Channel Infrastructure Nz Limited · NZX:CHI
Channel Infrastructure Nz — Investor Day (July 2022)
59 slides from Channel Infrastructure Nz's investor day presentation, Jul 4, 2022
Slide 1: A sustainable future – Investor Day
A sustainable future Investor Day 4 July 2022
Slide 2: Important Information
Important Information This presentation contains forward looking statements concerning future events do not make any representation or warranty, express or implied, as to accuracy, and the financial performance and operations of Channel Infrastructure NZ Limited reliability or completeness of the in
Slide 3: Welcome and introductions
Welcome and introductions Naomi James Chief Executive Officer
Slide 4: Agenda
Agenda 2.00pm Strategy and Growth Naomi James, Peter van Cingel 2.50pm Q&A 3.10pm Break 3.30pm Terminal Business Jack Stewart, Jarek Dobrowolski 4.20pm Q&A 4.40pm Governance James Miller 4.50pm Wrap-up and Q&A 4
Slide 5: Long-term sustainable business model with a focused growth strategy
Long-term sustainable business model with a focused growth strategy Ownership of critical infrastructure Long-term customer contracts Projected stable earnings and cash flows 170-km Strong balance sheet Marsden Point to Auckland pipeline Auckland supplied via the Marsden Point to Supporting New Zeal
Slide 6: Experienced and Proven Management Team
Experienced and Proven Management Team Naomi James Jack Stewart Jarek Dobrowolski Peter van Cingel Chief Executive GM Operations Chief Financial Officer Business Development Manager Chris Bougen Steve Levell Caz Jackson General Counsel and General Manager – Chief People Officer Company Secretary Ind
Slide 7: Strategy
Strategy Naomi James Chief Executive Officer
Slide 8: A long-term sustainable operating model with strong aspirations for growth
A long-term sustainable operating model with strong aspirations for growth OUR VISION New Zealand’s leading fuel infrastructure company OUR STRATEGIC PRIORITIES Realise Support lower Safe, reliable, low High performance Competitive cost Grow and infrastructure carbon fuels cost operations culture of
Slide 9: Strategic Priority - Leverage existing capabilities
Strategic Priority - Leverage existing capabilities Safe, reliable, low-cost operations Leverage existing capabilities Strong safety culture and performance management maintained for less hazardous and complex operations Safe, reliable, low High performance Revised Safety Case for new import termina
Slide 10: Strategic Priority - Transform to deliver value
Strategic Priority - Transform to deliver value Competitive Cost of Capital Transform to deliver value Well supported, successful $100m inaugural bond issue as Channel Infrastructure Value released from the balance sheet through medical scheme and Realise pension plan ‘cash out’ offers Competitive c
Slide 11: Capital allocation framework to deliver dividends and growth
Capital allocation framework to deliver dividends and growth Long-term contracts delivering strong cash flow Returns to shareholders Deleveraging Dividend Policy of 60-70% of free cash flow (excludes growth Focused growth Target leverage of 3-4 capex) times EBITDA Return to dividends Criteria for in
Slide 12: Strong free cashflow enabling returns to shareholders and growth
Strong free cashflow enabling returns to shareholders and growth FY23 Financial Metrics ($m) Normalised EBITDA [1] 76 84 Indicative dividend range $30-40m (equivalent of 8 to Less: capital expenditure [2] 12 5 11cps)[4] Less: financing costs [3] 18 15 Leaving $15m to $20m available for deleveraging
Slide 13: Strategic Priority - Position for future growth
Strategic Priority - Position for future growth Support lower carbon fuels transition Position for future growth First Sustainability Report published aligned to TCFD reporting standards Support lower Provide infrastructure to support future fuels – biofuels, sustainable aviation fuels, Grow and car
Slide 14: Significant support for New Zealand's decarbonisation
Significant support for New Zealand’s decarbonisation TARGET PROGRESS TO DATE At least 90% of employees • Extensive program of workforce transition seeking new employment support in place Just transition find new roles, or have been retrained, within 6-months • Over 70% of staff who have left at Jun
Slide 15: Existing infrastructure critical in the energy transition
Existing infrastructure will have a critical role to play in the energy transition Refinery Today 2035 Processing agreements to support refinery Terminal services agreements in place today Wider range of transport fuels and energy required as operations support current fuel requirements we decarboni
Slide 16: Future Fuel Demand
Future Fuel Demand Peter van Cingel Business Development Manager
Slide 17: Highly efficient infrastructure supplying the Auckland and Northland markets
Highly efficient infrastructure supplying the Auckland and Northland markets • New Zealand’s largest transport fuels storage terminal which handles more fuel than the 10 terminals in Mt. Maunganui, Wellington, and Lyttleton combined • Supplies the Auckland and Northland markets, which make up c.40%
Slide 18: Fuel demand recovering from COVID impacts
Fuel demand recovering from COVID impacts Pipeline throughput, % of pre-Covid 140% 120% • Diesel demand has remained strong reflecting strong economic activity 100% Diesel • Petrol demand showed rapid recovery from lockdown 80% impacts but is currently below pre-COVID levels, Petrol reflecting high
Slide 19: Continued strong diesel demand, petrol outlook driven by EV conversion
Continued strong diesel demand, petrol outlook driven by EV conversion Diesel outlook Petrol outlook • Strong historical growth in diesel – NZ diesel fleet doubled • Demand outlook reflects transition over time in vehicle fleet in 15 years to 2019 and transport modes: • Continued growth expected in
Slide 20: Growing jet demand driven by COVID recovery and ultra-long haul trends
Growing jet demand driven by COVID recovery and ultra-long haul / premium trends • Auckland jet fuel demand driven by number of flights and distance to destination • More than 75% of New Zealand international flights depart from Auckland[1] • Strong growth in jet fuel demand in the 5 years pre-COVID
Slide 21: Second generation Biofuels required to deliver material emissions reduction
Second generation Biofuels will be required to deliver material emissions reduction • Government policy to introduce Biofuels Sales Obligation for land fuels from 1 April 2023 • Near-term, Obligation expected to be met through imports plus deferrals or penalties First generation Second generation •
Slide 22: Growth
Growth Peter van Cingel Business Development Manager
Slide 23: Significant industry changes creating infrastructure opportunities
Significant industry changes creating infrastructure opportunities • Significant industry changes underway: • Shift away from joint industry structures (refinery, inventory sharing, coastal shipping) • Increasing focus on open access (ComCom, terminal gate pricing) • Investment required for security
Slide 24: Energy transition means more fuel choices and infrastructure required
Energy transition means more fuel choices and infrastructure required • Energy affordability is key 2035 • Trade-offs will be needed between security of supply, affordability, and emissions reduction Wider range of transport fuels and energy • Fuels to replace current ones are yet to be commercially
Slide 25: Near-term opportunities exist to grow our terminal footprint
Near-term opportunities exist to grow our terminal footprint • Significant capacity available at Marsden Point • Near-term opportunities: • Domestic stockholding policy –estimated 50- 70ML of additional diesel storage required in NZ • Terminal consolidation & optimization – industry changes, biofuel
Slide 26: Electricity represents an opportunity to reduce operating costs and emissions
Electricity represents an opportunity to reduce operating costs and emissions • Electricity consumption remains a material cost • Opportunity to significantly reduce costs through long- term supply • Maranga Ra onsite solar project: • 34GWh per annum (2019 design, opportunity to scale up with improv
Slide 27: SAF is required to decarbonise aviation, Marsden Point ideally located
SAF is required to decarbonise aviation, Marsden Point is ideally located • Long-haul aviation requires a liquid fuel solution • Challenges to solve for economically feasible SAF production: • Renewable feedstock of sufficient volume • Cost of feedstock and processing • Air NZ and MBIE process under
Slide 28: Hydrogen is a long-term opportunity to diversify our infrastructure
Hydrogen is a long-term opportunity to diversify our infrastructure • Threshold feasibility issues for green hydrogen: • Cost of production (conversion losses) • Cost of renewable electricity, including value in electricity storage/abatement • Safe transport • Marsden Point has potential to support
Slide 29: Q&A
oA/ 2 ) Channel Infrastructure NZ Q&A
Slide 30: Terminal operations
Terminal operations Jack Stewart GM Operations
Slide 31: Successful first quarter of terminal operations
Successful first quarter of terminal operations NUMBER OF IMPORT PIPELINE PIPELINE VOLUMES TO THE TRUCK SHIPS RECEIVED THROUGHPUT UTILISATION LOADING FACILITY 19 600ML 68% 90ML PETROL THROUGHPUT JET THROUGHPUT DIESEL THROUGHPUT 275ML 140ML 275ML Q2 2022[1] May 2022 31 [1] Actuals from 1 April – 29 J
Slide 32: Maintained strong safety performance through transition
Maintained strong safety performance through transition • Substantial reduction in operational complexity and risk as an import terminal Health & Safety Performance 6 5 • Maintain commitment to “Everyone Safely Home Every 4 Day” • retained excellent safety culture and improvement 3 mindset 2 • revis
Slide 33: Terminal require only one third of Marsden Point site
Terminal require only Refinery operations required one all of third ofPoint Marsden Marsden site Point site 100ha refinery site 1bn litres of storage 40MW electricity supply Gas supply connections 33
Slide 34: Terminal Operations require only one third of Marsden Point site
Terminal Operations require only one third of Marsden Point site One third of land used 280ML Storage capacity NZ’s largest fuel laboratory IPL 34
Slide 35: Significant land, tanks and facilities available for repurposing
Significant land, tanks and facilities available for repurposing 177ha total land size 600ML available tank capacity 35
Slide 36: Conversion project
Conversion project Jack Stewart GM Operations
Slide 37: Conversion project tracking to plan and budget
Conversion project tracking to plan and budget 2022 2023 2024 2025 Q1 Q2 Q3 Q4 Refinery Shutdown Refinery decommissioning Workforce transition Terminal upgrade Projects Allocation of Conversion Budget ($200 - $220m) Conversion cost phasing Terminal conversion: $200-220m $m Private storage: $45-50m D
Slide 38: Intensive refinery decommissioning now complete
Intensive refinery decommissioning now complete, remaining works continue to H1 2023 2022 2023 2024 2025 Allocation of Conversion Budget Q1 Q2 Q3 Q4 ($200 - $220m) Refinery Shutdown Shutdown & Decommissioning (spent and committed) Refinery decommissioning Shutdown & Decommissioning (remaining) What'
Slide 39: Day 1 Terminal capability delivered, private storage being commissioned
Day 1 Terminal capability delivered, private storage being commissioned through to H1 2023 2022 2023 2024 2025 Allocation of Conversion Budget Q1 Q2 Q3 Q4 ($200 - $220m) Terminal Upgrade Projects Terminal upgrade Projects (spent and committed) Terminal Upgrade Projects (remaining) What's completed s
Slide 40: Simplified, fit for purpose business systems for terminal operations
Simplified, fit for purpose business systems for terminal operations 2022 2023 2024 2025 Allocation of Conversion Budget Q1 Q2 Q3 Q4 ($200 - $220m) Business & Workforce Workforce transition transition (spent & committed) What’s completed so far What’s still to come • Revised safety case accepted by
Slide 41: Workforce transition well progressed
Workforce transition well progressed with people supported into new roles staff ExitingStaff Exiting Employee numbers Retiring Unknown Job Hunting Found new employment • Reduction in staff as the refinery shutdown and first phase of decommissioning was completed • Terminal staff transitioned to new
Slide 42: Financial position and outlook
Financial position and outlook Jarek Dobrowolski Chief Financial Officer
Slide 43: Long-term contracts underpinning revenue certainty and inflation protection
Long-term contracts underpinning revenue certainty and providing inflation protection • 10-year customer contracts with fixed and minimum fee components, and third-party access to unutilised capacity after 1 April Fixed Fee and Take-or-pay Fee (before annual price indexation adjustments) ($m) 2025,
Slide 44: PPI indexation provides protection in inflationary environment
PPI indexation provides protection and value in inflationary environment $100m TOP $90m CONTRACT YEAR 1 CONTRACT YEAR 2 TOP CONTRACT YEAR 3 Private 9-months ended December 2022 12-months ended December 2023 Storage $65m ended December 2024 12-months TOP Fees inflated from Fees inflated from 1 Januar
Slide 45: High cash yielding business, with significant tax losses and low capex
High cash yielding business, with significant tax losses and low maintenance capex Indicative FY23 Financial metrics (in nominal terms, includes contracted private storage) • 65% revenue to EBITDA conversion ($m) • Terminal capital expenditure[1] expected to be in the range of $5-12 million per annu
Slide 46: Operating costs largely fixed and one third of revenue
Operating costs largely fixed and represent one third of revenue • Operating expenses of $36 to 40m p.a. include both import terminal and lab testing operations (IPL) • Variable costs include electricity – a third of total costs: • Assuming average load of 5 to 5.5 MW (including pipeline pumping sta
Slide 47: Significant value in tax losses for many years
Significant value in tax losses for many years to come Available tax losses Imputation credits • Existing operating tax losses of $70m at 31 December • $21m of imputation credits available (equivalent of 2022 14cps of imputed dividends) • Together with additional losses at conversion of • Subject to
Slide 48: Borrowing facilities maintain significant headroom, strong hedging
Borrowing facilities maintain significant headroom, strong interest rate hedging protection in place • Peak debt expected to be reached in 2023 Debt maturity profile as at 30 June 2022 • Debt facilities available to fund conversion costs: Debt Maturity Profile • Committed debt facilities of $375m 12
Slide 49: Successful retail bond issue completed, bank refinancing underway
Successful retail bond issue completed, bank refinancing underway • Successful $100m unsecured retail bonds issued in May 2022 Bank covenants Threshold • 5-year bond, 5.8% interest rate (180bp spread on 5-year swap rate) Senior Interest Cover Ratio Min 4x Total Interest Cover Ratio Min 2x • Bond iss
Slide 50: Dividend update
Dividend update • Board has reconfirmed dividend policy pay-out of 60-70% of Free Cash Flow (being adjusted net cash generated from operations less maintenance capex)[1]. • First opportunity for dividend in March 2023 after FY22 results [2] • FY23 initiative financial metrics imply a dividend range
Slide 51: FY22 guidance confirmed
FY22 guidance confirmed Previous guidance provided in February 2022 Update Q1 Processing Fee revenue currently expected Confirmed – towards to exceed the Fee Floor by c$5 to $10m upper end of the range Import terminal fees to commence from 1 April Confirmed with Take-or-Pay commitments of c$75m in F
Slide 52: Q&A
oA/ 2 ) Channel Infrastructure NZ Q&A
Slide 53: Board refresh and Governance
Board refresh and Governance James Miller Chairman
Slide 54: A new business model requires different skills at the Board table
A new business model, requires different skills at the Board table 54
Slide 55: The right skills around the Board table
The right skills around the Board table James Miller Vanessa Stoddart Paul Zealand Anna Molloy Chairman Director Director Director (appointed April 2022) Andrew Holmes Lucy Nation Lindis Jones Director Director Director (appointed April 2022) 55
Slide 56: Five key areas of focus, reflecting strategic priorities
Five key areas of focus, reflecting strategic priorities On-budget and on-time completion of the conversion project Safe, reliable, and cost-efficient terminal operation and maintenance Continue to support Channel’s significant contribution to decarbonisation Lower cost of capital to reflect new bus
Slide 57: Wrap-up
Wrap-up Naomi James Chief Executive Officer
Slide 58: Long-term sustainable business model with a focused growth strategy
Long-term sustainable business model with a focused growth strategy Ownership of critical infrastructure Long-term customer contracts Projected stable earnings and cash flows Strong balance sheet 170 km Marsden Point to Auckland pipeline Auckland supplied via the Marsden Supporting New Zealand’s dec
Slide 59: Channel Infrastructure NZ
oA 7p) Channel Infrastructure NZ