Fortescue Ltd

Thank you, Bernadette, and good morning or afternoon, everybody, and welcome to Fortescue's FY21 half-year results presentation. And joining me today in Perth is Ian Wells, Chief Financial Officer. We also released a separate statement today regarding the Ironbridge project. However, I'll first focus on the half-year results. The first half of the financial year has been a record period for Fortescue, with the team delivering excellent results across all of our operations. And most pleasingly, our total recordable injury frequency rate, or TRIFA, reduced to 2.1 at 31 December, and that's 13% lower than 30 June 2020. We're encouraged by this progress as we maintain our unwavering commitment to protecting the health and wellbeing of our team, particularly during the global pandemic. Fortescue maintains a comprehensive COVID-19 risk management strategy, and key measures remain in place to safeguard Fortescue team members and communities. And I am pleased to report that there have been no cases of COVID-19 across Fortescue's operational sites. And we do also continue to provide ongoing support to our team members who have been impacted by the West Australia border closures, and we do greatly appreciate their ongoing commitment. So turning to the half-year results, Fortescue's performance for the first half of FY21 has been outstanding. And we are very proud of the whole team who have delivered our best half-year operating and financial results since the company was established. The board have declared the single largest dividend in the company's history of $1.47 per share, and that's an 80% payout of net profit after tax, which is consistent with our target to pay the upper end of our stated dividend policy range. And this dividend continues our excellent track record of delivering enhanced returns to our shareholders. The company's record performance generated half-year revenue of $9.3 billion, and that exceeded the prior comparable period by 44%. with realised prices increasing by 42%, outperforming the increase in the Plat 62 CFR index of 32% for the half year. Our continued focus on cost management contributed to underlying EBITDA of $6.6 billion and an increased margin of $80 per dry metric tonne for the half year. Our outstanding cost position, together with the breadth of our product mix, resulted in a net profit after tax of $4.1 billion. and earnings per share of US $1.33 or Australian dollars $1.84, and that's an increase of 66% from the prior corresponding period. And in an important operational highlight in the half year, Fortescue celebrated first ore at the Ellawanna mine in December, and that is a significant milestone for the development of our iron ore operations in the Western Hub region of the Pilbara. Our world-class integrated operations and customer-focused marketing strategy, together with completion of Ellawanna, positions Fortescue strongly for the second half of the year to deliver sustained returns to our shareholders. Our continued focus on sustainability generated strong recognition throughout the half with a number of highlights, and that included inclusion in the 2020 Dow Jones Sustainability Indices, an upgraded status in the latest MSCI ESG ratings, and the recent award of a gold class distinction in the S&P Global Sustainability Awards. Fortescue also made the 2020 Best Companies for Women to Advance list, positioning it among the leading companies internationally for supporting the development of female leaders, and I am personally really pleased that our commitment to diversity is driving outcomes for female leaders in our team. During the half, Fortescue has continued to invest in a range of practical initiatives to decarbonise our operations, and that will underpin our industry-leading emissions target of net zero operational emissions by 2040. And this includes the important role that Fortescue Future Industries is taking in the global development of renewable energy, building on the projects we have underway in green hydrogen, both in Australia and globally. And EM will speak to the capital allocation framework as we invest in these exciting diversification opportunities. As most of you would be aware, we announced some changes to our leadership and projects team on Tuesday, including the resignation of Operating Officer Greg Lilliman Director of Projects, Don Hymer, and Director of Ironbridge, Marnie MacDonald. Greg has made a significant contribution to Fortescue since he joined in January 2017. The success of our integrated marketing and operations strategy is a lasting legacy of Greg's strategic focus and his commitment to our success over that period. And I understand that describing the decisions that were made at Fortescue this week on the basis of our values against the backdrop of our culture is not typical corporate language. And we've had that feedback from a number of external stakeholders. However, I don't step back from this values-based language, as it is absolutely fundamental to the way that we do things. What I do want to make clear is that Greg didn't do anything wrong in the sense of the usual financial, behavioural or business conduct parameters by which senior executives are judged. What he did was to miss the fact that the Ironbridge project had suffered a breakdown in teen culture. And in turn, this resulted in poor communication at the senior leadership level and a lack of empowerment across the organisation. News wasn't being shared and that meant that challenges weren't being addressed in a timely way by involving others who could bring ideas and work together on solutions. I've worked closely with Greg for the last four years and I know that he takes his leadership accountability very seriously. The fact that he didn't see the failings that were impacting the team culture or somehow miss the implications that subsequently came to light was the reason that he made the incredibly difficult decision to resign. And as he described that decision, it was quite simply that at the end of the day, he felt accountable for the team and their behaviour and did not believe that he had any other alternatives. I have great respect for Greg and I wish him all the very best for the future. Returning now to the update on our Ironbridge Magnus Art project. And as we flagged in our December quarterly last month, a detailed review was conducted and considered the forecast capital estimate and schedule for the project, taking into account the strength of the Australian dollar, access to resources and specialist skills, as well as other market factors. The outcome of that review indicated a revised capital estimate of up to $3 billion for the project, with first production expected in the second half of calendar year 2022, subject to validation through further technical and commercial assessment and Ironbridge joint venture approval. A technical and commercial assessment is underway and is scheduled to be completed in 12 weeks. And the key areas of focus will include the assessment of the magnetite concentrate transportation solution and return water pipeline support headland, enhanced utilisation of Fortescue's port and rail infrastructure, our contractor strategy and selection, and logistics infrastructure to maintain the schedule for the delivery of large modular components through port headland. Limited project works on critical path items will continue during the next 12 weeks. including engineering, off-site fabrication, procurement activities and site-based civil works. And leading this review is a highly experienced team, led by Acting Projects Director Derek Brown, who brings more than three and a half decades of mining sector experience, and most recently has done an excellent job at leading our Solomon operations. Supporting Derek are Andrew Hamilton, Project Director Ironbridge, Corey Dennis, Project Director Port, Rail, Pipelines and Power, and Warren Harris, Project Director Ironbridge, OPF and Operational Projects, all of whom have had first-hand experience at successfully delivering large-scale projects at Fortescue. And using a consistent approach to the Illawarra Mine and Rail Project, Corey will have responsibility for the port and transport, and Warren has responsibility for the mine. And I have every confidence that this team will draw on all of Fortescue's DNA our world-class expertise and our values as we challenge ourselves through innovative thinking and capital discipline. On that, I'll hand over to Ian to take us through the financials. Ian.

Thanks, Elizabeth, and hi, everyone. Our first half FY20 performance has set records across all of our key financial metrics, and we've again reported a clean set of numbers. Strength in the iron-on market has obviously contributed with the performance underpinned, as always, by us focusing on the things that we can control. Our integrated planning processes supporting our operations and marketing strategy continues through the company, including all of our support functions. And it's the planning and then execution that is really driving the best commercial outcomes right across the business. So starting on the P&L and revenue for the first half was $9.3 billion with volume, market price and realisation all contributing significantly. And as we mentioned at the quarterly Ford excuse, realised prices have remained at around 85% of the index for two years now. Revenue combined with disciplined capital management resulted in EBITDA of US $6.6 billion at an EBITDA margin of 71%. And drilling down on that margin, our first EBITDA was $80 per dry metric tonne. And that represents a $28 increase or 53% increase compared to last year. EBITDA flowed through to net profit after tax of $4.1 billion, up 66% on the prior period. And just for context, that compares to last year's full-year net profit after tax of $4.7 billion. So a very strong first half. If you're watching on the webcast, slide 11 is the CFO's favorite chart. And we obviously have leveraged to the price cycle and also clearly demonstrated the ability to generate strong margins through that cycle. And in fact, Fortescue's average EBITDA margin sits at almost US $40 per ton since FY16. And those results were of course impacted by market factors together with the things that we can control and putting a focus on total costs. So not just C1, together with volume and product mix, so our focus on both revenue and cost drives optimised margins. It's also worth noting that our enhanced product mix, including the introduction of Westpool refines, occurred in late 2018. On C1 costs at $12.78 per tonne in the first half, that shows that we've held costs flat when you compare that to $12.73 reported this time last year. And today we updated our full year C1 cost guidance to a range of US $13.50 to $14 per tonne. And this is based on a revision of the assumed FY21 average of the US exchange rate, 75 cents, up from the previous 70 cent assumption. So there's three points I'd like to make. And the first one is the guidance means we're assuming an average of 77 cents in the second half. The second point is that you will call our C1 cost sensitivity is 13 cents per one, every one cent Aussie dollar movement. So when you do the math, you can see that our updated guidance is showing that we have mitigated some of that cost pressure. And also as a reminder of the impact of operational readiness and post-construction ramp up at Aliwana. And so the cost of Eliwana will be incurred in the second half cost of production now that Eliwana has produced first ores and also transitioned to an operating mine site. Moving to cash flow, and we've talked about it previously, our free cash flow, and that's the cash flow available for dividends and debt correlates to after-tax earnings when depreciation and capex align. Total capex in the half was US $1.9 billion, and that compares with depreciation of US $670 million. So the difference of $1.2 billion represents our investment in growth, so the Aliwana Iron Bridge and energy projects. Free cash flow in the first half was $2.5 billion, and the reconciliation to the US $4.1 billion net profit after tax obviously includes that $1.2 billion investment in major projects, and it also reflects the timing of the tax payments. And just as a reminder from this month, our tax instalment rate will increase. So moving to the balance sheet, low net debt and strong credit metrics means we have balance sheet capacity. And as I've said before, we continue to assess iron bridge debt funding options, and we'll also look to proactively refinance debt prior to maturity. We reported the quarterly gross debt for 4.1 billion and net debt of 110 million at 31 December 2020. And gross debt fell from 5.1 billion at 30 during 2020 And that's because we repaid the revolver during the first half, which was obviously drawn at 30 June 2020. So with the last 12 months of EBITDA at US $10.8 billion, our gross debt to EBITDA is down to less than 0.5 times. And gross gearing, that's the book value of debt over debt plus equity of 21%. So most ratios are well below our targeted investment grade metrics, which are one to two times gross debt to EBITDA and 30% to 40% gross gearing through the cycle. And disciplined capital allocation for us comes back to doing what we say we're going to do, and delivering returns to shareholders is a clear focus for us. Given our strong liquidity position, including $4 billion of cash on hand and the $1 billion undrawn revolver, payment of the interim dividend of Aussie $1.47 has been brought forward to the 24th of March, so prior to the end of the quarter, And that's earlier than previously we paid our interim dividend in early April. So including the FY20 final dividend of one Aussie dollar per share, our trailing fully franked dividend yield is about 10% based on Quartus' current share price. Now moving to capital expenditure, our guidance for FY21 has been refined to the upper end of the range of $3 billion to $3.4 billion. A couple of things to call out on the updated guidance, the updated Aussie-US dollar exchange rate that I spoke to earlier. We've had some timing of spend on major projects, noting that we've now factored in, or have factored in, of course, the completion of Iliwana, and we've also invested approximately $50 million in our rail system, and that supports an increase in shipments guidance for FY21. So moving to capital allocation, and if you're on the webcast, slide 15, which is my second favourite chart. And on that chart, you can see since 2014, that was the year we ramped up production to over 100 million tonnes, following what we call the T155 investment. Over that period, Fortescue's generated $40 billion of EBITDA and an average margin of 54% and reported $19 billion of net profit after tax. generating an average return on capital employed of 26%. So of the $30 billion of net operating cash flow generated over this period, $9.5 billion has been reinvested back in the business in both sustaining and growth capex. We've repaid $9.3 billion worth of debt and $12.6 billion of dividends have been distributed to shareholders, inclusive of the dividend that was declared today. And that represents a payout ratio of 66% of net profit after tax over that period. a commitment to target the top end of our dividend payout range of 80%, and the remaining 20% of NPAT is then available to fund growth. And to provide further clarity on our capital allocation framework, we've guided this morning of our intent to allocate 10% of net profit after tax to FFI renewables growth and the other 10% for resource growth opportunities. Of course, while this is a target, any funding is subject to the fierce competition for capital we have across Fortescue and ultimately will be a function of free cash flow at the time. So as I hand back to Elizabeth, you can see that Fortescue achieved outstanding results in the first half. Our balance sheet strength and liquidity position provides confidence in the outlook and puts us in a very strong position for the second half of the financial year. Central to our consistent and predictable performance is our values and there was a stark reminder of this the importance of this this week, and never losing sight of living and breathing the values, all of the values, all of the time. Remaining focused on the things that we can control, which is safety, delivering on our integrated operations and marketing strategies, while maintaining operating and capital discipline, which optimises margins, and that means we can deliver returns to shareholders. Elizabeth, back to you.

Thanks, Ian. We've seen a strong start to FY21 and we are continuing to deliver benefits to all stakeholders, including our customers, team members and the communities in which we operate. And to that end, during the period, our Billion Opportunities Program continued to award sustainable business opportunities for Aboriginal people. We've now achieved the significant milestone of awarding contracts and subcontracts to Aboriginal businesses and joint ventures. with a total value of Australian dollars $3 billion since the initiative began in 2011. As of 31 December 2020, Aboriginal people represent 10% of Fortescue's total workforce and 14% of our Pilbara operations employees. So in closing, this has been a challenging week for the Fortescue family. This is a great company with a huge depth of talent and experience, and it's because of this that Fortescue delivered such outstanding results for the first half of FY21. Our ability to deliver increased returns to our shareholders is underpinned by our operational excellence, together with a successful execution of our strategy through balanced strengths, enhanced product mix, and our industry-leading cost position. So we're obviously now well and truly into the second half of the financial year, and our guidance is for iron ore shipments in the range of 178 to 182 million tonnes, C1 cost guidance in the range of $13.50 to $14 a metric tonne, and capital expenditure at the upper end of our previously guided range of $3 to $3.4 billion. And as always, the team remains focused on what we can control, safety, production and cost. This month in Western Australia, we experienced a five-day hard lockdown and our team members remain committed and worked closely with us, many showing their dedication and staying on site for longer shifts. And I also want to acknowledge the recent bushfires near Perth that had a devastating impact on our wider community. This event was personal to us at Fortescue as we had a number of team members who were directly impacted. And I'm very proud to see members of our Fortescue family volunteering to support firefighters. And of course, we continue to support our partners, Mindaroo, through the fantastic work they do with the Mindaroo Fire Fund. It is in situations like this that our Fortescue values shine their brightest. And I want to thank all our Fortescue families for never losing sight of our responsibility to look out for their mates. Thank you. I'll hand back to Bernadette to facilitate Q&A.