LGI Limited (LGI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to today's LGI Full Year FY '26 Results Call. My name is Sam Wells from NWR, and joining me from the company today is CEO, Jarryd Doran; outgoing CFO, Dean Wilkinson; as well as incoming CFO, Cathy Montesin. Jarryd, Dean and Cathy will take a few minutes this morning running through the results detail released to the ASX. Following this, the audience will have the opportunity to ask questions, and there will be a choice of 2 options. [Operator Instructions] We will endeavor to get to the majority of questions asked in some cases, combining submitted questions on the same or similar topic. [Operator Instructions] Thank you, and over to you.

Thank you very much, Sam. Thank you very much for everyone joining us this morning. I appreciate it's always a busy time of the year, so we'll get straight into the story of LGI. Just very quickly starting off with who is LGI. This is always an important recap because our business model has been very positively serving us for a number of years now. Since our founding in 2009, LGI has been not only profitable each year, but also cash flow positive. And we've been able to achieve this by having 3 key distinct earnings across the business. So from renewable electricity, carbon abatement and also through our contracts and our O&M services. Now the business model is pretty unique in our sector because it is end-to-end. We offer landfill owners and waste service providers a full model from installing infrastructure in their landfill being the pipe work to recover the gas through to the LGI team designing, building and operating flaring systems and power stations right out through into the commodities that we create being electricity and the carbon abatement credits that we can also create and trade to monetize and achieve really good commercial outcomes. So what's also quite unique across the business is that we do have a distributed business model in that we've got sites up and down the East Coast. That gives us the ability to have geographic diversity from weather events or matters that may be happening within the energy market, but it also allows our team to be quite flexible and nimble as to which sites we go to across our portfolio to achieve even greater environmental and commercial outcomes. So with that, we'll get into the story of what we've achieved in FY '26. So with the particular focus at the moment on our operational highlights, the team has done an absolutely amazing job to recover a record amount of biogas across our portfolio. And that's actually resulted in a 33% increase in the total quantum across FY '26 compared to FY '25. With an increase in our biogas recovery, that's allowed us to create even more Australian Carbon Credit Units, or ACCUs, and that has got to a level of over 584,000 units across the year, which was an 18% increase compared to the year prior. With more biogas, that's also allowed us to create more renewable electricity. So our overall megawatt hour creation across this period, sorry, has increased by 29%. And the team has done this with an amazing generator availability of 97%, which is just stellar results. Now without doubt that the Group was able to push hard through the year to increase the ACCU creation because we were very successful in winning a number of sites across the full 12-month period and the year prior. We've done this in a way where we've ultimately flexed our business model. We were observing some challenges in the electricity markets and the pricing we were seeing in the wholesale electricity space. And our business model allows us to then lean into or pull levers on our ACCU creation side which has then increased the total number of ACCUs across the year up to a record level, and that's helped to mitigate or offset some of the pricing -- the price softening that we saw from the electricity space. So really quite a unique feature we have in our business, which allows us to exercise these levers. But also the operating leverage of our business model was quite visible in that we've commissioned these new sites. We've brought on new assets, and it's all fit within the existing cost base of the company as well. Now lastly, just on the operational excellence, the project in Canberra was recognized by the IPWEA, which is the -- it's an Australian Engineering Group. It was recognized for its Engineering Excellence, in particular, within the category of Environment and Sustainability. But that's just credit to the team in which we are designing and building and commissioning such high-class assets in our field. Now I touched on already some of the contract wins, but just to recap this, we secured 3 new long-term landfill gas rights over the 12-month period. Two of those were announced in the first half and another one we secured in the second half of FY '26. And we were also successful in renegotiating some of the contract terms with the Belrose site that enabled LGI to register the project for the creation of ACCUs. And that registration process went through late in the second half of FY '26, along with the registration of our BINGO Eastern Creek site, putting it in a position where it can also be eligible to create ACCUs. Across that period of the year, the team has done a stellar job of building new flares, installing new landfill gas collection systems across 6 sites. And collectively, when you bring all this together, that is how our team has been able to really flex up the total creation of more ACCUs. So just to recap that 8 additional carbon abatement sites have now been added into our portfolio, and they'll continue to add volume into the forward years as well. The team has been working very hard on the Canberra project, which is advancing through its final stages of commissioning. That is later than what we had forecast and later than what we had hoped, but they are working across every avenue that's possible to try and continue this advancement. But I'm pleased to say that it is in the final stages as of today. And also it's worth calling out on the financial performance that the price that we recovered or that we achieved from our electricity trading was actually at a 35% premium to the AEMO average. So when you combine the Queensland and the New South Wales average AEMO prices over a 12-month period, LGI achieved a 35% premium above that pricing as a function of how we hedge, how we trade our commodities operationally and also how we use DACS in our battery assets. The full collective of each results, so from the operational performance, from the contract wins, bringing online new sites has resulted in an increase in our EBITDA by 26% compared to the prior year. And that has allowed us to land squarely within our guidance range, which we put out into the market 12 months ago. So we're really quite pleased with that result. We've also increased our EBITDA margin. It's now sitting at 55%. The team has done this because they've been very disciplined with their cost control through the year. There's been a range of costs, which have increased from inflation, from matters happening through to the Middle East, but the team has done an amazing job to navigate some of these cost changes to our materials and still allow us to get this increase in the EBITDA margin. The NPAT has also increased. It's up 35% compared to the prior period. While we have done all these amazing -- sorry, we've achieved these amazing financial results, the operating cash flow has come down, and Dean will talk to that in more detail further through the presentation. But it ultimately puts the business in a position where the Board has approved a fully franked dividend payment of $0.0135 per share. So overall, an amazing set of numbers from the team for the financial year. And again, it just shows the rigidity that we have and the agility in our business model that when markets may be changing or there may be dynamics into the markets that we operate, we do have the ability to be quite agile and to pivot between 2 key areas being our Carbon Abatement and our Energy segment. So I'll bring you through now just again, recapping a picture around our financial performance over the last few years. Ultimately, across all measures, it's a great story, right? So everything is moving in the right direction, albeit the operating cash, Dean will talk to in a moment. But ultimately, we're really quite pleased with this. And in particular, again, the increase to our EBITDA margin is just quite telling of the team's amazing job at being very mindful around cost control as the business is growing. So looking across our current operating portfolio, we now have 37 operating sites across the LGI portfolio. This is an increase of 3 sites when we last reported back in February. We've maintained our 9 power stations, and we now have 25 carbon abatement sites. And as I said earlier, that's quite a nice healthy increase, particularly what the team achieved in the second half of the financial year by plugging in those 6 new flaring sites and adding in those 2 additional sites through recontracting. But this does also help to demonstrate that we have this ability to evolve our contracting arrangements over time. While a site may start off as a flare, we always look to see what other ways we can create value from the biogas and from that facility. or even where a site has started off as Belrose did as a stand-alone battery contracting arrangement, we were able to work with the landfill owner to explore other value that we could extract from that facility as well. Now this particular chart here, I'd like to just ensure there's a proper understanding of the challenges that sometimes can come up in the wholesale electricity market or with the price of ACCUs over the last few years. The chart on the left is showing you how across the year since FY '22, LGI has continued to grow our overall earnings, our EBITDA, while we've seen the ACCU price trade largely horizontally across time. There's been a minor increase over the FY '26 period that's largely been a [ sideways ] trade. But if you look at the teal color or the wholesale electricity price, you can see how, on average, that price has been tracking down since FY '22 and yet LGI's earnings have obviously continued to build year-on-year. And we're really pleased, sorry, with the prices that we've been able to realize from our electricity, LGCs and ACCUs. So you'll see across the 12-month period to June, the effective electricity price that LGI captured was $97, and that, again, was a 35% premium to the average price in the market. Cathy will talk more through our hedging strategy later in the presentation. The LGC price that we were able to capture was $38. This is substantially higher than the spot price or the averages across that year, again, through our hedging strategy. And the ACCU price that we captured was $38, and that's exactly in line with our strategic long-term arrangements that we have around balancing ACCU offtakes. And with that, I will hand over to Dean to talk through the financials.

Thank you, Jarryd. So first of all, I'll start off looking at our revenue. So we have our revenue increasing across all our major streams of business. And as Jarryd pointed out, we have the 3 main streams. And so we've seen the Electricity segment increase, ACCUs increase and LGCs increase. So that's been a great result for the year. I'll talk a little bit more about the infrastructure and construction side in a minute, but yes, it's had a minor decrease. There has, with the softening of that electricity price been a bit of a skew towards the environmental certificates year-on-year in terms of percentage of revenue within our portfolio, and you can see that in the charts on the right. There's a couple of reasons for that. One was a softening in electricity price, but the other reason for that is there was this increase in number of sites that we're actually obtaining our ACCUs from. And as Jarryd pointed out, there's 8 new sites that we're actually receiving ACCUs. So looking at profitability. So the size of that revenue increase was 17% and the size of EBITDA increase is actually 26%. Now the reason for the differential is cost control. As Jarryd pointed out, we're very much focused on cost control. We did see some costs go up in our cost of goods sold for the year, particularly with oil. We saw oil early on in the Middle East conflict. We saw oil prices elevate up to 22% higher than what we've previously seen. And so we've managed those sort of cost increases within the portfolio for the whole year to actually increase our EBITDA by 26%, which was a great result. Depreciation has also increased. We have -- we've been adding assets into our portfolio. The particular asset that's actually made a step increase in that depreciation is actually the Eastern Creek site. It was commissioned very late in FY '25, and we've seen a full year's worth of depreciation come into that. With the equity raise that we did in October, we were able to pay down our full debt facility. And so from November onwards, there was very little interest payable on that debt facility. So you can see that, that improvement in our interest expense has resulted in a lowering of that cost by over 40%, which is fabulous. That combined with the improved EBITDA then drops into our NPAT and our profit after tax, fabulous result with the increase of 35% -- so we're really pleased about that. And then that then drops down into earnings per share. So earnings per share has also seen a healthy increase in the year. So all in all, a great set of numbers from our P&L. Moving through each of the individual segments. So the Generation segment talked about the sort of softening of prices. And so yes, we have seen that. However, the growth in the revenue there was as a result of picking up the electricity price higher than the average. And so Jarryd has already talked about the fact that we actually had higher electricity price than the average. Part of the reason for that is we actually have what I'm sort of saying is price certainty over a certain part of the book. So price certainty is about our hedge position. It's about the batteries that support our generation. It's about both those physical and financial hedges. And as a result of having both of those in place, we managed to have an average price certainty of approximately 80% of generation across FY '26. And that price certainty was at a much higher price than we saw that the average prices play out across the 12 months. So a great result from our Electricity segment on the face of some softening electricity prices. So with the ACCU segment, again, great results there. So we've actually had quite a step change in our ACCU position, lots of new sites coming on, as discussed and an increase -- a subtle increase in pricing. As we're moving through time, you can see that electricity curve -- sorry, the ACCU curve -- price curve just moving up slightly. We've been able to take advantage of that with both spot trades and forward trades. And as a result, we're just slightly ahead of the curve in terms of the price realization, which is fabulous. I talk about there on this slide the fact that we're a 100% covered in terms of our contract position. The reason for that is all of the ACCUs that were produced during the year were all subject to either contracts that were sold within this 12 months or in the next 12 months. So effectively, there's basically a fixed price for every one of the ACCUs produced during FY '26, which gives great coverage. What we're seeing with the infrastructure and construction side in that particular segment -- still good results. We still got over $10 million in terms of revenue. So we're still pleased with that as a result. Reason we're down a little bit is there was the focus on plugging in those 8 new sites. Now when we're focused on our own sites, doing the work on our own sites, there's probably less capacity to actually do work for other landfill owners. As a result, there's a little bit of a reduction in the revenue there, but that's fine because we were actually focused on those sites and making sure we're pushing through the higher ACCUs into the future. So the balance sheet is in a very strong position. So with the equity raise back in October last year, we were able to pay down our complete debt position. And then we had surplus cash on top of that, which has actually gone into our cash position. So you can see quite a healthy cash balance. With that very healthy cash balance, there's still a little bit of that on term deposit and the rest of that is available to be invested into projects into the future. So very healthy position there. You'll see that there's actually quite a buildup of value in our ACCU and LGC book. So the increase from $12 million to $20 million in terms of a 12-month movement. So that $20 million of ACCUs on the book. I'll talk about that in a minute in terms of cash conversion. But those are easily converted into cash in terms of the market for ACCUs. So very comfortable with that as a position in the 6 months. So the debt position has already been paid down to 0. So you can see that, that debt position is at 0. So very, very healthy balance sheet ready for a wave of investment into projects in the future. Thank you, Jarryd. And the debt facility. So the debt facility -- so what we've done in the 12 months is we've signed a new debt facility with our lender. And so that's a debt facility that takes our total facility limit from $49 million to $82 million. So it's actually a 66% increase in our total debt facility. That debt facility puts us in a great position to actually build out the CapEx program that we've got in the future. The additional feature we built into that facility was the ability to actually increase in addition to the $82 million, we can increase another $20 million called an Accordion facility. So we're able to flex up that facility all the way up to $100 million. So that's available to the business if and when it's needed in the future. With the cash flow, the item on the cash flow to have a look at here is the cash conversion. So the cash conversion is a little softer than it was last year. A couple of reasons for that. One is we've actually been building up cash position on our balance sheet and building up the ACCU position on the balance sheet. Now those ACCUs are readily and easily converted into cash. So from our perspective, that's a very comfortable position to be in and a position where we can as needed and when we need to move into the future and convert them into cash. We have actually had a few ACCU transactions settled in July and August. So some of that cash has actually started to come back into the balance sheet already. In terms of the CapEx spend for the last 12 months, you can see a fairly sizable increase in CapEx spend. Sustaining capital is about the same as it was last year. There was quite an increase in our field work expenditure. That field work expenditure really went into build-out of flares, installation of pipe work to build out those 8 new sites. So those 8 new sites, every one of them needed a new flare. And so there was a fair bit of CapEx that went into doing that. And then we've had quite the spend on our project capital expenditure. And the project capital expenditure was finishing off and completing the Mugga Lane-Canberra facility, and it's also started to invest into the Belrose facility. We've actually put some batteries on order and had to pay deposits for those. So quite a lot of expenditure going into those projects as well. So with that, I'll hand back to Jarryd.

Thank you very much, Dean. So talking through in detail some of the core operational outcomes. And we always talk about chasing biogas. Well, again, this is another year that just demonstrates how well the team has done to not only chase the biogas and increase it, but to balance this mixture of biogas coming from the existing parts of our portfolio while bringing in brand-new sites that will help contribute to increasing biogas and increasing ACCUs into the future. But essentially, across a period of time between FY '22 and FY '26, we've achieved a 14% CAGR across our biogas increase. So we're really quite pleased with that result there. And again, the team has done an amazing effort because it's not as though these sites are all just collectively close together. They are all up and down the Australian East Coast. So there's an amazing job of planning logistics and moving from site to site to keep this work schedule on target. Again, with the available biogas going up and with these very strong generator availability results at 97%, we've been able to increase the overall gigawatt hours or the quantum of electricity that we've produced. So that there was a 29% increase of our electricity generation when we compare that to the year prior. A big part of that was having a full year run rate of Eastern Creek in our portfolio and also having the 6 megawatts at Mugga Lane largely running across the year at a very high level of utilization as well. So really nice contribution from those 2 key sites. And ultimately, having DACS as part of our planning system around how we optimize outages and the balancing act between planned maintenance and unplanned maintenance, DACS is really helping the team stay on top of getting the highest value outcomes from these sites. So I've talked through the increase in the ACCU creation for the year. Again, very pleased with an 18% increase. And when you look across a longer period of time since our listing year of FY '22, it's a 10% CAGR in ACCU creation. Now all those new sites that we brought online that both myself and Dean have talked to is fantastic because we have these long-term biogas rights across a range of sites that we should continue to yield more biogas and more ACCUs. And that's just fantastic because we obviously use the ACCUs as part of our sources of funding for our capital build-out program as well. But it's great to have more sites come into the portfolio there. And then looking at from a more projects lens. So I've touched on already how we had 6 new flaring sites that have commenced across our portfolio across the 12-month period. And you'll see that on the 2 sections from the far left to the center, that's the 6 sites between Warwick and Jandowae in Queensland, Lithgow, Taree, Tuncurry, New South Wales and also more recently adding in a site up in Mackay. Now Dean touched on the fact that across all those projects there, it required the building of new flares. I believe it was actually 8 flares that the team has constructed and commissioned in the past 12-month period, which in itself is another record for LGI to have that many flaring units go through fabrication, delivery to site, commissioning. And again, it all just comes together so nicely because this slide here just shows you the full result from our business development team, bringing in opportunities to the business through to how we commercially negotiate those deals and then navigate the changes with the ACCU change in methodology to bring on new sites and do this in such a way where it actually resulted in such a lift up of ACCUs in the second half. But the other really exciting piece is the changes to some of those contracts that we already had in our portfolio, so both Belrose and Eastern Creek being that we've been able to register those sites to produce ACCUs. And so that commenced late in the financial year, and they will continue to contribute into our book in the forward years as well. But really exciting having such an increase in the number of sites from an ACCU perspective. Focusing a little bit more on our larger CapEx projects, our strategic projects that build out the megawatts. I touched on how the Canberra batteries are fully installed. They've been there ready to go, and we're working through the final commissioning for that project. It is our largest project to-date, and it certainly has been one that both our team has learned a lot from, but also the network authority and even AEMO as well. And so that's allowed us to consider some of those lessons into how we plan and execute the other projects that we've got across the portfolio. But we very much hope to see the Canberra batteries contributing to our earnings soon now that we're into the new financial year as well. But once online, that increase in our megawatt operating capacity is quite a step-up. It's actually a 55% increase, sorry, taking us up to 33 megawatts of our operating capacity. And it's a key stepping stone in our bridge towards the goal of having a portfolio of more than 80 megawatts of operating capacity. The next key project in the mixture is our Belrose stand-alone battery project. When we announced this a year ago, we're pretty chuffed to talk about the prospect of LGI developing batteries, not just on landfill sites, but also at strategic locations across the Australian energy market. And what was unique about Belrose was the fact that the site had previously had landfill gas generation assets there for some years. That operator had decided to leave the facility in which it left the poles and the wires coming all the way into the landfill. And this was a perfect opportunity for WAMC, the landfill owner to tender the site out. So LGI has achieved exclusivity over the site. We have a lease in place with WAMC, and we're well advanced now with our construction of that battery asset. All going well, we should have the primary equipment, so the batteries, the transformers, the switchgear, all delivered to site by Christmas. And the team will be working to have the battery asset being commissioned early into the second half of FY '27. But that project there provides another key stepping stone because that's another 12 megawatts, 24-megawatt hour of capacity coming into our portfolio, and that's quite a sizable step-up. And then I'll just talk in some detail around our Toowoomba project as well. So Toowoomba has been a site that we've had in our portfolio for some years. We commissioned the first megawatt back in FY '22. And as the site has continued to grow, receiving new rubbish every year, we've expanded the gas collection system, which has resulted in more biogas that we've been able to recover to the point now where we're quite comfortable to add an extra megawatt of generating capacity. And that's a really cool example of how we have this value that we can continue to capture from existing contracts. We're able to do this with relatively quick speed because the site is already constructed. The connection assets are already there and allow for that capacity. So the team is actually now in the process of just arranging for a generator to be transported to site, and they should be able to have that facility expanded by the -- or into the second half of this financial year as well. Now across our broader strategic portfolio of projects, we have obviously our Nowra project, and we have a couple of stand-alone battery projects. These are advancing through both development approval, the connection process. And ultimately, this then feeds into our last internal step of obtaining final investment approval from our Board. And so as we advance further through those steps on these projects, we'll have clarity on project time frames. But we do see a pathway where those projects can contribute into the following financial year. And with that, I'll hand it over to Cathy to talk you through how we've gone with the electricity trading for the last financial year.

Sure. Thanks, Jarryd. These graphs really show that in the last little while, we've had a very balanced electricity market. I guess that's been driven by really high availability of the coal and the wind-fired power at the last year as well as just a mild summer and winter, which has sort of led to softer demand and pricing. So I guess what we -- if we look at those -- the graphs on the left, we're still seeing a spread in both of those graphs in the last 12 months, which is important for our business model to see that spread still coming through. So that's quite positive. Moving to the right graph, the demand patterns, they are evolving. We might see the pronounced shape of the curve, but the curve is still there, and we can see that we're still seeing quite sufficient volatility there in the curve during the day, which allows us to really give us that opportunity to utilize our flexible assets and that opportunity to build out our megawatts going forward. This page really sets out our hedging strategy and our hedging results from that strategy. So if we start with the left graph, just to walk through the graph. So the dark green bars, they really show the megawatt hour volumes that have been generated by LGI in the last 3 years. And then the light green bar shows the megawatt hours that were covered by a hedge or a PPA or batteries, as Dean mentioned before, that gives that price certainty over those megawatt hours that were generated. So the blue dot really indicates, as Dean referred to before, that we had 78% of our generation for 2026 covered by that price certainty, which is a positive metric and something that we do aim to achieve. If we move to the right graph, this is our actual pricing and how we've achieved compared to the actual spot price on the market. So the light green bars really show the spread of the futures contract trades for each of the last 3 financial years. The blue dots are showing the prices that LGI has been able to achieve in that time period. And the yellow dots are the AEMO average spot price for each of those years. So it's very pleasing to note that the blue dots compared to the yellow dots over that time period has seen an increase in our price compared to the spot price by 38%. And again, that's deliberate and part of our strategy, which is excellent to see. This slide is really a look forward into how we see the electricity market going forward, particularly from -- just from market sources as well. So if we just walk through each of these graphs, the first one is indicating that coal is still the dominant source of generation, and it's still over half of all generation in the market. Number two, we move to number 2. So there are a number of the coal plants that are due to close in the next 10 years, particularly. So that supply from the current sources is expected to come off on their current scheduling. Number three, is a study that was done by the CSIRO. And it's really showing that the cost of developing long-term large-scale generation plant is really significant. And that the developers of those projects are struggling to get large-scale generation to FID because of the cost of producing that plant, especially compared to the current electricity price. Number four, we see that the actual consumption of electricity is increasing and is expected to increase going forward. And then -- so number 5 is actually the outlook for the volatility that the volatile -- volatility of the demand in the day is expected to keep increasing due to all of the factors above. So we really see that LGI is -- has a big opportunity given all of those factors to take advantage of our flexible asset base, also our low cost of development. So compared to those large-scale generation plants in #3, our cost of developing new plant is significantly lower and quite at the bottom end of that scale as well as our time to market. So the large-scale generators will take 6 to 8 years to develop a new plant, we're fractions of that to get our plant up and running. So it's a positive outlook as far as we're concerned in terms of the dynamics that are expected to drive the market going forward.

Thank you very much, Cathy. Bringing all this together, how is it we see LGI on a forward-looking basis? Well, again, we're very positive about the 2 main components to our business model, which is we have a growing source of ACCUs that we will be producing into the forward years as we continue to extract more and more biogas from our existing contracted sites. And we're really excited about our progression towards building out a portfolio of greater than 80 megawatts of flexible capacity. So when I wrap all this together, it is without doubt -- it's the main focus of our team to continue to leverage the volume growth from the existing contract set to create more -- or capture more biogas, sorry, create more ACCUs and also our megawatt hours. And we expect to see over the next 3 years, the CAGR growth of our ACCU volumes to increase at around 10%. And this is all the while the team continues to be focused on building out the strategic pipeline of flexible assets beyond 80 megawatts. So exactly as Cathy described before, we're actually quite excited by the changes we are seeing and observing in the electricity market. LGI is very well-placed through that transitional period, and we're really excited about the years ahead. It's also worth just calling out that it is -- it will be Dean's last reporting with LGI as CFO. And so certainly, on behalf of the LGI team, I just want to say a very big thank you to working with Dean and having the pleasure of being part of our team for the last 9, if not nearly 10 years. So thanks very much, Dean. He'll be with us through our investor reporting roadshow over the next couple of weeks before he'll be in retirement, enjoying retirement life.

Thank you very much, Jarryd. It's been absolutely fabulous journey. I loved the last 9 years. It's been a real thrill to watch the growth of this business, it has been absolutely great.

Excellent. So thank you very much. Sam, we're happy to go to Q&A.

[Operator Instructions] There are a couple of pre-submitted questions on electricity pricing outcomes. The first, you've included some helpful material on the market dynamics, while you've also talked about some of the performance of operating metrics as well as the realized electricity price of 35% above the average AEMO price. Can you remind us exactly how you're able to achieve this? And how confident are you that it can continue into future years?

So the real drivers of being able to achieve a higher electricity price, it does come down to the hedge portfolio for one as well as the batteries, the key. So the batteries really use that volatility within the day to achieve that higher pricing as well. So between those 2 portfolio tools that we have, we do manage them very actively, and that's how we're able to achieve those higher prices.

Yes. And just as a follow-up, with the low wholesale electricity prices, does this change any of your longer-term plans?

No, it doesn't, Sam. So again, what we observe when we look through the copious amounts of information that's in the market and that's provided by various research groups and even AEMO themselves, our observation would be that there is a huge opportunity for LGI. That's why we're still pressing on with our strategy. And in fact, what has been observed in the last 12 months would just be a -- would not be reflective of how we see the longer term when it comes to average pricing and demand patterns.

Thank you. In a recent news publication, you described Belrose as the missing middle between household batteries and large-scale grid projects, suggesting there's significant opportunity for similar projects to be a bigger part of your business going forward. How large is that addressable opportunity? And what's the gating factor to moving faster on it? Is it capital, grid connections or securing a site partner like WAMC?

Yes, that's a really good question. Thank you, Sam. So when we first looked at the opportunity of Belrose and we explored this internally, we came up with this term, The Missing Middle because there is a lot of activity at a household level when it came to rooftop solar and more recently, the household battery program being supported by the Federal Government. So that's driven a lot of changes in household demand and also household consumption in electricity. But equally, at the larger end of the scale with big projects and big battery projects, there's also been a lot of news and media attention there. Hence, why we came up with this terminology of The Missing Middle because realistically, the electricity network already has quite a lot of available capacity, especially in the distribution network. And that's where a lot of our existing sites are today. And we're looking actively for other opportunities to acquire or lease land, which is close to substations and power lines in the distribution network so that we can enter on to the network where there is this existing capacity. So for LGI, we put out that strategy last year when we did the equity raise. That's how we see a pathway to go beyond 56 megawatts to beyond 80 megawatts. And a component of that will be a fleet of stand-alone batteries that LGI is looking to deploy. And Belrose is the first one of those that we're adding into our portfolio. But we see the mixture of our portfolio being approximately 30 megawatts of landfill gas generation and 50 or so megawatts worth of batteries in that 80-megawatt pool of our capacity. So we see a great opportunity to keep growing the business and keep leveraging our understanding of the energy market to create these improving financial outcomes for the company as well.

Next question comes live from Jared Gelsomino at Morgans. Okay. Apologies there. He did have a couple of submitted questions. Can you please break out the drivers behind the 10% ACCU volume growth target? How much of this is organic like-for-like new sites yet to be won and upgraded sites, i.e., BINGO?

I can cover that off. So there is absolutely -- there's a portion of biogas growth built into that and that biogas growth will lead to additional ACCUs off the back of that biogas growth. And we typically see our biogas growth on our existing sites. We'd like to think we can achieve 5% or more every single year. And so yes, there is -- the existing portfolio is absolutely built into that 10% CAGR moving forward. Yes, the BINGO site will contribute into the 10%. We are still working through -- it's the very early stages with that site. [ It's ] actually have been registered for a couple of months now. So we're working through the early stages of how that will contribute into the 10%. Certainly, there's an element that has been built in. I can't give you exact numbers on that. And we don't necessarily build into our future any new wins. So effectively, what you're seeing in that 10% CAGR growth is our existing portfolio moving forward with the BINGO and with Belrose as well. So Belrose is going to contribute to that growth as well. So yes, it is built up basically with our existing portfolio set.

Next question is from Ritesh Varma at Bell Potter.

A really resilient result. First up, with the ACCU scheme methodology change in November last year, you now expect just over -- just a modest increase in ACCU creation in FY '27, but your outlook statement points to CAGR of around 10% over the next 3 years. So do we assume FY '28 and '29 will do the bulk of the heavy lifting here?

That's correct, Ritesh. So the sites that the team have been able to secure as new contracts and bring online in the second half of '26. They'll contribute through '27, but you'll certainly see, again, as we do further upgrades to sites, further expansions to the gas collection systems. You'll see that volume come through later in '27 and into '28. But it's put us in a position where the overall contract portfolio that we have has got a healthy volume. So as Dean said, we don't typically guide or break out individual sites as to how we expect those to perform. But across the whole portfolio, we're quite comfortable to say we expect a 10% CAGR in those forward years.

I just got one more. Are you able to run us through your electricity hedge position for '27 and maybe your LGC position, pricing position?

So we wouldn't typically give a full breakout of prices. But certainly, from a structural aim around having 80% of our volume, that has certainly been the structure we put in place.

Definitely. And I guess going into '27, Queensland, we do have fully hedged at those levels that we've looked at before. And then New South Wales, we're hedged for the first quarter and then the batteries -- as the batteries come on board, they kick in and take over to provide that natural hedge in the New South Wales ACT region.

And LGC?

So the LGCs will be benefiting partially in the starting point of FY '27 from our trailing hedge program that we had. But you'll then see across the full year of '27, the price -- the realized price will start to sort of normalize back closer to the spot market that we've had. So there'll be a partial benefit of our hedge program start of FY '27. But certainly into the second half of '27, it will start to normalize back towards spot.

Next question comes from Tim Elder at Ord.

Just on the strategic M&A piece, I'd be interested to understand like what kind of assets you'd be looking at? Is it like wind and solar farm development projects or are there like competitor landfills that you'll be looking at?

Thanks. It's a really good question. So while certainly LGI is probably best known for contracting with landfill owners and working with biogas, across these years, we've really formed a pretty deep understanding of the energy market, the Australian electricity market as a whole. And in fact, we have historically developed large-scale solar projects that we have then decided to sell off to other developers. And we've even got as far as obtaining all the necessary approvals to develop some smaller solar projects on landfills. The reason why we have done this is that we do have our own internal view is that the consumption of electricity will change through time. And we believe that while there has been this low in the daytime pricing of electricity that, that will likely change into the forward years where the daytime energy will actually be worth something higher than what it is today. So with that in mind, we are attracted to looking at other sources of renewable generation, particularly solar because it is very low cost to either install or if you acquire an existing solar assets, it's relatively low cost to operate. It's actually very simple from how it operates as well, it's pretty low risk. But it could potentially come into our portfolio and complement the overall electricity that we generate while we then have these tools from the hedges that we've got from a financial perspective through to the batteries as an asset as well. So we do have an attraction to assets like solar, less so wind, it's quite complicated and heavy CapEx. But certainly, solar and how we may be able to firm solar to again, be well-positioned while the dynamics in the energy market play out over the coming years.