Channel Infrastructure NZ Limited (CHI) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the Channel Infrastructure Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Rob Buchanan, CEO. Please go ahead.

Good morning, everyone, and thank you for joining us. I'm delighted to be delivering my first set of financial results for Channel as Chief Executive. I'm joined here today by Denise Jensen, who stepped into the Interim Chief Financial Officer role in June. Today, I'll speak to the presentation that we disclosed on the NZX this morning. Before we begin, I'd just draw your attention to the usual disclaimer on Slide 2 of that presentation. Moving through to Slide 4. It's been an exciting and busy period here at Channel, and I'm incredibly proud of all the team have achieved. Slide 4 outlines some of the key highlights, but in short, we have delivered yet another strong financial result, continue to successfully execute on our strategy, making significant progress on our 2023 priorities, announced a $0.042 per interim dividend, and we have today upgraded our full year guidance. While we've delivered on our strategy, we also continue to work on growth opportunities for the business, including moving to pre-feasibility phase for the e-SAF project and completing FEED or front-end engineering and design for new diesel storage tanks, which will position us to tender for the government's Strategic Storage initiative already passed into law. But first, I'd like to talk about safety on Slide 5. Safety remains a core value and something everyone at Marsden Point lives by. During the 6 months, we had no lost time incidents. We did have 1 recordable incident and 1 Tier 1 process safety incident, resulting from corrosion of the ex-refinery product line. Hence, we've made the necessary process improvements by updating our inspection and maintenance schedules to address this risk going forward. As part of our annual internal audit of management systems, we hosted Australian Terminals Operating Management, or ATOM, to conduct a peer review of our compliance and safety management systems at an import terminal. This involved extensive engagement with staff across all aspects of safety and compliance. With a focus on continuous improvement and simplification of terminal operation systems and processes, I'm pleased to say that overall, they were impressed with the site safety culture, and the progress the general team has made in the 15 months since transitioning to import terminal operations. Moving to Slide 6. Channel continues to invest in its environmental scorecard and a significant improvement in our emissions profile since conversion to import terminal operations last year, it made clear in this analysis of NZX50 companies. Previously, we were sitting at the top as one of the larger emitters. Today, we account for less than 0.1% of the NZX50 Scope 1 and 2 emissions that we've been able to measure. Our new renewable electricity contract commences next year. In sourcing our electricity from renewable sources would mean we have largely eliminated the company's Scope 1 and 2 emissions 6 years ahead of the target we set ourselves. And as a climate reporting entity, we are preparing for the military reporting on Scope 3 emissions in accordance with the Aotearoa New Zealand Climate Standards from 2024 onwards. As everyone is well aware, New Zealand has seen some unusual and extreme weather this year. Up at Marsden Point, we experienced similar rainfall as Auckland did and January flooding events, and we also had a direct hit from Cyclone Gabrielle in February. Our staff, site and assets handled both events well with limited damage to our site and infrastructure, which is a testament to the strong resilience in our operations. Of particular note, we have invested circa $25 million in the last 10 years to improve wastewater collection and treatment systems, which has proven well worthwhile given the increasingly severe weather we have been experiencing. Please turn to Slide 7. Shareholders may have noticed in our latest quarterly update, we have started to report throughput by fuel type on a quarterly basis, so none of these numbers will be new to you as we reported them in mid-July. But as a reminder, we've seen a continued recovery in fuel demand with total volumes across our pipeline and truck loading facility up some 7% on the second half of 2022. Jet fuel was up 30% on H2 2022 and reflecting the continued strong recovery in jet fuel, and it is pleasing to see jet fuel volumes back at some 76% of pre-COVID levels. Diesel and petrol are relatively stable, down a combined 2% on H2 2022. At our full year results in February, we disclosed Envisory previously known as Hale & Twomey updated long-term fuel outlook. This outlook provided us detailed bottom-up modeling projections for fuel going out to 2050. The outlook showed faster jet fuel demand recovery with higher jet demand over the long term. The actual volumes for the first half of the year are tracking in line with our outlook with volumes at 50% of the full year projection. Moving to Slide 8. We do expect jet fuel volumes to continue to ramp up during the second half of this year as is nicely demonstrated on this slide. You would all have seen a lot of announcements in media coverage around more long and ultra-long-haul routes opening up out of New Zealand post-COVID. We are seeing internal return strongly, and we've highlighted some examples on this map of the airlines that have announced additional services to New Zealand, many of which commenced will ramp up in our second half. These announced routes aligned to our fuel outlook and are encouraging as aviation is going to drive the future of our business given our critical role as a supply route to jet to New Zealand's gateway at Auckland International Airport. Let's now look at the progress on the conversion and private storage on Slide 9. Over the last few years, New Zealand has faced supply and labor shortages, ongoing inflationary pressures, end of rate, extreme weather events. I'm incredibly proud of how the Channel team has responded to these challenges to keep the conversion project on track. At the 30 June, we had spent $174 million of the total terminal and private storage conversion budget with circa 80% of the budget spent or committed. The conversion project is a multiyear project, and we remain within the $200 million to $220 million budget originally set in 2021, including unallocated contingency, which has been retained in light of the inflationary environment in which this multiyear project has been delivered. The commissioning of the jet private storage has had its unique challenges with the extreme weather events and some-200% higher-than-normal rainfall over the last 6 months. The final 45 million liter of private storage is due to be commissioned in Q3. This will more than double the jet fuel storage that we have at Marsden Point, significantly adding to New Zealand's overall fuel resilience. Annual revenue from private storage would be a full run rate of circa $9 million in 2021 real terms from 2024. Moving to Slide 10. As we mentioned, the conversion projects are substantially complete, and the project is largely derisked due to the majority of the budget being either spent or committed. You can see this on the chart on the slide. The permanent decommissioning of the refinery plant is now complete. There is now no way to restart the refinery, and there has not been since it was permanently shut down in March last year to hit the conversion to the import terminal. As shareholders will be aware, we are now focused on extracting value from these decommissioned assets through our ongoing asset sales process, which I'll touch on a bit later. In addition, the workforce transition is now also substantially complete. As a business, our focus is now firmly on the terminal upgrade projects and finishing the private storage conversions to enhance the overall resilience in our operations as well as New Zealand's fuel supply chain. We will continue to work on the terminal upgrade projects through to 2027. I will now hand over to Denise to take us through the financials.

Thanks, Rob, and good morning, everybody. It's great to be back at Channel as interim CFO, and I'm pleased to present such a strong set of results, which really continues to demonstrate the improved financial profile and health of the new business model. So let's start on Slide 12 of the pack and look at the financial highlights. The results are a little tricky to talk to as the prior comparative period only includes 1 quarter of import terminal operations, and therefore, we aren't comparing apples with apples. People, to really highlight the moving parts and get a true reflection of what is going on behind the numbers, for the most part, I'll compare the current year's results to the second half of 2022 rather than the first half. In summary, we've delivered a strong set of results. And to touch on some of the highlights, net profit after tax was up 32% from the second half of 2022. EBITDA margins continue to grow up 3% to 68%, and normalized free cash flow was up 21% to $34 million. As Rob has already mentioned, the Board has declared a fully included dividend of $0.042 per share, consistent with our dividend policy. And today, we're pleased to announce that we have, for the second time, increased EBITDA and dividend guidance for the full year. So now let's dive into some detail and tune to Slide 13. Let's start by taking a closer look at the P&L. Revenue increased by $6 million from the second half of 2022, with the $3 million impact of the PPI escalation and the benefit of around 55 million liters of private storage being online for the full 6 months of 2023, and this contributes a further $3 million. With tight cost control being exercised over our OpEx budget, which was broadly flat on the second half of last year, we saw the uplift in revenue flow through straight to EBITDA and our EBITDA margin, which increased 3% to 68%. Please turn to Slide 14. Our total revenue, the vast majority of which is underpinned by our Take-or-Pay commitments, grew $6 million from the second half of 2022 to $64.4 million in the first half of this year. The bar chart at the bottom of the page highlights where the main increases came from. Our 2023 revenue benefited from a PPI adjustment of 6.3%, which applied to all of our terminal revenue contracts, and we will continue to see the benefit of this in the second half of the year. Some of you would have seen the current PPI numbers are tracking at around 1.3% for the first 9 months. We won't get the full year final number that will impact 2024 revenue until November of this year. So there's still some water to go under the bridge. You will see that we ended the half year EBITDA slightly above the Take-or-Pay level for the first 6 months of the year. However, it really is too early to pick where we will end up for the full year. This is because there are several moving parts, and the revenue -- the variable revenue portion is dependent on how our customers utilize all of our assets where there is a separate charge. Wharfage, tankage and pipeline as well as the split of volumes between the Auckland Northland and Waikato markets. Turning now to Slide 15. We set ourselves a tight budget this year, and we've done incredibly well to keep costs flat period-on-period to maintain our full '23 guidance range. This is a fantastic achievement considering that it is our first year of operating as a terminal in an inflationary environment and given the unusual weather patterns we've encountered this year. We've embedded a culture and discipline around tight cost control, and I'm personally very proud of this. We're also working hard to reduce costs wherever possible and to provide cost certainty. In July, we announced our new long-term electricity supply contract. On top of the estimated $2 million per annum savings, we will get from this contract against our 2023 contracted supply price, it is important to note that the real beauty is the structure of the contract. As a fixed price variable volume contract, it allows us to essentially set and forget, it was electricity costs making up such a large percentage of our OpEx line, we're not exposed to market disruption or risks associated with unclean supply outages on spot prices. Importantly, the estimated $2 million electricity supply savings are on top of the estimated $3 million savings on a reset of transmission costs. We're now focused on resetting our connection costs and our local loans company, North Power, has recently made a prudent discount application to Transpower based on an inefficient bypass, one of the 2 such applications made under the new transmission pricing methodology. We're now driving them to the balance sheet on Slide 16. In line with expectations, net debt is sitting at $295 million at 30th of June, and the waterfall chart on this slide shows what makes at the movement 31 December 2022. You'll note that we've funded more than 90% of the 2023 conversion costs in CapEx, including growth CapEx from our strong operating cash flow. Leverage sits at 3.6x around the middle of our targeted range of 3 to 4x. Gearing as at 30th of June was 37%, well within our covenant of 55%. Turning now to Slide 17 and moving into our debt position. Some 84% of our net debt is fixed with significant hedge protection in place, including some forward start spots. With the debt facilities totaling $380 million with around $82 million of liquidity headroom available. Expected debt will peak at around $30 million to $50 million above the 30th of June 2023 level in the next 6 to 12 months. As many of you will be aware, our subordinated notes post-election date is coming up in March 2024. Cleaning is well underway with respect to the refinancing options to ensure that we have access to the lowest cost of capital. One of the options being considered as a REIT senior retail bond issue subject to market condition, and we'll update the market as we progress our thinking on this. And now to the guidance on Slide 18. You'll recall that ahead of the transition to the new business model, we provided detailed guidance to the market outlining what our first year of terminal operations would look like. We upgraded that in November 2022 to reflect the producer price index, new contracting of electricity supply and additional terminal services revenue with the latest operating and capital expenditure forecast. Today, we've increased guidance again, and you can see the line-by-line changes here on this table. The increase in EBITDA reflects higher testing volumes at IPO and increased ancillary charges, effectively increased utilization of our marine facility. Offsetting this slightly, we've tightened the range for operating costs closer to the upper range, which really reflects the impact of the storm events and higher durable costs associated with those increased testing volumes at IPO. Sales business CapEx has also slightly increased, reflecting higher costs associated with the team management program, which was identified through inspection of these specific teams when we were taken that at a service. And we're now turning to the interim dividend. Shareholders will be aware that we have a very clear capital allocation framework, which we've spoken to for some time now. And as part of this framework, we set our dividend policy payout range to between 60% and 70% of free cash flows with a targeted 40-60 split between the interim and final dividend. The Board is committed to delivering stable ordinary dividends over time, all while maintaining our credit metrics consistent with the [indiscernible] BBB+ investment-grade rating. In line with this, our Board has declared a fully imputed dividend of $0.042 per share. As I spoke to on the previous slide, we have lifted our guidance for normalized free cash flow to $59 million to $62 million for full year 2023. If you work through the dividend policy, the implied dividend range has also been increased from $0.09 to $0.11 per share to $0.095 to $0.115 per share. Thank you, and I'll now hand back to Rob.

Thanks, Denise, for that update and also for stepping into the CFO role over the last few months. It's been wonderful having such an experienced and capable hand in the business on the interim basis, and Denise has added a significant amount of value to the leadership team and the business during her time here. In July, we announced the appointment of Alexa Preston as our new CFO, who will start around early October. Alexa has more than 20 years' experience in senior management, finance, commercial, investment banking and advisory roles. Most recently, she held the position of finance lead partner, Group Performance and Investor Relations at Spark. We look forward to her joining the team. Moving on to Slide 21. [indiscernible] and the first act following the transition was to set some quite ambitious climate change targets, including goals around our workforce transition, moving to net zero for the company's Scope 1 and 2 emissions by 2030 and using our infrastructure to support the decarbonization of the transport sector and to facilitate Scope 3 emission reduction by 2030. Finding new employment or the retraining of employees who leave the business through the transition has been a big focus for us at Channel, with an extensive program of support in place. Of the decommissioning and transition-related staff that have exited or are going to exit in 2023, some 89% have already found new jobs or are retraining. We continue to provide support to remaining staff impacted through the transition of our business. I've already spoken to how we have made significant [indiscernible] committee will talk on this subject. [indiscernible] set target now around how infrastructure can support decarbonization of the transport sector and facilitate our customers' growth through emissions reduction. There's a number of long-term growth opportunities available to Channel in the space, but the one that has move forward this year is [indiscernible] e-SAF or sustainable aviation fuel at Marsden Point. On the next slide, we enhanced the focus into industries [indiscernible] scoping study for the production of green hydrogen [indiscernible] sustainable aviation fuel at Marsden Point. We are now progressing at pre-feasibility stage. And this work is now underway. The pre-feasibility study will [indiscernible] production facility at Marsden Point with [indiscernible] distributed by an existing Marsden Point [indiscernible] supply chain. [indiscernible] because of the potential provision of large-scale demand response [indiscernible] release to the greater [indiscernible]. Important to note that the facility in U.K. and new types of projects [indiscernible] quickly. But during the new phase, we look [indiscernible] on developing the potential model [indiscernible] including [indiscernible]. Moving on to [indiscernible]. These assets have been permanently decommissioned and can no longer be utilized at Marsden Point. According to the [indiscernible] project we are looking at. So it is right that we are looking towards extracting shareholder value from these. At the same time, there will be a [indiscernible] steps on-site for future opportunities [indiscernible] I just mentioned. In July, [indiscernible] announced the market, we have an option agreement [indiscernible] for the potential sale [indiscernible]. At the [indiscernible] phase, we are in discussions and dialogue with [indiscernible] options [indiscernible]. I've just been told that the audio is breaking up. So we're just trying to fix the line, and we'll come back to you. [Technical Difficulty] Apologies all for that. I understand we had a minor technical difficulty and the line broke up for a little while. So I'll just continue running through our results. I'm on Slide 22, talking about the progress we are making on realizing value from decommissioned refinery plant. So in relation to the Seadra Energy announcement we made earlier this year, I would say it's early days. We are in regular discussions and dialogue with Seadra offering support for their process. Seadra planning another site visit soon to further develop the options for deconstruction and removal of the hydrocracking assets. While Seadra is still in the exploratory phase, we expect to be able to provide a progress update through the in the new year. We are also actively marketing the other equipment from the refinery and are in discussions with interested parties. If you look at the map on the slide, the import terminal currently uses around 1/3 of the 180-hectare Marsden Point site. So we have a large holding of land which is available for repurposing activities. The current carrying value of the land is outside of terminal operations is around $15 million. So we see this as a significant potential to extract further value from the strategic asset. And to wrap up on Slide 23, on the left-hand side of this table on Slide 23 are the 5 priorities we set ourselves for 2023. And on the right, the significant progress we have made against all of them. We've spoken to most of these already today but maybe worth spending a moment here on the work we're doing to support the resilience of [indiscernible] transport fuel supply chain. We are now [indiscernible] build-out terminal in New Zealand. And as Denise said earlier, when the final private storage tanks come online in Q3, we will have doubled the Marsden Point jet storage capacity compared with when we operated as a refinery. However, there remains significant unutilized capacity on our site with over 400 million liters of potential additional storage capacity available. As already mentioned, the best policy pillar of the government's fuel security package is the direct procurement of 70 million liters of diesel, which has already been passed into law. We now await the release of the RFP, but have already proactively completed our bid work to support Channel's RFP response in anticipation of any tender process. Turning to the second part of our government fuel security package. The minimum fuel stockholding policy is passing through parliament at the moment, and we are working with our customers to determine how we can best support them to be prepared for the policy's implementation from 2025. It makes sense, given our strategic location in the Auckland supply chain and the underutilized tank capacity we have at a site for us to work with our customers who have responsibility for meeting this policy. I'm proud of what we've achieved, but there is still much more to come as we continue to focus on the growth opportunities in front of us and work towards our aspiration of being a world-class operator of our terminal assets up here at Marsden Point. We're a bit constrained for time today and note it's a really busy day for results for NZX, but we do have some time for questions. And I'd like to hand over to the operator to take those questions now.

[Operator Instructions] Your first question comes from Andrew Harvey-Green with Forsyth Barr.

Rob and Denise, [indiscernible] results, well done. Couple of questions from me, maybe a couple actually. First of all, just to clarify something around the Take-or-Pay volumes and how they all work for you, you noted -- mentioned that you -- the volumes are above the required level in the first half, but it seems like if that was due to ancillary services driven or ancillary charges. Can you just sort of talk through how that works and how much that may have been in the first half and how much of the impact that had been?

Yes, sure, Andrew, Denise here. Nice to connect with you again. Look, durable phase, as you know, is kind of made up of a whole lot of different charges. Obviously, storage, that's got pipeline fees and move fees down into Auckland, truck loading fees and also other charges like bunkering and wharfage. So what we've seen in the first half is that like while we do our visibility into our customers' supply chains or where they source product from or what market -- other markets that are supplying into, they have been delivering smaller parcels at Marsden Point, which has resulted in more frequent shipping and need for higher wharfage, so probably we had a sort of a conservative estimate when we put the guidance out based on what we've seen to date.

Yes. Probably I'll add to that, Andrew, that we are in the early days of operation in the terminal, so we make estimates about things like wharfage or make estimates about how much in our body and goes through the truck loading facility and how much goes through the pipeline, how much do they beats into the Auckland market, how much of it beats into Waikato market, and obviously, we've been relatively conservative in the first half as things have panned out, but those are things around how our customers choose to interact with the terminal. And so those are kind of supply chain choices that they may grow that we make.

Second question was just around just the conversion costs and how far you're through that process. And at what point can we expect some noted -- you sort of said the provision is staying there. It's just given inflation pressures. And at what point can you sort of be a little bit more definitive around that and we may hopefully see some sort of provision release?

Yes. Well, look, obviously, we're not talking to any provision release today. What I am focused -- conscious of is that we are in a high inflation environment. And we've got a number of terminal upgrades to undertake right through to 2027. A significant portion of those are fund upgrades. So there are large civil projects that we need to undertake as part of upgrading the terminal for the next 30 years of operation. But look, give us another 6 months, we're continuously keeping this under review. And as we move forward and are able to say something, we will say.

Okay. Next question I had was just around is still a little bit going through this continued rent costs. Can we expect more of that coming through going forward? Is this going to be the unwind of the discount provision going through finance costs? But is there anything else that we should be expecting on through it? It was a little bit surprised at is to see the high this half.

Yes. No, Andrew, look, it's definitely winding down. I guess we have got some legacy medical schemes for retirees and pension funds. So those costs will continue to track through, but they're not significant. So yes, it's -- and as you quite rightly point out, we're kind of going through the financing costs in the unwinding provisions, the discount in those provisions.

Yes. Okay. Next question I just had was around imputation credits I think after this dividend on market estimate is [indiscernible] can be fully included in that viewing? Is that calculation correct?

That's right, Andrew, about that. So we have disclosed that in the accounts and in the pack. So I think we've got that 6.7 total imputation credit at June. And then obviously, we're paying out fully infused 4.2%. So that's about the right next.

Yes. Great. And last one is just if you can give us any additional color on, I guess, the further asset sales? I mean you mentioned you're having ongoing discussions. I'm not assuming it sounds like it's going to be more like a 2024 type before we get to hear anything. And that is similarly has doesn't give you any indication of when they might tick off the tender process?

So I'm just answering the first part of that question. Look, as we said, we're in discussions with various parties. In the cusp then to announce, we'll announce it. As you can imagine, these are not straightforward assets to transact. And so I think that the model of the Seadra transaction is probably one that you might see repeated a couple of times, if we are successful in bringing those further deals to completion. On the second point, look, we are in discussions with Indian government consistently and constantly, and I expect that tender to be end of week now.

Your next question comes from Nevill Gluyas with Jarden.

A number from me as well. Just a question on, first of all, sort of the ongoing nature or not of that sort of stay-in-business CapEx rise. The way it's worded it sounds like it's sort of a one-off thing to FY '23, not likely to be repeated.

Yes, they also -- so we haven't guided beyond FY '23. So we'll do that when we put out our FY '24 guidance. Obviously, we've explained the reason for the CapEx level for these tanks. I think we've previously guided to the market that ongoing maintenance CapEx for the terminal would be between $5 million and $12 million. And I don't have any update to that today.

It's really just a clarification of the description there. I wasn't sure if your work sort of taking that service discovered an ongoing CapEx need or just sort of a bit of additional CapEx.

No, it's that's -- yes. So that's all maintenance CapEx. So that's most of our tanks have a 15-year turnaround, and so those 3 tanks came up this year, often we don't know until we get on them in terms of what the condition of those tanks are, the debt is included in that maintenance CapEx number.

Great. Okay. That's useful. And I guess it sounds like there's a bit of room for wiggle here in terms of ancillary revenues. We wouldn't be amiss to treat some of these as likely continue? Is there anything outstanding about this year's behavior that sort of might be unusual anything about the conditions that lead to the sort of looks like enough to beat against your previous expectations for the [indiscernible] ancillary component?

Yes. Look, nothing particular to call out. We all -- I think, again, what I'm very conscious of is our customers choose how to interact with us rather than us making those choices, and it's based on kind of their supply chain needs. So as we see in our kind of talk earlier, we see an expectation for how we thought that might play out for the year. That's turned out to be conservative. And we'll have to see how it plays out for the rest of the year, but nothing common that stands out, if that's your question.

Yes, that is the question. That's clear. Just last one on those loans. Connection cost increase, the prudent discount application that Northpower's made, I mean, do you have a rough idea of scale? If that worked out, obviously, that's for future years, but what sort of order of magnitude should we think about for that?

Yes. Well, look, we've been going after these things in kind of order of magnitude preference. So the first one was the transmission costs, which was a $3 million or circa $3 million ticket. The next on the supply cost, which is a $2 million ticket and the connections costs is sort of the next line mix came off the rank. So hopefully, that sort of gives you an indication of direction of potential value there. But look, we're early days on that. The application has gone in. We'll extend to see how it pans out.

Yes, useful. Just two more from me. Do you have a time line for your own decision points and sort of delivery of the studies between you and FFI on ESS?

Yes. Look, ideally, we'd be looking to work through this next phase of the project over the course of this -- of the next 12 months. I think from our perspective, the key thing that I think Channel is interested, and I'm sure our shareholders are interested in is what the commercial model looks like for us. And that's something that we're starting to talk to people about. And when we've got something agreed, we'll be in a position to come back to you on that.

But we should think sort of radio silence pretty much a year's time, 12 months?

Yes, yes. The thing about it is a pretty long-dated projects, and there's a lot of work to be done around the pre-feasibility phase of this. So it's obviously not just the commercial model for us, but actually starting to think about engineering studies and how the project itself might stack up. So there's a whole body of work to do in that. And I wouldn't expect an update for a while longer.

Great. And the last one for me is in relation to -- around the stockholding legislation and it sort of received some tweaks before the second reading, which clarified that it would be a monthly average when we talk about the days of storage. Based on that change, I mean, do you have a rough idea of what kind of range of private storage contract requirements might be up at your side?

Look, we -- yes. Look, I think it's fair to say that we want to have those conversations with our customers first. And so I think give us a bit of time to have those conversations. Obviously, the legislation -- an important piece of legislation for New Zealand is kind of fuel security, and we're very supportive of it, but we just need to work through what that means for our customers first. So unfortunately, nothing to guide you on here today, Nevill.

The next question comes from Cameron Parker with Craigs Investment Partners.

Congratulations on good results. Just two questions from me. Just the solar project that you've been investigating in the past. If you could just provide a little update on that. And some color around the discussions that have unfolded to get you where you right now, that would be great. And also any information on the coastal hazard management plan that you're investigating? Does that suggest lots of options is added there, the implications and materiality about any investment required.

Yes, thanks for those questions, Cam. So I think your first question on solar. So we spent quite a bit of time working through our options to lower cost of electricity supply to the terminal. And I guess that was first and foremost for us rather than being a solar developer. And when we examined all of those options, it was very clear that the cheapest option and the best option was to go to market to get a firm electricity supply rather than to develop our own solar farm. I think the context that -- or our terminal would use sort of circa 15% to 20% of that solar farms output. And so would be developed -- if we did build it, we'd be developing that to sell the energy elsewhere. And clearly, that's not our core business today. I do think it remains a really interesting option for us going forward. And in particular, when you start to think about the site repurposing opportunities and projects that might appear on our site, for example, the forestry project, which use a lot of electricity. And I think having a solar farm sort of right next to that type of project, what's behind the meter connection could be really interesting and compelling. But as we sit today, the best way to deliver all our cost reliable electricity supply to the terminal was to go market. So it remains a really interesting option for us, but I think going forward on that will be related to sort of what we managed to do or develop on our site with our partners. I think in relation to your second question, yes, we're doing a real body of work around what the implications are for climate change and seeing little rise on our site, that work is currently being peer reviewed at the moment. But I guess the executive summary for you would be we had a couple of really significant material with the weather events up here in January and February, and the site was incredibly resilient to those. And so we're really pleased with the way that our assets performed and stepped up against what were some pretty unprecedented weather conditions up here. And in terms of longer term, that work that's been done it's not to a very, very, very long term that you start to have to make some choices around what you do with our coastal environment. So probably whilst it's been peer reviewed, I don't have too much more to say on it than that. But, as I said, I think that the most immediate and important thing is the sites proved to be incredibly resilient to some of those weathering events that have been trained us. I've got time for one more question.

Again, your last question comes from Darren Manning with Forsyth Barr.

Just a quick one to finish with Rob. Possibility of the center-right government coming in here, does that, in your view, have any potential impact on the view on these minimum stockholding requirements? I'm particularly thinking around things like jet fuel, given the ramp-up that you've signaled in terms of volume of flights, storage, importance to New Zealand's economy? Any kind of issues in and around that may play out for you.

Yes. I think is it pertains to the political landscape. I think energy resiliency feels like a pretty bipartisan issue. And certainly, debt that minimum stockholding obligation bill is still working its way through parliament, that's featuring on the some of the items that the current government is trying to get through under agency before the house sort of set -- or leaves before the election. But look, I think the commentary that we saw from the select committee process on that particular bill indicated that once you get the usual difference of views and [indiscernible] areas, I think there's generally pretty good support for energy security, which is what they still designed to do. I'm thinking we've actually got -- sorry, we've got one more question in the queue. So we'll just take that last question and then close the conference.

Next question is from David Oxley with ACC.

Just very quickly, on the private storage revenue, you mentioned you'd be at BRL 9 million in FY '24. Is that the sum total of the private storage revenue we should expect based on current asset base of the company? Or is there more still in process of being built? I can't recall whether BRL 9 million is as good as it gets.

David, it's Denise here. The BRL 9 million revenue is for the additional 100 million liters of storage, which was announced, I think, towards the tail end of 2021. Obviously, that is though that you would need to add the escalation that applied for the current financial year and an escalator for next year when we determine revenue from that contract. If there was enough private storage contract that we had in place, which was announced in November last year, which is currently sort of operational, and that is, I think, recall, $25 million over 5 years revenue from that contract.

Right. And does that scale up in '24? Or are you still being a bit away from that hitting the P&L?

Sorry, I didn't catch that question, Dave.

Does the second $25 million over 5 years begin in '20 -- in FY '24 or a bit later?

That contract is already operational now, David. It started at the beginning of this year.

So FY '24 private storage will be the 9-plus whatever the second contract contributes.

Correct. Correct.

There are no further question at this time, I'll now hand back to Rob for closing remarks.

Thanks all, and thanks, everybody, for your time today. If we didn't get to your question or something else up afterwards, please do contact us directly at [email protected]. Thanks all for your time.

Thank you.