Half Year 2026 Channel Infrastructure NZ Ltd Earnings Call Transcript
Key Points
- Channel Infrastructure NZ Ltd (ASX:CHI) delivered a strong financial performance with revenue up 4% and EBITDA up 1%, alongside a 16% increase in the interim dividend to $0.0725 per share.
- The company successfully executed key projects, including delivering 93 million liters of diesel storage for the government in just nine weeks and completing Z Energy's jet fuel storage project six months ahead of schedule.
- A new significant contract with BP for jet and diesel storage will generate $130 million in revenue over 15 years, with potential for PPI indexation to increase the nominal value.
- The company upgraded its FY26 EBITDA guidance to $103-$108 million, reflecting strong performance and greater certainty around fuel volumes.
- Channel Infrastructure NZ Ltd (ASX:CHI) continues to expand its contracted revenue streams, with in-service contracted storage volume at Marsden Point increasing by 40% in the last three months.
- The company maintains a strong balance sheet with net debt at $346 million, leverage at 3.8 times, and interest cover at 5.7 times, providing capacity for future growth.
- Operational performance remains world-class with 99% pipeline and tank availability, no Tier 1 or Tier 2 process safety events, and stable fuel volumes despite global supply disruptions.
- The company has identified significant growth opportunities, including 45 hectares of land for greenfield storage and a potential biorefinery project, which could provide long-term value.
- The successful delivery of projects is translating into earnings growth, with new contracted revenues supporting future cash flow and dividend growth.
- The company's strategic focus on contracted revenue independent of fuel throughput provides resilience against long-term demand changes.
- Normalized free cash flow and free cash flow conversion were slightly down, reflecting the phasing of maintenance CapEx and increased investment in growth projects.
- Operating costs increased 11% to $24.1 million, driven by cost inflation, higher energy and utility costs, and increased labor expenses.
- The biorefinery project's final investment decision has been delayed into 2027 due to a longer-than-expected equity raise process, adding uncertainty.
- Jet volumes were affected in Q2 by high fuel prices and reduced schedules from Middle Eastern carriers due to the conflict, impacting throughput.
- The company reported two recordable injuries during the period, indicating safety challenges amid increased construction activity.
- The Somerton pipeline joint venture experienced lower throughputs due to exposure to Middle Eastern routes, slightly underperforming expectations.
- The company faces ongoing geopolitical uncertainty and pressure on global supply chains, which could impact fuel demand and operations.
- The government diesel storage contract is only until December 2027, and future re-leasing will require additional compliance work, potentially affecting long-term revenue stability.
- The company's dividend payout ratio remains unchanged, but the increase in dividend may not be sustainable if free cash flow does not improve in the second half.
- The BP contract's revenue contribution is expected to be minimal in the second half of 2026, with the majority of CapEx spent in 2027, delaying near-term earnings impact.
Thank you for standing by, and welcome to the Channel Infrastructure half-year results 2026 call. (Operator Instructions)
I would now like to hand the conference over to Mr. Rob Buchanan, Chief Executive. Please go ahead.
Good morning, everyone, and thank you for joining us. I'm here today with our Chief Financial Officer, Alexa Preston, and we'll speak to the presentation disclosed on the NZX and ASX earlier this morning.
There's a lot of detail in the presentation pack, but Channel's story is actually pretty straightforward. Our business continues to perform well. We're delivering the projects we said we would safely, on time and on budget, and we're finding new ways to put the infrastructure we already own to work. That is delivering growth for Channel and increasingly helping strengthen New Zealand's fuel supply chain resilience. The past six months have been another fantastic demonstration of what this business can do.
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