affected M3 contracts out of FY 2027 guidance until we can reliably estimate what they will contribute. Our August guidance included approximately AUD 140 million of net revenue and AUD 140 million of underlying EBITDA from those contracts. We have taken out the capacity that is billing today as well.
The reason for that is simple. While parts of Jemena's works are suspended, we cannot rely on the existing supply to carry the fully contracted ramp in the halls we have already handed over all the way up to 100%. That growth was planned to be supported by the upgrade works. The guidance, excluding the affected M3 contracts, is now net revenue of AUD 475 million-AUD 500 million and underlying EBITDA of AUD 245 million-AUD 265 million. Our actual results at the end of the year will include whatever the M3 contracts contribute. Service-level credits on those contracts could reduce underlying EBITDA below that range. However, we are working with the customer on how we manage the delay, and that work is ongoing together. Until it is complete, we cannot reliably estimate what it will be. So that is what has changed.
What hasn't changed, the capacity at M3 is still under contract subject to the customer's rights. The halls are still under construction, being built, and handed over to the customer. We're working with the customer on a revised power ramp and working closely with the Jemena team to find solutions to bring power to the site sooner than the current forecast. As it relates to the rest of the business, it is tracking in line with what we forecast in August. Moving to the balance sheet. On 30th September , we had approximately AUD 8.7 billion of liquidity, including about AUD 1.3 billion of cash. We are in compliance with our covenants, and we expect to be in compliance with our covenants at the December test. Let's move to the action that we're taking right now.
On power, our Group Chief Development Officer, Simon Cooper, is talking with Jemena's CEO and technical team every day about getting the works restarted and what we can do together in order to support their program. That work with their technical teams and our technical teams also includes a range of solutions, and we're finalizing extra demand managed supply on the connection we already have at M3, and we continue to look at every option to bring power to the site faster. We'll be in a position to give a full update on that progress at our AGM on 20th of November . That work with the Jemena team continues daily. On the capital front, with M3 revenue deferred, we've taken the decision to pause projects that aren't backed by a customer contract, and we will pause all further land acquisitions.
We put that money behind the existing capacity and our customer contracts that are already signed and committed to deliver. We have therefore made adjustments to our FY 2027 CapEx, and that is now AUD 4.5 billion -AUD 5 billion. It will be reduced by AUD 750 million or 13% - 14%. Like for like, before capitalized interest, it's a cut of 17% - 19%. We will report on the further capital review at the AGM. We'll now open the call for questions. Oskar will be available to take any questions on guidance, our CapEx, liquidity, our covenants, and capital management. Simon's joining us today to take anything on the work that we are undertaking with Jemena and the technical teams, and to cover the power options and the M3 program overall. I can take anything to do with customer, government engagement, community engagement, and our processes.
Operator, let's open the line for questions.
Thank you very much. As a reminder, to ask a question, you need to press star one one on your telephone. If you would like to cancel your request, please press star one one again. Please stand by as we compile the Q&A roster. First question comes from the line of Eric Choi from Barrenjoey. Your line is now open.
Hey. Thanks very much. Maybe I will just do two, if I could. The first one just relates to kind of sharing liabilities with other counterparties, i.e., Jemena and the end customer, and then ultimately, how we should think about FY 2028 impact. My question is, if we were to take, I guess the most negative view, would it be you have sort of built 60 MW at M3, there is 225 contracted, so that is kind of like 165 MW difference and if you are getting AUD 1.5 million EBITDA per megawatt, that sort of suggests a AUD 250 million EBITDA impact potential. Would that be the sort of upper bound because then could you sort of lessen that by any liability shared with Jemena and/or the customer? Sorry, I should have phrased that obviously. I mean, that would just be a delay, not a loss.
Can you just comment on if I am thinking about that the right way in terms of FY 2028?
Thanks. I think it is too early for us to be able to make any specific estimates of the financial liabilities because they largely depend on the continuing work we are doing with the customer on when the program, with Jemena will deliver the power that is required. Until we have solved the technical work in order to rebuild the ramp, the work on the construction and the handover of halls continues, but obviously, they will not be fully powered. Until we understand the full power ramp, all of those downstream questions in relation to length of delay, the amount of billing that is available, and any other recourse available to us, due to those delay factors will need to be considered at the time.
We have given as much information as we have today, but there is considerable technical work to be done in order for us to make further estimates.
Got it. Appreciate that, Craig. Do you mind if I just do a quick follow-up, just on liquidity?
Sure.
As you mentioned, to be quite frank, getting lots of questions on liquidity and some investors are even asking if there is need for equity. If I look at your AUD 8.7 billion of liquidity, the question is that sufficient to fund the rest of your forward contract book? I was just wondering if it is as simple as taking the 740 MW contracted less 288 MW build, assume AUD 12 million or AUD 13 million per megawatt, so you kind of only need AUD 5 billion-AUD 6 billion. Is that the right way to think about it?
We certainly have no plan to raise equity. I will let Oskar talk to the capital management program overall, because we have sufficient liquidity, we are within our covenants, and there is considerable work to do, obviously. There are a number of other options available to us in terms of slowing down the existing programs for anything that is not contracted, which we have already done. Even going as far, if we were required to recycle capital, there is AUD 750 million in land bank and S4 JV continues to be progressed. There are a number of options available to us. I will let Oskar talk in more detail specifically to all of those aspects. Oskar, over to you.
Yeah, Eric, as Craig pointed out, we have AUD 8.7 billion of liquidity, and we remain compliant with our covenants, so we continue to be able to rely on those facilities. The ability to draw down the entire senior debt facilities will ultimately depend on the phasing in of customer orders and ultimately where we land on power delivery. But as Craig pointed out, we do have a range of other options, such as selling the land in relation to undeveloped facilities. We do continue to make progress and prepare for the JV of S4, so we do have a range of options in order to finalize the delivery of the contracted capacity. As a rough rule of thumb, I think you can think of the forward order book deliverable at around AUD 12 million per megawatt.
So, for us to deliver the forward order book, the total CapEx spend would be on the order of about AUD 7 billion.
Awesome. Thanks for the color.
Thank you. Just a moment for our next question, please. Next, we have Tim Plumbe from UBS. Your line is now open.
Hi, guys. Thanks for taking my question. Two questions from me. A bit of a follow-on from Eric, if possible, please. So, AUD 140 million net revenue in EBITDA M3. Can you guys give us a sense for how many megawatts of the 197 MW M3 represented, and also of the 221 in FY 2028, please? The second part to the question, based on the current supply capacity into M3, how much EBITDA could that support?
Thanks, Tim. Look, as far as breaking those numbers down further, I am not going to do that today because they largely depend on the existing power, how much further ramp is required, the handover of physical data halls. There is a whole number of factors that will go into the things that we are considering at the moment. I will not break down all of the specific power deliverable components, because we have more work to do on that. Once we have the updated estimates, I would imagine as soon as it is available, if not at the AGM before, we will provide further information.
Yeah. I was not talking about new, I was saying within the previous guidance range that you guys had given. You had given a kind of pipeline of deliverables over 2027, 2028, 2029. Is it feasible to understand what the M3 pipeline looked like within those numbers?
I will not break out M3, but we will update the delivery chart for 2028, 2029, 2030, et cetera, as we have previously given in our estimated forward outlook. We will update that information once we know more about the power delivery schedule and the timing of its delivery over 2028, 2029, and 2030.
Understood. Just the component on EBITDA with current power capacity into M3, Oskar?
Yeah. We have specifically pulled that out of today's trading update. Obviously, we are still working through with the customer and with Jemena to estimate the impact. The reality is we will report our final FY 2027 numbers at the half year and at the full year, including the impact of M3. There is likely to be a level of revenue. There may be some service-level credits. Until we have more information that is reliable, there are lots of different scenarios.
We are not in a position to provide any guidance on that at this stage.
Understood. Thanks for taking my question, guys.
Thanks, Tim.
Thank you. Just a moment for our next question, please. Next we have Annabel Khun from Evans and Partners. Please go ahead.
Hey, guys. Thanks for taking the question. Probably the first question is around the solutions you are working on with Jemena to get additional power to the site. Could you maybe give a little bit more detail at the solutions you are looking at in terms of are you looking for an alternative path for the power poles? Is it about getting better consents for the current plans and getting those moving again? Yeah, maybe just some of those solutions, please. Then I have a follow-up as well. Thanks.
Thanks, Annabel. Yeah, there is a range of those. I will let Simon talk to some of that. We will not give every answer here because, obviously, the options that are available to us are being worked in real time. But I will get Simon to talk to the broad program of work and the type of options that are available.
Thank you. Thank you for the question. Yeah, as Craig mentioned, we're working daily with the Jemena team. They are now entering their community engagement phase. We support that engagement. We have been engaging with the community around our data center construction and operation, and it's an important part of the process. In the background, we are working with their technical teams to understand the range of possibilities, and just to touch on a few of them. Number one is we have existing connections, and we're working with Jemena to understand if some additional power could be provided through those connections. Number two, the power poles related to all of Jemena's 66 kV works in this area are being objected to. So we are working with Jemena on the community consultation to explain the purpose.
We're working with them on alternative routes that may be feasible, and alternative locations for such poles. Undergrounding the cable has been discussed and is certainly something that is used from time to time, and we'll be looking at certain parts of the route with Jemena for that purpose as well. It's important to recall, though, that undergrounding does take time, and is not an immediate option that we can work on now, but it is something that we're absolutely considering. Then finally, there are other routes that may be temporary that we will work through with Jemena. So we're exploring all avenues, and we will continue to update as we have certainty on some of those solutions. Thank you.
Great. Thanks. Maybe if I could just add on a second question, please. In terms of discussing the sale of the land sites, obviously more detail at the AGM, but maybe could you give a bit of an overview of sort of the types of sites you guys are considering selling and, any further detail you can give there. Thank you.
Thanks, Annabel. Look, we are obviously disappointed to face these challenges and be in a position that we hadn't planned to be in. In the ordinary course of managing the business day in and day out, we're always dealing with complex matters, whether it relates to the development process, the technical aspects of delivery of these programs, state government approvals, engagement with community stakeholders, and federal government changing legislation on energy broadly. So there's always a significant number of factors. As it relates specifically to the options that are available to us, we have made the decision to pause anything that is not a customer delivery contract until such time as we have got clarity on the delivery program. Without clarity on the delivery program and having the customer work agreed on that delivery timeframe, we can't accurately estimate the delay of that financial impact.
Until such time as we are certain on the implication, it is not prudent for us to take any discretionary development when preserving our optionality or preserving our capital. Our number one most important priority is to deliver our customer contracts. We have the largest backlog of contracted business in the company's history. It has been an extremely positive period for the business, and our focus is to deliver those customer contracts. Anything that is not contracted, any land that we have acquired that does not have a customer contract, and there are many options available, will be considered if we need to provide more support in a capital recycling sense. No decision has been taken specifically other than the decision to ensure that we preserve every option available to us until such time as we have clarity on how we will deliver the full M3 power requirement.
Thank you for the details.
Thank you. Next we have Andrew Gillies from Macquarie. Your line is now open.
Thanks for the opportunity, gents. Craig, before I ask my question, I actually just want to pick up on something you said around the federal government there. Presumably, this customer is a key partner of the federal government. It looks like in terms of the timings that you have given in the release, it seems like 2028 is sort of the number or the timing that you have been given. What are the other potential outcomes here in terms of conversations you can have that might actually bring that timeframe forward? Have you engaged with the federal government? Is that an option? Are there other things that you are looking at, notwithstanding the things we have already discussed on the call today, but just purely around the decision and timing and approvals?
Thanks, Andrew. Yeah, look, every option is being considered, both in the delivery program, the technical aspects of providing temporary power, permanent power, and being able to do that on the shortest possible timeframe that we can. There are a number of other options that are available to us, including moving capacity to other sites, in the interim and supporting customers' requirements through other locations. Every option that is available to us to support our customers' growth, is certainly being considered and worked with the customer. As it relates to all of the portfolio of assets that we have across the business, everything is being considered right now in order to meet the customer's needs.
Perfect. Thanks, Craig. You alluded to S4, and I know that it wasn't S4 and S7. I'm just curious, given the situation that's arisen, has the thinking on S4 changed at all? Do you still think that that asset would need to be fully contracted before you would find a capital partner? Or are you changing the way you're thinking about that potential JV? More broadly, if you had to rank the options for capital recycling, most preferred to least preferred, any kind of indication there would be great, particularly as it relates to asset sales versus advancing S4 JV, that would be great.
Yeah. Look, the S4 JV has been a priority for us as we went through the initial considerations on that capital recycling program. One of the key issues that comes up is obviously the delivery program and the timing around having delivered all of the construction program. As a result of having sold 250 MW at the S4 site, having contracted capacity to deliver all of that and the additional 115 MW that is available to be sold, is also significant upside. The key issue ultimately is that when you look at the capital partners, if you want the very, very best pricing outcome, you would be delivering a stabilized asset that's constructed and then has cash flow.
Until such time as the construction program has been completed, if the timing of the JV and cash flows is not yet certain because the construction is still undergoing, there is an element of risk that gets priced into those deals. We want to maximize returns for shareholders, and the best joint venture outcome is obviously removing that risk and then getting the very best pricing we can for our long-term economic benefit and that of shareholders. As it relates to the program, we have been and continue to engage in the JV options, but the pricing issues are ones that we're very sensitive to and want to maximize equity returns. It doesn't mean that we can't do a JV now. The trade-off is pricing the risk on the balance of the delivery program. There is further work to do.
There is more to sell at S4, and those factors around delivering the current program and who the customer will be, credit quality tenor, of the customer for the balance of the 115 MW that we have power, we are able to deliver and contract today, all play a key role in any joint venture partner considering the opportunity, and they all go to price. Andrew, it is not just as simple as saying, yeah, sure, we could do the JV today, take the issue off the table. My priority is ensuring we get the very, very best economic outcome that we can. There is always a trade-off on those considerations. Now, we have to continue to carefully consider the benefits of doing that, given these recent developments that we have to manage.
Yes, it continues to be a priority and we will continue to work through those joint venture discussions with appropriate capital partners.
Okay. Certainly. Just a quick follow-up on that, Craig. Just so I am really clear on this. The two points for capital partners' return expectations would probably be when the asset is fully contracted and then once the development is complete. Is that reasonable and how does that differ from a stabilized asset yield, if we are thinking about it with just say, 6%? What kind of expectations, what is the variance in that trade-off?
Yeah, look, there is nothing stopping us undertaking capital recycling for the first 250 MW, and that is being considered. The balance of that remains to be sold, and then that remains as an additional joint venture opportunity or capital recycling program. Collectively or individually, we continue to consider both options.
Perfect. Thanks, Craig. That's clear.
Thank you. Just a moment for our next question, please. Next, we have Roger Samuel from Jefferies Australia. Please go ahead.
Oh, hi. Morning, guys. I've got a couple of questions. First one just in terms of the risk of customers moving out of the M3 facility. Obviously, you are engaging with them and try to keep them at the site. I'm just wondering what's the risk of them considering some other facilities of your competitors or perhaps the supply is very tight in Melbourne, that's not a likely scenario.
Thanks, Roger. Right now the customer is obviously working very closely with us to work how quickly we can deliver additional power with Jemena. So our number one priority is to understand how the upgrades can be delivered, the alternative passing routes for poles and other things, as Simon had explained earlier. The construction program is still continuing. So customer is wanting us to continue to deliver the program. They are currently operating in the site. There is existing power and ramp going up. But as we start to look forward to the additional ramp, we needed those poles and wires upgrades in order to get the 66 kV transmission infrastructure in place. So it's a question of the short-term, medium-term delay to that ramping.
Right now, the work with the customer is about program and managing inside the power headroom that we have available so that they can continue to deploy, and we continue to deliver the physical halls and the construction program and the amount of available power that we can support them with, to keep deploying. That is the current focus. Obviously, if there was capacity sitting around in any other location, in any other market, you would consider it's probably already sold. So there is very little capacity available anywhere, not just in Melbourne or in Australia, anywhere in the world. Even finding 5 MW of data center capacity today is a huge challenge. It's just not sitting around, even at a very, very small scale. So we have to continue to work to support the customer's need to deliver their program.
Right now, our focus is on continuing to deliver the physical halls on time and power them to support the customer's deployment with the maximum amount of power that we can deliver.
Right. Okay. My follow-up question, with regards to stages six and seven at M3. Just wondering, do they relate to the full 225 MW or stages six and seven for something else beyond 225 MW?
The 225 MW, if I just explain the process, the history of the sites. Remember we started the development of M3 in 2021. The site has been slowly developed over the last five or six years, and as we have gone in more recent time, we have acquired adjoining land parcels, and each time we acquire an adjoining land parcel, we're then able to redesign the facility for additional physical deployment capability. We consolidate the land parcels as we acquire additional sites into the amalgamated site, and then that development application is modified, and we then request the support for expansion of the site as we acquire the adjoining land.
That is the ordinary process that we follow when we have started with the site like M3 in 2021, and then acquired four or five additional land parcels that have continued to grow the site's total capability from what its original day one design estimate was. As far as the approval process for stage six and stage seven, it has been with the Victorian Government and Planning Minister for a very long time. When the Victorian government went through recent portfolio changes and the Premier changed, obviously the decisions in relation to approvals and other things slowed down. We now have to manage the timing of the upcoming election and caretaker mode. Our estimate as a result of having not had the development application that was modified to include stage six and seven approved.
That development application currently still sits with the Victorian Planning Minister, and for some time we continue to do everything that we can to get them to make that approval. The development is compliant with all of its requirements under the industrial zone development needs. The work that needs to be undertaken, obviously, with community engagement relates to Jemena on the power components, but the community consultation relates to NEXTDC on the data center and its operation itself. But the considerations here around the timing and the delay in the approval of stage six and stage seven and the Victorian Planning Minister's determination, even with the revised changes to planning guidelines, they do not apply to existing applications that are already being considered by the Planning Minister. So nothing that has been submitted is subject to any new changes that the government may make in the future on policy.
This caretaker period will ultimately result in a new government being appointed, a new minister, and we would therefore take the conservative view that given what we understand currently about the government's approval processes and the upcoming election, that the time that we would be able to restart that may be February or later, depending on the outcome of the election.
Yep. I just want to clarify, if you don't get the approval for stage six and stage seven, does it mean that the planned capacity of M3 is going to be below 225 MW? Is that right?
Very good question. I have no reason to believe that we will not secure development approval. We comply with all of the development requirements under the planning rules. Acknowledging the community concerns more recently, on data centers generally, more community consultation is required about the ongoing operation, development, and construction issues on the site. As it relates to the 225 MW, I have absolutely no reason to believe that we will not secure the appropriate approvals. That does not mean that there is not further work to do with the community and the engagement program to ensure that they are getting the best support from us they can. I do not believe that there will be an issue, but obviously it will take some time now given the government changes.
The 225 MW is still the current compliant development application, and I am confident that as a result of us complying with all of those regulatory obligations and continuing to engage with the community, that we will get approval in due course.
Got it. Thank you.
Thank you. Just a moment for our next question, please. Next, we have Siraj Ahmed from Citigroup. Please go ahead.
Morning, Craig and Oskar. Just have three questions. Maybe first one, Craig, Oskar. Is there any way to think about how to quantify the service-level credits that you may be liable for?
Thanks, Siraj. Look, obviously, the matters in relation to commercial aspects of the contracts are confidential between us and the customer. At the moment, our priority with the customer is to focus on the delivery program. We've been conservative insofar as making the decision that obviously this is an impact to the business. We've backed out all revenue and EBITDA. Regardless of the fact that we're already billing the customer, we are delivering handover, have considerable infrastructure already under operation. We've made the simple or straightforward decision just to take it all out. Once we understand, continue work with the customer, what the revised program will be, then we'll make an estimate of the impact. There are numerous factors around the time of the delay, course of actions available to us as a result of the delay.
There are simply too many variables for us to consider at the moment to be making any guess or estimate. Therefore, we are not. We've taken out all revenue and EBITDA, and we will simply work with the client, rebuild the program, work with Jemena to get commitments on the power delivery, and once we have agreed all of those matters, we'll then provide further guidance as it relates to the financial adjustments, service credits, and then the flow of revenue and EBITDA relating to the programs.
Understood. Maybe second one, maybe for Oskar. Just thinking about the covenants, I'm pretty clear that you expect it to be meeting in the 31st December this year. But you're sort of also flagging, maybe there's some limitations on how much you can draw down on the senior debt facility. Is that because of this uncertainty on service-level credit? Because I'm trying to calculate the interest cover. I'm trying to understand whether that subordinated interest is included, right? Maybe you can clarify that for us, where the uncertainty is.
Yeah. Thanks, Siraj. A couple of observations. The uncertainty is really in relation to the timing of when capacity goes live, as well as potential service-level credits. Noted that, as Craig just stated, there's a number of different factors that we have to take into account, including force majeure provisions, and the customer's own plans. As far as the net interest cover calculations are concerned, the key point to note is we've drawn AUD 2 billion of senior debt. And essentially, that's the key cost to focus on as far as the net interest cover is concerned. So we, at this stage, are sitting pretty comfortably, and don't have any particular concerns about compliance as at 30 June and 31 December. Beyond that, we'll obviously need to do more scenario analysis.
It's a priority, so we're not in a position to provide further update and guidance at this stage. When we are in a position, we obviously will share that with the market and investors.
Understood. Maybe last one. Craig, just thinking about the power. I guess part of the thing that you've mentioned here is also the Brooklyn Terminal upgrade, right? I'm just trying to understand how much megawatts are we thinking from that upgrade that is due for the final stages? And more broadly, when you look across the portfolio, what's the comfort levels across the other sites? Right? Just because that's a key question that we're getting, in terms of contracted capacity, how are you thinking of upgrades and interdependency on upgrades for the other sites? Thanks.
Yeah, obviously because it's confidential to the customer themselves, I'm not talking about the specific megawatt ramp and other things until we've worked with Jemena on that. And we will revise the out year forecast, FY 2028, FY 2029, FY 2030, in our waterfall once we have clarity on the exact megawatt numbers and the timing of those. So that work is ongoing. I'll ask Simon to talk to the Brooklyn Terminal upgrades and the 66 kV infrastructure versus the upstream augmentation programs, because they are all ongoing detailed works and part of our engagement with Jemena and AusNet on the larger delivery program. And then maybe once Simon has covered that, I can just come back and talk to your final question about the rest of the business, and the delivery program currently. So Simon, I might ask you to talk to AusNet and the program upstream as well.
Yeah. Thank you, Craig. Just to take a step back, Jemena are our distribution network provider and responsible for providing power to the site. They are augmenting their 66 kV network in and around our data center and as it connects into their own upstream nodes or distribution stations. That work is what has currently been paused, and when they restart, we expect the initial additional power to the site to be provided. In parallel and for some time, we have been working with Jemena to push more power down those lines subsequently. That power will flow through Jemena's upstream network, and one of their partners is AusNet, who operate the BLTS or Brooklyn Terminal Station. Additional capacity is required not only for our data center, but as part of the ongoing network upgrade that is happening not only in Victoria, but essentially, all over the world.
That work is complex and we are working with Jemena and through Jemena with their partners and their other contractors and subcontractors to refine the program for that, and as Craig mentions, as we get more certainty, that will come back into our FY 2028, FY 2029 program. I think that covers it. Let me know if there's anything that's not clear.
No, that's fine. Thanks.
I'll just go back to the last question, if you could be specific about what the balance of the question was looking for.
Hi, Siraj. Could you please press star one one again? Thank you. We will come back to Siraj.
Yeah, sure. No problem.
Thank you. Next, we have Benjamin Jones from JP Morgan. Please go ahead.
Morning, guys. Thanks for taking the question. Just one clarifying point if I could. Obviously, you expect to be in compliance with those financial covenants at June and December assessment dates. Given the common terms, the poll allows for annualized billing within 24 months. Could you just sort of confirm whether you are assuming any earnings contribution from this contract, be that M3 or potentially sitting elsewhere, in those financial covenant calculations? As a follow-on from that, for any future assessment periods, actions such as pausing CapEx programs and selling development land. How comfortable are you on hitting those financial covenants, and are those actions necessary to remain compliant with your ram covenants?
Yeah. I will take that one. Thanks, Ben. Probably just important to do this one step at a time. At the moment, we have drawn AUD 2 billion of debt. The interest cover calculations include only the interest expense in relation to that senior debt. It excludes interest on subordinated debt. So the calculation is relatively straightforward. We do have the ability at each testing period to include any contracted EBITDA that is due to go live within 24 months. We can do that as at 30 June , we can do that as at 31 December , and 30 June again next year, and so on and so forth. We are not going to go into detail on those calculations. We will be sharing those with banks. But we do have the ability to include contracted EBITDA that is due to go live within 24 months.
What was the second component of your question?
The second component was just around the actions around pausing CapEx programs and potentially selling development land.
Yeah.
How necessary do you see those actions as to deliver—
Yeah.
—on the financial covenants?
Yeah. Very good question. We've obviously been spending a lot of time getting ready for today's announcement. We have already stripped out of the CapEx program that spend, which is not directly attributable to bringing online contracted customer capacity or capacity that is very close to being finalized. Those are the measures that we've taken in relatively short order with a lot of other things going on. Over the coming days, weeks, months, we will continue to refine. We expect to have further CapEx savings. In terms of other options, such as selling land, JV, we will continue to assess that as well. I think the sort of overall statement or the best way to think about this is we have options.
It's good to have options, and we will continue to carefully, methodically work our way through how best to manage the funding of the forward order book-related capacity delivery as we move forward.
Yep. Got it. Thanks for the detail.
Thank you. Next, we have Siraj Ahmed from Citigroup. Please continue your second question.
Craig, sorry, I am not sure what happened there. I guess what you are trying to discuss is, across your rest of the portfolio, how are you thinking about the power delivery timelines, including the sort of upstream upgrades and transformer upgrades, right? How are you sort of thinking of the risk or anything on that, right? Because that is the question—
Yep.
—we are getting. Thanks.
Yeah, got it. Okay. Look, across the rest of the portfolio, the power delivery program for those contracted customer commitments is in place. Obviously, the major one that is the most significant customer delivery program we have had, and have across the company, is the 250 MW that we are constructing and delivering at Sydney right now. That program continues to be on track. There are always issues in delivery, whether it is construction, power, whatever the issues are. That currently for the S4 site is in place. I do not have any major issues outside of that being our priority focus. All the other markets we are delivering in, submarine cables to support Geelong, Sunshine Coast, Darwin. All of those markets are relatively small. B2's expansion for capacity is relatively small. So they are all small in comparison to 200 MW, 300 MW, 400 MW at these larger sites.
Across the rest of the portfolio, in the ordinary course of the business, everything is going very well. As I said earlier, obviously being in a position where we have these delays is extremely disappointing. We just have to get back to work on working the problem every day, in order to unlock the delivery program and get the sites the power that they need as quickly as we possibly can. Across the balance of the portfolio, I do not have any other issues that are concerning me.
That is pretty clear. Thanks, Craig.
Thank you. Next question comes from the line of James Druce from CLSA. Your line is now open.
Yeah. Good morning, Craig. Good morning, Oskar. Can we just talk about the bookends of the potential delay? What is the earliest realistic date you think Jemena can complete the works? At the other end, if the overhead poles cannot proceed and you have to underground them, is that a two-year or 18 months process? I have got a second question as well.
I'll let Simon talk to that, but I think the likelihood that we're going underground is probably low. The alternative passing routes through industrial areas are really the solution to the problem. But I'll let Simon talk to those programs that we're working with Jemena, because they really go to the timeframe. But we don't have a timeframe specifically, but those are the areas that are being worked. Simon, if you want to talk to them.
Yeah. All of these solutions will come with different time frames and different ongoing or post-delivery activities. Temporary routes will obviously need to be replaced with permanent routes. But in the end, Jemena are responsible. I don't want to prejudice their decision process. We are working closely with them, so they understand the priority of this activity. We've got indications from them in writing as to where they're at in that process, and that's what we're currently basing our consideration on. Is there opportunities to deliver the next power step earlier than that? I believe there is, but there's no certainty on that. Is there risk that it may take longer? Yes, there also is that. But we will get into the detail and support them in their decision-making process to bring this first power upgrade to energization as quickly as possible.
I can't really say much more than that. I'm going to assume you were on earlier and able to hear me talk through the various options, just for the information. Thank you.
Got it. Then one follow-up just on the termination rights. Are they on the delayed megawatts, or they tranched into the future tranches, or are they over the entire customer contract? How are those termination rights daisy chained?
Yeah, I am not going to go into the customer-specific detail on what they involve. But as I mentioned earlier, customer has termination rights. We have already delivered components of the infrastructure. They have already installed and operating their infrastructure. Our priority is working with them to support their desire to have us continue construction and hand over the halls, and then support them with as much power as we can secure. I do not have any other information to share outside of we are going to continue to support them to the extent that we can, and then review the impact of any service-level credits or other remedies that are available to us as well.
Thank you. Just a moment for our next question, please. Next, we have Eric Choi from Barrenjoey. Your line is now open.
Thanks very much. Just a couple of quick follow-ups. The first one, just with the stock down 40% today, I just wanted to confirm we are using all the information today correctly to calculate your implied contracted EBITDA multiple and whether that might present opportunities for unlisted interest. So, maybe for Oskar, if we say contracted EBITDA is unchanged, and I appreciate there is delay risk to that, so let us say contracted EBITDA is above AUD 1 million, AUD 1.1 million, AUD 1.2 million. If we add back the AUD 7 billion you said of CapEx that is required to meet that contracted, I am getting around 11x contracted EBITDA multiple. Or put another way, a kind of 9% cap rate I am wondering if that is broadly in the zone. And then the related question is, I know you are talking to equity partners for the S4 and S7 JVs.
Is there potential to repivot those conversations for those sort of partners to look at the broader NEXTDC group instead of just that JV? Sorry, that is the first follow-up.
Yeah. Okay. Thanks for those questions, Eric. So in regards to your calculations, they are directionally correct. So if you take the enterprise value of the business and add AUD 7 billion divided by contract EBITDA, you get a mathematical answer. When it comes to whether that's an appropriate multiple or not, we don't comment on valuation. That's a matter for investors ultimately. In regards to your second question, anything is possible. It's ultimately the board's duty to assess anything that comes and is presented to the company, and assess whether that's in the best interest of shareholders. We're not actively pursuing anything other than continuing to prepare for the JV of S4. But obviously, we're a public listed company with an open share register, so anything is possible, and the board will continue to assess everything based on its merits.
Thanks, Oskar. Just a quick follow-up on CapEx. Been getting a few questions on it. I'm just trying to balance upsides versus downsides. So upside, obviously, this CapEx review. I appreciate it's hard for you to give a number at this stage. The other kind of negative that people have been asking about is if you were to go underground for the poles instead of overground, how material would that be? Would it be NEXTDC or Jemena that would be liable? So maybe the question is, if you balance upsides and downsides, is the net risk to your CapEx guidance up or down?
Yeah. So on the Jemena going underground, I don't have any information on that myself. I might hand over to Simon whether he has an ability to comment on that.
Yeah. Look, as we continue to work closely with Jemena on their possible solutions, then information will come out. It's a complex environment. An end-to-end underground solution is extremely unlikely. Will there be parts of the network that were already underground that would be expanded or other parts of the network that may be moved now or later? Possibly. But forecasting that cost and then aligning it through our contract and Jemena's other obligations and other works programs is also complex. So it's not something we can forecast. Again, as I mentioned earlier, this is really Jemena's space. We're supporting them and working with them to ensure the priorities are correct. But we don't have further information on that right now, and we'll share it as we get more certainty.
Got it. Thanks.
Thank you. Just a moment for our next question, please. Next we have a follow-up question from Tim Plumbe from UBS. Please go ahead.
Hi, guys. Just one follow-up from me, if possible, please. Appreciate there's a lot going on, and you've talked about stopping non-essential CapEx. In terms of the rest of the business, thinking about new business opportunities, does that continue as business as usual? Here, I'm thinking like M4, right? If someone wanted to engage to contract the whole of M4, do you put those discussions on hold for the moment, or that's a separate matter for future opportunities, and you'd still be happy to contract out the whole thing in the current situation?
Craig's line appears to
Sorry, my line dropped out. I didn't hear any of that. Go again.
I'll try and make it fast, Craig. Taking a pause on non-essential CapEx, but in terms of thinking about forward business opportunities such as M4, do you take pause on that now, or do you continue to pursue those opportunities? If someone wanted to contract out the whole of M4, would you still be willing to do that and undertake it, or does what's going on at the moment push all of those plans back a little bit?
I think the first important point is as it relates to capital management, we are not going to continue any work on any sites that don't have an existing customer commitment. That's important. It goes to preserving optionality that's available to us for ensuring every dollar that's allocated to an existing customer contract will be delivered. But as it relates to selling, very different question. The demand in the environment, despite obviously facing these issues, these are not new. These problems and challenges for the industry are not just in Australia. They're all over the world right now. The availability of power delivery. We've never seen a shortage of digital infrastructure like we are seeing right now. Number one priority in terms of managing our business is to ensure we don't spend any money that we aren't absolutely required to spend.
It doesn't mean that we won't continue to talk to customers about those opportunities. If at some point in time in the future the company decides to recycle those sites, it would be even more valuable to recycle them with potential customer commitments. Every option has to be considered here for ensuring we maximize shareholder value. Despite how disappointing it is to be facing this particular technical challenge at M3, the rest of the business is doing incredibly well in a demand environment that we've historically never seen with some of the best credit-rated customers on the planet. Whilst I'm focused on working the problem every day to support the team to find solutions to the issue, the rest of the business is doing extremely well.
I can't lose sight of the fact that we want to do everything that we can to continue to create value for our shareholders. The selling options available to us for anything that we already have, and that team that are engaging with customers on planning there will continue, but it doesn't mean that we are committed to spend a dollar that is not currently contracted.
Understood. If I understood that correctly, it doesn't change the pipeline of opportunities or the timing within which you would be able to deliver on those incremental opportunities should they arise.
No. Just that we're not going to spend capital that's not committed right now. The opportunity is still there. The engagement with the customers is still in place and ongoing. Obviously, the issues that we have to be focused on now relate to the capital program, and being conservative is the right thing to do. Taking that action immediately, shutting down any dollar that's not required to be allocated preserves maximum optionality for us. But it doesn't mean that we don't want to preserve maximum optionality on the customer side for the opportunity as well. If we were thinking about the capital recycling of any or all of those sites, every one of them has a customer engaged on it today. So those engagements would continue, but it doesn't mean that we're committed to do anything.
Understood. Thanks for the clarification, Craig.
Thank you. Our last question, a follow-up from Siraj Ahmed from Citigroup. Your line is now open.
Craig, just a follow-up to Tim's question. In the AUD 1 billion that you have reduced for CapEx for 2027, what exactly has been reduced? Is it just the early works in M4, S5, et cetera? Is that what's been changed? Just secondly, just confirming, I think you mentioned you have AUD 750 million, close to AUD 750 million of land bank. Just confirming that number as well. Thanks.
Yeah. If you only take the small handful of the larger sites, that's AUD 750 million. It doesn't include all of our land, but just the larger ones that we've spoken to. There are others, but let's just deal with a small handful. M4, M5, S5, S7, just between those—
Yep.
—projects that all have customers engaged on them at the moment, that are all in pre-sales planning development application phases, are significantly more valuable with DAs and customer commitments than they were before. Nothing changes how valuable those sites are. The only thing that changes is whether we're going to commit capital to them. At this point in time, the answer is we are not until we fully understand how we're going to solve the issue that we face at M3.
Got it. Okay. Pretty clear. Thank you.
Thank you. That completes our Q&A session. I would now like to hand back the conference to Mr. Craig Scroggie for closing remarks.
Thanks everyone for joining today. Obviously, these challenges are extremely disappointing for us. I know they're disappointing for our shareholders. The engagement with the community and supporting Jemena on their engagement on the power poles is one of the most important things we have to focus on right now. Finding solutions in order to support our customers ramp and the existing infrastructure we've deployed and operating ensuring that they are successful is also our most important priority. Developing digital infrastructure on this scale is not without challenges, and every day, there are issues that we have to manage. This particular one obviously is a problem that we will continue to work through, find solutions for, support our customer, and get to the other side. The overall business is performing extremely well. These challenges we will find solutions for.
As it relates to taking the most conservative position and the information we've shared today, I appreciate that there will continue to be many questions. For everyone that has further questions engaging with myself, Oskar, and Simon on the IR team, please continue to feed anything into us that you're looking for more clarity on, and we'll provide as much as we possibly can. The next opportunity for us to give updates on progress will be at the AGM in four weeks' time. We've got a lot of work to do to continue to work the program. I appreciate you joining today, and I look forward to continuing to talk to you about the progress that we're making on managing the issues that we face. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.