Fortescue Ltd

Thank you Darcy and good morning or afternoon everyone and welcome to Fortescue's FY22 half-year results presentation and joining me today in Perth is Ian Wells, Chief Financial Officer and as always I'll start with safety and the health and safety of all of our team members is our highest priority and I thank the entire Fortescue family for continuing to look out for their mates on our journey to zero harm. Pleasingly our total recordable injury frequency rate or TRIFA reduced to 1.8 at 31 December, and that was 14% lower than 31 December the prior year. And that was achieved while still managing the ongoing challenges resulting from COVID-19 restrictions. Fortescue maintains a robust COVID-19 management plan, which is designed to safeguard team members and communities. And this is regularly reviewed in light of changes to Commonwealth and state health requirements and the ongoing COVID-19 situation. And in response to the recent increase in COVID-19 community transmission in Western Australia, we have introduced enhanced screening and testing in addition to our mandatory pre-flight screening. And this includes daily testing of our team members working at our integrated operations centre, the Fortescue Hive, as well as expanding our rapid antigen test program to include an additional test within 72 hours of arrival at a Fortescue site. And we're also investing in business continuity planning measures, including ensuring we have adequate resourcing to help manage any potential increase in workforce absenteeism. During the half year, we conducted a workplace integrity review together with an independent assessment of site security and safety measures. And as a result, we've introduced a number of initiatives to enhance the safety, culture and experience of working at Fortescue. And we strongly encourage all of our team members to speak up in line with Fortescue's values and our zero tolerance approach to harassment, bullying and intimidation. But turning to the half year results and Fortescue's performance for the first half of FY22 has been outstanding and we're very proud of the entire team who have delivered record half year shipments and contributed to net profit after tax of $2.8 billion, the third highest half year profit in Fortescue's history. Ian will talk to the financial shortly, but I would like to highlight that the strength of our operating performance and our integrated marketing strategy resulted in revenue of $8.1 billion and underlying EBITDA of $4.8 billion with an EBITDA margin of 59%. And on the strength of this performance, the board has declared a fully franked interim dividend of 86 cents per share, and that represents a 70% payout of first half net profit after tax. And this dividend continues our track record of delivering enhanced returns to shareholders and is consistent with our stated intent to target the top end of the dividend policy, which is to pay out 50% to 80% of full-year net profit after tax. And I will discuss a number of other significant developments shortly, but for now I'll hand over to Ian to take us through the financials. Ian.

Thanks, Elizabeth, and hi, everyone. It's always a privilege to present a summary of our financial performance and the results. that you can see today have been driven by market factors. And as you've heard, the first half wasn't without its challenges. And those included managing the impacts of COVID-19 and increasingly tight labour market supply chain disruptions, material increase in diesel costs, as well as iron ore shipping and general market volatility. So in that context, it was pleasing to deliver another clean set of numbers that are pretty much in line with market expectations. So turning to the results, we generated strong earnings and cash flow by focusing on what we can control, and that also includes the planning cycle. We continue to invest and improve in that planning cycle through long-term investments in data analytics, digital systems and processes improvement that support our integrated planning processes, which means we continue to deliver the best outcomes across the business. First half revenue of $8.1 billion was 13% lower than the same period last year. as average revenue per tonne declined by 16% to $96 a tonne. That was 70% realisation of the 62 Platts index. We're obviously in an environment of industry-wide cost inflation. We've been really transparent on our cost profile and the drivers of these costs. At the quarterly, we reported that unit cost increased 20% year on year, and that's a result of price escalation on key input costs, particularly diesel, also other consumables and labour. and importantly, the integration of the Elewina operation, as well as general mine plan driven cost escalation. We also noted that our first half C1 cost of $15.28 included the direct costs of managing COVID-19 of $0.15 to $0.20 per tonne. And just reflecting on the cost base of Elewina, that relates to optimising our existing operations and infrastructure, which has enabled an increase in systems capacity for both processing and rail. And that's what positions us really well to deliver on this year's guidance of shipments of 180 to 185 million tonnes per annum. EBITDA was $4.8 billion in the half, and that's at a margin of 59%. Drilling down on the slide for those following the webcast, you can see our track record of delivering and generating strong margins through the cycle. So the EBITDA margin in H1 FY22 was $58 a tonne, and that compares with an average of around $50 a tonne achieved over the past five years. EBITDA flows through to NPAT, which was $2.8 billion and a half. That translates into US $0.90 a share, and in Aussie dollar terms, $1.24. The next slide shows the EBITDA to NPAT waterfall relative to the same period last year, and you can see, again, all the moving parts, including the impacts of volume, price, and cost. Another point to note is the FFI operating expenditure of $174 million compared with $22 million this time last year. And you'll see when you get a chance to look at the financial statements, we've got updated segment disclosures and we're showing now iron ore and FFI as separate segments and also showing the net funding available for FFI expenditure. Moving to cash flow, and as a reminder, the half-year net operating cash flow included the FY21 prior period final tax instalment, and that was just over $900 million, as well as a working capital outflow, all of which reported in our quarterly result. So first-half capex of 1.5, that was pretty much in line with plan, a touch under the halfway point of our full-year guidance, and drilling down on that... 1.5, just under half, so $740 million combined expenditure in our sustaining development and minor hub development capital. $590 million in growth and decarbonisation, so that's Ironbridge and Pilbara Energy Connect. In terms of that full-year capital expenditure guidance, that's unchanged from the quarterly at a range of 3 to 3.4, and that reflects the announced acquisition of Williams Advanced Engineering Corporation. And in terms of the split of the 3 to 3.4, that includes 1.1 to 1.4 on growth capex. So it's a combination of Ironbridge and the Pilbara Energy Connect projects. On free cash flow, historically matches net profit after tax win capex and depreciation aligners. And as we continue to invest in growth capex, just calling out the key variances between NPAT and free cash flow for the half, where the working capital outflow, which we spoke to earlier, The billion dollar prior period tax payment and also CAPEX was about double depreciation with the variance being $750 million, which is clearly the growth CAPEX that I spoke to earlier. So I'll be moving out to the balance sheet cash on hand. Pre-reported at 31 December was $2.9 billion and gross debt increased to $4.6 after we drew $400 million term loan facility. That term loan facility of US $1 billion is now fully drawn. We also retain additional liquidity through the $1 billion revolving credit facility, and that is undrawn. Also, if you're on the webcast, we've got our credit metrics, and what those credit metrics show is that we have balance sheet capacity within our targeted investment grade credit metrics, which are gross debt to EBITDA of one to two times, and gross gearing, which is the book value of debt plus equity of 30% to 40% through the cycle. And so what this simply means is we have balance sheet capacity to fund future growth. We also flagged in the quarterly that we've established our sustainability financing framework and that will enable future issuance of green and social debt instruments to fund eligible projects. And the framework leverages off Fortescue's commitment to ESG leadership and our market-leading emissions targets for Scope 1, 2 and 3, and also recognises the growth in sustainable and green sources of capital in the marketplace. You heard from Elizabeth, the fully franked interim dividend declared by the Board represents a payout ratio of 70% of half-year net profit. So then looking at the last 12 months, including the final dividend from last year of $2.11, that's $2.97 over the last 12 months, which implies a trailing fully franked dividend yield of 13.5% on a share price of $22. Moving to capital allocation and just a reminder on our capital allocation framework, it incorporates the four pillars of reinvesting in the business, maintaining a strong balance sheet, capital returns to shareholders and investing in growth. And our disciplined capital allocation is really important to us. And for us, that simply comes back to doing what we say we're going to do, and that's evident in the capital allocation slide in the pack. And just a summary, since FY14, so over the past eight and a half years, Fortescue's generated over $40 billion of net operating cash flow. We have reinvested $12 billion of that back into the business and into growth. We've repaid $9 billion worth of debt, and we've declared now $19 billion of dividends, or That's about eight Aussie dollars per share, and that equates to a payout of almost 70% of net profit since 2014. So in closing, we've achieved strong financial results in the first half and really well positioned. Heading into the second half and central to our consistent and predictable performance is our values, remaining focused on the things that we can control, safely maintaining operating and capital discipline, which optimises margins, and delivers returns to shareholders. On that note, Elizabeth, back to you.

Thanks, Ian. And touching on sustainability, as societal expectations change, sustainability has never been more important to our investors, our stakeholders and our employees. And as a business, we're very focused on meeting and exceeding these expectations. And our continued focus on sustainability generated strong recognition throughout the first half. And there were a number of highlights, including a Gold Class Sustainability Award in the 2022 S&P Global Sustainability Yearbook, and the inclusion in the Australian, Asia-Pacific and World Dow Jones Sustainability Indices for a third consecutive year. In line with our commitment to working with our native title partners on protecting Aboriginal heritage, during the half year, we announced the establishment of a co-management framework with members of the Winterwarrior Goruma Aboriginal Corporation. Fortescue supports the modernisation of Western Australia's Aboriginal heritage legislation and the Aboriginal Cultural Heritage Bill 2021 was passed in the West Australian Parliament and was proclaimed into law in December. And we're actively engaging and contributing to the co-design of the important regulations and guidance which will shape the transition from the 1972 Act. So turning to climate change and during the half year, the momentum of Fortitude's transition to a vertically integrated green energy and resources company continued to accelerate. We're progressing a range of initiatives to decarbonize our operations by 2030 and to remove net emissions from our entire value chain by 2040. And Fortitude Future Industries will be a key enabler of delivering on these targets. FFI is taking a global leadership position in green energy and green technology. leading the effort to decarbonise hard-to-abate sectors. And it was this time last year that we updated Fortescue's capital allocation framework to include the allocation of 10% of net profit after tax to fund FFI. And as at 31 December, FFI's unutilised funding commitment is $651 million, and that's after taking into account first-half operating and capital expenditure of $242 million. And it's been a busy period for FFI. In November, FFI received planning approval from the Queensland Government for the Global Green Energy Manufacturing Centre in Gladstone, Queensland. And the first stage development is an electrolyser manufacturing facility with initial capacity of two gigawatts per annum and an investment of up to $83 million. And FFI has also successfully completed the first phase of studies within Civic Pivot to convert the Gibson Island Ammonia Production Facility to be powered by green hydrogen. And of course, last month Fortescue entered into an agreement to acquire UK-based Williams Advanced Engineering. And Williams will be vertically integrated into Fortescue and managed via FFI. And its critical technology and expertise in high-performance battery systems and technology are integral to developing battery electric solutions for our green fleet. FFI is investing to develop a global portfolio of green energy projects to supply 15 million tonnes per year of green hydrogen by 2030. and is rapidly establishing the building blocks, which will allow us to fully integrate technologies, manufacturing capabilities, and green energy generation and distribution to deliver across the entire value chain. So in closing, the team has delivered an outstanding operating and financial performance for the first half of the financial year. The iron ore market outlook has improved compared to late last year, and while we anticipate further price volatility, global market conditions remain supportive. with an expectation of an increase in activity in China in coming months and constrained global iron ore supply growth. And we've had a strong start for the second half, and we're well positioned to deliver on our guidance for the full year, which is for iron ore shipments in the range of 180 to 185 million tonnes. Our C1 cost guidance is a range of $15 to $15.50 a tonne, which retains our industry-leading cost position. And capital expenditure excluding FFR is a range of $3 to $3.4 billion. So guided by our unique culture and values, Fortescue is strongly positioned to transition to a global green energy and resources company. And we will continue to deliver on our strategic priorities of optimising returns from our mining operations and investing in growth and green energy, supported by our strong balance sheet and disciplined capital allocation framework. And as always, I'd like to thank our team members, contractors and suppliers for their contribution to an outstanding first half operating and financial performance. And so on that note, I'll hand back to Darcy to facilitate Q&A. Thank you.