DUET's (DUETF) CEO David Bartholomew Discusses Q4 2016 Results – Earnings Call Transcript
Duet Group (OTCPK:DUETF) Q4 2016 Earnings Conference Call August 18, 2016 8:00 PM ET
Executives
David Bartholomew – CEO
Jason Conroy – CFO
Analysts
Michael Dargue – Citi
Paul Johnston – RBC Capital Markets
Peter Wilson – Credit Suisse
Rob Koh – Morgan Stanley
Ian Myles – Macquarie
Nathan Lead – Morgans
Simon Chan – Bank of America Merrill Lynch
Operator
Welcome to Duet Corp., FY 2016 Full Year Results Briefing. I will now hand you over to today’s presenter, Mr. David Bartholomew. Please go ahead.
David Bartholomew
Thank you very much. Good morning, everybody. For those who have joined us via the webcast and teleconferencing channels, welcome to our annual results presentation. Also with me today is our CFO, Jason Conroy, who will be presenting with me.
The agenda for today’s presentation is set out on slide three. I will first summarize the performance highlights; Jason will then set — present our results. Then I will discuss the outlook and priorities for the year ahead. Time will be set aside for questions at the end of the presentation.
Slide four summarizes our performance highlights for the 2016 financial year and recent months. It has been a momentous year for Duet Group. In late October we completed our acquisition of Energy Developments. Our acquisition of EDL has expanded our geographic footprint, expanded and strengthened our network and customer relationships, enabled us to develop a compelling product offering of gas transmissions and electricity generation in the remote energy business, and it has brought two new earning sources to the Group; Waste Coal Gas and Landfill Gas, diversifying and growing our non-regulated revenue base.
Our integration of EDL has been completed. We’ve been supported by a skilled, experienced management team at EDL that is passionate about the business and energized by the prospects for growth under our ownership. Opportunities are emerging for development synergies between EDL and our other businesses, particularly DDG, our gas pipeline development business and United Energy. Opportunities are also emerging for us to use EDL as a vehicle to expand into the mid-scale renewable sector in Australia. Our first step in this direction was EDL’s acquisition of the 30 megawatt Cullerin Range Wind Farm from Origin Energy that we completed in July 2016.
Another important milestone for the Group was our acquisition of Alcoa’s minority stake in DBP. This acquisition took our aggregate ownership interest in DBP from 80% to 100%. We have always been interested in acquiring more of our existing businesses at an appropriate price. We now hold a 100% aggregate ownership interest in four of our five businesses and we remain interested in acquiring the remaining 34% of United Energy should the opportunity arise.
On the regulatory front both United Energy and DBP received final decisions for the 2016 to 2020 regulatory period. While each of these decisions was an improvement on the draft decisions, both are now subject to appeals to the Australian Completion Tribunal that have the potential to provide further upside. Pleasingly Multinet Gas received regulatory approval for its accelerated pipe works replacement program in September last year. On the operational front EDL re-contracted its Appin Tower and Pine Creek sites for a further 18 and 3 years respectively and completed a number of capacity expansions and acquisitions.
United Energy improved its network performance as a result of its Every Minute Counts program and more favorable weather patterns with fewer intense storms. In July of this year we launched a business transformation project at United Energy and Multinet Gas with the objective of maintaining their positions as benchmark efficient utilities.
On the capital management front we raised $1.92 billion of equity, primarily to fund our acquisitions of EDL and DBP and we raised and refinanced more than $2.4 billion of debt on competitive terms. Yesterday we paid the final distribution of $0.09 per stapled security, taking our total distribution for FY 2016 to $0.18, in line with our guidance. And today we’ve reaffirmed our full year FY 2017 distribution of $0.185.
I will now ask Jason to take you through our results.
Jason Conroy
Thanks, David. Our underlying statutory result was $195.2 million, up over 150%. This included contributions from the acquisitions of EDL and DBP that we completed during the financial year. Our Group proportionate earnings were up over 35% versus the prior year’s pro forma result. These earnings include a full year contribution from EDL. The pro forma FY 2015 numbers include the impact of the two acquisitions so as to provide a like-for-like comparison.
Notably we produced earnings growth across all of our businesses as demonstrated by the chart on the right hand side of the slide. With adjusted EBITDA for the Group up around 4% our bottom-line benefited from a 16% reduction in net interest expense, lower stay in [ph] business CapEx and lower tax, which we flagged at the time of our EDL acquisition.
As EDL did not declare and pay any dividends to its previous owners from 1 July, all of its earnings were available to fund our full year distribution of $0.18 per stapled security. This contributed to the 117% earnings coverage of our distribution which was a significant improvement on the prior year.
Slide seven summarizes our capital management performance and position. As mentioned by David investors continue to support our growth strategy, as evidenced by our equity raisings completed during the year. Our stable security prices since performed strongly relative to the issue prices of each of the raise shown on the slide.
In terms of the debt capital markets, we’ve raised and refinanced over $2.4 billion of debt during the year for our business on competitive terms. During the year we invested a total of $220 million of equity in United Energy together with the minority shareholder. UAE has balance sheet capacity to fund its growth CapEx program through to end of FY 2017. It is also worth noting that since taking ownership of EDL. We have hedged its base interest rates and FX exposures over the medium term, refinanced its corporate debt facilities, [indiscernible] its balance sheet and hedged on a firm basis a material amount of its future medium term Queensland Black Electricity Output as well as forward selling LGCs.
These initiatives among other things enabled EDL to achieve and maintain a stable investment growth credit rating under Jewitt’s [ph] stewardship. As a result EDL has maintained strong support from its bank group with contract closed yesterday on a $200 million increase in its corporate debt facility on competitive terms. This provides EDL with additional funding capacity as it continues to seek to capitalize on growth opportunities emerging across its business.
Along with our corporate cash position of just over $100 million we have capacity to fund a number of these growth opportunities. With planning well underway, we also expect to refinance most of the group’s 2017 debt maturities by the end of this calendar year.
Looking now at the operating results for each of our businesses, starting with DBP on slide nine. Transmission revenue for DBP was down 1.4%. As flagged at our interim results, revenue was impacted by the 1 April 2016 closure of the Southwest Cogen facility. Notably though we continue to see both a switch to and an increase in back haul volumes from gas demand in the Pilbara. In response to lower revenue, OpEx was tightly controlled resulting in adjusted EBITDA being down by only 2.4%. As presented earlier, a reduction in net interest expense more than offset the lower EBITDA and led to a 12% increase in DBP’s proportionate earnings.
Now the DDG on slide 10. FY 2016 saw the first full year contribution from both of the Wheatstone and Fortescue River Gas transmission pipelines. It is worth noting that DDG’s revenues from these pipelines are underpinned by long-term 100% take-or-pay contracts. For the year DDG contributed $32.3 million to group EBITDA. As part of DDG’s key customer relationship management it also completed the customer funded construction of the 24 kilometer Ashburton-Onslow Gas Pipeline and a meter station rectification project at Gorgon for Chevron during the year.
Moving to United Energy on slide 11; distribution revenue was up 2.2% as an increase in network load and higher tariffs over the 2015 winter period were offset by the tariff reduction that came into effect on 1 January this year. OpEx was up 2.2% as the deferral of expenditure flagged at our interim result was caught up during the second half of the year. David will discuss the business transformation project that kicked off in July this year and our approach to targeting future OpEx reductions.
UE’s regulated asset base increased 4.5% during the year as the business continued to replace parts of its aging network and increase capacity. As presented earlier, our reduction in net interest expense coupled with our lower staying business CapEx contributed to a 26% increase in UAE’s proportionate earnings.
Now to Multinet Gas on slide 12. Distribution revenue was 4.5% higher as a result of the increase in tariffs in January. OpEx was higher mainly due to a $6.4 million provision for unaccountable gas. Addressing UAFG remains our key area of focus for the business. We will also be seeking a higher UAFG allowance from the regulator effective from the start of the next regulatory period in January 2018. Overall OpEx will be addressed as part of the joint business transformation project with United Energy.
Turning to Energy Developments on slide 13. Generation revenue was down 0.5% due to lower production in the UK and U.S. from temporary gas supply interruptions. This was mostly offset by higher grain, revenue primarily from LGC sales. OpEx was down as two customers pay directly for gas rather than through EDL and this also reduced electricity revenue by the corresponding amount of approximately $16 million. Importantly EBITDA was up 6.7% on the prior year’s pro forma result as the outperformed our investment case.
As that concludes the results section of the presentation, I’ll hand you back to David to take you through the outlook and our management priorities for the remainder of the year.
David Bartholomew
Thanks, Jason. I’ll deal first with the recent regulatory decisions for DBP and United Energy, and I’m on page 15. With the ERA’s final decision recently handed down, DBP now has tariff certainty for all of its firm full haul contracts through to 2020. In 2014 we re-contracted with most of our full haul shipper out to 2020. And as a result this regulatory decision will affect tariffs on only around 15% of DBP’s full haul volume.
Key points to note from the ERA’s final decision compared to the draft decision include a 6% increase in the total allowed revenue for 2016 to 2020 and a 35% increase in total allowed CapEx.
DBP has appealed four elements of the ERA’s decision. The first matter relates to the definition of part haul service which ERA has sort to amend without reference to the cost drivers and economics of the pipeline. The second relates to the ERA’s proposal to reclassify certain items of expenditure from CapEx to OpEx, reducing DBP’s opening regulated asset base without a corresponding increase in the OpEx allowance.
The other items being appealed are the valuation of tax credits or Gamma and the methodology for determining the return on equity where the ERA arbitrarily changed its approach in the final decision. The appeal outcome is expected in the first quarter of calendar year 2017.
United Energy’s final regulatory decision saw a material improvement on the draft including a 14% increase in the total allowed nominal revenue, a 12% increase in allowed CapEx and a 10% increase in the OpEx allowance. This outcome reflects UE’s position as a benchmark efficient network service provider. The decision will mean tariffs increase by CPI plus 4.2% in January 2017 and a further increase in both January 2018 and January 2019 of 3.5% plus CPI, subject to any further tariff increases resulting from a successful appeal.
UA has appealed two elements of the ERA’s decision; the valuation of tax credits or Gamma and the ERA’s inflation assumptions. Both of these matters will be tested in appeals currently before the Australian Competition Tribunal and the Federal Court relating to ERA decisions for other distributors.
We continue to explore options to extend the Fortescue River Pipeline further into the Pilbara. The Pilbara miners remain focused on reducing their operating costs, and as a result we’re seeing continued interest from them in these replacement projects. As anticipated at the time of our acquisition EDL is working with DDG to provide combined gas transmission and generation proposals to remote mine sites.
Turning now to page 18. In July this year United Energy and Multinet Gas launched a transformation project targeting OpEx reduction and opportunities to generate new streams of unregulated revenue, as each business aims to consolidate its position as a benchmark efficient utility. Each of the businesses benchmark strongly against their peers, as evidenced in the charts on this slide. But we are seeing further material opportunities to improve their operating performance.
The improvements are expected to deliver lower network charges for customers and will set that networks up to play an important ongoing role as distributed generation and storage technologies change the pattern of supply and demand for electricity. We look forward to reporting our progress made in this regard at our interim 2017 results presentation early next year.
Page 19, EDL has recently recontracted a number of it’s sites. In December EDL announced an 18 year extension to 2033 of the 97 megawatt Appin Tower contract with South32. This site represents more than 10% of EDL’s total installed capacity. EDL also secured new and expanded gas supply agreements at the Grosvenor and Oaky Creek mines. This increased the weighted average contract tenure for EDL’s Waste Coal gas business agreements from 13 years to around 19 years. EDL has built its waste coal business focusing on high quality low cost mines owned by strong world class counterparties. EDL’s host mines are all high margin operations, mostly in the top quartile of the Global Met Coal Margin Curve.
As our customers face pressure from lower commodity prices, they sought to secure new revenue sources and further reduce their energy costs. They’ve also looked to fund incremental investment in non-coal infrastructure off balance sheet. These trends will continue to present opportunities for EDL to grow its business further integrate itself with its customer’s operations and help improve their competitiveness.
The remote energy business has also seen considerable success since our acquisition of EDL. We’ve completed an 8 megawatt expansion of capacity at Sunrise Dam and extended the generation agreement to December 2025, and have entered new contracts with AGA to provide gas handling infrastructure. EDL has also extended its contract with Territory Generation at its 26 megawatt Pine Creek facility for further three years through June 2019.
And we’ve reached final agreement to build an innovative hybrid generation facility Coober Pedy in South Australia, using wind, solar and battery technology to displacing the existing diesel generation. This project if proven to be scalable holds significant potential to drive the growth of EDL’s remote energy business in coming years.
Moving to EDL’s LFG business on slide 21, during the year we’ve expanded EDL’s landfill gas business by acquisition and have entered new gas supply agreements at two of our U.S. sites. In April we acquired Landfill Gas and Power in WA, adding 10 megawatts to EDL’s LFG portfolio. We’ve reached agreement with a new customer, Rumpke to build a five megawatt LFG facility on their Brown County landfill site near Cincinnati in the U.S., along with a 15 year offtake agreement and the rights to supply gas from the site for 25 year period.
In July we announced our acquisition of the 4.8 megawatt Pecan Row LFG site in Georgia in the U.S. We also negotiated extension of our gas supply agreements with the Republic by 12 years at the Tessman site in Texas, and by 15 years at the Zion site in Cleveland. The U.S. LFG business remains highly fragmented with the top providers controlling only around 50% of the sector. As a result we expect there will be other opportunities to expand our U.S. LFG business. This will be from a combination of acquisition, expansion of capacity at our existing sites, and by developing new facilities for our existing customers on other sites that they control.
Turning now to page 22. EDL completed the acquisition of the 30 megawatt Cullerin Range Wind Farm from Origin Energy for $72 million in July this year. The acquisition leverages EDL’s experience and capability in managing distributed generation portfolio, which is diversified across a range of fuel sources. It is also an excellent strategic fit for EDL and complements our existing portfolio, which includes 160 megawatts of distributed generation located in New South Wales and the ACC.
EDL is looking to build on its acquisition of the Cullerin Wind Farm to establish a portfolio of mid-scale reconnected renewable generation sites. This sector must see significant growth over the next three to five years if the renewable energy target of 33,000 gigawatt hours is to be met by 2020. EDL is well positioned to be successful in this sector, is able to manage the operation of these mid-scale generation sites as part of its global generation portfolio which totals over 900 megawatts.
EDL is also in a position to manage the electricity sales and green credits generated from additional renewable sites within its existing portfolio. And EDL has the advantage of being able to fund these opportunities with corporate debt. A longer term opportunity for EDL is to utilize and upscale the hybrid solution it is developing at Coober Pedy to integrate wind, solar and storage technologies to replace diesel generation for remote towns, mines and industrial sites.
Page 24, there is a great deal of common interest between EDL and DDG and between EDL and United Energy. The Group has already benefited from sharing best practices approaches to a number of work, health and safety issues. DBP has taken over the maintenance contract for the pipeline supplying gas to EDL’s Maitland LNG facility and DBP and EDL have reviewed their procurement arrangements with their common suppliers, including the gas turbine manufacturers aiming to enhance commercial terms. And the two businesses have been collaborating on a number of joint business development proposals to offer customers integrated gas pipeline and generation solutions.
United Energy has provided technical assistance to EDL in high voltage cabling and grid connection design. And there is potential for United Energy to support EDL as it seeks to acquire or build private networks combined with distributed generation. UE is also working with EDL to provide larger customers with behind the meter power supply from EDL’s clean energy sites using dedicated connections designed and owned by United Energy. We see great potential to leverage the combined skills, capabilities and interest of our Group businesses.
Moving on to slide 25, we have delivered our FY 2016 distribution guidance of $0.18 and today we’ve reaffirmed our distribution guidance for FY 2017 of $0.185, and we’ve also restated our target distribution of $0.19 for FY 2018.
Turning now to slide 26 which sets out our priorities for the coming year. Our primary focus will be on delivering our FY 2017 distribution guidance. We will work to conclude appeals of the recent regulatory decisions for United Energy and DBP; we will complete the transformation project at United Energy and Multinet Gas to maintain their position as benchmark efficient utilities; we will look to grow EDL’s revenue base through acquisitions and through organic growth opportunities; and we’ll aim to refinance debt maturities on competitive terms; and we’ll continue to explore new opportunities to invest in accretive energy infrastructure opportunities.
And so to sum up we are very satisfied with our financial results and are excited by the growth platform that we are building for future years. That concludes our presentation, and I would like now to invite questions and we’ll hand back to the operator to introduce each caller.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer section. [Operator Instructions] Our first question comes from the line of Mike Dargue from Citi. Please go ahead.
Michael Dargue
Hi guys. Couple of questions from me. Firstly, on the operational efficiency, you are targeting at United and Multinet, [indiscernible] immaterial, can you give us any more color on whether you can get 5%, 10% operating in cost savings?
David Bartholomew
We see significant opportunities there to push down the cost curve, if you like. We are targeting more than, significantly more than 10% in OpEx outperformance from the businesses relative to our regulatory benchmark for the period.
Michael Dargue
Okay, great. And second one on any developments you are using electricity in creating revenues, and significantly stronger in the second half. Should we expect this to be kind of at the run rate going forward given it’s largely hedged at this point?
Jason Conroy
Yes, look I think some elements of it would be probably seasonality, but I think — I don’t want to give you a run rate description of where it’s heading. It’s probably more about considering it on an annual basis then a six monthly basis.
Michael Dargue
Okay great. And then last one, you’ve identified a whole host of growth options. How much you think your balance sheet can fund before you have to return to the market to fund this growth.
Jason Conroy
Well, I think as we’ve outlined in the presentation we’re sitting on a $100 million of cash at corporate head office. At EDL as we announced yesterday, they’ve got undrawn facilities now of $275 million approximately. So as I said in the presentation we can find a number of growth opportunities. And obviously if we are very successful with executing all of those opportunities and exhausting our capital then we may need to come back to market in the future. But it’s not something that we contemplating in the near term.
Michael Dargue
Great, thanks, guys. That’s all from me.
Operator
Your next question comes from the line of Paul Johnston from RBC. Please go ahead.
Paul Johnston
Okay, good morning, everyone. A couple on EDL from me as well, and thanks for the presentation and the additional data. Just on Cullerin Range, can you talk through just the nature of the contract, in the Range that they are [indiscernible] one of the other slides that we’ve got the capability of sort of separately contracting and managing the risk between black and RET, I’ll just say. Is that sort of why is that structured? Secondly, just more broadly, you’ve talked about the proximity of the asset as one of the reasons why you really like it. Is that sort of how we should think about the strategy moving forward that you will be looking to I guess acquire assets that are already being developed, that are in close proximity to some of your existing assets?
David Bartholomew
Yeah, thanks Paul. Look on the first one, Cullerin Range represents about 3% of EDL’s total installed capacity. We said at the time of the acquisition, that our offtake arrangements were not for all of the volume, and not for the whole of the term or the life of the asset. So there is a small un-contracted portion there that we are blending in to our existing hedge portfolio of black and green pricing.
On the second matter, the focus of our renewable strategy, we are looking — we won’t be taking development risks. We can manage construction risk. So we’ll be looking either for operating sites, or those that are so called shovel ready, that is with all the development approvals and environmental approvals in place.
We think the addressable market in that category in the sort of 20 to 120 megawatt range is about 500 megawatt. So there is a very significant opportunity there for us. As to proximity, look we have interests throughout the NIM. And so it is a secondary consideration, especially as we have centralized control and are used to managing remote sites. So geography is a secondary issue in our search for growth opportunities.
Paul Johnston
That’s great, thanks. And just one on EDL. I noticed in your management accounts you’ve excluded about $49 million odd of what are called project costs in your reported, or in your EBITDA as presented in the presentation. Can you just talk through what is involved in that number and whether that will be sort of excluded on an ongoing basis?
Jason Conroy
Yeah Paul, I mean they are one-off in nature. They are related to the acquisition of EDL, related to advisory cost on their side and some employee benefits that we’re satisfied on the completion of the sale. Clearly they’re one off, and they are not recurring in nature and that’s why they’ve been excluded from the earnings calculation. And I think that’s been made pretty transparent through the MIR and the earnings has been fine.
Paul Johnston
Great, okay so all of the $49 million is one-off, okay, that’s great. And maybe just one more from me the interest expense on DBP, they fell a lot. And I was expecting it to come down business not until 2017. I guess I just wanted to, obviously I missed something there, but just to comment on where that might go from here, I’m bridging [ph] they won’t fall by a similar amount in the sort of number you have quoted here today is what it’s going to be roughly over the medium term?
Jason Conroy
Yeah, I mean Paul I think as we have said on previous calls, particularly at the time of the re-contracting that we were putting in place, or had put in place, sculpted hedges to match our revenue profile and our expectation around particularly around the final regulatory decision. What I can say to you is that in terms of the hedge position, our weighted average hedge position will fall by around by another 80 basis points in calendar year 2017. So you will continue to see some benefit there, and that’s being done to match the revenue impact if you like, of 15% of our full haul capacity going on to the rate tariffs. So that’s been factored in as part of our budgeting and forecasting.
So to the extent that you have a decline in top line we’ll have a bit of a pickup on net interest expense and that was the reason to try and keep cash flow as stable as possible.
Paul Johnston
Very good, that’s it from me. Thank you.
Operator
Your next question comes from the line of Peter Wilson from Credit Suisse. Please go ahead.
Peter Wilson
Hey, good morning guys. Just a couple of questions from me. Just firstly on, I mean you’ve got a suite of growth avenues within the Energy Development business, $200 million of undrawn debt. Just on the opportunity in the U.S., I mean that business has seemingly turned around, starting to grow well. How much — when you look at all your opportunities how much of that $200 million do you think you might deploy in the U.S. as opposed to your mid-scale renewables?
David Bartholomew
If you look at the things we’ve done in the U.S., to-date it’s sort of been three megawatts, five megawatts, eight megawatts sites, and I don’t really see that changing. We’ve got sort of something in the order of 100 megawatts in the U.S. at the moment. We would like to see that grow, but we’re not talking about a huge drain on our capital resources to continue to build out the number of sites and the installed capacity in the U.S. So if that gives you any guidance at all.
Peter Wilson
Okay. So you are not necessarily anticipating, I guess a consolidation among those top five? More just bolt-on acquisitions — out of that group?
David Bartholomew
Exactly. We are talking about acquisitions of sites, more likely than acquisition of entities.
Peter Wilson
Okay, great. And then just one last accounting one, apologize if you have included it somewhere in your disclosures. But do you have an estimate of how your current [ph] business CapEx did to rate depreciation this year?
Jason Conroy
We haven’t done that calculation, and I think typically it’s been within $30 million or $40 million on a Group basis. I haven’t done that number. We’ll have to come back to you.
Peter Wilson
Okay, great. Thanks.
Operator
Your next question from the line of Rob Koh from Morgan Stanley. Please go ahead.
Rob Koh
Good morning, guys. My only question on EDL is when can we do a site tour?
David Bartholomew
I’ll be very happy to take you to the Lucas Heights Landfill anytime you like Rob.
Rob Koh
I will be there, date it. Okay. We had lot of talk about EDL. Can I ask some questions about the DBP, and I noticed that there has been a pleasing increases in backhaul. So I am just wondering with the very entrepreneurial, Mr. Stuart Johnson there, if there is opportunity for flexible services, seasonal line pack, any incremental short-term opportunities that come in out of that?
David Bartholomew
Yes, absolutely. And with the shift in demand of the Pilbara, we’ve seen, I guess just greater complexity in the profile of demand and in the demands of customers. And I think there is really the opportunity to provide some of those Pilbara customers with a broader suit of products, including park-and-loan, and storage contracts and so on, which we think has some significant potential. It’s not going to fundamentally change the economics of the DBP. But it will be attractive incremental revenue for us and will help develop those key customer relationships with people like Fortescue and Chevron up in the Pilbara and [indiscernible].
Rob Koh
Okay, cool. And I just as a corollary if that and in light of you moving to 100%, and you are happy with your valuation and the kind of valuation of premiums arrived?
Jason Conroy
We believe we bought DBP at a fair price and the business is performing in line with their budgets.
Rob Koh
Okay. Last question just on Multinet, I just wanted to confirm you got a reset coming up for 2018. So the FY 2016 results is part of before [ph] the current reset?
Jason Conroy
Yeah, that’s our expectation.
Rob Koh
Excellent. Thank you very much.
David Bartholomew
Thanks, Rob.
Operator
Your next question from the line of Li Win Chen [ph] from JPMorgan. Please go ahead.
Unidentified Analyst
Hello. I just had a question about — you announced [indiscernible] acquisitions and capacity upgrade at EDL, but I have noticed installed capacity is flat. Can you maybe provide some color or comments on that, what changes have happened sort for the downside?
David Bartholomew
We announced I think in December 2015 that EDL had lost a couple of [indiscernible] contract for the mid-towns with Horizon that saw installed capacity fall a bit there. We’ve had otherwise offsetting improvements.
Jason Conroy
So we’ve announced a number of things in recent times. So there is the mid-west towns which David’s talked about. We’ve also had capacity expansions at Sunrise Dam and Oaky Creek. We’ve announced the OGP acquisition in Western Australia and the ASJ [ph] acquisition that was completed in July. So when you add all those up you get to a position where we are slightly above our installed capacity of a year ago, and where we stand today post year end. I think we are sitting just under 933 megawatts. Obviously that includes the Cullerin Range Wind Farm. Clearly we are looking to expand capacity over the next couple of years.
Unidentified Analyst
All right. The other question I have was just on the comment about United Energy acquiring [indiscernible] and is that something you can provide some commentary on, or just maybe you could just speak to some of the — I guess what you see in terms of M&A opportunities?
David Bartholomew
I think you have to call it aspirational. We have been — we’ve had very strong partner in GEMINA over many years now and we have a good working relationship with them. They provide a great deal of assistance to us on regulatory matters and operational matters. But notwithstanding that we would like to own a 100% all of our businesses, and if the opportunity ever arises, we’ll at an appropriate price, we’ll take the opportunity, and if Paul Adams is listening we’re still waiting for the call.
Unidentified Analyst
Thanks.
Operator
Your next question comes from the line of John Dumpty from Hemaki Research [ph]. Please go ahead.
Unidentified Analyst
Hi, guys. Thanks. Looking at the consolidated cash flow statement, you had recurring operating cash flow calculated after adding back the M&A cost, less interest and CapEx is $220 million in 2016, and you paid cash distribution of $339 million. So free cash flow calculated that way was approximately two-thirds of the distribution. And also the issuance of equity was effectively a key source of cash flow to fund the distribution.
So the questions, what I think have been quite common and recurring things that you will realize [ph], can we reasonably expect the same approximate gap between the free cash flow and the distribution, which in 2017 is going to be about 33% higher than it was then the cash payments in 2016? If that’s the case how would you fund the gap between the cash flow and distributions over the next two years? Can we expect to see once again the issuance of equities to fund the distribution?
And if we have got the recurrence of the gap isn’t the distribution is simply too high as regards to the cash flow of the business, and so the context of sustainability of matching your distribution to your free cash flow. And to help us sort of understand the context of the answers, can you give us some directional guidance about sort of the free cash flow, operating cash flow and the interest and CapEx for FY 2017.
Jason Conroy
Thanks John, this is Jason here. The easiest way to address the number of the questions you’ve raised is to address the method on which we are approaching the coverage of our distribution. Clearly funding SIB [ph] CapEx, business CapEx from cash flow at the asset level is our approach. In terms of growth CapEx, which I think is a combination of growth CapEx and business CapEx is your number, in terms of the coverage of distribution that you’re referring to. Growth CapEx will continue to be funded from available free cash equity injections from Duet Group and debt facilities from our banks. And that is the way that we have always funded our growth CapEx. That is not going to change.
I can’t give you guidance on the gap that you’re talking about for coming years. But clearly our approach has been when we have seen significant growth in the portfolio we have put that to investors to fund that growth. For instance we have injected around $220 million of equity in the previous 12 months into United Energy to provide it with balance sheet capacity to fund its growth program. And we’re sitting on a $100 million of capital available to fund the growth in the portfolio. Our approach is not to fund all of our growth from free cash. That is clearly a different model and that’s not going to change.
Unidentified Analyst
So the measurement and the approach, the problem then, do you have the cash that’s generated from a business to be able to pay the distribution?
Jason Conroy
Yes, we do.
Unidentified Analyst
You got a couple of choices like, you are either repaying cash and fund the CapEx which means you write off the distribution or you keep doing it internally which is very high distribution without support by the cash flow in the business and keep distributing equity which is something you’ve done sort of over the last four years.
Jason Conroy
When we’ve raised equity for growth we have put it to investors and investors have voted with their check book and have supported the business. We would hope that, that would continue. Our investor base is not looking for us to fund our growth from the free cash flow position. And we don’t expect that to change.
Unidentified Analyst
And so we can expect to see another free cash flow gap in 2017, and we can expect to see further equity issuance.
Jason Conroy
That’s — they are your words, not mine. And that’s your opinion. We will, as I’ve already said, to the extent that we utilize the $100 million of equity sitting on our balance sheet for accretive growth, and to the extent that we want to pursue more accretive growth, as I’ve already said on the call we may come to market again in the future to raise capital and it will be the investors’ decision as to whether they support that growth.
Unidentified Analyst
Thanks for the answer.
Jason Conroy
Thanks for your question.
Operator
Your next question comes from the line of Ian Myles from Macquarie. Please go ahead.
Ian Myles
Hi guys. Couple of questions. Just a simple one, I’ll start with cogen [indiscernible]. Let’s just [indiscernible]?
David Bartholomew
I’m sorry. Ian we’ve having trouble hearing you. There is quite a lot of background noise. Could you repeat the question?
Ian Myles
So start with Cogen, what’s the full year impact of that switching off?
Jason Conroy
Ian, it’s — the impact that we had for the financial year was $4 million on revenue. So that was for three months. So you can do the math.
Ian Myles
Okay thanks. And if you think about the year, you’ve talked about a lot of the opportunities you have capitalized on. How many of the opportunity set is different to the actual original business plan?
David Bartholomew
Look, I think from the time of acquisition we saw a downturn in the commodity sector. And while that hasn’t eliminated that growth opportunity, it’s probably deferred it. You’ve seen the remote energy business be reasonably flat and that will continue to be the case for a while. The waste coal business you’ve seen, not the growth that we had originally anticipated in the initial 12 months, because the mining companies sort of went into their shell and started making plans to respond to low commodity prices.
What we’re seeing now is the proposals that we were talking to the mining companies 12 months ago, are now back on the table and we’re seeing significant potential for growth from there. The growth into renewables is consistent with the distributed generation strategy that we had at the time of acquisition.
Ian Myles
So is that maybe you are actually ahead of acquisition plan or you are just inline with the acquisition plan?
David Bartholomew
We have made [ph] our acquisition case in FY 2016.
Ian Myles
Okay. And where this sort of — sorry I missed the answer, with the hedges and the — within the right business [indiscernible], how much of that is actually fully impacting each of your numbers? How much is still to roll through on your balance sheet. But you’ve changed disclosure now and you’ve combined all of your rest [indiscernible] growing to fit together. So what’s the leverage and what’s the net loss?
Jason Conroy
I’ll try to answer this way Ian, and say that — and I want to talk to the mix of the portfolio but I’d say that the all-in price that we achieved for instance on OGCs in FY 2016 versus FY 2015 was $65 which was a $24 improvement per OGC. Clearly, as the curve has moved up we have been forward selling into that, as and when we have opportunities. So we’ve been standing up our weighted average achieved price.
We would hope that, that would continue and that we continue to see that into FY 2017. So that’s I haven’t specifically answered your question but that gives you a flavor of where we’re seeing that the revenue coming through.
Ian Myles
No, that’s great. And then finally if you think about the black energy, and I — you might have converted that, blended into your distributed portfolios. Most of your LFG sites have done on PPI, Origin and [indiscernible] and all the equivalent. How do you rebase for the equivalents for that unhedged component of your re-farm. Are you going to take that to a hedge condition or we actually maybe carry a little bit ongoing possible agility?
Jason Conroy
Yeah, I mean there is a couple of approaches to it. Obviously the first one is to be exposed and to consider that exposure within the context of an overall portfolio greater than 900 mgs. The second point is to look at whether we are prepared to hedge some of the output on a non-firm basis and take the discount from market participants on that. And the third approach is to hedge that output as part of our portfolio on a firm basis.
So one of the things that we all considering, and that’s why we put the New South Wales map into the slide again, that we’ve presented today, is to indicate that where possible there might be opportunities to aggregate a New South Wales output for instance, on a part firm basis in order to close the discount that we getting on firm and manage it as part of a book. So I can’t give you a specific answer on what we’re going to do but we’ve got a number of different options available to us.
Ian Myles
And just one follow up to that, does that mean that some of the LFGs sites are actually coming off their PPI hedges this year or in the next 12-24 months?
Jason Conroy
I can’t — I won’t go into specifics on our contracting strategy. But I can tell you that as and when LFG sites renew, we typically renew with the same counterparty on very similar commercial terms. And as I said when some of those sites do come off contract it also provides us with the opportunity to consider aggregating them with other sites that are of a similar contract structure to go on a firm basis in terms of our contracting. So they are the decision points that we have at points in time.
Ian Myles
Okay, just one more question, on USD you made the comment about the cost reduction of circuits into [indiscernible] to benchmark the allowed cost. If we re-work what sort of target reduction gains should currency still take place which you will produced in FY 2016, do you think it’s generally a favorable?
Jason Conroy
Yeah, Ian across both businesses UE and Multinet we are targeting at least 10% on the existing and I say at least 10% on the exiting OpEx base which is just over $20 million a year.
Ian Myles
Okay, that’s great. Thank you very much.
David Bartholomew
Thanks Ian.
Operator
[Operator Instructions] Your next question comes from the line of Nathan Lead from Morgans. Please go ahead.
Nathan Lead
Yeah, good morning gents. Just firstly on EDL, just from a modeling perspective we just — we don’t yet anymore have that sort of exposure to the country-by-country revenue sort split you got in your EBITDA, is there a reason from that?
Jason Conroy
Yeah, we provide you segment EBITDA in the MIR, are you looking for more than that?
Nathan Lead
The segment revenue, so I can actually sort of model by country, just like the way that EDL used to provide it?
Jason Conroy
We’ll consider. We haven’t provided it at this time around.
Nathan Lead
Okay. Second on EDL, I mean the UK business, the capacity factors there dropped a lot, are they in sort of terminal decline now given it’s closed most of its closed landfills?
David Bartholomew
No, that’s not the issue. It’s just an unfortunate series of operational issues at a couple of sites that have happened at the same time. We are working with our customers to restore full gas supply. One landfill is in the process of being capped and the counterparty required us to move some infrastructure. We are recovering that position at the moment. It’s a temporary matter.
Nathan Lead
Just temporary, it’s been going on for looks like a year now.
David Bartholomew
About six months.
Nathan Lead
Okay. Half year report showed that it dropped also. So the next question I suppose in terms of your corporate cash balance, you used to allocate about $83 million odd dollars to further de-leveraging in UED, it doesn’t seem to be showing it anymore, what’s the thinking there?
Jason Conroy
Because we’ve done the bulk of it. I think we have got the $83 million number you are talking about, I think we’ve got about $20 million of that to go. But that’s not a committed amount and what wouldn’t be committed until the next financial year to the extent that we did that in FY 2018.
Nathan Lead
Okay, all right. And then finally just on DBP, I noticed in the regulatory filings like a quite a large dip up in the fuel gas cost, and it didn’t seem to come through in your numbers. But then I noticed a little footnote in your page 60 management reports saying you are capitalizing sort of $6 million worth of fuel gas. Is that an OpEx to CapEx type thing going on there? Or should we be expecting a big step up in the cost come through in FY 2017?
Jason Conroy
From an earnings perspective it’s indifferent because the line pack [ph] we are capturing in the Australian business CapEx which goes through our earnings. So it already through there, our fuel gas and you will see overtime those numbers unwinding between each other. In any case it will still go through earnings.
Nathan Lead
Right. So just what would be the run rate on the fuel gas cost between the two categories if they are combined?
Jason Conroy
I think on a combined basis you are looking at, I think it was about $25 million on fuel gas. That would be run rate give or take $2 million a year, it’s not going to be hugely different.
Nathan Lead
Okay. All right thank you.
Operator
Your next question comes from the line of Simon Chan from Merrill Lynch. Please go ahead.
Simon Chan
Hey guys. I just had a question on the [indiscernible] side, 2016 just one really look — I am sure you will be looking at to doing the best to get the best possible outcome for the units?
David Bartholomew
So the regulatory outcomes, is that, okay.
Simon Chan
If you win it how much you are looking to get?
David Bartholomew
Look I am not going to put a number on it, Simon. For UED we’re only appealing on two matters, the first one’s inflation where we think the AER has got it wrong. There is sort of a few points of inflation in that, and so you can calculate through easily enough. The other is gamma, valuation of tax credits and that’s worth a few tens of millions over the five year period. But I am not going to put a specific number.
Jason Conroy
We haven’t factored in any regulatory upside in that regard in our forecast or budgets that support our guidance.
David Bartholomew
And DBP, the appeals are matters of principal to set us up for the next regulatory decision. The financial impact there will be quite limited because the tariff only applies to 15% of the volumes.
Simon Chan
Great and my next question is just in relation to UED, I have noticed the customer contribution fell double digit, albeit off a low base. I mean what’s the reason for that and how should we think about that line going forward?
Jason Conroy
It’s just timing of works to be frank and at the end of the day it’s not something we are particularly concerned about because we take it off our adjusted EBITDA line as it’s effectively a posturing. We not say it is quality of earnings.
Simon Chan
Yeah. Just for our modeling purposes, I guess, how should — should be about $26 million going forward or back to the…?
Jason Conroy
I can’t give you guidance on it.
Simon Chan
Fair enough. Thanks guys.
David Bartholomew
Thanks.
Operator
There are no further questions at this time.
David Bartholomew
All right. Thank you very much everybody for your interest in attending this morning’s presentation and we look forward to speaking I suspect with most of you over the coming weeks. Thanks very much.
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