Good morning, everyone, and thank you for joining us as we run through our financial and operating results for the six months ended 30 June 2025. I'm joined here today by our Chief Financial Officer, Alexa Preston, and today we will speak to the presentation we disclosed on the NZX this morning. In our usual format, I'll cover off our company highlights and the operational update before Alexa covers the financials in more detail. I'll then take you through our strategic highlights before we have some time for questions at the end. Let's start with our financial highlights on page three. We have a downgrade of almost NZD 0.5 million, reflecting the additional contracted revenue from the transit contract, PPI escalation, and continued cost discipline.
These more than offset the impact of the step down in the contracted terminal fee from 1 April and the expiry of the lengthy Wiri land and terminal leases arrangement at the end of February. Normalized free cash flow increased by NZD 0.08, and our free cash flow conversion increased from NZD 0.68- NZD 0.73. Today, the board has declared an interim dividend of NZD 0.0625 per share. The 42% increase reflects the new increased dividend payout ratio. This year, we have also moved from a 40/60 to an expected 50/50 split between the interim and final dividend, more aligned with our earnings profile. The Channel team has continued to execute and deliver on its strategy, with listed on page four as some of the highlights for this period. Our strong safety track record continues. As we had anticipated in the beginning of the year, throughput was relatively stable.
We signed yet another storage contract, which we have announced today. The original contract, announced back in November 2022, has been extended for a further nine years, giving us an additional NZD 50 million of revenue pre-PPI indexation. Impressively, the team has signed a total of four storage contracts over the last 18 months, growing revenue by NZD 170 million over the life of the contracts pre-PPI indexation. We continue our safe, on-time, and to-budget delivery of capital projects. The ZEUS Energy jet storage project is now over 50% complete and is projected to finish earlier than anticipated in H2 2026. We provided an update to the market on the Seadra Consortium's proposed biorefinery project back in July. Work is progressing, and a final investment decision is now expected in 2026.
The board released an updated capital allocation framework in May, with an increased dividend payout ratio of 70%- 90% of normalized free cash flow. Following this, the board has conducted a review of the target leverage range to ascertain if additional leverage could be accommodated, whilst ensuring the right balance between funding growth opportunities, enhancing returns, and safeguarding resilience. This review is now complete, and we've broadened the target leverage range to BBB/BBB+. Alexa will talk more on this later in the presentation. Following strong positive feedback from shareholders, the board has now determined to undertake an ASX foreign exempt listing in 2026 as a natural progression for the company and a way of accessing a broader pool of institutional and retail investors who may wish to share in Channel's success.
Channel has also received notification that it will be added to the FTSE Global Small Cap Index with effect from September 2025. Safety is a core value at Channel, and every executive meeting at the company starts with a discussion on how we can continue to get our people home safely every day. Let's discuss safety first on page five. We've seen zero Tier 1 or Tier 2 process safety incidents in the last 18 months, and following our focus on increasing the reporting of incidents, we've seen total recordable case frequency in the first half of 2025, tracking around 2024 levels. We've continued to see our customers move to long-range vessels as they utilize storage on-site and improve supply chain efficiency. A lot of these vessels are carrying a combination of fuel types, and therefore wharfage revenue has remained relatively flat despite the lower ship numbers.
We continue to deliver world-class pipeline and tank availability statistics. Part of our refresh strategy that we announced in October 2023 was to move forward to becoming a world-class operator to provide the license to operate and unlock growth opportunities beyond Marsden Point. With this focus in 2023, we undertook an extensive benchmarking of our operations against the world-class operator standard, looking across 28 key performance indicators. We set the aspiration of achieving our full potential over a three-year horizon, and each year set annual plans and targets to achieve incremental performance towards this benchmark. We're significantly through this program of work, having met or exceeded the majority of these measures. As shareholders, you already see an input of this work through our world-class asset availability measures for the terminal and the confidence our customers show in us through additional storage contracts.
Moving to page six and taking a closer look at throughput trends, there's a little noise in the numbers this period as we've been impacted by a planned rolling tank outage program at Wiri, which is downstream of our operations. This has caused some temporary fluctuations in throughput. As we had anticipated at the beginning of the year, the growth we've seen in the last few years in jet demand has slowed with the endurance aircraft availability issues. The slower rebound in endurance tourism compared to Australia can also be felt, yet despite this, jet demand has remained relatively flat. Petrol and diesel demand were also relatively stable and largely in line with the advisory forecast. Moving to page seven, delivering large capital projects safely, on budget, and to schedule is a key improving capability at Channel .
The NZD 50 million private storage project was delivered in the first quarter of this year on budget. The ZEUS Energy project is going well, with the team's innovative use of a tower crane, a first at Marsden Point , having improved productivity and accelerated the schedule while keeping the project within budget. The project is now on track for early completion in the second half of 2026. Work ahead includes installing the new roof, floating suction arm, fire binding systems, piping, and valves, and coating the internals of the tank. The bitumen import terminal contract announced November last year has been awarded to the contractor in May and is on track for completion in the second half of 2026. Now I'll hand over to Alexa Preston to take you through the financials.
Thanks, Rob. Looking at the P&L on page nine, we have delivered another strong and stable set of results. For the first half to 30 June 2025, we delivered EBITDA of NZD 48.5 million and an EBITDA margin of 69%. The higher depreciation reflects the revaluation of the import terminal system assets in the 2024 financial account. Investors will recall the successful bank debt refinance we undertook in November last year, which reduced the all-in cost of drawing facilities by 0.6%. The lower financing costs for the half reflect the benefit of that refinancing. We have also included a proforma table at the bottom of this slide, which shows our results adjusted for the impact of the expiry of the Wiri land and terminal leases at the end of February this year.
As you can see, we have delivered an underlying increase in EBITDA for the period of 5%, excluding the Wiri land and terminal leases. Moving to page 10, revenue for the period benefited from a large increase in contracted storage revenue as a result of the new transmix contract that commenced in December 2024 and PPI indexation. This offset the lower Wiri land and terminal lease income with overall revenue up 1%. Channel continues to be disciplined with operating costs, which were flat half on half. Salaries, wages, and benefits were up NZD 700,000 due to labor cost inflation and incremental costs as we filled in vacancies, insourced positions, and added some new positions required to provide a resilient base from which to deliver growth. We expect operating costs to be more second-half weighted as we continue to invest in the growth opportunities ahead of us.
While we have not normalized our OpEx to remove growth investment, we have provided transparency as to the extent of the growth investment we have undertaken. Page 11 provides the detail of our investment in resilience and growth. Maintenance CapEx for the period was NZD 6 million on an accrual basis, with NZD 7 million of cash CapEx for the year to date in line with guidance. The increased spend period on period reflects the timing of tank statutory inspection dates. Growth CapEx was NZD 11.5 million and included the private storage fund program, ZEUS Energy tank conversion, and site clearing works associated with the Higgins bitumen import terminal. Conversion CapEx for the period was low, with the last remaining work stream being the bonding upgrades, which will be completed over the period for 2027.
As we progress our plans for the use of the land at our Marsden Point Energy Precinct, the location of the import terminal control room is currently being evaluated. The control room is currently within the land designated for the potential biorefinery. Turning now to the key cash flow metrics on page 12, net debt, as at June 30, closed at NZD 297 million, stable on the prior period. Normalized free cash flow was up NZD 2.5 million to NZD 35.2 million, and free cash flow conversion was 73%, up from NZD 0.68 in the same period last year. The Board has declared an interim dividend of NZD 0.0625 per share and introduced a dividend reinvestment plan allowing those shareholders interested in doing so to reinvest their dividend in Channel shares in an efficient manner. Slide 13 shows our strong balance sheet position.
Leverage sits at 3.1x EBITDA, and gearing and interest cover ratios are well inside our covenant level. As part of the Board's leverage review process, we commissioned a shadow credit rating report, and this indicates the current shadow credit rating for Channel of BBB+. Following the Board's review, Channel will now broaden its target credit metrics to those consistent with a shadow BBB/BBB+ credit rating. This currently equates to a net debt to EBITDA ratio of between 3x-4.5x . In the short-term, it is not anticipated that the broader leverage target would result in a meaningful step change in leverage for the business absent additional growth opportunity. Slide 14 outlines the updated capital allocation framework we released in May, with the new broader target credit metric range now included following the conclusion of the Board's review.
Let me finish up with the outlook for the remainder of FY 2025 and beyond on page 15. Our guidance for 2025 remains unchanged. As I spoke to earlier, operating costs are anticipated to be weighted to the second half as Channel continues to invest in potential growth opportunities. As anticipated, we are seeing the economic environment and aircraft availability issues impact jet fuel demand in the short-term, but we are encouraged as we look further out with the government's signal increase in tourism advertising for New Zealand and new route development by Auckland Airport. Over the medium term, economic recovery and new infrastructure projects could increase diesel demand.
The interim dividend declared today reflects a set change in the payout ratio and the Board's appetite to deliver a stable and growth for shareholders, with a certainty of an additional NZD 8 million per year from the bitumen import terminal and the ZEUS Energy jet storage project from the second half of 2026. I'll now hand back to Rob to take us through the strong progress we have made on executing our strategy.
Thanks, Alexa. Slide 17 is a reminder of our company strategy that we talk about with our people and stakeholders every day. In this section of the presentation, I'll talk to the continued delivery against our three strategic priorities. Let's have a look at the operating environment on slide 18. In New Zealand, there is an opportunity for Channel to support diesel importers as they look to meet the increased minimum stockholding obligations announced back in February this year. Moving on to future fuels manufacturing, which is a significant opportunity within the Marsden Point Energy Precinct, future fuel projects are highly complex with long-term investment horizons that take time to get right. There is no doubt that aspects of the current environment are making them even more challenging. However, what we are confident about is good quality projects are likely to attract capital.
Research tells us that DEF will be the decarbonization pathway for long-haul air travel and biofuels, batteries, and hydrogen for heavy transport. The transition to these fuel types will happen, and as technologies evolve, we expect policy fittings to facilitate long-term offtake contracts. Slide 19 is a reminder of the Marsden Point Energy Precinct we released to the market last October. Our vision for Marsden Point is that it is the location of nationally critical infrastructure that supports fuel and energy resilience for New Zealand. Through the precinct, we expect to have a significant role to play in supporting New Zealand's energy transition over the longer term, ensuring that no matter what type of fuel or energy powers New Zealand in the future, we will have a role to play in its delivery.
We have already started work on this vision, with the storage projects now complete or underway and the bitumen import terminal, which will complete in the second half of 2026. Slide 20 provides an update on two of our future fuels projects. As we talked to in our update in July, the final investment decision by the Seadra Consortium on the Marsden Point biorefinery is now expected in 2026. The consortium made up of Seadra Quantis, Renova, Kemp, and ANZ are progressing work on updating the feed study, commercial contract negotiation with suppliers and customers, working through contingent requirements with our team, and work around the financing arrangements. Looking at Fortescue's essential eStaff project, the pre-feasibility phase is now complete. Fortescue are now looking for regulatory deficiencies to drive a long-term offtake agreement before they continue further development of the project.
Work on other Marsden Point initiatives continues and is outlined on slide 21. We've continued work on the capacity picking project. The front-end engineering and design of the project is nearly complete. Next, we will begin working with the electricity market participants as the project will not proceed without contracted interest from them. Given the current outlook for alternative burning products and gas constraints in New Zealand, we think this project could play an important part in helping manage security of supply. Importantly, diesel produces less CO2 emissions compared to coal when combusted, making this project an attractive alternative to other burning options. I've already talked to the storage contract extension and the potential opportunity to help our customers with their diesel storage obligations. Now to slide 22. Channel is focused on growing the value of our business through a selective approach to growth.
As we have hopefully proven by now, we are very disciplined about how we allocate shareholders' capital. Growth will only be pursued when the returns are above our weighted average cost of capital, and it is consistent with our strategy of enhancing the overall value and quality of the business. Our first priority is nearer-term opportunities identified for additional product storage and fuel and energy security projects at Marsden Point. Channel already holds the premium suite of assets in the New Zealand fuel supply chain, particularly in aviation fuel. As such, we have focused on how we could play a role in synergistic consolidation along Channel's current supply chain to Auckland. With the importance of the supply chain to New Zealand's fuel security, we believe this would also be very good for consumers.
Beyond Marsden Point and the Auckland supply chain, we are taking a very measured approach to incremental growth step outs. They must add to the quality of Channel's assets and the returns of shareholders. We also need to consider how we can support our customers who operate beyond New Zealand's borders as they look to evolve their strategies and reprioritize their capital. These step outs would leverage Channel's investment in world-class operations and expertise in operating high-hazard facilities and would need to enhance the quality of our business by having exposure to growing liquid fuels markets such as aviation or renewable fuels. To meet these high investment criteria and hurdles, we are therefore considering both New Zealand and Australia, given we already own the premium suite of assets in the New Zealand fuel supply chain.
However, I want to be really clear with our shareholders that our focus today remains investing in the Marsden Point Energy Precinct and consolidation along the Auckland supply chain. Slide 23 is a slide you'll all be familiar with now. Our investor scorecard by which you can measure our execution against our strategy. All measures are on track to be achieved by year-end. Importantly, we're only through the first half of the year, and we've already secured our growth targets with the new contracts announced today. We've got another outstanding half for Channel with strong financial results and execution of strategy. I'm incredibly proud of our Channel team who turn up literally 24/7 to keep New Zealand moving and deliver value for our stakeholders. With that, I'd now like to open the phone line for any questions you may have.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speaker phone, please pick up the handset to ask your question. Our first question today comes from Andrew Harvey-Green with Forsyth Barr. Go ahead.
Morning, Rob and Alexa. Just a couple of questions from me. First of all, just around the Fortescue project and where that's at, do they still hold any sort of rights or do they hold any rights over the land? I mean, are you able to, in essence, go out to see if there are other projects that might be able to take up the land that was earmarked for the UCF project?
Yeah, great question, Andrew. The answer is yes, we have the right to go out and look at other projects, and indeed, we're at early stages on some of those now.
Great. Okay, thanks for that. Second question, just around Wiri and the work that's going down there, and Andrew called out, I guess, that your current customers need to expand capacity down there. I'm right in saying that the work that they're undertaking at the moment is not increasing capacity. It's just a more refurbishment project, and that, in essence, they need to get on and start expanding capacity in the near term.
Yeah, that's right. They've got some statutory requirements that they need to comply with by the end of the year, and they're going through a tank outage program across all of the tanks at Wiri, which is causing some of the quarterly fluctuations you're seeing in throughput volume.
Okay, so I'm just awaiting to hear, I guess, any movement on them doing something else with their capacity.
They've got a plan to convert one of those tanks, I believe, from petrol service to jet service.
Right, okay. That's how they're going to do it. Yeah. Okay, just a couple of relatively small questions then. In terms of the ship numbers, I guess we've seen that track down. Are they kind of at the current, the first half numbers effectively where you see steady state ship numbers for now, pending further volume increases?
Yeah, probably that's about right. I think there might be some ups and downs as we go forward. It's always a bit difficult because our customers' supply chains are quite, well, they're global, frankly. At times there can be availability constraints with certain types of ships or shipping, and we might see more frequencies with smaller ships or more frequencies with larger ships. By and large, I think it's not far away from what I'd expect.
Okay. Last question, just on the OpEx and the spend on the growth OpEx, you're calling out there's probably a slightly a bit of an increase in the second half. Are you able to give us a bit more of a sense of how much we're looking at there?
I think you can see over the course of the financials we've provided today the extent to which we're exercising strong discipline in that spend. What's showing up in the P&L for the half really relates to the growth contracts we announced today for the additional NZD 50 million worth of revenue over a nine-year period and some investment in progressing work on the biorefinery project. As you know, our growth priorities are clear. We've got a long and broad funnel of opportunities we're considering, and we'll continue to invest in those, pursuing those potential opportunities.
Yeah, okay. Thanks, Alexa. That's all from me.
Thank you. Our next question today comes from Wade Gardiner with Craigs Investment Partners. Please go ahead.
Hi there. I've got a few questions. First of all, the contract extension that you announced with the CapEx, what's actually involved in the CapEx on that?
When that contract was initially pulled together, I think back in 2022 or on conversion, there was a series of statutory tank outages that needed to be undertaken, which were pretty significant. To underwrite the investment spend in that, we needed to see a new or an extended contract from our customer. That's what you're seeing today. One thing to note, a bit like some of the investment we're making in the new jet tank or the private storage, we're doing significant refurbs on these assets to bring them in service for another significant period of time. I'm not expecting that type of tank outage CapEx, for example, at the next statutory outage for those tanks.
Right, so it's not an expansion of the capacity. It's just really refurbing what you've got there under the existing fuels.
I would say it's a bit difficult without describing the product that's in there, but the customer is sensitive to that. There's some upgrading of those assets that's going on, and that is driving a material amount of that spend.
Okay. With the gearing limits that you have announced, can you confirm that, if there are no significant CapEx or acquisitions in the future, that that won't be used for an increase in the payout? Or should we expect that maybe the dividend payout will track towards the top of the range and utilize some of that extra headroom?
The dividend payout policy is to pay 70%- 90% of free cash flow, normalized free cash flow, so excluding growth CapEx and conversion costs. As you know, we're substantially through the conversion now, so those are not anticipated to be material into the future. One of the things we really are disciplined about in this business is managing our cash. There's a strong linkage between the operating cash flow of the business and the dividend that we pay. The Board obviously is responsible for determining future dividends, but today they've announced a step change in the payout, consistent with the changes that were made to the capital allocation framework in May. Provided that that dividend policy remains in place, we'd expect dividends to track normalized free cash flow.
Okay. With the Seadra Energy project ahead of schedule, would we expect any revenue to be reported in FY 2026, or should we assume that's all until it really kicks off in 2027?
There is the potential for that, Wade.
Okay. You talked about the control room, I think it was being moved. It's currently sitting on land for the use of the biorefinery. Are you calling out extra CapEx there? Was that what that was about?
At this stage, it's difficult to say, actually. It's quite a complex asset that sits in the, or piece of infrastructure that sits in the middle of our precinct, and it will need to be moved for the biorefinery. As for how that gets paid for and who pays for it, still working through all of that.
Okay. Finally, just the government minimum stockholding obligations. Where are you at around negotiations around that?
All I can tell you is that we're in discussion with our customers around various different offerings that we've got. I probably can't give you much more color than that.
Okay, thanks. That's all for me.
Thank you. There are no further questions at this time, so I'd like to briefly hand over to Rob Buchanan for closing remarks.
Thanks, everybody. Really appreciate you dialing in today, and we look forward to seeing some of you through our results run show.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.