I would now like to turn the conference over to Mr. Michael Riches, CEO. Please go ahead.
Thank you, and good morning. Welcome to Dalrymple Bay Infrastructure's results for the six months ended 30 June 2026, or the first half of 2026 for us. I am Michael Riches, CEO, and with me today is Stephanie Commons, our CFO. Today, we will be providing an update on our financial performance for the first half of 2026, updating the market on the status of our NECAP and organic growth programs, and confirming our strategic priorities for the remainder of 2026. In the first half of the year, we have continued to improve our financial performance and grow distributions to security holders. EBITDA was AUD 150.5 million, a 4.7% increase on the first half of FY 2025. Funds from operations, or FFO, was AUD 92.7 million, up 10.2% on the first half of FY 2025.
We continued to invest back in the growth of our business with approximately AUD 370.6 million of approved capital projects still to be added to the NECAP Asset Base. We placed AUD 350 million in the Australian Medium Term Note market to further diversify our debt funding sources at an attractive margin. Our strong financial performance resulted in a distribution of AUD 0.135 per security being returned to security holders referable to the first half of 2026, a 14.9% increase on the prior corresponding period and in line with our guidance. Importantly, we continued to operate in a safe and environmentally responsible manner with zero incidents that caused serious injury.
DBI has a stable and predictable revenue stream underpinned by our key contract terms with customers that include 100% take-or-pay, revenue socialization, pass-through of terminal operating costs, and strong force majeure protection. DBI receives terminal infrastructure charge, or TIC, revenue on every ton of contracted capacity through the terminal, which is 84.2 million tons per annum. During the first half, we announced that the TIC applicable for TIC year 2026/2027, which runs from 1 July 2026 to 30 June 2027, was AUD 4.02 per ton, up approximately 8.1% vs TIC year 2025/2026. The uplift in TIC, which commenced on 1 July 2026, will drive a further uplift in our revenue for the second half of the year.
Under our pricing arrangements secured with our customers through to 2031, the TIC is adjusted each year and comprises a base TIC that is indexed annually in line with the March to March All Groups Consumer Price Index, a NECAP charge that reflects a return on and a return of the NECAP Asset Base, and the QCA fees, which are a pass-through of the Queensland Competition Authority's costs. The inflation-adjusted TIC, coupled with our continued investment in significant NECAP projects, delivers a predictable and growing stream of cash flows. As a reminder, our contract terms with customers, including take-or-pay contracts and the operational cost pass-through, provides an exceptionally low-risk business model for DBI. Today, we announced a Q2 2026 distribution of AUD 6.75 cents per security in line with guidance.
The payment takes our first half of 2026 distributions to AUD 13.5 cents per security. Our payout ratio for the first half of 2026 was 72.2% of FFO. Our TIC year 2026/2027 guidance for distribution remains unchanged at AUD 28.62 cents per security, up 8.5% on the prior year. We continue to target a distribution of 60%-80% of FFO and 3%-7% per annum growth in distributions for the foreseeable future, subject to business developments and market conditions. DBI has a range of growth opportunities that are expected to underpin a continued uplift in revenue, ultimately driving improved FFO to support growing distributions. We continue to deliver organic revenue growth through pursuing new revenue initiatives such as capacity optimization and revised security arrangement initiatives.
These initiatives involve no capital deployment and nominal additional costs, consequently delivering additional cash flow at high margins. On capacity optimization, we have recently presented to our customers a capacity pooling mechanism and will consult with customers over the next couple of months on this opportunity. Our NECAP program has been and will continue to be a source of organic growth and uplift in our TIC, and I will provide more detail on this in the following slides. DBT itself retains significant expansion optionality to accommodate metallurgical coal exports from the Bowen Basin.
As a reminder, the ADEX project is expected to deliver up to 14.9 million tons per annum of additional capacity, with the option of delivering that capacity incrementally via a phased approach. DBI's access queue has grown to approximately 33 million tons per annum of demand for capacity, comprising a combination of near-term capacity requirements and longer-term needs as mine developments progress. Underpinned by growing demand from India and Southeast Asia for high-quality hard coking coal, we expect demand for seaborne metallurgical coal to continue to grow steadily through the 2030s and 2040s. The growth in our access queue, the value of recent M&A activity for metallurgical coal mines, and recent announcements from metallurgical coal miners would indicate that there is a strong view that the Central Bowen Basin, with its high-quality met coal, is uniquely positioned to capture this future global demand.
DBT and the well-developed ADEX project is strongly positioned to expand to meet this inevitable demand, particularly as the ADEX expansion can be undertaken in stages to respond incrementally to demand signals. This continues to represent a significant opportunity for DBI, Queensland, and Australia, and it will be important that all stakeholders work together to deliver the right policy settings to encourage the necessary investment. Finally, as we focus on generating total security holder value, we will naturally explore opportunities to grow our business in alignment with our current risk profile. Our competitive advantages will be key guides in the opportunities we consider, and in doing so, we remain mindful of the key attributes of our existing business, and any opportunities pursued will consider those factors. Now, I'd like to talk about our key organic growth opportunity, which is our non-expansion capital expenditure.
Our NECAP program has been and will continue to be a source of key organic growth and uplift in our revenue. As amounts are spent on NECAP, interest during construction, or IDC, accrues at an agreed rate until the expenditure is added to the NECAP Asset Base. This compensates DBI for the cost of debt funding and provides a return on equity during the period of construction. Once added to the NECAP Asset Base, the expenditure earns a return on invested capital set at the 10-year Australian government bond rate, which is reset annually, plus a margin, and a return of the invested capital in the form of a depreciation allowance. NECAP spend includes both regular and major project expenditure. Outside of major asset replacements like SL1 and RL4, spend on regular NECAP projects is typically between AUD 30 million- AUD 50 million per annum.
Capital spent on a project is added to the NECAP Asset Base on 1 July, the year after the project is commissioned, with the return on and of that capital delivering an uplift in the TIC. AUD 97.8 million, comprising AUD 91.3 million of project costs and AUD 6.5 million of IDC, was added to the NECAP Asset Base on 1 July 2026, resulting in a AUD 0.15 per ton increase in our TIC. At 1 July 2026, the current NECAP program had a total of AUD 370.6 million in projects underway, which are still to be added to the NECAP Asset Base, and that excludes IDC.
We anticipate approximately AUD 300 million of project costs to be added to the NECAP Asset Base on 1 July 2027, which, combined with the expected IDC on this spend, should deliver an uplift in TIC of approximately AUD 0.53 per ton from 1 July 2027. As a reminder, our TIC for the current year is AUD 4.02 per ton, and we will then, on 1 July 2027, add the AUD 0.53, if all things continue to progress as expected, together with the inflation uplift on the base TIC component. A new AUD 38.5 million regular NECAP program, which we call NECAP Series Z, was unanimously approved by customers on 13 July 2026. Turning to a couple of our key replacement projects. Shipl oader 1 replacement involves the replacement of Shipl oader 1 with a new Ship loader, and that commenced in April 2023 under a Design-B id-B uild model.
The SL1 replacement program is approximately 90% complete, with the ship loader having completed its commissioning in Western Australia, where it was built, and is awaiting shipment to Dalrymple Bay Terminal. The transit is scheduled for September and early October, with the handover to the operator expected by year-end once on-site commissioning is completed. Project cost is on budget at AUD 165.4 million, which does not include interest during construction. AUD 4.5 million of those project costs were added to the NECAP Asset Base on 1 July 2026, as we commissioned some changes to the berths at the terminal. With the remaining amount of just over AUD 160 million plus IDC expected to be added to the NECAP asset base on 1 July 2027. The successful completion of Shipl oader 1A will provide a blueprint for future ship loader replacement projects.
The other major NECAP program is the replacement for Stacker Reclaimer SR2 with a new reclaimer, which is called RL4. The budgeted project cost is AUD 115.6 million, and the project remains on budget and on schedule. A large proportion of that AUD 115.6 million, being an amount in excess of AUD 100 million plus IDC, is expected to be added to the NECAP Asset Base on 1 July 2027. A small amount of the project costs associated with the final elements of the deconstruction of SR2 will likely be added to the NECAP Asset Base on 1 July 2028, as that work will be completed in the second half of 2027. Overall progress, sorry, second half of 2026. My apologies.
The overall progress on RL4 is 87%, with the assembly at the terminal progressing well and commissioning and handover into operation expected to be completed in December 2026. Deconstruction and removal of SR2, as I mentioned, is expected to be completed predominantly in the first half of 2027, but potentially some of it into the later part of 2027. All current NECAP works are being recommended by the operator and approved by all customers, demonstrating a strong alignment of interests in efficient investment in DBT. As I mentioned before, it is currently anticipated that the addition of these major projects, together with completed projects within our existing regular NECAP series, will deliver an increase to the NECAP charge component of the TIC by a further AUD 0.53 per ton at 1 July 2027.
It is worth noting that every AUD 0.10 per ton increase in TIC delivers approximately AUD 8.5 million of incremental revenue, reinforcing the role NECAP plays in being a significant contributor to our growth profile. Importantly, DBI has identified NECAP projects of similar capital spend to existing committed projects, which we anticipate to be committed and commenced over the next three to four years, supporting longer-term growth in our terminal infrastructure charge. I will now hand over to Stephanie to talk through our financial results in more detail.
Thanks. Excuse me. Thanks, Michael, and good morning, everyone. Just on slide 16 of our investor deck. DBI maintains an investment-grade balance sheet with the S&P credit rating of BBB flat reaffirmed during the first half of 2026, and it remains with a stable outlook. We continue to maintain strong performance against all our key coverage metrics, and we have substantial headroom to debt service, our leverage covenants, and the rating agency criteria. Our strong credit metrics was evidenced by our highly successful inaugural debt issue into the Australian medium-term note market in March this year, where we issued AUD 350 million of five-year fixed rate notes with a coupon of 6.234% per annum and a maturity date of 24th of March 2031. That issue was more than 2.5 x oversubscribed, and the bonds have continued to trade very well in the secondary market.
Opening up this market is a further demonstration of our strong focus on capital management and our strategic priority to diversify our funding sources. We had AUD 2.35 billion of total debt facilities at 30 June 2026, of which AUD 216 million was undrawn. Together with cash, that provides us with AUD 261 million of liquidity at 30 June. Our drawn debt has a weighted average tenor of 6.3 years, and as at 30 June 2026, our all-in interest rate was approximately 7%. In the appendix, we are providing further reconciliations of our borrowings that are disclosed in our financial statements to our drawn debt. Moving on to our profit and loss. Our first half revenue and EBITDA are both up on the first half of the prior year, demonstrating the resilience of our business model, the focus on incremental revenue creation, and our disciplined approach to costs.
TIC revenue for first half 2026 increased by 3.6% on H1 2025, in line with the increase in the TIC per ton applicable from 1 July of each year. The increase in TIC revenue reflects the annual adjustment for inflation and the ongoing contribution of commissioned NECAP to the NECAP charge component of the TIC. H1 2026 EBITDA was up 4.7% on H1 2025, with the EBITDA margin remaining consistent with prior comparative period. As a reminder, our handling costs represent the amount charged by DBI by the third-party operator, noting that the operator is owned by a subset of our terminal customers, and those handling costs that are charged to DBI are then fully recharged to all customers at the terminal, as can be seen in the matching handling revenue line. Accordingly, these costs and any cost inflation have no impact on DBI's EBITDA.
The table at the bottom right of that slide provides a reconciliation of the components of DBI's net finance costs, and in addition, in the appendix, there are reconciliations of net finance costs and income tax and how those amounts flow through into our FFO. Moving on to the statement of our cash flows. Our capital expenditure comprises the spend on our NECAP projects. Progress on the two major NECAP projects is a principal factor in the increased CapEx during H1 2026 as compared to the prior period. Further detail is provided in the appendix reconciling our NECAP spend and our uncommissioned NECAP, and there is also detail on the buildup of the NECAP Asset Base since its inception.
Favorable movement in network and capital during H1 2026 of AUD 42.9 million primarily relates to an over collection of handling charges from customers, which since 31 December 2025 was AUD 14.9 million, together with a net increase in the amounts owing to the terminal operator of AUD 23.2 million. All those handling charges will be trued up by the end of August. Moving on to our interest rate and our hedge profile. 100% of all of our foreign currency debt is swapped back to AUD, so there is no FX risk on either our principal or interest payments. Interest rate risk is managed via a mix of fixed rate debt issuance and interest rate swaps. Based on our current debt levels, DBI is over 90% hedged until mid-2027, over 80% hedged until mid-2028, and over 70% hedged until mid-2030.
Maintaining a highly hedged interest rate position remains a priority for the business. DBI's weighted average all-in interest rate for its debt book is 7% as at 30 June 2026, and it is expected to remain at approximately this level for the next 24 months, assuming our future debt draws utilize the available liquidity. I will now hand back to Michael.
Thanks, Stephanie. Finally, just to reiterate our strategic priorities for the remainder of FY 2026. With our take-or-pay contracts and future earnings profile, DBI is well-positioned to continue to deliver long-term growth in total security holder returns. Our priorities over the remainder of FY 2026 include delivering organic revenue growth through new revenue initiatives and the inclusion of the cost of completed NECAP projects in the NECAP Asset Base. Completion of Shiploader 1A and Reclaimer 4 NECAP projects on time and on budget. We will continue to progress opportunities to capture long-term Bowen Basin metallurgical coal production via our continued review of the use of terminal capacity, including optimization of existing capacity and our economic assessments of the ADEX project.
Further assessment of refinancing opportunities will continue to improve our balance sheet flexibility, reduce refinancing exposure, and access other sources of debt capital to reduce interest costs over the long term whilst maintaining an investment-grade rating. We will seek to identify opportunities for diversification through acquisition of assets that have a similar risk profile to the existing DBI business, and which enable value to be created through our competitive advantages. We will continue to explore and assess opportunities for alternative uses of DBT while delivering whole of terminal ESG and sustainability initiatives. Thank you very much for your attention, and I will now hand back to the operator. I am very happy to take any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Matt Ryan with Barrenjoey.
Oh, thank you. Good morning. I just had a question on the access queue. It looks to have increased slightly over the past year. Just hoping if you could give us some color on the conversations that you are having with your customers at the moment, and how they are feeling about the volume outlook?
Yeah, sure, Matt. I think, yeah, the access queue has grown by probably three or 4 million tons over the last sort of six to nine months. That is principally associated with new capacity that customers are seeking, I would say in the near term, probably the next one to two years. Principally arising from customers who have, I guess, acquired new mines. So part of the M&A activity that has happened and those new owners of those assets looking to drive further value in those assets and looking for additional capacity, as a result. So that is the principal reason for the increase in the access queue. I would say that the longer-term investment in new mine development still remains at the level it has been at for a period of time as customers continue to look at those key investment decisions.
But where there is capital that has already been invested in existing mines, we are certainly seeing a drive towards increased efficiency and additional throughput to bring down ultimately their fixed cost of production per unit down and obviously improve their own profitability and that is really driving the access queue.
That is helpful. Just, I guess the frequency of conversations around ADEX, how would you sort of rate that at the moment, perhaps relative to the conversations in the past?
Yeah, I think, as I said, on the longer-term, larger new mine developments, conversations continue, but again, probably at a level where there is no real meaningful commitments by those customers at the moment. I think it has been well expressed by many of them as to the challenges, particularly around royalties at the moment, which are probably inhibiting those investment decisions. In terms of smaller, more near-term capacity, the actual discussions are, we have certainly had more frequent and more real discussions with customers around the progress of potentially a phase of ADEX to meet those future customer requirements that are more near-term. So I think we can see the potential for at least a phase of ADEX in the nearer term.
Potentially longer term, I think we continue to see that more fulsome completion of ADEX across potentially up to 15 million tons being a longer-term increase in capacity at the terminal until some of those investment decisions are made by customers with new mine developments.
Thanks, Michael. Appreciate it.
No problem, Matt.
Your next question comes from Anthony Moulder with Jefferies.
Good morning, all. If I can just follow on from that. It sounds like you've got 33 million tons of people, or people that want access to 33 million tons, but ADEX is being pushed out. How should we think about those two factors? I would've thought that ADEX was still thought about in the near, or not nearer term, but next few years, as opposed to, it sounds like it's more of a longer-term consideration from today.
Well, I think, Anthony, when I say longer term, remember we've been working with customers since 2023 on ADEX when we completed our feasibility study. All of that is done, though obviously needed to be some updates to that. I think, as I said, there's definitely capacity. When I talk about the near term, I'm really talking one to two years for ADEX, and we're looking at options with customers about how we could deliver that capacity requirement within one to two years. The longer term, I think, really becomes a question. A more complete construction of ADEX would take us three to four years. If you assume that customer decisions around 15 million tons of capacity, which would really depend on major new mine developments progressing like Whitehaven Coal's Winchester South, like Stanmore Resources' Eagle Downs.
If they were to make those decisions within the next 12 months, we could see ADEX completed within five years, call it by 2031. But they've been looking at those projects for a number of years. I think last year, coal prices were certainly a key factor, as were royalties. I think as you can appreciate, and the industry has clearly indicated, the royalty regime is a challenge for existing mines. But we certainly see where capital has already been invested, there is the potential to look to work that capital harder, increase throughput, and therefore require additional capacity. Where it's new capital, it becomes much harder, it appears, for those miners to justify the investment in new mine developments, and that is making the ADEX decision on a full completion of ADEX, I guess, a longer-term prospect.
Our view is that there will be demand as we approach the global demand for metallurgical coal from the seaborne export market through the late 2020s into the 2030s. Key question for policy settings in Australia will be, we're the best place to capture that demand, both from the quality of the coal we have, our proximity to the locations where that demand is going to arise, and key will be getting the policy settings right to encourage investment in new supply in order to meet that demand. We think it will happen. We thought it will happen for a number of years. It's really just getting those key policy settings right, and I think when we do, there's certainly indications from the miners that they have capital they're willing to invest, but it needs to meet, obviously, their return hurdles.
Of course. Any conversations with the owners of the Hay Point Terminal as another way to deliver that kind of capacity growth?
I think the owners of the Hay Point Terminal being, for those who don't know it, BHP and Mitsubishi through their BHP Mitsubishi Alliance joint venture. That terminal has been owned by those two counterparties for 50 years. I think they still see significant value in the supply chain logistics and operational strategic value in their ownership of that terminal. It has never been open to open access during their ownership, despite at various points in time their production being lower than the capacity of that terminal. I suspect they will continue to look at it as a strategic asset, for utilization by BMA.
That's a shame. Last question, the optimization benefits during the half, how are you thinking about whether or not that's fully scaled to what you hope to deliver from optimization benefits in the terminal, please?
Yeah, I think, largely. Other revenue for the half was AUD 2.9 million. I think we'd indicated that at the end of last year, that we expected the run rate to be AUD 5 million. So we're a little bit ahead of that. I think, there's probably a little bit more that we can capture over the second half of the year, and we continue to pursue initiatives, as I mentioned, we are looking at a number of options with customers to create win-win opportunities for ourselves. So I would think in the second half we should be more than AUD 2.9 million. We take it through for the full year, so AUD 5.8 million in total. Probably not materially more, but again, as we introduce these initiatives in the second half and they start to create value, we'll see additional value come through in FY 2027.
Very good. Thank you.
Your next question comes from Andre Fromyhr with UBS.
Thank you. Good morning. Just following on from the conversation about the demand in the Queensland coal market. I guess one of the themes that we learned from the Aurizon results a week ago, was a tendency for some customers to scale back what they were willing to commit in terms of take-or-pay and maybe even taking some risks in the spot market. That is for the haulage part of it. But have you seen any feedback, or have you had conversations with your customers about that willingness to commit to certain levels of capacity?
No, we haven't had any discussions with customers where there has been an indication of scale back of capacity. In fact, as the ADEX queue has grown or our access queue has grown, you will see there is more demand for permanent capacity at the terminal. We haven't seen any material transfers on a temporary basis of capacity where customers are looking to transfer capacity because they do not utilize it. Obviously, there has been a period of that, with the Moranbah North and Grosvenor closures at various points in time. We think with the Dhilmar acquisition of those mines, obviously there is an intention to get both of those mines operating at full capacity going forward.
Whilst I think from the Aurizon perspective, as I understand it is more around above rail, contracting and not contracting as much above rail capacity on a take-or-pay basis due to the increased competition and the capacity in the above rail market. We haven't seen that translated in any way to any relinquishments. Not that they can relinquish capacity, but any changes in people's, the customer's demand for capacity at the terminal. And we wouldn't expect, I think to see that. As I said, I think we are seeing the potential for greater throughput through the terminal over the near to longer term rather than reduced throughput. And I think if you look at Aurizon networks forecast for tonnage through the Goonyella system in 2026 and 2027, it has actually gone up from their forecast for tonnage, in 2025 and 2026.
The network is actually expecting greater tonnage through the Goonyella system, and obviously it is the system with a primary or the premium hard coking coal. We expect to see that increased tonnage resulting in that, or we are seeing it resulting in that additional demand for capacity.
Sure. I think you made reference to, let us say completion of Shipl oader 1, the replacement and what you learned from that, before moving to what Shipl oader 2 and possibly three replacements look like. Just wondering if you could share any updates on the feasibility work you have done on those opportunities and what the timeline might look like for them?
Yeah, well, I think, Shipl oader 2 will be the next ship loader replacement. We are working with the operator at the moment around potential timing of that, and whether it is a replacement or a refurbishment, how we look at the requirements and the whole of life cost. I think as we indicated, we expect NECAP projects over the course of the remainder of the 2020s to be that equivalent sort of AUD 400 million to current NECAP projects. Shipl oader 2 will be part of that. We expect that the proposal to customers would happen probably over the course of the next one to two years.
It is still a little bit up in the air at the moment because we are just trying to work through what is the life, what can we do around maintenance of that asset over the near term to potentially delay capital spend. I think you will see over the course of the next 12 months-24 months, decisions around what we do on Shipl oader 2, and Shipl oader 3 will not be long after that, given it obviously is, for those who have been to the terminal, it services two berths and therefore the volume of coal that has gone through Shipl oader 3 is almost the same as what Shipl oader 2 has delivered, although it is about a 10-year younger asset, but it will need replacement within the next four to five years as well, we expect.
Okay. Just one more, if you don't mind, and probably one to Stephanie. Just wondering if you could help bridge the guidance on the all-in interest rate, which six months ago you were indicating would be more around 6.5% from mid-year. Now, it is around 7%. To what extent is that just the prevailing movement in base rates at the time that you rolled your hedges?
Yeah, sure. Quite a bit of it on the unhedged component of those base rates. That has contributed, they have obviously sat a lot higher than expected. The AMTN that we did in March, we did leave half of that at a fixed rate, which was clearly substantially higher than what we had at the time. If you keep in mind, up until mid-June, we were sitting at about AUD 1.2 billion of our hedges were sitting at around 89 basis points. The base rate on the fixed component of that AMTN was more like 4.6%. That certainly contributed to the much higher step up.
The remainder is to do with the repayment on the USPP, just repaying that out and there were certainly savings in terms of the margins, but some of the other margins that were entered into, as part of that refinance and were various. Some of them were on the five-year debt, and some of them were on shorter two-year notes. To the extent that some of that debt was drawn on the five-year debt, the margins were a little bit higher than what the all-in was at the time. As we were drawing debt on that, it was probably at the more expensive end.
Okay. Thank you very much.
As a reminder, in the interest of time today, please limit your questions to two per queue and rejoin the queue if you have further questions. Your next question comes from Ian Myles with Macquarie.
Hey, good day, guys. Quick one on your NECAP spend. You've got approval from customers at AUD 71.4 million for H26. That was on slide 10. I'm just trying to get my mind around, are we seeing probably a structural uplift of NECAP spend on a yearly basis now it's moving into, I don't know, AUD 50 million or AUD 60 million per annum?
Yeah, thanks, Ian, for the question. I think that's likely to be the case over the course of the next few years. Our two key approvals for NECAP that have happened in the last three or four months, one was NECAP Series Z, which I mentioned, which was AUD 38 million, which is a regular series of a variety of different projects. As I think I mentioned, we would see regular sustaining capital at AUD 30 million to AUD 50 million per year over the course of the next few years, and the other key component to make up that AUD 70 million that you mentioned, Ian, is our gallery wrapping project, which this year we will start. The first component of that is AUD 32 million.
That project probably has five to six years to be completed because we have to wrap the steelwork across the three outloading galleries on 3.8 km of jetty together with some of the steelwork on the berths as well. It will be a long-term project. The initial project of AUD 32 million is really going to give us an indication of what the long-term cost will look like. It's not to say that it will be AUD 32 million each year for the next five to six years. As we complete this project, start getting a better understanding of access, the cost of access, how access is undertaken in line with operations.
We'll get a better feel for the annual spend on gallery wrapping, and then when we go to customers at the end of probably this time next year or maybe a little bit earlier, we'll be able to put the next phase of gallery wrapping up, and that will be probably more aligned to an annual spend over the course of the next five years. I think you should expect regular spend of AUD 30 million-AUD 50 million and then a gallery wrapping project on top of that. It's hard to know exactly what that will be each year. We'll get some better clarity of that as we work through the project. Hopefully, that gives you a bit of a sense of what NECAP, as we said, is going to look like, just regular NECAP without major asset replacement over the next four to five years.
Is it fair to assume that gallery wrapping is probably bigger than AUD 100 million now as a total project? Because I think you would probably suggest previously it was around AUD 100 million, but it looks like it might be a bit larger.
It could be a bit larger than AUD 100 million. Yes. Yep.
Okay. That's fine. In terms of your debt book, you've always had the option to or potentially go and re-look at some of your USPPs and repurchase, again, some of those PPs. What do you need to sort of see in the debt markets to maybe make that or bring that decision forward in the next couple of years?
Thanks, Ian. The debt markets at the moment for refinance are actually very favorable, as you've seen both from our refinance in December last year and also the AMTN market that we accessed this year. I think the debt markets themselves are very favorable. It's more around the cost of repaying those notes, and particularly the cross-currency interest rate swaps that sit over the top of that. The notes themselves, at the time they were issued in 2021, had quite low coupons, so the make-wholes on those are quite low. But because they were swapped back to AUD and on a float rate, the float rate's gone up substantially and the foreign currency is also a lot higher. What we've got now is both of those working against us.
We would need to see the Treasuries and the base rates in the Australian market substantially come down, so that the make-wholes on those cross-currency interest rate swaps are a lot lower. We're running the numbers each month at the moment on that, and it still doesn't make a lot of sense. It's still in the kind of tens of millions of dollars. Yeah.
Yeah, I think NPV-wise, it still doesn't stack up. As Stephanie said, if we saw Australian base rates come down and U.S. Treasuries stay a little bit higher, so the make-wholes still on the notes themselves were relatively low, but costs on the cross-currency interest rate swaps were lower, that would start to make sense. That's probably the key thing that would be a trigger for us potentially refinancing. To the extent that we see further margin compression across bank and capital markets, then that is of assistance as well. It's not something that we, as Stephanie said, we look at it every month because if things move in the right direction, it's something that we could move relatively quickly on. But it's still not an NPV positive outcome at the moment.
Okay. Can I just simplify that? Do you need to see the current, the U.S. dollar currency move down? So a lower currency with the same prevailing rates would be an ideal scenario?
It doesn't really help us a lot, Ian, just because we have to refinance the notes in U.S. dollars, and we've got the cross-currency interest rate swaps that brought the U.S. dollars back to AUD. So effectively, wherever the rates move, that might help us a little bit, but it doesn't actually make a material difference to the math.
Okay. All right. Thank you.
Our next question comes from Owen Birrell with RBC Capital Markets.
Hey, good morning. Just a question around your contracted capacity. Current contract's out to June 2028. Can I just ask about the recontracting process? Have you started your discussions with your existing customers, and how do you see that playing out? Are you going to end up with, I guess, a continuation of the status quo, or do you expect that particular customers may break ranks from what the current status quo is?
Thanks, Owen. All of our contracts, remember, are evergreen contracts with options for renewal that are in the customer's favor. The requirement for contracts that expire on 30 June 2028 is that customers need to make a decision by 30 June 2027 as to whether they're going to renew. When we look at the mines that support the contracts that are renewing on 30 June 2028, we, at this stage and in discussions with those customers that own those mines, expect that there would be recontracting or those customers would agree to renew those contracts post, or at 30 June 2027. There's not really a renewal discussion, obviously from a pricing perspective.
Pricing is in place till 2031, so we don't have to have any concern around that, and it's really customers' decisions as to whether they would reduce capacity at that point in time. As I said, in terms of the mines that support the contracts expiring in 30 June 2028, there's nothing at the present state that indicates that those contracts wouldn't be renewed.
Under the evergreen structure, can we presume that the 100% take-or-pay is going to continue beyond that June 2028 point?
Absolutely. There's no changes in other. The only thing at June 2028 that happens is customers either renew on the current terms or they don't renew.
Do they have the option of reducing volumes at that point?
They do have the option of reducing your volumes. To the extent, of course, any capacity becomes uncontracted at that point in time, we obviously will be then going to our 33 million ton access queue, offering that capacity to that queue for consideration as to whether any of those customers want to take it up or those access seekers. To the extent it's not taken up by access seekers, then obviously we would socialize the uncontracted capacity. But at this stage in our discussions with customers, and they've still got effectively close enough to 12 months to make that decision, but nothing would indicate that customers are either looking to not renew or to reduce the extent of capacity.
Can I ask, if they do choose to renew, does that shift to a rolling basis, or does that renew for a period of time, so we end up with another sort of 10-year period, for example?
Yeah, it renews for five years. They are five-year renewal rights. It is not on a rolling basis, it is just contracts that expired at 30 June 2028. If they are renewed, they will now expire at 30 June 2033.
Okay. Just a second question from me, I know Anthony asked a question around any potential discussions around Hay Point. I would not mind just asking whether you have had a consideration looking at Port of Newcastle as a similar port-style asset. Is that an asset that you would see yourself being comfortably able to operate?
Yeah. Port of Newcastle, obviously, we are well aware that Macquarie Asset Management have appointed Goldman Sachs to consider a sale of their 50% interest. I think the Port of Newcastle, slightly different to us. Obviously, it has other elements to the port than just coal, although coal is the predominant part. I think what we will do is look and consider what Macquarie are looking to do with that asset, and ultimately what maybe China Merchants Group are contemplating doing, what the sale process looks like, and consider those options when it does actually come to market.
As a reminder, please limit your questions to two per person in the interest of time, and rejoin the queue if you have further questions. Your next question comes from Cameron McDonald with E&P.
Good morning. Two questions for Stephanie, if I can, please. Just going back to the interest line. With that step up in the first half, are we still expecting a second half step up? Or how do we think about the net interest costs for the full year relative to the first half?
Sure. Thanks, Cameron. The first half interest rate, if you calculate it, is more around the 4.7% all-in rate, and then it is stepping up to the 7% from pretty much June 30. I think in December FY 2025, at that time, the all-in interest rate was 4.63%, and it has crept up a little bit over that next period of time. As we have done some of those refinances with the AMTN and as the base rates have grown, that is where that step up to the 7% is happening. That will take place from effectively about mid-June, through until the end of the year. There is still a step-up happening, but that is the sort of step-up that is happening between the two periods. I would think of that 7% guidance as being applying for the second half.
Okay, great. Just on the cash flows, the movement in working capital has been pretty violent over the last three half-year periods. So, AUD +34 million in first half 2024, AUD -12.5 million in first half 2025, and then AUD +42.9 million in this period. Can you just explain what is driving that volatility, please?
Yeah. Working capital, it is primarily around the operator and what has been happening with their invoicing. If you think about it, two things have occurred. The first one is the operator has underspent its budget, and they work on a 1 July to June 30 period. They have underspent their budget for that 12-month period. If you take a 31 December snapshot, you get a particular position, and at 30 June , you get another position. That underspend is about AUD 21 million-AUD 23 million for the year. We will be refunding that to customers around end of August, I think. Yeah. About the end of August, we will be refunding that. The second thing that has happened is, as at December 31, the amount we owed to the operator was very low.
The way, probably appreciate, but the way working capital works is if we are actually not paying as much to the operator as we were in previous years, then that actually gives us a working capital benefit. We only owe the operator in their December quarter invoice about AUD 12 million or AUD 13 million, because there was a big refund that had come through with some of the works that we are undertaking for them. There was a big credit that had gone through in that period. If you are just looking at these points in time, you see these big working capital movements. We expect a lot of that to flush out by this August, and then it should return to a more normalized rate that you would have seen probably since listing.
But there will always be some movement depending on where the operator is sitting in terms of their over or underspend, and that can go either way.
Okay. Thank you.
Our next question comes from Sam Seow with Citi.
Thanks, and morning all. I appreciate you taking my questions. Just a quick one on the distribution. Your guide for the next kind of TIC years, 8.5% vs, I guess, your long-term target, 3%-7%. Looking forward, you should see quite a material step up in revenue. Your interest effectively looks fixed now, and your CapEx is stepping down. Just wondering how we should think about when you are happy to go outside that target range for distributions and what are your moving factors there, particularly around the 2027 to 2028 ? Thank you.
Yeah, thanks, Sam, for the question. I think as we progress during this year and we have, obviously, the certainty of SL1A being commissioned and completed, RL4 being commissioned and completed, and we fully expect the addition of those two major assets to the NECAP Asset Base on July 1, 2027. We obviously now have a clear view, as Stephanie has indicated, on interest costs over the course of the next literally couple of years, given we are substantially hedged and assuming base rates do not materially increase going forward. As I mentioned, one of the key things will be understanding the CapEx profile on things like SL2, so Ship loader 2 replacement and the gallery wrapping to understand what our CapEx requirements are going to be there. Again, we should have a handle on those within the next, call it six to 12 to 18 months.
That will then enable us to have a reassessment of the profile of the cash flows coming through, what our FFO looks like, and what our CapEx requirements look like, and then make an assessment, as we have done effectively on a six monthly basis over the last 24 months, around whether we continue to increase the distributions and whether they go above 3%-7%. Obviously, from a management perspective, we are focused on getting the most out of our distributions and paying out what we think is appropriate. That has been obviously the high end of that range, and we will look at it on an ongoing basis.
I think the only other thing to keep in mind is that a lot of our interest costs at the moment are being capitalized because we have that circa AUD 260 million- AUD 270 million of NECAP works underway. So under the way the accounting standards work, we capitalize, we assume 100% of that is debt funded at our prevailing interest rates. So when you look at a FFO payout ratio, as soon as those amounts get added to the Asset Base on 1 July next year, all of that will move into interest expense, which will then flow through into our FFO. Obviously, this amount of interest we are paying does not change. It is just really the categorization. So when you are looking at your FFO payout ratio, it still will be sitting at the high 70%.
That's probably just something to keep in mind in terms of some of this step-up that's happening in 1 July 2027, to a certain extent, is offsetting or is absorbed by just that step-up in interest that is happening from this year.
Got it. That's helpful. But maybe just to follow up from that. I mean, roughly it still looks like you can stay within your payout ratio target. And go above the 3%-7% range. But just remind me again, as we're thinking about this, with the stapled security and loan note structure, does that preclude you from doing buybacks?
No.
That's potentially on the radar if you do have excess kind of FFO?
I think when we look at capital allocation across the business and where we would best invest that, certainly, share buybacks are one option. I think it's not something that we would not consider. We would always consider all of those options, whether it's something we would introduce. I think one of the challenges, Sam, is given the profile of our cash position and the amount of FFO, particularly when we're putting, as Stephanie said, close to the high 70%, if you factor in that capitalized interest component, if you were to factor it in, there's not a lot of cash actually left to then do a material share buyback.
It's important we think about, okay, what's the value of these things overall, and how should we position it, whether it be a share buyback, whether it should be increased distributions, all of those things definitely will be taken into account. Then obviously people have mentioned other potential acquisition opportunities, and we obviously have to take those into account as well if they were to be something that we would look to pursue. So we, as we have done over the course of the last couple of years, we will be constantly looking at our capital allocation and reassessing what are the right distribution levels. As we said, we've increased the FFO payout ratio. We think that's appropriate given the capital allocation review we did last year, and we'll continue to assess whether that 3%-7% is the right target on an ongoing basis.
Remember that, just to be clear, our guidance is what is on the distributions. We have a target of 3%-7%. We always, as a management team, look to exceed that target. But we also appreciate that it's important that that target represents what we will think we can deliver on a go-forward basis.
Got it. That's helpful. Thanks for that.
Your next question comes from Nathan Lead with Morgans Financial.
Good day, Michael. Good day, Stephanie. Just two questions from me, and maybe they're a little bit nested, but I hope you don't mind that. Slide 14, you've got your sort of illustrative rollout, I suppose, of revenue over time. Can you just talk about how that profile has changed since you last presented that? Because I suppose it looks like 2027 to 2028's a little bit less. There's a bit more of a step up in 2028 to 2029, and it looks like maybe the additional NECAP coming through from uncommitted opportunities is a bit more back-ended. I suppose that sort of does very much tie into slide 11 to do with the NECAP rollout. But yeah, if you could just talk us through that'd be great? please.
Yeah, sure. I think a couple of things probably where things have changed. I think firstly, what we added to the NECAP Asset Base in 2026, 1 July 2026, was probably more than we expected. We pushed hard on some projects to get as much in there as we could, recognizing that it delivers TIC uplift straight away. So some of what would've previously been in the sort of 2027, 2028 period has actually been brought forward into 2026, 2027. So that's one thing to mention. So where you see 2027, 2028 potentially not being quite as high, and we've indicated it's sort of AUD 0.53. I think previous days gone by might have mentioned more like AUD 0.55. Part of that reason is the bring forward of some of that NECAP into the Asset Base.
In terms of going forward, we certainly see gallery wrapping up until probably three to six months ago was a project that we were very focused on doing. We didn't have approvals for it. We knew there would have to be some expenditure, but it wasn't very clear what that looked like. So, some of that step up into 2028 to 2029 will be a reflection of what we think is going to be some of the gallery wrapping NECAP that comes through. As I said, gallery wrapping is a year-by-year project. It's not a long-term project, so some of the gallery wrapping that will happen, will definitely, we believe, will happen in future years, is built into the gray component rather than the darker teal component for periods like 2028, 2029 or 2029, 2030 and 2030, 2031.
Then of the large projects that we expect to happen towards the back end of the decade, like Shipl oader 2, potentially Shipl oader 3. Essentially, if they were to be committed, let's just pick a time period sometime in FY 2028 or if late FY 2027, they're not going to be completed until 2030 or 2031. Again, whilst we don't have any real clear commitments or understanding of the timing of that, we haven't built that. We deliberately haven't built that into the expected pick-up lifts in, say, 2029, 2030 or 2030, 2031. If SL2 was to get approved and committed in 2027, then you might see in 12 months time, this chart change, and we'd have a big gray bar sitting in 2030, 2031. So that's really the reason for it.
I think it's a little bit of shifting of some of the costs forward and some of them a little bit back. But it's not to say that, and this is why it's, funnily enough, illustrative is, until we get a clear understanding of the absolute timing on these things, we don't want to be indicating that uncommitted, particularly uncommitted projects, will come into the NECAP Asset Base on particular dates. But we certainly expect there will be that NECAP required over the course of the next three to four years, and it will become committed.
Yep. Okay, great. Thank you. Second question is just to do with just franking, and I suppose that ties in with your tax payments over coming periods. Can you just give us an update about when you expect to resume full franking, or not full franking, but back to normal run rate on the franking of the distribution and what that actually means for your tax payments that are going to impact the FFO over coming periods?
Yep, sure. First of all, we expect to be paying unfranked distributions, unfranked dividends for the remainder of this year. We do forecast or hope that we would be paying partly franked dividends from the beginning of next year. So that would be the Q4 2026 distribution that we would look to pay in Q1 of 2027. So that's obviously subject to Board approvals. In terms of the FFO, just for clarity, the FFO does work off a current tax number rather than a cash tax number. So the current tax relates to this year. So whenever we look at FFO, and whenever we look at distributions referable to a quarter, we do try to make sure everything in the FFO relates to the quarter or to the period that we're talking about.
When we are talking about revenue or cost or interest or tax, it is referable to that quarter or to that year. When we are talking about FFO, we are talking about the tax referable to our. If we are talking about tax for this year, it is referable to 2026 rather than a refund we might be getting in relation to the 2025 tax return year.
Okay. So you have got a tax receivable sitting there on your balance sheet. What is the actual tax paid likely to be in the next 12 months?
Our effective tax rate is sitting at around, well, based on a net profit before tax, the effective tax rate is sitting between that 15%-20%. So it is probably sitting probably about the midpoint of that 15%-20% when you are looking at the net profit before tax. If you then take that as what we would be paying for this year, then, obviously, we have got a refund for this year in relation to last year, but in relation to this tax year, then that is about the way to think about it.
Yep. Okay. Thanks, Stephanie. Thank you, Michael.
Thanks.
There are no further questions at this time. I will now hand back to Mr. Riches for closing remarks.
Well, thanks everyone, for your attendance and thank you very much for the questions. We continue to see lots of value generation for security holders over time within the business and certainly significant opportunities. I think across the industry, there is no doubt consideration of certain headwinds that are impacting it. I think for us as a business, importantly, given where we sit within the Central Queensland coal network, the strength of our customer base, and the quality of the mines that they have within the Goonyella system, and our view on long-term metallurgical coal demand and the recent uplift we have seen in prices, we still see significant opportunity for the business going forward. I think, both through our NECAP program and other organic revenue initiatives, we will continue to focus on driving that longer-term security holder value.
Thank you very much for all the questions and for your attention today.
That does conclude our conference for today. Thank you for participating. You may now disconnect.