Quarterly Investor Update

Transcription

1 Quarterly Investor Update Glenn Kellow President and Chief Executive Officer Amy Schwetz EVP and Chief Financial Officer Vic Svec SVP Global Investor and Corporate Relations February 6, 2019

2 Statement on Forward-Looking Information This presentation contains forward-looking statements within the meaning of the securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "goal," "could" or "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, income, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volume, or other financial items, descriptions of management s plans or objectives for future operations, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive and regulatory factors, many of which are beyond the company's control, that are described in our Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2017, as well as additional factors we may describe from time to time in other filings with the SEC. You may get such filings for free at our website at You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. 2

3 2018 Marked by Considerable Successes Even in Face of Some Notable Challenges Delivers full-year company-wide Adjusted EBITDA margins of ~25% Acquires Shoal Creek Mine at attractive valuation Generates over $1.3 billion in free cash flow Repurchases ~$835 million of stock in 2018, additional $75 million in January 2019; cumulative repurchases total ~$1.1 billion Reduces total liabilities by ~$550 million Converts all remaining preferred stock in January 2018 Executing project for resumption of mining at North Goonyella Earns multiple awards for excellence in safety, environmental, and employee relations 64% TSR since emergence (through Jan. 31, 2019) Note: Adjusted EBITDA, Adjusted EBITDA margin and free cash flow are non-gaap metrics. Adjusted EBITDA margin is equal to segment Adjusted EBITDA divided by segment revenue. Refer to the reconciliation to the nearest GAAP measures in the appendix. Note increase in TSR calculated based on reorganization plan value of $22.03 per share. 3

4 2018 Financials in Review Revenues Income From Cont. Ops, Net of Income Taxes Net Income Attributable to Common Stockholders Diluted EPS, Income from Cont. Ops Q4: $1,397.1 Q4: $233.5 Q4: $252.6 Q4: $1.97 FY: $5,581.8 FY: $645.7 FY: $544.4 FY: $4.28 Adjusted EBITDA Operating Cash Flow Free Cash Flow Q4: $273.7 Q4: $228.9 Q4: $164.5 FY: $1,379.3 FY: $1,489.7 FY: $1,359.8 Note: Dollars in millions except for per share amounts. Adjusted EBITDA and free cash flow are non-gaap metrics. Refer to the reconciliation to the nearest GAAP measures in the appendix. 4

5 Seaborne Thermal Segment Drives Company Adjusted EBITDA Margins, Contributions Seaborne Thermal $137.5M Q Adjusted EBITDA by Mining Portfolios Seaborne Met $25.8M U.S. Thermal $144.1M Seaborne thermal segment delivers 42% Adjusted EBITDA margins in Q4 3.7 million short tons exported, 6% increase over prior year Higher pricing, lower costs lead to 10% margin expansion Q4 seaborne met segment results impacted by lower volumes, $49 million in North Goonyella costs U.S. thermal operations deliver 21% Q4 Adjusted EBITDA margins Favorable repair and maintenance costs mitigate impact of lower pricing Note: Adjusted EBITDA and Adjusted EBITDA margins are non-gaap metrics. Refer to the reconciliation to the nearest GAAP measures in the appendix. 5

6 Vast Majority of Investments Directed Towards High-Demand, Higher-Margin Seaborne Portfolios Substantial operating cash flows provide opportunity for share repurchases, capital investments Well-capitalized Shoal Creek mine requires minimal capex $1.32 billion of liquidity at year-end, even after substantial Shoal Creek acquisition Shoal Creek $387M Note: Capex excludes approximately $4 million related to IT infrastructure Allocation of Capex & Acquisitions Seaborne Met $88M Seaborne Thermal $67M U.S. Thermal $142M ~80% of 2018 investments oriented towards seaborne businesses 6

7 Seaborne Supply/Demand Tightness Continues, Underpins Favorable Pricing Environment Seaborne Thermal Coal Chinese imports up 16 million tonnes even with year-end import restrictions India imports rise 25 million tonnes to fill domestic gap ASEAN imports up 23% driven by ongoing urbanization Vietnam imports rise 55% Australian exports rise 4%; Lower-quality Indonesian exports up 10% Seaborne Metallurgical Coal Continued growth in India expected to drive demand 2018 imports up 5% Projected to become 2 nd largest met importer in 2019 Chinese imports ease 5 million tonnes on increased reliance on domestic supply, scrap steel Australia exports rise 4%; U.S. exports up an estimated 10% Note: Statistics for full-year 2018 compared to full-year 2017, unless otherwise noted. U.S. exports estimated through year-end 2018 based on YTD October actuals. Source: Industry sources and Peabody Global Analytics. 7

8 U.S. Utility Coal Stockpiles At Lowest Levels Since U.S. Utility Coal Stockpiles (Max Days Burn) 2018 coal demand declines 4% on substantial year of plant retirements, despite 4% increase in total electricity generation 2019 retirements expected to be less than half that of Stockpiles down ~37 million tons on robust export activity Total U.S. thermal exports increase 34% with ILB exports up 59% 65 Total U.S. Exports (Mt in millions) Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 ' Source: Industry reports and Peabody Global Analytics. U.S. utility coal stockpiles as of quarter end. U.S. exports estimated through year-end 2018 based on YTD October 2018 actuals. 8

9 Advancing Attractive Seaborne Thermal Life Extension Projects To Maintain Export Thermal Coal Volumes Pursuing life extension projects at Wilpinjong and Wambo Unincorporated joint venture with Glencore gives access to stratified reserves and extends life of Wambo open cut mine Expected to commence production in early 2020 Wilpinjong extension project ensures long-term access to seaborne demand centers; extends life of mine to 2030 Provides substantial returns with rapid payback period Targeting export thermal sales of 11.5 million to 12.5 million tons 60% to 70% NEWC (6,000 spec) 30% to 40% API5 (5,500 spec) Wilpinjong Mine 9

10 Shoal Creek Acquisition Upgrades Seaborne Met Portfolio; Represents Multiple Strategic and Financial Benefits The Asia Confidence First vessel of Shoal Creek coal loaded under Peabody s ownership Targeting ~2.5 million tons of high-quality seaborne met coal Anticipating costs in the vessels of $85 - $95 per short ton Earned ~50% Adjusted EBITDA margins YTD Sept Serves Asian and Atlantic steel customers Strategically positioned with direct access to transportation Well-capitalized longwall operation with 55 million tons of proven and probable reserves 10

11 Commencing North Goonyella Re-ventilation and Re-Entry Project, Targeting Higher 2020 Met Coal Volumes Base case targets ~2 million tons of longwall production in 2020 Limited 2019 continuous miner volumes Executing multi-phased project to advance re-ventilation and re-entry plan Completed segmentation of the mine into multiple zones Stage-gate approach allows period re-evaluation of progress, costs, investments Estimated 2019 Financial Impacts: Idling and re-ventilation/re-entry costs: ~$30 to $35 million per quarter Capital investments, including planned new longwall equipment: ~$110 million Insurance proceeds of ~$125 million anticipated 11

12 Continued Emphasis on Value Over Volume Across U.S. Thermal Operations Targeting 2019 PRB volumes of million tons Reducing planned production of higher-quality, higher-cost coal at NARM by 10 million tons at midpoint Entering 2019 with 90% to 95% of PRB volumes priced Easing production across several complexes in the Midwest Base case assumes Kayenta production and sales cease in Q given plant inventory levels Owners contractually obligated to fund portion of certain reclamation, retiree healthcare liabilities; accelerated cash collections in 2018, 2019 Company-wide reclamation cash outlays of ~$75 million in 2019 Includes Kayenta and Millennium 12

13 Peabody Continues to Execute on Stated Financial Approach Generate Cash Generated over $1.3 billion in free cash flow in 2018 Expect to continue to generate strong operating cash flows Maintain Financial Strength Invest Wisely 2018 reduction of ~$550 million of liabilities Maintaining previously stated debt and liquidity targets Targeting capital expenditures of $375 - $425 million Approximately 70% to seaborne portfolios Return Cash to Shareholders $1.1 billion returned in 18 months; $75 million in Jan Remain committed to returning cash to shareholders Note: Free cash flow is a non-gaap metrics. Refer to the reconciliation to the nearest GAAP measures in the appendix. 13

14 Appendix

15 2019 Guidance Targets Sales Volumes (Short Tons in millions) PRB Quarterly North Goonyella Costs $30 $35 million ILB Quarterly SG&A Expense ~$40 million Western Full-Year Capital Expenditures $375 $425 million Seaborne Metallurgical Interest Expense 4 ~$150 million HCC 1 : 40% 50% Cost Sensitivities 5 PCI 2 : 50% 60% $0.05 Decrease in A$ FX Rate 6 + ~$80 million Seaborne Export Thermal $0.05 Increase in A$ FX Rate 6 - ~$80 million NEWC: 60% 70% Fuel (+/- $10/barrel) +/- ~$30 million API 5: 30% - 40% Australia Domestic Thermal Priced Position (Avg. Price per Short Ton) Revenues per Ton PRB $11.24 Total U.S. Thermal $17.10 $18.10 ILB ~$42 Seaborne Export Thermal Volumes ~$82 Costs Per Ton (USD per Short Ton) PRB $9.25 $ % -95% of Peabody's 2019 U.S. thermal volumes are priced ILB $32 $35 based on the mid-point of 2019 volume guidance ~4.7 million short tons of seaborne export thermal $13.95 $14.95 Total U.S. Thermal coal priced for 2019 Seaborne Thermal 3 (includes Aus. Domestic Thermal) Seaborne Metallurgical 3 (excluding North Goonyella) $32 $36 $85 $ Priced Position (Avg. Price per Short Ton) ~35% and ~55% of Peabody s 2020 U.S. thermal volumes are priced and committed, respectively, based on the mid-point of 2019 volume guidance Seaborne Export Thermal Volumes ~$75 ~1.7 million short tons of seaborne export thermal coal priced for

16 2019 Guidance Targets 1 Peabody expects to realizes ~80%-90% of the premium HCC quoted index price on a weighted average across all its products. 2 Approximately 40% of Peabody s seaborne metallurgical PCI sales are on a spot basis, with the remainder linked to the quarterly contract. Peabody expects to realizes ~80%-90% of the LV PCI benchmark for its PCI products. 3 Assumes 2019 average A$ FX rate of $0.73. Cost ranges include sales-related cost, which will fluctuate based on realized prices. 4 Interest expense includes interest on funded debt, surety bonds, commitment fees and letters of credit fees issued under the revolver and accounts receivable securitization program, and non-cash interest related to certain contractual arrangements and amortization of debt issuance costs. 5 Sensitivities reflect approximate impacts of changes in variables on financial performance. When realized, actual impacts may differ significantly. 6 As of Dec. 31, 2018, Peabody had outstanding average rate call options to manage market price volatility associated with the Australian dollar in aggregate notional amount of approximately AUD $875 million with strike price levels averaging ~$0.77 and settlement dates through Sept. 30, Sensitivities provided are relative to an assumed average A$ FX exchange rate of ~$0.71 as of Dec. 31, Note 1: Peabody classifies its seaborne metallurgical or thermal segments based on the primary customer base and reserve type. A small portion of the coal mined by the seaborne metallurgical segment is of a thermal grade and vice versa. Peabody may market some of its metallurgical coal products as a thermal product from time to time depending on industry conditions. Per ton metrics presented are non-gaap measures. Due to the volatility and variability of certain items needed to reconcile these measures to their nearest GAAP measure, no reconciliation can be provided without unreasonable cost or effort. Note 2: A sensitivity to changes in seaborne pricing should consider Peabody s estimated split of products and the weighted average discounts across all products to the applicable index prices, in addition to impacts on sales-related costs, and applicable conversions between short tons and metric tonnes as necessary. Note 3: As of Jan. 31, 2019 Peabody had approximately million shares of common stock outstanding. Including approximately 3.7 million shares of unvested equity awards, Peabody has approximately million shares of common stock on a fully diluted basis. 16

17 North Goonyella Coal Mine: Segmenting of Multiple Zones 17

18 Historical Seaborne Pricing ($/Tonne) Time Period HCC Settlement HCC Spot LV PCI Settlement LV PCI Spot NEWC Spot API 5 - Prompt Q $212 $221 $139 $128 $105 $63 Q $188 $189 $150 $128 $117 $69 Q ~$197 $190 $155 $140 $104 $75 Q $237 $228 $ $149 $103 $82 Q $192 $205 $127 $126 $98 $76 Q $170 $189 $115/$127 $117 $93 $74 Q $194 $190 $135 $124 $80 $67 Q $285 $169 $180 $110 $82 $65 Q $200 $266 $133 $159 $94 $73 Q $93 $135 $75 $88 $66 $55 Q $84 $91 $73 $72 $52 $43 Source: HCC and LV PCI spot prices per Platts; NEWC spot price per ICE Futures; Settlement prices per IHS Markit benchmark history. 18

19 Reconciliation of Non-GAAP Measures Successor Successor Predecessor Combined Quarter Ended Quarter Ended Year Ended Apr. 2 through Jan. 1 through Year Ended Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2017 Apr. 1, 2017 Dec. 31, 2017 Tons Sold (In Millions) Powder River Basin Mining Operations Midwestern U.S. Mining Operations Western U.S. Mining Operations Total U.S. Thermal Mining Operations Seaborne Metallurgical Mining Operations Seaborne Thermal Mining Operations Corporate and Other Total Revenue Summary (In Millions) Powder River Basin Mining Operations $ $ $ 1,424.8 $ 1,178.7 $ $ 1,573.0 Midwestern U.S. Mining Operations Western U.S. Mining Operations Total U.S. Thermal Mining Operations , , ,948.9 Seaborne Metallurgical Mining Operations , , ,549.9 Seaborne Thermal Mining Operations , Corporate and Other 86.6 (9.4) Total $ 1,397.1 $ 1,517.1 $ 5,581.8 $ 4,252.6 $ 1,326.2 $ 5,

20 Reconciliation of Non-GAAP Measures Quarter Ended Quarter Ended Year Ended Apr. 2 through Jan. 1 through Year Ended Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2017 Apr. 1, 2017 Dec. 31, 2017 Total Reporting Segment Costs (1) Summary (In Millions) Powder River Basin Mining Operations $ $ $ 1,140.3 $ $ $ 1,202.5 Midwestern U.S. Mining Operations Western U.S. Mining Operations Total U.S. Thermal Mining Operations , , ,222.2 Seaborne Metallurgical Mining Operations , ,025.4 North Goonyella Costs Seaborne Metallurgical Mining Operations, Excl. North Goonyella Costs , ,025.4 Seaborne Thermal Mining Operations Corporate and Other Total $ 1,031.4 $ 1,097.5 $ 4,116.7 $ 3,056.3 $ $ 4,020.9 Adjusted EBITDA (2) (In Millions) Powder River Basin Mining Operations $ 59.8 $ 81.3 $ $ $ 91.7 $ Midwestern U.S. Mining Operations Western U.S. Mining Operations Total U.S. Thermal Mining Operations Seaborne Metallurgical Mining Operations North Goonyella Costs Seaborne Metallurgical Mining Operations, Excl. North Goonyella Costs Seaborne Thermal Mining Operations Resource Management Results (3) Selling and Administrative Expenses (38.4) (37.9) (158.1) (106.3) (36.3) (142.6) Acquisition Costs Related to Shoal Creek (4.9) - (7.4) Other Operating Costs, Net (4) 7.7 (11.7) 31.6 (7.4) (2.2) (9.6) Adjusted EBITDA (2) $ $ $ 1,379.3 $ 1,145.3 $ $ 1,486.6 Note: Refer to definitions and footnotes on slide

21 Reconciliation of Non-GAAP Measures Successor Successor Predecessor Combined Quarter Ended Quarter Ended Year Ended Apr. 2 through Jan. 1 through Year Ended Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2017 Apr. 1, 2017 Dec. 31, 2017 Reconciliation of Non-GAAP Financial Measures (In Millions) Income (Loss) from Continuing Operations, Net of Income Taxes $ $ $ $ $ (195.5) $ Depreciation, Depletion and Amortization Asset Retirement Obligation Expenses Asset Impairment Provision for North Goonyella Equipment Loss Changes in Deferred Tax Asset Valuation Allowance and Reserves and Amortization of Basis Difference Related to Equity Affiliates 3.8 (9.6) (18.3) (17.3) (5.2) (22.5) Interest Expense Loss on Early Debt Extinguishment Interest Income (9.3) (2.1) (33.6) (5.6) (2.7) (8.3) Net Mark-to-Market Adjustment on Actuarially Determined Liabilities (125.5) (45.2) (125.5) (45.2) - (45.2) Reorganization Items, Net - - (12.8) Gain on Disposal of Reclamation Liability - (31.2) - (31.2) - (31.2) Gain on Disposal of Burton Mine - (52.2) - (52.2) - (52.2) Break Fees Related to Terminated Asset Sales (28.0) - (28.0) Unrealized (Gains) Losses on Economic Hedges (54.6) 21.6 (18.3) 23.0 (16.6) 6.4 Unrealized (Gains) Losses on Non-Coal Trading Derivative Contracts (0.7) Fresh Start Coal Inventory Revaluation Fresh Start Take-or-Pay Contract-Based Intangible Recognition (5.2) (6.1) (26.7) (22.5) - (22.5) Income Tax (Benefit) Provision (12.9) (81.6) 18.4 (161.0) (263.8) (424.8) Adjusted EBITDA (2) $ $ $ 1,379.3 $ 1,145.3 $ $ 1,486.6 Operating Costs and Expenses $ 1,021.0 $ 1,085.7 $ 4,072.6 $ 3,052.7 $ $ 4,002.9 Break Fees Related to Terminated Asset Sales Unrealized Gains (Losses) on Non-Coal Trading Derivative Contracts 0.7 (3.0) (0.7) (1.5) - (1.5) Fresh Start Coal Inventory Revaluation (67.3) - (67.3) Fresh Start Take-or-Pay Contract-Based Intangible Recognition Net Periodic Benefit Costs, Excluding Service Cost Total Reporting Segment Costs (1) $ 1,031.4 $ 1,097.5 $ 4,116.7 $ 3,056.3 $ $ 4,020.9 Net Cash Provided By (Used In) Operating Activities $ $ $ 1,489.7 $ $ (813.0) $ 0.4 Net Cash (Used In) Provided By Investing Activities (451.8) (58.5) (517.3) (93.4) 15.1 (78.3) Add Back: Acquisition of Shoal Creek Mine Free Cash Flow (5) $ $ $ 1,359.8 $ $ (797.9) $ (77.9) Note: Refer to definitions and footnotes on slide

22 Reconciliation of Non-GAAP Measures: Shoal Creek Nine Months Ended Sept. 30, 2018 Revenue Summary (In Millions) Shoal Creek Mining Operations $ Reconcilation of Non-GAAP Financial Measures - Shoal Creek (In Millions) Net Income $ Depreciation, Depletion and Amortization 1.1 Asset Retirement Obligation Expenses 0.1 Adjusted EBITDA (6) $ Note: The amounts presented above for the nine months ended September 30, 2018 were derived from the unaudited carve-out financial statements of Shoal Creek (a division of Drummond Company, Inc.). These items may not be comparable to similar Peabody line items given a difference in structure, cost basis and other elements of the Shoal Creek carve-out financials and may not be indicative of the results that may be expected in future periods. Note: Refer to definitions and footnotes on slide

23 Reconciliation of Non-GAAP Measures: Definitions Note: Total Reporting Segment Costs, Adjusted EBITDA and Free Cash Flow are non-gaap financial measures. Management believes that non-gaap performance measures are used by investors to measure our operating performance and lenders to measure our ability to incur and service debt. These measures are not intended to serve as alternatives to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. (1) Total Reporting Segment Costs is defined as operating costs and expenses adjusted for the discrete items that management excluded in analyzing each of our segment's operating performance as displayed in the reconciliation above. Total Reporting Segment Costs is used by management as a metric to measure each of our segment's operating performance. (2) Adjusted EBITDA is defined as income from continuing operations before deducting net interest expense, income taxes, asset retirement obligation expenses, depreciation, depletion and amortization and reorganization items, net. Adjusted EBITDA is also adjusted for the discrete items that management excluded in analyzing each of our segment's operating performance as displayed in the reconciliation above. Adjusted EBITDA is used by management as the primary metric to measure each of our segment's operating performance. (3) Includes gains (losses) on certain surplus coal reserve and surface land sales, property management costs and revenues, the Q gain of $20.5 million on the sale of surplus coal resources associated with the Millennium Mine and the Q gain of $20.6 million on the sale of certain surplus land assets in Queensland's Bowen Basin. (4) Includes income from equity affiliates (before the impact of related changes in deferred tax asset valuation allowance and reserves and amortization of basis difference), trading and brokerage activities, costs associated with post-mining activities, certain coal royalty expenses, minimum charges on certain transportation-related contracts, the Q gain of $7.1 million recognized on the sale of our interest in the Red Mountain Joint Venture and the Q gain of $19.7 million recognized on the sale of Dominion Terminal Associates. (5) Free Cash Flow is defined as net cash provided by operating activities less net cash used in investing activities and excludes cash outflows related to business combinations. Free Cash Flow is used by management as a measure of our financial performance and our ability to generate excess cash flow from our business operations. (6) Adjusted EBITDA is defined by Peabody in this calculation as net income before deducting depreciation, depletion and amortization and asset retirement obligation expenses. 23