Yancoal Australia Ltd

Good day, and thank you for standing by. Welcome to Yankol Full Year Financial Results 2023. I would now like to pass the call over to the Chief Executive Officer, David Malt.

Thank you, Carmen, and thank you to everyone for joining this briefing on Yankol's 2023 performance. I have the CFO, Kevin Hsu, and Company Secretary, Loris Yang, here with me in Hong Kong, and several of our executives have joined the call from our Sydney office. I will provide an overview of Yancol's 2023 performance, then we will open the webcast to questions. The commentary provided is based on the 2023 financial results and associated materials published on the ASX and Hong Kong Stock Exchange on Friday. Slides two and three contain notices and disclaimers relevant to today's presentation and the forward-looking statement it contains. Please make yourself familiar with the content of these two slides. This first slide gives a snapshot of the successful year we had. The first aspect I want to highlight is our safety performance. Through constructive programs and the concerted effort of all our people, key safety metrics improved sharply mid-year and have remained low. As I said six months ago, strong operational and financial results are built on workplace culture and a positive safety mindset. A 35% reduction in but in total your frequency rate is the result of our people embracing safety initiatives and working cohesively. Compared to 2022, 100% ROM production volumes were up 19% and saleable production volumes were up 12%. We met our guidance, but more notably was the trend of the production rate throughout the year. At the start of 2023, We said we needed to prioritise mine recovery plans and would increase output in each successive quarter. We delivered on these targets and in the fourth quarter we produced at our highest rate in three years. We want to carry this momentum into 2024 and I will talk more on this point when we discuss the 2024 outlook. Our average realised coal price for the year was 232 Australian dollars per tonne. Excluding 2022, This is double the average price received for the five years to 2021. A $96 per ton cash operating cost conceals the cost trend throughout 2023. As production volumes increased, unit costs improved. Cash operating costs in the second half decreased to $86 per ton. Many inflationary cost factors experienced over recent years are now embedded. making our three large-scale, low-cost mines more valuable than ever. An implied operating cash margin of $115 per tonne, combined with our production recovery, drove the strong financial outcomes. For 2023 report, $7.8 billion in revenue, $3.5 billion of operating EBITDA, and $1.8 billion in after-tax profits. As we discussed at the half-year result, we repaid the last of our loans in March and paid significant taxes on the record 2022 profit. After returning $1.4 billion to shareholders during the year via dividend, we still held $1.4 billion of cash at the end of December. On the topic of shareholder returns, the Board has elected to return a further $429 million to shareholders as a fully franked final dividend of 32.5 cents per share. Combined with the 37 cents per share interim dividend, the 2023 total dividend is 69.5 cents per share. This is a 50% payout ratio and a 14% yield on the $4.95 year-end share price. As I have mentioned, keeping our workforce safe is always our first consideration. The improvement in the total recordable injury frequency rate accelerated in the first half of the year. Having established a new reference, we worked hard to consolidate and maintain this level by embedding gains made across the mines. It was gratifying to see our leaders and workforce efforts recognized through Janko being named a finalist in the 2023 Australian Workplace Health and Safety Awards. Our focus on sustainability as with safety, is continual and ongoing. This year we are moving beyond the environment, social and governance report published in past years, and in April we replaced it with our first sustainability report, which integrates previous disclosures and begins our transition to align with international sustainability disclosures. We will follow Australian sustainability reporting standards as they develop, as well as the requirements of the ASX and Hong Kong stock exchanges. Existing initiatives include upgrades to our mining fleets and actively exploring new, excuse me, exploring renewable energy opportunities. Slide seven summarizes the operational drivers behind Yancol's 2023 performance. Four year production volumes and the uplift of over 2022 output do not truly reflect the momentum that built throughout 2023. Most of the 19% increase in attributable ROM production and the 14% increase in attributable saleable production was delivered in the second half. Attributable saleable production increased by 32% from 14.4 million tons in the first half to 19 million tons in the second half. This production skew resulted in cash operating costs falling by more than 20% in the second half. International coal market conditions were unprecedented in recent years. In all market settings, we optimize our position. This starts with our production profile and controllable costs. We continually seek to maximize our operational performance and product mix to meet our customers' needs. Turning to the coal markets, a slowing global economy and mild winter in the northern hemisphere diminished demand during 2023. A supply-side recovery compounded the downed pressure on coal indices, notably with Australian and Indonesian exports rising by 22% and 12% respectively. For the past year, we have considered the thermal coal markets remain relatively balanced, but subject to the influence of short-term factors such as seasonal demand drivers and supply disruptions, this still remains our view. Coal indices are currently trending sideways on the current market conditions and price differential for the indices now better reflect the inherent value of different coal types. North American supply disruptions lifted metallurgical coal indices mid-year before weak economic conditions set the tone for the remainder of the year. There were some localized bright spots in the met coal markets, demand from India for low volume but low volatile hard coating coal was good, which in turn was favorable for our low vol PCI products. Last year, 86% of our sales were thermal coal, with the balance being lower grade metallurgical coal. This product split varies a little year on year, depending on which coal seams we are mining at each mine. We aim to keep the mix stable and to maintain our reputation as a reliable supplier with our customers. Our thermal coal volumes range in energy content and ash level. The resumption of Australian coal imports by China in 2023 was a welcome event, with Chinese customers historically being a regular buyer of our higher ash thermal coal. Turning to slide 11, we show our customer split. China is once again a significant off-take partner, both on a volume and revenue basis. Our Japanese customers purchased a significant portion of our high value coal, resulting in this market being our highest revenue generator, but only our fourth in terms of volume. Another observation is the decrease in sales to Europe to almost zero. This is not surprising given shipping coal from Australia to Europe is only economic under exceptional circumstances like those we saw in 2022. Total ROM coal on a 100% basis increased by 19% to just over 60 million tonnes as mine recovery plans took effect and productivity levels improved. This volume includes a 30% increase in the second half over the first half and during the fourth quarter we operated at an annualised run rate of over 72 million tonnes per annum on a 100% basis. Although the La Nina cycle is behind us, we still encounter wet weather events regularly. Our investment in recent years on additional water storage capacity and pumping equipment now gives us a far greater ability to resume operations if there are heavy rain events. Our attributable saleable coal production increased 14% to 33.4 million tons. This also included a 32% uplift from first half To second half, a fourth quarter annualized run rate of almost 39 million tons per annum demonstrated that most of our mines were operating around capacity. As expected, our three large-scale tier one open-cut mines drove our production performance during 2023. While we rebuilt much of the mining inventory in 2023, elements of the mine recovery plan still require further effort over the coming months to ensure we continue operating around at our second half levels. Cash operating costs were $96 per ton. However, as I mentioned earlier, they were down to $86 per ton in the second half, a 21% improvement from the first half. While we are aiming for our cash operating costs to return to prior year levels, the days of producing coal with cash operating costs in the 60s to $70 per ton range are behind us. Cost inflation factors including labour, explosives, electricity and spare parts which were incurred over recent years are now largely embedded in our cost base and may only partially unwind, if at all. Operating costs also escalate naturally as mines mature, typically resulting in higher strip ratios and increased haul distances. That said, we have re-established our position at the low end of the operating cost curve where we see our natural competitive advantages. Turning to slide 15, we see the benefit of maintaining low cash operating costs. Our implied operating cash margin for the year was $115 per tonne. Excluding the record performance in 2022, this was a notable achievement. Keeping costs under control during periods of elevated coal price is more challenging than when prices are low, although not readily apparent in the full-year cash operating cost figure. it was a very good outcome in the context of the overall coal sector. State royalties may have declined from 2022 in line with lower coal prices, but $21 per tonne on 33 million tonnes of sales resulted in Yang coal paying almost $700 million to the New South Wales and Queensland state governments. From the 1st of July 2024, we'll be subject to a 2.6% increase in the New South Wales state government royalty rates on sales made by our New South Wales mines. Re-establishing our large scale, low cost production profile enables us to operate through all points in the coal price cycle. Slide 16 has our operational guidance for 2024. We aim to produce at a level similar to the second half of 2023. Production will vary quarter to quarter due to mine plan sequences, long haul moves and planned maintenance. and there is likely to be a second half skew to the production profile. The 35 to 39 million ton attributable saleable production guidance allows for some downside disruption events, and as the year progresses, we may tighten the low end of the range if nothing materializes. We aim to bring the cash operating cost per ton down from the full year 2023 level, and are aiming for $89 to $97 per ton. This range allows for ongoing cost inflation, the continued use of additional temporary equipment to complete mine recovery plans, as well as scheduled equipment lifestyle maintenance activities. Our capital expenditure guidance is $650 to $800 million and includes some of the 2023 budgeted activities that slipped into 2024. Throughout the year, we will continually balance volume, product quality, efficiency metrics, operating costs, and capital expenditure to deliver the best possible outcome. Slide 17 provides an overview of Yankov's 2023 financial performance. While key items in the income statement are lower compared to 2022, it must be remembered that 2022 was an exceptional year. When looking at the cash flow statement, initially the 81% fall in the operating cash flow stands out. But as I pointed out at the half-year results, this is after a tax payment of $1.4 billion due to our record earnings in 2022. In 2023, we made monthly tax payments on our earnings rather than one large tax payment. As noted at the start of the call, we held $1.4 billion in cash at the end of the year. We also have accrued $1.8 billion in tax franking credits. I will speak to the frank dividend payment in a coming slide. The two charts on this slide show the correlation between realized price, revenue, operating EBITDA, and the operating EBITDA margin. Given our production and operating cost profile, realized coal prices will almost always be the primary driver of our financial results. $3.5 billion of operating EBITDA and a 46% EBITDA margin are excellent outcomes and puts Yanko on the 12-month trailing EV to EBITDA ratio of about two times. The profit after tax and operating cash flow tend to replicate the revenue and EBITDA profiles. The step down in the operating cash flow incorporates a large one-off tax payments I mentioned earlier. The positive aspect of paying tax is franking credit accumulation, also mentioned a moment ago. The Board elected to repay the last of our interest-bearing loans during the first half And in total, we have repaid more than $3 billion of loans since late 2021. The loan repayments made over recent years have saved us almost $300 million in finance costs this year alone. The small difference between the cash position of $1.4 billion and the net cash position of $1.25 billion primarily relates to lease liabilities recognized on mining equipment. Once again, Yankovil is returning cash to shareholders via a fully franked dividend. Franking credits eliminate withholding tax from distribution to shareholders outside Australia. The Board has allocated $429 million to the 2023 final dividend. This is 32.5 cents per share. Combined with the 37 cents per share interim dividend, this is a 50% payout ratio for 2023, and represents a notional 14% yield when calculated on the ASX year-end share price of $4.95. Including the final dividend, we have distributed to shareholders $2.5 billion of unfranked and $1.8 billion of franked dividends, a total of $4.4 billion. This total is 67% of our $6.5 billion year-end market capitalization, or closer to 80% if you add back the franking credit. The remainder of the slides contain appendices and additional information for reference, which I do not intend to speak to. I will now hand back to Carmen so that we can commence the question and answer session. Thank you.

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