Thank you for standing by, and welcome to the Dalrymple Bay Infrastructure Limited 2023 half year results briefing. All participants are in a listening mode. There will be a presentation, followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Anthony Timbrell, CEO. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to Dalrymple Bay Infrastructure's first half 2023 financial results. I'm joined today by Stephanie Commons, our CFO. Today, we will be providing an update on our financial performance, detailing our organic growth opportunities via non-expansionary capital expenditure, as well as providing an update on our strategic priorities. I'll start on slide 4. Our first half 2023 EBITDA was AUD 125.7 million, up 34% on the prior period, reflecting the uplift in our terminal infrastructure charge, which was agreed through negotiations with our customers. We delivered AUD 70.9 million in Funds From Operations, up 27% versus first half 2022.
The uplift in our revenue and cash flow allowed DBI to pay a first half 2023 distribution of AUD 0.1005 per security, with the Q2 distribution franked at 38.5%. Our distribution guidance for the coming 12 months of AUD 0.215 per security represents a yield of approximately 8% on our current share price. Importantly, we continue to invest in our future growth and announced AUD 280 million of non-expansionary capital projects, which we otherwise refer to as NECAP, in the first half of 2023, which will drive revenue increases as these projects are commissioned over the coming years. And finally, the inflation-linked nature of the commercial agreement reached with our customers, coupled with our regular NECAP program, will deliver a material uplift in our TIC for the period July 2023 to June 2024.
Moving to slide 6. A Terminal Infrastructure Charge, or TIC, applies to each ton of contracted capacity at DBT, with the terminal fully contracted on a 100% take-or-pay basis at 84.2 million tons per annum to 30 June 2028, with evergreen renewal options for customers. Under the current agreement with customers, the base TIC is indexed annually in line with the Australian Consumer Price Index. The TIC for July 2023 to June 2024 has been set at AUD 3.44 per ton of capacity, representing an 8.4% increase on the prior year. NECAP projects once again contributed meaningfully to the growth in the TIC. As non-expansionary capital projects are commissioned, a NECAP increment representing a return on and of capital is added to the TIC each 1 July.
With operating and maintenance costs at the terminal, a pass-through via the handling charges, DBI is effectively benefiting from current inflationary pressures. Moving to Slide 7. The nature of the take-or-pay contracts at DBT provide for a predictable and growing revenue stream. The chart here illustrates the positive impact inflation has on our base TIC and how our investment in NECAP projects leads to growth in shiploader 1a and Reclaimer 4 replacement projects are expected to have a particularly significant impact on the TIC when they are commissioned in the latter part of the decade. Slide 8. The predictability of our cash flows allows us to ensure that we maintain our investment-grade balance sheet, invest in growth, and execute on our distribution policy of paying out between 60%-80% of Funds From Operations.
Furthermore, that certainty has seen the Board target DPS growth of 3%-7% per annum for the foreseeable future, subject to business developments and market conditions. DBI today announces our Q2 distribution of AUD 0.05025 per security, franked at 38.5%, which is the company's first franked distribution. The company today also reaffirms the guidance that we set at the AGM for distributions for the year commencing 1 July 2023, totaling AUD 0.215 per security, to be paid in distributions of AUD 0.05375 per security per quarter. That distribution guidance represents growth of approximately 7% on the prior corresponding period. I'll now hand over to our CFO, Stephanie Commons, to talk through the financial results.
Thanks, Anthony. Good morning, everyone. Turning to slide 10, the profit and loss for the period. For the first half of 2023, DBI reported a TIC revenue of AUD 133.8 million and a net operating profit after tax of AUD 34 million, both up on the prior comparative period. Note, the prior comparative period does not reflect the negotiated light-handed position, as the negotiation of access charges wasn't completed until October last year. Therefore, AUD 22.9 million of prior period revenue wasn't brought to account until the second half of 2022. Nevertheless, even after adjusting for that, TIC revenue was up over 30% on the comparative period. EBITDA of AUD 125.7 million was up 29% on the prior comparative period, noting again, the prior period didn't reflect the negotiated price.
Also noting the prior period included an IPO transaction cost adjustment. After adjustments, EBITDA was still up 7.6% on prior period, demonstrating the benefit of the cost pass-through mechanism we have on the OpEx and maintenance costs at the terminal. Net finance costs for the period are AUD 54.4 million, which is down 12% on the prior comparative period. However, this line item includes a number of non-cash items, and these are the primary drivers of that reduction during the period. Interest expense on external borrowings, net of interest revenue, increased by AUD 5 million compared to the prior period, which was largely as a result of increases in the benchmark rates on DBI's floating rate debt. Moving to slide 11, Cash Flow Statement.
Funds From Operations were AUD 70.9 million for the first half of 2023, up 26% compared to the prior comparative period. The uplift in FFO was predominantly due to the increase in the TIC revenue, but was offset by higher cash interest and current tax. DBI has been in a structural tax payable position since last year, and the increase in current tax for the current period is partly due to the higher TIC revenue, but predominantly due to a taxable gain arising on repayment of the 2011 U.S. Private Placement notes in March of 2023. These notes were assumed at IPO as part of the acquisition of the DBT entities by DBI. Distributions in the prior comparative period were paid as a combination of unfranked dividends and partial repayments of the loan notes, which form part of DBI's stapled securities.
Distributions in the current period are being paid in the form of dividends, franked at 0% for the first quarter of 2023 and 38% for the second quarter of 2023. Distributions for the current half year represent 70% of FFO. The next slide, the balance sheet. The majority of the cash on hand at the end of last year, of AUD 192 million, was held on term deposit until it was used to repay the 2011 USPP notes, which matured in March of 2023. Note that the US Private Placement notes we raised during the period did not fund until after the thirtieth of June, and in fact funded on the sixth of July.
Current borrowings at the end of last year included those 2011 USPP notes, which were repaid in March, and the current borrowings at the current reporting date represent AUD 16 million drawn on our liquidity facility. Net assets at the end of the current period are broadly in line with the comparative period at AUD 1.15 billion. Moving on to slide 13, Debt and Hedging. At 30 June, DBI had AUD 2.2 billion in total facility limits, of which AUD 1.8 billion was drawn, leaving the business with headroom of AUD 400 million. The weighted average tenor of the drawn debt portfolio was 6.7 years, which is an improvement from 6.4 years at 31 December.
We repaid the $300 million of U.S. Private Placement notes in March this year via a combination of cash that we held on the balance sheet and a draw on our bank facilities. DBI was again very well supported by the U.S. Private Placement investors during the current period, raising AUD 530 million Australian dollar equivalent in 10-, 12-, and 15-year tranches in both U.S. dollars and Australian dollars. The tenor of these notes demonstrates the support the debt market continues to show for the DBI business, with DBI's longest debt maturity now out to 2038. As a result, the weighted average tenor of DBI's debt book is now over 8 years, which is an excellent result.
These notes have been funded until after the 30 June reporting date on the 6th of July, and the proceeds were used to repay the drawn bank facilities, with the remaining funds currently being held on term deposits until they are used US Private Placement notes maturing next year. As can be seen on the chart at the bottom of the slide, the next maturity for DBI is that $338 US Private Placement notes in 2024. The funds that we've raised will ensure that DBI has sufficient liquidity to repay those notes at maturity. Note that DBI takes no FX risk, with all US dollar debt raised swapped back to Aussie dollars, maintaining a 100% foreign exchange hedge for both principal and interest.
DBI was hedged at 70% during the period, with the interest rate swaps set back in May 2021. The US Private Placement notes were kept fixed, which has now increased the fixed hedge rate of our debt book to around 90%, and this level will remain until 2026, when the hedge rate partly reduces to between 60%-70%. Moving on to slide 14, Credit Rating Overview. DBI continues to maintain an investment-grade balance sheet. DBI maintains two investment-grade credit ratings with S&P and Fitch, and both ratings were reaffirmed during the current period at BBB and BBB-, respectively. Our ratings are stable and well within the bounds of the criteria set by both S&P and Fitch. I will now hand back to Anthony to talk through our growth plans and strategic priorities.
Thanks, Steph, and moving on to slide 16. As a business, we continue to assess organic growth options at DBT via our NECAP program and the potential implementation of the 8X expansionary project. We are also continuing to progress our investigations into the potential diversification of the asset through our hydrogen consortium. High-level concept studies are progressing, and we look forward to building on this work over the remainder of the year. Further, we are keenly focused on using the core competencies that reside within the existing team to acquire a portfolio of assets across multiple market sectors. While we remain extremely confident of the long-term resilience of the demand for Queensland's high-quality coking coal, we plan to deploy DBI's predictable cash flow, project management skills, and asset management expertise to grow DBI beyond the boundaries of the existing terminal.
DBI continues to monitor the market for appropriate opportunities and will work with partners to explore growth options that add value for all security holders. Moving to slide 17. DBI expects to invest over AUD 500 million in NECAP over the period to 2031. The proposed NECAP spend includes both regular and major machinery replacement expenditure. In the first half of 2023, we announced AUD 280 million of NECAP for the shiploader 1a, and a Reclaimer 4 to replace existing machinery. It is important to remember that under the terms of our negotiated agreement with customers, we can recover the investment we make in NECAP in the form of a TIC uplift in future years, with TIC revenue from invested NECAP earned from 1 July following commissioning of the relevant project.
Our NECAP program is developed in cooperation with the user-owned operator of the terminal and will be funded from a mixture of FFO and debt. Moving to slide 18. DBT retains significant expansion optionality to accommodate growth in metallurgical coal exports from the Bowen Basin. The 8X project is expected to deliver up to 14.9 million tons per annum of additional capacity and is supported by access seekers, comprised of both existing and new customers, seeking in excess of 30 million tons of additional capacity. We have secured all primary environmental approvals, with the QCA confirming that the costs of 8X may be socialized across existing users. Technical aspects of the phase 3 feasibility study have been completed, with our attention now directed towards the development of a commercial framework to support the project.
We anticipate commencing negotiations with access seekers with regard to access pricing terms for 8X in the next couple of months. To slide 19. DBT is ideally positioned from an infrastructure perspective for the export of new energy products, given the Port of Hay Point's deep water nature, abundant nearby land to support further development, proximity to Asian customers, and location within one of Queensland's defined renewable energy zones. Aurecon, the engineering company, is currently undertaking concept studies on behalf of our hydrogen consortium, with the aim of developing high-level layouts for an ammonia synthesis storage and loading facility at DBT. Further analysis of the potential siting and transmission options for large-scale renewable energy projects within the proximity of the terminal are also included in the study.
However, while DBI is keen to understand the potential role DBT could play in the global energy transition, any material capital investment in diversification of DBT will need to be underwritten by long-term agreements with producers of these new energy products. To slide 21. I won't read all of these, but just quickly, with our secure take-or-pay contracts and predictable future earnings profile, we are well positioned to execute on our strategic priorities. Our key focus over the medium term will be the timely and efficient implementation of approved NECAP projects, progressing negotiations with access seekers aimed at developing a commercial framework for the 8X project, and pursuing opportunities to grow DBI, DBI beyond the boundaries of the existing terminal. That concludes our prepared remarks. I will now hand back to the operator to take 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 then two. If you're using a speakerphone, please pick up the handset to ask your question. The first question today comes from Owen Birrell, from RBC. Please go ahead.
Yeah, thanks, guys. Well, I just I guess my first question is just around the the met coal market and what you're seeing in terms of current volumes and your expectations for this 6 months. We had Aurizon reporting earlier this month, and they're talking to a sort of a 10% increase in volumes on their network for the coming 12 months. So I'm just wondering if what you're seeing, given you've had a very strong period to date.
Yeah, probably something similar, Owen. I think the, for the period to the end of June, we did about 58-59 million tons of annualized throughput, compared to about 53-54 for the prior corresponding period. June was very strong, up over 60, which is typical given that you tend to see an acceleration in activity towards the end of the financial year. July was relatively quiet, but August, sorry, has picked up again, and I think August to date, we're running at about a 64 million ton annualized rate. So, we're seeing similar trends.
Okay, that's excellent. Just a question for Stephanie. I just wanted to know what the other income line is representing. I think it was AUD 1.8 million in the half. I always presume that's interest revenue, but is there anything else in there?
No, no, you're exactly correct, Owen. It's interest revenue, nothing else in there.
That was, that was actually quite a large step up from prior periods, and I'm just wondering, is that expected to continue, or again, is there anything funny in there?
No, it, it is a step up because we are finding that we are holding cash on the balance sheet as a result of, of going to market and raising debt earlier. So in fact, you'll probably see that number going up, in future. So that, that represents that cash we had on hand at 31 December that we didn't use until we repaid those notes in March. And again, we're now going to be holding some of the funds from the most recent U.S. Private Placement on deposit, so that will come through. There's nothing else that goes through that line.
Excellent. Sorry, just one final question for me. Just looking forward in terms of the growth opportunities, you sort of highlight the NECAP spend out to 2031, I think, just over AUD 500 million committed. Should we think that there are any other opportunities to achieve NECAP growth or NECAP spend out through the end of the decade? Or is additional NECAP spend likely to be beyond sort of 2031 onwards?
Not 100% sure what you mean by the question, Owen, but we will continue to see a mixture of machine replacements and what we call regular NECAP spend. So historically, our annual spend has been in the order of about AUD 20 million-AUD 30 million, and that's just your run-of-the-mill, small-scale projects needed to make sure that the terminal continues to comply with good operating and maintenance practice. But now that the terminal is 4 years old, some of the original machinery requires replacement, which is what's happening with Shiploader 1 and the new RL4. There are potentially other options for machine replacements. When they take place, though, is open for discussion between the operator and ourselves and will depend on, you know, a range of factors, including their reliability, et cetera.
Yeah, I think
I guess my question was. Sorry, around that, in terms of the replaceability of equipment, is there much more that needs to be replaced before 2030, or are they kind of in a position where you'd probably be able to run them through to the end of the decade?
There's a very good chance we'll be doing Shiploader 2 before 2031 as well. Beyond that, again, it's not always 100%. It's not obvious when you should necessarily replace a particular piece of gear. You can always keep maintaining it. So long as they're structurally sound, which all of our equipment is, then you can continue to maintain it effectively, indefinitely. But the decision as to when to replace largely comes down to when does the amount of time it requires to maintain the gear start to have an impact on throughput? And that's usually what drives the replacement decision. But there's a reasonably good chance that Shiploader 2 will also be done in that period.
That's great. I'll leave it there. Thank you.
Thank you. The next question comes from Sam Seow, from Citi. Please go ahead.
Oh, morning, guys. Thanks for taking my question. Just a quick question on interest. Any color on the cost of debt there going forward, post from the year of financing, and then that non-cash component should be a big swing factor for them. Any thoughts there?
Yeah, sure. Thanks, Sam. Look, the cost of debt for DBI is going up. The cost of what we are replacing some of the older facilities at, you know, that we raised back in 2011, 2012, that are maturing, are being replaced with debt that we're raising over the last couple of years, and the margins for that are higher. And obviously, the base rates that we're seeing are also higher. Now, we have hedged a fair portion of our debt out to 2026, but we are leaving some of the debt fixed at the moment, so that will obviously flow through, but at least give us predictability over the next, for the term of that debt.
So that cost of debt we will see going up, but we have that in all of our modeling in terms of sort of the cash flows that we have coming through, and that we don't have any problems in terms of how we're seeing that, in terms of our ability to return funds through our distribution forecasts. So that's the first part of it all. So just remind me the second question again?
Oh, just that non-cash component.
Oh, the non-cash.
Yeah.
Yes. Yes. That is to do with fair value adjustments and also to do with, gains and losses on the, derivatives that we have in the book. It also includes the interest, the deemed interest on the loan notes that form part of the stapled securities. Because they are non-interest bearing, we do have to bring them back to a fair value and deem an interest rate on them. And so that interest, as we are repaying those loan notes, that interest does get released through the profit loss as well.
Sure. Sure. And maybe, and maybe just quickly on the, the hedging that you mentioned, 90% hedged. Is that lower than you would normally hedge to, and was that a conscious decision?
Yes, it is a conscious decision, and it's not lower. We usually hedge between sort of 60%-80%, generally around that 70%-80%. But we are hedged at closer to 90% between now and 2026 as a result of leaving the most recent U.S. Private Placement notes at fixed rate. Because of the volume of them, we did actually implement some reverse swaps, swaps to bring that back under the 100% level between now and 2026. So that's probably just gives us a lot more view as to where those base rates are going and just give us a much better blended rate between now and 2026. So yeah, that sort of 80%-90% is a good view for us.
For the period beyond 2026, where we hedge from 60%-70%, we are undergoing a review at the moment of our hedging to assess what the appropriate level is between 2026 and 2031, and at what time we enter the market and what sorts of derivatives we use to maintain or increase that level.
Got it. Thanks so much for that. Appreciate it.
Thank you once again. To ask a question, please press Star One on your phone. The next question comes from Nathan Lead from Morgans. Please go ahead.
Thanks for your presentations, Anthony and Steph. The first one to you is when we look at the forecast TIC slide, just wanted to ask a question about just the price competitiveness of the terminal versus Abbot Point and Gladstone. Once you've had those reasonable step-ups to do without the NECAP, where do you think you're sitting versus those other two terminals now?
Morning, Nathan. Firstly, anything we say is a kind of guesstimation, given that neither Gladstone nor Abbot Point publishes information regarding our access charges. However, based on discussions with access seekers who have sought capacity at both our terminal and Abbot Point, we're fairly confident that we're still a reasonable margin cheaper than Abbot Point. Gladstone, I suspect we're probably similar. My understanding is Gladstone has a differential pricing regime where access charges are a little bit different depending upon when you signed up for capacity. But given that rail costs far exceed port costs, and rail costs are largely a function of distance, we don't think any incremental increases to access charges as a result of our NECAP program is going to drive anyone...
It's not even going to get close to driving anyone to consider switching terminals.
Great, excellent. Second question, just wanted to sort of, I suppose it wraps together tax and, and dividend franking. So it looks like your current tax expense now in the PNL is running about AUD 12 million.
Are we now into sort of a steady state tax paying status, or is that USPP impact sort of like a once off, and then you'll go back to no, no tax? So that's, I suppose, the first part of the question. And then secondly, you've, you've franked the dividend at 38.5%. If we are in sort of permanent tax paying status now, what's the sort of run rate going forward?
Thanks, good questions. So on the tax payable position, yes, we are in a structural tax payable position, so we do expect to be tax payable going forward. The tax payable amount this year is partly due to the uplift in the TIC rate, but predominantly it's due to the taxable gain on repayment of those notes in March this year, and they related US Private Placement notes that were brought into the group at the time of the IPO. There is another one of those next year, but after that, that won't be recurring. So there is a structural tax payable that is in place, and we expect that to continue. But the one-off, which US Private Placement notes, we expect that to just happen this year and next year.
In terms of franking credits, we will continue to frank the distributions going forward to the extent we have franking credits available, and we can do so under the tax law, and we do expect to continue to be paying income tax. So we do expect to have franking credits available to attach to each of the distributions at least through 2023, 2024. In terms of the quantum that we expect to attach, we can't really give any guidance on that, mainly because we don't know for sure what the amount of the franking balance will be, but also we don't know for sure what the amount of, you know, we can't guarantee the amount of profits that will be delivered in any quarter.
We can't give guidance for the components or the amount of franking, but we do expect all of the distributions over the next, certainly the next 12 months, to be franked.
Great, thank you. Then a final one, maybe it's a little bit cheeky, maybe, but I did take your comments about, you know, the inorganic methods of growth that you're looking at. Is there any M&A that you are currently live involved with at the moment?
No, there's not, Nathan.
Okay, great. Well, that's it for me. Hey, Anthony, I just wanted to say best of luck with the next steps in your career. Thank you.
Thanks very much, Nathan. Appreciate it.
Thank you once again. To ask a question, please press Star One on your phone. The next question comes from Paul Butler from Credit Suisse. Please go ahead.
Hi, Anthony, Stephanie. Anthony, I just want to ask you a question. I guess first off, congrats for your tenure with DBI. I just wanted to ask on the
On the negotiation around the TIC, to what extent were you involved in that negotiation with customers? And the second question is: when you sort of look at the upcoming discussions you have with customers on negotiations around the compensation for 8X, how do you see that negotiation compared to the one that you've, you know, successfully completed previously in relation to the TIC?
Hi, Paul. Firstly, the face-to-face component of the negotiations under the light-handed agreement was conducted by our General Manager of Commercial Regulation, Mr. Jonathan Blakey. Obviously, myself and Stephanie and the rest of the management team monitored that process very carefully, and we're all involved in the development of our position throughout that process. But please don't be concerned that as I leave all the regulatory IP is going to be leaving. It's certainly not the case. There's a highly competent and skilled team here who have played a key role during previous negotiations, who will remain with the business. And Jonathan, the same gentleman who conducted the TIC negotiations, is effectively developing the commercial framework for 8X that we propose to put to access in the next couple of months.
So, don't be concerned at all that there'd be any dislocation in that process. The team has that well in hand, and we're hoping to sort of push forward with those negotiations, as I've suggested, in the next couple of months.
Would it be fair to say that you're probably in a relatively stronger position with the 8X negotiation than perhaps you would have been in the previous TIC negotiations?
I guess we're in a strong position from the perspective that, firstly, the QCA has confirmed that we can socialize the expansion to the extent it goes ahead, so costs can be shared across the existing users. Secondly, the fact that we have the light-handed regime does, I guess, give us some extra negotiating leverage. But I guess most importantly, we won't proceed with the 8X development unless the commercial framework is sufficiently attractive to justify the time and the capital that will be required to implement it. And I guess we've spent the best part of the last 3-4 months getting our head around exactly what we would need to get out of that project to encourage us to commit the capital. We think we're getting very close to landing on an outcome.
We haven't yet socialized that with the Board, and clearly we need to do that before we start the process of negotiating access seekers. But, again, at the risk of repeating myself, we won't move forward unless, unless it's sufficiently commercially attractive, and, hopefully, we'll be able to update you further on our thinking with that regard, at the end of the year.
And just one final thing. How do you manage the construction risk on the project? I mean, I'm presuming you'll have a fixed price, fixed term construction contract where you try and pass that risk off to your contractor. But I just, you know, there's been a number of infrastructure projects where it hasn't quite worked out as riskless as was originally thought.
Yeah, look, it's probably a bit early to be making comments around how we would propose to manage each element of risk of the project, Paul, but obviously managing construction cost risk is a key part of the process and needs to be something that we take into account in framing the commercial framework for the Board. So look, apologies, that's a bit of a non-answer, but until such time as we've got a complete view as to how we would like to proceed, it wouldn't be appropriate for me to make comments on the individual parts of the proposal.
Fair enough. Thanks very much, and all the best for the future.
Thanks, Paul.
Thank you. At this time, we're showing no further questions. That does conclude our conference for today. Thank you for participating. You may now disconnect.