Dalrymple Bay Infrastructure Limited (DBI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm David Hamill, the Chair of Dalrymple Bay Infrastructure Limited, which I'll refer to throughout today's meeting as either DBI or the company. On behalf of my fellow directors, I welcome to DBI's Annual General Meeting. I also extend a very warm welcome to the security holders joining us today online. I'd like to begin by respectfully acknowledging the traditional custodians of the country north and south of Brisbane river as the home of both the Turrbal and the Yuggera Nations. I pay my respects to their elders, past, present and emerging. It's now 10 a.m., the appointed time for the holding of the meeting, and I'm advised by our Company Secretary that a quorum is present. I, therefore, declare the 2023 Annual General Meeting of Dalrymple Bay Infrastructure Limited open. Before I go any further, please check your mobile phones have been switched off and the raw recording and broadcasting devices such as tape recorders and cameras are switched off. Thank you. In the event of an emergency, please follow the emergency exit signs and the instructions of the venue staff. Now let me explain how we'll run the meeting today. The agenda for today's meeting is set out on the screens behind me. Firstly, I'll present my address. Following that, Anthony Timbrell, DBI's Managing Director, will present his review of DBI's activities. We will then proceed to the formal business of the meeting. The business to be considered at today's meeting is that contained in Items 1 to 5 in the Notice of General Meeting dated the 14th of April 2023. The notice for the 2023 Annual General Meeting has been distributed and will be taken as read. Item 1 is the consideration of the financial report of the company and its controlled entities, and the reports of the directors and auditor for the period ended 31st of December 2022. Whilst this item will not require a vote, we will be happy to receive any questions on the reports at the time they are considered. Item 2 is the reelection of Eileen Doyle as a Director of the company. Item 3 is the reelection of Raymond Neill as a director of the company. In accordance with the ASX listing rules and the constitution of the company, Eileen and Ray being eligible, offer themselves for reelection to the Board of the company. Item 4 is a nonbinding advisory vote to adopt the remuneration report of the company. Item 5 is the renewal of the proportional takeover provisions contained in Rule 7 of the company's constitution. In accordance with the company's constitution, as the Chair, I have determined that voting on each of the resolutions will be conducted by a poll rather than on a show of hands. We adopted these procedures to ensure that the views of as many security holders as possible are represented at the meeting. Following counting of the votes, we'll announce the results of the poll to the Australian Securities Exchange following the conclusion of this meeting. As this is a security holders' meeting, only security holders, their attorneys, proxies and authorized company representatives are entitled to speak and vote at the meeting. Some of you here today may have questions that relate specifically to your own securities rather than matters of the meeting agenda. I'd ask you not raise these matters in this meeting, but rather, that you see our security registry staff at the registration desk outside this room after the meeting. They'd be happy to help you with any specific problems or concerns you may have. For those attending the meeting in person, you would have been given an attendance card when you registered on arrival. If you have a yellow voting card, you are a voting security holder, a proxy holder or a corporate representative, you are entitled to speak and vote at this meeting. If you have a blue card, you're a nonvoting security holder. While you're entitled to ask questions and make comments, you are not entitled to vote at this meeting. And if you have a red card, you're a visitor and not entitled to vote nor speak at this meeting. When we come to questions or comments about agenda items in due course, if you would like to ask a question, please make your way to the microphone at the top of the aisle at the appropriate time. Please announce your name before your comment or question and show the yellow or blue card. As a courtesy to all security holders, please also state your affiliation if you're not here today in your personal capacity. If there are other people waiting and ask you to restrict yourself to 2 comments or questions only and then wait for another turn. Please limit each question to no longer than 1 minute. And I ask that all questions be directed to me as Chair. And joining me today are the current directors of DBI. All of them were directors to the company at the time of DBI's listing on the -- sorry, on the 8 December 2020, other than Ray Neill, who was appointed as a director on the 27th of February 2023. To my right, our independent nonexecutive directors, Dr. Eileen Doyle and Bronwyn Morris, and Nonexecutive Director, Ray Neill. My left are the DBI's Managing Director, Anthony Timbrell; DBI's Chief Financial Officer, Stephanie Commons; and DBI's Company Secretary, Liesl Burman. Other members of DBI's executive team are also present today and are wearing nametags. They'll be happy to address any questions you have at the conclusion of the meeting. Mr. Stephen Tarling is also here as the representative from Deloitte Touche Tohmatsu, the company's auditors. There will be an opportunity to ask questions of our auditor in relation to the conduct of the audit and the content in preparation of the audit report. Under the leadership of Managing Director, Anthony Timbrell, and the executive team, the company has made significant progress against its strategic initiatives over the past 12 months, including securing a 10-year pricing agreement to the 30th of June 2031, with all Dalrymple Bay Terminal customers, which resulted in a 39% increase in aggregate terminal infrastructure charge revenue for full year '22 over the prior year period to $281.7 million. Developing a transition strategy to guide our response to the climate-related risks and opportunities arising from the expected transition of the global economy to a low-carbon future; and maintaining our investment grade credit rating and balance sheet. I'll cover a number of these areas from a Board perspective and Anthony will go into more detail in his Managing Director speech. Access charges. The successful completion of the negotiations with our customers under the light-handed regulatory framework was a significant milestone for DBI during FY '22. Importantly, the other key commercial terms with customers remain substantially the same as under the previous heavy handed regime, including 100% long-term take-or-pay contracts and socialization of charges in the event of customer default or contract expiries. DBT remains fully contracted to June 2028 with evergreen renewal options for customers. The Terminal Infrastructure Charge, or TIC, will be adjusted annually for inflation, and will cover the period from each July 1 to the following 30 June, the TIC year. The TIC will also include additional kneecap charge each year, reflecting our organic investment in Non-Expansionary Capital Expenditure, or NECAP. As we announced to the market on the 18th of May 2023, DBI's forecast take applicable at DBT for the TIC year '23-'24, is approximately $3.45 per tonne. The forecast TIC year '23-'24 represents an 8.7% increase on TY '22-'23. The stable revenue profile of the business, coupled with our take-or-pay contracts, provides certainty of cash flow for the company. Sustainability and transition. DBI's vision is to be a provider of essential infrastructure for a world in transition. During 2022, the company developed a transition strategy to guide its response to the climate-related risks and opportunities arising from the expected transition of the global economy to a low-carbon future. To remain resilient in an evolving global operating environment, DBI's transition strategy prepares the company for a future amidst the change in climate and for emerging opportunities to diversify its business. Diversification options under consideration include expansion of the existing infrastructure of DBT for non-coal purposes, such as the potential for a hydrogen export facility as well as the diversification in DBI's business through potential mergers and acquisitions. DBI remains committed to its target of achieving net zero Scope 1, Scope 2 greenhouse gas emissions from DBT operations by 2050. Distributions. A total of $0.19185 per stapled security of distributions was paid for full year 2022. Today, we've announced a Q1 '23 distribution of $0.05025 per security, in line with current guidance for TY '22/'23 of aggregate distributions of $0.201 per security. And distribution guidance for the year commencing 1 July 2023, that's TIC year '23/'24, totaling $0.215 per security to be paid in quarterly distributions, reflecting a 7% increase over TY '22/'23 distribution guidance updated in October 2022. We're pleased to reaffirm our distribution per security growth target of 3% to 7% per annum for the foreseeable future, subject to business developments and market conditions. The TY '23/'24 guidance remains in line with our distribution policy established on listing of targeting to distribute between 60% to 80% of FFO. In conclusion, with the resilience of DBI's business underpinned by the strategic nature of the DBT asset and our long-term take-or-pay arrangements with customers, security holders can continue to take comfort in the predictability of DBI's cash flows, which support both distributions and growth. On behalf of the Board, I'd like to thank the entire DBI team for their tremendous contribution during the year. Finally, I'd like to thank our security holders for your continued support. And again, thank you for your attendance today. I'll now hand over to our Managing Director, Anthony Timbrell. Anthony?

Thank you, David, and good morning, ladies and gentlemen. I'm pleased to report that Dalrymple Bay Infrastructure had a successful financial year '22. We delivered a Terminal Infrastructure Charge of $3.18 per tonne for the year, which was up 5.3% on the prior year. Importantly, as David mentioned, a 10-year pricing agreement was secured with all DBT customers. This was the first agreement under the new light-handed regulatory framework, and a milestone that provides an opportunity for considerable growth in our future revenues while maintaining the predictability of our cash flows. Our adjusted EBITDA grew 41% to $264.2 million, and our investment-grade balance sheet was maintained. Following year-end, we further extended the maturity of our debt book via an AUD 530 million U.S. Private Placement, where we were able to achieve 15-year tranches out to 2038, demonstrating the support DBI receives from the offshore capital markets. Funds from this placement, which will be received in July, will be used to repay drawn bank facilities to free up capacity to fund our organic NECAP growth program and for upcoming debt maturities. Our 2022 distribution of $0.19185 per security represented an increase of 6.6% on the previous financial year. As David mentioned earlier, we have today provided guidance for a distribution of $0.215 per stapled security for the new TIC year, TIC year '23/'24, reflecting a 7% increase over the TY '22/'23 distribution guidance. This is at the upper end of the range of our previous guidance of targeting distribution per security growth between 3% to 7% for the foreseeable future, subject to business developments and market conditions. Operationally, we handled more than 53 million tonnes of coal, of which 76% was metallurgical coal to 23 countries. Coal shipments to China have recently recommenced with the first vessels bound for China arriving at the terminal in February this year. Of course, safety remains the top priority at DBT and I'm pleased to report that our safety performance continued to improve with a whole of site All Injury Frequency Rate of 4.8, almost half that of the prior financial year. I'd like to thank the DBT operator, Dalrymple Bay Coal Terminal Proprietary Limited, for their continued efforts to improve the safety culture at DBT, and congratulate them on their outstanding safety improvement this year. We continue to progress our growth options over 2022, including NECAP projects and our 8X expansion opportunity. In April this year, we announced our decision to invest $280 million in 2 major NECAP projects, which will continue to ensure that terminal capacity remains available to meet the needs of our customers while delivering meaningful organic growth for our security holders. The technical aspects of the 8X FEL3 feasibility study, which is fully underwritten by access seekers, were completed in Q1 '23, with the total estimated cost expected to be approximately $1.369 billion. That estimate updated the pre-feasibility FEL2 prior estimate of $1.276 billion, which was in 2020 dollars. Associated economic assessments are ongoing and expected to continue into the second half of 2023. Earlier this month, we announced a forecast 8.7% uplift in our TIC to approximately $3.45 per tonne for the TIC year '23/'24. The forecast increase in TIC for TY '23/'24 is a result of our robust access pricing framework and further evidence of the inflation protected nature of our cash flows. With long-term take-or-pay contracts, strong cash flow and investment-grade balance sheet, identifiable growth options and a strong distribution policy, the company remains well positioned to continue to deliver value to security holders. We continue to deliver on our sustainability and ESG goals. DBI's ESG initiatives are informed by a renewed materiality assessment undertaken during 2022. Environmental impacts on the business, particularly those related to climate change, remain a key focus for management. From 1 January 2023, DBT commenced procuring its electricity requirements under its new electricity sale arrangements with 100% renewable benefits in the form of LGCs. Through our decarbonization road map with the DBT operator, we have targeted to achieve net zero Scope 1 and Scope 2 emissions at DBT by 2050. As a business and a management team, we remain committed to aligning with TCFD-recommended disclosures over time. Investing in the communities in which we operate will continue to remain an important part of DBI's ESG program. We continue to be strong supporters of our local community through our community programs and partnerships. In 2022, DBI and the operator of DBT, developed a voluntary cultural heritage management plan with the Yuwibara people, the registered native titleholders of the land and waters where DBT is situated. Following our ESG framework ensures that we operate responsibly, reduce our environmental footprint and contribute positively to the communities in which we operate. During 2022, we agreed to commercial terms with all customers under the light-handed regulatory framework. This agreement was the culmination of 3 years of work as DBI progressed from the previous heavy-handed model. As mentioned previously, the terminal infrastructure charges levied under our access agreements are key to our financial performance and cash flow. All contracts remain on 100% take-or-pay basis with a 100% pass-through of operating and maintenance costs. Further, 100% of DBT's capacity remains fully contracted to June 2028, with evergreen renewal options for customers. Socialization of charges is retained on customer defaults and contract expiries. With our pricing arrangements locked in, DBI and our management team are now focused on advancing other strategies to create value for our security holders. As mentioned earlier, we have recently announced our forecast of an 8.7% uplift in our TIC to approximately $3.45 per tonne for TIC year '23/'24. The increase is expected to comprise a base TIC indexed annually for inflation. The TY '23/'24 base TIC component has increased to $3.32 a tonne, reflecting a 7% increase on TY '22/'23. It will also incorporate a NECAP charge. Nonexpansionary capital expenditure at DBT earns a return on invested capital set at the 10-year Australian government bond rate plus a margin as well as a return of the invested capital in the form of a depreciation allowance. The expected increase in the NECAP charge to approximately $0.12 a tonne for TY '23/'24 reflects an additional $44.7 million in commission CapEx over the previous 12-month period. And it further includes a QCA levy. So a pass-through of the Queensland Competition Authorities costs. The QCA levy component of the TY '23/'24 TIC is expected to be approximately $0.01 per tonne. The inflation-adjusted TIC, coupled with our continued investment in significant NECAP projects, delivers a predictable and growing stream of cash flows. During 2022, DBI continued to maintain its investment-grade balance sheet with approximately $2.7 billion of total facility limits, of which approximately $1.82 billion was drawn at 31 March 2023. In April 2023, the company announced that it priced $530 million of long-dated fixed rate senior secured notes in the U.S. private placement market. The proceeds of the notes will be used to repay drawn balances under revolving facilities, freeing up liquidity to fund DBI's nonexpansionary capital growth program and for general corporate purposes, including repayment of future debt maturities. This debt issuance has a weighted average tenor of 11.6 years and will extend DBI's overall weighted average debt maturity to 7.15 years at closing. A key focus for DBI during 2022 was the development of its transition strategy, consistent with DBI's vision to be a provider of essential infrastructure for a world in transition. DBI's vision is broader than any single asset or commodity. It incorporates expectations of continuing investment in the maintenance, growth and diversification of DBT, while seeking to explore long-term growth opportunities to diversify DBI's infrastructure portfolio. To remain resilient in an evolving global operating environment, DBI has developed an overarching transition strategy, which will allow DBI to prepare for a future amidst a change in climate and to consider opportunities to best position and diversify its business. DBI is increasingly aware that environmental, social and governance drivers and international commitments towards net zero greenhouse gas emissions may impact its existing business. Our key stakeholders are keen to understand how DBI intends to plan for the transition and diversification of its business to meet the needs and challenges of a world in transition. Our transition strategy outlines how DBI has developed the strategy and the framework for its implementation. Further detail can be found in our 2022 sustainability report, which is published on our website. The DBI transition strategy highlighted the long-term resilience of the Dalrymple Bay Terminal, enabling DBI to build resilience through strategic diversification. Our organic growth will be driven via our nonexpansionary capital program and potentially our 8X project. We expect to invest in excess of $500 million in NECAP projects over the period to 2031. In April, we announced our decision to proceed with $280 million in major NECAP projects over the next few years as we continue to invest in sustaining capital to meet capacity commitments to our customers. It is important to remember that DBI earns a return on and off NECAP expenditure with the TIC adjusted each 1 July to account for NECAP projects commissioned during the previous 12 months. We are continuing to progress the 8X project, which presents a well-defined technical pathway to expand capacity to 99.1 million tonnes. The 8X project is focused on terminal optimization by maximizing storage volume as well as increasing in-loading and out-loading capabilities within the existing footprint of DBT and its marine facilities. The remainder of fiscal year '23 will be spent working with access seekers to understand the commercial viability of the 8X project. In 2022, DBI and its 3 consortium partners jointly funded a market study which highlighted the rapid growth in demand expected for green hydrogen and its derivatives over the period to 2050, and funded further analysis of possible green energy carriers for use at DBT. The output of this work suggests that DBT may be suitable for the export of a number of new energy products with ammonia being the most suited to the existing terminal infrastructure. Further engineering and feasibility assessments are planned for 2023. We will also examine external growth opportunities via mergers or acquisitions, focused on assets that have stable and predictable cash flows and a credible transition plan under a range of potential future climate change scenarios. 2022 was a year of significant achievement for our company with the conclusion of the access pricing negotiations. We have emerged with a robust financial and operational platform for delivering value to our security holders. Our strategic priorities for 2023 include: delivering approved NECAP projects; commencing negotiations with access seekers with regard to access pricing terms for 8X; identifying opportunities for diversification that align with DBI's transition strategy; progressive alignment of DBI's climate-related risk assessments and disclosures to the TCFD framework over time; and delivering our whole of terminal ESG and sustainability initiatives; and completing initial scoping studies for green hydrogen export and working with partners to promote DBT as a potential third-party service provider. With the resilience of DBI's business, underpinned by the strategic nature of the DBT asset and our long-term take-or-pay arrangements, securityholders can continue to take comfort in the predictability of DBI's cash flows which underpin both distributions and growth. Thank you, David.

Thank you, Anthony. I'll now move to the formal agenda items. The notice of meeting sets out information regarding the resolutions to be put to today's meeting. There are 4 items requiring a security holder vote today. For security holders with a yellow card, the voting boxes are on the back of your yellow card. Details of the proxies received on each item of business will be shown on the screen behind me after discussion on that item of business. I'm holding open proxies in my capacity as Chair. It's my intention to vote all available proxies in favor of each resolution. If you require any assistance completing a voting card, our scrutineers representatives of Link Market Services can assist with this. Turning to the first agenda item, which is the consideration of the financial report and the reports of the directors and auditors of the company for the year ended 31st of December 2022. The 2022 annual report contains the financial report, directors' report and the independent auditor's report. A copy of the annual report is available on the DBI's website and was sent to those security holders who requested it. The terms of agenda item 1 are set out on the screen behind me. While we do not put this item to a vote, this is an opportunity for security holders to ask questions relating to the company's financial report and the reports of the directors or auditor or the management of the company. As I indicated earlier, we also have here today Mr. Stephen Tarling from Deloitte Touche Tohmatsu, who is available to answer any questions concerning the preparation and content of the audit reports, the conduct of the audit, the accounting policies adopted in preparing the financial statements and the auditor's independence. Before questions commence, I would ask security holders who wish to ask questions on other matters such as remuneration do so when we reach the relevant agenda item later in the meeting. I would now like to invite questions from security holders regarding the financial reports or the management of the company. If there is any questions, please come forward. There's -- if there's no questions from the floor, I can advise that we haven't actually received any questions online either prior to the meeting. So if there are no further questions, I'll move on to item 2 on the agenda and to conduct the next resolution. This item is set out on the screen behind me and relates to the reelection of Eileen Doyle as a director of the company. As noted in the Notice of Meeting, in accordance with the ASX listing rules and the constitution of the company, Eileen is retiring by rotation, and being eligible, offers herself for reelection to the Board of the company. To assist with the motion, I'll now ask Eileen to provide a few comments on her background. Thanks, Eileen.

Thank you, Chairman. Good morning, ladies and gentlemen. My name is Eileen Doyle. I've had the pleasure of serving as a Nonexecutive Director of Dalrymple Bay Infrastructure since October 2020. Today, I offer myself for reelection at this Annual General Meeting. For those I haven't yet met, I'll provide some information about myself, which will give you some insight into the skills and experience I bring to your Board. My background, I hold a PhD in Applied Statistics from the University of Newcastle, and I was Australia's first Fulbright scholar in Business Management in 1993. I am a fellow of the Australian Institute of Company Directors and a fellow of the Australian Academy of Technological Sciences and Engineering. Through my career, I have been exposed to a range of industries, including steel, building materials, infrastructure, technology and logistics, which has provided me with a broad and diverse skill set that I bring to the Board of your company. I have previously served as Chairman of Port Waratah Coal Services for 11 years, which has provided me with great insight to the workings challenges and opportunities of a major coal export terminal. I've also served as the Deputy Chairman of CSIRO and on that Board for 10 years. I have held a range of current and prior directorships, including Boral Limited, GPT Limited, OneSteel Limited, NextDC Limited, Santos Limited and Bradken Limited. I believe my technical skills and diverse experience in critical infrastructure make me a valuable asset to the Board of Dalrymple Bay Infrastructure Limited. I have the time to meet all of my Board commitments. If reelected, I will continue to use my knowledge and experience to help guide the company to achieve its goals and deliver value to our security holders. Thank you for your time and consideration.

Thank you, Eileen. As further noted in the notice of meeting, the Board considers that Eileen will add significant value to Board deliberations given her experience and skills. Accordingly, the directors, with Eileen abstaining, unanimously recommend that security holders vote in favor of this resolution. Is there anyone who wishes to comment on this item or ask me or Eileen any questions? If not, we've then finalized discussion on this item. The details of the proxies received in relation to this item are displayed on the screen behind me. As noted at the beginning of the meeting, we pose that voting on the resolution will be conducted by a poll. If there's anyone who is entitled to vote on any item who does not have a yellow voting slip, would you please stand in your place now, and one of the scrutineers will attend to you immediately. Otherwise, would you all now please complete your voting slips in relation to agenda Item 2. [Voting]

The next item set out on the screen behind me relates to the reelection of Ray Neill as a director of the company. As noted in the Notice of Meeting, Raymond, being eligible, offers himself for reelection to the Board of the company. As further noted in the Notice of Meeting, the Board considers that Ray will add significant value to Board deliberations given his experience and skills. Accordingly, the directors, with Ray abstaining, unanimously recommend that security holders vote in favor of this resolution. To assist with the motion, I'll now ask Ray to provide a few comments on his background. Thanks, Ray.