Whitehaven Coal Limited

Welcome, ladies and gentlemen, to Whitehaven Coal Limited's first half FY23 financial results investor call. All participants are currently on mute, but following the presentation, we will open up the call for questions. To ask a question, please join via teleconference and press star 1 on your telephone touchpad to raise your hand. Thank you for joining us today. I'll now hand over to our Managing Director and CEO, Paul Flynn.

Good morning, everybody, and thanks very much for dialing in this morning for the half-year results for the FY23 year. I know this is going to cover a lot of old ground for those who've been following and been through our quarterly results, but I'll try and move through this presentation relatively quickly and get to the Q&A session. As usual, I'm joined by Kevin, who will go through the finance section for us. Ian Humphries is here for those who would like to ask an operational question. Of course, Kylie Fitzgerald from Investor Relations is here as well. So Kevin and I will go through the presentation without further ado. Of course, our disclosure is on page two for you to cover off any forward-looking statements. To the half-year, as you know, given that we've been through the quarter announcement, the half-year has been very good for us and I'll just go through the highlights quickly. In Aussie dollar terms, $552 per tonne is a pretty good realised price for the period. Narrabri has consistently performed well during the course of the half year, which is great. The financials in terms of the highlights, the record revenue at $3.8 million and then 2.7 on our EBITDA, $1.8 billion on our MPAT, being a number you've obviously not seen before. From a taxes and royalties perspective, $1.1 billion in aggregate is pretty good for the quarter, again a record for us. Our safety has continued to improve year on year, a 15% improvement, which is very, very positive. The financial results have left the balance sheet in a very good position with net cash of 2.5 billion at the end of December. The Board has declared a 32 cent 40 franc dividend as our interim for this half year, and of course everybody has been aware of the buyback program. We've spent nearly $600 million, $592 million during the course of the six-month period. And our returns as an organisation for the six-month period have been pretty decent at 101% for total shareholder returns for that period. So a very, very good result. I'm over to our markets. Our markets have been very good. We are seeing some softening with obviously the less severe winter for the northern hemisphere, which I suppose is very good for them. But we are seeing coal prices soften in the last month. And so I'm sure we'll talk a lot about that during the Outlook section and then also with the Q&A. Our premium products continue to see very strong demand, so this graph you've seen many times, and it just depicts where the centre of the universe is for us, and that is Japan, Korea, Taiwan. The emerging markets for us being Vietnam, Philippines, Malaysia, and somewhat Indonesia as well for metallurgical purposes. As far as Japan and Korea, Japan goes, that is the cornerstone of our business. Korea and Taiwan, as you know, toggle between two and three depending on the split between the two in any given year. But they are two very meaningful markets for us and pay us good prices for the quality products that we deliver to them. As far as quality goes, I think everybody understands that Whitehaven's suite of coals is generally the high-water market across the thermal market, and you can see there the comparison of us and our portfolio relative to Australia as a whole and then, of course, other coal producing jurisdictions. So from our perspective, we're definitely up there in terms of the pointy end of quality, and that's why we get paid that premium. And as far as the split of those quality outcomes from a sales perspective go, for the first half, 77% of our sales were in the high CV end of the market. We did have a little bit more as we talked about in the quarter of our mid CV products, and that was really just because our open cut mines had been affected by the floods during the course of this half year. and we had less blend capability across our business than we normally have. The mid CV was about 15% of our business and met at 8% of the total. Over to those three important anchor customers that I mentioned before. This graphic is really just to re-emphasize the point that we are in a very important piece of the puzzle for energy security across these three key markets. They're important to us and we're important to them. In aggregate, if you look at these three jurisdictions, these three countries, about 200 million people there that on a weighted average basis, we're responsible for about half an hour of their industry, heating, cooling, cooking every day. So it is a very important piece of the puzzle that we represent and the continuity of our business and potentially even the growth of it is very important to the security of energy supplies in that region. As far as that reliable energy is concerned, strong demand continues to be a feature of the market we're seeing. Now, supply gaps are there, and I'm sure everyone's familiar with these charts because this is not one of our own. It is Woodmax. But you'll be very familiar with it. There is definitely an emerging issue here in terms of the delta of expected demand versus what potential supply would be. And so we are going to continue to see a difference there, and that is going to underpin solid pricing markets for our outlook as an organisation, and particularly as it relates to the quality end of the spectrum. And Woodmac is not the only one, obviously, depicting a solid future here. AME's obviously got numbers which are not dissimilar. Crew does appear to be an anomaly in that regard. In fact, their view seems to think that Seabourn Thermal Market's going to be 660 million tonnes by 2025, which is only two years away. So that's obviously going to be quite a capitulation if you believe in those numbers but we thought we'd just make sure that we're not just looking at numbers that suit us but we're looking at all the numbers from the various commentators across this. Our overarching conclusion here is that there's going to be solid demand for our high-end quality product over any outlook period that you care to imagine on these timescales. MET is obviously looking pretty good as well with China. taking Australian coal again, we're going to see, well, we have seen, uplift in metallurgical coal prices already, and I think that will continue in our outlook period. As far as the supply-demand dynamic goes there as well, we also think that that is structurally short, and the met market, we think, is going to be a very good place for us to play over time. On pricing, pricing clearly has been some very interesting prices. We're at around the $200 before... the terrible invasion of Ukraine, and so we have reverted to those levels now that we've seen a less severe winter in the Northern Hemisphere. So prices have come off, as we've mentioned already. But I think structurally, the underpinnings of the strong pricing environment that we see, despite the temporary falls in prices more recently, I think remain the same, and that is demand is good, supplies additions are pretty much non-existent, And with structural restrictions in terms of the consumption of Russian coal in the thermal market, we're going to have a very good outlook, I think, here for some time to come. Metallurgical coal, as I said before, structurally, I think we're very convinced that that's a very strong market over time. And despite the inversion, that inversion has reversed. And so that makes more sense to everybody on this call, I'm sure, in terms of what they historically understood about the relationship of these two markets. which will bring some interesting dynamics to it, I think, just in terms of – well, semi-soft pricing is now starting to look interesting, despite the spread between the various qualities in the thermal market. You will actually see people start to move semi back into that space, and so that will certainly add some momentum also to the thermal market as well. So if I just summarise our market and look at the market drivers at the moment, we've got – Limited supply response. We've got strong demand. We've got sanctions on Russian coal. We've had weather events, which are temporary, we must say, even though that was pretty onerous for us in the first quarter, as we've spoken about over the last couple of quarters' reports. But we do think that the effects of that are starting to unwind in our backyard and down the line from us in the Hunter Valley. So we are seeing volumes improving in there. So we've seen record prices, which is fantastic and speaks to the underlying tightness that we've been seeing. But there are limitations here, and inflationary impacts in our business are something that we'll speak about a little bit more in detail. But, yeah, labour supply constraints are definitely something which the whole economy is talking about, and it's no different in our space, and perhaps maybe even a little bit more challenging given the remoteness of some of our business. COVID looks like it's hopefully behind us. I hope we don't have to keep talking about that for too much longer, but it certainly has... and continues to see a little bit of an impact in our business, but obviously not as bad as what it was in previous periods. But inflationary pressures manifesting themselves across pretty much the entirety of our business is something we're actively managing as we go forward. Now, safety has been a really strong improvement for us year on year. That's nice to be able to say that, but there's obviously plenty of work to be done there. 15% improvement on a 12-month rolling basis is really nice. But if we look at where we closed the year last year to now, it's actually only a 4% in that same half-year period. So we all know it gets more difficult to eke out the improvements the lower in this curve you get, but we must get lower, and so further effort is required in order to improve past the 5.2 for our TRIFA. The highlights, as I said before, 552 for the average realized price is certainly very good in the record. Revenue record 3.8, EBITDA 2.7 a record and our impact now that you know, 1.8 billion is a very good result. Cash generated from operations at $2.5 billion and our costs at $96 at the lower end of the range that we've given you. And on the return side of this equation I mentioned before, the 32 cents the board has declared fully franked, total returns to shareholders at $9.59 being the dividend and buyback in aggregate. and from a TSR perspective, 101% over that six-month period. Very good. Now, these numbers you've seen, so I won't belabor this other than to point out that we do have a tale of two halves here, and the first half, as everybody knows, heavily weather-affected. We haven't seen anything like that in more recent times once we've rolled past, in fact, the reporting of the December quarter report, and mining conditions have been positive for us. We're looking forward to that continuing in the year, but I think the labour and the weather remain the two riders that we would caution on in terms of achieving our guidance for the full year, which remains at the 19 to 20.4 level. Smalls, as you know, heavily weather-impacted and recovering nicely now, but we're still suffering from labour shortages, which is probably the defining feature at the moment that we're balancing. So we are... We are changing and evolving the employment proposition that we're offering to people from further afield in order to bring more labour into our region. That does come with a cost, and that's not surprising to anybody who's listening to any reports across any industry at the moment. But we have got a steep hill to climb in the second half, which we've done before, but it no doubt is going to be challenging. a period of feverish activity as we seek to deliver within our range of 10.3 to 11.4 for malls. Narrabri, as you know, is going well and progressing closely to its impending change-out. So that's very positive. And so overall, we're in a pretty good space, and it's nice to see, obviously, that wasn't a weather effect, as we talked about over the last couple of quarters. Now we're near to the degree that the open cuts bore during that period. So for the first half, ROM 3.6, very good big increment over year-on-year and certainly on track to achieve our guidance of 5.6 million tonnes. So the change out there, going from 110b to 203, we're expecting that in April, which is positive. And then Cut and Flit has been actually manning up better, so we are seeing some momentum there building. And so we are thinking that in the new year, that's going to be very positive to be into You'll only see a little bit of that, of course, in the balance of this final stages of the financial year, but you will see 203 start to indicate what better volumes and productivities are going to look like in that shallower ground, so keen to see that and report on that in the final quarter of this financial year. Gunnedale Ops, as everybody knows, weather affected, which is obviously difficult, but that leaves us with a reasonable task to get to at the end of this year. I won't dwell on that too much because I think everybody's been through that. I will just call out some numbers here so you can understand the scale of the interruptions that we've had here in Gunnedah in particular. Mauls Creek did suffer, I think it was 24 days of downtime. That's days of downtime as opposed to all the other disruptions that go from wet days and ranting up and cleaning up and so on. The Gunnedah Ops had quite a difficult time as well. Tarawanga had 17 lost days during there. Gunnedale CHPP, because of its connection with the low-lying road to Tarrawonga, actually suffered 36 days during the half, which is quite a significant impulse on trying to deliver during that period. So with that, I'll hand over to Kevin to give us the summary of the financials.

Thanks very much, Paul. It's not very often when you get to turn up and talk about a first half that's better than probably four of your last five years. So $3.89 billion or $3.8 billion in revenue. A really strong first half of fiscal year 23. Average realisations $552 whereas in FY22 our average coal price was only $325 a tonne and I say only because that was a cracking year as well. So as a result of that revenue, a little bit of pressure on costs but we're not immune from that and we're not alone on that in the world. I think the The focus in the business was to make sure the tons came out of the ground and went to the customers in the premium markets, premium prices. So as a result, revenue 3.8, as I've said, EBITDA 2.7, just a shade behind, about 10% behind the full year for FY22. NPAC was 1.8, which was a great result, and the cash generated from operations was a touch over $2.5 billion. You can see that we've built cash on the balance sheet. Now, that cash has got some claims to it, and we'll go through those in a slide a little bit further on. And the board has declared a 32-cent franc dividend to shareholders. So EBITDA margin on the next slide. At these coal prices, as I said, the focus really was on production and selling the coal in the premium markets. You can see from the earlier slide Paul put up, more tonnes went into the Japanese market than in previous years. That really was a function of having the tonnes blended up and having the tonnes to sell. In the first half of FY23, our EBITDA margin per tonne of coal was $414. You can see the costs were up about $13, and we'll go through that in a moment, just on the break-up of what's driving that. But if you look at the first half of fiscal year 22, we were pretty pleased with a margin of $102 a tonne, so $414 is a happy day for a CFO. Over the page onto how we got from the first half of fiscal year 22 to the first half of fiscal year 23, there are no surprises in this. FX was a little friendly to us, gave us about $300 million, but the real driver of this was the increase in coal price. You can see that the thermal coal price in the first half of fiscal year 23 averaged 381 versus 146, and you can see the met coal, which was a smaller proportion of the business, was at 285.155. And as I said before, costs were up about 86, and we'll go through that on the next slide. So all in all, it is a record half, and it's an outstanding half. If we go to the unit costs, we've talked about this, and there shouldn't really be any surprises to people. We've seen the impacts of flooding, which was really in that first half around that September, October, November period. It's surprising to most people, a strong Narrabri performance actually lowers our costs because their yield is very high. They're about a 98% or 99% yield, and that actually contributes to the outcome here. As you can see there, we've accelerated the debt amortization. There was an article, I think, in the AFR the other week talked about this. The producers have decided that they want to reduce the risk in that business as banks have decarbonization targets around 2030. And in the back end of this, you can see other costs that we're not immune from, higher diesel prices, labour payments we've made, OEMs that are asking for a little bit more on their equipment, and all in all, that's how we get from $83 to $96. So again, those costs, some of those we would expect to see come out of the business in times to come, which are the impacts of flooding, and we would expect those diesel costs and labour to soften over time as well. come to cash flow generation and it has been a very strong half. So we had about a billion dollars in net cash at 30 June 22. We generated two and a half billion. And in accordance with this capital allocation framework that we put out to the market about this time last year, we've invested capital in sustaining the business. We've paid $945 million to shareholders in the form of buybacks and dividends. And we've got another $280 odd million to come in the dividend coming in about two weeks' time. And that left us with about $2.4 billion. And some people will say, well, what are you going to do with that $2.4? Well, there are claims to it. So let's go to the next slide. So we have We expect to pay this fiscal year 22 income tax of about $552 million in the next 10 days. There's income tax in relation to the first half of fiscal year 23. We'll pay that on the full year 23 result in around December 2023. And we've got an interim dividend there of $274. So after that, if I can call it the unconsumed cash or the untagged cash, there's about $879 or $890 million of cash there. So we'll retain some of this on a balance sheet for future needs and we'll use some of that cash and the cash that's generated in the second half when we return to buying back shares in the second half. The net cash and liquidity, I really don't propose to stay on this for long. You can see in here the cash that we've got on hand. Our ECA facilities or export credit arrangements, they tail off over about a seven-year period. Finance leases are shrinking, and so our net cash is 2.471. Whilst the liquidity there includes an undrawn facility, we don't expect to play in that space. We expect to leave that alone, and we expect to reposition our funding over time. So we are still looking at debt capital markets, although there's no real need in the business for it at the moment, but we stay prepared for that discussion, and we look to align the sources of our capital with the places where our toll goes. Come over the page on the capital allocation, and I expect to have a few questions on this through the question and answer period, but let's try and take you through this. It's really a disciplined approach to capital. We spent some money on maintaining and optimising operations, so we spent $85 million in sustaining capital, including some Narrabri Mains development, and we repaid some finance lease payments for about $36 million. So the cash on the balance sheet went up but that's because we've got tax payments to make on both fronts and we've returned 32 cents to shareholders. In half one fiscal year 23 we bought 67 million shares for a total of 592 and since March when we started this discussion we've bought back 14% of the stock for 955 million. So we haven't dilly-dallied in that and we still see value in that approach today. The payout ratio for the first half is about 36%, which is midway between the bottom end of the guidance of 20% and 50%. And the overarching comment I'd say to people is that we look at an annual result rather than splitting the half straight out of mathematics. So we'll work our way through and see what the end of the year result looks like. And from that, you'll see us continue within this capital allocation framework. Here we go. So just to try and put a bit more clarity into cash that comes to shareholders versus how do we allocate capital from returns. On the left-hand side there, you can see the actual capital that has been returned, which is a record number. You know, it's literally double what we've delivered in previous years, but we've delivered that in the half. And that's been cash in the buyback that we talked about and the final dividend that came out of the fiscal year 22 results. If I come to the results... The capital that's allocated to shareholders, you can see $274 million is going to be in the $0.32 dividend coming to you in about two weeks' time, and the $367 million of capital that we have spent on the buyback in the first half. So all in all, that's a payout ratio of about 36% of NPAT, whereas the payout ratio for FY22 was about 53%. What I'd say to you is that you can see that we're not paying special dividends and that's consistent with the approach we've had and we talked about back in from early February, March in 2022. So let me just hand it back to Paul and I'm looking forward to questions and answers.