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

Thank you for standing by, and welcome to the Channel Infrastructure Annual Results Call. [Operator Instructions] There will be a presentation followed by question and answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Rob Buchanan, Chief Executive Officer. Please go ahead.

Good morning, everyone, and thank you for joining us as we run through our financial and operating results for the 12 months ended 31 December 2024. I'm joined here today by our Chief Financial Officer, Alexa Preston. And today, we will speak to the presentation we disclosed on the NZX this morning. In the usual format, I'll cover off our company highlights and the operational update before Alexa covers the financials in more detail. I'll then take you through our strategic highlights before we have some time for questions at the end. Let's start with our financial highlights on Page 3. We've seen revenue increase 7% to $139.8 million and delivered EBITDA growth of 9% to $95.1 million, in line with the upper end of guidance. This represents an impressive EBITDA margin of 68%. Normalized free cash flow remained strong at $63.4 million, with free cash flow conversion remaining high at 67%. Today, the Board has declared a final dividend of $0.066 per share, which together with the interim dividend, represents a total 2024 ordinary dividend of $0.11 per share, up from $0.105 in 2023. 2024 has been a year of significant delivery for Channel, and I'm proud that we continue to make significant progress towards our vision of becoming a world-class energy infrastructure company. Page 4 outlines a view of the highlights as we focused on executing our refreshed strategy in 2024. Importantly, we maintained our strong safety track record, seeing everyone home safely every day. Growth in jet fuel demand continued with demand for diesel and petrol remaining relatively stable. Back in October, we shared with the market advisory's updated long-term fuel forecast. This forecast indicates an additional 2.3 billion liters of fuel would flow through Channel's infrastructure over the next 26 years, which equates to an additional 145 million liters per year over the next 10 years. Our track record for safe, on time and on-budget delivery of capital projects remain steadfast. We executed against our growth strategy with $120 million before PPI indexation worth of new storage contracts signed across the year. We refinanced our bank debt, lowering our interest costs. We successfully raised $50 million of capital to fund our new contracts and help position Channel to participate in additional on-strategy growth opportunities should they eventuate. We developed and released our Marsden Point Energy Precinct Concept, which confirmed what we have known for some time. Our Marsden Point site is unique and well positioned to support New Zealand's energy transition and resilience. This has been endorsed by the New Zealand government with their recent announcement that Marsden Point could become one of the first special economic zones should these be introduced in time. We now have a long-term pathway to unlock the significant value of our site as high-quality tenants are attracted to the 120 hectares of unutilized land and ancillary services we can provide. Our energy precinct could help underpin New Zealand's energy and fuel security and resilience as well as create significant economic value, both for Northland and New Zealand. We entered into a conditional project development agreement with the Seadra Consortium made up of Seadra, Qantas, Renova, Kent and ANZ to develop a biorefinery at Channel's Marsden Point site. Should this go ahead, Channel would be the landlord and the provider of infrastructure and services. Reflecting some of this additional value that we and the market are beginning to understand, our 2024 accounts included a $0.69 per share uplift in our net tangible assets. There's a lot to talk about, so let's get started. Safety underpins everything we do at Channel. So let's discuss safety first on Page 5. With our commitment to getting everyone home safely every day, we've seen 0 process safety incidents. In 2024, we focused on increasing the reporting of incidents, including minor incidents and near misses. You can see this in the increase in total recordable case frequency. This ensures we take every opportunity to learn and prevent incidents in the future. Moving to our operational metrics. We have seen throughput up 100 million liters, reflecting stable diesel and petrol demand and growing jet demand. We've seen an increased number of larger long-range vessels calling at our jetty and fewer ship movements overall following the commissioning of more storage last year. Channel is the only import terminal in New Zealand capable of accepting this larger class of long-range vessels, which improves supply chain efficiencies for our customers as they can bring in larger passes of fuel and fewer shipments. According to global benchmarking we've undertaken and consistent with our world-class operator ambition, we continue to deliver pipeline and tank availability statistics in line with some of the best import terminals in the world, which is something we're very proud of. Moving to Slide 6. On Page 6, we look at our throughput trends. Despite the current economic environment and jet aircraft availability issues, jet demand increased 12% on 2023 and was 8% ahead of advisory forecast. This reflects the number of flights tracking higher than growth in passenger numbers. Notwithstanding the difficult economic environment last year, petrol and diesel demand has remained relatively stable and broadly in line with the advisory forecast. Moving on to Page 7. Our mantra at Channel is to deliver our projects safely first and then on time and on budget. Given the high inflation environment we've just been through over the past few years, I'm very proud of the Channel team's track record of delivering large, complex multiyear capital projects on budget and on time with safety at the forefront of all that we do. Across our growth and maintenance CapEx portfolio, last year, we invested $55 million into our infrastructure, which not only provides good returns for shareholders, but improves the long-run resilience and fuel security for New Zealand. And now I'll hand over to Alexa to take you through the financials.

Thanks, Rob. Looking at the P&L on Page 9. We have delivered another strong set of results with an EBITDA margin of 68%, up slightly on the prior period. Depreciation has increased as assets have been capitalized with the bulk of the conversion work now complete and private storage coming into service in the second half of last year. Our financing costs have also increased, reflecting both higher net debt and moderately higher interest rates. As we have been signaling for some time now, the legacy Wiri lease expires at the end of this month. The Wiri lease was entered into in 1990 when at that time, Refining NZ constructed the Wiri terminal on behalf of the fuel companies. At expiry, the ownership of the Wiri terminal assets will revert to bp, Mobil and Z Energy. The pro forma table at the bottom of this slide shows Channel's 2024 numbers, excluding the impact of the legacy Wiri lease. This legacy arrangement is not in any way related to Channel's strategy to grow outside our Marsden Point footprint through acquisition nor does it impact on the operation of the Auckland fuel supply chain. Moving to Page 10. We saw revenue increase 7% to $139.8 million, reflecting the benefit of PPI indexation, higher throughput and increased contracted storage revenue. With over 100 million liters of contracted storage commissioned over the last 2 years, contracted storage revenue increased by $6.2 million. Operating costs increased by $1.2 million with increased investment in world-class capability, ongoing inflationary pressures and increased compliance costs. Pleasingly, the fuel security study has now been successfully concluded with associated costs of around $0.5 million incurred in FY '24. Let's look at the key balance sheet and cash flow metrics on Page 11. Our balance sheet remains strong and our cash flow is stable. We successfully refinanced our bank debt during the course of 2024, expanding our lender group, extending the tenor of our facilities and increasing our headroom. Importantly, the refinance lowered the cost of drawn facilities by 0.6% per annum. Our $50 million capital raise in December was strongly supported by both existing and new shareholders and demonstrated investors support of our company strategy and our proven track record of delivery. Following receipt of the proceeds from the equity raise, net debt as at 31 December closed at $296 million. Leverage sits at 3.1x EBITDA, in line with our commitment to targeting credit metrics consistent with the shadow BBB+ credit rating. Normalized free cash flow continues to be strong at $63.4 million. The Board has declared an unimputed ordinary final dividend of $0.066 per share, taking total dividends for the year to $0.11 per share, representing a 5% increase in ordinary dividends year-on-year and a dividend payout ratio of 69%. Page 12 provides the detail of our investment in resilience and growth. Stay-in-business capital expenditure ended at $12.3 million on an accrual basis with $11 million of cash CapEx for the year, in line with guidance. Growth in conversion capital expenditure was $42 million and included bond and firefighting upgrades and works associated with the Transmix and Z Energy storage contracts. We announced a number of growth projects across FY '24, so we have also provided an indication of the growth capital expenditure profile over the coming years as we commence these projects. Moving to Slide 13. As we announced a few weeks ago, given increased confidence in the long-term fuel outlook and in recognition of the port adjacent nature of Channel's unutilized land, the 2024 financial accounts reflect the combined $381 million uplift in the fair values of the import terminal system and unutilized land, resulting in net tangible assets per share of $1.98 at 31 December. Let me finish up with our FY '25 guidance on Page 14. The advisory fuel demand outlook indicates a 5% increase in throughput for FY '25. Channel remains cautious about the current economic environment and ongoing aircraft availability issues. And as a result, we assume jet fuel demand in line with '24. We expect EBITDA from continued operations to be in the range of $89 million to $94 million compared to $95 million for FY '24 or $89 million, excluding the legacy Wiri lease revenue, which ends tomorrow. This principally reflects the benefit of PPI indexation on all contracted revenue and a full year contribution from the Transmix contract, which was brought into service in late Q4 last year. The guidance range also takes into consideration the contracted step down in the fixed fee component of our import terminal revenue from 1 April 2025. The Meridian battery project is now being commissioned. And whilst we anticipate benefiting from transmission savings as a result of this, these savings will be partially offset by ongoing double-digit inflationary price increases in transmission and distribution costs passed on by lines companies. The Board has also made the decision to invest for growth, including commercial and legal support relating to the emerging portfolio of growth opportunities for the company. As we signaled last year, given the growth profile of our business and continued investment in new assets, it makes more sense to guide on CapEx as a percentage of revenue. Stay-in business capital expenditure for FY '25 is expected to be between 8% and 10% of revenue and the normalized free cash flow conversion factor is expected to be broadly in line with FY '24. Looking beyond FY '25, by 2027, an additional $8 million of revenue per annum will be generated from the new contracts signed in 2024. I'll now hand back to Rob to take us through the progress we have made on our strategy.

Thanks, Alexa. You're all familiar with Page 16, which is our company strategy released to the market in 2023, and you'll see our team has done a great job executing on this during 2024. We keep putting this slide in our presentation deck because it's a reminder of our laser focus on delivering against our strategy and staying focused on those areas that will see us create long-term value for our shareholders. Over the coming slides, I'll cover delivery across 2024 as well as our priorities moving forward. Moving on to Page 17. Again, these graphs should all be familiar to you. The throughput chart is advisory fuel demand forecast going out to 2060. This was updated in October and continues to show that Channel's business will be underpinned by jet fuel demand and the need for a liquid fuel decarbonization pathway for aviation in the long term. Our contracted revenue chart on the left-hand side also shows that around 50% of our revenue is now projected to be independent of fuel throughput volume. This time last year, we released an investor scorecard for you to measure our delivery against our refreshed strategy. Everything that we do depends on our people and their engagement and belief in the strategy. As you can see, we delivered a further 5 percentage point uplift in engagement this year, taking the total on our engagement score since the conversion to an import terminal to 26 percentage points, which is very pleasing. We've targeted 10% growth in contracted new storage volumes and exceeded that across the 3 growth projects we announced last year. Our customers are incredibly important to our success and our future growth ambitions. They are large global companies with world-class expectations of our operational delivery. When we launched our refreshed strategy 18 months ago, we said we would look to increase our customer performance, which is a key enabler for us in our strategy to grow beyond Marsden Point, and we've made great progress here. So you can hold us to account next year, we have outlined our 2025 targets on the right-hand side of the slide, where we plan to continue delivering on our ambitious performance targets as we strive to become a world-class operator. As you know, we've been laser-focused on opportunities that deliver above WACC returns and customer contracts that provide revenue certainty. On Slide 19, you can see how successful the team has been at delivering on these near-term opportunities to infill our existing site and repurpose and further utilize our existing infrastructure, building on the capability we have as a high-hazard site operator. Most recently, and alongside our recent capital raise, we entered into a 15-year capacity-based contract with Higgins to provide bitumen terminal services at Marsden Point. The bitumen terminal will consist of jetty line work to facilitate the importation of bitumen, bitumen storage facilities and a truck-loading facility. This new contract is an important step in the delivery of the Marsden Point Energy Precinct and represents a diversification of what we do at Channel as well as our first new customer since conversion. Including the Higgins contract, the Channel team has signed 3 contracts over the course of 2024 that will deliver an estimated $120 million in incremental revenue before PPI indexation over a 15-year period. Together, these 3 contracts require investment of between $55 million to $66 million of incremental growth capital and result in around $11 million uplift in revenue per annum from 2027. I'm proud that the team could deliver these growth opportunities in such a short time frame. Notably, the Transmix upgrade was completed in December safely, to schedule and on budget, and this revenue is now included in our 2025 guidance. Looking at Page 20. This is the energy precinct concept that we released to the market last October with the addition of the bitumen terminal. It was great to have the government endorse this vision with their announcement on Tuesday that they are considering a special economic zone at Marsden Point, and we're looking forward to seeing where the policy development goes next and how this can help us deliver the precinct projects in the future. There are many and varied opportunities for Channel to support New Zealand's energy transition and the energy precinct concept outlines the exciting potential for these to fit together on our highly strategic site. Shareholders will see opportunities for even more fuel storage, lower carbon future fuels manufacturer as well as a range of energy projects such as electricity firming and storage opportunities that are good for Channel and good for New Zealand. Turning to Slide 21. We're very pleased to see the release of the findings of the government fuel security study this week. Shareholders may be aware that the government is currently consulting on increasing the amount of diesel storage that fuel companies are required to hold in country from the 21 days currently to 28 days, representing the equivalent of an additional 70 million liters of onshore storage. Should this become government policy, we would like to support our customers to meet this additional obligation. On Tuesday, we welcomed the New Zealand government announcement regarding a new special economic zone and the Marsden Point Energy precinct. This is an acknowledgment of the important role our highly strategic infrastructure plays in providing energy resilience. as well as the significant economic development benefits our future plans could have. The announcement referenced the range of options to make up a special economic zone, including business-friendly regulations, infrastructure and facilities, investment support and customs and trade facilitation. While our ambitions for the energy precinct will continue to proceed without a special economic zone, if one put in place, it could accelerate the delivery of our vision for Marsden Point as an energy precinct and create further jobs in Northland. Research undertaken by PwC has found that the development of the Marsden Point Energy precinct projects could generate GDP of around $3.3 billion and contribute around 20,000 FTE jobs over the 10- to 15-year construction phase. Once fully operational, the projects could generate around $290 million annually in GDP and contribute around 1,150 full-time equivalent jobs. We look forward to seeing more detail about how a new special economic zone might work in due course. The fuel security study also confirmed what we've been saying for some time that reestablishing an oil refinery or developing a new oil refinery for indigenous crude would be inefficient due to either high costs or limited effectiveness. Turning now to growth and energy resiliency initiatives we have underway. There are a number of work streams actively underway. And today, we wanted to provide you with some important updates on Page 22. Shareholders may have noted the space for a diesel peaker within the energy precinct concept released last year. The team have recently completed a scoping study on this option, reflecting the significant advantage of investment already made in diesel import and storage infrastructure at Marsden Point. To give you a perspective of the magnitude of our storage capacity at Marsden Point, it's the energy equivalent to that of New Zealand's largest electricity storage lake, Lake Pukaki, if all of our unutilized storage was contracted. Channel's proposed model for the project would result in the company receiving capacity payments for making the plant available to potential customers. This model incentivizes needed peaking capacity while ensuring the wholesale market risk is appropriately passed to industry players who can offset the risk. Channel would only proceed with building the plant if there is contracted interest from electricity market participants. The project would make use of the available capacity in the 220 kV transmission line to Marsden Point from Auckland, Channel's existing import terminal infrastructure, including redundant electricity connection assets and the significant in-country reserves of fuel already stored at Marsden Point. Let me just reiterate, though, Channel has no intention to take electricity market risk and will only develop the project if there is market interest in seeing it delivered. Work with Fortescue remains ongoing as they consider the project to develop an e-SAF manufacturing facility at Marsden Point, and we understand this project remains a priority. Interestingly, New Zealand's Energy Efficiency and Conservation Authority reported on a study in January this year, assessing the impact of the demand response options for the e-SAF project. The report indicates that Fortescue's project, should it include demand response features, could reduce electricity transmission constraints in Northland, providing up to $100 million benefit and potentially save electricity consumers $800 million per annum by 2045. We expect the Fortescue project to progress over a longer time frame than some of the other growth opportunities we are working towards. Our team continues to discuss commercial storage and other development projects at Marsden Point with a range of potential customers and counterparties. We also remain committed to pursuing the acquisition of terminal assets outside of Marsden Point, subject to them meeting our disciplined investment criteria of generating returns above our weighted average cost of capital with contracted customer revenues. Moving to Page 23. Back in October, we entered into a conditional project development agreement with Seadra Energy and partners, Qantas, Renova, Kent and ANZ to develop a biorefinery at Channel's Marsden Point site. If this goes ahead, it is an exciting opportunity for Channel to create value for shareholders, both through the sale of our decommissioned assets and revenue from long-term contracts from the use of our land and other infrastructure. I can't give you a probability of this project going ahead. But what I can tell you is Seadra are currently targeting an investment decision in the second half of this year. We've been working with the Seadra Consortium on their storage and infrastructure requirements for the biorefinery, and it's important for investors to be aware that a significant portion of any proceeds from asset sales are likely to be reinvested in already provisioned early demolition of certain assets and growth CapEx associated with the provision of infrastructure and storage assets to the biorefinery, consistent with our usual criteria of meeting above WACC returns and long-term contracts. Finally, looking at Slide 24, I've said before how we do business is just as important as what we do. I would encourage investors to read our 2024 sustainability report also released to the market this morning, where we outline our progress against the key pillar of our strategy to be a good neighbor and good citizen. We recommitted to our net zero by 2030 target and added another 2 ambitious goals focused on gender representation and remediation of the legacy hydrocarbon fume on our site. As we conclude our presentation today, I want to take a moment to recognize the hard work and dedication of the entire Channel Infrastructure team. Our success as a company is a direct result of how we come together as one team and work hard every day to deliver for our shareholders, community and New Zealand. With our commitment to world-class operations and disciplined capital management and our strong team, we are positioned well to make the most of the opportunities ahead. And with that, I'd now like to open up the phone line for any questions that you may have.

Your first question comes from Andrew Harvey-Green with Forsyth Barr.

Just a couple of questions from me. First of all, I guess, hoping you might be able to give us a little bit more color on Seadra and Fortescue. First of all, in terms of the Seadra consortium, are you able to indicate whether the feedstock issue has been resolved or not? I realize there's a number of work streams ongoing, but is that one that is an appropriate feedstock being found?

Yes, I can tell you that moved from working on MOUs through the draft contracting.

Okay. That's useful. And I guess the second question on that is, I know you can't give a probability, but are you more confident now compared to when the deal was first announced back in October last year?

Well, I said I wouldn't give the probability, Andrew, and that sounds like giving a probability. I think we've given you or articulated for you on the page, all of the work streams that are ongoing. And you can see there is a lot of work from the Channel side ongoing. So I think that should give you a sense of how seriously we are taking the project. From our perspective, there's a lot of work to do on site preparation and rerouting of services to make the piece of land that we've allocated to them available to them and to ensure that we don't interfere with import terminal operations. In addition to that, there's quite a bit of work to do around some ancillary infrastructure that they've asked us to provide, notably quite a bit of storage and we need to work through pricing, costing, technical feasibility and those types of things. So I think you should take some comfort from the fact that there's a lot of work going on from the Channel team on those things at the moment.

Yes. Okay. No, that sounds good. And just on Fortescue, is there any sort of deadline for them to, I guess, complete their work?

Yes. Well, look, we continue to work with them, and there are periods where we have opportunities to sort of check in on the progress and decide how we want to continue. One of the interesting things that's emerged is that the biorefinery would make quite a bit of high-quality CO2, which would be incredibly useful for the Fortescue project. And so those 2 parties are now talking to each other as well around how they could work together.

Okay. That sounds good. And last question for me, I guess, again, focused on these, I guess, opportunities, you raised the potential for a diesel peaker. What sort of size are you looking at? And I'm just, I guess, cognizant that we already have a very large diesel peaker sitting at [indiscernible], it's got issues around diesel storage down there. But yes, are you able to give us a bit more color around that?

Yes. I mean let's start with the why. So you've got 1 billion liters a year of diesel throughput at Marsden Point. So from a fuels perspective, you don't ever have to worry about the fuel being there. And it's also, I would suggest, one of the lowest cost sites in terms of imported delivery of diesel fuel into New Zealand. In the scoping work, we've got different options as to scale. And probably the way I would characterize it is there's up to 75 megawatts of projects that utilizes a lot of the existing refinery connection infrastructure and substation infrastructure that we actually already have on our site. And so that makes it particularly cost effective and attractive because you don't need to rebuild or repurpose that infrastructure. And so it really depends on market appetite. You can scale it up quite a bit from there, but with additional cost in terms of added connection infrastructure.

I have a few detailed accounting questions, but I'll take those offline.

Your next question comes from Nevill Gluyas with Jarden.

Okay. Just a question, first of all, on guidelines -- sorry, guidance. Flat volume assumed in guidance for Jet, should we assume flat also for petrol and diesel?

Nevill, it's Alexa. Look, we've been really transparent with the volume that we've assumed for FY '25. As in previous years, we assume in line with advisory for petrol and diesel. But I think our comments on Jet echo comments from other issuers that are related with Air New Zealand and Auckland Airport releasing last week. I think you'll find our sentiment in line with it.

Great. Okay. And also on guidance, Obviously, some OpEx investment, which makes sense in the strategic energy precinct concept. Can you give us some idea of sort of roughly the scale of that and how long we should sort of incorporate that into our models, how many years?

Yes, great question. I think it's really important to understand that this investment is not ongoing. We're at a point in our company strategy where we have the opportunity to capitalize on a number of potential projects. We're very clear about what we will and won't invest in. I think you've seen us deliver 3 of those projects last year and the discipline that we've exercised around that. We've spoken this morning about the potential diesel peak. There's been a scoping study done. It does require investment to unlock some of these opportunities. But certainly, we're not anticipating this is a structural change in our cost base.

Yes, one sort of point of reference I'd give you is -- so we talk a lot about in this presentation and in fact, in the business about safely on time, on budget. And to do that, you need to do your homework before you commit to a project. And so if you think about when the government was tendering its strategic diesel storage about a year ago, that cost us around $0.5 million in front-end engineering and design costs and commercial costs to make sure that we had a proposition that when we come to shareholders, we can put our hand on heart as that's what it's going to cost to deliver it. So that's the type of thing that you invest in because it's on strategy, it's attractive business for us. And we -- consistent with our track record of delivering safely on time, on budget, we need to spend a little bit to make sure we're doing that.

To perhaps not put words in your mouth, but give some idea. Obviously, you've got that $0.5 million on feed $0.5 million of OpEx around the strategic fuel study supporting that. If we say sort of $1 million of cost pressure last year, would we be talking a similar kind of cost pressure for the sort of investment in the Strategic Energy precinct this year?

So I think we -- as I said before, we've been quite clear about the opportunities that we have in the near term to capitalize on. They're quite different in nature from the examples we've just provided with regard to the cost. And I think investors can take comfort that we exercise incredible cost discipline in this business, and we'll only invest in support for projects where we think there's a genuine prospect for converting that into a live opportunity. So I won't give dollars around that investment, but the investment range is captured within our guidance range.

Okay. Okay. Moving along then to Seadra. Thanks for the sort of update and color there. There's the -- if you look at the timelines that you've put on Slide 23, there's talk about financing, which looks as though it stretched towards the latter half of this year. Does that mean any change to sort of when you expect Seadra might to commit or not commit to the project?

No, no, not at all really. I think this is a timetable that hopefully is deliverable. And I think there's -- all I'd say, Nevill actually is the biggest constraint on delivery or sort of time frame from this project from our perspective is there's an enormous amount of work to do at Channel to make sure that we can integrate it with the import terminal without impacting the import terminal operations. And so we just need to be a bit careful about our time frames to make sure that this is a really attractive business for us, but we don't want to impact our existing business.

So in terms of how investors should think about it, still, if I recall correctly, the end of July that we should think is sort of the hard end date for this option?

Well, that's the forming of the option that we have with Seadra, correct. So once we get to that, we've got some commercial options to work out where we go next with it.

Okay. Just sticking with the strategic engine precinct, the biodiesel option, it sounds interesting. The commercial model, just a bit of extra color if that's possible. Are you suggesting that it would be a Channel that invests in the plant in return for sort of capacity payments? And if so, that would have to be a long-term set of capacity payments, I'm assuming, to avoid kind of a recontracting risk 5 or 10 years down the track. Is that the right way to think about it that if you can find a consortium generators keen, and I imagine there are some that you'd be looking at sort of a 20- or 25-year contracting/lease term?

I won't talk to Tenor of what it will end up being. But yes, yes and yes, in terms of -- yes, we would only contract if we cover our capital costs and income costs associated with it. So we're not going to take residual asset risk with this. From our perspective, we've seen there's a problem that the New Zealand electricity sector is trying to solve, and there was some discussion about LNG and what made LNG uncompetitive was a significant amount of infrastructure investment required amortized over a small amount of energy. What we have at Channel is all of that infrastructure cost already sunk and latent capacity. And in fact, the fuel already here. And so we don't want to become an electricity market participant. We've got no ambition to be a developer of generation assets. We would own and operate and make this asset available to that sector if there was demand for it, we cover our capital cost and above WACC return consistent with our usual objectives.

Your next question comes from Cameron Parker with Craig Investment Partners.

Congratulations on a massive year. Just a couple from me really is talking to the commercial and legal costs and skills that are required to deliver the projects, and it's quite a broad range of projects across the energy precinct. How comfortable are you in terms of upskilling that team? And how are you seeing the market fulfilling those skills you need across those various projects to feed in not only the engineering, but the commercial side and legal side as well?

Thanks, Cam. So what I'd start with saying is we have an incredibly talented and constant team at Channel. However, the spectrum and breadth of the opportunities we have ahead of us, as you've identified, is incredibly wide ranging and requires specialist input. And for quite some time now, we've operated a model where we outsource the key work streams for those specialists in order to make sure that we're treating your OpEx lines with the care and respect they deserve, but also to make sure that we have the right people at the table at the time where we're forming up the commercial frameworks for these projects.

Sorry, I was just going to say, I mean, the key principle we've taken with these is clearly, there's quite a wide set of growth opportunities ahead of us. And so we've got some nonpermanent costs that we're incurring to make sure that we can deliver on those well. If that opportunity were to turn the other way and we go back to much more of a BAU type of operation, then because that cost is outsourced, it can disappear from the OpEx line.

Yes. Okay. Just the last one is really -- you've seen a $1 million decrease in transition charges coming from Mills battery. They're reaching FID on a similar sized solar farm over the next few months. you sort of -- do you factor that into your OpEx going forward in terms of a potential reduction of the same magnitude? Or how are you looking at that?

So that project, as you've identified, is not yet confirmed, and we certainly don't bake ideas into our OpEx, I think, would be how I'd frame that. So no, we're not taking into consideration any further reductions. And certainly, if that project does meet investment decision, then would take some time to construct and come on stream.

Well thanks, everybody. I think that's all the time we have for questions. So thank you very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.