Announcement PDF DUXTON WATER LIMITED DECEMBER 2023 ANNUAL REPORT PROUDLY SUPPORTING AUSTRALIAN IRRIGATORS AND FARMERS ACN 611 976 517 FULL-YEAR 2023 SNAPSHOT Duxton Water’s Investment Manager operates a broad range of Australian agricultural businesses in viticulture, dried fruit, nuts, broadacre, bees, dairy, apples, and water. In any given year, the Duxton businesses produce around 15-20 different commodities and provide jobs for over 500 people living in rural communities. 1 Total Portfolio Return is based on NAV movements and includes franked dividends for the 12 month period to 31 December 2023. 2 Weighted Average Lease Expiry. -9.5% $390M PORTFOLIO RETURN1 (12 MONTHS) WATER PORTFOLIO VALUE $1.62 PER SHARE NON-STATUTORY NET ASSET VALUE (POST-TAX) 90.5GL 60% TOTAL WATER OWNED LEASED % 3.1 YEARS WALE2 “We use our geographically diverse portfolio of Australian Water Entitlements to provide irrigation water to a wide range of Australian farming businesses. Our long-term water leases can allow Australian farming businesses to access water at a fraction of the cost of owning the same water licences outright.” CONTENTS Chairman’s Letter to Shareholders 8 Portfolio Managers’ Report 16 Directors’ Report 25 Information of Directors & Company Secretary 38 Remuneration Report 42 Lead Auditor’s Independence Declaration 47 Statement of Profit or Loss and Other Comprehensive Income 48 Statement of Financial Position 49 Statement of Changes in Equity 50 Statement of Cash Flows 51 Notes to the Financial Statements 52 Directors’ Declaration 75 Independent Auditor’s Report 76 ASX Additional Information 80 Corporate Directory 82 CHAIRMAN’S LETTER TO SHAREHOLDERS - Ed Peter On behalf of our Board, I am pleased to present the 2023 Annual Financial Report for Duxton Water Limited (“D2O” or “the Company”). I would like to express my sincere gratitude to our shareholders for their support in 2023. This year D2O successfully raised $51.5 million of new capital from both new and existing shareholders. This was an outstanding result for our Company in what was a very difficult market. This is a testament to the strong belief in our business model from the Australian investment community. We continued to honour our dividend targets in FY2023. We also issued free bonus options to our existing shareholders as a sign of appreciation for their support. This initiative was also aimed at encouraging further investment in our Company, ahead of anticipated favourable market conditions. On 3 July 2023, we announced to the market a $39.1 million acquisition and lease-back transaction with a major Australian irrigator. This was the largest transaction that Duxton Water has been involved in since its inception. Australia’s weather over the last 12 months has been more variable than usual, challenging many weather forecasting agencies. Despite the volatility, we grew our water entitlement portfolio by 8% during the year, to 90.5 gigalitres. We also entered further leasing arrangements with our customers to support their longer-term water strategies. Over the past year, we have had the pleasure of collaborating with farmers of all sizes to provide them with diverse and flexible options for their water usage. We are committed to continuing these partnerships for many more years to come. PAGE 8 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 9 CHAIRMAN’S LETTER TO SHAREHOLDERS FINANCIAL PERFORMANCE We are pleased to report that in FY2023, Duxton Water made a net profit before tax of $9.00 million (FY2022: $14.01 million). Although the Company posted a lower NPAT when compared to FY2022, this represents a positive result in a year that has been marked by challenging conditions both within the Australian water markets and the broader economy. Our leasing revenue stream remained strong. We maintained at least 50% of our portfolio leased at any one time during FY2023. Our leased percentage ended the year at 60%. The lease portfolio has provided the Company with a visible revenue stream and acted as a hedge against below-average allocation prices that have now been seen for three consecutive years. Continued wet conditions have resulted in southern Murray Darling Basin (“sMDB”) dam storages staying at record-high levels. Further rainfall over full storages will continue to put downward pressure on spot prices. While our general security assets have performed well during wet conditions, returns from our unleased high security assets were below average. Allocation sales in FY2023 were lower when compared to FY2022. This is primarily due to the timing of allocation sales. Due to wet conditions and weather outlook for FY2022, most of the unleased allocations received on 1 July 2022 were sold in the second half of FY2022 (i.e. 1 July 2022 to 31 December 2022). This differs from a more normal water year; whereby unleased allocations would typically be sold down across the whole water year. Thus, revenue from temporary allocation sales in FY2022 was higher than in FY2023. Finally, during the year, we rebalanced parts of the portfolio when we saw well-priced opportunities in the market. This resulted in the Company realising a significant capital gain on entitlement sales during FY2023. This contributed to the overall financial result for the year. At 31 December 2023, the Company has an unrealised capital gain reserve of $74.28 million embedded within the permanent portfolio (FY22: $114.00 million). Due to the application of Australian accounting standards, this uplift is excluded from our statutory financial statements and statutory retained earnings position. As per the accounting standards, an impairment expense must be recognised if the market value of any of the Company’s water assets falls below cost base. Therefore, this year’s profit or loss statement includes an impairment expense of $0.92 million. This impairment expense has been recorded against the Company’s permanent water assets. Should the market value of the impaired assets revert back above cost, this will positively impact the Company’s statement of profit or loss. Despite the challenging conditions, our balance sheet remains strong. At 31 December 2023, we had a net debt of $116.50 million compared to a total portfolio valuation of $390 million. This puts our gearing at 29%, which is well within our maximum net debt covenant of 40%. PAGE 10 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 11 CHAIRMAN’S LETTER TO SHAREHOLDERS In FY2023, Duxton Water generated an Earnings Per Share (“EPS”) of 4.8 cents per share (FY2022: 8.4 cents per share). Shareholders received Dividends Per Share (“DPS”) of 6.9 cents per share (FY2022: 6.5 cents per share). While the $0.95 million non-cash impairment expense recorded at 31 December 2023 impacted the Company’s final EPS result, the Company used its retained earnings reserve to meet the shortfall between Earnings per Share and Dividends Paid per Share. At 31 December 2023, the Company has a retained earnings reserve of $5.00 million, equivalent to approximately 3.5 cents per share. Over the last 12 months: FY2023 FY2022 Difference Non-statutory NAV (post-tax) $1.62 $1.90 -$0.28 Dividends paid 6.9 cps 6.5 cps +0.4 Cps Water portfolio Valuation $390m $377m $12m Water owned (GL) 90.5GL 83.6GL 6.9 GL Leased % 60%1 54% 6% SINCE INCEPTION Dec-24 Dec-22 3.6 Jun-24 3.3 3.5 3.7 3.4 Dec-23 3.2 Jun-22 3.1 Dec-21 Jun-21 2.6 2.9 Dec-20 2.5 2.8 3.0 Jun-20 2.4 Dec-19 2.3 Jun-19 2.00 2.7 Dec-18 2.50 Jun-18 Given the strong macro fundamentals, the growth potential is high. In the last two months of 2023, entitlement prices have rebounded, and transactional levels have improved. 3.00 Dec-17 The recent decrease in entitlement valuations is due to several challenges faced by the Australian agricultural sector, along with macroeconomic headwinds. Higher borrowing costs, lower commodity prices, and recent flooding events have led water entitlement owners to sell entitlements for working capital or land expansion. 3.50 Cents per share PORTFOLIO RETURNS During 2023, entitlement values across the sMDB experienced the largest annual decline in value in over 10 years. The Aither Entitlement Index (“AEI”), which tracks the value of a group of major water entitlement types within the sMDB, has fallen by approximately 9% since December 2022. This decline in the AEI translated through to the Duxton Water portfolio. Jun-23 4.00 1.50 1.00 0.50 0.00 Dividend paid Dividend announced DIVIDENDS Duxton Water has delivered on both of its dividend targets for 2023. The Company paid two fully franked dividends to shareholders totalling 6.9cps (FY2022: 6.5cps). In the second half of 2023, the Company resolved to increase the Company’s Dividend Reinvestment Plan (“DRP”) discount to 5% (up from 3%). Since Duxton Water paid its maiden dividend in November 2017, it has paid 13 consecutive dividends to shareholders, with each dividend being higher than the last. In total, shareholders invested since IPO (September 2016) have received total dividends of 37.7 cents per share. The Company’s dividend stream has grown at a 6% compound annual growth rate since November 2017. Dividend target We remain confident in the long-term strategy of our business and would like to reaffirm our intention to provide shareholders with a bi-annual dividend, franked to the greatest extent possible. Finally, we reaffirm our dividend targets for 2024 and are now pleased to formally announce the final 2023 dividend of 3.6 cents per share (fully franked). This dividend will be paid to shareholders on Friday, 26 April 2024. We look forward to providing further dividend guidance to shareholders in due course. CURRENT DIVIDEND GUIDANCE Dividend Guidance Cents Per Share Final 2023 3.6 cps (declared) Interim 2024 3.7 cps (target) 1. The lease percentage includes the two TWE leases that are subject to termination upon the exercise of the call option. Information on these leases has been released in the ASX on 3 July 2023. PAGE 12 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 13 CHAIRMAN’S LETTER TO SHAREHOLDERS DEBT In 2023, our Net Debt to Water Assets Ratio (“LVR”) has remained well below the Company’s maximum LVR of 40%. At 31 December 2023, the Company’s LVR was 29%, with total debt drawn of $116.50 million (FY22: $125.00 million). During the year, the Company managed its surplus cash as appropriate to minimise interest expenses. After the $51.5 million capital raise, a large portion of the proceeds were used to offset against the Company’s debt facilities until settlement of the $39.1 million acquisition took place. This resulted in an overall reduction in interest expenses. In the first half of 2023, the Company closed out its 10-year fixed interest rate swap positions. This was done to maximise the cash proceeds on the swap arrangements when the time value was most favourable, resulting in a total gain of $1.9 million settled in cash. A summary of the Company’s debt position at 31 December 2023 can be seen below: D20 Debt Summary FY2023 FY2022 Difference Total Debt Drawn $116.50 $125.00m $8.5m 29% 30% (1%) - $15m -$15m Total Variable Debt $116.50 $110m $6.5m Effective Cost of Borrowings 5.20% 3.04% 2.16% Total LVR Total Fixed Debt THANK YOU In summary, I have great confidence in the future of our business. I would like to reaffirm that we have a clear strategy in place to capitalise on market conditions as they unfold. I express my gratitude to the Board and the management team, who have made significant contributions towards achieving our goals this year. Thank you Ed Peter Chairman PAGE 14 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 15 PORTFOLIO MANAGERS’ REPORT - Lachlan Campbell - Lachlan Beech “We have focused on expanding our water portfolio, forming strategic partnerships, and strengthening our ties with Australian irrigation communities” PORTFOLIO OF AUSTRALIAN WATER ASSETS In December 2023, the water portfolio reached a significant milestone of above 90 gigalitres, which is more than three times the volume held by the Company at IPO in 2016. The Company’s water portfolio was valued at $390 million at 31 December 2023, up from $377 at the same time last year. Despite a general decrease in the value of entitlements in 2023, our portfolio has grown due to a range of acquisitions. Most notably, on 3 July 2023, a large acquisition and leaseback of entitlements was announced to the market. Having a focus on building strategic partnerships with our customers and irrigation communities has been paramount to accessing opportunities that complement the existing portfolio. This acquisition involved acquiring 4,770 megalitres of high security entitlements in the Lower Murray for $39.1 million. This transaction was part of our growth strategy to expand into water zones that enable us to continue delivering value to our customers and shareholders. In addition, we secured a lease back for 80% of these entitlements. This lease reduces our exposure to price volatility within the spot market. The annual lease rate secured on these entitlements was materially higher than the spot price for the entirety of 2023, and this continues to be the case for 2024. In 2023, we also increased our groundwater holdings by an additional 1,200 megalitres. This included a leaseback agreement for 100% of the acquired entitlements with a long-standing lessee. We will continue to invest in uncorrelated pockets of the water market that can serve as a hedge against changes in high security entitlement values. This year, our groundwater holdings and general security water licences have helped mitigate the impact of falling valuations for major high security water entitlements. WATER PORTFOLIO CHANGE IN VALUE (5 YEARS) $450 $400 $20 $140 $350 $300 $37 $13 $390 -$15 $250 $200 $150 $194 $100 $50 $- Dec -18 PAGE 16 2019Δ DUXTON WATER LIMITED ANNUAL REPORT 2020Δ 2021Δ 2022Δ 2023Δ Dec-23 DUXTON WATER LIMITED ANNUAL REPORT PAGE 17 PORTFOLIO MANAGERS’ REPORT Entitlement Holding Type 31/12/2022(ML) ML Change (ML) 31/12/2023 (ML) VIC 1A Goulburn HR 11,164 2,400 13,564 VIC 1A Goulburn LR 1,401 - 1,401 VIC 1B Boort HR 376 - 376 VIC 3 Goulburn HR 421 - 421 VIC 6 Murray HR 5,817 - 5,817 VIC 6 Murray LR 313 - 313 VIC 7 Murray HR 5,216 2,121 7,337 VIC 6B Murray HR 1,248 96 1,344 NSW Murray 10 HS 3,010 - 3,010 NSW Murray 10 GS 14,491 - 14,491 NSW Murray 11 HS 7,710 1,539 9,249 NSW Murray 11 GS 7,225 - 7,225 NSW Murray 11 Supp 83 - 83 2,884 (494) 2,390 NSW Murrumbidgee 13 HS NSW Murrumbidgee 13 GS 8,822 - 8,822 NSW Lachlan Valley – GS 4,504 - 4,504 NSW Lachlan Valley – Jemalong Irrigation GS 2,660 - 2,660 SA Murray HS 4,901 - 4,901 SA Mallee Prescribed Wells Area – Parilla Red Zone 500 - 500 SA Mallee Prescribed Wells Area – Parilla Green Zone 846 1,200 2,046 83,591 6,862 90,453 Total WATER PORTFOLIO DIVERSIFICATION Our focus for leasing over the past year has been to establish new leasing partnerships and further diversify the lease portfolio. We were pleased to have initiated over 10 new leases for 22,000 megalitres of water across 6 different water zones in the last 12 months. 40% 60% Leased OPERATIONS At 31 December 2023, the lease book represents 60% of the water entitlement portfolio (by value), and 76% of the high security portfolio. The Company has increased its lease percentage by 6% since 31 December 2022. The Weighted Average Lease Expiry was 3.1 years, or 5.0 years, including renewal options. We were pleased to have continued to form valuable partnerships with some of the most prominent agricultural producers in Australia. 100% of our water is used in the production of a range of Australian commodities, including almonds and grapes, dairy products, and a variety of annual crops. Unleased In terms of the unleased portfolio, we have actively managed holdings, moving water to the highest-value zones where possible. We locked in several forward arrangements early in 2023 to hedge against a softer allocation market. We have been successfully delivering on these contracts over the last few months. WATER SECURITY BREAKDOWN Finally, we have continued to actively work with our business partners and irrigator customers to secure new contracts (both leases and forwards) for the upcoming season. 19% 79% 2% High Security General Security Groundwater ENTITLEMENT VALUE BY REGION 11% 14% 3% “100% of our water is used to produce Australian agricultural commodities” 70% Murray PAGE 18 DUXTON WATER LIMITED ANNUAL REPORT 2% MARKET OVERVIEW Australia has experienced variable weather patterns in 2023, particularly across the eastern states. 2023 began with Australia’s third consecutive La Niña, a rarity when considering Australia’s weather patterns over the last 100 years. The La Niña, however, shifted to El Niño by September 2023. The second half of 2023 was marked by several hot and dry months, however well above-average rainfall returned towards the end of 2023. The increased rainfall led to a reduced demand for allocation water and increased price volatility in the allocation market. On balance, the water entitlement market had a challenging year in 2023. From December 2022 to December 2023, entitlement values declined by approximately 9%. The difficult economic conditions faced by the agriculture sector are believed to have contributed to the increased sell-side pressure (i.e. higher interest rates, higher input costs, and lower commodity prices). Entitlement prices showed signs of stabilising in late 2023, increasing by 2.6% from November 2023. Murrumbidgee Goulburn Lachlan Mallee DUXTON WATER LIMITED ANNUAL REPORT PAGE 19 KEY HIGHLIGHTS 2023 SYSTEM INFLOWS AND STORAGE LEVELS At 31 December 2023, dam storage levels in the Murray Darling Basin (“MDB”) continued to be well above the long-term average. Compared to the same time last year, storage levels have decreased in the sMDB by approximately 1,325 gigalitres or 9%. At the end of December 2023, MDB storages were at 87% capacity. Northern basin storages were at 77%, and southern basin storages were at 87%. In the previous year, the northern basin was at 101% capacity, while the southern basin was at 99%. MDB AUTHORITY STORAGE: JUNE 2000 TO END DECEMBER 2023 10,000 9000 8000 End of Month Storage (GL) 7000 6000 5000 4000 3000 2000 2023 2024 2023 2021 2020 2019 2018 2017 2015 2016 2013 2014 2012 2011 2010 2009 2007 2008 2005 2006 2004 2003 2002 2001 0 2000 1000 End of December Long-term Average Active Storage Active Storage Maximum Active Storage (at full suplly level) Source: Murray Darling Basin Authroity active storage as of December 2023 DAILY INFLOWS TO THE MURRAY DARLING BASIN 280,000 260,000 240,000 220,000 200,000 180,000 Megalitres (ML) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1 Jun 1 Jul 1 Aug 1 Sep 2019-20 1 Oct 2020-21 1 Nov 2021-22 1 Dec 2022-23 1 Jan 1 Feb 2023-24 1 Mar 1 Apr 1 May 1 Jun Long term average Source: Murray Darling Basin Authority PAGE 20 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 21 PORTFOLIO MANAGERS’ REPORT WEATHER OUTLOOK The weather outlook for Autumn 2024 indicates that rainfall is likely to be below median for most of northern, western and parts of south-eastern Australia. There is less than a 50% chance of exceeding the median rainfall in the MDB. GOVERNMENT WATER BUYBACKS In the second quarter of 2023, the Government conducted a voluntary water entitlement buyback program to recover approximately 49.2 gigalitres of water through an open tender. This was to complete the remaining shortfall towards the Basin Plan “Bridging the Gap” target. Temperatures are likely to be above average for most of Australia, as has been the case for most of 2023. The World Meteorological Organization has confirmed that 2023 was the warmest year on record. On 6 September 2023, the Minister for the Environment and Water introduced the Water Amendment (Restoring Our Rivers) Bill into the House of Representatives. On 7 December 2023, the bill received royal assent to become an Act. As of February 2024, El Niño remains active, but the Bureau of Meteorology has advised that it has passed its peak and is now declining. All models suggest that El Niño will dissipate by Autumn 2024. The Indian Ocean Dipole (“IOD”) has returned to neutral. The Act introduced legislative amendments to support the recovery of water for the environment until 31 December 2027. In addition to this, the Act also removed the legislative cap on buybacks. Without a buyback cap in place, the Government can conduct further entitlement buybacks over the next four years to fulfil the Basin Plan’s remaining targets. The Southern Annual Mode (“SAM”) is also currently neutral and is forecasted to remain neutral until at least late February. SAM was positive for most of December and January, which was likely influencing rainfall conditions. During summer, a positive SAM can lead to higher rainfall in the east. The Government has committed to delivering 450 gigalitres of additional environmental outcomes with the current shortfall of 424 gigalitres. In addition to this, the MDB Authority has indicated there may be an additional shortfall between 190 and 315 gigalitres under the Sustainable Diversion Limit Mechanism projects. 65 55 50 45 40 35 30 25 CHANCE OF EXCEEDING THE MEDIAN RAINFALL FOR MARCH TO MAY 2024 20 CHANCE OF EXCEEDING THE MEDIAN RAINFALL(%) 80 70 Government buybacks involve the direct purchase of water licences from the market by the Government, which are then transferred to the Commonwealth Environmental Water Holder. These licenses, previously used for agriculture, are now repurposed for environmental needs. On 30 January 2024, the Government released a draft framework for delivering the 450 gigalitre target. This framework outlines the main programs that will take place from 2024 to 2027. The framework highlights the Government’s intention to commence water buybacks in the sMDB in 2024. THANK YOU We would like to thank both our shareholders and customers for their confidence and business in 2023. We look forward to working with and supporting your businesses in 2024 and beyond. 80 70 65 55 50 45 40 35 30 25 CHANCE OF EXCEEDING THE MEDIAN MAXIMUM TEMPERATURE FOR MARCH TO MAY 2024 20 Lachlan Beech Portfolio Manager CHANCE OF EXCEEDING THE MEDIAN MAX TEMPERATURE (%) Lachlan Campbell Portfolio Manager Source: The Bureau of Meteorology. Long-range forecast - 22 February 2024 PAGE 22 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 23 DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2023 The Directors of Duxton Water Limited submit herewith their Directors’ Report, the financial report of Duxton Water Limited (“the Company”) for the year ended 31 December 2023, and the Auditors’ Report. In order to comply with the provisions of the Corporations Act 2001, the Directors’ Report as follows: DIRECTORS The names of the Directors of the Company that held office during and since the end of the financial year are: Mr Edouard Peter Mr Stephen Duerden Mr Dirk Wiedmann Mr Dennis Mutton Dr Vivienne Brand Mr Brendan Rinaldi The above named Directors held office during the whole of the financial year and since the end of the financial year unless otherwise stated. The office of company secretary is held by Mrs Katelyn Adams. REMUNERATION OF KEY MANAGEMENT PERSONNEL Information about the remuneration of key management personnel is set out in the remuneration report section of this Directors’ Report. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any Director (whether executive or otherwise) of the Company. PAGE 24 DUXTON WATER LIMITED ANNUAL REPORT DUXTON WATER LIMITED ANNUAL REPORT PAGE 25 DIRECTORS’ REPORT FOR YEAR ENDED 31 DECEMBER 2023 DIRECTORS’ REPORT FOR YEAR ENDED 31 DECEMBER 2023 PRINCIPAL ACTIVITIES There has been no change in the principal activities of the Company. The Company’s primary focus has been acquiring and managing a portfolio of Australian water entitlements in the southern Murray Darling Basin. The Company generates income by providing water supply solutions to mainly primary producers through a combination of long-term lease arrangements and the sale of temporary water allocations to support Australian agricultural production. There haven’t been any significant changes in the nature of the Company’s activities during the period. OPERATING AND FINANCIAL REVIEW • Delivered a profit before tax of $9.0 million (2022: $14.01 million). • Generated leasing revenue of $7.88 million (2022: $8.20 million). • Paid two fully franked dividends totalling 6.9 cents per share. • Increased the portfolio of water assets to $390 million (2022: $377 million). The Company delivered a profit before taxes of $9.0 million for the year ended 31 December 2023 (2022: $14.01 million) and a net profit after tax of $6.33 million (2022: $10.01 million). 2023 2022 2021 2020 2019 2018 Profit (loss) attributable to owners of the company $6.331m $10.007m $8.541m $8.696m $7.425m $7.265m Basic earnings per share $0.048 $0.084 $0.071 $0.073 $0.064 $0.085 $9.332m $7.770m $7.303m $6.798m $6.098m $3.990m Dividends per share $0.069 $0.065 $0.061 $0.057 $0.053 $0.049 Non-statutory NAV (post-tax) $1.62 $1.90 $1.78 $1.62 $1.76 $1.37 Return on capital employed 5.00% 4.90% 4.70% 6.70% 5.40% 6.70% Dividends paid This year’s results were largely supported by the Company’s leasing revenue stream and the realisation of capital gains from rebalancing the permanent water portfolio. While the Company’s general security assets performed well from a yield point of view, the unleased high security entitlements experience below-average returns due to the continued wet conditions, and below-average allocation prices. One of the highlights of 2023 was the successful acquisition and leaseback of $39.1 million of permanent water entitlements with Treasury Wine Estates (“TWE”), first announced on 3 July 2023. This type of transaction allows Australian farming businesses to free up capital from their balance sheets while maintaining longterm operational access to their water. The inclusion of these assets adds value and complements D2O’s existing portfolio. In addition, over the past 12 months, Duxton Water commenced several new long-term water leases with new and existing customers. The new leases that commenced on 1 July 2023 successfully offset the leases that were due to expire on 30 June 2023. By the end of December 2023, Duxton Water had 60% of entitlements under lease, compared to 54% at the same time last year. The Company intends to keep building out its leasing stream over time, back to its longterm leasing target of 70-80%. At 31 December 2023, the post-tax NAV from a fair market value perspective closed at $1.62 per share compared to $1.90 per share at 31 December 2022, representing a 28 cents decrease. PAGE 26 DUXTON WATER LIMITED ANNUAL REPORT This year, the profit or loss statement also includes an impairment expense of $0.92 million. The impairment occurred due to fluctuations in the valuation of permanent water assets. It should be noted that if there is a positive movement observed in these same assets, this impairment will be reversed, positively impacting the Company’s statement of profit or loss. The Company is carrying $74.28 million, or $0.49 per share of unrealised capital gain within the permanent water portfolio (exclusive of tax provisions). This is excluded from the statutory financial statements due to the application of Australian Accounting Standards. During the period ended 31 December 2023, the Company: Key Metrics The fall in NAV can be attributed to several factors. These include a decline in the value of water entitlements since December 2022. Additionally, the dilution from the issuance of 34 million shares at a discounted price of $1.50 per share which was part of the company’s capital-raising activities. Lastly, the payment of 6.9 cents dividends per share throughout 2023. The NAV of the Company in accordance with Australian Accounting Standards (which excludes unrealised gains) is $1.26 per share (31 December 2022: $1.23 per share). CAPITAL RAISE The Company has raised a total of $51.5 million from its capital-raising activities in FY2023. This comprises $44.2 million from applications received under the partially underwritten Non-renounceable Entitlement Offer and $7.25 million from the underwritten Institutional Placement. This was an excellent outcome. The board is very pleased and would like to thank both new and existing investors for their strong support. The new equity raised was used to fund the $39.1 million acquisition of water entitlements from TWE, which settled in November 2023. Surplus funds were used to increase portfolio holdings as opportunities presented and manage debt levels. DEBT SUMMARY & INTEREST RATE SWAPS At 31 December 2023, Duxton Water’s net debt to water assets was 29%. Throughout 2023, the Company’s LVR has remained well below the maximum LVR covenant of 40%. Throughout the year, the Company managed its surplus cash as appropriate to minimise interest expenses. After raising capital in July and August 2023, the Company used a significant portion of the $51.5 million to offset the debt facilities until the settlement of the TWE transaction. As a result, the company was able to s