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Edited Transcript of YAL.AX earnings conference call or presentation 22-Aug-19 10:59am GMT

Half Year 2019 Yancoal Australia Ltd Earnings Call

SYDNEY Sep 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Yancoal Australia Ltd earnings conference call or presentation Thursday, August 22, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Reinhold Hans Schmidt

Yancoal Australia Ltd - CEO

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Presentation

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Operator [1]

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Welcome, everybody, to the Yancoal Australia 2019 Half Year Financial Report. (Operator Instructions) Thank you again for joining us today. I'll hand it over now to our presenter, CEO, Reinhold Schmidt. Please go ahead.

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Reinhold Hans Schmidt, Yancoal Australia Ltd - CEO [2]

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Thank you. Good morning, everyone. Thanks for making the time to attend or listen to the presentation. And our agenda is I'll walk through the slides and then at the end, we can open up for Q&A.

Obviously, as a business, we're really excited about the results which we'll cover in the pack. So the next slide, on Slide 2, I just want to make sure that people understand the disclaimers that we have that's there and with my forward-looking statement, et cetera, et cetera. So now I'll move to Slide 4.

Slide 4 captures Yancoal's achievements in the first half. This includes improved safety performance, increasing production and stable operating costs, which is important. The big issue is where people look at our business, and we said in the beginning of the year, our operating costs are going to remain stable. And so we've delivered on that metric. This had delivered a healthy EBITDA and margin. We continue to repay our debt. And an important part of this first half is a dividend announcement which we made of $0.1035 per share. So for shareholders, we're a really good dividend-yield business.

Moving to the next slide, Slide 5. As you know, we transformed this business. We now have high-quality, high-margin, long-life assets. And we have demonstrated that we can deliver or we do what we say we're going to do. So we've delivered our cost targets. We've delivered against our production targets. And with the support of our shareholders and planning partners, Yancoal is getting [the time really to pursue further growth opportunities. So what that means is we look at everything that's on the market, and if it meets our very basic criteria of being immediately value-accretive and low risk, we will look towards doing our next transaction.

On Slide 6, you can see there that safety is paramount to our business, and improving safety is really important. We have reduced -- or rather our safety performance continues to improve. And these 2 charts that if you go on Slide 6 shows the positive change with regards to the improvement in our safety performance. And it's important. I acknowledge and we acknowledge as a business the unfortunate tragedy that we had at Northern Middlemount early this year. But we will also follow the discussions with the Queensland government around the safety reset, and all our people remain committed to safety and operating in a safe way. We are not a compliant safety business. Safety is part of everything we do every single day.

So on Slide 7, it looks at the production of our business. In 2018, we delivered on a combined asset tonnes. We continued to produce in accordance with our guidance, and the performance drove a 5% uplift in total ROM coal produced and a 10% increase in the attributable coal production for Yancoal. So we saw a strong business and we continue to produce as we've said we should.

So then on Slide 8, we will look at costs and sales. We've been able to keep our cost of production flat at $62 a tonne. And that's important in an environment where you have rising or pressure from a -- on the salary side in the industry because of a lack of new people coming into the business. Importantly, we have continued to manage our costs and our production. I know there's pressure on our business with regards to coal price and coal sales. However, our operating margin still exceeds 50%.

So if you turn to the next slide, being Slide 9, which highlights our operating cash flow. These are strong numbers and strong results. If you compare the first half of 2019 and 2018, the benefit of the larger business is coming through in our final numbers.

If you move to Slide 10, where we have the EBITDA update. And in the first half, increased sales offset the lower coal price and the reduction in our EBITDA declined at 4%. What's important and what is for any shareholder (inaudible) the robustness of this business, we still have a 40% EBITDA margin, which we can use that cash to reinvest and generate future returns for our shareholders.

I was talking today to someone and basically if you look at our results versus the [Qantas] results, we are a really strong business. Sorry, our EBITDA.

On Slide 11, here we can see that some of the pack -- net profitable business. Strong, solid performance.

Moving to Slide 12. What's really important for us is we need to continue to improve the financial performance -- the financial position of the company. We need to continue to improve the debt position of our business. And the USD 500 million debt repayment we announced in February is part of that continued improvement to deliver -- to deleverage our organization to make sure that we become a stronger business.

Moving to Slide 13. The coal market is, in our view, in a short-term decline because there's a lot of production from Colombia, Russia and Indonesia that's coming into our world which is short term. And ultimately, the coal demand will remain and we will continue to have a very strong demand for a good-quality Australian thermal coal. There is pressure on the market today. But because of the quality of coal that we sell, we expect that by the end of the year, the market will turn around.

So on Slide 14, there's a split of the revenue from our customers. There's a question that someone has asked around the Australian component. So Yancoal today is the largest trader out of Newcastle of third-party coal, so that's why the Australian component is seen as Australian component, but all are counted exporters. We do not sell any coal in the domestic market.

And on Slide 15, what we are highlighting here is that the quality of our products makes -- ensures that we continue to receive good prices for our coal.

On Slide 16. People talk about growth. So we do not grow business, build tonnes, tonnes, tonnes all the time. That's about value for shareholders. That's about when you build a business, you want to create continued value-accretive transactions for all the shareholders. So we have -- we are well positioned for continued growth. We've got the MTW Underground, which we're working on as our business. And we've got the HVO, Hunter Valley Operations branded coal agreement with Yancoal, where as we mine these assets, we will optimize our value addition through mine branded coal . And then we've got some other expansion opportunities with Moolarben. But one issue that is sometimes underestimated is the value that blending brings to our business. So we blend everything. And it ends up creating a lot of value for our organization.

So then if we move to Slide 17, which is the guidance for 2019. We remain on track to deliver our guidance of that attributable saleable coal production of 35 million tonnes, and our cash cost around $62 -- $62.50 and the capital expenditure around $285 million for the year. If you look at some of our competitors, their capital expenditure is really blowing up. But as in the mining business, there will be some years where your CapEx will be higher than -- higher the next year than the previous. And we expect that in the next 2 or 3 years, our capital expenditure for our business, depending how we buy trucks, et cetera, may be slightly higher than the $285 million that we're currently talking about.

I think what's very important is that our dividend payout ratio is unchanged. We announced yesterday an interim dividend of $0.1035 per share, which matches the 2018 interim dividend that we announced then, showing or telling shareholders that we still remain, and we are a very strong business.

On Slide 18, the important issue here is that Yancoal is a disciplined business. Well, we're not about running around and doing transactions without any discipline. So the days of growing and building and making more and more and more, in our view, is not there. Our view is about making sure we continue to maximize shareholder returns. So the ultimate goal is to find best balance to sustain the operating cash flow of the business in the overall coal cycle.

So I know I've run through this presentation really quickly, in 15 minutes. But fundamentally Yancoal remains positioned to be the largest independent coal producer out of New South Wales and we -- our fundamentals are very strong. So we've got really good assets. We've got very strong discipline with regards to managing our costs and very good relationships with the union, so that manages our employment costs. And it's fundamentally a strong business. And if you look at our interim dividend announcement for any shareholder, we're in a very strong position. That's it. That is the conclusion of the prepared comments. We'll now hand it back to Josh, the operator, for the Q&A session.

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Operator [3]

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Thanks, Reinhold, and welcome to the Q&A session. (Operator Instructions)

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Reinhold Hans Schmidt, Yancoal Australia Ltd - CEO [4]

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Is there anybody who have any questions, guys, please? It's cool if there are no questions. That means you're -- you find we're okay. Any questions, you ask me.

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Operator [5]

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It looks like we have no further questions at this time. I'll now hand it back over for any additional or closing remarks.

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Reinhold Hans Schmidt, Yancoal Australia Ltd - CEO [6]

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So what I'd like to say to all of you, thank you for participating in the call. Appreciate it. I know these calls are pretty tough because they -- but at the end of the day, Yancoal is an organization where safety is our paramount focus, and in addition to that, profitability and the return to our shareholders is also -- is as important as our safety goal and our [project] safety. Anything else, Josh?

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Operator [7]

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This concludes the Yancoal Australia 2019 Half Year Financial Report. Thank you, once again, for joining us today. You may all disconnect.

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Reinhold Hans Schmidt, Yancoal Australia Ltd - CEO [8]

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Thanks, Josh. Thank you.