APA Group (APA) Earnings Call Transcript & Summary

Good morning to everyone, and thank you for joining today's webcast of APA Group's full year results for financial year 2020. I'm Jennifer Blake from APA's Investor Relations team. This morning, APA's CEO and Managing Director, Rob Wheals, will present the FY '20 results and outlook alongside APA's CFO, Peter Fredricson, who will provide additional details on the financials. A Q&A session for analysts will follow the presentations. For any media on today's call, time has been set aside separately for your questions and interviews following the webcast. And with that, I'll hand over to Rob.

Good morning, everyone, and welcome to APA financial year '20 full year results call. With me today and virtually are members of my executive leadership team. Peter Fredricson, our CFO, who will present the numbers in detail, and in fact, for the final time before he retires at the end of the year. Also on the call: Nevenka Codevelle, Group Executive, Governance and External Affairs; Darren Rogers, Group Executive, Operations; Kevin Lester, Group Executive, Infrastructure Development; Elise Manns, Group Executive, People, Safety and Culture. And we have 2 new executives who have joined APA since our last results call: Hannah McCaughey, Group Executive, Transformation and Technology; and Julian Peck, Group Executive, Strategy and Commercial. Hannah joined APA in March, and you will have seen her at the Investor Day back in May. Julian's appointment was announced in early June, and he joined us last week. Ross Gersbach, who is looking after our North American investigations in Houston, is also on the call today. Peter and I will take you through the full year results and business highlights, leaving time at the end for analyst questions. If you have any follow-up questions that we don't get to, please contact the Investor Relations team whose details are included in today's presentation pack. I'm now on Slide 4. I want to start by acknowledging what an incredibly difficult year 2020 is and continues to be for everyone. Australians have faced back-to-back natural disasters and the ongoing global pandemic in ways no one could have foreseen. At APA, we understand our role in providing an essential service, no matter the circumstances. Providing safe, reliable and affordable energy to our customers and community is our absolute focus. Despite the challenging environment, APA has achieved a solid financial result for financial year 2020. This is due to strong business fundamentals and APA's capability to navigate a constantly changing world. EBITDA of $1,654 million for the full year financial year 2020 is at the upper end of our revised guidance range of $1,635 million to $1,655 million. This is an increase of 5.1% on last year. Operating cash flow increased by 8.3% to $1.1 billion. Similarly, operating cash flow per security increased by 8.3% to $0.929 per security. I'm pleased that APA is able to continue to honor the tradition of growing distributions. Today, the directors have announced a final distribution of $0.27 per security, which takes APA's distributions for the financial year to a total of $0.50 per security. This is an increase of 6.4% or $0.03 over financial year 2019, distributions, which were $0.47. In addition, franking credits will total $0.0731 per security. These outcomes are in line with APA's long-standing policy of growing distributions in line with operating cash flow growth, while ensuring that they are fully covered by operating cash flow. In doing so, we also continue to have regard to the future capital needs of the business and prevailing economic conditions. COVID-19 has been a significant challenge for all businesses across the globe. APA is a pivotable part of the supply chain that keeps essential sectors of the economy operating and because of our capacity contracts and regulated revenues, our business has been somewhat resilient during these times. We have, nonetheless, had a customer-first mentality and provided targeted assistance and additional services to our customers. Commercial, industrial and small retail transmission customers were contacted for a check in to understand the COVID-19 impacts that might be impacting them, and how APA might be able to assist. We provided targeted financial assistance for customers in vulnerable circumstances, including providing temporary tariff adjustments, credit term extensions and alternative prudential arrangements. And we've also offered additional gas market and systems training to help customers optimize their gas portfolios against changing market dynamics. In terms of volumes that we are seeing through our assets during this pandemic, generally speaking, we continue to see similar volumes to prior periods. Having said that, though, we are now starting to see some demand decline from industrial customers, in particular, in Victoria, due to the economic slowdown from the ongoing COVID-19 pandemic, in particular, the more recent Phase 2 shutdowns. I'll talk more about our guidance and outlook towards the end of this presentation. We have ensured we have sufficient liquidity and strong credit metrics, and the balance sheet is very well positioned for APA's funding requirements. APA, as you've heard me say before, is successful when our customers are strong, and our growth is inextricably linked to our customers' growth. In this context, near-term organic growth is likely to be impacted as customer FID decisions are deferred or at best delayed. But as we saw during the GFC, that impact was not prolonged and the growth projects soon gained momentum once again once business confidence returned. On the right-hand side of the slide is how we've looked after our people, customers and other stakeholders during the crisis, which was the focus of our crisis management team. The nature of APA's work involves significant engagement with the public, landowners and the community generally. The protocols to keep our people and our community safe has therefore been a particular focus of our team during this pandemic, ensuring compliance with the ever-evolving restrictions and rules has been key. Being a national business, border restrictions, in particular, have had significant ramifications for our operations as well as the lockdown measures themselves. There's also been an increased focus on health and well-being for our people during this time, including the provision of specialist advice for employees and promotion of resilience and wellness activities. Moving to Orbost on Slide 6. Last week, we made a joint announcement with Cooper Energy on the execution of a transition agreement, which outlines the terms for the parties to work together to complete the commissioning of the Orbost Gas Processing Plant. The agreement supplements the existing agreements between the parties and sets aside potential claims and entitlements available to either party. Importantly, this announcement affirms both parties' commitment to ensure the safe and reliable commissioning of the Orbost Gas Plant, so that much needed additional gas can be delivered to Southeast Australia. The details of the transition agreement can be found in the joint ASX release from last Thursday. But in essence, it is a commercial and practical agreement on a way forward, whereby APA and Cooper work hand in glove with a focus on ensuring firm processing capacity at Orbost. The agreement also provides the sharing of revenues and costs, including the costs of the Phase 2 works. The plant has supplied 3.5 petajoules of gas into the market since March of 2020. In doing so, it has demonstrated a maximum daily nomination of 53 terajoules a day, and completed stability testing to level of around 45 terajoules a day. But we have yet to reach practical completion. This is because of foaming in the sulfur recovery unit that is constraining the full stable processing capacity below 68 terajoules a day. With the involvement of our technology provider root cause analysis in respect of the foaming is ongoing. We have already conducted minor plant modifications to improve performance with further modifications planned for later this month. Planning is also underway for Phase 2 works to increase gas processing capacity, which will include the flexibility to operate the 2 sulfur absorber vessels in a series or a parallel configuration. The scope and cost of the Phase 2 works has not been finalized, but current indications are at capital cost of approximately $15 million, with the majority of the scope expected to be completed towards the end of the year. At the Investor Day in May, I explained our new purpose and vision and the 6 strategic imperatives that support them. The next 4 slides are, what I would call, our report card against our strategic imperatives. APA's customer centricity programs for this financial year centered around our Customer Promise in the Red Dot Program and the Energy Charter. APA's Customer Promise was launched externally in August last year. This followed the internal program, which we call Red Dot, which focuses on improving customer service and outcomes. There are a variety of activities ongoing under the program that focuses particularly on: listening more to what our customers need and want, including through surveys and forums; doing what we said we would do, such as improving the outage management notification process; and empowering our people to respond. This is particularly evident in our proactive response and support for small customers and regional suppliers during the COVID-19 pandemic. APA has evolved and grown as our customers' operations have evolved and grown. Our customers are the reason APA exists, and therefore, they are the center of what we do. The Energy Charter was launched in January 2019 with APA as a founding member and it now has 19 signatories from across the supply chain. During the year, the first Energy Charter reporting was published by the signatories against each of the 5 charter principles. In November, the independent accountability panel issued its first panel review report, and made a number of recommendations, which we're taking on board. APA's second Energy Charter disclosure report will be released at the end of September. APA also collaborated with businesses across the supply chain on what are called Better Together initiatives. These include improving gas connection services and stakeholder engagement as well as a unified approach across the supply chain to providing support for customers during the COVID-19 pandemic. Moving to Slide 5. Operationally, we have continued to deliver gas reliably, cost effectively and importantly, safely. Safety is one of APA's core values. We are pleased to report that we had no fatalities or regulatory penalties related to work, health and safety in financial year '20. Disappointingly though, we still hurt too many people in going about our business this year. The safety results for our entire workforce, but in particular, our contractors were disappointing. Total reportable injury frequency rate, or TRIFR, was 9.09 against a target of 5.5 and last year's 5.98. And the lost time injury frequency rate, was 1.21 against a target of 1 and against last year's number of 0.86. A significant program of work has already commenced to improve safety performance of our contractors whilst also looking to improve, and to continue to improve APA employee safety outcomes. We also launched a new health safety environment and heritage 3-year strategic plan. During the year, we also enhanced our process safety framework with a new 3-year program. This program will ensure the processes, systems and behaviors are in place to empower APA employees and contractors to continue to operate assets safely. This included rollout of our process safety framework and protocol, including key metrics to our transmission and midstream businesses. Moving to sustainability. APA is well placed to support Australia's successful transition over time to a lower carbon future, given our key role in the delivery of Australia's energy. Early in the year, we published our first climate change position statement. This is available on APA's website as is our sustainability report for financial year 2020, which we have also released today. We are continuing to evolve our climate transition scenario analysis and resilience testing work, which we commenced last year. In alignment with the recommendations of the task force on climate-related financial disclosures, or TCFD, this includes the resilient -- the testing of the resilience of our assets under divergent scenarios, including a 1.5 centigrade scenario. The results of this work is expected to be published in early October. Lastly, on emissions, our scope 1 emissions increased for financial year '19. The latest data available, whilst our scope 2 emissions decreased slightly. Growth, of course, has been at the heart of APA's strategy since inception. Investment in growth projects continued on into financial year '20, focusing on Orbost, Darling Downs Solar and the Crib Point project. As I said at the outset, EBITDA grew 5.1% with growth assets that we've invested in: Darling Downs Solar Farm, the Badgingarra Wind and Solar Farms, the Yamarna Gas Pipeline, Gruyere Power Station, all contributing to this. In this evolving energy landscape, innovation is ever more important, both new technologies and new energy sources. And this year, we have progressed 2 excellent examples of this. The renewable methane project at Wallumbilla received $1.1 million of ARENA funding for a pilot project. The project is underway with a focus on the proof-of-concept to produce renewable methane that can be transported into our pipelines. And just recently, a renewable hydrogen project, which is a joint venture between APA and Woodside has been listed as one of 7 projects to proceed to the next stage for ARENA funding. This project is focused on creating clean molecules in the form of hydrogen using renewable energy at APA's renewable hub in Western Australia. Turning to some of the more established technologies. We've been progressively and selectively expanding our renewables footprint and renewables now account for more than half of the generation capacity of our power generation fleet. And in relation to our pipeline excellence , we came up -- during the year, we came up with a cost-effective way to increase both the capacity and the reliability of the Moomba Sydney Pipeline. And this was all done as part of a routine upgrade of engines and control systems, which importantly, minimized disruption of service to our customers. Financially, we kept our focus on maintaining our balance sheet strength. Peter Fredricson will talk to this in more detail in his section. But as a growing business, we understand that it is critical to our continued access to capital, particularly in the current economic cycle. APA has a large and diverse stakeholder base. The stakeholder relationships imperative covers regulatory and community amongst other things. This year, we have enhanced our regulatory processes with stakeholder engagements for the Amadeus and Roma Brisbane pipelines. In fact, moving these into the virtual world during the lockdowns has given us some excellent insights for doing this even more effectively going forward. APA has set up the Amadeus Gas Pipeline consumer rents group as part of the regulatory process for review of the next reset in July '21. And this engagement provided APA with better insights from people who sit by the pipeline, which has helped shape APA's proposal to the regulator. A similar process is being followed for the Roma Brisbane Pipeline reset, which will occur in July of 2022. The Goldfields Gas Pipeline access arrangement was completed in December 2019. This will be in effect for the calendar years 2020 through to 2024 and apply to the covered capacity of the Goldfields Gas Pipeline. As a quick summary of the broader regulatory environment, the Power and Energy Council's regulatory impact statement or RIS processes are ongoing. And there are 2 RISes that are relevant to APA, and we've been actively involved in the consultations. First, the gas pipeline RIS, which is entitled options to improve gas pipeline regulation. That consultation is part of initiatives to improve the regulatory framework and the review of the part or part 23 of the national gas rules. There were 4 options of -- for reform outlined. We've suggested a hybrid option, which addresses concerns about regulatory coverage of pipelines by ensuring the appropriate form of regulation while harmonizing the level of information available across all regulatory classes of pipelines. And the final outcome, we expect will happen during financial year '21. The second RIS is to do with improving transparency in the gas market. APA supports further transparency in the market that strikes the right balance without increasing costs and risks to consumers in the gas industry. The last but definitely not the least strategic imperative is part of our scorecard, is people and culture. The launch of our purpose, vision and strategic imperatives was the next step in the evolution of our corporate culture. As part of this, the new operating model increases the clarity of roles, enhancing accountability and the empowering of our people. We also conducted a culture survey late last year, and the results of this have been fed into the development of our culture program. We've also renewed our gender targets out through to financial year '25. With that, I will hand over to Peter to look at the numbers in more detail. Peter?

Thanks, Rob, and good morning, everybody. As Rob has pointed out, given the operating conditions that we have all experienced over the 12 months that was fiscal year 2020, we are certainly pleased with this result. Yes, it could have been better. But a 5% growth in EBITDA, 8% growth in operating cash flow and 6% growth in distributions to security holders is, in our view, a solid outcome in a year impacted by bushfires across the east, drought and then floods and then a global pandemic for the most part of the second half of the financial year. Throughout all of that, we have been a significant contributor to the Australian economy with an excess of $2.7 billion paid to suppliers, security holders, lenders, employees and the Australian taxation authorities. As much as anything else, in this environment of uncertain economic times, we have, as a business, funded all of our operating cash -- operating costs and all of our capital expenditure, both stay in business and growth CapEx with our operating cash flow, meaning that we have delivered a high level of operating profit against a lower level of externally sourced funding in the business. This is growing value to security holders, whilst at the same time, increasing distributions and providing franking credits to those security holders. The operating result on Slide 13 reflects the ongoing importance of the East Coast Grid and the flexibility that the grid provides to our customers. As we have said in the past, we no longer consider the individual assets on a pipeline-by-pipeline basis. It's the overall outcome that matters. Absent the net $13 million of liquidated damages in relation to Orbost included in the Victorian result, and around $14 million of FX impact on the Wallumbilla Gladstone Pipeline included in the Queensland result, we were essentially flat period-on-period in Victoria, and likewise, essentially flat period-on-period in Queensland. Overall, adjusting for these 2 items, the outcome on the East Coast essentially reflected a 1.8% increase in EBITDA. Clearly, the star for the period was Western Australia as we commissioned the Badgingarra Solar Farm, and we got a full year's contribution from a number of other assets that we had commissioned in WA in FY '19. Both the asset management and investment sectors added revenue year-on-year, from increased activity in the networks business and increased profitability from our joint venture assets. Corporate costs benefited from the fact that around $11 million of FY '19 costs were not repeated. But increased insurance costs, increased regulatory compliance costs and increased costs associated with the new structure of APA under Rob's leadership, mean that the new norm for corporate costs is likely to settle at around $80 million to $85 million per annum going forward. The waterfall on Slide 14 shows where the year-on-year 5% increase in EBITDA has come from. CPI flowed through at around 1.4% on average across our contracts for the year. With the impacts of COVID-19 on economies across the globe, we see CPI impacts in FY 2021 being somewhat down on the FY 2020 actual, as you would expect. The FX outcome year-on-year shows the higher rate that WGP revenues were hedged at in FY 2020 relative to FY 2019. We expect the FY 2021 result to be relatively flat given the FX covers that we have in place for the revenues to flow from that asset this coming year. New assets, as mentioned earlier, contributed some $50 million of EBITDA less than $13 million of Orbost LDs in the increased EBITDA. And as noted in our various disclosures today, we are expecting in the order of $10 million in EBITDA from Orbost in FY 2021. Net new contracts and renewables are flat for the year, reflecting very little activity in this area. Asset management specifically benefited from increased income in the Networks business for the period. And as noted earlier, we saw good increases year-on-year from the associates that we invest in, primarily as a result of refinancing programs that saw a drop in their cost of debt. Something that we continue to see across the board due to the ongoing lower for longer interest rate environment. Slide 15, again, shows the stability of APA as a business. Even if we may see little growth in any given year or even if the growth that we do see comes from the commissioning of new assets, we continue to see in excess of 90% of our revenue coming from fixed long-term take-or-pay contracts or regulated sources. An excess of 90% of revenues coming from investment-grade counterparties and a diverse customer base with no reliance on any 1 customer, any 1 asset, any 1 state, or any 1 segment of the economy. We have noted that our revenue weighted average contract tenor remains around 12 years, as compared with the 12.5 years discussed at the half year. This minor reduction merely reflects the 6 months of time that has evolved for all of our contracts since the last reporting date. At 12 years, still the majority of our revenues are very visible and certain. As noted at the half year, and as we had expected, the growth CapEx this year has slowed somewhat. This is not a surprise given the previous 3 year of $1.4 billion program, but also given that the bushfires, drought and pandemic have all had some impact on customer decisions and have meant a more measured approach by customers in their FID approval processes. Hence, outcomes for APA flow on due to our model of investing off the back of long-term contracts generally underwritten by our customers and generally underwriting their growth capital. At $290 million, the outcome is at the lower end of the more recent guidance, but again, it was largely expected in the current environment. And as noted later, we continue to see customers discussing longer-term expansion projects with us. Capital management continues to be a priority 1 activity within APA. Effectively, we are one of Australia's top 5 corporate borrowers. In that context, our Baa2 and BBB ratings are critical to maintaining access to the broadest range of global debt capital markets, which ensure that we are able to continue to fund our ongoing operations and the longer-term growth of the business. During the year, we accessed the Euro MTN market with a very successful 600 million euro issue that was in excess of 7 times oversubscribed. We undertook this issue in March of this year, just as Australia and many other countries around the world began to shut their borders. We completed the issue without leaving Australia, showing again the strength and support that we have for borrowing globally. The issue ensured that we had the long-term liquidity necessary to ride through any COVID-19-related market issues. We have used this funding to repay our July 2010 AMTN, and to ensure that we are not exposed to the possibility of any cancellation of shorter-term facilities in the event of greater or further market disruption. In the event, our rating metrics continue to strengthen as we add more internally funded EBITDA, and we continue to reduce the overall average interest rate payable on our debt book. We now have no debt repayable prior to March 2022 and very good visibility of our ongoing liquidity between now and then. Finally, as Rob has already pointed out, the distribution at $0.27 per security represents a continuation of APA's 20 years of increases in distributions, whilst more importantly reflecting the payout that we continue to believe is sustainable over the longer-term and especially in this more uncertain economic environment. The most pleasing thing for us is management of APA's business, is that our low-risk business model and our balance sheet strength will enable us to continue delivering for our customers whilst also looking to deliver good returns for our security holders. With that, I'll hand back to Rob. Thanks.

Thanks, Peter. As I've perhaps said previously, APA is not immune from the economic impacts of COVID-19 and the current lower oil prices that we're seeing in the market. However, the resilience of our low-risk business model, along with other key business fundamentals, will continue to ensure our long-term success throughout the business cycles. Those key business fundamentals include ongoing growth in global energy demand, our portfolio of high-quality long-life assets, our strong internal skills to negate what is a constantly changing environment, laser focus on operational and safety excellence. And importantly, our financial strength and flexibility, which enables us to maximize value. Expanding on the first of those points. The global energy demand remains strong and is expected to continue to grow under most future forecast scenarios. This is true, too, in Australia, driven by a population growth and economic development. I'll now talk about the changing energy landscape and the opportunities we see for APA as the world adapts into the future. APA has maintained a strategy over the past 2 decades of investing for growth to support our customers' energy needs. The key for APA has been on sustainable growth, underpinned by a strong balance sheet and investment discipline, which has ensured a continued access to capital. Moving into our third decade, we are focused on ensuring we continue to meet the needs and expectations of all of our stakeholders in the constantly changing environment. The energy transformation with the ambition to reduce emissions is already underway, presenting both challenges, but also significant opportunities for an organization like APA. This transformation will require a holistic approach to ensure a proper consideration of the impacts of reliability -- impacts on reliability, affordability and the security of energy supply. It's clear that our future energy system is unlikely to look like the past. And I'm on Slide 22. Alternative policy approach is focusing on low through to deep decarbonization will result in varying levels of emissions reductions and new and different asset classes. What is clear though is that there is a spectrum full of business opportunity for APA. Seizing these opportunities will require significant investment. And potentially in ways that we have not done before. Our investigation into an investments in our renewable and proposed hydrogen projects are good examples of this. Natural gas, though, is already an important enabler of the future energy mix, no matter which future scenario plays out. This is supported by the International Energy Agency or IEA's forecast for natural gas demand scenarios. Whether it's gas used to enable the decarbonization of electricity, supporting high-value manufacturing processes that are difficult to electrify or provide a cost-efficient and low emissions energy source for our residential and commercial sectors of the economy. The government's efforts to support economic recovery are also likely to include an acceleration of gas-related infrastructure spending. In this regard, the National COVID-19 Coordination Commission or the NCCC was established to identify post-COVID recovery opportunities and has reportedly focused also on a gas led manufacturing recovery. At the heart of the thinking, which APA supports, is that increased gas supply would assist with reducing input costs for existing businesses, provide opportunity for new manufacturing plants and facilitate increased renewables penetration through the use of gas firming generation. Increased renewables penetration supported by gas-fired power generation was also identified in the government's technology investment road map as the largest and most commercially viable emissions reduction opportunity in Australia. So no matter where Australia and the world lands on this decarbonization continuum, APA will have no shortage of investment opportunities that we can't take full advantage of because of our capabilities. Just as we did over the past 2 decades, leveraging our pipeline core business into a broader range of energy infrastructure. With Slide 23, I want to spend some time looking more specifically at the growth opportunities ahead of APA. On the East Coast, we continue to see gas needing to move from northern suppliers to southern markets, with our East Coast Gas Grid remaining integral to this. Although I spoke earlier about the increase in capacity and reliability that has been achieved on the Moomba Sydney pipeline during the year. Let me be very clear, transportation capacity is not a gas supply constraint on the East Coast. Additional capacity has always been and can always be developed when needed. And there are various different expansion options depending on the nature of the solution required. APA has been and continues to have discussions with our key customers around these options. Indeed, we have commenced expansion works on a number of our compressor stations along the East Coast Grid with a target operational timing of winter 2021. We have also commenced front-end engineering design work for a further significant expansion and extension of the East Coast Grid from Queensland to New South Wales and Victoria, taking into account connections to the Surat and Bowen basins, which could see more than 200 terajoules a day of additional capacity being made available to bring northern gas suppliers to southern gas markets. And in regards to connecting new supply sources to the East Coast Gas Grid, APA continues to work with our customers, whom we have development agreements with on the Crib Point Pakenham Pipeline and the Western Slopes Pipeline. Both of these projects are going through their necessary approval processes. The Western Outer Ring Main project in Victoria, which is part of the Victorian transmission system, is also going through an EES or environmental effects statement process. There are a variety of other opportunities on the East Coast, some of which are listed on this page. These are all about connecting new supply sources to the populous and industrious East Coast markets. Growth in the West is more about demand. As in users, mainly miners, wanting to connect up to a reliable energy source to power up their operations. During the year, we have entered into agreements with Kalium Lakes, Salt Lake Potash and Capricorn Metals to deliver gas to their projects. The Goldfields and Eastern Goldfields Pipelines are key to signing up these new resource opportunities. And in that regard, we are continuing to review options for additional capacity on these pipelines. The Pilbara and the Perth Basin are also interesting growth opportunities. The Perth Basin is said to hold around 5 Tcf of available gas, and we continue to talk to various proponents to see how we might leverage our existing assets to bring this gas to market. The energy futures growth opportunity we set out on this page include renewable integration projects, gas generation for firming and new technologies. Now I've already talked about some of those opportunities that we are working on earlier. We stand ready to play a leading role in the responsible energy transition. And our fourth growth pillar is North America. Ross, Gersbach detailed at our Investor Day in May, where we were up to and our focus areas in terms of our due diligence in that market. There's not much more that I can add to that. As you can appreciate, we will only be able to talk specifically when we have something specific to talk about. As we've said before, we are focused on APA's core skill set of gas distribution and transmission assets. These are at the lower end of the risk spectrum, and therefore, consistent with the risk profile of our business. All in all, we have line of sight, and that's excluding North America to over $4 billion of growth opportunities over the next 5 to 10 years. Not all of these will get up, but our experience is that while some projects don't go ahead, other projects do replace them over time. Due to the current economic downturn, it is likely though that some customer financial investment decisions may be deferred or at best delayed. And as mentioned in our May Investor Day presentation, it's on this basis that we've changed our growth CapEx guidance to be around $1 billion of growth CapEx over the next 2 to 3 years. And so how are we going to execute all of this? My new executive leadership team is nearly in place, as shown on Slide 26, is it? -- 24. The structure consists of both business units to build and operate our assets safely and efficiently and corporate functions to support the business units and focus on strategy and governance. As I said in my introduction, Hannah McCaughey commenced with APA in March of this year to lead the new transformation technology function. Julian Peck commenced last week as APA Group's Executive of Strategy and Commercial, replacing Ross Gersbach, who, as you know, is leading our North American activities. And Operations will now oversee the safe and efficient operation of all of APA's assets and investments across transmission power generation networks and our midstream asset classes. That's under the leadership of Darren Rogers. Nevenka Codevelle heads the expanded Governance and External Affairs function, with the inclusion of sustainability and community, external affairs and reputation, economic regulatory and external policy. Kevin Lester and Elise Manns continue to lead their respective areas of responsibility. Finally, I'd like to take this opportunity to thank Peter Fredricson, who will hand the finance baton over to Adam Watson around the middle of November. Peter has made a significant contribution to APA over his nearly 12-year tenure. He's been an outstanding CFO with a strong focus on our balance sheet and capital management. And that stood us in credible stead. So thank you, Peter. From all of us at APA, we're truly, truly grateful, and we'll bid you farewell more formally in due course. In summary, APA has delivered another solid result despite a challenging environment and a delayed start to the Orbost Gas Processing Plant. Our key financial metrics are up this year, and we've been able to maintain growth in distributions to our security holders. Most importantly, we have met the needs of our customers. Although APA is an essential part of the energy supply chain, no business is entirely immune from an economic downturn. APA is successful when our customers are strong. While our capacity contract and regulated revenues mean that our business is somewhat resilient through the economic cycles, APA's revenues are still subject to recontracting decisions by customers, throughput volumes on certain assets, the timing of customer and financial investment decisions as well as lower CPI across the contracted portfolio. Further, APA's current operating plan for financial year '21 only includes around $10 million of EBITDA contribution from the Orbost Gas Processing Plant, under the recently announced transition agreement with Cooper Energy. This assumes practical completion is not achieved until the end of the financial year. In this context, APA expects EBITDA for the full year to June 30, 2021, to be within the range of $1,625 million to $1,665 million. Distributions for financial year '21 are expected to be substantially in line with financial year '20 distributions with franking credits, which may be allocated, depending on the amount of cash tax APA will pay during the year. Wrapping up, our business has strong business fundamentals that have been 20 years in the making and have stood us in good stead. We have strong foundations, a highly experienced team, quality assets and a strong balance sheet. We will use these foundations to grow our business as we move into our third decade, and play our part in the nation and the energy transition. Our refreshed purpose, vision, strategic imperatives and new operating model are all in place. This further enhances APA's ability to execute our strategy in this evolving and transitioning market. The opportunity set for APA is significant. Not only are there places that our customers want us to invest in across Australia, we're also exploring renewable and new energy technologies and we also continue to pursue targeted opportunities in North America. With that, we'll now move to Q&A, and I'll hand back to the operator to facilitate that process.

[Operator Instructions] Our first question is from Tom Allen with UBS.

Congratulations on the full year result. My first question relates to your outlook into FY '21. So you're pointing to flat EPS year-on-year. And EBITDA is broadly flat to marginally down year-on-year. That's despite all the growth projects you've commissioned over the last few years contributing a full year's earnings in '21 and over 80% of your revenue coming from the capacity based, take-or-pay contracts with CPI-linked escalators. That suggests there's some recontracting pressure across the portfolio. So putting aside the impact of Orbost, can you provide some additional color on the recontracting pressures you're seeing? So specifically, keen to hear what types of customers are they? Are they only industrial customers? And are these short-term deferrals of contract renewals or possibly a fundamental shift to lower demand?

Look, I'll take that first because I'll address the first part of the question first and then sort of throw back to Rob in respect to the recontracting. I think the -- what we've had in FY 2020 is the vast majority of the projects that we have commissioned over the last sort of 2 or 3 years, we've had a full year of revenue, full year of contribution from. So we wouldn't expect that to change materially in FY 2021. We don't have a lot of growth projects, commissioning in or commissioned in 2020, only really the sole -- that the Badgingarra Solar Farm, which is, with all due respect to that asset, it's not a big asset, not a big contributor. So we'll get a full year of that relative to FY '20. But nothing really changes in FY '21 relative to the assets that we've commissioned over the last 2 or 3 years because we've had full years of contribution in FY '20. So I'd say that as a start point. The other thing I'd say, as a start -- as an extension of that is, typically, we've seen reasonable 2% plus increases in CPI attaching to our contracts, and we're not going to see that this year. We're just not going to see it. Inflation for the March quarter was significantly negative. And therefore, inflation for the March year was negative in Australia. So CPI is not going to add a lot in the context of our go forward. We had expected more to come from Orbost. In FY '21, or we would have expected in the normal course, but we've already disclosed that, that's going to be about $10 million, not what we had expected. So we need to keep all of that in mind. We need to keep in mind the fact that in that context, there's still some increase in costs coming through this business. I don't know if you've heard this comment from others that you've spoken to, but we've seen insurance costs doubling and in case -- in some cases, more than doubling in the last 12 months. And we are told that directors and officers, insurance premiums will not stop at where they are. We've seen D&O costs go from $25,000 per million to close to $100,000 per million. And that market hasn't stopped yet in resetting its cost base. So that's flowing through to us. We've talked about the increase in costs for regulatory that are flowing through to this business. And at the end of the day, that's not stopping either. We've almost doubled our audit fees on the back of the auditing of reg accounts that are now demanded in respect to part 23 and other regulatory outputs. So it's not all just about recontracting. We are expecting less variable revenue, as Rob talked about, because of the COVID-19 environment and where it's taking our customers. So again, whereas in years gone by, we might have seen 1% of our revenues, sometimes more than that, coming through as being variable revenues, we're expecting -- that guidance doesn't reflect any. So that's where I sort of drop a marker, if you like, and then maybe pass to Rob in terms of recontracting.

Thanks, Peter. And Tom, thank you for your question. Just to add a little bit to what Peter talked to in terms of some of the drivers for the guidance. Just in terms of the volumes, as I did mention in my commentary, particularly in Victoria, which, as you know, is a more volume-based business. And we are starting to see volume soften, particularly from the industrial commercial sectors. So that's taken into account in our consideration. In terms of recontracting, I think, when you see stronger economic times, customers that have contracts that come up for renewal, they may flip that contract over at the same capacity. In these times, I think, like all of us, we're all questioning our costs. And our expectation is that some of our major customers will be doing just that. Looking to see whether they would renew a contract at exactly the same capacity, whether they can try and look to manage their portfolio with a little bit less. So that's all factored into our consideration. And as to the type of customers, those are, for the most part, the major retailers on the East Coast that we -- that's guiding our thinking in that respect.

Okay. If I just may quickly sneak a question on Orbost. The transition agreement with Cooper Energy appears to remove the risk that your customers litigate against APA for a breach of contract. And indicates some sharing of the cost and revenues with Cooper? So for the work that you still need to undertake. Can you please provide some detail on those costs and revenue-sharing arrangements? And recognizing the CapEx spend to date is well above the $270 million that was originally estimated, have these outcomes at Orbost impact? Or, I guess, they have, but how have the outcomes at Orbost impacted your project returns, but have they impacted the Board's appetite to pursue further growth in processing infrastructure?

Tom, if you could just repeat the last part of that question, I didn't quite catch the last part.

Sure, Rob. I was just keen to understand whether or not the outcomes at Orbost have impacted the Board's appetite to pursue further growth in processing infrastructure.

Thank you. Well, look, I think, there are 2 parts of the question. The first was, I think, your question around the transition agreement. And then the second was the question you've just repeated for me. Look, the transition agreement, obviously, the details of it, specifically are commercial in confidence. But the simple premises that we've drawn a line in the sand at 30 June, and we recognize that APA and Cooper Energy are joined at the hip in terms of getting a positive outcome with this project. As you can imagine, any project like this, it all works well when you've got your upstream, your pipeline connecting into the gas processing plants. And then obviously, the GSAs with the customers, and that whole value chain is an ecosystem. We recognize working together constructively is the best way forward and collaboratively. And as part of that, there's a recognition that sharing costs and revenues and the cost of these Phase 2 works is a sensible way forward. So that's I think, perhaps, addresses your first question. In terms of the second question, the -- we've got to remember that we've got a completed gas processing plant. It's a complex plant with not only processing gas, but it's effectively a chemical plants in terms of how it manages the sulfur removal process. We've demonstrated that we can produce -- well, first of all, it's been built to spec and design. It's been -- it's demonstrated it can produce a peak of 53 terajoules a day. And consistently at 45. We are seeing, as we've shared publicly that the performance does degrade with sulfur deposition in the absorber units, and that's really the focus going forward. So I don't think at this point in time, we'd be saying that it's changed our view on investing in this particular segment. We've got a plant that's producing on spec gas and there's some technical challenges to make sure that it can do that in a sustainable fashion.

Our next question is from James Byrne with Citi.

Peter, I wanted to just say congratulations on a great period at APA. But I have a couple of questions. So first on Orbost, just following up from Tom. So the costs that you're incurring for Phase 2, I presume that, that will be CapEx, and hence, not a drag on the EBITDA in FY '21 at all?

Let me start with that, James, and thank you, very kind of you. It's been a bit of a blast here at APA. I can tell you. But there are operating costs that we are incurring. And there are revenues that we are incurring. And under AASB 16 early adoption, we can put those to the P&L, and that's where the $10 million comes from. But there are also -- there's also appropriate capital that will be incurred in the second phase, and again, shared by the 2 parties. And what we incur of that will be capitalized. So there is some further capitalization to go, but there's also some stuff flowing through the P&L in that context.

Yes. Okay. That's quite helpful. Then if I think about the FY '21 guidance, I mean, the range is actually still quite narrow. And across the market, appreciate your business is significantly more defensive than the majority of businesses in the market. But nonetheless, I'm interested in understanding how your thoughts about the uncertainty ahead in FY '21 when providing your guidance. Now appreciate that you probably have reasonable clarity on what your contracts are like, but not necessarily on throughput volumes. So how much of an impact has throughput volumes had on your FY '21 guidance relative to those other headwinds you've called out like recontracting? And then how do you think about that uncertainty that Victorian demand maybe doesn't go back as fast as you expected? Or you see other states that have a drop in demand from lockdown?

James, I might make some comments. And if, Peter, feel free to add to any comments I make. Look, when we form a view on guidance, it takes into account, obviously, a range of factors. Peter has talked to some points around cost. We've talked to the view around trying to take a view as to what's a likely outcome in terms of volume decrease or the potential. But remember, those are just best estimates, and you've kept to take a probabilistic view as to whether that's going to happen or not. So we look at all the upside risks and look at all the downside risks and take a view based on what we can see in front of us to form that guidance range. And that, as we sit here today, the guidance range fully reflects everything that we can see in front of us, both from an upside and downside perspective at this point in time.

Okay. Can you perhaps give us a little bit of a steer on the impacts on throughput volumes in FY '21 relative to those other headwinds? Like was that a smaller impact than recontracting, for example?

The short answer is, we look at a list of potential contracts that we take a view on that may or may not recontract. We just take a view on the -- a range of different outcomes for volumes. And then we take a view on the whole of it together, taking into account upside as well as downside. So it's not as simple as all binaries. I think what perhaps your question is inferring. But the best I could really give is that the volume impact is going to be a smaller proportion of the total downside risk that we see, or potentially see in the financial year '21 guidance.

Yes, perfect. That's good. Okay. Last one for me. Look, I've been interested in your comments about what you saw in the GFC with growth sort of being quite buoyant on the other side of that. And it kind of sounds like you have an expectation that some of the forgone rig contracting for '21 comes back. My question is, there seems to be a consensus in the energy industry that gas demand is only cyclically lower, not structurally lower. On the other side of COVID, I'm wondering whether you'd agree with that sentiment.

Yes. Look, I think that's right. The -- we've if you go back to the time of the GFC, and I know that you can't make direct one-for-one parallels. But the -- from our perspective, we had a pipeline of growth projects in front of us, whether it was the resources sector on the East Coast. More generally, when business confidence slides, those projects, they don't disappear necessarily, they get deferred out. And when the confidence increases, again, they come back onto the fore, and that's what we saw. So that's certainly our expectation. I think some of the macro factors around gas -- the need for gas infrastructure, the need for more gas in the East Coast market. I think we're all very familiar with. And you would have heard some of my comments around looking to address any potential shortfall in gas supply that's been forecast through to 2023 and beyond. And we'll be making sure that APA plays its role in ensuring that supply pipeline constraint. Or that there is no pipeline constraint in that sense.

Our next question is from Rob Koh with Morgan Stanley.

Yes. May I also add my congratulations to Peter on your career. So I have probably some slightly more simpler modeling style question. The FX hedging for the Wallumbilla Gladstone Pipeline revenues. If I remember correctly, you previously hedged those 3 years forward, and I can't actually locate an FX rate for FY '23. So just wondering if you've changed the hedge policy there?

No, Robin, thanks for that again. Very kind of you. No, we haven't changed the hedging policy. What you'll see in the Director's report is that we have FX, foreign exchange contracts in place out to March 2022 at [ 0.7099 ]. And we've got everything that's beyond at this stage. Everything beyond March 2022 is in the designated hedge relationships with the debt. So what we -- so that's effectively hedged. And as it has been for many years. What we need to do there is we need to start to look at those revenues as we get closer to that time and put them -- put FECs around them. And at that time, as we take them out of the designated relationship with the debt, we need to then hedge the debt that we leave sort of swinging free, if you like, with -- into Aussie dollars as well. So that all happens on a dynamic basis going forward. So we're currently in that process where we're hedged out to March 2022.

Okay. Right. So -- but you still will have some kind of hedge effectively into FY '23. Yes?

Sorry, can you repeat that?

Yes. So the FY '23 FX exposure is effectively through the debt. Is that how I interpret that?

That's correct. At this stage, everything from April 2022 is in designated relationships with the debt. That's the USD 3 billion of debt that we have.

Yes. Okay. All right. Now just in relation to cash tax. Should we be looking for this financial year, maybe a lower cash tax bill, given there's been some CapEx rolling through in the last few years? Or can you give us a sense?

Look, it's about $100 million to be fair. So it's straight up. We expect the cash tax bill this year to be around $100 million for FY 2021.

Okay. All right. Well, that's simple. No worries. And then just on contract escalations. And you mentioned that potential for a negative quarterly trend. Can you just give us color on if that negative trend continues? So your contracts actually give you protections for like 0% floor or something like that?

Rob, it's Rob here. I'll take that question. I'll make it as a general comment, because different contracts are different. But more generally speaking, our contracts, although some kind of risk CPI linkage, as I think we've talked about many occasions before, but that would all typically have a floor at a CPI of 0. So it wouldn't go negative.

Yes. Okay. Cool. And then maybe a last question. So Mr. Wheals, you spent a lot of time and effort on setting up a few of your team. I'm just wondering if you could give us an update on renewable methane, hydrogen batteries. And on a longer-term view, should we be thinking that might be 10% of APA's assets? Or can you give us a sense of the pace of the transformation that you guys are contemplating?

Thanks, Robert. Difficult question to answer, really, where we respond to what our customers are looking for in terms of their requirements. I think it's fair to say that, that's -- those trends are starting to increase dramatically. And if you look at all the -- I mean, there's lots of forecasts out there as to how the energy markets will transition as more and more of our coal comes out in terms of electricity generation and gets replaced with renewables. And then supported in firming by pumped hydro and batteries and gas generation. And then obviously, the focus then on clean molecules in different forms. Whether it be bio or renewable methane, hydrogen. So I think that the fact is, as I said in my discussion earlier, that the energy transformation is underway. It's well underway. We've already been on that journey with our investments in renewable assets. And we're now continuing to -- with Hannah McCaughey coming on board, so we are clearly focused to accelerate some of that. But it's very hard for me to say what proportion of our total assets are going to be in that sector going forward because it really will depend how quickly the market moves. And as you well know, we support our customers in that sense. So we'll be following the market.

Our next question is from James Nevin with RBC.

I just have a question on the growth CapEx outlined and the line of sight for our $1 billion over the next 2 to 3 years. Just wondering, would you have -- are you able to provide any more kind of color around potential phasing of that. But if you see which in FY '21 are -- is potentially -- I think, obviously, you need to wait for customers to make FIDs on projects. Is that potentially going to back-end towards the end of 2 to 3 years, and it takes a few years to spend the Capex. But it could be actually 2, 3, 4 years than before you maybe start seeing the revenues then as well from some of that organic growth CapEx?

The -- so the -- I think your question if I only heard part of it, unfortunately, was around the phasing of the $1 billion of identified growth projects over the next 2 to 3 years. Look, I think, we can see that $1 billion ahead of us. The reason we haven't -- we've changed our guidance from what was in the past, $300 million to $400 million is for that very reason that I think you're highlighting is, at the end of the day, it's going to be driven by the timing of customer decisions, whether that's going to be later in that 3-year period or earlier is really going to be dependent upon our customers. But it does follow that if more of the CapEx is weighted towards the end of that 3-year period, then the revenues will have a later flow-on effect from that. But the like of the opposite is true too. So apologies, I can't be more specific because, ultimately, the growth will come from off the back of customer decisions and the timing of that will be driven by those decisions.

Okay. Yes, got you. And then I just had one further one. So just related to that carbon transition. And you're saying like APA responds to customer requirements. And generally to like a build assets. I was just wondering with the carbon transition, and there's a lot of like new technologies. And will APA still just wait to respond to customer requirements? Or do you need to get actually ahead and to get expertise like in some of those new technologies and maybe have a bit of investment, and there's maybe a bit of cost that needs to go into that in funds so that you're prepared for this before these technologies that are actually being asked for by customers?

Thanks, yes. I understand your question. Look, in terms of actually investing for customers, we'll do that in response to when our customers are ready for whatever type of service it is. But you're absolutely right. That we've got to be investigating what these new technologies are and how they're going to be viable and what role they'll play into the future. And that's the reason that we've created the Transformation Technology division, and it's the reason we brought Hannah McCaughey on board to lead that thinking. And so we will be exploring those opportunities and making sure that we well understand and what those signposts are when those new type technologies become commercial. Does that answer your question?

Yes.

Our next question is from Ian Myles with Macquarie.

Congratulations, Peter. Just a couple of simple questions. First, just on the CGAS, have you refinanced CGAS? Or if you haven't, are you planning to refinance it once the thing you've got through a large portion of the recontracting?

Yes. Yes. The refinancing of CGAS actually contributed in some way to our operating cash flow increase. Ian, what you'll see in the financials is a significant reduction in advances to associates. So we completed CGAS with our assistance, with the assistance of our treasury guys completed a refinancing in June of this year. They repaid the funding to the joint shareholders, ourselves and rest at that time. And they also paid distributions to both the shareholders around that time that enabled us to have -- enabled us to free up some franking credits that were locked in CGAS at the time. And those franking credits add to the franking credits we're passing on to our customers so -- to our shareholders, sorry. So yes, a great outcome from our perspective. And off the back of the recontracting that was done around early 2019 within CGAS, that put them in a position where we were able to take them back to the mainstream financing community and put the business where it should be from a financing perspective.

Okay. Great. On the U.S., maybe some -- if you have any sort of views there is a potential democratic president, they've got a pretty different carbon or renewable policy to what's currently in play. Does that change or influence the outcomes of LDCs in the market over there?

Thanks, Ian. I'll take that question, Rob here. Look, I think, the first thing I'd say is that clearly, we're watching the election process in the U.S. like everybody else is. But bear in mind that you go through election cycles and deal different folks there over time with different views. So we got to kind of look through that and take a long-term view as to where things are headed. That's my overriding comment. The -- yes, you're right, the Democrats have got a different view on some of these things. But I think the important thing here is that in terms of emissions policy and decarbonization, it's the states and not the Feds in -- not the federation in the U.S. that really sets those initiatives. And the LDCs, for example, are state-based and bound by that. We're also very focused on the underlying business fundamentals. And if you look at something like an LDC in a cold climate, where the residential sectors contribution to total emissions is in the order of 7% or 8%, where it's very costly to electrify. You start to look at those total market fundamentals that gives -- we look through some of the election discussions through to the broader business fundamentals in making our decision.

Okay. And shifting focus to the East Coast Grid, you talked about scope for upgrading of MSP. And I presume you're also probably referring to Southwest Queensland pipe there as well. I was just sort of interested how you're managing that when like the HLC made a valid point, and I think you're seeing it that people are willing to only recontract typically for circa 3 years, reflective of their underlying gas volumes. And the need to get long-dated contracts to justify the capital expenditure, which you're having to commit to?

Yes. Look, it is the old chest out conundrum where there's the talk in the market about pipeline constraints. But when you really come down to it, we've -- there's never been a constraint because we've always expanded in response to customers. I think the customers' requirements. And I think as you rightly pointed out, Ian, the actual [ preceded ] did make that point that the contract terms were short -- were on the shorter end and how will that influence major expansions. I think there's a couple of different ways to look at that. The first is that as we look at expansions, fortunately, when you're expanding an existing system, you're not only looking at 1 big CapEx spend. There's lots of incremental things you can do to improve capacity. So again, the smaller licks of capital rather than 1 large investment decision. That does make things easier. The other, of course, is working closely with the -- all those key parties up in, let's say, in Queensland, who've got gas resources. And coming up with something that they do feel that they could commit to in a longer-term is also part of the discussions that we'll be having.

Our next question is from Baden Moore with Goldman Sachs.

I was just interested, Shell has been impairing its assets in Queensland. And I was just reading your accounts around how you construct your own book value for your Queensland assets. And it indicates that you roll forward the existing contract levels post the end of the existing contracts. Is that right? And I mean, how do you think about the evolution of that asset post the initial contracted period?

Sorry, Baden, it was very difficult to hear the first part of your question. Were you talking about Wallumbilla Gladstone Pipeline?

Yes.

The Wallumbilla Gladstone Pipeline, we have -- what you'll see in the financials is around about $880 million a year of amortization of intangibles relative to that pipeline. And you'll also see going back in the history, us saying that we were depreciating that pipeline to 0 over the initial term of the contracts. So we put that pipeline into the books at around $6 billion back in 2015, I think $2.4 billion of that was PP&E and $3.6 billion of it was identifiable intangibles. And all of that has been depreciated on an accounting basis over the 20 years to 2035. So we get to 2035. And we've got some option agreements with the foundation -- with the foundation customers that we'll deal with it if they exercise those options. But as we sit there on that day, there will be 0 value in our books for that asset. And notwithstanding the fact that we'll own the biggest pipeline effectively that there is in Australia at the time, and it will still have 80 years of life left in it. So effectively, if the options aren't exercised, it's a very big storage vessel that we can use or transportation vessel that we can use if the options are exercised, we'll get an agreed return on whatever CapEx we spend in to reset it for those contracts.

Our next question is a follow-up from Rob Koh with Morgan Stanley.

I was just reflecting on Mr. Wheals' comment about being customer led. And of course, that makes all kinds of sense. That's been one of APA's key success factors for many, many years. But is there a point where APA as a group with its portfolio of assets, might need to say to some customers now, look, we're full on thermal power or we're full on gas processing or something like that. Just wondering if I could just get a little bit of a perspective on that.

Rob, it's Rob here. I'm just not quite sure I understand your question when you say that we would say to our customers, we're full. Are you saying that on the basis that it's not renewable? Is that the basis of your question?

It's probably more general than that because I'll put it in context. With your sustainability report, you'll be doing even more TCFD style disclosures and scenarios. And that will provide some scenarios on how the asset base looks like over time. And so with your specialty in gas. It might be that you end up holding a disproportionate share of Australia's gas-fired power, which then might be -- I know that's very hypothetical here. But that might then lead the board to believe that you'll be maybe overweighed to a particular asset class?

Okay. I think I better understand. Look, I think the first point you made there, Rob, is customer led, and that's number one. We'd also -- in any investment decision, it's not just, obviously, that being as a key driver, but it's taking a long-term view of that asset and how we would think about the contract life and the life after. So if there are customers that are needing -- in your example, gas-fired generation as part of firming up their energy supply. That's exactly what's going to be needed as the energy market transitions. More renewables needs more firming. We would support that. But obviously, take a view on any investment as to what its actual life is likely to be beyond as well as consideration of its technological life. And so all those sort of factors come into play when we're making these investment decisions. So that was the long answer. I think the short answer is we wouldn't just bluntly decline a customer request because as we well know, to bring more clean renewable energy into the market, we need dispatchable firm generation and gas is one of the most flexible in that regard and can support a transition to a cleaner energy future.

There are no further questions registered at this time. I'll now hand back over the conference to Rob Wheals for any closing remarks.

Right. Thanks very much, and thanks again for joining APA's Financial Year '20 results call this morning. And I certainly look forward to catching up with many of you, albeit it will be virtually over the next few weeks. And once again, a very big thank you to Peter Fredricson for his support over the last 12 years and I've no doubt in all our one-on-ones, there will be many more opportunities to wish Peter well. Thank you.