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Edited Transcript of APA.AX earnings conference call or presentation 21-Aug-19 12:00am GMT

Full Year 2019 APA Group Earnings Call

SYDNEY, NEW SOUTH WALES Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of APA Group earnings conference call or presentation Wednesday, August 21, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jennifer Blake

APA Group - Group Head of IR

* Peter J. Fredricson

APA Group - CFO

* Robert Pearce

APA Group - Group Executive of Networks & Power

* Robert Anthony Wheals

APA Group - CEO, MD & Director

* Ross Murray Gersbach

APA Group - Chief Executive of Strategy & Development

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Conference Call Participants

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* Daniel Butcher

CLSA Limited, Research Division - Research Analyst

* Ian Myles

Macquarie Research - Analyst

* James Byrne

Citigroup Inc, Research Division - Research Analyst

* James Nevin

RBC Capital Markets, LLC, Research Division - Senior Associate

* Joseph Wong

UBS Investment Bank, Research Division - Analyst

* Nathan Lead

Morgans Financial Limited, Research Division - Senior Analyst

* Peter Wilson

Crédit Suisse AG, Research Division - Associate

* Robert Koh

Morgan Stanley, Research Division - VP

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Presentation

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Jennifer Blake, APA Group - Group Head of IR [1]

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Good morning to everyone and thank you for joining this webcast of APA's 2019 Full Year Results. I'm Jennifer Blake from APA's Investor Relations team.

Today, we welcome APA's new CEO and Managing Director, Rob Wheals, to present the 2019 financial year results and outlook for FY 2020; alongside APA's CFO, Peter Fredricson, who will provide more depth on the financials.

A Q&A session for analysts will follow the presentation. For any media on today's call, time has been separately set aside for your questions and interviews following the webcast.

I'll now hand over to Rob.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [2]

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Good morning, and welcome to APA's 2019 Full Year Results Presentation. I'm Rob Wheals and I'm very pleased to be presenting my inaugural results presentation as APA's new Managing Director and CEO. I've been present for the last 20-year-plus full year and half year results announcement calls, but certainly it is a bit different now that I'm the one outside -- one upfront with the microphone.

With me in the Sydney office is Peter Fredricson, APA's Chief Financial Officer, who will be presenting our financial results in detail. Also present is my executive team: Ross Gersbach, our Chief Executive, Strategy and Development; Sam Pearce, Group Executive, Networks and Power; Nevenka Codevelle, Group Executive, Government -- Governance, Risk and Legal; Elise Manns, Group Executive, People, Safety and Culture; Kevin Lester, Group Executive, Infrastructure Development; and lastly, I'd like to introduce Darren Rogers, who is currently acting in the role of Group Executive, Transmission following my recent appointment. The team are available during the Q&A session if you have any specific questions for them.

I'll begin with an overview of the full year results and then hand over to Peter to go through the financials in detail. I'll then conclude with commentary on APA's strategy and growth opportunities, including guidance for full year 2020, before moving to Q&A.

The 2019 financial year was a very active year with a number of key events and milestones, and I'll briefly highlight a few of them. Operationally, we commissioned a number of new infrastructure assets and invested over $460 million in new growth projects. We also stepped up our focus on safety, management, process safety in particular, as well as in the area of sustainability. Financially, we replaced $700 million of high cost maturing debt with lower cost, longer-term debt, reducing APA's annual interest expense going forward. And we also dealt with the CKI acquisition proposal process for almost 6 months and we continue to run the business in this context. And culturally, we refreshed our Code of Conduct, developed and launched APA's customer promise. We've been highly proactive in developing and leading the energy industry's Energy Charter, and we farewelled Mick McCormack, our long-standing CEO and Managing Director. So all up, it's been a very, very busy year indeed.

So how does that activity reflect to the numbers on Slide 4? I'm pleased to report a good, solid set of results. Indeed, I've been very fortunate to have taken over the reins of the business with very strong and stable financial foundations, a quality asset portfolio and good growth opportunities in front of us. Earnings before interest, tax depreciation and amortization, or EBITDA, was up 3.6% on FY '18 results to $1,573.8 million. We gave guidance at the half year results of expecting EBITDA for FY '19 to fall within the upper end of the guidance range of $1.550 million to $1.575 million. And that's exactly where our result has landed.

Given the stable nature of our cash flows and the nature of our contracts being long term and majority take-or-pay, we have very good oversight of our financials. The new growth projects that have come online over the last 2 to 3 years contributed $65 million of incremental revenues. I'll speak a bit more on those projects a little later in the presentation.

Other contributors to the increased revenues and EBITDA included general uplift on the Goldfields Gas Pipeline in Western Australia as a result of all the new expansion projects on APA's Eastern Goldfields Pipeline that is connected to the Goldfields Pipeline. We're also pleased to be able to assist Incitec Pivot, keep its Gibson Island manufacturing plant operating during 2019 by facilitating gas transportation over 3,000 kilometers while a longer-term gas supply option was investigated. Pleasingly, we've been able to extend the delivery service until early 2023 on the back of new Queensland Gas tenements being released that have been designated for domestic manufacturing use only.

A number of GTA variations and extensions on APA's East Coast Gas Grid also contributed to financial year '19 earnings, which will continue into FY '20. We continue to work very closely with each of our customers to meet the individual needs for both contract and service flexibility as well as for new energy infrastructure requirements.

For securityholders, APA's distributions for the full year increased 4.4% to $0.47. Additional franking credits of $0.0686 per security will also be attached to the total distribution. APA's total securityholder return for the financial year was 15%. So all in all, a solid result with growth in earnings, growth in our asset footprint and importantly, growth in our returns to securityholders.

Turning to Slide 5 and looking at our safety results first. We were all very pleased to see the improved total reportable injury frequency rate or TRIFR. The TRIFR metric reduced by 1/3 on FY '19 results to 5.98 injuries per million hours worked. As I mentioned earlier, we had renewed our efforts in FY '19 on APA's approach to safety in an effort to improve on FY '19 financial results. And so I'm therefore very pleased to be able to report that those efforts have made a difference. Zero Harm is our goal, and during financial year '20, we will continue our focus on safety to improve our standards and practices.

It's been an active year for APA in the enterprise-wide sustainability or ESG improvement journey that APA commenced in FY '18. And certainly, there is still more to do within our practices and our disclosure. We believe that climate change is a significant issue facing the energy industry and all Australians. And we also believe that APA has an important role to play in how Australia gets the balance right between lower carbon energy, reliability and importantly, affordability.

We aligned our climate risk management with the recommendations of the Task Force on Climate-related Financial Disclosures, or the TCFD, and undertook a 10-year scenario analysis to assess the risks and opportunities for APA and our assets. As a result of this analysis, we are confident that APA is physically and financially resilient to climate-related transitional and physical risks at least for the next 10 years to 2030.

But this is something that needs to be monitored and assessed on an ongoing basis as energy dynamics and energy policy evolve and more reliable and insightful data becomes available. This financial year, you will see a much more comprehensive sustainability report as a result of the step-up in focus on providing improved and consistent disclosure to stakeholders, particularly our investors, as they can make informed decisions regarding the investment choices.

I'm now on Slide 6. I spent the last 10 years or so working very closely with our transmission pipeline customers, and so putting customers at the center of our thinking is definitely high on my priority list and something I'm extremely passionate about, so passionate in fact that I wanted APA and all our employees collectively to make a promise to each other and to every customer that we will deliver service that our customers value. That promise has become known as APA's customer promise, and attached to it is a whole-of-organization program called project red dot that is helping our people transition to a more customer-centric focus. How will we know if our efforts have made a difference? Well, our customers will tell us and we will listen and learn and respond accordingly. We now have a regular customer feedback process in place providing both quantitative and qualitative information to us.

Also on the customer focus front, as I mentioned earlier, APA, and particularly being led by Nevenka Codevelle, has been instrumental in developing The Energy Charter alongside other energy businesses. Our joint goal is to together deliver energy for a better Australia, which means affordable, reliable and sustainable energy for all Australians. Each of the 18 signatories will be accountable to each other and to an independent accountability panel, who will assess individually and as an industry how we are performing against the charter principles that we all agreed to. The panel will publish the first report by the end of November this year.

Turning to Slide 7. Well, as you can see, we've had an active year helping our customers to better manage their energy portfolio needs by building new energy infrastructure across East, West and Southern Australia. You can see from the list of projects on the slide the diversity of the new infrastructure across transmission pipelines, gas-fired power generation, wind and solar renewables as well as gas processing.

In the West, we connected both the Agnew Gold Mine and the Gruyere gold mine to gas with the construction of the Agnew lateral and the Yamarna Gas Pipeline, providing a reliable and cost-effective energy supply to both mining operations. We also built the Gruyere power station to supply gas-fired power to the Gruyere gold mine. Importantly, these types of organic growth connections also provide an uplift on the other connected pipelines such as the Goldfields Gas Pipeline and the Eastern Goldfields Pipeline.

Also in WA, we added more wind and solar capacity adjacent to our existing Emu Downs renewable precinct with the addition of the Badgingarra Wind and Solar Farms. Alinta Energy is our customer for the Badgingarra assets, originally underwriting the wind farm but then extending their request for solar energy and extending both power purchase agreements for another 5 years out to 2035. The solar farm was recently completed and commenced commercial operations earlier this month.

In Queensland, the Darling Downs Solar Farm commenced commercial operations on behalf of our customer, Origin Energy. In fact, we acquired the site from Origin Energy in 2017. It also has the Beelbee Solar Farm development site nearby which has potential for an additional 150 megawatts of solar energy.

All the renewable projects that APA has undertaken have been driven by customer demand with customers wanting renewable energy generation as part of their energy mix. The projects have met APA standard investment hurdles and the customers for renewable energy are also our gas transmission customers.

In terms of earnings in FY '19, renewables contributed around 3% of total revenue and EBITDA. So all up, a very small contributing sector to the business financially, but importantly, very beneficial because renewables help our customers meet the energy mix requirements. Combined with our gas infrastructure, APA's diverse infrastructure is contributing to more reliable lower carbon energy mix for Australia.

One of the more complex growth projects undertaken was the refurbishment of the mothballed Orbost Gas Processing Plant in Victoria. Commissioning is scheduled to commence in early September with first sales gas to be delivered during quarter 4 calendar year 2019. This complex plant ultimately facilitates the connection of a new offshore gas supply source into Eastern Australia. This is exactly what we need to help out -- to help with the downward pressure on gas prices.

I'm on Slide 8, which is entitled Responding to Customers' Needs. And that's exactly what has driven APA's growth. At the end of financial year '16 results, we flagged to investors a $1.5 billion pool of organic growth opportunities that we could see as a result of working closely with our customers. Today, 3 years on, it is extremely pleasing to be able to report that those projects have all come to fruition and that there's still more to do and more that our customers continue to talk to us about, which I'll talk more on in the strategy and outlook section.

Additionally, we've continued to announce significant contracts with customers, new contracts, variations and extensions. During the reporting year, we also signed a Memorandum of Understanding with Comet Ridge Limited and Vintage Energy Limited to build, own and operate the proposed 240-kilometer Galilee Moranbah Pipeline that would connect new gas sources in the Galilee Basin to the gas processing and distribution hub of Moranbah in Central Queensland. The pipeline is subject to final investment decision by Comet and Vintage. However, we are now moving to in-field investigations and working with relevant stakeholders following granting of the survey license earlier this month.

In Victoria, APA's proposed Dandenong Power Project was announced by the federal government as one of the shortlisted projects under review for the government's Underwriting New Generation Investments Scheme, which aims to provide financial support to facilitate the development of new firm generation capacity in the NEM. This scheme is still in its very early investigative stages and we are working with the government on the project assessment as well as continuing to work to identify a customer to underwrite the project.

And whilst we've been working with our customers, we've also actively worked with regulators to improve information transparency and consistency and implement the Gas Market Reform Group changes introduced across the last couple of years. In financial year '19, these changes included the publishing of pipeline financial statements and the Part 23 of the National Gas Rules. Under Part 24 and Part 25 of the rules, a new capacity trading platform and daily auction facility was established in March of this year, requiring extensive system developments. And today, the daily auction platform has supported additional liquidity into the East Coast gas market. The energy market continues to evolve and we will continue to work with the authorities to ensure Australia's energy market is operating for the benefit of all of its users.

And on that note, I'll hand over to Peter to run through the numbers.

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Peter J. Fredricson, APA Group - CFO [3]

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Thanks, Rob, and good morning, everybody.

I'm going to start on Slide 10. As Rob has noted, we are certainly pleased that this year's results has shown the benefits of the growth that we've invested in over the last number of years to deliver energy infrastructure that our customers have been asking for. Across the board, we have seen outperformance with increases in revenue, increases in EBITDA and reductions in interest cost, both as a result of reducing rates and higher capitalization associated with that. We'll discuss CapEx program. Whilst we've paid more tax in 2019, this flows through to securityholders as franking credits. And whilst it has had a minor impact on operating cash flow for the year, we've been able to increase distributions off the back of our growth in earnings. And as we will discuss later, we will see more of that increase in FY '20 as the revenues from that new infrastructure fully annualize going forward.

The revenue increase for the year includes $65 million from those new projects, slightly below the $70 million that we have previously indicated, but that's purely as a result of timing of completion and connection of those assets. With the expected fourth quarter calendar 2019 commissioning of Orbost and the start-up in this month of the Emu -- of the Badgingarra Solar Farm, we expect some $190 million of revenues in FY '20 from those projects stepping up to the full $215 million that we've spoken of before in revenue in FY 2021. And just to be clear, that's $135 million more revenue this year than last year given that we achieved $65 million last year.

On Slide 11, the results of the various assets across the states continued to reflect the changing nature of the dynamic gas market, particularly on the East Coast. Again, as in previous years of late, reduced performance year-on-year in one state is offset by outperformance in another. This year, with less gas transported for customers north out of Victoria through Culcairn and more gas transported south out of Wallumbilla, Queensland and New South Wales increases offset Victorian reductions. In particular, the performance in WA continues to support our ongoing investment there as our resources customers look to take advantage of more reliable and lower emissions gas, [finding the] energy to support their own businesses. And as Rob points out, the WA result includes contributions from the Emu Downs Solar Farm, the Yamarna Gas Pipeline, the Gruyere gas-fired electricity generation plant and the Badgingarra Wind Farm.

Asset management saw a return to the norms -- to norms in FY '19 with around $12 million, that is the long-term average, of customer contributions against FY '18's $18-odd million. Energy investments delivered a solid year as SEA Gas in particular delivered off a set of renewed contracts in the second half of the year and interest income from shareholder funding of that business generated an increased revenue year-on-year.

Corporate costs, as noted at the half year, include around $11.1 million of once-off costs associated with the CKI bid and Mick's retirement. Absent those costs, we maintained tight control over our costs, notwithstanding an increase in impact on cost due to compliance regimes in respect of various regulatory bodies.

Turning to Slide 12. The EBITDA bridge here or waterfall is provided to give investors a better understanding of where our income is coming from. The vast majority of our long-term contracts have some form of CPI escalation clause in them, and around 1.5% of revenue increase year-on-year came from that in FY 2019. Reductions in variable revenue in FY '19 are substantially offset by new contracts. As in a number of cases, customers convert previous as-available services into contracted services going forward. The new assets contribution aligns with our previous guidance and discussion based on about $65 million of revenues received in FY '19. The FX impact of $15.6 million arises because the revenues that we had hedged from the Wallumbilla gas -- Gladstone Pipeline in FY '19 were at rates that were lower than the rates that we had for FY '18. There will be reduced EBITDA year-on-year in this area in FY '20 as the locked-in rates that we have for FY '20, as set out in the Director's Report, remain above those that we had achieved for FY '19.

One further point that we should note -- we would note, is that the cost of regulation for our business continued to rise. About $3 million alone in extra external costs in FY '19 just to put together and publish Part 23 pipeline financials, valuation and tariff information and to deal with the capacity, trading and auction system that is now in place. These costs don't include the significant internal resources used to deliver this ongoing reporting. We see these costs as a part of our -- of what we do and unavoidable going forward, but they will become part of a somewhat higher cost base in the business from here on forward.

Moving to Slide 13. Year-on-year, nothing much has changed in the risk profile that is APA's business. As in previous years, in excess of 90% of our revenues are contracted, regulated or take-or-pay capacity charges. We have a good spread of customers across the energy, utilities, resources and industrial sectors. But most importantly, around 93% of our revenues are coming from customers with investment grade credit ratings. Where our customer does not have an investment grade credit rating, we look for other appropriate credit support arrangements to ensure that our risk profile does not change and to ensure that the low risk, low return model that we run does not unduly expose securityholder capital to further risk. As in previous years, our top dozen customers deliver us close to 90% of our revenues on annual basis.

Moving to Slide 14, and as Rob noted, FY '19 saw us substantially complete the 3-year $1.4 billion-plus growth capital expenditure program that we first talked about in August 2016, 3 years ago. All of the projects that we have talked about over that time period are now contributing revenues except the Orbost Gas Processing Plant, which is due to come online in the fourth quarter of calendar 2019. Stay-in business CapEx came in around our expected $100 million for this year. Additionally, IT CapEx was close to $25 million with much of that spent on continuing the ongoing enhancement of APA's grid system, which helps our customers easily and efficiently interact with APA to order the gas transportation and services they need. In FY '19, we spent around $7 million just on building the IT platforms for capacity, trading and auction, which has now been running since March 1 of this year. Rob will talk later on growth CapEx guidance, but we remain comfortable that our SIB CapEx will continue at around these levels into the foreseeable future.

I'm on Page 15. Rob will talk in detail again about strategy and outlook next, but an underlying precept to the strategy that we have at APA is that everything we do will be done whilst managing or maintaining APA's financial strength. The Baa2, BBB ratings from Moody's and Standard & Poor's are central to that. And in FY '19, we continued to strengthen the financial metrics that underpin those ratings. The operating results continued to improve FFO to debt, free funds from operations to debt and FFO to interest metrics, allowing us to increase distributions both for the year and in the guidance for FY 2020.

Importantly, during FY '19, we set up for the replacement of some $700 million of higher-priced maturing debt with lower-cost, longer-term funding out of the debt capital markets. We repaid $315 million of USPPs in financial year 2019. And then in July FY '20 of this year, we repaid a further $390 million of USPPs and Maple bonds using funds that we had raised in the sterling market in March. As a result, the average term to maturity of the portfolio remains around 7 years. The average interest rate across the portfolio for FY '19 is around 5.5%.

Moving to 16, Slide 16. The debt portfolio is an integral part of APA's financial strength, necessary to maintain our strategy going forward. With debt issued out of -- out to 2035 across a broad cross-section of markets, we have 4 issues in the U.S. 144A market, 2 issues in the euro market, 3 issues in the sterling market and 2 issues in the Aussie dollar MTN market. We are steadily repaying funding in the USPP market as those issues mature and we recently undertook an opportunistic placement with a Japanese yen bond investor for a 15-year AUD 130 million note. With the repayment of $390 million of USPPs and Maple bond debt in July of 2019, our next maturity is not until July 2020 when our inaugural Aussie dollar MTN matures. At this stage, we have in the order of $1.4 billion of syndicated debt and bilateral facilities available to support our business going forward.

All in all, we remain confident that as rates again look like they will remain lower for longer, we can fund any level of expansion of our business with good support from a broad range of highly liquid, global debt capital markets. Whilst we believe operating cash flow for FY 2020 will fully fund both increased distributions and our expected organic growth in SIB CapEx, our capital management policy remains that we will fund significant levels of growth, in particular acquisitions, with an appropriate amount of funds retained in the business, debt and equity with the objective of maintaining our Baa2/BBB ratings going forward.

Finally, on Slide 17, the solid result for the year, the continuing growth in the business and the strength of our financial position all affords APA the ability to continue to reward securityholders with increasing distributions. Whilst we continue to grow the profitability of the business off the back of ongoing growth driven by the needs of our customers, we will generally also now pay corporate tax, which has, in FY '19, impacted the operating cash flow outcome. Nevertheless, we remain confident that increasing operating cash flows in FY '20 will deliver us the ability to fund next year's growth in distributions, growth CapEx and tax payments of around $90 million without needing increased debt or equity. This year's 4.4% increase in distribution is supplemented by $0.0686 per security of franking credits for the full year.

With that, I'll hand back to Rob for him to take us through some strategic insights and the FY '20 outlook.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [4]

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Thanks, Peter.

I'm now on Slide 21. It's the most common question that I've been asked since commencing my new role in July. Will I be changing APA's strategy? And that's an easy answer. No. APA has a long-standing and successful strategy of growing the business through leveraging our existing asset portfolio and skill sets. Therefore, to be very clear, I fully support APA's strategy which was ratified by both the board and APA's leadership team earlier this year during our Annual Strategy Review Process, of which I was a part. What is new this year was the incorporating of APA's customer promise because we believe it is a key pillar to our strategy.

APA has been consistent with its growth approach. Over the last 5 years on average, we've spent $421 million per annum on growth CapEx. And that average over the last 10 years is $338 million per annum. We continue to expect in the order of $300 million to $400 million per annum growth capital expenditure over the next 2 to 3 years.

As in financial year '16 when we provided comment on the oversight of a pool of potential projects, we will not specify those exact projects until we have signed agreements with our customers. APA does not build infrastructure or increase capacity unless it has been underwritten by customers. We do not build on spec and hope that someone will come and use what we build. This is one of the reasons why APA's guidance has been very reliable for many years.

When you take into consideration the supply/demand dynamics, you can see from AEMO's latest information on the top right-hand graph that the gas supply/demand balance remains tight with adequate supply from committed gas developments only up until 2023. Weather-driven variances in consumption or electricity market activity could increase gas demand, creating potential peak day shortages. With gas prices continuing to be high, we strongly advocate for both the federal and state governments to support increasing exploration and production to provide more competition and liquidity into the market, especially for the benefit of domestic manufacturers and everyday consumers.

APA has been doing its part in building new infrastructure to get new gas to market. Work on the Orbost Gas Processing Plant will complete before the end of the year. We continue to work with Santos on their Narrabri Gas Project to connect this new gas source to the domestic gas market. And we are working with AGL on the Crib Point LNG import terminal, another potential new source of gas supply for Eastern Australia.

The other graph on the bottom right of the slide shows that energy generation from coal has decreased approximately 15% since 2006 whilst gas-generated energy has more than doubled in that time as has renewables generation. We continue to believe that gas and gas-peaking plants will serve a critical role in Australia's future energy mix and will be essential in supporting the integration of more renewables into Australia's national energy market to shore up reliability and on-demand energy. APA's strategy therefore continues to be appropriate and realistic as Australia looks to displace more carbon-intensive fuels such as black and brown coal as well as oil and diesel.

I'm now on the next slide, Slide 13. And this is all about our current re-contracting environment given the recent Gas Market Reform initiatives. And just in terms of gas market reforms and reviews, we do note that the ACCC's review has been extended through to 2025, but it is very pleasing to see that generally the focus is shifting to what is the real issue, which is all about gas supply.

In that context, we are continuing to do with our customers what we have always done, contracts continue to be renewed with customers where customers have an ongoing need for energy solutions. And we've said in the past, we're getting on with business delivering to our customers.

Typically, contracts that are renewed are not for the same terms as foundation or initial contracts. Our customers today have less foresight as to where they will buy gas over the longer term. And so we have expected and spoken about the multi-asset, multi-service renewable contracts that we are entering into with our customers are generally for shorter terms than those initial contracts. Nevertheless, our revenue-weighted average contract tenor remains above 12 years as we add new assets with longer-term contracts and expiring contracts are replaced with renewals. Our customers continue to benefit from APA's interconnected grid of energy assets with now around 60 receive points and 100 delivery points for gas around Australia.

Looking at Slide 21. I want to specifically call out the possible U.S. investment part of APA's strategy as it's probably the second most common question I've been asked about. Do I support the U.S. asset search? Absolutely, I do as it makes sense given the U.S. is one of the largest gas infrastructure sectors in the world. Combined with the attractive returns that regulated assets earn in the U.S., the stable regulatory framework and that the U.S. is awash with accessible gas, it certainly makes sense for APA to be doing due diligence in that part of the world. We're looking for a platform to grow from with a management and operations team who can help us do that. We will apply the same disciplined and prudent investment approach to any overseas assets as you would to acquiring or investing in assets in Australia. Above all, any acquisition must pay its way and be accretive in its full -- in its first full year of operations under APA ownership.

This is not about increasing assets under ownership. We see genuine opportunity to apply our operating and management skills similar -- to similar gas transmission and distribution assets in the U.S. To that end, Ross Gersbach, who is currently our Chief Executive, Strategy and Development, will be relocating in the next couple of months to our Houston office to progress our U.S. strategy, alongside the small team that we already have there -- that we've already had there over the last couple of years.

I'm on Slide 22 now and looking at guidance for the year ahead. Financial year '19 has set APA up for another solid outcome in financial year '20. As previously noted, around $65 million of revenue has flowed through into FY '19 from new projects that have commissioned at different stages throughout the year. We expect around $190 million of revenue from those projects and Orbost in financial year '20. With now the general movements in EBITDA that come from CPI changes, foreign exchange relativity, contract renewals and the like, and we factor all that in into our plans, we expect EBITDA to fall within a range of $1,660 million to $1,690 million for the financial year '20 year. Interest costs are expected to be in the range $505 million to $515 million. And distributions are expected to be in the order of $0.50 per security, an increase of around 6% year-on-year before any allocation of franking credits. Given the completion of the $1.4 billion plus of growth projects over the last 3 years, we return to our previous guidance of $300 million to $400 million of growth CapEx over the next 2 to 3 years based on the visibility we have of various projects that we expect to be able to bring to the market for our customers.

Finally, I thought it might be useful to summarize what I see are my priorities for the year ahead. I initiated a review in July of APA's purpose, vision, strategic imperatives and operating model to ensure that we have the right structure and resources in place to execute our strategy and deliver on the guidance that I've just talked about. That review is underway and we will update the market with any major outcomes resulting from that review.

We are continuing to work on a number of growth projects domestically that have been announced as well as talking with our customers about their future energy infrastructure requirements. APA's U.S. due diligence will actively continue under the leadership of Ross Gersbach in Houston. And operationally, we'll step up the work we are doing on safety and sustainability whilst ensuring we deliver on APA's customer promise of providing services and service that our customers value.

And with that, I'll now go to questions. And my management team is here, as I said earlier, on standby to assist with those questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first questioner is James Byrne from Citigroup.

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James Byrne, Citigroup Inc, Research Division - Research Analyst [2]

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But kind of a question for you Rob, something that I'm sure you hoped you wouldn't have to address in your tenure as CEO, but it's around further reviews into the pipelines affected by the government, given their hand is kind of being forced by the Centre Alliance. Now Centre Alliance obviously has a pretty strong opinion on pricing in the pipeline sector. I'm not going to ask you to defend your position. I think everyone in the call knows where you stand on that. Rather, I want to just get a picture of what that could look like in terms of reviews, when that could start as well, just to help shareholders get an understanding perhaps of the risk on this front over the next couple of years.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [3]

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James, thank you. And look, the -- earlier this month, I think you're referring to the announcement by the government, not only looking at pipeline review, but in particular, looking to introduce a prospect of gas reservation policy focused on a review on the gas market export mechanism and extending the ACCC's review of the gas market through to 2025, but also made reference to further reviews into the pipeline sector.

Look, I think we don't have -- certainly, don't have detail exactly what all of that will entail across all of those other aspects that they announced. What we can say is that there is an existing regulatory impact statement review underway that's already been planned and we would expect that any additional reviews into the pipeline sector, should there be any further reviews, would be incorporated into that existing regulatory review.

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James Byrne, Citigroup Inc, Research Division - Research Analyst [4]

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Okay, that's helpful. Yes. So I appreciate that you don't want to speculate on what that may look like, but are you able to perhaps remind us of any recommendations made to the government in prior years that haven't been implemented for whatever reason which may again surface through this process?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [5]

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James, if we go back to the review done back in 2015/2016 which culminated in some recommendations and ultimately the setting up of the Gas Market Reform Group headed by Dr. Vertigan, importantly what came out of that review was to introduce a number of measures, one was increased -- increasing the amount of information. So what's flowed from that is an increase in reporting and transparency to, I guess, balance the information symmetry. And so the customers have got more information when they are dealing with pipeline operators. So that's one initiative that is underway. We've actively, as I said in my presentation, actively engaged in that.

The other aspect of what came out as part of the gas market review was the introduction of secondary markets. And again, we've actively engaged with that. And since March, we've had the platform available for capacity trading and also the auction platform, and we are seeing quite a bit of activity on that auction platform.

And thirdly, the other initiative recommended by Dr. Michael Vertigan was the introduction of a more formalized process of customers being able to formally ask for access, and should they not get access to pipelines, on terms that they feel comfortable with to go down a process of arbitration. And so that process, again, has been in place since August '17. And as I pointed out in my presentation, we've actively engaged with our customers and continue to do what we've always done, which is to negotiate outcomes that work for both ourselves and our customers.

While I've gone back in a bit of history is -- it's fair to say that we need to let all those initiatives work and do their bit. And I think it's really way, way too early to start to think about what else might be required, though those are the recommendations that came out of that detailed review and those recommendations are in the process -- either have been implemented or have been implemented or are on their way to being implemented.

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James Byrne, Citigroup Inc, Research Division - Research Analyst [6]

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Right, that's fine. Just a second quick question on Dandenong. Would you proceed with that if the government didn't underwrite it?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [7]

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Look, I think certainly that's a prospective site where it's located close to gas source, close to interesting transmission lines. What it needs is a customer, and we are working with a number of parties in that regard. And as we said, it's been shortlisted in the government process. Like any project, for APA, it's going to meet our investment hurdles and this one will be no different.

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Operator [8]

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Your next question comes from Ian Myles from Macquarie.

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Ian Myles, Macquarie Research - Analyst [9]

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Congratulations on the result. Just looking at your guidance, based on the comments, you've got about another $120 million of sort of gross revenue from your historical CapEx program. And just applying the margin that the program got this year, that sort of led to about $100 million uplift. With the fact that you don't have the CKI expenses and Mick's retirement in there, so another $11 million, and you push sort of a CPI sort of increase in there of $100 million, you get up to -- get another $20 million or $30 million. That's a bit above your guidance. And so what's the -- what are the headwinds in the business that are sort of working against some of that growth coming through?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [10]

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Thanks, Ian, and thank you very much for your comments around the result, which is another solid result for APA. But in terms of the guidance, I might just hand that question to Peter Fredricson who can comment in some more detail.

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Peter J. Fredricson, APA Group - CFO [11]

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Yes. Thanks, Ian. And I expect nothing more from you than the detail that you've gone into. What I've mentioned through the presentation is that FY '20, the Wallumbilla Gladstone Pipeline revenues that comes through will be at a higher FX rate than what we had relative -- what we had in FY '18. And if you have a look at the Director's Report, you will see those rates there. So there is between $10 million and $15 million of difference there alone.

I think the other thing that we probably expect is that as we look at inflation, you've seen from this -- we see about 1.5% has come through in FY '19. 1.5% is below what we have seen as the general CPI in both Aussie dollars and -- in both Australia and the U.S. in FY '19. So it means that we are not getting 100% of CPI across the board. We would also see CPI coming down in FY '20 relative to FY '19. So there's a little bit there.

So we've certainly got a number that sees that $125-odd million of revenue coming through in FY '20 contributing and we've certainly got a number that sees the $16.60 as the bottom end and the $16.90 as the top end.

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Ian Myles, Macquarie Research - Analyst [12]

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Okay. Three other questions. Firstly, Beelbee Solar Farm. What do you need, because I think you've got the development approval, what do you need to actually be able to progress that project further? Are there transmission capacity constraints existing up there as well for the farm?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [13]

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Ian, I'll direct that question to Sam Pearce, who will probably be able to give you a little bit of color.

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Robert Pearce, APA Group - Group Executive of Networks & Power [14]

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Ian, thank you for the question. The short answer is we need a customer who's willing to sign up for a long-term offtake on that asset. The position of that asset is very good in terms of grid, so that's not a particularly relevant issue for us. It would connect in into the same transmission grid, essentially at the same point as the Darling Downs Solar Farm. So the primary issue for us to get that project away is making sure that we have the customers willing to provide us with the long-term contract that we would need to press that pipeline up.

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Ian Myles, Macquarie Research - Analyst [15]

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Is that approachable expectation given that the PPA links have been shortening and you're getting down to short of 5 years now?

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Robert Pearce, APA Group - Group Executive of Networks & Power [16]

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That's certainly the case that the market is changing. We continue to work with our customers and see what we can do to meet them. The market in Queensland in particular is -- for solar is particularly -- there's lots of solar projects coming online, but a lot of them are struggling and a lot of them don't have the same benefits that Beelbee does in terms of its location on the transmission grid. So we continue to talk to customers. There are some that remain interested in it and we will continue to work with them.

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Ian Myles, Macquarie Research - Analyst [17]

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Okay. One final question. With Ross heading off to the U.S., who runs the Australian strategy?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [18]

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Ian, you would see in my last slide where I talk about priorities in financial year '20, alongside reviewing our purpose and vision and strategic imperatives, we are also doing a review of our operating model which will -- as you can see, one of the first decisions I've made is I've asked Ross if he'd locate to sunny Houston and the -- one of the fallouts of that is working on how we organize ourselves here for the rest of the business. And like I said in my comments earlier that once we've completed that review, if there's something to announce, we will be sharing that with the market.

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Operator [19]

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Your next question comes from Peter Wilson from Crédit Suisse.

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Peter Wilson, Crédit Suisse AG, Research Division - Associate [20]

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Auctioned in the month of July, so quite a bit of volume. It once traded at $0.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [21]

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Sorry.

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Operator [22]

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My apologies, Peter. The speakers missed out on the first half of your question. If you could just repeat that one more time, please?

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Peter Wilson, Crédit Suisse AG, Research Division - Associate [23]

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Okay. Hopefully, you can hear me. Just a question of the day at auction. There was 5 PJs auctioned in July. Just wondering if you've noticed any impact on your interoperable revenues. I mean I'm assuming most of these trades were services which would otherwise not have happened, but just wondering if you're seeing any impact at all.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [24]

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Peter, thanks. I think -- I haven't caught the sort of about 3/4 of the question, but I think you're asking about auction activity on the platform since they've kicked off in March. Is that correct?

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Peter Wilson, Crédit Suisse AG, Research Division - Associate [25]

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Yes. As I said, there were 5 PJs traded in July. That's reasonable volumes. I'm wondering whether you've noticed any revenue impact on your interoperable revenues.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [26]

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Peter, I think when you're looking at those numbers, and I don't have those numbers to hand, but we have to understand also that this different -- this is capacity traded on the multiple pipeline legs that actually helped deliver gas to where it's going. So whether the 5 PJs, as you referred to, is the sum of the capacity on all the separate pipelines or whether it's a number that's actually been traded from sort of a net gas perspective, I can't comment on. But what I can say is that we fully expected this auction market to deliver some more liquidity into the market. We haven't had any noticeable impact just yet on our variable revenues as such. But as you rightly pointed out, this auction is related to capacity that's already contracted but not been nominated for the next day on a daily basis. So it's not revenue insomuch as we are losing out on it. It's additional services that customers are taking advantage of as part of the new market services.

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Peter J. Fredricson, APA Group - CFO [27]

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I think, Peter, the other thing to think about is clearly, in the waterfall chart, we've seen about $12 million reduction in what we call variable revenue. If you have a look at Slide 13, we are still getting around 1% of revenues in the business from that flexible and short term sort of and other services.

Now if you go back a couple of years, you go back 3 or 4 years, that number has been, I think, as high as 1.7%. So it fluctuates and it moves around. And we've always said that's not a number that's going to -- we're going to live or die on because it's nice to have, but our business is about long-term contracts with our customers and that's really where we come from. So yes, there's been some movement, but there's been movement every year for the last 5 in that number and there will be more movement next year and it could go up or could go down. It depends on things that our customers want that may not be accommodated by that capacity trade and auction system.

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Peter Wilson, Crédit Suisse AG, Research Division - Associate [28]

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Okay. And if you can hear me, the Galilee Pipeline, so there's now 2 proposals. You also connect to Moranbah and Jemena has to connect all the way to the East Coast Grid via the QGP. Can you talk about the relative merits of the grid that you're choosing and whether it's a case of only one pipeline gets up or both might go ahead?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [29]

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Look, Peter, it's Rob here. I can't usually comment on what Jemena's strategy is. That's for them to comment on. What I can say is that our focus is making sure that we connect supply source to a market. That's the focus of that proposed Galilee to Moranbah Pipeline. And the next stage of that potentially is to connect that into the East Coast Grid. First stage is about bringing gas supply, available supply to market demand. So that's where we're focused on, which is why we've entered into those -- that Memorandum of Understanding with Galilee and Vintage. And while we are -- sorry, Comet Ridge and Vintage. And while we're focused on putting people in the field to start working on that pipeline grid.

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Operator [30]

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Your next question comes from Joseph Wong from UBS Equity Research.

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Joseph Wong, UBS Investment Bank, Research Division - Analyst [31]

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Just 2 questions from me. Maybe I'll start, I guess, on the contracting book. The tenure looks like it's gone down this year. I just want to understand what's driving that? Is it a case of more new customers signing shorter-term contracts or just contracts falling off with a shorter tenure?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [32]

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It's Rob here. Thanks for your question. Look, I think you probably answered your own question in the sense that we do have, from time to time, and every year will be a little bit different, different contracts coming off as is coming on. Contracting new infrastructure and longer-term contracts will generally drag that weighted average up. I don't think there's one particular reason. And as I made in some of my comments earlier, what we tend to find is that renewal contracts will be on -- given the state of the gas market as it is, renewal contracts typically offer a shorter period. And so you will start to see the variation from year-to-year in the weighted average contract tenor, but no particular reason in -- to note.

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Joseph Wong, UBS Investment Bank, Research Division - Analyst [33]

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But maybe if I kind of now switch to the...

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Peter J. Fredricson, APA Group - CFO [34]

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I think the other -- maybe I could add to that. I think the other thing to keep in mind is this, that we -- when you look at last year's number, we are now -- effectively, if you look at last year's number, it's been 12.7. Absent any changes, this year's number should be 11.7 because we're a year further into those contracts that were -- that made up the 12.7 last year. We're 12.3 this year. So what's happened is that we've added more. And the pure math of this will say that every contract we have tomorrow will be a day shorter than it was today. And so the important thing from our perspective is that we continue to add stuff and we continue to stay in this sort of 10-plus area, and we will continue to do that and we've continued to do that for a number of years.

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Joseph Wong, UBS Investment Bank, Research Division - Analyst [35]

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Okay. I guess I'll move to the U.S. I guess another comment on terms of the U.S. -- the returns [there] looking quite attractive. I guess where do you see the returns in the U.S. compared to Australia? And do you see risk of that returns coming down given the current FERC review on the ROE in the U.S?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [36]

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Look, I think we have commented in the past on what we see as a more attractive returns in the U.S., as you rightly pointed out. I've got Ross Gersbach here. We've said that he will be relocating to Houston in a short while, and I might just ask him to comment more specifically on that question.

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Ross Murray Gersbach, APA Group - Chief Executive of Strategy & Development [37]

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Yes. I mean I think all I could say is there's still a significant gap between the returns that are likely in the U.S. versus the returns in Australia. And part of where those returns are going will fundamentally be part of our due diligence.

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Joseph Wong, UBS Investment Bank, Research Division - Analyst [38]

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Is there any guidance on what that spread is between the U.S. and Australia?

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Ross Murray Gersbach, APA Group - Chief Executive of Strategy & Development [39]

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I think we've spoken in the past that you -- 9% to 10% equity returns currently and which is almost double what we've got here.

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Joseph Wong, UBS Investment Bank, Research Division - Analyst [40]

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I didn't catch that last. So it was 9% to 10% in the U.S. And what was it in Australia?

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Ross Murray Gersbach, APA Group - Chief Executive of Strategy & Development [41]

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Which is based on recent returns, almost double the type of returns that you're receiving here.

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Operator [42]

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Your next question comes from Daniel Butcher from CLSA.

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Daniel Butcher, CLSA Limited, Research Division - Research Analyst [43]

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Most of my questions were asked, but I just want to follow up quickly on the U.S., if I could. You spoke about the returns. Maybe you could speak about the opportunity set size in terms of have your criteria changed at all since we last spoke to Mick? And maybe you can sort of outline to us how many things have come across your desk through -- within the opportunity set that meet your criteria over the last few years that you haven't jumped at?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [44]

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Daniel, Rob here. Look, the criteria of what we're looking for, as I pointed out earlier in the presentation, I'm a big supporter of us doing that due diligence in the U.S. and the U.S. being a part -- potential part of our growth strategy.

In terms of size and scale, our thinking hasn't changed, and the way I would characterize it is it's got to be big enough to make a difference, but not so big that we bit the farm. And we've got a very robust business here in Australia that we want to continue to look after.

Would you mind just repeating the second part of your question?

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Daniel Butcher, CLSA Limited, Research Division - Research Analyst [45]

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I'm sorry. I was just wondering how many deals you've seen come across your desk in Houston so far in the last sort of 3 years that you've been...

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Robert Anthony Wheals, APA Group - CEO, MD & Director [46]

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Well, I think what I would say is that one of the reasons we're sending Ross over to the U.S. is to increase our focus there. And there is a fair bit of activity. But Ross, did you want to comment further?

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Ross Murray Gersbach, APA Group - Chief Executive of Strategy & Development [47]

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Yes. I'll just remind that we are somewhat hamstrung during the CPI process, but rest assured that we are rich on opportunities in terms of the number that investment banks come through the door. But we are quite particular in what we are looking for and -- but needless to say, we wouldn't be going there unless we thought there was a range of opportunities that fit the bill.

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Operator [48]

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Your next question comes from Rob Koh from Morgan Stanley.

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Robert Koh, Morgan Stanley, Research Division - VP [49]

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Can I just ask, I guess, a qualitative question about your EBITDA guidance, which you've increased the range from, historically, a $25 million to a $30 million range, still an extraordinarily narrow range for a company of your size. Can you just remind us of the key moving parts in there? I guess U.S. CPI for Wallumbilla Gladstone, timing of growth projects and a bit of interruptible revenues. Is there anything else that drives whether you're at the higher or the lower end?

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Peter J. Fredricson, APA Group - CFO [50]

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You've got it, mate. You've got the lot of them. And at the end of the day, CPI is what CPI is. And you and I both know that it's at the low end of the range in terms of expectations. You can pretty much work out what the FX impact of the Wallumbilla Gladstone revenues are and then it does comes down to timing of revenues, et cetera, including -- if Orbost comes on in the 1st of October, it will be different than if it comes on in the 1st of December. So we've got -- that's where we are at. So probably all I can help you with, to be fair, Rob.

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Robert Koh, Morgan Stanley, Research Division - VP [51]

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Yes. No worries, Peter. Sounds good. And one other small component of guidance, I guess, is the stay-in business CapEx, which historically you've said is around the $100 million mark and you've beat that this year a little bit. But should we still be thinking that order of magnitude next year or so?

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Peter J. Fredricson, APA Group - CFO [52]

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The guy that spends all that money is sitting in the front row here and he's just smiling that he's going to get an uptick, but the answer is yes, probably that number is the long-term number and we -- our expectation is that it does fluctuate around the year. It's pretty much dependent on when we are spending money on rotating [kit] aboveground more than anything else. That's what drives it higher in any given year. And we've got more of that stuff than we had 5 years ago, as you will know. So look, $100 million is a good a number as we can think about today, and it will fluctuate around that.

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Robert Koh, Morgan Stanley, Research Division - VP [53]

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Yes, okay. No, it sounds like no change to previous sentiment. If I can turn to the kind of other reporting that you guys have to do under Part 23, and I guess it looks like you'll be needing to do some kind of [RCM and RFMS] based on the light regulated assets, too. Can you perhaps, in general terms, give us a sense of what -- why those numbers can differ from statutory disclosures? And I guess I'm really only asking because I'd hate for some investor to ask me to reconcile them, to be honest.

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Peter J. Fredricson, APA Group - CFO [54]

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Well, they're -- Rob, they're not reconcilable. So you need to tell your investor that. The way those numbers are put together is we're required to come up with a methodology, which we've done. And effectively, what we are looking to do is put together a set of pipeline financial statements as if each pipeline was operating as a stand-alone business in its own right. And so there are inputs into a set of financial results for those pipelines over many, many, many years from the beginning of time in respect of each pipeline that are determined by expert advice to us and applied in the context of the process that we have determined they should be. So if we've put -- if we aligned all of those sets of accounts and added them up, you're not going to get to APA's financial outcome. So it's just that they're totally different things.

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Robert Koh, Morgan Stanley, Research Division - VP [55]

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Yes, Peter. Yes, now for different purposes, it's very helpful that -- what you've explained there. So just the last flier question for me about long-run futures. So Australia is, I guess, working up on a national hydrogen plan. Can you comment on the suitability of your asset base to a little bit of hydrogen going into the gas mix and any other future growth options that come out of that?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [56]

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Rob, it's Rob responding to your question. Look, there's quite a bit of interest in hydrogen not only in Australia, but globally as well where we've got a number of our people following that quite closely. And when you start talking in the hydrogen space, it depends whether you're talking hydrogen in its pure form or whether it's -- we're talking another option, which is renewable methane. So the short answer is we are looking at it closely. We've got a couple of projects that we're kicking off to test what -- how they can work in some of our assets and including also producing renewable methane. I think it's really early to say how that could work in the longer term and I -- despite all the excitement that there is across the industry.

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Operator [57]

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Your next question comes from James Nevin from RBC Capital Markets.

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James Nevin, RBC Capital Markets, LLC, Research Division - Senior Associate [58]

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I just had a question on the distribution payout ratio. And at the moment, you're funding [a little bit of fund on your] growth CapEx from operating cash flows. And then you talk about, when you potentially make an acquisition, then that will be like you're funding a property between equity and debt. Just wondering how is that going to evolve going forward? Is there like a drop-dead date potentially on -- when you might look at a U.S. acquisition? And if you do look at some sort of external acquisition, and then would you revert to make somewhat of a payout ratio and with your funding in the growth CapEx and mix of equity and debt, and you could potentially increase that payout ratio?

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Peter J. Fredricson, APA Group - CFO [59]

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I'll let Rob talk about it. It's Peter Fredricson. I'll let Rob talk about whatever drop-dead dates there are. But philosophically, we've always said that we will fund -- I think we've moved away from what's called a payout ratio. We don't talk about payout ratios anymore in the narrative. And the reason for that is that we're looking to increase distributions to shareholders or securityholders on a sustainable level in line with our policy, but we're also looking to ensure that a standard CapEx here is funded on the balance sheet if it can be because that adds better value to what our shareholders are receiving longer term. So that's the way we have done things.

I think we've said, in the future, if we don't have other -- if we don't have things to spend the money on, we'll do nothing different. We'll continue to increase distributions in line with -- generally in line with operating cash flow. Will we pay out a whole lot more if we've got no growth CapEx? We've got to keep in mind that we've got a debt book of $10 billion. And it's called $9 billion, which is, over 20 years, is $500 million a year. So my view is that if we didn't have stuff to spend on growth, which is -- continues to support a debt portfolio like that, then we'd be allocating some of that extra cash flow to reducing our debt as well. So we've got to keep a balance here. And that's not saying we've got a policy of anything in the future. What we say is that we'll look at this on an annual basis based on what our capital needs are and what the economic conditions are. And that's the way we've evolved everything we've got now.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [60]

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And James, Rob here. Just to add to what Peter said, I think you had a question around a drop-dead date on a U.S. transaction. I can absolutely say we've got no drop-dead date. We've -- we're quite, as Ross said earlier, we're quite particular around what we're looking for and we are going to make sure that what we do is straight down the fairway and it's accretive to adding incremental value to APA. So those are our criteria and we are not going to set a time line. We are going to make sure that we do what's right for our securityholders in the long term.

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James Nevin, RBC Capital Markets, LLC, Research Division - Senior Associate [61]

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Okay. And I just had a further question on the growth, the CapEx growth pipeline. Just trying to get a feel on there's a few comments on just your renewable projects and where the market is kind of moving towards maybe shorter-term PPAs. And so how does that affect your potential growth CapEx? Would you be maybe looking more than those small [alternative kind of] gas infrastructure projects? And thus, if the demand isn't there from customers for kind of longer-term PPAs that APA would normally kind of require to underwrite projects, maybe it is less likely you're going to be able to fund renewable projects? And then maybe if you could also -- I don't know if you can comment on -- it looks like there's potentially like a lot of capital kind of chasing some of these renewable projects if there is a long-term PPA. So is it harder for -- to meet kind of APA's requirements and investment hurdles there?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [62]

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Right. James, I'll have a crack and try to answer that. I think the way to think about this is, number one, we -- if you go back a number of years before we announced that we had a pipeline of growth projects totaling in the order of $1.5 billion, and that was in the financial year '16 period, I think from what I recall, we went -- and that -- the reason we did that is we had what we could see as a bigger pipeline of projects. Prior to that time, we talked about a $300 million to $400 million per annum growth CapEx range. And what we're doing now is we're reverting to that same guidance. We've gotten past that larger pipeline of $1.5 billion worth of projects. If you look at our long-term average, it's in that similar range, as I think I mentioned earlier.

Now as to what exactly that mix of projects is ultimately going to be will be determined by what our customers want. And we've got strict investment criteria as to how we think about things. It will ultimately be driven by the mix of where our customers want energy solutions, whether it be wind, solar, gas pipelines, gas processing or anything else for that matter.

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Operator [63]

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(Operator Instructions) Your next question comes from Nathan Lead from Morgans.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [64]

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Just a couple of clarification questions here. So corporate costs run rate at the moment, so it's $80.1 million. Take out that $11.1 million, are we running at a $69 million? Or is there some lumps and bumps in there?

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Peter J. Fredricson, APA Group - CFO [65]

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Nathan, there's always been lumps or bumps. They're not $11 million a year lumps and bumps. I mean I think we've talked about $70 million-ish. What you'll see in there, in that waterfall, you'll see another $3 million that's this year is an extra $3 million that we didn't have last year that we talked about being in the context of putting together Part 23 and the financial statements, et cetera. So we've also said those become part of the cost base going forward. It might not be as high as that going forward, but there's an incremental increase in cost. So -- and then you look at what's the vast majority or the -- a reasonable part of that $69 million today that's personnel costs. Governments globally want to see personnel wages go up. So if you apply CPI to those sorts of things, it may be a little bit more. So it's always going to be off that base, but I don't think you're going to see it at $80 million next year absent an unexpected cost as we sit here today.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [66]

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Okay. And then on Slide 14, the stay-in business CapEx, you've broken that apart now with stay-in business and IT CapEx. So previously, it was sort of both conditioned to thinking about the number from last year being sort of averaging around $100 million, and we've now got stay-in business at $93 million and the IT at $25 million. So are we thinking the $93 million number this year should jump around $100 million and then there's a IT CapEx component separate to that?

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Peter J. Fredricson, APA Group - CFO [67]

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Yes, that's -- I mean it's generally the thought process.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [68]

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So what's that run rate -- you talked in the presentation I think about having $7 million. Is that normal this year? Is it the $25 million less the $7 million? Or is there always some sort of project coming through that will keep it around that $25 million number?

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Peter J. Fredricson, APA Group - CFO [69]

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I mean that $25 million number has probably been consistent over the last 7 or 8 years now, to be fair. We're spending a reasonable chunk -- there's a reasonable chunk of that $25 million that's been spent on the APA grid in itself. So again, $20 million to $25 million is not a bad number. I remember listening to one of the major banks tell us 4 or 5 years ago when they first set out on spending, thinking that they had to catch up with the market, they thought it's been $1.5 billion a year. $1.5 billion in the first year and that will be it, but it's been $1.5 billion every year since. So from our perspective, I think that number is a reasonable rule of thumb, to be fair.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [70]

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Yes, okay. The last one from me. Obviously, the biggest thing that's happened out there probably since even the last result presentation is this rapid drop in the bond rates. How are you thinking about project returns going forward within that low interest rate environment? Are you recalibrating your thinking?

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Robert Anthony Wheals, APA Group - CEO, MD & Director [71]

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Nathan, Rob here. Look, I think we obviously look at what's available in the market relative to what our cost of capital is and make sure that we're always -- for every dollar we spend, we're adding value for our securityholders. And the fact is if we are seeing a low for longer future, then we will -- and in order to be able to respond to and compete in the marketplace, we will, no doubt, have to adjust our expectations going forward, but that's just responding to what's available in the market.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [72]

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So have you got a -- like a corporate cost of capital that you usually recalibrate every once in a while? Have you done that recently?

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Peter J. Fredricson, APA Group - CFO [73]

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Yes, we do, Nathan. But the point is this -- and it's sort of borne out by the fact that the average cost of debt for the year is 5.5%. People say it was -- well, why haven't you refinanced the whole book and why aren't you paying 3.5% now? The thing about our business is because it's a long-term business and because we've been issuing debt in markets on a regular basis to ensure that we don't have a once-off sort of debt shock or repayment shock or refinancing shock in the future, what we've got is a portfolio of debt that's been raised, as we sit here today, between 2003 and 2019. So we've got a portfolio of debt that's been raised over 16 years. And so that means that there are 16 years of debt costs involved in what we've got in our book today, which means that we can't just sit here and say we'll base our cost of capital on what $10 billion of debt today is at today's rates. So the answer is we play around with stuff. We look at it all the time. And one of the messages that we've seen to anybody is that when we invest in a dollar, we expect that investment to be operating cash flow per security accretive, and that's our guideline here.

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Operator [74]

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There are no further questions at this time. I'll now hand back to Mr. Wheals for closing remarks.

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Robert Anthony Wheals, APA Group - CEO, MD & Director [75]

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Well, thank you very much, everybody, for listening today. I appreciate your time. And I'm sure we will be catching up over the next couple of weeks to talk more about our results. Thank you very much.