Mick McCormack - MD and CEO Peter Fredricson - CFO Ross Gersbach - Chief Executive Strategy and Development

Mike Dargue - Citi Peter Wilson - Credit Suisse Rob Koh - Morgan Stanley John Hirjee - Deutsche Bank Ian Myles - Macquarie Bank Paul Johnston - RBC Capital Markets Nathan Lead - Morgans

Good morning and welcome to APA's 2016 Half Year results presentation. I'm Mick McCormack, APA's Managing Director and CEO. APA's Chief Financial Officer, Peter Fredricson, is sitting next to me here in our Sydney office and he will be presenting our financial results in detail. I also have some of my executive team here to assist in answering any questions, in particular Ross Gersbach, our Chief Executive Strategy and Development, Rob Wheals, Group Executive Transmission and John Ferguson, Group Executive Networks. Today I will kick off with an overview of the results and some of the strategic highlights from the half. Peter will then run through the numbers in more detail, before I conclude with a few words on the outlook for the APA business. Finally, we'll take questions from analysts. We have time scheduled after this call to talk with the media. First, the numbers. We have very clean results for the half year with no significant items recorded for the period. On this page, we've laid out the normal normalized and statutory result summary for comparison purpose to the previous corresponding period. As you will recall, this time last year, we recorded significant items of some AUD356 million, which related mainly to the sale of our shares in Envestra. Excluding the effect of those one-off items in the last period, EBITDA has increased by 66.3% to AUD667.6 million mainly due to the addition of the Wallumbilla Gladstone Pipeline and contribution from prior years' expansions, particularly on the East Coast Grid. Operating cash flow was also up by 75.6% to AUD462.1 million. Net profit after-tax was down slightly by 10.5% due to increased depreciation, amortization and interest costs also related to the acquisition of the Wallumbilla Gladstone Pipeline. That acquisition increased our fixed assets and debt levels on an absolute basis. Peter will talk you through the numbers in more detail a little later. In terms of distributions, we gave guidance in December that we would increase our financial year 2016 distribution by around 9% to AUD0.415 per security. Our interim distribution declared today by the Board is also in line with guidance at that time of AUD0.19 per security. As usual, distributions are fully funded by operating cash flow and with a stronger normalized cash flow this half, the payout ratio is around 46%. During the period APA's assets, systems and people continue their strong track record of delivering results for our customers and connecting Australia to its energy future. We have been talking about changes to the East Coast market, particularly the gas market on the East Coast for some time. As many of you know, we have been investing in our assets, systems and people to prepare for the changes to the market and for the changes that we, and our customers, are looking to adapt to. Through our past and present investment in our infrastructure, we've been able to interconnect multiple markets with multiple gas resources. At the same time, we've upgraded and invested in our systems and skills. These investments have been bearing fruit in our ability to deliver innovative solutions that help our customers manage their energy needs in a timely and efficient manner. On the East Coast Grid, the highlight of the period was, without doubt, the addition of the full six months earnings from the Wallumbilla Gladstone Pipeline. This has nearly doubled our EBITDA from the East Coast Grid compared with the previous corresponding period. A very much smaller project, but personally satisfying news for me, was the completion of the bi-directional project on the Moomba Sydney Pipeline. For the first time in 40 years, the pipeline flowed in a northerly direction in December. Along with the bi-directional project completed on the Roma Brisbane Pipeline also during the period, all the major pipelines on APA's East Coast Grid can now flow in both directions depending on customer needs and market dynamics. Speaking of flexibility, the Integrated Operation Centre in Brisbane is now our national mission control center, having transitioned all of APA's pipeline control rooms to that location. Not only are our pipeline controllers able to better communicate when managing inter-connected assets with the real value of a centralized control center, is the value add with the addition of engineering and commercial expertise all able to talk with each other in the same room to optimize the operation of our assets and get the best outcomes for our customers. Over in the west, the Eastern Goldfields Pipeline was completed ahead of schedule in December. I am very proud of this project, which is very significant in light of the head winds facing the mining sector in Australia. The successful commissioning of the pipeline is indicative of APA's capability and experience in the provision of energy infrastructure and its ability to work collaboratively with our customers to deliver essential energy services. Our customer and partner in this project, AngloGold Ashanti, is very pleased that the pipeline will deliver reliable, secure and cost effective energy to its mine for the long-term as well as providing the region's operations with a cost effective solution of connecting to gas. Finally, solid connection growth and continued investments in new housing estates and high-rise apartment developments drove increased earnings for the asset management business as gas continues to be the fuel of choice for cooking, hot water and heating for Australian households. APA supports nation building development through the building and management of energy infrastructure. We continue to build and manage our extensive high quality, geographically diversified portfolio of assets, specifically to meet our customers' needs and enhance Australia's energy supply. During the period we spent just under AUD150 million in growth CapEx on projects across Australia and that is not just for the hardware, which are our assets, we have also been investing in systems to enable us to use our infrastructure better and more efficiently. Some examples are noted on the map here and I'll elaborate a little bit more in the next slide. Our customer focused approach drives the investments we make and the low risk nature of our business. These investments enable us to grow in direct response to our customer's needs and through capitalizing on opportunities as they arise. You've heard me speak very proudly previously about the Integrated Operation Centre and I mentioned that it is now our national control room. The IOC delivers a single cross-functional team combining operation, engineering and commercial disciplines, all available to our customers through one point of contact and, importantly, in real time. As asset management is our core skill, APA has further invested in establishing a new enterprise asset management system, which enables APA to continue to improve field crew utilization and asset reliability. And true to the way in which APA completes these projects into the scalable platform that can be used as APA's sole maintenance management system across our assets to support future growth. During the period, we further developed the APA Grid, a customer management system, making it easier for customers to do business with us. APA Grid is an integrated software system that handles services across our transmission assets and links up also with our finance system. Using APA Grid, customers can directly log into APA systems for gas nominations and reporting or, alternatively, create a secure automated connection directly from their own system to ours. We're also developing an online simulated tool to provide in real time accurate gas quality and line pack information. This is particularly important as gas flows continue to become more dynamic. And whilst this is not a growth CapEx item, we also continue to invest in our people and their skills. We of course continue to provide and enhance technical training programs and our focus on health and safety continues. In addition, we are developing leadership skills across all levels as well as encouraging cross-functional development opportunity within the organization to provide our people with different career options and equip them generally with a broader skill and knowledge base. I spoke on the previous slide of the investments made to meet the evolving needs of our customers. There is no better evidence of this than the investments we are making to meet customer demands, which are being driven by the transformation that is underway in the East Coast gas market. Demand in this market has trebled over the last 12 to 18 months as a result of the LNG trains coming on line at Gladstone. This year volume of gas required at Gladstone has brought about significant investment in infrastructure capacity. APA has been investing all along its East Coast crews across four states, expanding capacity by adding compressors and then reaping along our major pipelines as well as installing bio-directional capability. However, we all know that gas demand at Gladstone will not always be the same, day in day out. The yellow chart depicts a typical volume profile of an LNG train ramping up. The next chart is an accumulated sample of four trains ramping up one after the other. There have been opportunities during the period where we have been able to assist our customers manage volatility during the ramp up phase. There will continue to be opportunities due to daily demand for gas and supply, including during maintenance shutdowns. The changing nature of the energy market is producing opportunities for APA to service its customers in new ways. If one of the LNG trains shuts down or for scheduled or unscheduled maintenance, then the dip in the demand volume will be unlike anything ever seen before on the East Coast. The majority of the gas may still be produced and will need a place to go and that's where APA's integrated assets and services can help. Our assets and services provide customers with the option to do something with that gas and potentially earn some revenue versus the alternative of flaring it and losing it. The inter-connected nature of our East Coast Grid means that customers can take it to another delivery point on our grid, store the gas or even loan or sell it to someone else that might have a use for it. We saw this in action during the financial period and APA's integrated assets, systems and people were able to help our customers manage their gas portfolios. With that, I'll hand over to Peter to cover up on the financials and I'll come back and close out with a view on our outlook when he's finished.

Thanks, Mick and good morning everybody. As Mick has mentioned, the result for the half year is clean and that it doesn't for the first time in quite a while include any significant items. There's been a plain vanilla business as usual first half with the result underpinned by our strong portfolio of gas transmission assets, further commissioning of new capacity for our customers and the first full half year period of contributions from the Wallumbilla Gladstone Pipeline. EBITDA at AUD667.6 million is in line with our expectations, especially with the addition of the WGP. This half year result keeps us on track to meet our full year EBITDA guidance of between AUD1.275 billion to AUD1.310 billion that we provided when we released our results for FY 2015 back in August last year. Everything in this result is in line with those expectations. Interest costs are tracking towards our annual guidance and operating cash flow has also been in our expectations given the addition of the extra revenue from the WGP. It's important to keep in mind that EBITDA for the period includes around AUD235 million from the WGP that wasn't included in the first half of FY15. From a comparative business perspective, the result represents a period-on-period growth rate of around 10% reflecting the commissioning of new compression facilities on the South West Queensland Pipeline, expansions on the Victorian Northern Interconnect System and the ongoing ramp up of revenues from contracts that were put in place with customers to underwrite the expansion of the South West Queensland Pipeline back in 2011, 2012. Mick has spoken of how pleased we were to complete and commission the Eastern Goldfields Pipeline in December, ahead of the January 1, 2016 due date. This enabled AngloGold to take gas a little earlier than they had expected, and so the EGP is now a fully-fledged contributor to our operating earnings going forward and into the second half. As we've spoken of before, we are thinking more and more of the assets that we have in the east and the west as integrated grids these days. That said, this result continues the theme of APA for many years. Higher growth in one state or another invariably offsets lower or stable results in others. FY 2016 is shaping up as just such a year with Queensland and the ramping up of LNG exports there, delivering growth through the completion and commissioning of the Moomba and Wallumbilla Compression Projects coupled with the addition of the Wallumbilla Gladstone Pipeline delivering an offset to a relatively flat profile from the rest of the country. Asset management and investments delivered acceptable period-on-period growth from lower bases and corporate overheads would have been relatively flat period-on-period but for the inclusion of around AUD10 million in costs associated with the NEGI and Iona processes, which we participated in and the ongoing costs of a number of government driven regulatory enquiries that are taking both significant management time and cost. We've provided this EBITDA bridge to get a clearer perspective of the makeup of an EBITDA number that is 66% above the previous corresponding period. The AUD235 million of EBITDA that comes from the newly acquired Wallumbilla Gladstone Pipeline is in line with our previous expectation of around AUD470 million in EBITDA in Australian dollar terms for the first full year of ownership. Customer contributions are flat year-on-year and the majority of the AUD12 million increase in corporate costs comes from the costs expensed as a result of our unsuccessful participation in both the NEGI process and the Iona gas storage bid. We have also incurred significant costs to date in respect of the ongoing regulatory reviews that are underway and whilst we don't expect similar levels of expense from the likes of the NEGI and Iona processes in the second half, we are still in the process of responding to queries and engaging with external professional advisers in respect of the regulatory reviews that are ongoing. Queensland's result includes a full six months of revenue from WGP as I've noted. Without that revenue, East Coast Grid EBITDA still grew by around 13.5% over the previous corresponding period. The majority of that growth came with the commissioning of new capacity in Queensland whilst New South Wales results reflected the fact that we saw incremental volumes of gas flowing from Moomba towards Queensland during that period. Whereas in the same period in FY 2015, we saw such incremental volumes flowing from Moomba into New South Wales and Victoria. In the west we received notification of a Draft Access Arrangement in respect of around 25% of the revenues that we earn on the Goldfields Gas Pipeline in late December 2015, so just 6 weeks ago. We are clearly in disagreement with a number of the determinations included in this draft and our representations to the ERA reflect this. However, we have in the interim reflected the Draft Access Arrangement's tariffs in this financial result. We expect to have a clearer indication of the final determinations in respect of the access arrangement by the time we report our full year results later this year towards the end of August. In the meantime, the tariffs signaled in the Draft Access Arrangement have had a somewhat negative impact on the current half year result. I won't comment specifically on the individual pipelines as shown on this slide as I've done that previously. However, this slide gives a view as to how the business has grown over a number of years now with a 2015 acquisition of the Wallumbilla Gladstone Pipeline, the 2012 acquisition of the South West Queensland Pipeline and Pilbara Pipeline system, the expansion of the Mondarra Gas Storage Facility in 2011 and many other expansions over a number of years. APA's growing EBITDA over the seven years since 2011 is coming from our continuing to invest significant sums of money to meet our customers' needs for more capacity and more efficient and flexible services. APA has spent over AUD8 billion on acquisitions of assets and over AUD2 billion on organic expansion of its asset portfolio over that period of time. The returns that we are seeing flow through to the business are a result of that ongoing investment which has generally been underwritten by our customers or in an approved access arrangement and again is generally only undertaken after considerable discussion with those customers about what their future and ongoing needs are for the transportation of gas around the country. Asset management revenues primarily come from the operation of the Australian gas networks and all gas network distribution businesses throughout Queensland, Victoria, South Australia and New South Wales. Year-on-year customer contributions are not materially different with the increase in revenues flowing through the asset management business primarily reflecting increasing connections to the networks' businesses mainly in Queensland and Victoria. We hold a number of joint venture investments in businesses that we also manage the assets or corporate services for. In particular, our partnership with EII and EII with Marubeni Corporation and Osaka Gas continues to deliver modestly growing returns. During the period we received full half year contribution from the Diamantina Power Station which we own in a 50/50 joint venture with AGL as it experienced its full half year of operating and delivering energy to Mount Isa and its major customers, Glencore Xstrata and Ergon Energy. We continue to report our corporate costs separately to provide clearer visibility as to the outcomes from our respective operating assets. As you know, during the release of our full year results in August 2015, there is considerable scalability within our corporate structure with some AUD470 million of EBITDA annually to be added as a result of the acquisition of the Wallumbilla Gladstone Pipeline, but very little in the way of increased corporate overhead attaching to this. This result is showing that outcome. This is a hallmark of a business that continues to focus on keeping its costs at the lowest possible level so the benefits of a more efficient structure can be passed onto our customers through lower ongoing operating costs and a lower cost of capital. As mentioned, corporate overheads increased some AUD12 million period-on-period in the first half, but fully AUD10 million of that increase, AUD10 million of that increase, can be directly traced to the costs of participation in the NEGI process, the Iona gas storage bid process and the various regulatory review processes that have been ongoing through the first half of the year. Overall, the most important aspect of this slide is the confirmation that APA can add new assets and further expansion to its asset portfolio without increasing corporate overheads to any material extent. As noted earlier, we continue to invest in the network delivering the extra capacity that our customers are seeking from our infrastructure. In the period under review we have spent close to AUD150 million in growth-related CapEx. The major expenditure was on the Eastern Goldfields Pipeline which was due for completion to deliver first gas on January 1 2016. In the ultimate event, we were able to commission the pipeline around the beginning of December, that's providing AngloGold with the ability to take gas from that earlier date. The remaining expenditure was across a number of different projects including the reverse flow projects on each of the Roma to Brisbane Pipeline and Moomba Sydney Pipeline in response to customer demand for bi-directional services across the APA Grid and continuing expansion of the Victoria Northern Interconnect. We continue to work on a broad portfolio of expansion projects such that we expect growth CapEx will again fall within the AUD300 million to AUD400 million range in FY16 as reflected by the green bar on the graph, notwithstanding the fact that as at today we only have around AUD290 million of such projects committed. Gearing remains at levels that enable us to continue funding growth CapEx and lower levels of other investment from available resources going forward. Importantly, whilst the capital markets globally have been experiencing somewhat extreme levels of volatility, our policy of accessing markets as soon as our obligations are known and locking-in costs as close to incurring of the liability as is possible has meant that we have no need to return to markets for either equity or term debt funding in the immediate future with the average maturity of our senior facilities running at around eight years. As previously reported, we termed out the bridge facilities that were put in place to acquire the Wallumbilla Gladstone Pipeline in March 2015, ultimately some eight weeks prior to the financial close of that transaction. Those actions meant that the two-ear bridge facility that we did put in place was never used. If, however, we had taken advantage of that facility to fund the acquisition with the bridge and been looking to issue debt in capital markets today, now, to term out that facility, we estimate we could have been looking at annual interest costs of in the order of US$50 million annually more than we currently have locked into the business. Again, by accessing markets as soon as practicable after a need arises, we're able to ensure we provide the lowest cost energy solution for our customers by applying a lower cost of capital to the capital expenditure that we spend on their behalf. Furthermore, this gives us confidence that our interest expense for the year to June 30, 2016 will fall within the current guidance range of AUD500 million to AUD510 million that we advised in August last year. That strategy of terming out our shorter term debt as soon as practicable has meant that our long term debt portfolio is well positioned going forward. At this point we have very little shorter term bank debt drawn and we have in the order of AUD1 billion of committed undrawn bank facilities and cash available to meet AUD80 odd million of USPP debt due for repayment in July 2016 and our immediate term growth and stay in business CapEx expenditure. As we have in the past, we will continue to monitor offshore debt capital markets for future windows of issuance that might be used to term out local currency bank debt as and when we have sufficient drawn bank debt to constitute a benchmark-sized transaction that can be undertaken cost effectively for APA. We have a 144A program, a European medium term note program, an Aussie MTN program, all available and able to be used at short notice for issuance should the need arise. Based on our current modeling for the business we do not expect to need further equity to support our ongoing organic growth activities, and as a result our distribution reinvestment plan remains suspended at this time. Should the need arise for further equity to support the growth of the business, we retain a broad range of options including restarting the DRP. Our overriding strategy remains that of maintaining access to the broader set of markets possible so that we can keep our cost of capital as low as possible in order to provide our customers with the best and most competitive pricing for the services that we offer. Part of the strength inherent in our capital management policies is our commitment to retaining fund in the business to support growth. The interim distribution of AUD0.19 per security that has been confirmed by the Board this morning represents a 9% increase over the previous interim distribution of AUD0.175. Moreover, the distribution represents just less than 50% of operating cash flow for the half year. Again, the guidance that the full year distribution is likely to be in the order of AUD0.415 per security, we remain comfortable that we are keeping sufficient funds within the business to fund ongoing growth in a time of significant financial market volatility. Maintaining within the business the levels that we are of funds generated in the business, means that we remain confident that the balance sheet, and in particular BBB rating from Standard & Poor's and the Baa2 rating from Moody's that we are fully committed to, will not be put at risk as the financial markets work their way through these current challenges. We note on a daily basis that the rating agencies have a number of our major customers under review, due primarily to the extraneous forces that commodity prices generally and current oil prices specifically are having on them across the board. We remain confident in the credit quality of our counterparties and the value to them of the services that we provide to their businesses. Our guidance for FY16 remains unchanged from what is currently in the market. As I've said before, we're confident that we can deliver EBITDA within the range of AUD1.275 billion to AUD1.31 billion, notwithstanding the volatility of global markets before us. The year-on-year growth that we have experienced in the first half contributes to the prospect of achieving the upper end of our 3% to 7% organic growth in FY16. Given that there is not the same half-on-half comparative in the second half with some of the – of the 2016 first half growth having flowed from projects that were commissioned and included in the second half results in FY2015. With around 94% of our interest liability at fixed rates or swapped into fixed rates, we are happy with the guidance range for interest of AUD500 million to AUD510 million. And finally with the confirmation of the interim distribution at AUD0.19 per security, and with the Wallumbilla Gladstone Pipeline cash flows locked in through forward exchange contracts, we remain confident that in the absence of any material unexpected circumstances, our full year distribution remains in the order of – our full year distribution guidance remains in the order of AUD0.415 per security. With that, I'll hand back to Mick and look forward to questions that you might have at the end. Thank you.

Thank you, Peter. And I'll move onto the strategic outlook for the business. APA will continue to focus on our customers and connecting gas market to gas resources. We are a customer focused organization that has an outstanding track record of delivering for our customers, which in turn delivers returns for our investors. We will maintain this focus. To this end we will keep on working with our customers to enhance our infrastructure and provide services that our customers are asking us for, and that assist our customers to navigate through the dynamic gas and energy markets in Australia. And let's not forget, we do need to maintain a prudent capital structure to help our customers, as infrastructure is a very capital-intensive business. Gas is a clean and reliable source of energy that has an important role to play in meeting the essential energy needs of Australians. APA will continue to deliver this energy to our customers safely and reliably, as we've always done. This involves continuing to invest in our assets and ensuring we have the right systems and human resources available to maximize efficiency and consistency. We are proud to be a part of such an important aspect of the Australian economy that contributes to the growth and advancement of our nation. Growth will continue to come from working with our customers, listening to their needs and concerns, both immediate and in the future. This may include additional delivery points on our existing assets, or complementary assets adjacent to our assets. Our customers are at the heart of our strategy. We will be investing where our customers need us to be and where there is a win-win outcome for them and us. Thank you. We'll move to questions now. As I said earlier, may I ask questions to come from the analysts first, and time has been set aside to talk to journalists after the presentation.

Thank you. [Operator instructions] The first question comes from Mike Dargue of Citi. Go ahead please.

Hi, guys, congratulations on the result. I have a question on the tax in the period, the high tax -- the tax rate is 39% because of the intangibles in the Wallumbilla Pipeline. Just hoping for a bit of color on when we should start to see tax being paid within the half and what the profile of ramp up should look like in terms of that cash tax.

Yes, thank for the question. One of the things we talked about at the year-end presentation back in August was that we expected to pay tax with the filing of our FY15 tax return. I think we had a provision in the accounts last year for about AUD7.2 million of cash tax. As we've completed the tax return, that will no longer be the case. So we will not pay cash tax this year, but in this set of results we've provided for about AUD11 million of cash tax for the half year. So again, we're able to, because of accelerated depreciation on our significant infrastructure assets, we were able to find that AUD7 million so that we didn't have to pay that for FY15. But we are now in a tax paying position, and as I say, we've got AUD11 million provided for the first half. Given the position we're in in respect of -- relative to guidance, I would say that we double that for the second half. But beyond that we're not providing anything further in terms of guidance.

Okay, great. Second question is around outlook for growth. You've got in towards the bottom end of the AUD300 million to AUD400 million of organic growth CapEx for FY16. How should we be thinking about this longer term?

Firstly, Mike, given the prevailing trading conditions I'm happy that there's AUD1 of CapEx in front of us. The fact is we're still talking about that range of AUD300 million to AUD400 million, which has been there for a good few years now. I won't disguise the fact that I'm very, very pleased about that. There's still lots of opportunities out there, but the fact remains that those opportunities are on the back of our customers' requirements and our customers' requirements these days, particularly when it concerns the mining sector, are fairly difficult to realize. So, yes, we acknowledge the AUD300 million to AUD400 million range as of today is at the low end of that, but equally I'm very happy that we are still in that range. Our people have continued to talk to all our customers regarding what their future growth remains, and the prospects for the business continue to be very sound.

Okay, great. And then last one from me, you've bid for solar funding from ARENA. Should we expect to see more moving away from gas pipeline assets into energy space, if that's where the opportunities lie?

Sorry Mike, just -- it must be a bad line. I just missed the first part of the question.

Okay sure. You've bid for solar funding from ARENA. I just wanted to see what the thought process and how we should think about those other energy-type investments going forward.

No, thanks I'm with you now. ARENA, yes. Look it's interesting. We sought that funding, yes we have, but that is to -- that concerns the Emu Downs Wind Farm in a sense, in that we bought that some years ago. It had growth prospects associated with it, that's why it's on the balance sheet. There's a fully approved expansion to that wind farm right beside it, and the ARENA project -- I'll call it the ARENA project, is a solar opportunity there that again fits very nicely with the fact that geographically there is more power to be -- needed to be generated there. And it is part of the growth prospect for the Emu Downs Wind Farm. And just I mean, I'll make a point here that that's been the nature of APA. Where there's opportunities that are physically complementary to our existing assets, be that gas pipelines or in this case a solar project, we're very enthused about such projects.

Okay, great. Thanks guys.

Thank you. The next question comes from Peter Wilson of Credit Suisse. Go ahead please.

Thank you. Good morning, guys. A strong first half result, 10.1% organic growth, which is above your full year 3% to 7% run rate. Peter, you mentioned that there's some first half uplifts that are not expected to be repeated in the second half. Can you just give us some detail on what were the first half benefits that you don't expect to come through in the second half?

Yes. What I'm saying Pete is this; that we got full six month contributions from the likes of say, a movement compression project which commissioned in the second half of FY15, Wallumbilla Compression Project will ramp up, but it commissioned in the second half of FY15. They weren't there in the first half of FY15. So you're getting different comparatives. You're getting that 10% growth year-on-year, whereas you won't -- you shouldn't expect a 10% growth year-on-year in the second half because we've got -- in the second half of last year, we've got some of that revenue that you'll get a comparative of in the second half, again like-for-like, that -- if you understand what I'm saying.

Yes, I understand. So not a first half, second half. You're more talking second half on second half. And can you give us a feel for how you think the second half is going to play out in Queensland? Because it's a very dynamic market, lots of change, four out of six trains on. How do you think the second half in Queensland is going to look versus first half, albeit accepting that there's a fair bit of uncertainty around that.

I'll talk to the numbers and Mick will talk more about actualities of business. But, I mean, the guidance that we've given is that we're at AUD667.6 million now. We're pretty comfortable that we'll be at -- towards the upper end if you like of that AUD13 million -- of the AUD1,275 million to 1,310 million range. So that's going to flow from the business. So from a numbers perspective, nothing much changes from where we are today.

Yeah. Thanks, Peter. I can only add that it'll be -- I think you've answered your own question Peter that the uncertainty in a revenue sense remains. I'm saying that we are, and the market is, learning as we go here. It's a very dynamic state of play in Queensland at the minute. I'm sure this time next year, we'll feel a bit firmer about how it's playing out, but it is evolving as we speak. And I think Peter's answered the question the best way we can, as in our expectations have been wrapped up into that guidance for the full year.

Okay. And just one last one from me, the additional AUD200 odd-million of CapEx that you've committed this half, can you give us any detail on that, and whether it's East Coast, West Coast, is it just a huge number of small projects, none of which are chunky enough to mention?

Look it's across the country, but there's a focus more on the East Coast.

Mainly -- I suppose the majority of that money is going to be spent in the Victoria Northern Interconnect area. That's the one major project that continues to be working our way through. But again, there's lots of different little bits and pieces all over the place as well.

Okay thank you guys.

Thank you. The next question comes from Rob Koh of Morgan Stanley. Go ahead please.

Good morning, guys. My first question relates to slide 18 of your presentation. And I guess it's a question about growth, and I understood the message before. In previous results presentations, this particular slide has had along the bottom line that your growth guidance is good for a couple of years and that kind of green bar has stretched out to FY17. The green bar now doesn't stretch to FY17. And so just wondering if that is a material change in guidance, if there's anything we should be reading into that?

I wouldn't say it's a material change in guidance. We're simply telling you as we see it. And the business has for some years had that AUD300 million to AUD400 million of growth CapEx in front of us. Speaking with you here today, that continues to be the case. And I think I've mentioned earlier the reality that we face, particularly as we deal with the mining sector, is that the opportunities from that sector are -- I guess whilst they are somewhat thin on the ground, the issue is for this business, indeed the Australian economy, seeing the commodity prices get on the upswing sooner rather than later.

Yes, no worries. Thank you.

I think another thing I'd add Rob is that I'm pretty sure that in -- at the half year, we tended only to talk about what was happening in the current year. But we'll certainly have a look at that and we'll go and talk to the IR people about that green box.

Yes, no let's not read too much into green boxes then, I think from your comment is what I'm taking away. If I then talk about some of the opportunities for -- if I could call it inorganic growth, is it still the case that you'd be running the ruler over any gas infrastructure assets that may or may not come to market any time soon?

Yes look, absolutely Rob. That's absolutely the case.

And are there any that you want to comment on at this point?

Look, not really. I'll leave that to the people here shaking their heads. I -- is that yes or no? No, look I -- APA is going to look at anything that's roughly called a pipeline, or bolted onto one, or looks like one. So we'll just see how that plays out.

Okay, all right. I wish you well with those processes. Last question just relates to balance sheet and treasury management. So Peter, I notice that you have quite a large degree of liquidity, and I'm just wondering which -- we obviously understand in the current environment why you would do that. I just want to understand how much of that liquidity is extra because of market conditions, and how much of it is just business as usual, maintaining a strong position?

I'd actually say probably most of it is just business as usual, maintaining the strong position. Typically we've wanted to keep liquidity of about 10% of the size of our facilities, and you're seeing that a little bit more -- a little bit higher these days than what it used to be, because we've got an extra $3.7 billion on the balance sheet that we didn't have this time last year. So we're talking about I think about AUD1 billion worth of undrawn facilities in cash. It may be a little bit above the 10% of drawn debt, which is at around about AUD9 billion, but it's there or thereabouts. And from our perspective, it's important to have it. It's important to have it in the context of the markets that we're in. And I think we're pretty comfortable with the fact that we don't have a lot of drawn debt in the bank market, but that -- but we can draw that debt to quietly deal with anything that's in front of us going forward.

Great, thanks. And then just a final question perhaps for Mick, or perhaps for one of the other team members. The AEMC review which had its draft report out in December, can we maybe just get your color on where you think that's heading or where you would like that to head?

Yes, thanks Rob. I'm not allowed to talk about ACCC and all that sort of stuff, so I'll pass over to Ross.

Thank you. We've just submitted a response to that draft report, which I'm pleased to say both APA and the rest of the pipeline industry are pretty much aligned on putting forward a proposal, which we think addresses the key aspects in relation to that report and we're just working through that process at the moment. But that's something that we'll develop over the next three to four months and we're very active in engaging with the various stakeholders.

I can't help myself. It's important, as Ross has said, we participate in reviews, regulatory reviews, whatever, we certainly participate with the ACCC and the East Coast gas inquiry, whatever and I hope what you've heard Peter and I talk about today with these results, I mean these days APA isn't just a dumb pipeline company. We pride ourselves on the fact that we have spent billions in building an East Coast grid. We've helped develop the Australian gas market, but us, these days, APA's all about innovation, investment and efficiency and we certainly hope that APA's efforts in particularly those three areas are brought to bear in respect of reviews.

Okay, many, many thanks guys, appreciate it.

Thank you. The next question comes from John Hirjee of Deutsche Bank. Go ahead please.

Thank you. Good morning everyone. A couple of questions if I may. Peter, in your talk, you were talking about the credit rating of your customers. I just wanted to know if any of your major customers goes into non-investment grade, what does that trigger within APA or what sort of requirements do you have. Do you have more requirements, they've got to put up more collateral or something like that?

Look I think you'll see in there, John, a slide that shows something like 53% of our revenue coming from A- or better customers, then another 44% coming from BBB- or better, so we've got 97% of our revenue here from investment grade related parties. I'd have to look at individual contracts with individual customers before you could answer that question specifically, but the fact of the matter is, it will depend on who the customer is, it will depend on what contract we have with them, it will depend on whether or not we've got parent company guarantees or we are even dependent on them retaining ratings. So it's a bit of a case-by-case basis here, but I think from our perspective, we look at our customers and their ratings as being a guide, not as being something that's mandatory or something that's fixed in stone. And from our perspective, that's a guideline.

Okay, thank you. And in terms of the stay-in-business CapEx, I guess with the Wallumbilla Pipeline that you've acquired, that there isn't much stay-in-business CapEx required, but I'm just wanting to know what sort of level do you think that stay-in-business CapEx will plateau at once you've got those new assets coming through and contributing to that stay-in-business CapEx, because it seemed to go down year-upon-year.

Yes. I think and we've said this John when we acquired the asset, we didn't expect it to change our stay-in-business CapEx materially over time and we've also said that we think that that sort of where we are, around AUD40 million to AUD50 million in stay-in-business CapEx is probably an appropriate level given the size of business that we are. Stay-in-business CapEx is primarily around technology. Mick talked about the technology that we've been implementing for things like the APA grid, which helps us manage this network these days, all the stuff we're doing in the likes of the integrated operations center, all of that, upgrading of SCADA systems, nationalizing those sorts of things, reinvestment in those systems. APA grid's five or six years old now, so reinvestment in those sorts of system will see us, I think, continue to spend money at around about the AUD50 million level going forward. But we don't think that the Wallumbilla Gladstone Pipeline will have any significant impact on stay-in-business CapEx going forward.

Okay, thank you. And one more and perhaps to you, Mick, now that you've owned and operated the Wallumbilla Pipeline for a little bit now, does that increase your appetite to look at the other two, should they become available?

John, without being flippant, I've answered the question earlier. Anything that looks like a pipeline, smells like one, walks like one, it's not a duck, you'll find us looking at it, yes. Just in respect of the, I'll call them the LNG pipelines, we'd be saying to any potential seller that the skills that APA can bring to the table there around operating and maintaining, et cetera, et cetera and the size of APA these days, would be of value to them. So yes, we are interested in those pipelines and indeed any other pipeline that may come up for sale.

Thank you very much guys.

Thank you. The next question comes from Ian Myles of Macquarie Bank. Go ahead please.

Good morning, guys. A couple of things, you sort of mentioned 2% of trading revenue associated with gas been moving around on an ad hoc basis. I was wondering, within that proposed regulatory changes by the AEMC, how much of that trading revenue would be at risk?

Yeah. It's Ross Gersbach. The trading revenue that we're booking at the moment, as we've said in the past, we're seeing how that develops over time. But largely the proposals that we put forward will facilitate others to do that trading activity as well. And so that won't necessarily will come to our account going forward, but we're in a period of transition and that's why we're very cautious in these reviews as to making too many changes until we see how that develops. But clearly the regulators are looking for others to more actively trade, in which, we won't necessarily be excluded from that, but there will be others that will look to participate in that.

I'll make the comment that retrospectively it's only because of APA, the money we've invested in the East Coast grid that we're even talking about the ability to trade. Again, I just don't want that lost on the market. It's APA. We're ahead of the market here, we provided the systems, the IT systems as Peter mentioned earlier that runs in the hundreds of millions of dollars we've invested. So it's APA that has developed the physical and the IT platform over that that we can even have the discussion we're having today.

Okay, I accept what you're saying there. When you look at it also through the prism of the Northern Territory pipeline coming in, I think a couple of larger gas users in Brisbane shutting up shop, AGL quite openly talking about handing back capacity, how does the system work when you've got a lot more probably surplus capacity in the pipelines than you've probably ever had in the past?

I think Ross is itching to answer the question. Just an overarching comment before I pass to Ross. I mentioned the words earlier; APA is not just a dumb pipeline company. When I started the business 30 plus years ago, that's sort of what we were; you pick up gas from point A, you drop to point B, read the meter once a month, multiply by a tariff and send a bill in the post and hope you get paid. These days, when we talk about the East Coast grid particularly, it is exactly that, it's a grid, it's a network. I was absolutely chuffed back in December that we had gas for the first time in the Moomba Sydney pipeline's 40-year existence, gas is going up the hill. What I'm alluding to, Ian, is that when you look at the grid now, rather than the number of pipelines physically connected, if you look at it as a grid, it's of less concern that there's a contract to take gas from point A to point B, or in this case say Moomba to Sydney. So if there's capacity that is available, whether that's uncontracted or physically available, that is capacity that we are able to put to the market to help, by way of example, any of the LNG exporters when they have requirements that need to have that gas taken to other places than Gladstone. I will acknowledge that what I'm saying, with the dynamics of the market these days, I can't stand in front of you and say that we've got a long-term contract to cover all the dynamics and scenarios that will play out in the market. We are learning as we go, as indeed the market is. Ross, do you want to add anything?

Yes. Ian, if your reference was in terms of the AEMC and how that works, now the debate is for shippers to gain access over capacity that's already been contracted that may not be utilized and that's where the debate is. So any uncontracted capacity is not the real debate amongst shippers. The concept where larger shippers are hoarding capacity, it still hasn't been determined whether that's correct or not, is where the debate is and if it's found that they are and people need access to that capacity that's not being used, that's where our proposal comes in to be able to auction that unutilized but contracted capacity.

Just, if I may and it's a bit of a hot point for me, I just hate the words hoarding capacity. If someone has underwritten the expansion of a pipeline or a new pipeline over a long term, they've done that in respect of their own business, to mitigate the risks their own businesses face, I don't believe that's hoarding gas capacity. It's simply managing your own business risk. Others may call it that for their own self-interest, but I think that the words hoarding capacity are very loosely used in this debate.

Okay. Look that's great, thanks.

Thank you. The next question comes from Paul Johnston of RBC Capital Markets. Go ahead please.

Thank you, good morning everyone, just a couple of questions. Firstly on the dividend, you previously talked to a payout ratio in respect of operating cash flow per security and I think a target or a loose sort of target range of 60% to 70%. I think in the half you've come in, in the mid-40s%, albeit with some tax benefits that you were talking about, Peter. But I guess can you just talk to that again, around that loose target, 60% to 70%, whether that's still well and truly what we should be thinking about, but also, it's a long question, sorry, but in the context of growth CapEx, I guess coming at the low end of 2016 and maybe 2017 as well, whether we should be thinking the top end of that range.

Paul, the 60% to 70%, as you call it, loose target, we call it a soft target, hasn't gone away. And again, if you go back and look at our half year results in the past, the cash flow measurement has never been at the 60% to 70% payout ratio then, it's always been about an annual thing. You need to keep in mind, though, that we have got a couple of other overriders in respect to our distribution policy and one of those is being we take into consideration the need to retain funds in the business to support its growth and we'll take into consideration the economic conditions at the time. If you sit here today, what we've delivered to our shareholders, our security holders, is an 8.5% increase in distributions, which is not a bad outcome in the context of the markets as they exist today. We're looking to make sure that we don't put this business in a position where we expose ourselves to the volatility of market conditions. We'll continue to look at our distributions. We've confirmed today the full year guidance should be in the order of AUD0.415, which is again overall I think it's about a 9% increase year-on-year and again, we would say that's a pretty good outcome for security holders in our business. We'll take everything into consideration. We've never ever had one part of our policy or one of our targets has been the overrider of anything else. We need to look at the dynamics of the market and we will continue to do that. Right now security holders are going to get AUD0.19; they should expect around in the order of AUD0.415 for the full year. And we'll continue to look at our needs for the business and the market volatility and conditions to ensure that we maintain our strong business and in the position to be able to do the stuff that we want to do going forward.

That's helpful, thanks Peter. Just two other ones, more I guess housekeeping, just on the assets. In terms of south west Queensland, in the half, was that a full run rate, if you like, in terms of that asset? It came in a bit stronger than what I was expecting, but I just wonder whether I wasn't actually having a full contribution in the half. In other words, would you be expecting another lift on that particular asset in the second half coming through? I assume not, but if you can clarify that, that'd be great.

There's always a little bit of volatility in these things, but I think what we've always said is that FY16 was when we expected the full ramp up of those initial contracts that underwrote that AUD800 million expansion back in 2011 and 2012. I think we are generally seeing that starting to flow through into these results, yes.

There'll be a further lift in the second half then, will there?

Well as I say, the result that we've given guidance on includes that, includes what our expectations are for the full year.

Great, no, that's fine. Finally, just on the situation in WA, just with Mondarra, I think EBITDA, using the rough rule was at about 20% but then you make some comments in the accounts that you're looking to undertake further investments. Does the 20% lift, if my numbers are roughly right, does that include investments that you've made recently or is that more additional growth on the existing capital that's there and then there's potential further upside in Mondarra if you were to install additional capacity? If you can give us some context and some color around the dynamics, that would be great as well. Thank you.

Yes, happy to do that Paul. Mondarra, when we announced the, I'm going to call it the expansion, some years ago, that was underwritten by Synergy, so that's up and running and all that sort of thing. As part of the original project economics, we had budgeted at the time and made allowance for the drilling of another well and that's the expansion that we're referring to in these results. That well's been completed, it's been successful; we've done the completion work on that and that'll be tied in, in the near future. What it does give to us is some more physical capacity and what you're seeing in the Mondarra results there really are about the more users using the facility, so we're very pleased about that. But the facility, as I speak today, even with the new well to be tied in, is pretty much fully contracted.

That's great. So that further expansion on Mondarra, that's not reflected in the first half result, notwithstanding the growth in Mondarra, there should be a further kick up again, is that how we should look at it?

It's not reflected in the first half results, that's true. But we would expect to see some movement upwards in due course and I'll just say a small increment, at least, but it really comes down to the usage of the facility, because some of the customers aren't -- they're not contracting for long periods of time. So there is some flexibility and dynamics not dissimilar to what's happening on the East Coast around Mondarra. The fact is, we've led the market, we've got a well-functioning, well-established storage business in WA and to that extent, we are at the behest of what the market requires, but very lucky for us, Mondarra's doing well.

That's it from me, thank you.

Thank you. The next question comes from Nathan Lead of Morgans. Go ahead please.

Good morning gentlemen, just a couple of questions. First up, at the August result, there was indication that there was about AUD137 million of transaction cost still to be paid on the LNG pipeline. Can you just give us an update on where that's at?

Nathan, that was the stamp duty that was outstanding and provided for and what you'll see in fact on page 18, you'll see investments and acquisitions AUD122-odd million. That's the cash flow of paying that stamp duty on the acquisition of the Wallumbilla Gladstone Pipeline.

First half looked like it had a bit of beneficial working capital movement, is there anything in there we should know about and is it likely to reverse in the second half?

You're always getting detail in a hurry, Nathan. We'll talk later on today and you're making us out not to look so smart.

You know that working capital fluctuates with the various different things that happen, including the payment of, you know, we see people taking leave in the first half, leave being paid in the first half, December 15 for instance, takes money out of provisions, incentives are paid in the first half, takes money out of provisions. These things fluctuate, Nathan.

Yes, absolutely. Just I suppose thinking about the DPS guidance, or DPS framing going forwards and your conservatism in terms of the outlook, impact of the AGL contract, Incitec Pivot contract, the BHP refinery closing up, up here, are you able to provide a total dollar revenue number impact that that could be across all those contracts?

No and the best way of answering the question, Nathan, we keep going back to it, but APA these days is a big business. We've got a big number of assets. Whilst we focus on individual assets obviously, in talking with you today the focus for us is what's our guidance and are we going to achieve that. So all of those issues are in front of us, not just in the East Coast, I mean we face that across the business in its entirety. But roll it all up, the strength of APA is that we do have assets across the country and we'll continue to put the guidance out there and there's nothing in front of us that's going to put any pressure on that any time soon.

Nathan you sort of put that question out, I think, in regards to DPS. I thought I heard you say something around DPS in framing that question. What I would say is this. DPS is operating as we expected it would from day one. It's delivering to its fullest extent to its customers and we expect it to continue to do so. We don't see any issues with the contracts that they have up there.

Peter, I was referring to distribution per share.

Oh okay, distribution per share okay.

In terms of the outlook.

We gave you a bonus answer.

You got two, yes.

So DPS, yes, Diamantina Power Station is going well as well.

Good to hear. Thank you.

Thank you, there are no further questions at this time. I'll now hand back to Mr McCormack for closing remarks.

Look thank you very much to those on the call for your continued interest in APA. As someone said on the call, there's a bit of conservatism in the results today, but the future of the business certainly remains very sound. We look forward to catching up with you either in person or on the phone as we get around the country. So thank you again and look forward to seeing you in roughly six months' time.