Whitehaven Coal : 18 Aug 2016 - FY2016 Results Announcement (0.28MB PDF)

Whitehaven reported a net profit after tax of $20.5 million for the financial year ended 30 June 2016, a strong turnaround from the prior year loss of $342.7 million after significant items

All key performance metrics improved markedly on the prior year:

• Sales revenue rose 53% to $1,164.4 million;

• Operating EBITDA rose 72% to $224.1 million from an increase in operating margins;

• Cash generated from operations increased 76% to $269.3 million;

• Unit costs fell again to average $56/t for the year;

• Net debt was reduced by $76.7 million to $859.1 million with gearing down to 23%; and

• Subsequent to year end the Senior debt was further reduced by $35 million.

Commenting on the results, Whitehaven Coal Managing Director and CEO Mr Paul Flynn said:

We are delighted with this strong result, particularly in the face of a challenging year for the industry.

"Our successful introduction of further cost reductions means our business model can operate profitably at lower price levels and that the business is resilient to cyclical pressure on price and demand.

"Whitehaven is establishing a strong track record of making good on its commitments; our growth strategy is being successfully implemented and our growth prospects are encouraging.

"The high quality coal we are producing delivers higher yield and lower emissions and is in growing demand from Asia's new generation of power plants, which are far more efficient and produce lower emission than those in Australia.

"Whitehaven is positive about the medium and long term outlook for coal, particularly the outlook for the high quality coal we produce.

During the year Whitehaven made significant contributions to the New South Wales and regional economies.

• A total of $88.2 million paid to the NSW Government in royalties;

• Spent more than $200 million with local businesses in NW NSW;

• Provided grants to 81 local community groups;

• Increased the number of indigenous employees to 11% of the workforce, well above industry and public sector averages; and

• Signed a Native Title Agreement with the Gomeroi nation.

Record ROM production and coal sales of 15.8Mt and 15.5Mt, 29% and 43% higher respectively than the prior year.

Whitehaven's newest mine, Maules Creek, was declared commercial on 1 July 2015 and was officially opened in September 2015. Maules Creek mine produced 7.8Mt ROM coal for the year, becoming Whitehaven's largest producer.

Significant increase in Reserves at Maules Creek underpins an extended mine life.

Continued focus on costs has seen cost reductions at all mines and the Group average unit cost fall to $56/t for the year.

Narrabri set two new monthly production records during the year and is set to exceed these volumes when the 400m wide face longwall is installed in the second half of FY2017.

Both Rocglen and the Gunnedah CHPP have each recorded two years without a recordable injury setting the benchmark for all of the operations.

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FY2016

$m's

FY2015

$m's

Revenue 1,164.4 763.3

Net profit/(loss) before significant items 20.5 (10.7)

Significant items after tax - (332.0)

Net profit/(loss) for the period 20.5 (342.7)

Operating EBITDA before significant items 224.1 130.3

Significant items before tax and financing - (447.3)

Net interest expense (56.9) (31.0)

Other financial expenses (9.1) (37.4)

Depreciation and amortisation (130.4) (97.6)

Loss on disposal of assets - (0.3)

Profit/(Loss) before tax 27.7 (483.3)

FY2016 net profit after tax ("NPAT") of $20.5m represents an increase of $31.2m compared to the net loss before significant items of $10.7m in FY2015. The FY2016 NPAT result was driven by a strong operating performance with FY2016 EBITDA before significant items of $224.1m reflecting an increase of $93.8m (72%) compared to $130.3m in FY2015.

The return to profit in FY2016 was driven by the benefits of a significant increase in production and sales volumes along with a 8% increase in EBITDA margins to 19% from 17% in FY2015. The improved margin performance reflects a substantial reduction in unit costs of production which more than offset a lower average selling price for coal sold.

The key factors that contributed to the FY2016 NPAT result for the year include:

• The commencement of commercial production at Maules Creek underpinned the strong overall production outcome with group ROM production of 15.8Mt, up 55% compared to 10.2Mt in FY2015 (excluding Maules Creek pre- commercial production of 2.0mt in FY2015). Run rate production at Maules Creek at the end of FY2016 was above 9.5Mtpa.

• FOB costs per tonne of $56 in FY2016 have decreased by 8% from $61 in FY2015. The company's FOB cost per tonne has declined since the commencement of the first half of FY2013. These savings have contributed to the Group being able to consistently defend and grow average EBITDA margins. The key drivers of the significant reduction in unit costs during the year include:

  • The commencement of commercial production at Maules Creek at a lower unit cost than the portfolio average.

    Maules Creek unit costs benefit from a consistent low strip ratio over the life of the mine.

  • Continued productivity improvements at Narrabri and the Gunnedah open cut mines:

    • Narrabri production rates continue to improve due to an ongoing focus on operational and technical improvements. Increased automation in our operations has led to consistent production on the longwall, development costs continue to fall and longwall changeouts are increasingly efficient. Further improvements are expected when mining transitions to 400 metre wide panels late in FY2017;

    • Narrabri unit cost performance was achieved despite the reduction in ROM production in FY2016 caused by the impact of two changeouts during the year; and

    • Production in FY2016 from the Gunnedah open cuts was above FY2015 and overall unit costs decreased significantly due to an ongoing focus on containing costs, efficiencies associated with blasting and overburden movement initiatives and ongoing roster management.

  • Procurement initiatives continue to result in lower costs.

  • Production from Maules Creek has increased the resilience of the overall portfolio by reducing the impact of longwall changeouts while also supporting improvements in the utilisation of contracted rail and port take or pay capacity. The improved utilisation of contracted capacity has also contributed to a reduction in demurrage costs in FY2016, despite the increase in sales volume.

  • The decline in rail and port unit costs was due to the relentless focus on logistics management across the business.

  • Administration costs - production has grown by 55% in FY2016 and administration costs increased by a modest 6 %.

  • Lower oil prices in FY2016 have contributed to decreased unit costs of coal production.

• Gross revenue increased by $401.1m to $1,164.4m in FY2016 driven by increased sales volumes. Total sales of 15.5Mt were up by 63% on FY2015 sales volumes of 9.5Mt (excludes Maules Creek pre-commercial sales). The increase in sales volumes was partly offset by a fall in the received A$ prices to A$75 per tonne in FY2016 from A$80 per tonne in FY2015. Average US$ denominated coal prices fell 19% while the A$:US$ exchange rate improved by 14%.

• The mix of sales between thermal (84%) and metallurgical coal products (16%) in the year ended 30 June 2016. The proportion of metallurgical coal sales is expected to increase progressively over the next four years as the high quality Maules Creek semi-soft coking coal gains increased market acceptance and term based contracts are concluded.

• Realised thermal coal prices have also been supported by the increased quality of thermal coal from Maules Creek. Sales of Maules Creek thermal coal have typically achieved substantial quality and CV uplifts over the GlobalCoal Newcastle Index price during the year

  CAPITAL MANAGEMENT

  30 June 2016

  $m's

  30 June 2015

  $m's

  Cash generated from operations 269.3 152.7

  Investing cash flows (93.1) (376.7)

  Cash on Hand 101.5 102.4

  Senior bank debt 835.0 900.0

  Finance lease liabilities 83.5 97.0

  Export credit agreement (ECA) debt 42.1 41.2

  Interest bearing liabilities 960.6 1,038.2

  Net debt 859.1 935.8

  Net Assets 2,888.7 2,865.0

  Gearing Ratio 23% 25%

  Leverage (Net Debt/EBITDA) 3.8 7.2

  Undrawn syndicated facility 365.0 300.0

  Operating cash flows

  Cash generated from operations of $269.3m increased by 76% from the prior year. The improvement is due to the following factors:

• An increase in EBITDA before significant items of $93.8m ($224.1m in FY2016 from $130.3m in FY2015), largely driven by increased sales volumes and increased margins in FY2016.

• A net reduction in inventory during the year due to sales of produced coal of 15.4Mt exceeding saleable production of 15.1Mt.

• Partially offset by increased investment in gate road development in FY2016 in preparation for the increased length of upcoming longwall panels.

  Investing cash flows

  Investing cash outflows of $93.1m in the year ended 30 June 2016 is a decrease of $283.6m compared to FY2015. The following factors have affected investing cash outflows:

• Decrease in Maules Creek construction expenditure due to the project having been substantially completed in FY2015.

• Decreased main road development expenditure at Narrabri due to the increased focus on gate road development associated with increased length of upcoming panels.

• Increased expenditures in relation to the second shearer and beam stage loader at Narrabri.

• Remaining capital spend across the group was tightly controlled and related to sustaining capital required at each of the mines.

• Exploration expenditures were lower in FY2016 than in FY2015.

  Capital management and balance sheet commentary

  Cash on hand at 30 June 2016 of $101.5m is consistent with the cash balance at 30 June 2015.

  Net Debt at 30 June 2016 was $859.1m, a decrease of $76.7m from 30 June 2015. The decrease has primarily been due to repayments of $65m on the senior syndicated facility and amortisation of finance lease liabilities.

  The gearing ratio has fallen to 23% at 30 June 2016. Undrawn capacity of $365m remained in the facility at 30 June 2016. Whitehaven further reduced its drawn Senior debt by repaying a further $35m in the period since 30 June 2016.

  SAFETY PERFORMANCE

  With the introduction of the seven "Safehaven Rules" in late FY2014, Whitehaven has embedded safety as a cornerstone of the Group's culture. Ongoing education and training ensures that safety remains front of mind for all employees and continues to deliver improved safety outcomes at most operations.

• Both Rocglen and the Gunnedah Coal Handling and Preparation Plant achieved two years without a recordable injury.

• Whitehaven Coal Group Total Recordable Injury Frequency Rate (TRIFR) of 10.6 at the end of the year.

• The TRIFR is significantly below the NSW average coal mining rate of 15.5.

  OPERATING PERFORMANCE

  Consolidated Equity Production and Sales

  Whitehaven Total (000's t)	FY2016	FY2015	Movement
  ROM Coal Production	15,760	12,205	29%
  Saleable Coal Production	15,072	11,255	34%
  Sales of Produced Coal	15,432	10,859	42%
  Sales of Purchased Coal	79	-	-
  Total Coal Sales	15,511	10,859	43%
  Coal Stocks at Year End	1,307	2,035	(36%)

  Note: The FY2015 totals in the table include pre-commercial production and sales from Maules Creek

  Record full year production and sales demonstrate the strong performance of all Whitehaven's mines. Key highlights during the year to 30 June 2016 include:

• Two operations - Rocglen and Gunnedah CHPP achieved two years with zero recordable injuries