Channel Infrastructure Nz Limited · NZX:CHI
Channel Infrastructure Nz — Investor Day (October 2023)
77 slides from Channel Infrastructure Nz's investor day presentation, Oct 19, 2023
Slide 1: Infrastructure to fuel NZ's future to 2050 and beyond
Infrastructure to fuel NZ's future to 2050 and beyond Analyst Day 19 October 2023
Slide 2: Important Information
Important Information This presentation has been prepared by Channel Infrastructure NZ Limited (“CHI” or completeness of the information in this presentation, or likelihood of fulfilment of any “Channel”) for general information purposes only and does not purport to be complete forward-looking state
Slide 3: Welcome and agenda
Welcome and agenda Rob Buchanan Chief Executiv e
Slide 4: Agenda
Agenda 2.15pm Our Strategy Rob Buchanan Fuel Volume Outlook Ian Twomey, Envisory Q&A Supporting the goal of lower carbon aviation Peter van Cingel Q&A 3.50pm Break 4.00pm World-Class Operator Jack Stewart Q&A Multiple opportunities to grow Peter van Cingel A stable infrastructure business Alexa Pres
Slide 5: Experienced and Proven Management Team
Experienced and Proven Management Team Rob Buchanan Jack Stewart Alexa Preston Peter v an Cingel Chief Executiv e GM Operations Chief Financial Officer Business Development Manager Chris Bougen Stev e Lev ell Caz Jackson Phil Jones General Counsel and GM I ndependent Petroleum Chief People Officer G
Slide 6: World-class delivery and execution through conversion
World-class delivery and execution through conversion Safely shutdown the refinery and commenced import terminal operations to plan Transitioned business model to stable and predictable earnings through long-term customer agreements, with a “Take-or-pay” underwrite and PPI escalation, and strong fre
Slide 7: What's next for Channel Infrastructure?
What's next for Channel Infrastructure? Providing infrastructure that will support the energy transition and aviation fuel supply beyond 2050 Ambition to become a world-class operator that will provide infrastructure resilience for many decades and enable us to pursue growth at Marsden Point and bey
Slide 8: Our Strategy
Our Strategy A refresh post-conversion Rob Buchanan Chief Executiv e
Slide 9: Our infrastructure will help fuel NZ's future to 2050 and beyond
Our infrastructure will help fuel NZ's future to 2050 and beyond The enablers for Channel's strategy What Channel will be called on to deliver • Strong and stable • Key supply route for • Meet expected • Support New Zealand’s cash flows jet to Auckland growing jet reliance on long-haul air Internati
Slide 10: The enablers for Channel
Infrastructure to help fuel NZ's future to 2050 and beyond – the enablers for Channel The key enablers of our future strategy: 1. Strong and stable cash flows Import terminal business model with long- term contracts, PPI escalated 2. Strong capabilities Building on existing capabilities with ambitio
Slide 11: 1. Strong and stable cash flows
1. Strong and stable cash flows Long-term customer contracts • Initial term of 10-years, with two 5-year rights of renewal • Fixed and minimum fee components • Third-party access to unutilised Marsden Point -to-Auckland Pipeline (MPAP) capacity after 1 April 2025 • Key customers are strong counterpa
Slide 12: 2. Strong capabilities
2. Strong capabilities Y% Deals we've done: - Terminal Services Agreements - Private Storage Contracts Y world-class conversion ~ Import Terminal ~ Tanks % Conversion delivered in line with budget schedule in post COVID/high inflation environment Y% comprehensive aviation fuel analysis Y 10 years of
Slide 13: 3. Uniquely strategic assets
3. Uniquely strategic assets 180ha of land of which only 1/3 is Close proximity Deep water harbour and currently in use. Book to Northport jetties capable of value of unutilised land receiving refined product Industrial natural gas, c.$15million ships amongst the largest water, and electricity in th
Slide 14: 4. Key supply route for jet fuel to Auckland International Airport
4. Key supply route for jet fuel to Auckland International Airport [1] Assuming 40,000 litres/truck [2] Assuming all electricity used by Channel is from renewable sources [3] Based on Envisory mid case projection to 2050 14
Slide 15: Our refreshed strategy: helping fuel NZ's future to 2050 and beyond
Our refreshed strategy: helping fuel NZ's future to 2050 and beyond OUR VISION World-class energy infrastructure company OUR PURPOSE Delivering resilient infrastructure solutions to meet changing fuel and energy needs OUR STRATEGIC PRIORITIES World-Class High Performance Grow from Support Energy Dis
Slide 16: Strategic Priority – NZ's Infrastructure Partner of Choice
Strategic Priority – NZ’s Infrastructure Partner of Choice World-class operator World-Class High Performance Being a world class operator is key to being considered a partner of choice for current and new Operator Culture customers, and therefore, to the long-term sustainability of our business and
Slide 17: Strategic Priority – Grow through supporting the energy transition
Strategic Priority – Grow through supporting the energy transition Grow from the core Grow from Support Energy • Unique and highly strategic assets at Marsden Point with multiple brownfield growth opportunities: the Core Transition • 70 million litre Government Strategic Diesel Storage tender underw
Slide 18: Strategic Priority – a more sustainable future
Strategic Priority – a more sustainable future Disciplined capital management Disciplined Capital Good Neighbour, • Efficient allocation of capital to achieve strategic objectives, while maintaining stable Management Good Citizen dividends and targeting credit metrics consistent with those of a shad
Slide 19: The future for New Zealand fuels in a decarbonising world
The future for New Zealand fuels in a decarbonising world What Channel will be called on to deliver for New Zealand: 5. Support a stable medium term diesel demand outlook and a resilient transition of petrol Stable diesel demand expected in the medium term with longer-term “harder to shift” agricult
Slide 20: Fuel volume outlook
Fuel volume outlook Ian Twomey Env isory
Slide 21: Channel Infrastructure Fuel Volume Outlook
Channel Infrastructure Fuel Volume Outlook for October 2023 Presentation Presenter: Ian Twomey Envisory (formerly Hale & Twomey) www.envisory.co.nz 21
Slide 22: Channel Infrastructure throughput outlook
Channel Infrastructure throughput outlook • Late 2022, Envisory developed a long-term fuel outlook for Channel • This chart was presented in the February 2023 Investor presentation and highlighted: – Petrol volumes decline most rapidly due to replacement transport options (primarily EVs) being avail
Slide 23: Development of land transport fuel outlook
Development of land transport fuel outlook • Total country demand modelled (segmented into demand type) Demand • Vehicle kilometres travelled models transport demand trend • Population, price and behavioural change drive light vehicle demand • Population, GDP, behavioural change drive various segmen
Slide 24: Petrol volume outlook
Petrol volume outlook • Post-COVID recovery through 2023 before declining due to improved fleet efficiency and EV substitution • Demand well down (8%) on the pre-COVID peak (2017) • National demand is slightly down on forecast although CHI’s throughput is in line, indicating an improvement in market
Slide 25: Diesel volume outlook
Diesel volume outlook • Diesel volume outlook relatively stable over this decade although that compares to strong growth through the 2010s • Replacement of small diesel passenger and commercial vehicles with EVs is a short-term driver before transitioning heavy transport during the 2030s • Around 30
Slide 26: Influences on transition pace for land transport
Influences on transition pace for land transport Faster Transition Slower transition EVs reach cost parity with ICE1 earlier (~ 2025) EVs take longer to reach cost parity (post 2030) Efficiency of new ICE fleet improves faster than expected Slower efficiency improvement through less efficient vehicl
Slide 27: Aviation fuel supply
Aviation fuel supply Jet fuel supply in New Zealand • Channel Infrastructure receives jet fuel on ships and supplies Wiri terminal • This is ~80% of national jet fuel demand • Auckland Airport is supplied through a pipeline from Wiri to the airport JUHI • Regional airports (small demand) in the nort
Slide 28: Jet fuel demand model development
Jet fuel demand model development Envisory developed models for calculating jet fuel demand from the outlook for: ‒ Number of passengers flying from an airport ‒ Aircraft yields (how full aircraft are on average) ‒ Type of aircraft used and fuel use for each of those aircraft ‒ Destination of aircra
Slide 29: Auckland Airport jet fuel outlook
Auckland Airport jet fuel outlook • The model development for Auckland Airport has shown the key drivers of jet fuel demand are: – Overall passenger number throughput – Destination of those passengers (segment demand) – The distance of flights • Flight distance is a critical driver. Extra long-haul
Slide 30: Jet fuel substitution impact on outlook
Jet fuel substitution impact on outlook Sustainable Aviation Fuel (SAF) will be covered in more detail in the following presentation. • Our view is SAF pathways with a liquid fuel directly substituting jet fuel are more likely • Liquid SAF uses existing infrastructure and requires little or no modif
Slide 31: Q&A
(7 e/p) —~ Channel Q&A
Slide 32: Supporting the goal of lower carbon aviation
Supporting the goal of lower carbon aviation Sustainable Aviation Fuel (SAF) Peter van Cingel Business Dev elopment Manager
Slide 33: New Zealand is reliant on long-haul air travel
New Zealand is reliant on long-haul air travel NZ is geographically isolated and reliant on long-haul air travel to connect people and markets: • Tourism is New Zealand’s largest export industry and directly employs 8.4% of New Zealand's workforce [1] • Air freight carries 16% of exports and 22% of
Slide 34: Demand for jet is expected to grow
Demand for jet is expected to grow New Zealand is expected to remain a desirable destination, with an increasing middle-class in Asia and India that can afford to travel through Auckland’s gateway Growing middle-class will drive a propensity to travel Global trends • Middle class households projecte
Slide 35: Aviation sector aspirations to Net Zero
Aviation sector aspirations to Net Zero Global challenge Summary of ambitions announced by Auckland International Airport’s major airlines: • Airlines recognise need to decarbonise Net Zero emissions by 2050, 10% SAF use by 2030, begin replacing Q300 domestic fleet with more sustainable aircraft fro
Slide 36: SAF currently appears to be the most viable route for lower carbon, long-haul aviation
SAF currently appears to be the most viable route for lower carbon, long-haul aviation Limited options outside of SAF • Battery-electric and hydrogen an option for short - haul / regional sector - reliant on small planes and new technology: • Airbus’ ambition to have first commercial hydrogen-fuelle
Slide 37: SAF also expected to be the lowest cost route to lower-carbon aviation
SAF also expected to be the lowest cost route to lower-carbon aviation SAF utilises existing powertrains and airport infrastructure and therefore is expected to be the lowest cost route to decarbonisation Airlines will need to draw on all options to meet emission reduction targets IATA – Strategy to
Slide 38: Two types of SAF – both will be needed and both face challenges
Two types of SAF – both will be needed and both face challenges Biogenic SAF (bioSAF) • Uses organic feedstocks (fat s, oils, woody residues, Municipal Solid Waste (MSW)) • Technology is in commercial use today • Key challenge to scalability is quantum of feedstock required: - Used oil and MSW quant
Slide 39: Country SAF targets should speed adoption, but supply today is very limited
Country SAF targets should speed adoption, but supply today is very limited Country targets – Europe - 0.5% advanced bio-SAF since 2020 Country target – North America - 2% by 2025, 6% in 2030, 20% in 2035, - 3bn gallons SAF in 2030 (~12% - 0.8% SAF in 2021, 5% in 2025, 27% in 2030 blend); 35bn gallo
Slide 40: Low-carbon liquid fuels expected to play a significant role in decarbonisation
Low-carbon liquid fuels expected to play a significant role in decarbonisation Global Outlook • Limited impact from hydrogen/battery electric by 2050 [1] Emission-reduction levers making net-zero aviation a reality[1] • Large reliance on fuel efficiency improvements and on SAF • Need >300 SAF plants
Slide 41: Indicative cost of SAF
Indicative cost of SAF • Weaning off fossil fuels will cost more, but impact is expected to be limited initially wit h low blend rat es • Global SAF manufacturing capacity is starting from a very low base, eSAF is early in the technology curve • Production costs expected to decline as industry scale
Slide 42: Q&A
(7 e/p) —~ Channel Q&A
Slide 43: World-class operator
World-class operator To provide resilient infrastructure and unlock growth opportunities Jack Stewart GM, Operations
Slide 44: Achieved today: A world-class import terminal conversion
Achieved today: A world-class import terminal conv ersion Our focus has been to get the basics right and deliver a seamless transition. Having delivered a world -class import terminal conversion, our aim is to become a world-class operator Conversion timeline • Excellent personal and process safety
Slide 45: Our ambition: A world-class fuels infrastructure partner
Our ambition: A world-class fuels infrastructure partner Establishing world-class fuels infrastructure operations through World-class positions Channel as partner of choice targeted, incremental investment will support the long-term • World-class fuels infrastructure capability builds credibility fo
Slide 46: The pathway to World-class
The pathway to World-class Substantial progress has already been made against world-class. Future work plan The right infrastructure which is safe, reliable and resilient focuses on seven key workstreams across systems, assets, and capabilities Long-term asset management plans in place including ass
Slide 47: Health, Safety and Environment
Health, Safety and Environment Strong focus on safety systems and culture, born from operating NZ’s most complex and hazardous industrial facility, provide a strong foundation for establishing a world-class fuels infrastructure operation Total Recordable Incidents Focus remains on getting everyone s
Slide 48: Operations
Operations As operations continue to grow, focus is to ensure Channel has the capabilities to provide the most efficient and resilient services for customers and New Zealand Channel’s operations continue to grow • Average cargo size up 10% on 2022 leveraging NZ’s only LR (Long Range) capable import
Slide 49: Asset Management: Investing in long-term infrastructure
Asset Management: Investing in long-term infrastructure Our infrastructure has proven resilience through the storm and flood events of 2023 and a disciplined approach to asset management will ensure sustained asset resilience to 2050 and beyond Our assets are reliable and resilient • Maintained unin
Slide 50: Payoff for investment in world-class infrastructure and capability
Payoff for inv estment in world-class infrastructure and capability Benefits of a world-class approach include resilient infrastructure to support long-term fuel demand, capability to deliver growth opportunities and unlocking growth opportunities beyond Marsden Point Resilient, world-class fuels in
Slide 51: World-Class: Investment for a longer-term future
World-Class: Investment for a longer-term future Asset renewal and investments in key capabilities support world-class delivery and infrastructure resilience for a longer- term future to 2050 and beyond Incremental investment in tanks • Tank renewal requires incremental funding to support world-clas
Slide 52: Q&A
(7 e/p) —~ Channel Q&A
Slide 53: Multiple opportunities to grow
Multiple opportunities to grow Peter van Cingel Business Dev elopment Manager
Slide 54: Our infrastructure will help fuel NZ's future to 2050 and beyond
Our infrastructure will help fuel NZ's future to 2050 and beyond The enablers for Channel's strategy What Channel will be called on to deliver • Strong and • Key supply route for Jet • Meet expected • Support New Zealand’s stable cashflows to Auckland growing Jet reliance on long-haul air Internatio
Slide 55: Marsden Point has several brownfield fuels opportunities
Marsden Point has several brownfield fuels opportunities Strategic Diesel Reserves • NZ Government tendering up to 70-million litres of diesel storage capacity - Energy (Fuels, Levies, and References) Amendment Bill passed May 2023 - Tender documents released September 2023 - Product quality require
Slide 56: Over time will look to unlock opportunities beyond Marsden Point
Over time will look to unlock opportunities beyond Marsden Point Leverage capabilities beyond Marsden Point, where there are value-accretive opportunities • Fuel markets undergoing transition – Channel open to owning or operating other fuel infrastructure assets if parties are looking to sell • Key
Slide 57: Marsden Point site well suited for the import and production of eSAF
Marsden Point site well suited for the import and production of eSAF Channel has an opportunity to support New Zealand’s aviation decarbonisation efforts – via either the receipt and storage of imported SAF through our infrastructure or by enabling domestic manufacture of SAF (if feasible) • Fortesc
Slide 58: Realising value from decommissioned refinery plant
We will continue to work on realising v alue from decommissioned refinery plant • In July 2023, US-based Seadra Energy Inc was granted an option to purchase permanently decommissioned parts of the former refinery for total consideration of US$33.875 million:[1] • 6-months to consider the purchase of
Slide 59: Strategic real estate with significant repurposing potential
Strategic real estate with significant repurposing potential • Marsden Point land is highly strategic and difficult to replicate • 180ha of land at Marsden Point: • Only 1/3 productively occupied • Unut ilised land valued at $15 million in Channel’s accounts (value of c.$18/m2 ) • Significant latent
Slide 60: Q&A
(7 e/p) —~ Channel Q&A
Slide 61: A stable infrastructure business
A stable infrastructure business Targeting credit metrics consistent with a shadow investment grade rating of BBB+ Alexa Preston Chief Financial Officer 61
Slide 62: Import terminal delivers stable financial profile
Import terminal delivers stable financial profile Disciplined capital Stable and predictable earnings Strong cash flow and balance sheet management Targeting credit Rev enue [1] EBI TDA Margin[1] Lev erage[3] metrics consistent 30-40% 95% 68% Stable Ordinary Div idend Yield 3.6x w ith a shadow credi
Slide 63: Considering a new retail senior bond to replace subordinated notes
Considering a new retail senior bond to replace subordinated notes Debt profile as at 30 September 2023 $M • Debt facilities of $380 million with significant liquidity headroom 175 available (c.$62 million as at 30 September 2023) 150 125 Subordinated notes - 100 maturity date • Expect ed debt will
Slide 64: Capital allocation framework set to deliver returns to shareholders
Capital allocation framework set to deliver returns to shareholders: [1] Normalised free cash flow is calculated as net cash flow from operations less maintenance capex (excluding conv ersion costs and growth capex). The div idend policy is subject to the Board’s due consideration of the Company’s m
Slide 65: Strong free cashflow conversion
Strong free cashflow conversion FY23 Financial Metrics Guidance ($ million) c.70% Normalised EBITDA [1] 84 88 EBITDA to FCF Conversion Less: capital expenditure [2] 9 11 Growth and Div idend Delev eraging Less: financing costs [3] 16 16 60-70% [4] 30-40% Indicative Normalised FCF [1] 59 62 FCF Yield
Slide 66: FY23 guidance reconfirmed. Outlook for FY24
FY23 guidance reconfirmed. Outlook for FY24 FY24 guidance[3] to be released with FY23 results. Key drivers include: • The PPI escalator applying to 2024 import terminal services and private storage Indicative FY23 Financial metrics[1] revenue published mid-November ($m) • Private storage revenue at
Slide 67: Transitioning to the future
Transitioning to the future Our approach Rob Buchanan Chief Executiv e
Slide 68: Achieved significant progress on our ESG scorecard
Achieved significant progress on our ESG scorecard Culture and Environmental, Health and Safety Diversity, equity and inclusion partnerships 78% Reduction in w ater consumption[1] > 97% of employees in new 10+ years Collaboration with iwi and pipi research roles or retraining within 6 months 30% 0.8
Slide 69: Stakeholder's material issues have informed the strategy refresh
Stakeholder's material issues have informed the strategy refresh A broad range of stakeholders were consulted with in 1H23 to identify material issues 69 69
Slide 70: Site proved resilient through extreme weather events earlier this year
Site proved resilient through extreme weather events earlier this year Coastal Hazard Management Plan under development • Assessment includes 4-degree warming scenario (year 2130) [1] • Modelling indicates little impact likely before 2080 [1] • Practical options identified for mitigation of long-ter
Slide 71: The way forward
The way forward Rob Buchanan Chief Executiv e
Slide 72: Our refreshed strategy: helping fuel NZ's future to 2050 and beyond
Our refreshed strategy: helping fuel NZ's future to 2050 and beyond OUR VISION World class energy infrastructure company OUR PURPOSE Delivering resilient infrastructure solutions to meet changing fuel and energy needs OUR STRATEGIC PRIORITIES World Class High Performance Grow from Support Energy Dis
Slide 73: World-class operator to unlock option value of unique, strategic assets
World-class operator to unlock option value of unique, strategic assets to maximise total shareholder return Net Dividend FCF Yield[1] Yield [1] c.11% c.7% [1] Based on a Share Price of 1.47 per share (as at 13 October 2023) per share and mid point of div idend payout range and FY2 3 normalised free
Slide 74: What's next for Channel Infrastructure?
What's next for Channel Infrastructure? Providing infrastructure that will support the energy transition and aviation fuel supply beyond 2050 Ambition to become a world-class operator that will provide infrastructure resilience for many decades and enable us to pursue growth at Marsden Point and bey
Slide 75: Our infrastructure will help fuel NZ's future to 2050 and beyond
Our infrastructure will help fuel NZ's future to 2050 and beyond The enablers for Channel's strategy What Channel will be called on to deliver • Strong and • Key supply route for Jet • Meet expected • Support New Zealand’s stable cashflows to Auckland growing Jet reliance on long-haul air Internatio
Slide 76: Q&A
(7 e/p) —~ Channel Q&A
Slide 77: Channel Infrastructure NZ
oA a7 p ) Channel Infrastructure NZ
Channel Infrastructure NZ — Investor Day (October 2023) on 6ix