Whitehaven Coal Limited (WHC) Earnings Call Transcript & Summary

Hello. I'm Paul Flynn, Managing Director and CEO of Whitehaven Coal. It's my pleasure to provide an overview of the very strong result delivered by our team in the 2022 financial year. Let me start with some important market context. With a long-term shortfall investment in all fuels needed to supply base electricity through the energy transition, a preexisting gap in supply demand was observed by many industry commentators. With the effects of COVID-19, this gap has widened and being brought forward, especially in the high-quality, high-CV thermal coal market. This year, we saw the global energy supply shortfall become even more pronounced due to the conflict in Ukraine and associated sanctions against Russian coal, gas and oil. Australia produces some of the highest quality seaborne coal in the world, and Whitehaven's thermal coal is the highest quality in Australia. One of the main competitors in the high-CV market is, in fact, Russian coal. So with the likelihood that Russian coal will be taken out of the markets of Europe and certain countries in Asia, including Japan for some time, demand for Whitehaven's coal is even stronger. This strong demand for coal, particularly high-CV thermal and the recent global supply constraints already evident before the Russia-Ukraine conflict have resulted in record coal prices. In FY '22, the gC NEWC Index, which sets the price for [ 6,000 coal ] out of Australia averaged USD 248 per tonne, up 213% on the previous year. For Whitehaven in FY '22, 82% of our sales were to thermal coal customers and the remainder was to metallurgical coal customers. On average, we achieved a record realized coal price of AUD 325 per tonne in FY '22 compared with AUD 95 per tonne in FY '21. We are well positioned to capitalize on the opportunities presented by the high coal prices. Despite COVID-related [ adventism ], labor constraints and weather interruptions, our team delivered operational and product quality improvements as the year progressed. We delivered 20 million tonnes ROM coal, which was within our production guidance range. Importantly, our safety results also reflected the improvement in operational performance. In FY '22, we achieved a recordable injury frequency rate of 5.4%, which was 8% better than last year. And if we compare ourselves to where we were 5 years ago, it's a 22% improvement. As mentioned, solid operational performance underpinned our results in FY '22, but it was the record coal prices that drove Whitehaven's record financial results. In FY '22, we delivered record outcomes across revenue at $4.9 billion, EBITDA at $3.1 billion, NPAT at $2 billion and operating cash flow of $2.6 billion. I'd like to thank our workforce for achieving these outstanding operational and financial results. Let me now hand over to our CFO, Kevin Ball, to talk through our capital allocation framework.

With strong operating cash flows, we are continuing our disciplined approach to capital allocation. First, we'll use cash to maintain and optimize existing operations. Second, we'll retain cash to maintain balance sheet strength and to have funding optionality and flexibility. And third, we'll return capital to our shareholders through franked dividends and share buybacks. And we'll use surplus cash to invest in growth when that is the best use of the capital. Growth investments might include mergers and acquisitions or increasing our equity stakes in our existing assets or to take up opportunities to grow further in metallurgical coal, or it might include investing in our Vickery or Winchester South developments, but we'll only invest in these if they deliver appropriate returns for our shareholders. We'll aim to return up to 50% of NPAT to shareholders through dividends and buybacks. But if buying back additional shares is more attractive than the expected alternate uses for funds, such as investing in growth projects, then we may return more than 50% of NPAT to shareholders. In fiscal year '22 was a result of share price growth and dividends, Whitehaven delivered a total shareholder return of 154%, making Whitehaven the top-performing stock in the ASX 100. The Board has determined to pay a $0.40 fully franked final dividend, which will be paid on 16 September. And during the year, we also commenced the 10% on-market share buyback. And to date, that's involved about $363 million being invested to buy back around 7% of shares. We expect to complete the buyback around October for a total investment of up to $550 million. And at the Annual General Meeting on the 26th of October, we will seek shareholder approval to increase the buyback above the 10% per annum levered.

Taking a step back from this year's results, let's focus on the longer term. As the developed world reprioritizes energy security, Whitehaven presents a compelling investment proposition. We produce the highest quality thermal coal in the seaborne market. Our coal exclusively fuels, high-efficiency, low-emissions electricity generation that is helping our customers in Asia generate electricity with emissions up to 24% lower than the average of New South Wales coal-fired plants and up to 44% lower than Victoria's coal-fired plants. It's worth noting that all of our customers are signatories to the Paris accord or had domestic policies consistent with the same. Our role is essential to our customers' priorities when it comes to both decarbonization and energy security. And it's worth noting traditional energy sources like coal are critical to build the technologies and infrastructure needed to transition to more intermittent renewable energy sources. Closer to home, our taxes and royalties to governments both state and federal totaled a record $1 billion in relation to FY '22. So we are making an important contribution to Australia's economic prosperity. And finally, turning to our outlook. Energy security is expected to remain a global priority, and it's likely to take many years for global supply-demand dynamics to rebalance. High-quality, high-CV thermal coal will be required through the multi-decade energy transition. As a result, we expect prices for high-CV thermal coal to be well supported, and Russian sanctions and recent heavy rains along the Eastern Seaboard of Australia will further support prices in the near term. In terms of the metallurgical market, despite recent volatility due to global economic drivers, long term, the demand outlook and price environment remains very constructive. In FY '23, we expect to deliver another strong year. We expect to produce around 20 million to 22 million tonnes of ROM production and to deliver 17.5 million to 18.5 million tonnes of managed coal sales. Inflation across the board is affecting our unit cost production in obvious areas such as high diesel prices, electricity, labor and other inputs. Given that backdrop, we expect costs to be in the range of AUD 89 to AUD 96 per tonne. While all businesses experiencing these inflationary cost impacts, Whitehaven is well placed to continue to deliver strong margins as a result of the ongoing supportive pricing environment. We're looking forward to the year ahead. And once again, I'd like to thank our people for their commitment and the strong results, and of course, our shareholders for their ongoing support.