CHI - 2023 Guidance Update

Thursday 17th November 2022

Channel Infrastructure (CHI), New Zealand’s largest fuel import terminal business based at Marsden Point in Northland, has today provided an update on its FY2023 financial guidance. Key highlights include:

• Following the 8.4% increase in Producers Price Index announced today, 2023 revenue is now expected in the range of $125 million to $128 million (previous guidance: $116 million to $120 million).

• Additional terminal services revenue contracted which is expected to deliver c.$4 million revenue in 2023 (and c$25 million over the 5-year contract term).

• 2023 EBITDA guidance increased from $76 - $84 million to $82 - $86 million increasing the indicative dividend range from 8 –11 cents per share to 9 –11 cents per share.

Channel Infrastructure CEO Naomi James commented: “Channel Infrastructure's long-term contracts provide protection and benefit in the current inflationary environment. With the benefit of the PPI indexation on revenue more than offsetting the inflationary impacts we are seeing in our cost base, and the continued execution of our growth strategy with additional private storage contracted, we have today increased our FY23 earnings and dividend guidance. Conversion costs continue to track to plan.”

Updated 2023 financial guidance

Ahead of the transition to a new business model, Channel Infrastructure disclosed detailed 2023 forecasts to provide insight to shareholders on the financial profile of the new business going forward. Channel Infrastructure has today updated this 2023 financial guidance to reflect the Producers Price Index (PPI), contracting of electricity supply and additional terminal services revenue, and latest operating and capital expenditure forecasts.

Channel Infrastructure terminal services and private storage fees are subject to Producers Price Index “All Industries – outputs” indexation (PPI). Today Statistics New Zealand announced the PPI for the 12-months ended 30 September 2022 was 8.4%, which, pro-rated for 9 months to 6.3%, confirms the take or pay level under the Terminal Services Agreements at $106.3 million in 2023 ($6.3 million above the 2022 annualised take or pay fee equivalent).

In addition to the private storage already contracted and currently being commissioned through to mid-2023, Channel Infrastructure has contracted additional terminal storage revenue, expected to be c.$25 million over the next 5 years. This contract further adds to Channel’s revenue and earnings base and is in addition to the private storage agreements that have been announced to the market previously. This contract is another important step towards our positive future as a new business that is delivering on our focused growth strategy, supporting customers with their fuel needs and contributing to New Zealand’s decarbonisation efforts and domestic fuel security. Capital works (comprising tank and linework modifications) with an estimated cost of c.$7 million will be required, with revenue of c.$4 million expected in 2023 as this work is undertaken and additional storage capacity is commissioned.

Fuel throughput in 2023 is expected to grow from 2022 levels with the continuing recovery in jet fuel demand, while remaining below the take-or-pay fee level under the Terminal Services Agreements.

Operating and capital expenditure guidance has been updated to reflect higher electricity prices expected in 2023 compared with 2022, expected activity levels and resourcing requirements, with jet demand and storage capacity increasing next year, as well as cost inflation across a number of areas.

Depreciation guidance has also increased reflecting the continuing investment in terminal upgrades and private storage capacity.

As announced on 11 November 2022, this year’s refinancing programme has reduced the Company’s cost of funds, with financing costs now expected at the lower end of previous guidance at c.$16 million in FY2023 (previous guidance $15 million - $18 million), implying an effective interest rate of 5 to 5.5%. Channel’s fixed rate bonds and interest rate swaps provide significant funding cost certainty for 2023, in a rising interest rate environment. Based on current conversion project and private storage capex phasing, it is expected that in the next 12 to 18 months debt will peak at around $100 to $120 million above current levels of $230 million.

With the increase in EBITDA expectations for 2023, based on the Company’s capital allocation framework and dividend policy of returning 60-70% of normalized free cash flow to shareholders, the indicative dividend range for FY23 increases from 8 to 11 cents per share to 9 to 11 cents per share.

- ENDS -

CHI - 2023 Guidance Update

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