APA Group (ASX:APA) executives used the company’s first-half FY2026 earnings call to highlight what CEO Adam Watson described as a “strong” financial result, an expanded organic growth pipeline, and additional balance sheet capacity following a change to S&P’s downgrade threshold.
Speaking alongside CFO Garrick Rollason, Watson said underlying EBITDA rose 7.6% in the half, with EBITDA margins expanding by 280 basis points to 77.3%. Management attributed the margin uplift largely to cost reduction initiatives, including a 13.6% reduction in corporate costs.
Financial performance and guidance
Free cash flow was reported at AUD 556 million, which Rollason said was “up slightly” half-on-half. He said higher underlying EBITDA was partially offset by increased interest and cash tax payments, as well as working capital movements and stay-in-business (SIB) capital expenditure timing. Rollason noted that working capital impacts were primarily related to “one-off timing impacts” arising from the divested networks business and are expected to unwind when the transition services arrangement concludes in 1H FY2027.
On statutory results, Rollason reported net profit after tax of AUD 95 million. He said higher reported EBITDA and lower net finance costs were offset by higher depreciation due to the inclusion of new assets. He also pointed to two one-off items in the half: a AUD 15 million non-cash loss on the sale of the networks business (primarily a write-off of historical goodwill) and a AUD 14 million payment to settle a legacy revenue-related legal claim that had been in dispute since 2015.
APA declared a distribution of AUD 0.275 per security, up 1.9%, and reaffirmed full-year FY2026 distribution guidance of AUD 0.58 per security. Watson said this would mark the company’s 23rd consecutive year of distribution growth.
Management also indicated confidence in the full-year outlook. Watson said APA expects FY2026 EBITDA to be above the guided midpoint, with the company pointing to progress on cost reductions as a key driver. In Q&A, Watson said APA was being “conservative and prudent” in not changing the guidance range further given there were “still a number of months to go.”
East Coast Gas Grid expansion and the LNG import debate
A central theme of the call was APA’s next phase of the East Coast Gas Grid expansion, which Watson linked to strong customer demand and policy developments, including outcomes from the federal government’s gas market review and a move to establish a domestic gas reservation.
On Stage Three of the expansion plan, Watson said APA expects to increase East Coast network capacity by around 30%:
- Stage Three A: Final investment decision reached for AUD 260 million to deliver three new compressors. Watson said this would lift north-to-south capacity by 11%, including a 20% increase in capacity for northern gas into Victoria, targeted to be ready by winter 2028.
- Stage Three B: AUD 220 million investment for early works and procurement for the Blue Interlink, including the purchase of 342 kilometers of 28-inch line pipe.
Watson said favorable regulatory outcomes and federal government support for domestic reservation helped build confidence to make the investments, adding that customer interest was also driving progress.
During Q&A, analysts pressed management on customer underwriting for Stage Three B and the risk of committing capital ahead of long-term transport contracting. Watson said Stage Three A follows an established compression approach and is progressed based on demand signals rather than underwriting. For Stage Three B, he emphasized that the investment was in long-lead pipeline materials and positioned the step as part of solving what he called a “chicken and egg” problem, arguing that added capacity helps enable policy clarity and customer commitments once the National Gas Review is finalized. Watson also said APA has previously spent “well north of AUD 500 million” on uncontracted growth and expressed confidence in recontracting capacity based on its demand and market modeling.
Watson also argued against LNG import terminals as a cost-competitive alternative to domestic gas transport expansion. He cited Rystad modeling that forecasts long-term LNG spot pricing into Asia between $8 and $12 per gigajoule (as described on the call), and said that once transport, regasification, and foreign exchange are included, the delivered cost into Australia would average “over AUD 20 per gigajoule.” He maintained that domestic gas supply is not constrained, pointing to over 68,000 petajoules of 2P reserves and 2C resources in Eastern Australia relative to an East Coast market consuming around 500 petajoules per year.
Beetaloo, new pipelines, and contracted power generation growth
Watson said APA has completed construction of the Sturt Plateau Pipeline, with gas expected to flow to Darwin from mid-2026. He said APA is working on plans to expand the pipeline with additional compression that could increase capacity to around 100 terajoules per day.
He also noted that the Northern Territory government granted APA a pipeline permit to survey a potential route for the North to East Australian Pipeline (NEAP), which could connect to APA’s East Coast Gas Grid using its existing Carpentaria Corridor. Watson said APA is also planning for a new pipeline route north to Darwin, including an option that would utilize the same corridor as the Amadeus pipeline.
In contracted power generation, Watson reiterated APA’s view that gas-powered generation (GPG) will play a growing role. He referenced AEMO forecasts for 13 gigawatts of new GPG investment in the NEM, and a more recent Griffith University estimate suggesting up to around 20 gigawatts. APA’s call also highlighted a partnership with CS Energy to develop the 400-megawatt Brigalow Peaking Power Plant in Queensland, which Watson said will connect to APA’s Roma-Brisbane Pipeline via a new transport and storage lateral being developed by APA.
Capital allocation, funding capacity, and cost-out program
Management said APA’s organic growth capex pipeline increased from AUD 2.1 billion to approximately AUD 3 billion over the next three years, which Watson said was “principally” driven by the East Coast Gas Grid expansion moving further along.
Rollason said APA has balance sheet capacity to fund “in excess” of the AUD 3 billion pipeline over FY2026 to FY2028 and, apart from the distribution reinvestment plan (DRP), does not need to issue ordinary equity to fund the identified pipeline. In Q&A, Rollason said the S&P threshold change created about AUD 1 billion of additional debt capacity and emphasized APA was “not capital constrained,” adding that the company has multiple levers available including hybrid instruments, partnering, asset recycling, and structured equity.
On costs, Rollason said APA is making “strong progress” toward its AUD 50 million FY2026 cost reduction target. He credited prior investments in technology and capability uplift for enabling simplification and operational efficiencies, including reduced reliance on external contractors. Looking ahead, he said additional opportunities include predictive maintenance and strategic sourcing, highlighting an external spend base of approximately AUD 350 million to AUD 400 million per year across OpEx and CapEx.
About APA Group (ASX:APA)
APA Group engages in the energy infrastructure business in Australia. The company operates through Energy Infrastructure, Asset Management, and Energy Investments segments. It operates gas transmission pipelines and interconnected grids, gas-fired power stations, electricity transmission interconnectors, solar and wind farms, and battery energy storage systems, as well as gas storage, processing, and compression facilities. The company also has interests in approximately 15,000 kilometers of gas transmission pipelines; approximately 29,500 kilometers of gas mains and pipelines; and 1.5 million gas consumer connections.
