Powering the region Whitehaven Coal Annual Report 2019 This report includes forward looking statements relating to future events and expectations. While these statements reflect expectations at the date of this publication, they are, by their nature, not certain and are subject to known and unknown risks. Whitehaven makes no representation, assurance or guarantee as to the accuracy or likelihood of fulfilling any such forward looking statements (whether express or implied) and, except as required by applicable regulations or law, Whitehaven does not undertake to publically update such forward looking statements. Contents FY2019 in review Introductions About us Resources & Reserves Directors’ Report Operating and financial review Remuneration Report Financial Report ASX additional information Glossary Corporate directory 2 3 5 14 17 26 37 62 120 122 123 1 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory | FY2019 in review Financial highlights: – Record net profit after tax before significant items of $564.9m, up 8% on FY2018 – Underlying EBITDA increased to $1,041.7m, up 3% on FY2018. This was driven by increased margins, underpinned by an increase in the production of high quality thermal coal – Cash generated from operations increased to $964.1m – The decrease in net debt to $161.6m at 30 June 2019 was driven by the strong operating cash flow performance during the year. Gearing decreased to 4% at 30 June 2019 from a level of 7% as at 30 June 2018 – The strength and resilience of Whitehaven’s cash flow generation has resulted in dividends of 50 cents per share being declared for the year – As a result of the strength of Whitehaven’s balance sheet, its scale of operations, and its improved earnings and cash flow generation, Whitehaven is well placed to both expand operations from its existing portfolio of opportunities and to take advantage of external growth opportunities that may arise. Revenue Underlying EBITDA EBITDA – statutory Net profit after tax before significant items Net profit after tax Cash generated from operations Net debt Gearing (net debt/net debt + equity) (%) Earnings per share (cents) Shareholder distributions (cents per share) 1 Restated for adoption of AASB 16 Leases. FY2019 FY2018 1 $ million $ million 2,487.9 1,041.7 1,001.2 564.9 527.9 964.1 161.6 4% 53.5 50 2,257.4 1,011.9 1,002.2 524.5 524.5 925.9 270.4 7% 53.1 40 Operational highlights: – Record ROM coal production of 18.4Mt, up 4% on FY2018 – A strong finish to the year at both Narrabri and Maules Creek enabled ROM coal production guidance to be exceeded – Coal sales of 17.6Mt including purchased coal for the year – Increased premiums relative to the prevailing index price for both thermal and metallurgical coal – High coal inventories at both Maules Creek and Narrabri will support sales during the September quarter of FY2020. ROM coal production Saleable coal production Sales of produced coal Sales of purchased coal Total coal sales 2 FY2019 FY2018 000t 18,358 15,817 16,017 1,615 17,631 000t 17,727 16,160 16,109 1,256 17,365 Chairman’s introduction Dear Shareholder It has been another busy year for Whitehaven as we worked towards our vision of being the benchmark coal investment on the Australian Securities Exchange (ASX) and further sharpened our focus on seven key areas underpinning our growth strategy. It is pleasing to report record ROM production and record profit, which facilitated an unprecedented distribution to shareholders by way of a full-year payout ratio of 88% of NPAT. I would like to acknowledge the work of Managing Director and CEO Paul Flynn, the executive leadership team and our entire 2,400-strong workforce in achieving this result. Just as important as recent performance is the fact that your company is in a strong position for future success, with close alignment between our strategic product offering and evolving demand trends for high-calorific value (high-CV), low-impurity thermal coal, and low-sulphur, low-phosphorous semi-soft coking coal (SSCC). The coal we produce will continue to service our premium markets of Japan, Korea and Taiwan but, increasingly, we will look to take advantage of the substantial growth in coal-fired power generation in Southeast Asia. The International Energy Agency (IEA), in its New Policies Scenario, predicts these markets will grow from 71GW in 2017 to 175GW in 2040, requiring at least 220Mtpa of coal – more than Australia’s 2018 thermal coal exports of 208Mpta – by 2040. Our future growth and value proposition are underpinned by two significant, high-quality, near-term assets: our Vickery and Winchester South projects. Together, they will significantly increase the metallurgical coal exposure in our portfolio and take our saleable coal production towards 40Mtpa by 2030. In this context, it is worth reflecting on the market opportunities in India, which this year accounted for 40% of our total metallurgical coal sales. Australia supplies more than 70% of India’s metallurgical coal, and according to the Commonwealth Office of the Chief Economist, demand for this coal could increase by one-third between 2015 and 2035 as India’s economy develops. Whitehaven is positively differentiated from a number of our key competitors, increasing our total production at a time of ongoing tightness in the higher energy–content coal market and given the relative scarcity of metallurgical coal globally. Regulatory barriers and a more uncertain investment environment will continue to impact supply, with attendant impacts on price. And we are well positioned to continue to take advantage of these dynamics. This topic is covered in Whitehaven Coal’s Sustainability Report 2019, in which we talk about business resilience and how we see our company successfully charting a path into a more carbon-constrained future. I commend our inaugural sustainability report to you. Given the ongoing debate about the role coal will continue to play globally, particularly in power generation, we continue to communicate regularly with domestic and international investors on the full spectrum of environmental, sustainability and governance issues. This includes continuing discussion on voluntary compliance regimes, such as the Task Force on Climate-related Financial Disclosures (TCFD), which Whitehaven reported against for the first time in 2019. On behalf of the Board, I would like to take this opportunity to thank shareholders for their continuing support. While our sector is unquestionably complex, our long-term outlook on the market remains extremely positive. I am confident we have the strategies and talent we need to deliver further value for our shareholders, and our stakeholders more broadly. The Hon. Mark Vaile AO Chairman 3 Whitehaven Coal Annual Report 2019About us | Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory ||| |IntroductionsFY2019 in review Managing Director and CEO’s introduction Dear Shareholder I am pleased to present Whitehaven Coal’s Annual Report 2019. We delivered another record profit and continued our pattern of delivering strong and consistent financial returns for our shareholders this year. The full-year result solidifies our position as the leading pure-play coal miner listed on the ASX. It also serves us well as we prepare to transform into an even larger, more efficient and better-integrated enterprise, to take advantage of the demand for high-quality coal in the Asian region. We reported underlying NPAT of $564.9 million, and produced a record 23.2Mt of ROM coal on a managed basis – results that allowed us to declare a record dividend to our shareholders. I would like to thank the approximately 2,400 members of our workforce who contributed to this result, as well as our joint venture partners, commercial partners and the executive leadership team. Importantly, we accomplished these financial and operational outcomes with an improved total recordable injury frequency rate for the year of 6.2, reflecting our belief that production growth is not sustainable unless accompanied by a strong safety focus. Nonetheless, with a growing business, safety is always front of mind, and recent tragic events in the mining and other sectors are a stark reminder that we must be vigilant. Away from the headline results, the year has had its challenges, including those relating to production, labour and the external pricing environment. We have not been immune to rising cost pressures, particularly due to the Narrabri mine operating deeper underground and longer hauls needed for out of pit dumping at Maules Creek mine. We anticipate that these are transient aspects of both operations. Costs should moderate as we introduce new roof support cylinders at Narrabri and begin in-pit dumping at Maules Creek over the next year. We are also redoubling our efforts to keep costs down in other areas. Operationally, the business is approaching its other most important turning point – and our strong balance sheet readies us to realise new growth and increased efficiency. In terms of existing mines, production at Tarrawonga will expand to three million tonnes, supported by a new fleet, and Narrabri Stage 3 looks to extend the life of the mine to 2045, with fewer changeouts. Maules Creek will benefit from optimisation initiatives, including deploying autonomous haulage and in-pit dumping, with attendant cost reductions. In addition, our pipeline of development projects positively differentiates us from many of our sector competitors. During the past year, the Queensland Government declared the Winchester South Project a Coordinated Project. We will soon release our first statement of reserves, providing more details about the key attributes of this exciting project. We are also anticipating a determination for the Vickery Extension Project in the coming months. This development attracted an unprecedented level of local community support during its public exhibition phase. Other changes are also afoot throughout the business. In FY20, we will increase our focus on rehabilitating Rocglen, where we stopped mining in June 2019. We are also due to extract our last coal from Sunnyside Mine before the end of 2019. While we are sad to close these chapters in Whitehaven’s production story, we have an opportunity to make these mines shining examples of contemporary approaches to rehabilitation. We are in the middle of a significant transition. This includes moving from operating five mines that produce about 23 million tonnes of coal annually to four major mines that will produce around 40 million 4 tonnes within the next decade. We are also managing a range of initiatives across the full exploration, development, production and rehabilitation life cycle. Reassuringly, we have a great team in place, with the right blend of skills and experience to deliver on our strategy. As we progress down this path, it is important to acknowledge the significant contribution we make to our local, state and national economies and communities. We will continue to ensure the benefits of our operations extend beyond our direct workforce and shareholders. We are ever focused on building capacity in the regions where we operate, by developing skills, creating permanent jobs and procuring services locally. Our approach and achievements in this space are detailed in our inaugural sustainability report, which I encourage you to read at www.whitehavencoal.com.au. As we mark another record year, and embark on what promises to be an exciting but challenging 12 months, I thank you for your support. Paul Flynn Managing Director and CEO About us 5 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory || |About us Whitehaven Coal is proud to be the leading Australian producer of premium-quality coal, and the dominant player in Australia’s only emerging high-quality coal basin. We help power developed and emerging economies in Asia where there is strong and growing demand for our product, particularly for use in high-efficiency, low-emissions coal-fired power stations. We are driving prosperity and economic growth in regional Australia, particularly in North West NSW, which is the focus of our capital investment and workforce presence. We operate five mines (four open cut and one large underground mine) in the Gunnedah Basin of NSW. Our operating assets are complemented by two high-quality, near-term development assets: Vickery, near Gunnedah, and Winchester South, in Queensland’s Bowen Basin. Over our almost 20-year history, including 12 years as a publicly listed entity on the ASX, we have developed a reputation for excellence in project delivery and safe, efficient and environmentally responsible operations. We are proudly local, and around 75% of our 2,400-strong workforce live in the local communities around our mine sites. We believe in helping communities grow, ensuring benefits flowing from our operations accrue locally. 6 Purpose, vision and principles Purpose Principles To support and sustain regional communities by exporting high-quality thermal and metallurgical coal from Australia to the world. Vision To be the benchmark coal exposure on the ASX. The following principles guide our interactions internally and with external stakeholders. Safety We endeavour to ensure the safety of our employees, contractors and communities. Teamwork We work collaboratively and support one another. Respect We foster a diverse and inclusive culture and deal with all stakeholders respectfully. Integrity We are honest and do the right thing. Value We create value for shareholders, customers and local communities. Excellence We deliver on our commitments. 7 | FY2019 in review | Introductions Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory || |About us How we create value Business inputs 1. Assets: We are the dominant player in Australia’s only emerging high-quality coal basin with a footprint in one of Australia’s highest quality metallurgical coal basins. Our mine assets are complemented by a large fleet of heavy mining equipment in addition to mine support infrastructure and rolling stock. 2. People: To ensure we optimise our physical assets, we seek to attract, recruit and retain the technical, specialist and central office staff with the skills to support the needs of the business today and into the future. 3. Financial: We deploy our financial resources carefully to maintain our reputation as a reliable and cost-efficient producer focused on delivering value for all our shareholders over the long term. Our disciplined capital allocation approach keeps our balance sheet strong and provides flexibility through the cycle. Governance and reporting framework We seek to design and implement corporate governance and management arrangements to manage our exposure to political and regulatory risks and to observe best-practice management measures in relation to health, safety, stakeholder engagement and business integrity. Our value proposition We identify, develop and operate high-quality, cost-efficient, long- life coal assets and distribute the financial and non-financial returns to shareholders, employees, customers and the communities where we work and live. Our community and social compact depicts the process whereby our capital investment is recycled through a value chain including employees, suppliers, customers and community members. Our business focus We seek to ensure continuous and sustainable value creation by applying our human and financial capital to the following key areas. Business outputs – Customers: We form long-term relationships with our customers to provide raw materials that support the efficient utilisation of industrial assets including coal-fired power plants and steel blast furnaces – Procurement: We are firmly oriented towards working with regionally based suppliers in recognition of the contribution of local enterprise to long-term community prosperity and cohesion – Infrastructure and logistics: – Environment: We are responsible We have supply agreements with Australian businesses focused on the efficient movement of our product, contributing to shared sustainability goals through our value chain stewards of the natural environment, and maintain strong sustainability practices through each stage of the mining process, from development, to operations, closure and rehabilitation – Community: We work with – Industry: We are members of local councils, business groups, the agricultural sector, charitable organisations and a range of local service providers to share the economic and social dividends of mining and maintain our social licence to operate various industry associations and participate in policy forums on issues associated with ensuring Australia’s resource endowment can better support sustainable development here and abroad. Employees Community Customers Investors We provide skills development pathways and stable regional employment in a safe and rewarding work environment. We support local communities through direct investment, job creation, partnerships with local suppliers and working with community groups. We offer a reliable supply of high-quality coal to support economic and social development in the Asian region. We aim to provide strong and consistent returns to shareholders and joint venture partners from our existing portfolio of mines with upside potential from key growth assets. FY19 value created – Approximately 75% of our 2,400-strong workforce based in regional areas – $189.9 million in wages paid – 9% of workforce identifies as Indigenous – Launched our Stretch Reconciliation Action Plan. – $333.9 million spent with local suppliers – $1.83 million spent with local Indigenous businesses – Supported the Narrabri Clontarf Academy and the Girls’ Academy at Gunnedah. – Exported over – $464.9 million returned 21.6 million tonnes of high-quality thermal and metallurgical coal – Japan, our key export market, has achieved the highest average efficiency rate of 42% and least pollutants for coal-fired generation in the world. to shareholders through dividends – Total shareholder return of 308% over the past three years – $1,041.7 million in underlying earnings before interest, tax, depreciation and amortisation (EBITDA). 8 Our community and social compact Identify, develop and operate high-quality, long-life, lower-cost coal projects Leave an economic and social legacy that outlives mining operations Instill community trust through responsible environmental stewardship and community partnerships Promote local economic growth and sustainability through permanent job creation and local procurement Help build local community capacity and viability through direct and indirect intergenerational investment in education, health, skills and infrastructure 9 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory || |About us Our future growth and value proposition is underpinned by two significant, high-quality, near-term development assets, being Vickery, located within our existing portfolio of mines in the Gunnedah Coal Basin, and Winchester South, in Queensland’s Bowen Basin. The development of these two projects will take Whitehaven’s managed saleable coal production towards 40Mtpa over the next 10 years. Our goal is to be the benchmark export coal exposure on the ASX Our strategy Whitehaven Coal has built a strong position in the Gunnedah Coal Basin, comprising a portfolio of assets producing high–CV thermal coal and premium SSCC both with low impurity levels. Last year we expanded our reach into the well-regarded Bowen Basin in Queensland, and we are on track to nearly double total production over the next decade. Saleable production actual and forecast 40 30 t M 20 10 0 FY12 FY17 FY22 FY27 Note: Graph depicts saleable coal on a 100% basis. The production profile shown is fully underpinned by Marketable Reserves for the Company’s operating mines and Vickery Project, and Measured and Indicated Resource for the Winchester South Project. See pages 15 and 16 for full details of Whitehaven’s Coal Resources and Reserves JORC tables and for the Competent Persons Statement. 100% of the forecast production from the Vickery Project is underpinned by the JORC Reserves released to the ASX on 13 August 2015. 100% of the forecast production from the Winchester South Project is underpinned by Measured and Indicated Resources released to the ASX on 25 October 2018. The full JORC Resources report is also available on whitehavencoal.com.au. All material assumptions underpinning the initial public reports referenced for Vickery and Winchester South continue to apply and have not materially changed. The coals we produce service the premium export markets of Japan, Taiwan and Korea and we are well positioned to take advantage of the substantial growth in coal-fired generation capacity projected in South East Asia, predicted by the IEA to grow from 71GW in 2017 to 175GW in 2040, requiring at least an additional 220Mtpa of coal – more than Australia’s total 2018 thermal coal exports of 208Mt – by 2040. South East Asia Generation Capacity W G 800 700 600 500 400 300 200 100 0 2017 2025 2030 2035 2040 Solar Geothermal Wind Bioenergy Hydro Nuclear Gas Oil Coal Source: IEA WEO 2018, New Policies Scenario (NPS). The NPS is one of three key scenarios modelled by the IEA. Refer to page 28 of the 2019 Sustainability Report for details in relation to the other scenarios. 10 Our strategy is to own and operate large, low-cost mines producing a mix of high-CV thermal coal and premium SSCC, and to grow our share of the burgeoning market for these products in our region. Our framework to deliver on our strategy is focused on seven key areas. Disciplined growth and capital management Towards a bigger, more productive Whitehaven We have invested in high-quality, large-scale, long-life assets that allow the business to efficiently manage the cyclical nature of the commodities sector. We expect to grow our portfolio from a managed level of approximately 22Mt in 2019 to over 40Mt by 2030. As some of our smaller foundation mines reach the end of their lives, our business is oriented towards growing the scale of larger existing operations and delivering on our key development assets being Vickery and Winchester South. Maintaining capital discipline and a focus on productivity gains over an expanding production base will continue to drive returns for shareholders. Our track record of growth and our strong development pipeline make us an attractive employer for committed and motivated people who value being a part of a community and achieving goals. As the largest employer in North West NSW, we will continue to communicate the benefits of our regional location – and that of our development site in Queensland’s Bowen Basin – to attract talent to fuel our growth. We are assessing and pursuing opportunities to access latent capacity in our mines through upgrades to mobile equipment as well as fixed infrastructure. These opportunities help us realise the full extent of the resources at our mines and enable us to do more, with less. The supply of high-energy, low-ash and low-sulphur coal globally is constrained but, at the same time, demand for coal with these attributes is increasing in a world that is becoming more carbon conscious. Our quality assets and strong customer relationships in export markets situated within our geographic region mean we are able to attract premium pricing for our products. Our business produces high-quality thermal coal and SSCC. With the purchase of Winchester South, we have set a path to materially increase our exposure to metallurgical coal products. We can also optimise revenue by responding to prevailing pricing spreads in the thermal and SSCC markets. Productivity of the coal mining industry has improved over time as equipment has become bigger and more efficient. At Whitehaven we employ large equipment matched to the mining conditions at our operations including ultraclass fleets at the Maules Creek mine. The work we are undertaking with Hitachi on evaluating its Autonomous Haulage System on the Hitachi Ultra Class trucks in use at Maules Creek is one such example. We take time to critically assess the strengths and weaknesses of our business. Where acquisition opportunities that enhance our strengths or counteract any business weaknesses present themselves, we review and act on them appropriately. We do this in a measured and disciplined manner, as we did with the acquisition of Winchester South. Nurturing our talent pipeline Attracting and retaining the right people Latent capacity Unlocking future value Premium products for premium markets Leveraged to the quality end of the spectrum Diversification of product range Building a more resilient portfolio Innovating Delivering the technology dividend Opportunistic M&A Keeping a vigilant eye on structural shifts in the market 11 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory || |About us Our operations and growth In FY19, Whitehaven produced a record 23.2Mt of ROM coal on a managed basis. The production ramp-up at Maules Creek continued, with ROM coal production of 11.7Mt in FY19, up 7% from 11.0Mt the previous year. Narrabri ROM production increased from 6.3Mt in FY18 to 6.4Mt in FY19. ROM coal production from our four smaller open cut mines – Tarrawonga, Rocglen, Werris Creek and Sunnyside – was 5.1Mt, slightly lower than the 5.7Mt produced in FY18. Sunnyside is in its rehabilitation phase, and the remaining Rocglen reserves were fully mined out during FY19. Rocglen entered its rehabilitation phase in the final weeks of FY19. Further detail on FY19 production is available in ‘Operating and financial review’ on page 26. We are exploring a range of opportunities to optimise and expand operations at our existing mines. This includes an expansion at Tarrawonga that will lift production to the approved rate of 3.0Mtpa ROM coal, supported by a more efficient fleet along with a modest upgrade to the mine infrastructure. The Narrabri Stage 3 Project meanwhile looks to extend the life of the Narrabri underground mine to around 2045, using existing surface infrastructure. In the shorter term, new equipment to be installed in FY20 that will allow us to more efficiently mitigate the impact of weighting events that can occur more frequently in the underground environment as depth of cover increases. We also have three key initiatives underway at Maules Creek, including the ongoing evaluation of autonomous haulage systems, which aims to improve safety and efficiency; the transition to in-pit dumping which will positively impact costs, and a proposed modification to increase the approved ROM coal production rate from 13Mtpa to 16Mtpa ROM coal. These brownfield opportunities are complemented by our two development projects: Winchester South in Queensland’s Bowen Basin, and the Vickery Extension Project in the Gunnedah Basin. If approved, at full capacity Winchester South will target ROM production of approximately 15Mtpa of predominantly high-quality metallurgical coal over a mine life of around 30 years. Our Vickery Extension Project, if approved, will target an average of 7.2Mtpa of a blend of metallurgical and thermal coal over a 25-year mine life. Our growth agenda is not just about scale but also about diversifying our product range and geographic presence so we can be more agile and responsive to market dynamics and other externalities. Please refer to our Sustainability Report 2019 for an analysis of the resilience of our business in response to the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Total managed ROM coal production t M 25 20 15 10 5 0 12 FY2015 FY2016 FY2017 FY2018 FY2019 Maules Creek managed ROM coal production t M 12 10 8 6 4 2 0 FY2015 FY2016 FY2017 FY2018 FY2019 Narrabri managed ROM coal production t M 8 7 6 5 4 3 2 1 0 FY2015 FY2016 FY2017 FY2018 FY2019 Gunnedah open cuts managed ROM coal production t M 8 7 6 5 4 3 2 1 0 FY2015 FY2016 FY2017 FY2018 FY2019 13 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions Resources & Reserves | Directors’ Report | Financial Report | Glossary | Corporate directory || |About us Resources & Reserves 14 Whitehaven Coal Limited – Coal Resources – August 2019 Tenement Maules Creek Opencut* CL375 AUTH346 ML1701 ML1719 Narrabri North Underground** Narrabri South Underground** ML1609 EL6243 Tarrawonga Opencut EL5967 ML1579 ML1685 ML1693 Tarrawonga Underground EL5967 ML1579 ML1685 ML1693 Werris Creek Opencut Rocglen Opencut Rocglen Underground Vickery Opencut Vickery Underground Winchester South Gunnedah Opencut ML1563 ML1672 ML1620 ML1620 CL316 EL4699 EL5831 EL7407 EL8224 ML1464 ML1471 ML1718 MDL 183 ML1624 EL5183 CCL701 Gunnedah Underground ML1624 EL5183 CCL701 Bonshaw Opencut Ferndale Opencut Ferndale Underground EL6450 EL6587 EL7430 EL7430 Oaklands North Opencut EL6861 Pearl Creek Opencut*** EPC862 Measured Resource (A) Indicated Resource (B) Measured + Indicated (A + B) Inferred Resource (C) Competent Person 382 147 144 38 10 11 2 - 230 - 130 7 2 - 103 - 110 - 174 167 170 17 15 2 3 3 165 95 300 47 138 4 135 - 260 14 556 314 314 55 25 13 6 3 395 95 430 54 140 4 238 - 370 14 44 - 8 13 14 - 0 1 110 135 100 89 24 7 134 73 580 38 1 2 2 3 3 2 3 3 3 3 4 3 3 3 5 5 3 6 Report Date Mar-19 Mar-19 Mar-19 Mar-19 Apr-14 Mar-19 Mar-19 Mar-15 Jul-15 Jul-15 Oct-18 Jun-14 Jun-14 Jun-14 Jan-13 Jan-13 Jun-14 Nov-12 Total Coal Resources 1,316 1,709 3,026 1,370 1. Mal Blaik, 2. Mark Benson, 3. Benjamin Thompson, 4. Troy Turner, 5. Greg Jones, 6. Phill Sides. *Maules Creek Joint Venture – Whitehaven owns 75% share. **Narrabri Joint Venture – Whitehaven owns 70% share. ***Dingo Joint Venture – Whitehaven owns 70% share. # The Coal Resources for active mining areas are current to the pit surface as at the report date. 15 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us Directors’ Report | Financial Report | Glossary | Corporate directory || |Resources & Reserves Whitehaven Coal Limited – Coal Reserves – August 2019 Tenement Proved Probable Total Proved Probable Total Recoverable Reserves Marketable Reserves Competent Person Report Date Maules Creek Opencut* CL375 AUTH346 Narrabri North Underground** Narrabri South Underground** ML1609 EL6243 Tarrawonga Opencut EL5967 ML1579 ML1685 ML1693 Werris Creek Opencut ML1563 ML1672 Rocglen Opencut Vickery Opencut ML1620 CL316 EL4699 EL7407 Total Coal Reserves 477 340 120 460 310 100 102 - 26 9 - - 5 121 10 1 - 200 457 107 121 37 10 - 200 935 98 - 22 9 - - 439 4 114 8 1 - 178 405 410 102 114 30 10 - 178 844 1 2 2 1 1 1 1 Mar-19 Mar-19 Mar-19 Mar-19 Mar-19 Note Mar-15 1. Doug Sillar, 2. Michael Barker. *Maules Creek Joint Venture – Whitehaven owns 75% share. **Narrabri Joint Venture – Whitehaven owns 70% share. # The Coal Reserves for active mining areas are current as at report date. ## Coal Reserves are quoted as a subset of Coal Resources. ### Marketable Reserves are based on geological modeling of the anticipated yield from Recoverable Reserves. Information in this report that relates to Coal Resources and Coal Reserves is based on and accurately reflects reports prepared by the Competent Person named beside the respective information. Greg Jones is a principal consultant with JB Mining Services. Mal Blak is a senior consultant with JB Mining Services. Phillip Sides is a senior consultant with JB Mining Services. Benjamin Thompson is a Geologist with Whitehaven Coal. Mark Benson is a Geologist with Whitehaven Coal. Doug Sillar is a full time employee of RPM Advisory Services Pty Ltd. Michael Barker is a full time employee of Palaris Ltd. Troy Turner is a full time employee of Xenith. Named Competent Persons consent to the inclusion of material in the form and context in which it appears. All Competent Persons named are Members of the Australasian Institute of Mining and Metallurgy and/or The Australian Institute of Geoscientists and have the relevant experience in relation to the mineralisation being reported on by them to qualify as Competent Persons as defined in the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The Jorc Code, 2012 Edition). 16 Directors’ Report For the year ended 30 June 2019 17 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report The Directors present their report together with the consolidated financial report of Whitehaven Coal Limited (‘the Company’ or ‘Whitehaven’), being the Company, its subsidiaries, and the Group’s interest in joint operations for the year ended 30 June 2019 and the auditor’s report thereon. 1. Principal activities The principal activity of Whitehaven Coal Limited and its controlled entities (the ‘Group’) during the period was the development and operation of coal mines in New South Wales. In the opinion of the directors, there were no significant changes in the state of affairs of the Group that occurred during the financial year that have not been noted in the review of operations. 2. Directors and Executives 2 (a) Directors The directors of the Company at any time during or since the end of the financial year are: The Hon. Mark Vaile AO Chairman Non-Executive Director Appointed: 3 May 2012 As Deputy Prime Minister of Australia and Leader of the National Party from 2005 to 2007, Mark established an extensive network of contacts throughout Australia and East Asia. His focus at home was with regional Australia and particularly northern NSW. As one of Australia’s longest serving Trade Ministers from 1999 through until 2006 Mark led negotiations which resulted in Free Trade Agreements being concluded with the United States of America, Singapore and Thailand as well as launching negotiations with China, Japan and ASEAN. Importantly, early in his Ministerial career as the Minister for Transport and Regional Services, Mark was instrumental in the establishment of the ARTC which operates the Hunter Valley rail network. Mark brings significant experience as a company director having been Chairman of Aston Resources, CBD Energy Limited and SmartTrans Limited and a former independent Director on the board of Virgin Australia Holdings Limited. Mark is currently a Director of ServCorp Limited which is listed on the ASX (since June 2011), Stamford Land Corp which is listed on the Singapore Stock Exchange, a Director Trustee of HostPlus Superfund and Chairman of Palisade Regional Infrastructure Fund. Former ASX listed directorships in the last 3 years: Chairman, SmartTrans Holdings Limited (April 2016– June 2018); Director, Virgin Australia Holdings Limited (September 2008–December 2018) 18 Directors’ Report For the year ended 30 June 2019 John Conde AO BSc, BE (Electrical) (Hons), MBA (Dist) Deputy Chairman Non-Executive Director Appointed: 3 May 2007 Dr Julie Beeby BSc (Hons I), PhD (Physical Chemistry), MBA, FAICD, FTSE Non-Executive Director Appointed: 17 July 2015 Paul Flynn BComm, FCA Managing Director Appointed: 25 March 2013 Previously Non-Executive Director Appointed: 3 May 2012 Fiona Robertson MA (Oxon), FAICD, MAusIMM Non-Executive Director Appointed: 16 February 2018 John has over 30 years of broad based commercial experience across a number of industries, including the energy sector, and was chairman of the company prior to the merger with Aston Resources. John is chairman of Cooper Energy Limited (since February 2013) and The McGrath Foundation. He is also president of the Commonwealth Remuneration Tribunal and a non-executive director of the Dexus Property Group (since April 2009). He recently retired as chairman of Bupa Australia and New Zealand. He retired as chairman of the Sydney Symphony Orchestra in May 2015. He was previously chairman of Ausgrid (formerly Energy Australia) and Destination NSW. He was formerly chairman and managing director of Broadcast Investment Holdings, as well as a non-executive director of BHP Billiton Limited and Excel Coal Limited. Former ASX listed directorships in the last 3 years: Nil Julie has more than 25 years’ experience in the minerals and petroleum industries in Australia including major Australian and US resources companies and as Chief Executive Officer of the ASX listed coal seam gas producer WestSide Corporation Ltd. Julie has technical, operations and strategy expertise and has held senior and executive positions in coal mining, mining services and coal seam gas after commencing her career in coal and mineral processing research. Julie was formerly the Chairman of the Queensland Electricity Transmission Corporation Limited, and non-executive director of Gloucester Coal Limited, OzMinerals Limited, CRC Mining, Queensland Resources Council and Australian Coal Research. Currently Julie is a non-executive director of Tasmanian Networks Pty Limited. Former ASX listed directorships in the last 3 years: Director, Oz Minerals Limited (April 2016–May 2018) Paul has extensive experience in the mining, infrastructure, construction and energy sectors gained through 20 years as a professional advisor at Ernst & Young. Paul was formerly Chief Executive Officer and Managing Director of the Tinkler Group and was instrumental in the merger of Whitehaven Coal with Aston Resources. Paul joined the Board of Whitehaven on 3 May 2012 and assumed the role of Managing Director and CEO on 27 March 2013. Prior to joining the Tinkler Group, Paul was the managing partner of Ernst & Young’s Sydney office and a member of its Oceania executive team. As a partner for over eight years, Paul managed many of the firm’s largest mining and energy clients across Australia, Asia, South and North America. Paul has also fulfilled various leadership roles with large corporations on secondment including as the CFO of a top 50 listed company. Former ASX listed directorships in the last 3 years: Nil Fiona has a corporate finance background, with more than 20 years’ experience as CFO of ASX-listed emerging and mid-tier mining and oil & gas companies preceded by 14 years with Chase Manhattan Bank in London, New York and Sydney, in corporate banking, credit risk management and mining finance roles. Previous non-executive directorships include ASX-listed oil and gas producer, Drillsearch Energy Limited where she chaired the Audit & Risk Committee. Currently Fiona is a non-executive director of ASX-listed Heron Resources Limited (since April 2015) and MPC Kinetic Limited. Former ASX listed directorships in the last 3 years: Nil 19 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 2. Directors and Executives (cont.) 2 (a) Directors (cont.) Lindsay Ward BAppSc (Hons I), GradDip (Mgt), GAICD Non-Executive Director Appointed : 15 February 2019 Raymond Zage BSc Finance Non-Executive Director Appointed: 27 August 2013 Tony Haggarty MComm, FAICD, CPA Non-Executive Director from 25 March 2013 Previously Managing Director to 24 March 2013 Appointed: 3 May 2007 Retired: 25 October 2018 Lindsay has more than 30 years’ experience across industries including mining, exploration, mineral processing, ports management, rail haulage, power generation, gas transmission, transport and logistics. Having started his career in the mining industry, Lindsay has held a wide range of leadership and operational roles. He is currently CEO of Palisade Integrated Management Services, which has eight diverse infrastructure assets under management. Prior to this, he was the Managing Director of Dart Mining, a Melbourne- based exploration company, and a non-executive director of Metro Mining Limited. Lindsay also has extensive mining experience having worked with BHP Australia Coal (Bowen Basin – Queensland), Camberwell Coal (Hunter Valley – NSW) and Yallourn Energy (Latrobe Valley – Victoria) in various mine engineering and senior leadership roles including Mine Manager and General Manager. Lindsay is a Graduate Member of the Australian Institute of Company Directors and is an experienced Director of both listed and unlisted companies. Former ASX listed directorships in the last 3 years: Director, Metro Mining Limited (October 2011–February 2019) Raymond is the founder and CEO of Tiga Investments Pte Ltd. He is also senior advisor to Farallon Capital Management, L.L.C., one of the largest alternative asset managers in the world, and a non-executive director of Toshiba Corporation, which is listed on the Tokyo Stock Exchange, and PT Lippo Karawaci Tbk, which is listed on the Indonesian Stock Exchange. Raymond has been involved in investments throughout Asia in various industries including financial services, infrastructure, manufacturing, energy and real estate. Previously Raymond was the Managing Director and CEO of Farallon Capital Asia, and prior to that worked in the investment banking division of Goldman, Sachs & Co. in Singapore, New York and Los Angeles. Former ASX listed directorships in the last 3 years: Nil Tony has over 30 years’ experience in the development, management and financing of mining companies, and was co-founder and Managing Director of Excel Coal Limited from 1993 to 2006. Prior to this, Tony worked for BP Coal and BP Finance in Sydney and London, and for Agipcoal as the Managing Director of its Australian subsidiary. Tony was appointed to the Board of Whitehaven on 3 May 2007 and was appointed Managing Director on 17 October 2008 until 27 March 2013. Former ASX listed directorships in the last 3 years: Nil 20 Directors’ Report For the year ended 30 June 2019 2 (b) Senior Executives Paul Flynn – Managing Director and Chief Executive Officer Refer to details set out in section 2(a) Directors on page 19. Timothy Burt – General Counsel & Company Secretary B.Ec, LLB (Hons) LLM Timothy joined Whitehaven as General Counsel and Company Secretary in July 2009. He has more than 20 years’ ASX listed company legal, secretarial and governance experience across a range of industries. Prior to joining Whitehaven, Timothy held senior roles at ASX listed companies Boral Limited, UGL Limited and Australian National Industries Limited. He holds a Master of Laws from the University of Sydney. Kevin Ball – Chief Financial Officer and Executive General Manager – Human Resources BComm, CA Appointed as Chief Financial Officer of Whitehaven Coal in October 2013, Kevin Ball has over 25 years’ experience working in the mineral and energy industry across coal, oil and gas and in complex consulting practices. A finance graduate of the University of New South Wales, Kevin is a Chartered Accountant having spent 11 years with Ernst & Young at the commencement of his career predominantly in EY’s natural resources group and has a graduate Diploma in Geoscience (Mineral Economics) from Macquarie University. 21 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 2. Directors and Executives (cont.) 2 (b) Senior Executives (cont.) Scott Knights – Executive General Manager – Marketing and Logistics BEcons (Hons) Scott was appointed Executive General Manager – Marketing in August 2014. Prior to joining Whitehaven he was Vice President Sales, Marketing and Logistics for Peabody Energy Australia. Scott has over 25 years of experience in a wide range of commercial roles including marketing, sales, logistics, management and business strategy in the commodities sector, working for Peabody Energy, Rio Tinto, PwC and Renison Goldfields Consolidated. Brian Cole – Executive General Manager – Project Delivery BE (Civil-H1), M Eng Science, MBA, Fellow IE Aust, C P Eng., M AIMM Brian was appointed Executive General Manager – Project Delivery in June 2012. Brian has more than 35 years of experience in heavy engineering projects and operations at an executive level in the energy related sector and has been focused on the Maules Creek project and other brownfields capital projects within the Whitehaven portfolio. Most recently Brian managed the construction of the three stages of the third coal terminal in Newcastle for NCIG with a combined capital cost of circa $2.8 billion. Jamie Frankcombe – Chief Operating Officer BE (Mining), MBA (Technology) Jamie was appointed Executive General Manager – Operations in February 2013 and his title amended to Chief Operating Officer in June 2018. Jamie was previously Director Operations at Fortescue Metals Group Ltd. Prior to that he has had extensive senior experience in coal mine operations and development including as the Chief Operating Officer of PT Adaro Indonesia, Executive General Manager – Americas for Xstrata Coal and General Manager Operations for Xstrata Coal’s Hunter Valley open cut operations. Jamie holds a Bachelor of Engineering (Mining) from Wollongong University and a Master of Business Administration (Technology) from APESMA Deakin University. Additionally he holds First Class Certificate of Competency qualifications for both the NSW and Queensland coal industry. 22 Directors’ Report For the year ended 30 June 2019 Michael Van Maanen – Executive General Manager – Corporate and External Affairs BA (Hons) Michael has nearly 20 years of experience across corporate communications and public policy roles in both the government and private sectors. He was appointed Executive General Manager Corporate and External Affairs in May 2018. Prior to joining Whitehaven, Michael was a founding Partner of Newgate Communications and led the firm’s mining and resources practice group. Michael was previously a ministerial adviser in the Howard Government and worked in a range of national security policy roles for the Departments of the Prime Minister and Cabinet, Foreign Affairs and Trade and Defence. 23 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 2. Directors and Executives (cont.) 2 (c) Directors’ interests The relevant interest of each director in the shares and options issued by the Company, as notified by the directors to the Australian Securities Exchange in accordance with section 205G(1) of the Corporations Act 2001, at the date of this report is as follows: Mark Vaile John Conde Julie Beeby Paul Flynn1 Fiona Robertson Lindsay Ward Ray Zage Ordinary shares 1,509,317 708,620 55,000 1,454,327 21,560 - - 1 Mr Flynn held 2,608,430 options issued by the Company as at the date of this report. 2 (d) Directors’ meetings The number of Directors’ meetings (including meetings of Committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are: Directors’ Meetings Audit & Risk Management Committee Meetings Remuneration Committee Meetings Health, Safety, Environment & Community Committee Meetings B 12 12 12 12 4 12 5 11 A 6 6 - - 2 6 - - B 6 6 - - 2 6 - - A 3 3 - - - 2 1 - B 3 3 - - - 2 1 - A 3 - 4 - 1 3 1 - B 3 - 4 - 1 3 1 - Director Mark Vaile John Conde Julie Beeby Paul Flynn Tony Haggarty Fiona Robertson Lindsay Ward Ray Zage A 12 12 12 12 4 12 5 12 Governance & Nominations Committee Meetings A B 1 1 1 - - - - - 1 1 1 - - - - - A – Number of meetings held during the time the Director held office during the year B – Number of meetings attended 24 Directors’ Report For the year ended 30 June 2019 3. Other 3 (a) Dividends Paid during the year Dividends of $464,854,000 were paid to shareholders during the year ended 30 June 2019 (2018: distribution of $326,936,000 comprising a dividend of $188,052,000 and a capital return of $138,884,000). Declared after end of year On 15 August 2019 the Directors declared a dividend of 30 cents per share totalling $298 million to be paid on 19 September 2019 and be comprised of an ordinary dividend of 13 cents, franked to fifty percent and a special dividend of 17 cents, unfranked. 3 (b) Share options Shares issued on exercise of options During the reporting period no options have been exercised. Unissued shares under options At the date of this report there were 7,788,735 unissued ordinary shares of the Company under options. Refer to note 5.5 of the financial statements for further details of the options outstanding. 3 (c) Indemnification and insurance of officers Indemnification The Company has agreed to indemnify, to the fullest extent permitted by law, all current and former directors of the Company against liabilities that may arise from their position as directors of the Company and its controlled entities. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. Insurance premiums During the financial year the Company has paid premiums in respect of directors’ and officers’ liability and legal expenses insurance contracts. Such insurance contracts insure persons who are or have been directors or officers of the Company or its controlled entities against certain liabilities (subject to certain exclusions). The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses insurance contracts as such disclosure is prohibited under the terms of the contract. 3 (d) Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 3 (e) Rounding The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 and dated 24 March 2016 and, in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. 25 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Operating and financial review Financial headlines – Net profit after tax (“NPAT”) increased to $527.9m. – Underlying EBITDA increased to $1,041.7m. – Cash generated from operations increased to $964.1m. – Net debt of $161.6m at 30 June 2019 and gearing reduced to 4%. – The net profit after tax result was impacted by the following two significant items: – During the year ended 30 June 2019, the Group transitioned its rehabilitation provision calculations for most sites to the latest rehabilitation cost calculator available from resource regulators. This resulted in a pre-tax charge to the income statement of $40.5 million. See note 2.2 of this financial report for further detail. – Accelerated depreciation adjustment to write down the carrying value of existing longwall roof support legs, which will be replaced in H1 FY2020 as part of the next longwall change out. See note 2.2 of this financial report for further detail. The following table summarises the key reconciling items between the Group’s Underlying EBITDA and its statutory profit before tax. Whitehaven Coal Limited – Consolidated Revenue Net profit after tax before significant items Significant items after tax (refer to note 2.2 Significant items) Net profit after tax Underlying EBITDA Rehabilitation expense (refer to note 2.2 Significant items) Corporate development costs Statutory EBITDA Net interest expense (refer to note 5.2 Finance income and expense) Other financial expenses Depreciation and amortisation2 Profit before tax FY2019 $ million 2,487.9 FY20181 $ million 2,257.4 564.9 (37.0) 527.9 1,041.7 (40.5) - 524.5 - 524.5 1,011.9 - (9.7) 1,001.2 1,002.2 (32.9) (8.0) (224.4) 735.9 (33.1) (7.1) (203.1) 758.9 1 The comparative period for FY2018 has been restated to give effect to the change in accounting policies. See note 1.5 of this financial report for details on this change. 2 Includes $12.3 million of accelerated depreciation recognised in connection with the replacement of the existing hydraulic cylinders with higher capacity hydraulic cylinders at the Narrabri mine. This has been disclosed as a significant item in Note 2.2 of this financial report. Review of financial performance Whitehaven delivered a record NPAT before significant items of $564.9m representing an increase of $40.4m compared to $524.5m in FY2018. The strong FY2019 NPAT result was underpinned by Underlying EBITDA of $1,041.7 million, an increase of $29.8 million compared to $1,011.9 million in FY2018. The improvement in the Underlying EBITDA result was driven by an increase in the EBITDA margin on sales of produced coal to $66/t in FY2019, up on the $63/t margin (restated) achieved in FY2018. This improvement reflects the benefits of higher realised coal prices experienced during the year, particularly in respect of high calorific value thermal coal which represented 80% of total thermal coal sales volume in FY2019 partially offset by an increase in costs. 26 The key factors that contributed to the FY2019 NPAT before significant items result for the year include: – Strong safety performance. – Gross revenue increased to $2,487.9m in FY2019 from $2,257.4m in FY2018. The increase was driven by the increase in A$ realised prices to an average of A$145/t in FY2019 from A$130/t in FY2018. This was partially offset by a small decrease in total sales volumes (including purchased coal) from 17.3Mt in FY2018 to 17.2Mt in FY2019. Directors’ Report For the year ended 30 June 2019 – The key drivers of A$ realised prices during the Structural factors period were: – The Newcastle GlobalCoal Index price averaged US$99/t for high quality thermal coal in FY2019 which was $1/t below the average recorded in FY2018, however Whitehaven made the decision to increase its production of high quality thermal coal which saw Whitehaven achieve an average realised price on thermal sales of US$100/t in FY2019, $2/t above the average realised price achieved in FY2018. – The high quality of thermal coal from the Maules Creek mine achieved both quality and energy premiums relative to the Newcastle GlobalCoal Index price during the period. Sales of Maules Creek coal achieved an average premium of 9% above the GlobalCoal index price for the year. – An increase in the proportion of metallurgical coal sales from 17% in FY2018 to 19% in FY2019 was underpinned by increased production of metallurgical coal at Maules Creek. – The Group realised a US$4/t premium on sales of metallurgical coal during FY2019 relative to the average index price. The index averaged US$115/t in FY2019 or US$5/t below the average price in FY2018. – A weaker AUD – the average AUD:USD exchange rate decreased to 0.72 in FY2019 from an average of 0.78 in FY2018. – The impact of the depth of cover at Narrabri was fully felt in the Group results for FY2019. Deeper working impacted both development and longwall production rates while also requiring higher primary and secondary support intensity. Production at Narrabri was strong at the end of FY2019 and there are encouraging signs that the strategies and actions undertaken over the last 12–24 months have positively impacted performance. – Higher strip ratio at Tarrawonga in line with the natural progression of this mine. – FOB costs per tonne at the Maules Creek mine have increased as the pit continues to be expanded to facilitate optimised mining conditions for the long term. FOB costs per tonne are expected to fall in the medium term as haul distances and elevations benefit from increased in-pit dumping as the mine matures and the introduction of autonomous haulage systems. – Increased demurrage and under-utilised logistics costs arose due to contracted capacity volumes being above production volumes at various stages throughout FY2019. This was also impacted by the phasing of production over the course of the year, particularly at the Maules Creek and Narrabri mines. This impact is expected to moderate as production levels return to more consistent levels over the near to medium term. – FOB costs of A$67/t in FY2019 have increased Market factors from A$58/t in FY2018 (restated for AASB 16 Leases impact) and were impacted by strategic, structural and market factors. These include: Strategic factors – An increased focus on high quality thermal product due to the price spreads between high quality thermal coal and lower quality thermal coal. This has resulted in increased washing and lower yields relative to the prior year at Maules Creek. – An increase of approximately 16% in average crude oil prices in A$ terms fed into the cost of diesel used in production and transportation. – The strength in coal prices combined with a number of large infrastructure projects has increased the competition for skilled labour resources. This has had some impact on the ability to fill roles in a timely manner which has had some impact on operating productivity during FY2019. Whitehaven’s portfolio is expected to strengthen further in the coming years with development of the Vickery and Winchester South projects. 27 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Operating and financial review (cont.) Cash flows & capital management Cash Flow summary Net cash from operating activities Investing cash flows Net free cash flow Financing cash flows Cash at the beginning of the period Cash at the end of the period Capital management Net debt2 Undrawn syndicated facility Gearing ratio2,3 (%) FY2019 $ million FY20181 $ million 916.4 (193.8) 722.6 (714.9) 111.8 119.5 892.1 (384.9) 507.2 (482.5) 87.1 111.8 30 June 2019 30 June 20181 161.6 840.0 4% 270.4 725.0 7% 1 The comparative period for FY2018 has been restated to give effect to the change in accounting policies. See note 1.5 of this financial report for details on this change. 2 Calculated in accordance with the senior facility covenant requirements and therefore excludes lease liabilities recognised for the first time upon adoption of AASB 16 Leases of $134,111,000 (2018: $205,874,000) 3 Net Debt/(Net Debt plus Equity) Whitehaven holds a strong capital base to maintain investor, creditor and debt market confidence and ensure the business is well positioned to support attractive future growth opportunities. Cash flow and capital management commentary Operating cash flows of $916.4m in FY2019 increased by 3% compared to FY2018. The increase in operating cash flows is largely due to the growth in Underlying EBITDA to $1,041.7 million in FY2019 and reflects the higher realised coal prices achieved during FY2019 relative to FY2018. The increase in realised thermal and metallurgical coal prices in FY2019 is due to increased price premia relative to the prevailing Newcastle GlobalCoal Index price for thermal coal and the index price for semi soft coking coal. This is principally due to the decision to increase the production of high quality thermal coal to take advantage of the increasing demand for high energy, low ash thermal coal and the growing market awareness of the benefits of the Maules Creek metallurgical coals. Interest payments were lower as loans and borrowings were reduced to $415.3m at 30 June 2019 from $588.1m at 30 June 2018. Investing cash outflows of $193.8m in the year ended 30 June 2019 were $191.1 million lower than the $384.9 million outflow in FY2018. This was primarily due to the payment of purchase consideration in FY2018 for the Winchester South Project and Idemitsu’s 30% interest in Tarrawonga. The FY2019 investing cash outflows include deferred consideration amounts paid for the above acquisitions, spend on the Winchester South Project in Queensland and expenditure to progress the Environmental Impact Statement required for Government approval of an expanded Vickery mine (10Mtpa). Growth capital was also allocated to the Tarrawonga expansion project to increase ROM coal production to 3.0Mtpa. Throughout the cycle Whitehaven has continued to allocate sustaining capital to each of its mines to maintain safe and productive operations. Net debt at 30 June 2019 was $161.6m, a decrease of $108.8m from 30 June 2018. Gearing also decreased to 4% at 30 June 2019 from a level of 7% as at 30 June 2018. The decrease in net debt was driven by the strong operating cash flow performance during the year. This has facilitated repayments of the senior facility, leases and the ECA facility totalling $630.0m. This was offset by a drawdown of $410.0m during the period. Undrawn capacity of $840.0m under the senior bank facility existed at 30 June 2019. 28 Directors’ Report For the year ended 30 June 2019 The strength and resilience of Whitehaven’s cash flow generation has driven strong returns to shareholders in FY2019. A final dividend of 27 cents per share was paid in respect of FY2018 and resulted in a total cash distribution to shareholders of $268 million in September 2018. An interim dividend in respect of FY2019 of 20 cents per share, $198 million in total, was paid in March 2019. As a result of the strength of Whitehaven’s balance sheet, its scale of operations, and its improved earnings and cash flow generation, Whitehaven is well placed to both expand operations from its existing portfolio of opportunities and to take advantage of external growth opportunities that may arise. Consolidated equity production, sales and coal stocks Whitehaven Total (000t) ROM Coal Production Saleable Coal Production Sales of Produced Coal Sales of Purchased Coal Total Coal Sales Coal Stocks at Year End FY2019 FY2018 Movement 18,358 15,817 16,017 1 1,615 17,631 2,754 17,727 16,160 16,109 1 1,256 17,365 2,621 4% (2%) (1%) 29% 2% 5% 1 Includes Sunnyside sales of produced coal of 416 kt (2018: 100 kt) Significant highlights for FY2019 include: – Record ROM coal production of 18.4Mt, up 4% on pcp. – A strong finish to the year at both Narrabri and Maules Creek enabled ROM coal production guidance to be exceeded. – Coal sales of 16.0Mt of produced coal and 17.6Mt including purchased coal for the year. – Increased premiums relative to the prevailing index price for both thermal and metallurgical coal. – High coal inventories at both Maules Creek and Narrabri will support sales during the September quarter of FY2020. 29 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Operating and financial review (cont.) Review of operations – safety Providing a safe working environment for employees is critical at Whitehaven Coal and is key to the Group’s improving financial performance. Whitehaven Coal provides training, equipment, resources and systems to create the safest possible work environment at each site. Building a culture of safety awareness is the foundation for continuous improvement to exceed targets and to exceed industry averages. As part of the Company’s Health and Safety Policy, Whitehaven Coal aims to: – Achieve zero workplace injuries and illnesses – Achieve zero plant and equipment damage – Achieve zero environmental incidents 2019 performance The safety outcome for the Group improved over FY2019 with the TRIFR declining from 6.9 in FY2018 to 6.2 in FY2019. The Group TRIFR remains well below the NSW coal mining average of 14.7. Maules Creek Ownership: Whitehaven 75% and Operator; ICRA MC Pty Ltd (an entity associated with Itochu Corporation) 15%; J-Power Australia Pty Ltd 10%. Maules Creek 100% (000t) ROM Coal Production Saleable Coal Production Sales of Produced Coal Coal Stocks at Year End FY2019 FY2018 Movement 11,720 9,200 9,309 1,160 10,953 9,664 9,641 646 7% (5%) (3%) 80% Maules Creek ROM coal production increased from 11.0Mt in FY2018 to 11.7Mt in FY2019. The reduction in saleable coal production in FY2019 relative to the results of FY2018 reflects the phasing of ROM coal production towards the back end of FY2019 as well as the yield loss associated with producing a higher quality thermal coal than was produced in FY2018. The phasing of ROM coal production in FY2019 resulted in significant ROM coal inventories being held at 30 June 2019. This coal will be processed during the first quarter of FY2020 and support coal sales during this period. Management remains focussed on continuing to expand the open cut pit at Maules Creek to facilitate optimised mining conditions for the long term. This phase of the mine’s life is characterised by out of pit dumping and a resulting increase in haul distances and haul elevation. These activities will underpin the continued expansion in ROM production towards the approved level of 13Mt per annum and importantly facilitate the consistent delivery of this production over the course of each year. The marketing strategy was refined in FY2019 to focus upon three key products – a very low ash semi soft coking coal (SSCC), a low ash SSCC and a low ash, high energy thermal coal. The thermal coal product is expected to continue commanding significant price premiums relative to the Newcastle GlobalCoal Index price due to the combination of low ash (~10%) and high calorific value delivered to customers. This strategy has contributed to improve margins despite the increased costs associated with increased washing and lower product yields. This strategy has also streamlined certain activities at the mine by reducing the number of working stockpiles and simplified operations. SSCC sales for the year of 2.3Mt represented 25% of total sales from the mine. With the premiums available on thermal coal combined with prevailing spot prices for SSCC, there was little incentive to produce and sell SSCC on the spot market. In the longer term we expect to increase sales of SSCC from the mine to about 50% of total production. 30 Directors’ Report For the year ended 30 June 2019 Narrabri Ownership: Whitehaven 70% and Operator; J-Power 7.5%; EDF Trading 7.5%; Upper Horn Investments Limited 7.5%; Daewoo International Corporation and Korea Resources Corporation 7.5% Narrabri Mine 100% (000t) ROM Coal Production Saleable Coal Production Sales of Produced Coal Coal Stocks at Year End FY2019 FY2018 Movement 6,447 5,630 5,705 1,018 6,289 5,840 5,760 639 3% (4%) (1%) 59% Narrabri ROM production increased marginally from 6.3Mt in FY2018 to 6.4Mt in FY2019. A strong June quarter ensured that revised full year ROM production guidance was exceeded. The June quarter ROM production result was encouraging given the longwall negotiated an extensive fault zone during this period. To reduce the impact of weighting events, Whitehaven has employed a number of strategies which are having a positive impact. The more intensive primary and secondary support regime is a key component of this and has become the standard for new development in the working area of the mine that exceeds 250 metres depth of cover. The production rates achieved during the June quarter provide encouragement that the strategies adopted to mitigate the impacts of increased depth are having a positive impact. Whitehaven has ordered a new set of larger capacity hydraulic cylinders to further increase the strength of longwall face support. The new cylinders are approximately 30% stronger than the current hydraulic cylinders. The new cylinders will be installed into the longwall roof supports at the longwall change-out which is due to occur in the December quarter of 2019. Open cut mines (excluding the Maules Creek mine) Ownership: Werris Creek Whitehaven 100%; Rocglen Whitehaven 100%; Tarrawonga Whitehaven 100%; Sunnyside Whitehaven 100% Open Cuts 100% (000t) ROM Coal Production Saleable Coal Production Sales of Produced Coal Coal Stocks at Year End FY2019 FY2018 Movement 5,055 4,977 4,979 1,172 5,683 5,377 5,321 1,689 (11%) (7%) (6%) (31%) ROM and saleable coal production from the open cuts in FY2019 was 5.1Mt and 5.0Mt respectively. While production in FY2019 was lower when compared to FY2018 (ROM of 5.7Mt and saleable 5.4Mt) it was in line with planned production for the year. Inventories at Rocglen and Tarrawonga were drawn down to take advantage of the higher coal price environment. During FY2019 the Board approved an expansion at Tarrawonga which will increase ROM coal production in FY2020 to its fully approved level of 3.0Mtpa. The expansion requires the purchase of a larger scale, more efficient mining fleet that is to be funded via asset financing facilities. The fleet will arrive and be mobilised during the first half of FY2020. Increasing the annual ROM production rate enhances the cash flows from the mine over the near to medium term. The Gunnedah open cuts have provided a stable platform over the last five years which has assisted Whitehaven to develop both the Narrabri mine and the Maules Creek mine. Sunnyside is in its rehabilitation phase and the remaining Rocglen reserves were fully mined out during FY2019. Rocglen entered the rehabilitation phase in the final weeks of FY2019. The Sunnyside and Rocglen rehabilitation programmes are important as they will provide stakeholders with an example of contemporary mine site rehabilitation. 31 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Operating and financial review (cont.) Development projects Vickery Winchester South Ownership: Whitehaven 100% Ownership: Whitehaven 100% In August 2018 Whitehaven lodged the Vickery Extension Project Environmental Impact Statement (EIS) with the Department of Department of Planning, Industry and Environment (DPIE). The DPIE reviewed the EIS and it was placed on public display in September 2018 and available for public inspection and comment for six weeks until late October 2018. Whitehaven completed its acquisition of the Winchester South project in the June 2018 quarter and it has quickly moved the project along the development path. A project director with extensive coal mining experience and a technical team have been appointed to take the project through the Queensland and Federal Government approval processes. In September 2018, the NSW Minister for Planning referred the Project to the NSW Independent Planning Commission (IPC) which subsequently formed a panel of three commissioners. The DPIE prepared an Issues Paper for consideration by the IPC panel and the IPC held a public hearing during February 2019 in Boggabri and in Gunnedah. The IPC, as well as holding the two February 2019 town hall style meetings, accepted written submissions. More than 75% of written submissions supported Whitehaven’s Vickery Extension Project. Following receipt of the DPIE paper, the written responses and the two town hall style meetings, the IPC released its Issues Report in April 2019. Whitehaven is progressively working through the IPC’s issues report and expects to complete its work shortly. Once Whitehaven has responded satisfactorily, the DPIE will prepare a whole-of-government report on the Project for the IPC’s final review and to inform its determination. The New South Wales Government has a stated objective to complete assessments in less than 500 days. Whitehaven currently expects to receive the IPC’s determination early in calendar year 2020 and that the project will be approved given strong local community support for the Project and the fact that it offers significant additional economic and community benefits compared to the already approved Vickery Coal Project. In June, Whitehaven commenced site works in relation to the approved 4.5mtpa Vickery Coal Project. This site work is now complete. A drilling programme has commenced to determine the line of oxidation in relation to the first coal seam to be exposed. This drilling will be used to refine the position of the box cut for the Vickery open cut mine. Earlier this calendar year, ground work necessary to prepare the environmental impact statement commenced (including ecological and baseline data collection studies). Following receipt and assessment of the technical data on the project, Whitehaven released its JORC Resources for Winchester South to the ASX on 25 October 2018 (available at www.whitehavencoal.com.au). The JORC Resources for the project were 530Mt. The Resources calculation from 25 October has also seen a large increase in the combined total of Measured and Indicated Categories from 277Mt to 430Mt. As part of the evaluation process, and for use in project planning, Whitehaven completed a comprehensive drill programme in the June 2019 quarter. The programme was designed to confirm coal quality data specifically in relation to metallurgical coal qualities. The data from the drilling will assist Whitehaven to design the CHPP and other associated infrastructure while also further defining the JORC Resources and ultimately the Reserves of the project. Drill core from the drilling programme is being tested with the results due in H1 FY2020. Early in CY2019 an Initial Advice Statement was lodged with the Queensland Coordinator-General seeking a Coordinated Project declaration under the State Development and Public Works Organisation Act 1971. A significant milestone was achieved for the project during the June quarter with the declaration of the project as a Coordinated Project by the Queensland Coordinator-General. The declaration paves the way for a whole-of-government assessment of the project by way of an environmental impact statement. For full details see the ASX Release dated 18 April 2019. Another round of drilling will commence in early FY2020 with the aim of enhancing the geological confidence of the project ahead of detailed mine planning and project optimisation. Detailed mine planning for the project continues ahead of Whitehaven determining a JORC Reserve which is scheduled for later in the CY2019. 32 Directors’ Report For the year ended 30 June 2019 Infrastructure In order to deliver our products to market, Whitehaven contracts rail track capacity, rail haulage and port capacity with each of the providers of these services. As production has grown and with imminent growth from Vickery, Whitehaven’s future requirement for infrastructure will make Whitehaven one of the largest infrastructure users in the New South Wales rail and port systems. Rail Track Whitehaven contracts rail capacity with the Australian Rail Track Corporation (ARTC). The capacity framework that governs this contract is into its second term. We continue to work with ARTC to expand effective capacity within the Gunnedah Basin without requiring additional rail infrastructure through improved operating efficiencies and investment in new information technology systems. The objective of this work is to improve supply chain productivity and increase train path availability. Preliminary negotiations have begun on obtaining access to the Goonyella rail network for the Winchester South project. The rail network is owned by Aurizon. Rail Haulage We have rail haulage contracts with each of the major rail haulage providers, Pacific National and Aurizon. These contracts have an expiry date in 2026. They provide for the haulage of all currently projected expansion tonnes before Vickery. We are able to align planned increases in production with contract rail haulage capacity by giving notice to the rail providers of the need for additional capacity. This supports the planned increases in our managed production levels, whilst minimising fixed cost exposure. Port Capacity We maintain contracts at the Port of Newcastle with both terminal operators, Newcastle Coal Infrastructure Group and Port Waratah Coal Services that support all planned shipments. To provide for the forecast production ramp up over the next five years we will secure surplus capacity available at the port. This is sufficient to allow for both short-term surge and long-term annual shipping requirements. Early talks have commenced with a number of coal producers who may have excess port capacity with the aim of securing port capacity for the Winchester South Project. Events subsequent to reporting date In the interval between the end of the financial year and the date of this report there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years, other than the following: Subsequent to the end of the financial period, the Directors have proposed a 30 cent per share dividend to be paid on 19 September 2019 and be comprised of an ordinary dividend of 13 cents, franked to fifty percent and a special dividend of 17 cents, unfranked. Outlook and likely developments Thermal coal markets and prices have softened due to a number of factors – low seaborne LNG prices, Chinese import restrictions and the negative impact upon global GDP from trade tensions between the United States and China. The decline in gas prices in Europe from US$9/GJ in September 2018 to US$3/GJ in June 2019 has led to power generators switching from coal to gas in those markets where this is possible, causing demand for coal to fall in the region. While power demand in China continues to grow, increased rainfall has led to more power generated by hydro-electricity combined with increased installed wind and solar capacity and increased coal fired power generation in central and western parts of China. With growing domestic coal production and reduced demand from the coastal regions, coal imports declined. Whitehaven’s target markets for thermal coal of Japan, Taiwan, Korea and the broader South-East Asian region continue to exhibit increasing demand for high energy, low ash thermal coal. While Whitehaven does not export thermal coal into the Chinese market, Chinese import customs clearance delays and the negative sentiment arising from trade tensions between the United States and China has contributed to weaker thermal coal index prices during 2019. Central banking authorities are acting to stimulate economic activity. With the benefit of both good weather and good prices, seaborne coal supply from Indonesia, Russia and Australia has increased year on year. With the softening of prices in the first half of 2019 the market is expected to rebalance as high cost producers moderate production. Exports from swing producers in the United States and Colombia have declined given the price environment. CRU estimates that exports from those two countries will fall by 21Mt and 5Mt respectively in 2019. Over the course of the period since mid-2016, there has been little new large scale production added to global thermal coal supply. With seaborne LNG trading below breakeven levels for new supply, some rebalancing can be expected to occur in this market as well. The short term outlook for metallurgical coal has weakened in the face of lower margins in steelmaking. However, the longer term outlook remains healthy with steel production holding up well in several countries (India, China and Japan) which are dependent upon the seaborne market to meet coking coal needs. 33 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Operating and financial review (cont.) Risks relating to Whitehaven’s future prospects Whitehaven operates in the coal sector. There are many factors, both specific to Whitehaven and to the coal industry in general, which may, either individually or in combination, affect the future operating and financial performance of the Group, its prospects and/or the value of Whitehaven. Many of the circumstances giving rise to these risks are beyond the control of the Whitehaven Directors and its management. The major risks believed to be associated with investment in Whitehaven are as follows: Volatility in coal prices The Company’s future financial performance will be impacted by future coal prices. Factors which affect coal prices include the outcome of future sales contract negotiations, general economic activity, industrial production levels, changes in foreign exchange rates, changes in coal demand, changes in the supply of seaborne coal, changes in international freight rates and the cost of substitutes for coal. The Company does not currently hedge against coal price volatility. Foreign currency risk As the Company’s sales are predominately denominated in US dollars, adverse fluctuations in the US$/A$ exchange rate may negatively impact the Group’s financial position. The Company uses forward exchange contracts to hedge some of this currency risk in accordance with a hedging policy approved by the Board of Directors. Acquisitions and commercial transactions Acquisitions and commercial transactions undertaken with the objective of growing the Company’s portfolio of assets are subject to a number of risks which may impact the ability to deliver anticipated value. Risks associated with acquisitions include: – operational performance of acquired assets not meeting expectations; Capital requirement risk Although Whitehaven is currently in a strong liquidity position, there is a risk that insufficient liquidity or the inability to access funding on acceptable terms may impact growth opportunities (such as the development of new projects and/or mergers and acquisitions) and ongoing operations. Whitehaven manages liquidity risk by holding a prudent level of available cash and maintaining adequate committed credit facilities which have been provided by a diverse panel of Australian and international banks. Whitehaven had $959.5 million in liquidity (cash and undrawn facilities) available as at 30 June 2019. Development risks There is a risk that circumstances (including unforeseen circumstances) may cause delays to project development, exploration milestones or other operating factors, resulting in the receipt of revenue at a date later than expected. Additionally, the construction of new projects/ expansion by the Company may exceed the currently envisaged timeframe or cost for a variety of reasons outside of the control of the Company. Operating risks The Company’s coal mining operations are subject to operating risks that could impact the amount of coal produced at its coal mines, delay coal deliveries or increase the cost of mining for varying lengths of time. Such difficulties include weather and natural disasters, unexpected maintenance or technical problems, failure of key equipment, higher than expected rehabilitation costs, industrial action and higher than expected labour costs. Geological uncertainty is also an inherent operational risk which could result in pit wall failures or rock falls, mine collapse, cave-ins or other failures to mine infrastructure. The Company has in place a framework for the management of operational risks and a comprehensive group insurance program which provides insurance coverage for a number of these operating risks. – anticipated synergies or cost savings being delayed or Water security not being achieved; – adverse market reaction to proposed transactions; and – the imposition of unfavourable or unforeseen conditions, obligations or liabilities. Whitehaven’s commercial processes are designed to reduce the likelihood of these risks materialising as a result of a commercial transaction. Water is critical to Whitehaven’s mining operations as it is used for various purposes including dust suppression and coal washing. Whitehaven’s ability to access water may be impacted by a number of factors, including drought, changes in government policy and regulation and scarcity of supply. The inability to access sufficient water may negatively impact on Whitehaven’s costs, future production and financial performance. Whitehaven regularly monitors the water balance at each of its sites and investigates opportunities to minimise water usage and secure alternate, reliable water sources to build resilience against water availability risks. 34 Directors’ Report For the year ended 30 June 2019 Infrastructure risks Environment and safety risks and licence to operate Coal produced from Whitehaven’s mining operations is transported to customers by a combination of rail and ship. A number of factors could disrupt these transport services, including a failure of infrastructure providers to increase capacity in order to meet future export requirements. Rail and port capacity is obtained predominantly through long-term contract arrangements which include take-or-pay provisions which require payments to be made irrespective of whether the service is used. In the event utilised capacity is below contracted capacity, there is a risk Whitehaven will be required to pay take-or-pay charges for capacity which is not used. Whitehaven seeks to align these take-or-pay infrastructure obligations with the Company’s forecasted future production. Geology risks There are inherent risks associated with estimating coal Resources and Reserves, including subjective judgements and determinations as to coal quality, geological conditions, tonnage and strip ratio. The Company’s Resource and Reserve estimates are determined by suitably qualified competent persons in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Cyber risk Whitehaven’s operations are supported by a robust information technology security framework and back-up data infrastructure. However, computer viruses, unauthorised access, cyber-attack and other similar disruptions may threaten the security of information and impact operational systems. The Company manages this risk by continuing to invest in systems to prevent such attacks and undertaking staff training programmes. Counterparty risk The Company deals with a number of counterparties, including joint venture partners, suppliers and customers. Counterparty risks include: – Non-supply or changes to the quality of key inputs which may impact costs and production at operations; – Failure to reach agreement with joint venture partners which could impact the Company’s ability to optimise value from its projects; and – Failure of customers to perform against long-term take-or-pay agreements. Counterparty risk is assessed prior to entry into any new arrangements and, if necessary, appropriate risk control mechanisms are put in place. Whitehaven proactively engages with its counterparties to manage instances of non-supply and quality control and to ensure alignment of expectations. A range of health, safety and environmental risks exist with coal mining activities. Accidents, environmental incidents and real or perceived threats to the environment or the amenity of local communities could result in a loss of the Company’s social licence to operate leading to delays, disruption or the shut-down of operations. Potential environment and safety risks include equipment failure, human errors in underground operations, vehicle and mining equipment interactions in open cut operations, roof fall hazards in underground operations and spontaneous combustion risks. The Company engages with a number of different stakeholders in the communities within which it operates. Stakeholder related risks include: – the requirement to comply with the Native Title Act 1993 (Cth) which can delay the grant of mining tenements and impact the timing of exploration, development and production operations; – the ability to reach agreement with local landholders in relation to acquisition and/or access terms which may delay the timing of project development; and – notwithstanding the contributions made to the communities within which the Company operates, local communities may become dissatisfied with the impact of operations or oppose new development projects. There is also the possibility of anti-coal activism targeted towards the Company’s projects. Whitehaven has a comprehensive environmental, health and safety management system to mitigate the risk of incidents and to ensure compliance with environmental and safety laws. The Company also has a dedicated community relations team that engage with local communities to ensure that community issues are understood and addressed appropriately. Further details in relation to how the Company engages effectively with the communities in which we operate and steps which the Company takes to maintain its social licence to operate will be provided in the Company’s 2019 Sustainability Report to be released later in the year. Environmental regulation The coal sector is subject to a broad range of environmental laws, regulations and standards including in relation to greenhouse gas emissions. Evolving regulation and standards could result in increased costs, regulatory action, litigation or, in extreme cases, threaten the viability of an operation. Whitehaven actively monitors legislative and regulatory developments and engages appropriately with legislative and regulatory bodies to manage this risk. 35 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Operating and financial review (cont.) Risks relating to Whitehaven’s future prospects (cont.) Climate change risk The physical and non-physical impacts of climate change may affect the Company’s assets, production and the coal markets where its high quality coal products are sold. These impacts may include severity and frequency of weather patterns, policy and regulatory change and coal demand responses. Further details in relation to climate change risks will be provided in the Company’s 2019 Sustainability Report to be released later this year. The IEA has forecast under its New Policies Scenario (its central scenario, which assumes that all of the Nationally Determined Commitments (NDCs) as provided by countries after the 2015 Paris COP21 meeting are met in full) that global coal demand will continue to grow until at least 2040 – with particularly strong demand in the broad Asian region, Whitehaven’s key export market. The IEA regularly makes projections about world coal demand based on various future scenarios for energy development. The New Policies Scenario is the IEA’s central scenario in its most recent World Energy Outlook (2018). Alternate scenarios include the Current Policies Scenario (highest projected coal usage) and the 450 Scenario (lowest projected coal usage). Further details are available at: https://webstore.iea.org/world-energy-outlook. 5. Auditor independence and non-audit services 5 (a) Auditor’s independence declaration The auditor’s independence declaration forms part of the Directors’ report for financial year ended 30 June 2019. It is set out on page 61. 5 (b) Non-audit services During the year Ernst & Young, the Company’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and, in accordance with written advice provided by resolution of the Audit and Risk Management Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit & Risk Management Committee to ensure they do not impact the integrity and objectivity of the auditor; and – the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid or payable to the auditor of the Company, Ernst & Young, and their related practices for non-audit services provided during the year are set out below. In AUD Non-audit services Ernst & Young Taxation compliance services Due diligence services Other non-audit services 36 Consolidated 2019 Consolidated 2018 $ $ 125,000 - 69,790 194,790 63,978 836,881 71,226 972,085 Directors’ Report For the year ended 30 June 2019 Remuneration Report (Audited) Remuneration outcomes for FY2019 The cost and production pressures experienced during the year have led to reduced STI and LTI outcomes for Executive KMP. STI awards for performance during the year were assessed at between 58% and 64% of the possible award. The LTI Cost Hurdle Award that was tested in the year failed to achieve the gateway target and lapsed. The LTI Relative Total Shareholder Return (TSR) award vested in full as a consequence of the substantial shareholder returns that have been delivered over the three and four year performance test periods. Further details of the LTI awards that were tested in 2019 are set out later in this report at Section 4.2. Changes to remuneration framework for FY2020 The Board continues to consider Executive KMP remuneration in the context of our strategy, relevant benchmarks and retaining and appropriately rewarding our leadership team. Changes in fixed remuneration for Executive KMP in FY2020 will be capped at 2% with one exception (detailed later). Details of the upcoming FY2020 LTI grant and hurdles for the CEO will be included in the Notice for our upcoming AGM (at which shareholders will be asked to approve the grant). Non-executive Directors fees There was no increase to Non-executive Directors fees in the year, nor is any proposed for FY2020. There is no proposal to change the maximum aggregate Directors’ fee pool. We thank all our people (the Executive KMP and their teams) for their continued commitment and contribution to Whitehaven. Summary We present the Remuneration Report for the financial year ended 30 June 2019 (FY2019) for which we seek your support at our Annual General Meeting (AGM) in October. More than 95% of votes cast at last year’s AGM were in favour of the resolution to approve our 2018 Remuneration Report. Our objective is to provide a Remuneration Report containing the key elements that are important to our shareholders and to present that information in a way that is clear and readily understood, including details of realised remuneration outcomes for our Key Management Personnel (KMP) and performance against the Short Term Incentive (STI) Key Performance Indicators (KPIs) and Long Term Incentive (LTI) performance conditions. Our executive remuneration framework is aligned to shareholder interests and operates to incentivise and reward senior executives to execute our strategy to build a portfolio of assets that is cost competitive and to develop and operate that portfolio of assets in a safe and sustainable way. Whitehaven’s performance in FY2019 Managing Director and Chief Executive Officer, Paul Flynn (CEO), is supported by a strong executive leadership group and the Board believes that the Company is well positioned, with its high quality asset development pipeline and strength of existing operations, to continue to grow, to improve its performance and to continue to deliver value to shareholders. Whitehaven has performed strongly during the year. It has delivered record Underlying EBITDA, and record NPAT. Over the three and four year LTI testing period Whitehaven has delivered total shareholder returns (TSR) of 308% and 233% respectively and was ranked 1st and 5th respectively against its LTI peer comparator groups. During the year, Whitehaven has returned cash dividends of $465m to shareholders and the Board has resolved to pay a final dividend of 30 cents per share ($298m) to shareholders from the FY2019 result. During the year, Whitehaven increased the quality of its saleable products to take advantage of increased demand for higher quality coal, increasing its revenues and margins which led to a record net profit after tax before significant items and supported dividend payments to shareholders. The decision to increase product quality, combined with the following factors, contributed to an increase in unit costs for FY2019: – The strong coal price environment increased competition for scarce, skilled resources which adversely impacted employee turnover levels and operating productivity; and – Difficult mining conditions persisted at both our Werris Creek open cut mine and at our Narrabri underground mine. 37 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report Table of Remuneration Report contents 1. Introduction 4. Remuneration outcomes for FY2019 1.1 Key management personnel for FY2019 4.1 STI outcomes for Executive KMP in FY2019 1.2 Summary of Company performance 4.2 LTI outcomes for Executive KMP in FY2019 1.3 How do Remuneration Outcomes align to FY2019 performance? 1.4 Executive KMP realised remuneration outcomes 2. Remuneration Governance 3. Remuneration framework 5. Executive KMP employment contracts 6. Non-executive Director remuneration 6.1 Setting Non-executive Director fees 6.2 Current Non-executive Director fee remuneration 3.1 Summary of Executive KMP remuneration 6.3 FY2019 Non-executive Director remuneration components in FY2019 3.2 Fixed Remuneration 3.3 STI Awards and Structure for FY2019 3.4 LTI Awards and Structure for FY2019 3.5 Policies and conditions of rights awarded under equity plans 7. Executive KMP statutory tables and additional disclosures 7.1 Executive KMP statutory remuneration table 7.2 Movements in options and rights held by Executive KMP 7.3 Movements in ordinary shares held by Executive KMP 7.4 Related party transactions and additional disclosures 38 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 1. Introduction This Remuneration Report forms part of the Directors Report. In accordance with Section 308 (3C) of the Corporations Act 2001 (Cth) (Corporations Act), the external auditors, Ernst & Young, have audited this Remuneration Report. This report details the remuneration and fees during FY2019 of the Key Management Personnel of the Company, who are listed in the table below. For the remainder of this Remuneration Report, the KMP are referred to as either Executive KMP or Non-executive Directors. 1.1 Key Management Personnel for FY2019 This Report details the remuneration during FY2019 of: Name Role held during FY2019 Committee positions held Non-executive Directors The Hon. Mark Vaile AO Chairman and Non-executive Director Chairman of Governance & Nomination Committee Member of Audit & Risk Management Committee John Conde AO Deputy Chairman and Non-executive Director Member of Remuneration Committee Chairman of Remuneration Committee Member of Audit & Risk Management Committee Member of Governance & Nomination Committee Dr Julie Beeby Non-executive Director Chairman of Health, Safety, Environment & Community Committee Fiona Robertson Non-executive Director Member of Governance & Nomination Committee Chairman of Audit & Risk Management Committee (effective 1 November 2018) Member of Health, Safety, Environment & Community Committee (effective 1 November 2018) Lindsay Ward (appointed 15 February 2019) Non-executive Director Member of Health, Safety, Environment & Community Committee Member of Remuneration Committee Raymond Zage Non-executive Director Nil Tony Haggarty (retired 25 October 2018) Non-executive Director Chairman of Audit & Risk Management Committee Member of Health, Safety, Environment & Community Committee Executive KMP Role held during FY2019 Paul Flynn Kevin Ball Timothy Burt Brian Cole Managing Director and Chief Executive Officer (CEO) Chief Financial Officer and Executive General Manager – Human Resources (CFO) General Counsel and Company Secretary Executive General Manager (EGM) – Project Delivery Jamie Frankcombe Chief Operating Officer (COO) Scott Knights Executive General Manager (EGM) – Marketing and Logistics Michael van Maanen Executive General Manager (EGM) – Corporate and External Affairs 39 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 1. Introduction (cont.) 1.2 Summary of Company performance FY19 at a glance How did we perform in FY19? Statutory EBITDA $1,001.2m Shareholder distributions 50c/share Total shareholder return (TSR) three year 308% FY18: $1,002.2m* FY18: 40c per share Four year TSR: 233% *Statutory EBITDA has been restated for the adoption of AASB 16 Leases WHC total shareholder return since 1 July 2016 580% 480% 380% 280% 180% 80% -20% 40 6 1 l u J 6 1 p e S 6 1 v o N 7 1 n a J 7 1 r a M 7 1 y a M 7 1 l u J 7 1 p e S 7 1 v o N 8 1 n a J 8 1 r a M 8 1 y a M 8 1 l u J 8 1 p e S 8 1 v o N 9 1 n a J 9 1 r a M 9 1 y a M WHC TSR ASX200 TSR Directors’ Report Remuneration ReportFor the year ended 30 June 2019 While FY2019 performance produced a strong Statutory EBITDA of $1,001.2m, Net Profit after Tax of $527.9m, and an improvement in safety from June 2018, unit cost and production targets were not met. Company performance for the last five years A snapshot of key Company statutory performance for the past five years is set out below: Revenue ($m) Statutory EBITDA ($m)1 Net profit after tax ($m)1 Share price at year end (dollars per share) Basic EPS (cents per share) Diluted EPS (cents per share) Shareholder distributions paid (cents per share) Total Reportable Injury Frequency Rate (TRIFR) Environmental Enforcement Action Frequency Rate (EEAFR)3 Saleable Production – Mt 2019 2018 2017 2016 2,487.9 2,257.4 1,773.2 1,164.4 1,001.2 1,002.2 527.9 $3.66 53.5 52.4 47 6.2 1.9 19.8 524.5 $5.78 53.1 52.1 33 6.9 2.1 714.2 405.4 $2.87 41.2 40.7 - 7.4 4.2 20.9 20.8 224.1 20.5 $1.08 2.1 2.1 - 10.6 8.1 19.7 2015 763.3 130.3 (342.7) $1.32 2 (33.3) (33.3) - 11.3 2.9 11.3 1 Statutory EBITDA and Net profit after tax for FY2018 has been restated for the adoption of AASB 16 Leases. Statutory EBITDA and Net profit after tax for FY2017 – FY2015 has not been restated for the adoption of AASB 16 Leases 2 The opening share price for 2015 was $1.43 3 An Environmental Enforcement Action is defined as a warning letter, an official caution, an order, a penalty or a prosecution. Where a single piece of enforcement correspondence notes a breach of more than one approval/licence condition, each breach is counted separately. 1.3 How do Remuneration Outcomes align to FY2019 performance? Component Principles Outcome Fixed Remuneration (TFR) STI LTI Total Fixed remuneration set with reference to market benchmarking and individual performance Reflects the performance of management during the performance period, relative to performance conditions set at the start of FY2019 Changes in total Fixed remuneration for Executive KMP in FY2020 will be capped at 2% with one exception, the Executive General Manager Corporate and External Affairs. Performance outcomes did not meet all of the objectives set and therefore the below target STI outcomes reflect this. This was due primarily to the cost of production and ROM production objectives not being met and consequently no awards were made for these performance areas. The Executive KMP STI outcome was between 58% and 64% of maximum possible STI. See Section 4.1 for more details on the STI outcomes. Reflects long-term overall Company performance and delivery of value to shareholders over the performance period The LTI awards granted under the 2015 (TSR Tranche 2) and 2016 (TSR Tranche 1 and Costs Hurdle Award) LTI plans reached the end of their respective performance periods and were tested following 30 June 2019. Due to the strong TSR performance of 308% and 233% over the respective three and four year performance period the Relative TSR Awards each vested fully. The Costs Hurdle Gateway and the Costs Hurdle Target were set in 2016. Actual costs for FY2019 of $67/t exceeded the Costs Hurdle Gateway and the 2016 Costs Hurdle Award lapsed in full. See Section 4.2 for more details on the LTI outcomes for FY2019. 41 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 1. Introduction (cont.) 1.4 Executive KMP realised remuneration outcomes As set out in Section 1.3, the Remuneration Committee is of the view that while Executive KMP have had a challenging year with respect to the performance conditions associated with the STI, overall Executive KMP have continued successfully to execute the Group’s long-term strategy. The table below gives shareholders a better understanding of the actual remuneration outcomes for Executive KMP in FY2019. It includes: – Fixed remuneration earned in FY2019; – STI earned in respect of FY2019 performance (including the cash component payable in September 2019 and the deferred component awarded in equity which may vest and become exercisable in later years); – LTI that reached the end of its performance period in FY2019 including the impact of share price growth between the grant date and the test date; and – Any non-monetary benefits provided to Executive KMP in FY2019 (including fringe benefits). The amounts disclosed in the table, while not in accordance with accounting standards, may be more helpful for shareholders as it demonstrates the linkage between Company performance and remuneration outcomes for Executive KMP for FY2019, as summarised in Section 1.3. For further details on the STI and LTI outcomes for FY2019 refer to section 4.1 and 4.2 respectively. FY TFR1 STI2 Cash Total Cash FY2019 Deferred Equity STI3 LTI4 Vested At face value of award Other5 Total Remuneration Vested LTI6 Share Price Growth Total Including Share Price Growth 2019 1,500,000 603,750 2,103,750 603,750 948,092 12,500 3,668,092 2,585,637 6,253,729 2018 1,352,520 636,983 1,989,503 636,983 1,129,962 12,660 3,769,108 3,762,412 7,531,520 2019 700,000 181,913 881,913 181,913 343,201 2018 612,000 201,759 813,759 201,759 420,803 - - 1,407,027 935,979 2,343,006 1,436,321 1,397,755 2,834,076 2019 600,000 169,050 769,050 169,050 291,721 12,500 1,242,321 795,583 2,037,904 2018 520,200 171,495 691,695 171,495 387,682 12,660 1,263,532 1,279,355 2,542,887 2019 690,000 174,182 864,182 174,182 379,238 10,432 1,428,034 1,034,258 2,462,292 2018 676,260 223,122 899,382 223,122 504,026 635 1,627,165 1,663,282 3,290,447 2019 1,000,000 297,000 1,297,000 297,000 574,324 12,500 2,180,824 1,566,298 3,747,122 2018 910,350 342,991 1,253,341 342,991 719,496 12,660 2,328,488 2,385,627 4,714,115 2019 625,000 176,094 801,094 176,094 287,162 2018 525,000 173,078 698,078 173,078 362,161 2019 375,000 114,461 489,461 114,461 2018 36,308 - 36,308 - - - - - - - 1,264,350 788,699 2,053,049 1,233,317 1,198,778 2,432,095 603,922 36,308 - - 603,922 36,308 Name Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Michael van Maanen7 Note: For role held by Executive KMP during FY2019 refer to Section 1.1. 1 Total Fixed Remuneration (TFR) comprises base salary and superannuation. 2 STI represents the amount of cash STI that each Executive KMP will be paid in September 2019 based on FY2019 performance. Refer to section 3.3 and section 4.1 for further details. 3 Deferred Equity STI refers to the amount of STI deferred into rights that are the subject to further service conditions. Whilst not yet granted, the STI is expected to be issued at a Volume Weighted Average Price (VWAP) of $3.69. It is expected that rights issued under the STI will vest and become exercisable in two equal tranches following the completion of FY2020 and FY2021. Refer to Section 3.3 for further details. 4 LTI represents LTI awards made in 2015 and 2016 for which the test period ended in FY2019 and which have vested. The amounts shown are the face value of the awards at grant. Refer to section 4.2 for further details. 5 Other includes parking, motor vehicle benefits and other similar items. 6 LTI Share Price Growth is the amount of the LTI award delivered by an increase between the face value VWAP used for the award that was granted and the VWAP of a share at the award test date for those awards which vested. Whitehaven Coal share price performance over the 3 and 4 year periods is shown in the graph below and outcomes are explained further in section 4.2 of this report. 7 Commenced on 28 May 2018. 42 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 3 year vesting period 4 year vesting period WHC Share Price Growth $6 $5 $4 $3 $2 $1 $0 Share price growth $2.34 Opening share price $1.32 5 1 n u J 6 1 n u J 7 1 n u J 8 1 n u J 9 1 n u J WHC share price The graphs below illustrate how the actual remuneration mix for Executive KMP for FY2019 was delivered. A significant proportion of the actual remuneration mix for FY2019 was from LTI awards which is a reflection of the significant share price growth achieved to the end of FY2019. CEO 9% COO 8% Other Executive KMP 9% 34% 35% 40% 57% 57% 51% TFR & STI cash LTI awards STI Deferred Equity 43 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 2. Remuneration Governance This section describes the roles and responsibilities of the Board, Remuneration Committee and external remuneration advisers when making remuneration decisions, and sets out an overview of the principles and policies that underpin the Company’s remuneration framework. Remuneration governance framework Remuneration principles Board The following principles underpin the Company’s remuneration framework: The Board maintains overall responsibility for the remuneration policy and is responsible for ensuring that the Company’s remuneration structures are equitable and aligned with the long-term interests of the Company and its shareholders. Delegation and oversight Recommendations and Reporting Remuneration Committee The Board has established a Remuneration Committee, whose role is to: – – – review and approve the remuneration of the Executive KMP; review and approve the remuneration policies and practices for the Group generally, including incentive plans and other benefits; and review and make recommendations to the Board regarding the remuneration of Non-executive Directors. The Remuneration Committee has a formal charter, which sets out its roles and responsibilities, composition structure and membership requirements. A copy of this charter can be viewed on Whitehaven’s website. Further information regarding the Remuneration Committee’s role, responsibilities and membership is set out in the Company’s Corporate Governance Statement. External Advice From time to time, the Remuneration Committee seeks and considers advice from external advisors who are engaged by and report directly to the Remuneration Committee. Such advice will typically cover Non-executive Director fees, Executive KMP remuneration and advice in relation to equity plans. No remuneration recommendations were obtained during FY2019 as defined under the Corporations Act 2001 (Cth). – Remuneration is comparable and competitive within our comparator group in order to attract and retain skilled executives; – Short and long-term incentives are aligned with the interests of the Company and its shareholders; – Structures are equitable and reinforce relevant Company policies such as ensuring a focus on a safe working environment for all employees and a focus on compliance with environmental approval conditions; – Reward outcomes are aligned with performance with a signficant portion of pay deemed ‘at risk’ based on challenging KPI’s which are linked to the creation of sustainable shareholder returns 44 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 3. Remuneration framework The Company’s Executive KMP remuneration framework is based on a set of core principles and is comprised of both fixed and at-risk remuneration components. This section describes in detail the different components of Executive KMP remuneration and framework for FY2019. 3.1 Summary of Executive KMP remuneration components in FY2019 The below table summarises the core principles, framework components and how they were applied during FY2019. The different components of Executive KMP remuneration mentioned below are described in greater detail in section 3.2, 3.3 and 3.4. Attract and retain skilled executives Structures are equitable and reinforce relevant Company policies Incentives are challenging and linked to the creation of sustainable shareholder returns Incentives are aligned with the long-term interests of the Company and its shareholders Fixed remuneration (TFR) At-risk STI At-risk LTI Cash Equity – 50% of STI is deferred into rights to receive shares in the Company subject to meeting service based vesting conditions (with vesting periods of 12 and 24 months) – ability of the Remuneration Committee to reduce the number of deferred equity instruments that vest if subsequent events show such a reduction to be appropriate (clawback) – includes salary and superannuation – 50% of STI is delivered as cash – reviewed annually by the Remuneration Committee – determined based on a mix of financial and non-financial performance conditions – benchmarked against – STI opportunity is set peer companies – set based on individual performance and experience between 70% and 100% of TFR for target performance and between 87.5% and 125% of TFR for stretch performance – provides the Remuneration Committee with the flexibility to determine the nature, terms and conditions of the grant each year – operated in FY2019 as an award of 100% performance rights – the face value of the LTI opportunity is currently set between 80% and 120% of TFR – vesting is subject to two independent performance hurdles – Relative TSR and Costs Target 45 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 3. Remuneration framework (cont.) 3.1 Summary of Executive KMP remuneration components in FY2019 (cont.) Mix and timing of Executive KMP remuneration Executive KMP remuneration is delivered as a mix of fixed and at-risk remuneration. At-risk remuneration can be earned through both STI and LTI and is delivered to Executive KMP over multiyear timeframes to create a layered retention effect and to encourage sustained performance. The graphs below illustrate the remuneration mix for Executive KMP for FY2019 (assuming Target performance for at-risk components). CEO COO Other Executive KMP 38% 31% 36% 36% 32% 40% 31% 28% 28% Fixed TFR At-risk STI At-risk LTI The diagram below shows timing for determining and delivering Executive KMP remuneration for FY2019: FY2019 FY2020 FY2021 FY2022 FY2023 Total Fixed remuneration Determined based on: – Market benchmarking – FY2018 performance FY2019 Executive KMP Remuneration Short term incentive At risk based on financial and non-financial KPI’s Restriction period for Tranche 1 of STI Deferred Equity Instruments Service Based Vesting Period – Tranche 2 Long term Incentive At risk based on performance against relative TSR measure & cost hurdle Vesting period for Tranche 1 Service Based Vesting Period – Tranche 2 46 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 Benchmarking total remuneration While benchmarking is a useful starting point, it is only one input used by the Board when determining total remuneration for Executive KMP. Actual market positioning for each individual may deviate from the positioning policy (above or below) due to considerations such as internal relativities, experience, tenure in role, individual performance and retention considerations. Remuneration is benchmarked against an appropriate market comparator group adopted by the Board. The Board considers company size, complexity and business challenges when it builds its remuneration comparator group. The market comparator group consists of Australian listed companies, which have been identified as relevant competitors of Whitehaven that operate in similar business environments. The objective of the Board’s positioning is to meet the market so as to attract and retain a leading management team while observing appropriate restraint in respect of executive remuneration. 3.2 Fixed remuneration Fixed remuneration received by Executive KMP is subject to approval by the Remuneration Committee. Fixed remuneration is comprised of base salary and superannuation. In line with Company policy and executives’ service agreements, remuneration levels are reviewed annually having regard to market benchmarking and individual performance. Fixed remuneration will typically be positioned between the 50th and 75th percentile of the market comparator group adopted by the Board. 3.3 STI Awards and Structure for FY2019 The terms of the STI that applied during FY2019 were as follows: Feature Description Performance period 12 month performance period from 1 July 2018 to 30 June 2019 Form of delivery, vesting and exercise The STI for FY2019 is delivered 50% in cash in September 2019 and 50% in deferred rights that are granted in or around October 2019, which on exercise entitle the recipient to receive one ordinary share in the Company per deferred right. Half of the deferred rights vest and become exercisable following completion of FY2020, while the other half will vest and become exercisable following the completion of FY2021, subject to meeting service conditions. Vested deferred rights that have not been exercised by August 2029 will automatically be exercised. No amount is payable on vesting or exercise of deferred rights. Quantum (% of TFR) CEO: Target 100% and Stretch 125% COO: Target 80% and Stretch 100% Calculation of STI award Performance conditions and KPI weighting Other Executive KMP: Target 70% and Stretch 87.5% The value of STI awards is calculated as follows: Value of STI Award = TFR X Target Opportunity X Level of KPI result Whitehaven has chosen performance conditions that link to our strategy and motivate outperformance of annual business plans. The Board set Target KPIs at the commencement of FY2019. The table below summarises the KPIs that were adopted as performance conditions in FY2019, and the applicable weighting of each performance condition: KPI Safety (TRIFR) Net Profit After Tax (NPAT) ROM production (managed basis) FOB cost per tonne (equity basis) Environmental Enforcement (EEAFR) Individual leadership All KMP excluding EGM Project Delivery EGM Project Delivery 20% 25% 20% 15% 10% 10% 10% 25% 10% 15% 10% 30% 47 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 3. Remuneration framework (cont.) 3.4 LTI Awards and Structure for FY2019 The terms of the LTI grant made during FY2019 to Executive KMP were as follows: Feature Description Form of delivery, vesting and exercise FY2019 LTI awards that vest will be delivered in the form of performance rights, being rights to receive one ordinary share in the Company per performance right, subject to meeting performance conditions. Vested deferred rights that have not been exercised by October 2028 will automatically be exercised. No amount is payable on vesting or exercising of deferred rights. Quantum (% of TFR) CEO: 120% COO: 100% Other Executive KMP: 80% Performance period TSR Awards: divided into two equal tranches capable of vesting and becoming exercisable after a three and four year performance period, with each performance period respectively, beginning on 1 July 2018. Costs Hurdle Awards: FOB cost per tonne achieved for the year ended 30 June 2021 with the Costs Hurdle Awards being tested at that time. Half the awards will be capable of vesting and becoming exercisable after the end of the performance period and the remaining half of any awards that vest will be subject to deferral for a further year before becoming exercisable. Performance Conditions Component Details Reason the performance condition was chosen This measure allows for an objective external assessment of the shareholder value created by the Company relative to a group of peers over a sustained period 50% of the award is subject to a relative total shareholder return (TSR) performance hurdle (TSR Hurdle) which compares the TSR performance of the Company with the TSR performance of a peer group of companies operating in the Australian resources sector. TSR Award Costs Hurdle Award 50% of the award is subject to the Company achieving a cost per tonne target (Costs Hurdle) that will position the company competitively on the then current cost curve. The Board sets this hurdle having regard to both the Company’s cost forecasts and to the estimated coal industry cost curve as advised by a recognised expert. This measure is aligned to the Company’s objective to be positioned competitively against Australian coal producers in relation to costs of production. Competitive costs protect and preserve shareholder value in difficult times and support enhanced returns when the commodity cycle recovers. Calculation of LTI award The value of LTI awards and the number of performance rights granted is calculated as follows: TFR X Target Opportunity = Value of LTI Award ÷ VWAP of performance right = Number of performance rights granted TSR Awards: the TSR of the Company for the FY2019 LTI grant is measured as a percentile ranking compared to the comparator group of listed entities in the resources sector over the relevant performance period of the tranche. The TSR comparator group was established before the commencement date of the respective performance period and comprised the following companies: Beach Energy Ltd Mineral Resources Ltd Rio Tinto Ltd BHP Group Ltd New Hope Corporation Ltd Santos Ltd Coronado Global Resources Inc. (from listing) Newcrest Mining Ltd South32 Ltd Northern Star Resources Ltd St Barbara Limited Evolution Mining Ltd Fortescue Metals Group Ltd Iluka Resources Ltd Independence Group NL Oil Search Ltd OZ Minerals Ltd Regis Resources Ltd Woodside Petroleum Ltd WorleyParsons Ltd Costs Hurdle Awards: Testing will occur following the completion of FY2021 based on the average costs achieved on a Company wide basis over the 12 month period from 1 July 2020 to 30 June 2021. 48 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 Vesting schedule TSR Awards: Performance level 75th percentile or above Between 50th and 75th percentile At 50th percentile Below 50th percentile Costs Hurdle Awards: Outcome as a % of target opportunity 100% of the TSR Awards will vest Vesting will occur on a pro rata straight line basis between 50% and 100% 50% of the TSR Awards will vest 0% TSR Awards will vest Due to the commercially sensitive nature of this hurdle the target will not be disclosed until the year of testing. Notwithstanding the vesting schedule below, the Board retains discretion to lapse any or all of the Costs Target Awards if the board considers that vesting would be inappropriate in light of the intent and purpose of the target. Full vesting will only occur if the Board is satisfied performance meets or exceeds the target as set out below. The Board may, where it is appropriate to do so, recalibrate the target to take account of structural changes in the Company’s asset portfolio (such as mergers, acquisitions and divestments) or other exceptional circumstances. Previous Costs Hurdle Awards have been made by referencing the Company’s forecasts for the third forward year. Prospectively, rather than setting a fixed dollar number for the Costs Hurdle Target, the Company will set the target as the entry point to the first quartile in the published Wood Mackenzie data of industry outcomes. By making the target an externally published industry result, this will facilitate assessment while preserving totally the intent of this award – that the Company produce industry leading cost outcomes in its operations. As evidenced during the past two years, the Board will ensure that the Company does not overlook shareholder value enhancing opportunities even if these opportunities are higher cost mining operations. Performance level Target or lower Between Gateway and Target Gateway Above Gateway Outcome as a % of target opportunity 100% of the Costs Hurdle Awards will vest Vesting will occur on a pro rata straight line basis between 50% and 100% 50% of the Costs Hurdle Awards will vest 0% Costs Hurdle Awards will vest Retesting Any component of the LTI award that does not vest following testing will lapse immediately. There is no re-testing of awards that do not vest. 49 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 3. Remuneration framework (cont.) 3.5 Policies and conditions of rights awarded under equity plans Malus and clawback Change of control The Board has discretion to reduce or clawback all vested and unvested LTI and STI awards in certain circumstances if subsequent events show a reduction to be appropriate. The circumstances in which the Board may exercise this discretion include: where an Executive KMP engages in fraud, dishonesty or other misconduct, a material misstatement of the Company’s financial statements or other material error which results in vesting, or any other factor that the Board deems justifiable. Dividend and voting rights Rights carry no entitlement to voting or dividends prior to exercise. Upon exercise of vested rights the recipient is entitled to receive a dividend equivalent payment (DEP) in respect of any prior period between the start of the performance period, and exercise. Any DEP made to participants may be made in cash or provided as additional fully paid ordinary shares in the Company, as determined by the Board. Prohibition on hedging Participants are required to comply with the Company’s securities trading policy in respect of their performance rights, options and any shares they receive upon exercise. They are prohibited from hedging or otherwise protecting the value of their performance rights and options. In the event of a takeover bid or other transaction, event or state of affairs that in the Board’s opinion is likely to result in a change in control of the Company, the Board has discretion to determine that vesting of some or all of any unvested performance awards should be accelerated. Cessation of employment Unless the Board determines otherwise, cessation of employment by: – Resignation or termination for cause: unvested performance awards will lapse. – Mutual agreement with the Company: unvested performance awards will remain on foot and subject to the original performance hurdle. However, the Board may at its discretion determine to lapse any or all of the unvested performance awards and ordinarily, in the case of a resignation, would be expected to do so. – Other circumstances: unvested performance awards will remain on foot and subject to the original performance hurdle, with Board discretion to determine that some of the performance awards (up to a pro rata portion based on how much of the performance period remains) will lapse. The performance awards that remain on foot will be tested in the normal course following the end of the relevant performance period. 50 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 4. Remuneration outcomes for FY2019 4.1 STI outcomes for Executive KMP in FY2019 The Board set Target KPIs prior to the commencement of the financial year that link to our strategy and motivate outperformance of annual business plans. The table below summarises details in relation to each KPI and the performance levels achieved for FY2019. STI outcome Comment Performance condition Safety KPI measure TRIFR Actual KPI result 6.16 NPAT Net Profit After Tax1 $564.9m ROM production ROM production (managed) 23.2Mt FOB cost FOB cost per tonne $67/tonne Environmental Incidents 9 incidents Individual leadership Individual based Individual based Safety performance has improved during FY2019 by 10%. The TRIFR of 6.2 at the end of June 2019 fell from 6.9 at June 2018 and remains well below the NSW coal industry average of 14.7. The Company has an aspirational goal of being the industry leader in safety, and work to improve safety processes and standards continues. A record operating profit for the Group was achieved in FY2019. Higher average coal prices for FY2019 drove optimal product mix decisions, which resulted in an increase in the production of high quality thermal coal to increase margins. The high quality of thermal coal produced typically achieved both quality and energy premiums during the year. The higher achieved prices flowed through to results and facilitated returns to shareholders with surplus cash flow being returned by way of dividends. In a market of higher prices, Whitehaven faced the challenges of increased demand for scarce skilled resources. This contributed to an increase in staff turnover and decreased productivity at our open cut mines. This resulted in managed ROM production of 23.2Mt for the year which, despite being 1.3% higher than FY2018, was below the target set. Due to the strong coal price environment and increased demand for high quality coal, decisions were taken to increase the quality of coal produced and sold to take advantage of higher margins, which led to an increase in unit costs. The strong coal market increased competition for scarce, skilled resources which adversely impacted staff turnover and led to increased costs during FY2019. Difficult mining conditions experienced at the Narrabri and Werris Creek mines also led to increased costs. Consequently unit costs for FY2019 of $67/t were 8% higher than FY2018 and did not meet cost targets. The Board recognises the importance of compliance with environmental approval conditions to maintaining the Group’s standing in the community. The Group strives to adopt and achieve industry best practice. In FY2019, there were 9 incidents and the EEAFR was 1.9 per million man hours worked. This was a stretch outcome. The leadership performance of the CEO is assessed annually by the Board. A stretch result was awarded to the CEO. Awards to other Executive KMP were based on individual perfomance. Key: Stretch Between Target and Stretch Below Gateway 1 Net Profit After Tax before significant items 51 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Remuneration outcomes for FY2019 (cont.) 4.1 STI outcomes for Executive KMP in FY2019 (cont.) The individual STI outcome for each Executive KMP for FY2019 is set out in the table below. The total STI opportunity at Target and Stretch, by Executive KMP, as a percentage of TFR is detailed in Section 3.3. Paid as cash ($) Deferred Equity Total maximum STI received maximum STI forfeited Percentage of Percentage of ($) ($) Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole 603,750 603,750 1,207,500 181,913 181,913 169,050 169,050 363,826 338,100 174,182 174,182 348,364 Jamie Frankcombe 297,000 297,000 594,000 Scott Knights Michael van Maanen 176,094 114,461 176,094 114,461 352,188 228,922 4.2 LTI outcomes for Executive KMP in FY2019 64% 59% 64% 58% 59% 64% 64% 36% 41% 36% 42% 41% 36% 36% Vesting Period 2015–2019 WHC 4 yr TSR Performance +233% WHC TSR Rank vs Peer Group 5th Vesting of 2015– 2019 LTI (TSR) 100% Vesting Period 2016–2019 WHC 3 yr TSR Performance +308% WHC TSR Rank vs Peer Group 1st Vesting of 2016– 2019 LTI (TSR) 100% This is the third year since the 2012 merger that LTI awards have vested. The Board believes that the Company is well positioned to continue its strong performance and to deliver value for shareholders. In FY2019 the Company returned $465m to shareholders. The Company’s balance sheet strength, quality of operations and future capital needs underpinned the decision by the Board to pay a further $298m in dividends (30 cents per share) to shareholders from the FY2019 results. 52 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 The table below sets out the LTI awards that were tested in 2019 against performance conditions and the results of the relevant test. LTI Year Tranche Test Type Performance 2015 2016 2016 2 of 2 1 of 2 n/a Relative TSR Relative TSR Costs Hurdle 5 in 23 1 in 22 $67/t Actual $63/t Target Outcomes Vested 100% 100% 0% Lapsed 0% 0% 100% Costs Hurdle Target In mid-2016 the Board set the Gateway and Target for FY2019 during the cyclical lows of the coal price. Costs for FY2016 were $55/t while coal revenues averaged $69/t and EBITDA margins were $14/t. The Board set a Costs Hurdle Target that was challenging and if achieved would place the company in the first quartile position of the cost curve. In April 2018 Whitehaven completed its acquisition of 30% of the Tarrawonga open cut mine from Idemitsu and in light of the strong coal price environment decisions were taken to increase production across the Gunnedah open cut mines. This, combined with the factors set out in section 4.1, adversely impacted the actual costs outcome for FY2019. The Board considered the impact of these circumstances. Actual costs of $67/t exceeded the Costs Hurdle Gateway which caused all cost hurdle awards tested in relation to FY2019 to lapse. 4.2 LTI outcomes for Executive KMP in FY2019 Executive KMP LTI awards vesting in FY2019 2015 Tranche 2 TSR Hurdle 2016 Tranche 1 TSR Hurdle 2015 Tranche 2 Costs Hurdle1 2016 Costs Hurdle Gross up for Capital Return2 2016 Tranche 1 TSR Hurdle 2016 Costs Hurdle LTI Value Vested LTI at face value of award2 Vested LTI share price appreciation3 Performance Rights Options $ $ $ 308,372 139,724 164,466 Lapsed 21,656 455,521 Lapsed 3,533,729 948,092 2,585,637 111,628 50,579 59,535 Lapsed 7,839 164,895 Lapsed 1,279,180 343,201 935,979 94,884 42,992 50,605 Lapsed 6,677 140,161 Lapsed 1,087,304 291,721 795,583 123,349 55,890 65,787 Lapsed 8,663 182,209 Lapsed 1,413,496 379,238 1,034,258 186,802 84,640 99,628 Lapsed 13,119 275,941 Lapsed 2,140,621 574,324 1,566,297 92,093 43,389 49,117 Lapsed 6,512 141,454 Lapsed 1,075,861 287,162 788,699 n/a n/a n/a n/a n/a n/a n/a - - - 30 June 2019 30 June 2019 30 June 2019 30 June 2019 $1.29 $1.21 $1.29 $1.21 $3.69 $3.69 $3.69 $3.69 Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Michael van Maanen4 Award Test Date VWAP – Face value VWAP – Award Test Date 1 Tested and vested in 2018 but subject to a further one year deferral period, and vested in FY2019. 2 Refer to the Notice of 2017 Annual General Meeting, Resolution 6. This adjustment applies to rights issued before the ‘ex’ date for the capital return to shareholders in November 2017 to ensure that incentive plan participants were not disadvantaged by the capital return. 3 As presented in section 1.4. 4 Commenced 28 May 2018. 53 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 4. Remuneration outcomes for FY2019 (cont.) 4.2 LTI outcomes for Executive KMP in FY2019 (cont.) LTI awards granted in FY2019 A summary of the LTI awards granted in FY2019 (i.e. the face value and the fair value of the LTI granted to each Executive KMP) is set out in the table below. Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Michael van Maanen Number of performance rights granted1 Face value of performance rights grant2 Fair value of performance rights at grant date3 315,790 98,246 84,211 96,843 175,439 87,720 52,632 ($) $1,800,000 $560,000 $480,000 $552,000 $1,000,000 $500,000 $300,000 ($) $1,285,265 $399,861 $342,739 $394,151 $714,037 $357,020 $214,212 1 Refer to Section 3.4 for the terms of the LTI grant. 2 The face value of the LTI performance rights was calculated using the volume weighted average price of Whitehaven shares over the 20 trading day period commencing 10 trading days prior to 30 June 2018, being $5.70. 3 The fair value for awards granted to the Executive KMP is based on the average fair value of $4.07 (for the fair value of each tranche from which this average is derived – see note 5.5) per performance right as at 27 October 2018 being the grant date. The factors and assumptions used in determining the fair value are set out in note 5.5 to the financial statements. 5. Executive KMP employment contracts This section sets out an overview of key terms of employment for the Executive KMP, as provided in their service agreements. All Executive KMP contracts give the Company discretion to make payment in lieu of notice. No notice is required where termination is for cause. The contracts do not provide for any termination payments other than payment in lieu of notice. Treatment of unvested incentives is dealt with in accordance with the terms of grant. In general, under the STI and LTI arrangements, unvested entitlements will be forfeited where an executive is terminated for cause or, subject to the Board’s discretion, where they resign. In all other circumstances where the Board considers the executive to be a ‘good leaver’, outgoing executives will generally retain their entitlements (subject to any applicable performance conditions in the case of LTI arrangements). 54 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 Managing Director and CEO Paul Flynn was appointed as Managing Director and CEO of the Company on 25 March 2013. This table outlines the key terms of Mr Flynn’s contract of employment. Fixed remuneration Short term incentive Long term incentive Mr Flynn’s annual TFR for FY2020 is $1,530,000 (FY2019: $1,500,000). It includes salary, superannuation contributions, and any components under Whitehaven’s salary packaging guidelines and all Director fees. TFR is reviewed annually. Mr Flynn is eligible to participate in the annual STI plan, as described in section 3.3. At Target performance, his FY2020 STI opportunity is 100% of TFR (FY2019: 100%), with up to 125% of TFR for Stretch performance (FY2019:125%). Mr Flynn is eligible to participate in the LTI plan as described in section 3.4, subject to receiving required shareholder approval. Mr Flynn’s LTI grant in FY2020 will be 120% of his TFR (FY2019: 120%). The form of the Award will be provided 100% as rights to acquire shares; each right held will entitle Mr Flynn to receive one ordinary share in the Company subject to satisfaction of the relevant performance conditions. The FY2019 award was in the form of 100% rights. Other key terms Other key terms of Mr Flynn’s service agreement include the following: – his employment is ongoing, subject to twelve months’ notice of termination by Whitehaven or six months’ notice of termination by Mr Flynn – the Company may terminate without notice in certain circumstances, including serious misconduct or negligence in the performance of duties. Mr Flynn may terminate immediately in the case of fundamental change to his role (i.e. there is a substantial diminution in his responsibilities), in which case his entitlements will be the same as if the Company terminated him without cause – the consequences for unvested incentive awards on termination of Mr Flynn’s employment will be in accordance with the Company’s STI and LTI plans Mr Flynn will have post-employment restraints for a period of three months. No additional amounts will be payable in respect of this restraint period Other Executive KMP contracts A summary of the notice periods and key terms of the current Executive KMP contracts are set out in the table below. All of the contracts below are of ongoing duration. Name and position (at year-end) Kevin Ball Chief Financial Officer and Executive General Manager – Human Resources Appointed 16 December 2013 Timothy Burt General Counsel and Company Secretary Appointed 29 July 2009 Brian Cole Executive General Manager – Project Delivery Appointed 1 July 2012 Jamie Frankcombe Chief Operating Officer Appointed 4 February 2013 Scott Knights Executive General Manager – Marketing and Logistics Appointed 18 August 2014 Michael van Maanen Executive General Manager – Corporate and External Affairs Appointed 28 May 2018 Notice 3 months by employee 6 months by the Company 3 months by employee 12 months by the Company 6 months by employee or the Company 3 months by employee 6 months by the Company 6 months by employee or the Company 3 months by employee 6 months by the Company 55 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 6. Non-executive Director remuneration This section explains the fees paid to Non-executive Directors during FY2019. 6.1 Setting Non-executive Director fees Non-executive Directors fees are designed to ensure that the Company can attract and retain suitably qualified and experienced Non-executive Directors. Non-executive Directors do not receive shares, share options or any performance-related incentives as part of their fees from the Company. Although there is no formal minimum shareholding, Non-executive Directors are encouraged to hold shares. Non-executive Directors are also reimbursed for travel and other expenses reasonably incurred when attending meetings of the Board or in connection with the business of the Company. The Remuneration Committee reviews and makes recommendations to the Board with respect to Non-executive Directors’ fees and Committee fees. In 2012 the shareholders approved a total aggregate maximum amount of Non-executive Directors’ fees of $2,500,000 per annum. No change is being sought to the total aggregate Non-executive Directors’ fees pool for FY2020. 6.2 Current Non-executive Director fee remuneration The table below sets out the Board and Committee fees in Australian dollars for FY2019. There have been no changes to Directors fees for FY2019. No changes are proposed. Board Audit & Risk Management Committee Remuneration Committee Governance & Nominations Committee Health, Safety, Environment & Community Committee Chairman Deputy Chairman $375,000 1 $262,500 1 $40,000 $40,000 No fee $40,000 - - - - Member $140,000 $20,000 $20,000 No fee $20,000 1 The Chairman and Deputy Chairman of the Board do not receive Committee fees in addition to their Board fees. The fees set out above exclude mandatory statutory superannuation contributions made on behalf of the Non-executive Directors. In addition to the meetings that the Non-executive Directors attended (as shown on page 24), the Non-executive Directors participated in visits to mine sites, development project sites, coal handling and preparation plants and participated in the Company’s annual safety day. 56 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 6.3 FY2019 Non-executive Director remuneration The statutory disclosures required under the Corporations Act and in accordance with the Accounting Standards are set out in the table below. Non-executive Directors The Hon. Mark Vaile (Chairman) John Conde (Deputy Chairman) Dr Julie Beeby Tony Haggarty1 Fiona Robertson Lindsay Ward2 Raymond Zage3 Total FY 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Short-term benefits Post-employment benefits Board & Committee fees Non-monetary benefits Other benefits (non-cash) Superannuation benefits Total fees for services as a Non-executive Director 375,000 375,000 262,500 262,500 180,000 167,500 63,768 200,000 199,663 67,500 68,250 - - - 1,149,181 1,072,500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20,531 20,049 20,531 20,049 17,100 15,913 6,058 19,000 18,956 6,412 6,484 - - - 89,660 81,423 395,531 395,049 283,031 282,549 197,100 183,413 69,826 219,000 218,619 73,912 74,734 - - - 1,238,841 1,153,923 1 Mr Haggarty retired on 25 October 2018 2 Mr Ward commenced on 15 February 2019 3 Mr Zage elected not to receive any Board & Committee fees in FY2019 and FY2018 57 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 7. Executive KMP statutory tables and additional disclosures 7.1 Executive KMP statutory remuneration table The following table sets out the statutory remuneration disclosures required under the Corporations Act and has been prepared in accordance with the appropriate accounting standards and has been audited. Salary & fees Non- Monetary Benefits Super- annuation Benefits FY (A) Termination Benefits Shares STI (B) Rights and options (C) Total Remun- eration Perfor- mance related % Share-based payments Executive Directors Paul Flynn 2019 1,475,000 12,500 25,000 1,212,423 2018 1,327,520 12,660 25,000 1,248,639 Other Executive KMP Kevin Ball Timothy Burt Brian Cole 2019 675,000 2018 587,000 - - 25,000 377,924 25,000 401,275 2019 575,000 12,500 25,000 335,010 2018 508,377 12,660 11,823 339,554 2019 665,000 10,432 25,000 380,929 2018 651,260 635 25,000 440,583 Jamie Frankcombe 2019 975,000 12,500 25,000 623,628 2018 885,350 12,660 25,000 677,136 Scott Knights 2019 600,000 2018 500,000 Michael van Maanen* 2019 350,000 2018 33,750 - - - - 25,000 346,615 25,000 343,275 25,000 152,720 2,558 - Total 2019 5,315,000 47,932 175,000 3,429,249 2018 4,493,257 38,615 139,381 3,450,462 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 146,859 2,871,782 2,033,472 4,647,291 43,462 1,121,386 738,135 1,751,410 37,367 984,877 632,604 1,505,018 40,950 1,122,311 822,393 1,939,871 79,389 1,715,517 1,237,869 2,838,015 38,721 1,010,336 602,005 1,470,280 31,775 559,495 - 36,308 418,523 9,385,704 - 6,066,478 14,188,193 47% 71% 38% 65% 38% 65% 38% 65% 41% 67% 38% 64% 33% - * Commenced 28 May 2018. (A) The amounts disclosed as non-monetary benefits relate to car spaces, motor vehicle benefits and other similar items. (B) Comprises the cash component of current year STI (Refer to section 3.3 and section 4.1 for details) and the fair value at each grant date of STI deferred rights expensed over the relevant period for the service vesting conditions. The fair value for STI grants is based on the volume weighted average price of Whitehaven shares over the 20 trading day period commencing 10 trading days prior to 30 June of each respective grant. (C) The fair value for LTI performance rights granted to the KMP is based on the fair value at each grant date expensed over the vesting period. The FY2019 amount includes the reversal of AASB 2 share-based payments expense due to lapse outcomes of cost hurdle LTI rights and options. The factors and assumptions used in determining the fair value are set out in note 5.5 to the financial statements. 58 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 7.2 Movement in options and rights held by Executive KMP The movement during the reporting period, by number and value of equity instruments in the Company held by each Executive KMP is detailed below. Executive KMP Instrument Balance as at 1 July 2018 (number) Granted (number) Granted (value) Vested during the year (number) Exercised (number) Exercised (value) Lapsed (number) (A) (B) $ (C) $ Balance as at 30 June 2019 (number) Vested and exercisable at 30 June 2019 Lapsed (year of grant) (D) Paul Flynn Performance Rights (LTI) 2,180,249 315,790 1,285,265 829,002 829,002 457,935 82,232 2015 1,584,805 Options (LTI) 2,608,430 - - - 367,267 111,752 636,983 231,488 - - - - - - - - 2,608,430 479,019 231,488 Deferred Rights (STI) Performance Rights (LTI) Kevin Ball Deferred Rights (STI) Performance Rights (LTI) Brian Cole 797,289 98,246 399,861 308,149 308,149 172,891 29,767 2015 557,619 Options (LTI) 944,229 - - - Deferred Rights (STI) 127,779 35,397 201,760 84,790 - - - - - - - - 944,229 163,176 84,790 Timothy Burt Performance Rights (LTI) 698,243 84,211 342,739 282,475 282,475 165,122 25,302 2015 474,677 Options (LTI) 802,595 - - - 107,702 30,088 171,496 72,344 - - - - - - - - 802,595 137,790 72,344 907,744 96,843 394,151 367,245 367,245 214,683 32,893 2015 604,449 Options (LTI) 1,043,373 - - - Deferred Rights (STI) 136,817 39,145 223,122 90,476 - - - - - - - - 1,043,373 175,962 90,476 Jamie Frankcombe Performance Rights (LTI) 1,344,699 175,439 714,037 526,156 526,156 298,594 49,814 2015 944,168 Options (LTI) 1,580,107 - - - Deferred Rights (STI) 208,713 60,174 342,991 136,719 - - - - - - - - 1,580,107 268,887 136,719 Scott Knights Performance Rights (LTI) 677,503 87,720 357,020 264,497 264,497 151,717 24,558 2015 476,168 Options (LTI) 810,001 - - - Deferred Rights (STI) 108,104 30,365 173,078 71,210 Michael van Maanen Performance Rights (LTI) - 52,632 214,212 - - - - - - - - - - - - - 810,001 138,469 71,210 52,632 - - - - - - - - - - - - - (A) The number of rights granted during FY2019 includes: a. The FY2018 LTI awards. Further details are provided in section 4.2; and b. The deferred rights component of the FY2018 STI award, calculated by reference to the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 30 June 2018. The granting of rights occurred on 27 October 2018. (B) The value of LTI performance rights granted in the year is the fair value of the performance rights at grant date. The value of deferred STI rights granted in the year has been calculated using the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 30 June 2018 of $5.70. Unvested LTI and STI awards have a minimum value of zero if they do not meet the relevant performance or service conditions. The maximum value of unvested LTI and STI awards is the sale price of the Company’s shares at the date of vesting, or where applicable, exercise (plus the value of any dividend equivalent payment attaching to the award on vesting or, where applicable exercise). (C) The 2014 LTI Rights TSR Hurdle Tranche 2 fully vested during the year. The remaining 50% of the satisfied 2014 LTI Rights Costs Target Hurdle vested during the year. The 2015 LTI Rights TSR Hurdle Tranche 1 fully vested during the year. The 2015 LTI Costs Target Hurdle vested at a rate of 80%. 50% of this hurdle vested during the year with the remaining 50% subject to a further 12 month service condition to vest in FY2020. The value of LTI performance rights vested in the year is the fair value of the performance rights at grant date. Tranche 1 of the FY2017 STI deferred rights vested during the period. The vested value of rights exercised has been calculated using the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 1 July 2017. Tranche 2 of the FY2016 STI deferred rights vested during the period. The vested value has been calculated using the volume weighted average price of the Company’s shares for the 20 day trading period commencing 10 trading days prior to 1 July 2016. (D) The year in which the lapsed performance rights, options or deferred shares were granted. 20% of the 2015 LTI Rights Costs Target Hurdle Tranche 1 award lapsed due to the performance conditions not being met. 59 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report 7. Executive KMP statutory tables and additional disclosures (cont.) 7.3 Movement in ordinary shares held by KMP The movement during the reporting period in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each Executive KMP and each Non-executive Director, including their related parties is as follows: No. of shares Non-Executive Directors Mark Vaile John Conde Dr Julie Beeby Tony Haggarty1 Raymond Zage Fiona Robertson Lindsay Ward2 Executive KMP Paul Flynn Kevin Ball Timothy Burt Brian Cole Jamie Frankcombe Scott Knights Michael van Maanen Held at 1 July 2018 Received on vesting and exercise of STI/LTI Received as remuneration Other net change Held at 30 June 2019 2,049,882 888,620 55,000 1,000,000 - 10,000 - 1,241,391 375,722 370,144 501,790 500,000 - - - - - - - - - 858,311 319,045 292,463 380,229 544,760 273,850 - - - - - - - - - - - - - - - (540,565) (180,000) - N/A - 11,560 - (645,375) (156,000) (187,865) - - (273,850) - 1,509,317 708,620 55,000 N/A - 21,560 - 1,454,327 538,767 474,742 882,019 1,044,760 - - 1 Mr Tony Haggarty retired as a Non-executive Director on 25 October 2018. 2 Mr Lindsay Ward was appointed as a Non-executive Director effective 15 February 2019. 7.4 Related party transactions and additional disclosures Loans with Executive KMP and Non-executive Directors There were no loans outstanding to any Executive KMP or any Non-executive Director or their related parties, at any time in the current or prior reporting periods. Other KMP transactions Apart from the details disclosed in this report, no Executive KMP or Non-executive Director or their related parties have entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving those people’s interests existing at year end. Signed in accordance with a resolution of the Directors: The Hon. Mark Vaile AO Chairman Paul Flynn Managing Director Dated at Sydney this 15th day of August 2019 Dated at Sydney this 15th day of August 2019 60 Directors’ Report Remuneration ReportFor the year ended 30 June 2019 Auditor’s independence declaration Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 61 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves Financial Report | Glossary | Corporate directory || |Directors’ Report Financial Report For the year ended 30 June 2019 62 Table of contents Consolidated financial statements Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent Auditor’s report 64 65 66 67 68 112 113 Notes to the consolidated financial statements index 1. About this report 5. Capital structure and financing 2. Group performance 2.1. Segment reporting 2.2. Significant items 2.3. Taxes 2.4. Earnings per share 3. Working capital and cash flows 3.1 Trade and other receivables 3.2 Inventories 3.3 Trade and other payables 3.4 Reconciliation of cash flows from operating activities 4. Resource assets and liabilities 4.1 Property, plant and equipment 4.2 Exploration and evaluation 4.3 Intangible assets 4.4 Provisions 5.1. Loans and borrowings 5.2. Finance income and expense 5.3. Financial risk management objectives and policies 5.4. Share capital and reserves 5.5. Share-based payments 6. Group structure 6.1. Acquisition of business 6.2. Group’s subsidiaries 6.3. Interest in joint operations 6.4. Parent entity information 6.5. Deed of cross guarantee 6.6. Related parties 7. Other notes 7.1. Employee benefits 7.2. Auditors’ remuneration 7.3. Commitments 7.4. Contingencies 7.5. Subsequent events 63 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report Consolidated statement of comprehensive income For the year ended 30 June 2019 Revenue Other income Operating expenses Coal purchases Selling and distribution expenses Royalties Depreciation and amortisation Administrative expenses Corporate development costs Share-based payments expense Foreign exchange gain/(loss) Profit before net financial expense Financial income Financial expenses Net financial expense Profit before tax Income tax expense Net profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Net movement on cash flow hedges Income tax effect Other comprehensive income for the period, net of tax Note 2019 $’000 2018 $’000 Restated1 2.1 2,487,944 2,257,446 3,930 6,767 (734,858) (592,151) (210,678) (175,069) (324,131) (287,294) (184,754) (224,459) (26,185) - (7,684) (2,356) (169,941) (203,132) (22,033) (9,701) (9,927) 4,141 776,769 799,106 2,092 (42,993) (40,901) 1,600 (41,817) (40,217) 735,868 758,889 5.5(a) 5.2 2.3(a) (207,970) (234,379) 527,898 524,510 5.2 2.3(b) 5.2 (4,287) 1,286 (3,001) (372) 112 (260) Total comprehensive income for the period, net of tax 524,897 524,250 Net profit for the period attributable to: Owners of the parent Non-controlling interests Comprehensive income for the period, net of tax attributable to: Owners of the parent Non-controlling interests Earnings per share: 527,898 524,510 - - 524,897 524,250 - - Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 2.4 2.4 53.5 52.4 53.1 52.1 1 The comparative statement for the year ended 30 June 2018 has been restated to give effect to the change in accounting policies. See note 1.5 for further details. The consolidated statement of comprehensive income is to be read in conjunction with the notes to the consolidated financial statements. 64 Consolidated statement of financial position As at 30 June 2019 Assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Total current assets Trade and other receivables Investments Property, plant and equipment3 Exploration and evaluation Intangible assets Total non-current assets Total assets Liabilities Trade and other payables Loans and borrowings2 Employee benefits Provisions Income tax payable Derivative financial instruments Total current liabilities Non-current liabilities Loans and borrowings2 Deferred tax liability Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Share-based payments reserve Hedge reserve Retained earnings Total equity Note 3.1 3.2 5.3(d) 3.1 4.1 4.2 4.3 3.3 5.1 7.1 4.4 2.3(c) 5.3(d) 5.1 2.3(c) 4.4 2019 $’000 119,535 155,745 148,939 47 2018 $’000 Restated1 111,777 97,698 124,567 2,595 424,266 336,637 10,518 37 11,732 37 3,841,872 3,746,758 547,089 21,350 508,552 22,200 4,420,866 4,289,279 4,845,132 4,625,916 197,731 81,728 26,510 29,985 288 2,874 223,984 105,453 22,560 6,136 - 1,136 339,116 359,269 333,529 390,068 260,219 482,641 198,993 102,201 983,816 783,835 1,322,932 1,143,104 3,522,200 3,482,812 5.4(a) 2,980,933 2,993,458 16,909 (1,979) 13,948 1,022 526,337 474,384 3,522,200 3,482,812 1 The comparative statement for the year ended 30 June 2018 has been restated to give effect to the change in accounting policies. See note 1.5 for further details. 2 3 Included within loans and borrowings are lease liabilities recognised for the first time upon adoption of AASB 16 Leases of $134,111,000 (2018: $205,874,000) Included within property, plant and equipment are right-of-use assets recognised for the first time upon adoption of AASB 16 Leases of $124,680,000 (2018: $195,868,000) The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements. 65 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report Consolidated statement of changes in equity For the year ended 30 June 2019 Balance at 1 July 2017 Impact of change in accounting policy Issued Capital Note $’000 3,136,941 - Share- based Payment Reserve $’000 7,827 - Hedge Reserve Retained Earnings Total equity $’000 $’000 $’000 1,282 146,246 3,292,296 - (5,938) (5,938) Balance as at 1 July 2017 (restated) 3,136,941 7,827 1,282 140,308 3,286,358 Profit for the period (restated) Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Capital return - - - - (138,884) - - - - - Share-based payments 5.5(a) - 9,927 Transfer on exercise of share-based payments 6,188 (3,474) Transfer on lapse of share-based payments - (332) Purchase of shares through employee share plan 5.4(a) (10,787) - - 524,510 524,510 (260) - (260) (260) 524,510 524,250 - - - - - - (188,052) (188,052) - - (138,884) 9,927 (2,714) 332 - - - (10,787) Closing balance at 30 June 2018 2,993,458 13,948 1,022 474,384 3,482,812 Opening balance at 1 July 2018 2,993,458 13,948 1,022 474,384 3,482,812 Profit for the period Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Share-based payments 5.5(a) - - - - - Transfer on exercise of share-based payments Transfer on lapse of share-based payments 15,814 - - - - - 7,684 (4,621) (102) Purchase of shares through employee share plan 5.4(a) (28,339) - - 527,898 527,898 (3,001) - (3,001) (3,001) 527,898 524,897 - - - - - (464,854) (464,854) - 7,684 (11,193) 102 - - - (28,339) Closing balance at 30 June 2019 2,980,933 16,909 (1,979) 526,337 3,522,200 The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements. 66 Consolidated statement of cash flows For the year ended 30 June 2019 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest paid Interest received Income taxes paid Note 2019 $’000 2018 $’000 Restated1 2,442,211 2,274,205 (1,478,153) (1,348,280) 964,058 (34,371) 2,088 (15,321) 925,925 (35,458) 1,596 - Net cash from operating activities 3.4 916,454 892,063 Cash flows from investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Expenditure on projects Acquisition of Joint Venture interest, net of cash acquired 6.1 Acquisition of Winchester South Net cash used in investing activities Cash flows from financing activities Payment of finance facility upfront costs Purchase of shares Proceeds from borrowings Repayment of borrowings Payment of lease liabilities Payment of capital return to shareholders Payment of dividends Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 1,195 (92,847) (32,725) (4,803) (64,618) 804 (78,370) (9,589) (20,214) (277,564) (193,798) (384,933) (1,681) (28,339) 410,000 (8,695) (10,787) 415,000 (536,908) (476,907) (93,116) (74,166) - (138,884) (464,854) (188,052) (714,898) (482,491) 7,758 111,777 119,535 24,639 87,138 111,777 1 The comparative statement for the year ended 30 June 2018 has been restated to give effect to the change in accounting policies. See note 1.5 for further details. The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements. 67 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report Notes to the consolidated financial statements For the year ended 30 June 2019 1. About this report 1.1 Reporting entity Whitehaven Coal Limited (‘Whitehaven’ or ‘Company’) is a for-profit entity, and the principal activity of Whitehaven and its controlled entities (referred to as the ‘Group’) is the development and operation of coal mines in New South Wales and Queensland. The consolidated general purpose financial report of the Group for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the directors on 15 August 2019. Whitehaven Coal Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The address of the Company’s registered office is Level 28, 259 George Street, Sydney NSW 2000. 1.2 Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report also complies with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC). The financial report has been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value (refer to note 5.3). The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 and dated 24 March 2016 and in accordance with that Class Order, all financial information has been presented in Australian dollars and rounded to the nearest thousand dollars unless otherwise stated. 1.3 Significant accounting judgements, estimates and assumptions In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Judgements and estimates which are material to the financial report are found in the following notes: 2.3 Taxes 4.1 Property, plant and equipment 4.2 Exploration and evaluation 4.4 Provisions 6.3 Interest in joint operations page 78 page 85 page 86 page 88 page 105 1.4 Summary of other significant accounting policies The accounting policies set out below, and in the notes, have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by all subsidiaries in the Group. Other significant accounting policies are contained in the notes to the consolidated financial statements to which they relate. (i) Basis of consolidation The consolidated financial report of the Company for the financial year ended 30 June 2019 comprises the Company and its subsidiaries and the Group’s interest in joint operations (together referred to as the ‘Group’). (ii) Foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. Foreign exchange differences arising on translation are recognised in the consolidated statement of comprehensive income. Both the functional and presentation currency of the Company and of all entities in the Group is Australian dollars ($). (iii) Goods and services tax Revenues, expenses and assets (excluding receivables) are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the consolidated statement of financial position. Cash flows are included in the consolidated statement of cash flows on a gross basis and the GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. 68 (iv) Notes to the consolidated financial statements Impact on the Group: The effect of adopting AASB 16 on the Group’s consolidated financial statements is as follows. Only line items that have been restated have been included below. (i) Impact on the consolidated statement of financial position As at 30 June 2018: Right-of-use asset and Lease liability Upon adoption of AASB 16 the present value of the non-cancellable lease payments relating to all contracts within the Group with an identified lease was recognised as a lease liability with a corresponding right-of-use asset, as if AASB 16 had always been applied. As the lease liability and right-of-use asset do not unwind at the same rate, the difference between the right-of-use asset and lease liability upon initial adoption was adjusted in retained earnings. The statement of financial position as at 30 June 2018 was restated resulting in recognition of a right-of-use asset (included in Property, plant and equipment) for $195,868,000, a Lease liability (included in Loans and borrowings) for $205,874,000, a Deferred tax asset for $3,002,000 and a Retained earnings adjustment for $7,004,000. The notes to these consolidated financial statements have been organised into logical groupings to present more meaningful and dynamic information to users. To the extent possible the relevant accounting policies and numbers have been provided in the same note. The Group has also reviewed the notes for materiality and relevance and provided additional information where considered material and relevant to the operations, financial position and performance of the Group. 1.5 New standards, interpretations and amendments adopted by the Group The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those of the previous financial year, except for the adoption of new standards and interpretations effective as of 1 July 2018. The Group has early adopted AASB 16 Leases effective from 1 July 2018. Other than AASB 16 Leases, the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The Group applies, for the first time, AASB 16 Leases, AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments. The nature and effect of these changes is described below. Several other amendments and interpretations apply for the first time in the current year. However, they do not impact the consolidated financial statements of the Group. a) AASB 16 Leases The Group has elected to adopt AASB 16 Leases from 1 July 2018 using the full retrospective method and therefore the comparative information has been restated to reflect this change in accounting policy. AASB 16 supersedes AASB 117 and its associated interpretative guidance and provides a new lessee accounting model which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Under AASB 16, a lessee is required to recognise, at the commencement date of the lease, the present value of non-cancellable lease payments as a lease liability on the statement of financial position with a corresponding right- of-use asset. The unwind of the financial charge on the lease liability and the amortisation of the leased asset are recognised in the statement of comprehensive income based on the implied interest rate and contract term respectively. 69 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 1. About this report (cont.) 1.5 New standards, interpretations and amendments adopted by the Group (cont.) a) AASB 16 Leases (cont.) (i) Impact on the consolidated statement of financial position (cont.) Assets Property, plant & equipment Total assets Liabilities As previously reported AASB 16 impact $’000 $’000 Restated $’000 3,550,890 4,430,048 195,868 195,868 3,746,758 4,625,916 Interest bearing loans and borrowings (current) (35,137) (70,316) (105,453) Interest bearing loans and borrowings (non-current) (347,083) (135,558) (482,641) Deferred tax liabilities Total liabilities Net assets Equity Retained earnings Total equity As at 30 June 2017: Assets Property, plant & equipment Deferred tax assets Total assets Liabilities Interest bearing loans and borrowings (current) Interest bearing loans and borrowings (non-current) Total liabilities Net assets Equity Retained earnings Total equity (201,995) 3,002 (198,993) (940,232) (202,872) (1,143,104) 3,489,816 (7,004) 3,482,812 (481,388) (3,489,816) 7,004 7,004 (474,384) (3,482,812) As previously reported AASB 16 impact $’000 $’000 Restated $’000 3,442,467 228,283 3,670,750 32,729 2,545 35,274 3,967,040 230,828 4,197,868 (23,560) (374,715) (54,991) (78,551) (181,775) (556,490) (674,744) (236,766) (911,510) 3,292,296 (5,938) 3,286,358 (146,246) (3,292,296) 5,938 5,938 (140,308) (3,286,358) 70 Notes to the consolidated financial statementsFor the year ended 30 June 2019 (ii) Impact on the consolidated statement of comprehensive income as at 30 June 2018: Operating expenses, Depreciation and Amortisation and Financial Expenses Prior to the adoption of AASB 16 the Group recognised operating leases in the form of mining equipment and other infrastructure commitments in Operating expenses in the statement of comprehensive income. Upon adoption of AASB 16 the unwind of the lease liability is charged to the statement of comprehensive income in Financial expenses, unwinding using the effective interest method, and amortisation of the right-of-use asset is charged to the statement of comprehensive income in Depreciation and amortisation or allocated as part of the inventory costs in the statement of financial position, depreciating the leased assets straight line over the contract term. The consolidated statement of comprehensive income for the year ended 30 June 2018 was restated resulting in an increase in Depreciation and amortisation and Financial expenses amounting to $62,108,000 and $11,326,000 respectively. Subsequently, Operating expenses was restated resulting in a decrease amounting to $71,911,000. Operating expenses Depreciation and amortisation Financial expenses Income tax expense Net profit for the period Attributable to: Owners of the parent Non-controlling interest As previously reported $’000 (664,062) (141,024) (30,491) (234,836) 525,576 AASB 16 impact $’000 71,911 (62,108) (11,326) Restated $’000 (592,151) (203,132) (41,817) 457 (234,379) (1,066) 524,510 525,576 (1,066) 524,510 - - - (iii) Impact on the consolidated statement of cash flows as at 30 June 2018: Cash flows Prior to the adoption of AASB 16 the Group classified cash flows from operating leases within operating activities. Upon adoption of AASB 16 the Group classifies the principal portion of lease payments within financing activities and the interest portion within operating activities. The consolidated statement of cash flows was restated resulting in an increase to Net cash from operating activities amounting to $60,585,000 and an increase in Net cash used in financing activities amounting to $60,585,000. Cash paid to suppliers and employees Interest paid Net cash from operating activities Payment of lease liabilities Net cash used in financing activities There is no material impact on the basic and diluted EPS. As previously reported $’000 (1,420,191) (24,132) 831,478 (13,581) AASB 16 impact $’000 71,911 (11,326) 60,585 (60,585) Restated $’000 (1,348,280) (35,458) 892,063 (74,166) (421,906) (60,585) (482,491) 71 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 1. About this report (cont.) 1.5 New standards, interpretations and amendments adopted by the Group (cont.) b) AASB 15 Revenue from Contracts with Customers The Group has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018 using the modified retrospective method, applying the completed contracts exemption at 1 July 2018 and comparatives are not restated. AASB 15 supersedes AASB 118 Revenue and AASB 111 Construction Contracts and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are within the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. The core principle of AASB 15 is that an entity recognises revenue related to the transfer of promised goods or services when control of the goods or services passes to the customer. The amount of revenue recognised should reflect the consideration to which an entity expects to be entitled in exchange for transferring those goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. Impact on the Group: As the Group’s revenue is derived from the sale of coal on a free on board basis in which the transfer of the risks and rewards coincides with the fulfilment of performance obligations and transfer of control as defined by AASB 15, there was no quantitative change in respect of the timing and amount of revenue the Group currently recognises. c) AASB 9 Financial Instruments The Group has adopted AASB 9 Financial Instruments from 1 July 2018. With the exception of hedge accounting, which the Group has applied prospectively, the Group has applied AASB 9 retrospectively. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting. Impact on the Group: The accounting for the Group’s financial assets, financial liabilities and hedge accounting remains largely the same as under AASB 139 and as a result, there has been no quantitative impact on the Group as a result of adopting AASB 9, and no comparative balances have been restated. A more detailed analysis of the impact on the Group of the main components of AASB 9 is as per the below: 72 Classification and measurement of financial assets: AASB 9 contains three principal classification categories for financial assets: measured at amortised cost, Fair Value through Other Comprehensive Income (“FVOCI”) and Fair Value Through Profit or Loss (“FVTPL”). This is based on the concept that financial assets should be classified and measured at fair value, with changes in fair value recognised in profit or loss as they arise (FVTPL), unless restrictive criteria are met for classifying and measuring the asset at either amortised cost or FVOCI. The classification is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The Group has reviewed and assessed its existing financial assets as at 1 July 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of AASB 9 has had no material impact on the Group’s financial assets in regards to their classification and measurement. Classification and measurement of financial assets remains the same under AASB 9. Impairment: in relation to the impairment of financial assets, AASB 9 introduces a new forward-looking expected credit loss approach, replacing AASB 139’s incurred loss approach whereby the Group needs to record an allowance for expected credit loss upon initial recognition of the financial instrument. For Trade and other receivables, the Group has elected to measure the loss allowance with respect to the 12 month expected credit loss. The Group has assessed the historical credit loss experience, and adjusted it for forward looking factors specific to the debtors and economic environment. Based on this assessment, the initial application of the impairment requirements of AASB 9 has had no material impact on the Group’s financial statements. Hedge accounting: The Group applied hedge accounting prospectively. At the date of the initial application, all of the Group’s existing hedge relationships were eligible to be treated as continuing hedge relationships. Consistent with prior periods, the Group has continued to designate the change in fair value of the entire forward contract in the Group’s cash flow hedge relationships and, as such, the adoption of the hedge accounting requirements of AASB 9 has had no material impact on the Group’s financial statements. Notes to the consolidated financial statementsFor the year ended 30 June 2019 2. Group performance 2.1 Segment reporting Identification of reportable segments The Group identifies its operating segments based on the internal reports that are reviewed and used by the executive management team in assessing performance and in determining the allocation of resources. The performance of operating segments is evaluated at least monthly based on revenues and profit before taxes and is measured in accordance with the Group’s accounting policies. The Group has determined that it has two reportable segments: Open Cut Operations and Underground Operations. Unallocated operations include coal trading, corporate, marketing and infrastructure functions which are managed on a group basis and are not allocated to reportable segments. The Group’s financing (including finance costs and finance income), depreciation and income taxes are managed on a group basis and are not allocated to reportable segments. The following table represents revenue, profit and capital expenditure information for reportable segments: Year ended 30 Jun 2019 Revenue Sales to external customers Revenue by product type: Metallurgical coal Thermal coal Total revenue from contracts with customers Result Segment EBITDA result Depreciation and amortisation Income tax expense Net finance expense Significant items before income tax and depreciation (see note 2.2) Net profit after tax per consolidated statement of comprehensive income Capital expenditure Segment expenditure Open Cut Operations Underground Operations Unallocated Operations $’000 $’000 $’000 Total $’000 1,696,424 567,994 223,526 2,487,944 433,074 1,263,350 1,696,424 101,011 466,983 567,994 - 534,085 223,526 1,953,859 223,526 2,487,944 777,967 247,531 16,186 1,041,684 (224,459) (207,970) (40,901) (40,456) 527,898 30,898 62,945 31,729 125,572 73 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 2. Group performance (cont.) 2.1 Segment reporting (cont.) Year ended 30 Jun 2018 Revenue Sales to external customers Revenue by product type: Metallurgical coal Thermal coal Total revenue from contracts with customers Result Segment EBITDA result (restated) Depreciation and amortisation Income tax expense Net finance expense Net profit after tax per consolidated statement of comprehensive income Capital expenditure Segment expenditure Other segment information Open Cut Operations Underground Operations Unallocated Operations $’000 $’000 $’000 Total $’000 1,582,505 507,199 167,742 2,257,446 354,210 1,228,295 1,582,505 79,517 427,682 507,199 - 433,727 167,742 167,742 1,823,719 2,257,446 773,387 224,242 4,609 1,002,238 (203,132) (234,379) (40,217) 524,510 23,411 56,873 7,675 87,959 Revenue from external customers is attributed to geographic location based on final shipping destination. Revenue by geographic location Japan Taiwan Korea India China Malaysia Indonesia Vietnam Philippines Chile Other New Caledonia Domestic Total revenue 2019 $’000 2018 $’000 1,255,751 1,168,965 262,015 351,328 201,637 66,541 100,267 48,755 67,861 35,933 - 60,952 26,128 10,776 302,279 252,039 128,540 87,184 63,352 60,410 47,323 30,836 30,410 56,192 24,618 5,298 2,487,944 2,257,446 2019/2018 Comparison Revenue by geographic location 2018 2019 74 Notes to the consolidated financial statementsFor the year ended 30 June 2019 Major customers The Group has three major customers which account for 29.4% (2018: 27.4%) of external revenue. Recognition and measurement: The Group recognises sales revenue related to the transfer of promised goods or services when control of the goods or services is transferred to the customer. The amount of revenue recognised reflects the consideration to which the Group is or expects to be entitled in exchange for those goods or services. Sales revenue is recognised on individual sales when control transfers to the customer. The title, risks and rewards, and fulfilment of performance obligation occurs when the product is loaded onto the vessel for delivery to the customer. The Group sells its products on Free on Board terms where the Group has no responsibility for freight or insurance once control of the goods has passed at the loading port. Under these terms there is only one performance obligation, being the provision of goods at the point when control passes to the customer. The Group’s products are sold to customers under contracts which vary in tenure and pricing mechanisms, primarily being monthly or quarterly indexes. Certain sales may be provisionally priced at the date revenue is recognised, however substantially all coal sales are reflected at final prices by the end of the reporting period. The final selling price is based on the price for the quotational period stipulated in the contract. 2.2 Significant items The items below are significant to the understanding of the overall results of the consolidated group. The Company believes the disclosure of these items provides readers of the financial statements with further meaningful insights to understand the financial performance of the Group. Included within the balances presented on the face of the consolidated statement of comprehensive income: Note 2019 $’000 2018 $’000 Operating expenses: Rehabilitation expense1 Depreciation and amortisation: Accelerated depreciation at Narrabri2 Significant items before tax Applicable income tax benefit Significant items after tax 4.4 (40,456) (12,330) (52,786) 15,836 (36,950) - - - - 1 The Group calculates its rehabilitation provisions based on a combination of its own estimates and rehabilitation cost calculators provided by resource regulators. Rehabilitation cost calculators are issued by resource regulators for rehabilitation bonding purposes. During the year ended 30 June 2019, the Group transitioned its rehabilitation provision calculations for most sites to the latest rehabilitation cost calculator available from resource regulators. This resulted in an increase in the rehabilitation provisions within the Group of $138.5 million. The rehabilitation provisions will be reassessed at each reporting date using updated survey results and will incorporate the rehabilitation work undertaken during the period. The increase in the rehabilitation provision at 30 June 2019 for the mines currently in rehabilitation, or approaching rehabilitation was recognised as an ‘Operating expense’ within the Consolidated Statement of Comprehensive Income. The increase in the provision for mines that remain in operation was recognised as an addition to ‘Property, Plant & Equipment’ within the Consolidated Statement of Financial Position. 2 During the year ended 30 June 2019, the Group ordered higher capacity hydraulic cylinders for the longwall roof supports. The new hydraulic cylinders will replace the existing hydraulic cylinders following the change-out of the next longwall panel. As a result, the Group recognised an accelerated depreciation expense in respect of the existing hydraulic cylinders. 75 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 2. Group performance (cont.) 2.3 Taxes a) Income tax expense Current tax expense Current period Deferred tax expense Origination and reversal of temporary differences Adjustments for prior periods 2019 $’000 2018 $’000 Restated (186,774) (204,368) (180,532) (204,368) (27,438) 6,242 (30,011) - Income tax expense reported in the consolidated statement of comprehensive income (207,970) (234,379) Reconciliation between tax expense and profit before tax Profit before tax 735,868 758,889 Income tax expense using the Company’s domestic tax rate of 30% (2018: 30%) (220,760) (227,667) Non-deductible expenses: Share-based payments Other non-deductible expenses On-market share purchases by Employee Share Scheme Trust reimbursed by the Group Over provided in prior periods Total income tax expense b) Income tax recognised directly in other comprehensive income Deferred income tax related to items charged directly to equity Derivatives Income tax expense recorded in equity (2,305) 350 8,503 6,242 (2,978) (3,734) - - (207,970) (234,379) 2019 $’000 1,286 1,286 2018 $’000 Restated 112 112 76 Notes to the consolidated financial statementsFor the year ended 30 June 2019 c) Recognised tax assets and liabilities 2019 2019 2018 2018 Opening balance Charged to income – corporate tax Charged to equity (Utilisation)/recognition of deferred tax asset on current year losses Adjustment for prior periods Payments Closing balance - (186,774) - 171,165 - 15,321 (288) Current income tax payable Deferred income tax Current income tax payable $’000 $’000 (198,993) (27,438) 1,286 $’000 Restated - (204,368) - Deferred income tax $’000 Restated 35,274 (30,011) 112 (171,165) 204,368 (204,368) 6,242 - (390,068) - - - - - (198,993) Deferred income tax assets and liabilities are attributable to the following: Property, plant and equipment Exploration and evaluation Receivables Investments Right-of-use assets and liabilities (net) Deferred stripping Deferred foreign exchange gain Provisions Tax losses Other items Tax assets/(liabilities) Assets 2019 $’000 - - - 307 632 - 120 80,908 33,273 2,963 118,203 2018 $’000 Restated - 7,954 - 358 3,002 - - 37,093 100,361 3,892 152,660 Set off of tax (liabilities)/assets (118,203) (152,660) Liabilities 2019 $’000 (460,817) (30,580) (6,920) - - (9,954) - - - - (508,271) 118,203 Net tax assets/(liabilities) - - (390,068) d) Unrecognised deferred tax assets There were no unrecognised income tax losses at 30 June 2019 (2018: nil). 2018 $’000 Restated (343,115) - (1,275) - - (6,430) (833) - - - (351,653) 152,660 (198,993) 77 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 2. Group performance (cont.) 2.3 Taxes (cont.) Recognition and measurement: Income tax on the profit or loss for the year comprises current and deferred tax. Income tax relating to items recognised directly in other comprehensive income is recognised in other comprehensive income and not in the net profit or loss for the year. Current tax Current tax assets and liabilities are measured at the amount expected to be recovered or paid to the taxation authorities based on the taxable income for the year, using tax rates enacted or substantively enacted at the balance date. Deferred tax Deferred tax expense is the movement in the temporary differences between the carrying amount of an asset or liability in the consolidated statement of financial position and its tax base. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets, including unused tax losses, are recognised in relation to deductible temporary differences and carried forward income tax losses only to the extent that it is probable that sufficient future taxable profits will be available to utilise them. Deferred tax assets and liabilities are not recognised for taxable temporary differences that arise from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither accounting profit nor the taxable profit. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates and laws that have been enacted or substantively enacted at the balance date. Offsetting deferred tax balances Deferred tax assets and liabilities are offset only if a legally enforceable right exists to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. Tax consolidation Whitehaven Coal Limited and its wholly owned Australian resident subsidiaries have formed a tax consolidated group with effect from 29 May 2007 and are therefore taxed as a single entity from that date. Whitehaven Coal Limited is the head entity of the tax consolidated group. The entities within the tax consolidated group have entered into a tax sharing arrangement which provides for the allocation of income tax liabilities between the entities, should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. The entities within the tax consolidated group have also entered into a tax funding agreement. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. Under the terms of the tax funding arrangement Whitehaven Coal Limited and each of the entities in the tax consolidated group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. Whitehaven Coal Limited and the subsidiaries in the tax consolidated group continue to account for their own current and deferred tax amounts. The amounts are measured as if each entity in the tax consolidated group continues to be a standalone tax payer in its own right. The current tax balances are then transferred to Whitehaven Coal Limited via intercompany balances. Significant accounting judgements, estimates and assumptions Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future production and sales volumes, operating costs, rehabilitation costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the consolidated statement of financial position and the amount of other tax losses and temporary differences not yet recognised which may require adjustment, resulting in a corresponding credit or charge to the consolidated statement of comprehensive income. 78 Notes to the consolidated financial statementsFor the year ended 30 June 2019 2.4 Earnings per share Basic earnings per share The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year calculated as follows: 2019 2018 Restated Profit attributable to ordinary shareholders Net profit attributable to ordinary shareholders ($‘000) 527,898 524,510 Weighted average number of ordinary shares Issued ordinary shares at 1 July (000’s) Effect of shares acquired during the year (000’s) Weighted average number of ordinary shares at 30 June (000’s) 992,026 992,026 (4,480) (3,667) 987,546 988,359 Basic earnings per share attributable to ordinary shareholders (cents) 53.5 53.1 Diluted earnings per share The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding adjusted for the diluting impact of potential equity instruments calculated as follows: 2019 2018 Restated Profit attributable to ordinary shareholders (diluted) Net profit attributable to ordinary shareholders (diluted) ($’000) 527,898 524,510 Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares (basic) (000’s) Effect of share options/performance rights on issue (000’s) Weighted average number of ordinary shares (diluted) (000’s) 987,546 19,853 988,359 17,604 1,007,399 1,005,963 Diluted earnings per share attributable to ordinary shareholders (cents) 52.4 52.1 79 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 3. Working capital and cash flows 3.1 Trade and other receivables Current Trade receivables Other receivables and prepayments Receivables due from joint operations Non-current Other receivables and prepayments Recognition and measurement: 2019 $’000 113,441 34,347 7,957 155,745 2018 $’000 57,835 26,267 13,596 97,698 10,518 11,732 Trade receivables, which generally have between 5 and 21 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for impairment. Recoverability of trade receivables is reviewed on an ongoing basis. 3.2 Inventories Coal stocks1 Consumables and stores 1 Coal stocks include run of mine and product coal. Recognition and measurement: 2019 $’000 114,036 34,903 2018 $’000 99,435 25,132 148,939 124,567 Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of coal inventories is determined using a weighted average basis. Cost includes direct material, overburden removal, mining, processing, labour, mine rehabilitation costs incurred in the extraction process and other fixed and variable overhead costs directly related to mining activities. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the tonnes of contained coal are based on assay data, and the estimated recovery percentage is based on the expected processing method. Stockpile tonnages are verified by periodic surveys. 80 Notes to the consolidated financial statementsFor the year ended 30 June 2019 3.3 Trade and other payables Current Trade payables Other payables and accruals 2019 $’000 63,157 134,574 197,731 2018 $’000 47,295 176,689 223,984 Recognition and measurement: Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost when goods and services are received, whether or not billed to the Group, prior to the end of the reporting period. Due to their short-term nature they are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. 3.4 Reconciliation of cash flows from operating activities Profit for the period Adjustments for: Depreciation and amortisation Amortisation of deferred development costs Development costs deferred Write-off of finance facility upfront costs Amortisation of finance facility upfront costs Non cash interest (expense)/income accruals Foreign exchange losses/(gain) unrealised Unwinding of discounts on provisions Share-based compensation payments Gain on sale of non-current assets Subtotal Change in trade and other receivables Change in inventories and deferred stripping Change in trade and other payables Change in provisions and employee benefits Change in tax payable Change in deferred taxes Cash flows from operating activities Recognition and measurement: 2019 $’000 2018 $’000 Restated 527,898 524,510 4.1 4.1 224,459 57,946 203,132 37,835 (110,239) (102,238) 4.4 5.5(a) - 6,446 (56) 2,969 2,343 7,684 (1,769) 717,681 (45,855) (23,984) 29,120 46,844 288 192,360 916,454 841 2,082 1,365 (5,206) 2,182 9,927 (315) 674,115 15,828 (32,004) (5,873) 5,538 - 234,459 892,063 Cash and cash equivalents comprise cash at bank and in hand and short term deposits. For the purpose of the consolidated statement of cash flows, cash and cash equivalents is equal to the balance disclosed in the consolidated statement of financial position. 81 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 4. Resource assets and liabilities 4.1 Property, plant and equipment Year ended 30 June 2019 Cost Balance at 1 July 2018 Additions Transfers PPE acquired as part of Tarrawonga acquisition Disposals Balance at 30 June 2019 Freehold land Plant and equipment Leased plant and equipment Mining property and development Subtotal Deferred development Deferred stripping Subtotal Total Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 109,960 877,001 474,449 2,994,501 4,455,911 296,106 1,672,090 1,968,196 6,424,107 964 59,258 58,687 168,225 287,134 110,239 396,865 507,104 794,238 - - 1,192 - - - (1,192) - 4,803 4,803 (3,435) (3,997) (32,364) - (39,796) - - - - - - - - - - 4,803 (39,796) 107,489 933,454 500,772 3,166,337 4,708,052 406,345 2,068,955 2,475,300 7,183,352 Accumulated depreciation Balance at 1 July 2018 Depreciation charge for the year Disposals Transfers Balance at 30 June 2019 Carrying amount at 30 June 2019 - - - - - (322,488) (177,956) (421,176) (921,620) (105,072) (1,650,657) (1,755,729) (2,677,349) (56,030) (89,009) (91,552) (236,591) (57,946) (385,119) (443,065) (679,656) 3,975 11,550 - 15,525 (1,192) - 1,192 - - - - - - - 15,525 - (375,735) (255,415) (511,536) (1,142,686) (163,018) (2,035,776) (2,198,794) (3,341,480) 107,489 557,719 245,357 2,654,801 3,565,366 243,327 33,179 276,506 3,841,872 82 Notes to the consolidated financial statementsFor the year ended 30 June 2019 Year ended 30 June 2018 Cost Balance at 1 July 2017 Impact of change in accounting policy Balance at 1 July 2017 (restated) Additions (restated) Transfers PPE acquired as part of Tarrawonga acquisition Disposals/mined out panels Balance at 30 June 2018 Accumulated depreciation Balance at 1 July 2017 Impact of change in accounting policy Balance at 1 July 2017 (restated) Depreciation charge for the year Disposals/mined out panels PPE acquired as part of Tarrawonga acquisition Balance at 30 June 2018 Carrying amount at 30 June 2018 Note Freehold land Plant and equipment Leased plant and equipment Mining property and development Subtotal Deferred development Deferred Stripping Subtotal Total Total $’000 $’000 Restated $’000 $’000 $’000 $’000 $’000 $’000 171,921 850,732 90,019 2,857,382 3,970,054 404,777 1,107,888 1,512,665 5,482,719 - - 311,309 - 311,309 - - - 311,309 171,921 850,732 401,328 2,857,382 4,281,363 404,777 1,107,888 1,512,665 5,794,028 10,306 36,243 103,463 36,243 186,255 102,238 415,188 517,426 703,681 - - 72,267 - 28,609 30,724 - - - - - 149,014 149,014 179,738 (72,267) - 2,115 - - (12,089) (30,342) - (42,431) (210,909) - (210,909) (253,340) 109,960 877,001 474,449 2,994,501 4,455,911 296,106 1,672,090 1,968,196 6,424,107 - - - - - - - (289,315) (44,837) (327,728) (661,880) (278,146) (1,100,226) (1,378,372) (2,040,252) - (83,027) - (83,027) - - - (83,027) (289,315) (127,864) (327,728) (744,907) (278,146) (1,100,226) (1,378,372) (2,123,279) (43,048) (71,843) (87,514) (202,405) (37,835) (401,417) (439,252) (641,657) 11,580 21,751 - 33,331 210,909 - 210,909 244,240 (1,705) - (5,934) (7,639) - (149,014) (149,014) (156,653) (322,488) (177,956) (421,176) (921,620) (105,072) (1,650,657) (1,755,729) (2,677,349) 109,960 554,513 296,493 2,573,325 3,534,291 191,034 21,433 212,467 3,746,758 83 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 4. Resource assets and liabilities (cont.) 4.1 Property, plant and equipment (cont.) Leased Plant & Equipment disclosures All right-of-use assets recognised as ‘Leased plant and equipment’ above in note 4.1 relate to the plant and equipment classification. The cost relating to leases with a contract term of less than twelve months amounted to $9,124,000 for the year ended 30 June 2019 (2018: $7,072,000). The cost relating to variable lease payments that do not depend on an index or a rate amounted to $34,243,000 in the year ended 30 June 2019 (2018: $39,790,000). A maturity analysis of lease liabilities is shown in Note 5.3(c). For future payments payable under leases which are in place at the reporting date, refer to Note 7.3(b). Recognition and measurement: Property, Plant and Equipment Property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items and costs incurred in bringing assets into use. Subsequent expenditure is capitalised when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Depreciation Depreciation and amortisation is charged to the consolidated statement of comprehensive income on a straight line basis at the rates indicated below. Depreciation commences on assets when it is deemed they are capable of operating in the manner intended by management: – freehold land not depreciated – plant and equipment 2%–50% – leased plant and equipment – mining property and development, deferred development and deferred stripping 3%–20% units of production The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. Any changes are accounted for prospectively. When an asset is surplus to requirements or no longer has an economic value, the carrying amount of the asset is written down to its recoverable amount. Mining property and development Mine property and development assets include costs transferred from exploration and evaluation assets once technical feasibility and commercial viability of an area of interest are demonstrable. After transfer, all subsequent mine development expenditure is similarly capitalised, to the extent that commercial viability conditions continued to be satisfied. Costs of dismantling and site rehabilitation are capitalised, if the recognition criteria is met and included within Mining Property and Development. Biodiversity assets are included within Mining Property and Development and relate to land acquired and managed to fulfil the biodiversity obligations associated with mine approval. The cost of the land is capitalised as a mining property and development asset which is subsequently depreciated via the units of production method. Leased plant and equipment At the inception of a contract, the Group assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to use or control the use of an identified asset for a period of time, in exchange for consideration. At the commencement date of the lease, the Group recognises a lease liability and a corresponding right-of-use asset. The lease liability is initially recognised for the present value of non-cancellable lease payments discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The right-of-use asset is initially measured at cost which comprises the initial amount of the lease liability plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset. The right-of-use asset is depreciated to the earlier of the useful life of the asset or the lease term using the straight line method and is recognised in the statement of comprehensive income in Depreciation and amortisation. The unwind of the financial charge on the lease liability is recognised in the statement of comprehensive income in Net Financial Expenses based on the implied interest rate or, if used, the Group’s incremental borrowing rate. The Group does not recognise leases that have a lease term of 12 months or less or are of low value as a right-of-use asset or lease liability. The lease payments associated with these leases are recognised as an expense in the consolidated statement of comprehensive income in Operating expenses on a straight line basis over the lease term. 84 Notes to the consolidated financial statementsFor the year ended 30 June 2019 Deferred development Impairment Deferred development mainly comprises capitalised costs (deferred development expenditure) related to underground mining incurred to expand the capacity of an underground mine and to maintain production. Deferred stripping Expenditure incurred to remove overburden or waste material during the production phase of an open cut mining operation is deferred to the extent it gives rise to future economic benefits and charged to operating costs on a units of production basis using the estimated average stripping ratio for the area being mined. Changes in estimates of average stripping ratios are accounted for prospectively. The stripping activity asset is subsequently depreciated on a units of production basis over the life of the identified component of the ore body that became more accessible as a result of the stripping activity. For the purposes of assessing impairment, deferred stripping assets are grouped with other assets of the relevant cash generating unit. The carrying amounts of the Group’s non-financial assets are reviewed at each balance date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash-generating unit’). The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal (‘FVLCD’). In assessing FVLCD, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (group of units) on a pro rata basis. Significant accounting judgements, estimates and assumptions Recoverable amount of assets The Group assesses at the end of each period, whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. The recoverable amounts of cash-generating units and individual assets are determined based on the higher of value-in-use calculations and FVLCD. These calculations require the use of estimates and assumptions. Expected future cash flows used to determine the FVLCD of tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including reserves and production estimates, together with economic factors such as spot and future coal prices, discount rates, foreign currency exchange rates, estimates of costs to produce reserves, stripping ratio, production rates and future capital expenditure. It is reasonably possible that these assumptions may change which may then impact the estimated life of mine which could result in a material adjustment to the carrying value of tangible assets. The determination of FVLCD for a CGU is considered to be a Level 3 fair value measurement, as they are derived from valuation techniques that include inputs that are not based on observable market data. The Group considers the inputs and the valuation approach to be consistent with the approach taken by market participants. Mineral reserves and resources The estimated quantities of economically recoverable Reserves and Resources are based upon interpretations of geological and geophysical models and require assumptions to be made requiring factors such as estimates of future operating performance, future capital requirements and short and long term coal prices. The Group is required to determine and report Reserves and Resources under the Australian Code for Reporting Mineral Resources and Ore Reserves December 2012 (the JORC Code). The JORC Code requires the use of reasonable investment assumptions to calculate reserves and resources. Changes in reported Reserves and Resources can impact the carrying value of property, plant and equipment, provision for rehabilitation as well as the amount charged for amortisation and depreciation. 85 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 4. Resource assets and liabilities (cont.) 4.2 Exploration and evaluation Exploration and evaluation assets Balance at 1 July 2018 Exploration and evaluation expenditure Balance at 30 June 2019 Balance at 1 July 2017 Exploration and evaluation expenditure Acquisition of Winchester South Balance at 30 June 2018 $’000 508,552 38,537 547,089 156,781 9,589 342,182 508,552 During the year ended 30 June 2018, the Group acquired a 100% interest in the Winchester South coking coal project for total consideration of US$262.5 million (US$212.5 million paid on completion in June 2018 and US$50 million paid 12 months post completion in June 2019). Exploration and evaluation assets include tenements granted by the Queensland State Government which are subject to periodic relinquishment requirements of up to 20% per year. Recognition and measurement: Exploration and evaluation assets, including the costs of acquiring licences, are capitalised on an area of interest basis and only after the Company has obtained the legal rights to explore the area. Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either: i) the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or ii) activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing. Exploration and evaluation assets are assessed for impairment if: i) sufficient data exists to determine technical feasibility and commercial viability, and ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For the purposes of impairment testing, exploration and evaluation assets are not allocated to cash-generating units. Where a potential impairment is indicated, an assessment is performed for each area of interest or at the CGU level, in line with the assessment disclosed at note 4.1. To the extent that capitalised expenditure is not expected to be recovered it is charged to the consolidated statement of comprehensive income. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets within property, plant and equipment. Significant accounting judgements, estimates and assumptions The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement in determining whether future economic benefits are likely, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalised, information becomes available indicating that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated statement of comprehensive income in the period when the new information becomes available. The recoverability of the carrying amount of exploration and evaluation assets is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. 86 Notes to the consolidated financial statementsFor the year ended 30 June 2019 4.3 Intangible assets Balance at 1 July 2018 Additions Disposals Balance at 30 June 2019 Balance at 1 July 2017 Additions Disposals Balance at 30 June 2018 Water access rights Rail access rights1 $’000 11,082 323 (1,173) 10,232 11,082 - - $’000 11,118 - - 11,118 11,118 - - Total $’000 22,200 323 (1,173) 21,350 22,200 - - 11,082 11,118 22,200 1 As part of the agreement to cancel previously existing infrastructure sharing arrangements Whitehaven agreed to pay 10.1% of the construction cost of the shared portion of the Boggabri – Maules Creek rail spur. In return, Whitehaven receives access to rail tonnes on the joint rail spur. Recognition and measurement: Water access rights The Group holds water access rights, which have been determined to have an indefinite life. The water access rights have been recognised at cost and are assessed annually for impairment. Rail access rights Rail access rights have a finite useful life and are carried at cost less, where applicable, any accumulated amortisation and accumulated impairment losses. Rail access rights are amortised over the access agreement. 4.4 Provisions Movement in Mine rehabilitation and Biodiversity obligations provisions Balance at 1 July 2018 Change in cost estimates1 Expenditure on closure, rehabilitation and biodiversity activities Unwinding of discount Balance at 30 June 2019 Current Non-current Balance at 30 June $’000 108,337 179,524 - 2,343 290,204 2018 $’000 6,136 102,201 108,337 2019 $’000 29,985 260,219 290,204 1 The Group calculates its mine rehabilitation and closure provisions based on a combination of its own estimates and rehabilitation cost calculators provided by resource regulators. During the year ended 30 June 2019, the Group transitioned its rehabilitation provisions calculations to the latest rehabilitation cost calculator available from resource regulators which resulted in an increase to rehabilitation provisions across the Group. The resulting increase to the rehabilitation provision of $40,456,000 for the mines currently in rehabilitation, or approaching rehabilitation in the near future was recognised as an ‘Operating expense’ within the Consolidated Statement of Comprehensive Income. The resulting increase to the rehabilitation provision for the operating sites was recognised as an addition to ‘Property, Plant & Equipment’ within the Consolidated Statement of Financial Position. In the current year, the Group has also recognised a provision for biodiversity obligations which includes the estimated costs of certain activities that the Group has committed to perform under the terms of certain mining licences. The resulting increase to the provisions was recognised as an addition to ‘Property, Plant & Equipment’ within the Consolidated Statement of Financial Position. 87 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 4. Resource assets and liabilities (cont.) 4.4 Provisions (cont.) Recognition and measurement: Provisions are recognised when: – the Group has a present legal or constructive obligation as a result of a past event; – it is probable that resources will be expended to settle the obligation; and – the amount of the provision can be measured reliably. Mine rehabilitation and closure Provisions are made for the estimated cost of rehabilitation relating to areas disturbed during the mine’s operation up to reporting date but not yet rehabilitated. The nature of rehabilitation activities includes dismantling and removing operating facilities, re-contouring and top soiling the mine, and restoration, reclamation and revegetation of affected areas. Provision has been made in full for all disturbed areas at the reporting date based on current estimates of costs to rehabilitate such areas, discounted to their present value based on expected future cash flows. The obligation to rehabilitate arises at the commencement of the mining project and/or when the environment is disturbed at the mining location. At this point, the provision is recognised as a liability with a corresponding asset included in mining property and development assets. Additional disturbances or changes in the rehabilitation costs are reflected in the present value of the rehabilitation provision, with a corresponding change in the cost of the associated asset. In the event the restoration provision is reduced, the cost of the related asset is reduced by an amount not exceeding its carrying value. The unwinding of the effect of discounting the provision is recorded as a finance cost in the consolidated statement of comprehensive income. The carrying amount capitalised as a part of mining property and development assets is depreciated over the useful life of the related asset. For closed mines, changes to estimated costs are recognised immediately in the consolidated statement of comprehensive income. The amount of the provision relating to rehabilitation of environmental disturbance caused by on-going production and extraction activities is recognised in the consolidated statement of comprehensive income as incurred. Biodiversity obligations The Group has, under the terms of certain mining licenses, obligations to perform works to establish or upgrade biodiversity offset areas and to set aside and maintain those areas. Provisions are made for the estimated cost of the Group’s biodiversity obligations based on current estimates of certain activities that the Group has committed to perform. These costs are discounted to their present value based on expected future cash flows. The provision is recognised as a liability with a corresponding asset included in mining property and development assets. The unwinding of the effect of discounting the provision is recorded as a finance cost in the consolidated statement of comprehensive income. The carrying amount capitalised as a part of mining property and development is depreciated via the units of production method. Significant accounting judgements, estimates and assumptions Significant estimates and assumptions are made in determining the provision for mine rehabilitation and biodiversity as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities and biodiversity, technological changes, regulatory changes, cost increases, and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provisions at balance date represent management’s best estimate of the present value of the future rehabilitation and biodiversity costs required. 88 Notes to the consolidated financial statementsFor the year ended 30 June 2019 5. Capital structure and financing 5.1 Loans and borrowings Current liabilities Lease liabilities Lease liabilities associated with right-of-use assets Secured loans – ECA facility Capitalised borrowing costs Non-current liabilities Senior bank facility Lease liabilities Lease liabilities associated with right-of-use assets Secured loans – ECA facility Capitalised borrowing costs 2019 $’000 21,969 54,563 11,908 (6,712) 81,728 2018 $’000 Restated 29,359 70,316 11,908 (6,130) 105,453 160,000 275,000 85,444 79,548 16,444 56,982 135,558 28,353 (7,907) (13,252) 333,529 415,257 482,641 588,094 Financing facilities 1,269,876 1,332,476 Facilities utilised at reporting date 429,876 607,476 Facilities not utilised at reporting date 840,000 725,000 Financing activities during the financial year During the current period $525 million of debt drawn under the senior bank facility was repaid (30 June 2018: $465 million) and $410 million was redrawn (30 June 2018: $415 million). The Group repaid $11.9 million of the ECA facility during the period (30 June 2018: $11.9 million). The senior bank facility and the ECA facility are secured via a fixed and floating charge over the majority of the Group’s assets. The prior comparative period was restated for the impact of adopting AASB 16 Leases. This increased the lease liabilities by $205,874,000 as at 30 June 2018. Lease liabilities are secured over the leased assets to which they relate. The fair values of loans and borrowings materially approximate their respective carrying values as at 30 June 2019 and 30 June 2018. Recognition and measurement: All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Refer to note 4.1 for the recognition and measurement policy for lease liabilities. 89 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.2 Finance income and expense Recognised in the statement of comprehensive income Interest income Financial income Interest expense on lease liabilities Interest on drawn debt facility Other financing costs Interest and financing costs Net interest expense Unwinding of discounts on provisions Amortisation of finance facility upfront costs Other financial expenses Net financial expense Recognised directly in equity Net change in cash flow hedges Income tax effect Financial income recognised directly in other comprehensive income, net of tax 2019 $’000 2,092 2,092 (12,901) (8,620) (13,434) (34,955) (32,863) (2,343) (5,695) (8,038) 2018 $’000 Restated 1,600 1,600 (13,269) (6,696) (14,699) (34,664) (33,064) (2,182) (4,971) (7,153) (40,901) (40,217) (4,287) 1,286 (3,001) (372) 112 (260) Recognition and measurement: Finance income comprises interest income on funds invested and foreign currency gains. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses in relation to finance leases, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in the statement of comprehensive income using the effective interest method, except where capitalised as part of a qualifying asset. Foreign currency gains and losses are reported on a net basis. 90 Notes to the consolidated financial statementsFor the year ended 30 June 2019 5.3 Financial risk management objectives and policies a) Overview The Group’s overall risk management program seeks to mitigate risks and reduce the volatility of the Group’s financial performance. Financial risk management is carried out centrally by Group Treasury and monitored by the Group’s Audit and Risk Management Committee under policies approved by the Board of Directors. The Committee reports regularly to the Board on its activities and also reviews policies and systems regularly to reflect changes in market conditions and the Group’s activities. The Group’s principal financial risks are associated with: – market risk – credit risk – liquidity risk b) Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group defines capital as total shareholders’ equity and debt. The Board manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. There were no changes in the Group’s approach to capital management during the year. The Group’s gearing ratio is calculated as net debt divided by total equity plus net debt. Interest-bearing loans and borrowings Less: cash and cash equivalents Net debt Equity Equity and net debt Gearing ratio c) Risk exposures and responses Market Risk – Foreign currency risk 2019 $’000 415,257 (119,531) 295,726 2018 $’000 Restated 588,094 (111,777) 476,317 3,522,200 3,482,812 3,817,926 3,959,129 8% 12% The Group is exposed to currency risk on sales, purchases and demurrage that are denominated in a currency other than the respective functional currency of the Group, the Australian dollar (AUD). The currency in which these transactions primarily are denominated is US Dollars (USD). The Group may use forward exchange contracts (FECs) to hedge its currency risk in relation to contracted sales where both volume and US dollar price are fixed. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when necessary to address short-term imbalances. During the current year ended 30 June 2019, a net foreign exchange loss of $2.4m was recognised (2018: net foreign exchange gain of $4.1m). The Group designates its forward exchange contracts in cash flow hedges and measures them at fair value. The fair value of forward exchange contracts used as hedges at 30 June 2019 was $2.7m (2018: $1.7m), comprising assets and liabilities that were recognised as derivatives. 91 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) c) Risk exposures and responses (cont.) At 30 June 2019, the Group had the following financial instruments that were not designated in cash flow hedges that were exposed to foreign currency risk: 2019 $’000 USD 53,521 13,062 (9,394) 57,189 2018 $’000 USD 23,254 20,189 (10,010) 33,433 Average rate Reporting date spot rate 2019 0.7156 2018 0.7753 2019 0.7013 2018 0.7391 Cash and cash equivalents Trade and other receivables Trade and other payables Net statement of financial position exposure The following exchange rates applied during the year: Fixed rate instruments USD Market Risk – Foreign currency risk Sensitivity analysis A change in 10 per cent of the Australian dollar against the following currencies at 30 June would have increased/ (decreased) equity and pre-tax profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2018. 30 June 2019 AUD:USD strengthening by 10 per cent AUD:USD weakening by 10 per cent 30 June 2018 AUD:USD strengthening by 10 per cent AUD:USD weakening by 10 per cent Equity Profit or (loss) $’000 $’000 (6,161) 7,528 (1,940) 2,368 (7,692) 9,401 (4,112) 5,026 92 Notes to the consolidated financial statementsFor the year ended 30 June 2019 Market Risk – Interest rate risk The Group‘s borrowings comprise both variable and fixed rate instruments. The variable rate borrowings expose the Group to a risk of changes in cash flows due to the changes in interest rates. Management analyses interest rate exposure on an ongoing basis and uses interest rate swaps to mitigate interest rate risk. At the reporting date the interest rate profile of the Group‘s interest-bearing financial instruments was: Fixed rate instruments Lease liabilities Variable rate instruments Financial assets Financial liabilities Net exposure Carrying amount 2019 $’000 2018 $’000 Restated (241,524) (292,215) (241,524) (292,215) 119,531 111,777 (188,352) (315,261) (68,821) (203,484) (310,345) (495,699) Sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2018. 30 June 2019 100bp increase 100bp decrease 30 June 2018 100bp increase 100bp decrease Equity Profit or (loss) $’000 $’000 21 (22) 122 (125) (688) 688 (2,035) 2,035 93 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) c) Risk exposures and responses (cont.) Market Risk – Commodity price risk The Group’s major commodity price exposure is to the price of coal. The Group has chosen not to hedge against the movement in coal prices. Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade receivables, available for sale financial assets, derivative financial instruments and the granting of financial guarantees. The Group‘s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of the financial assets, as outlined below. Exposure to credit risk The Group’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Derivative financial instruments Investments Note 3.1 5.3(d) Carrying amount 2019 $’000 119,531 113,441 47 37 2018 $’000 111,777 57,835 2,595 37 233,056 172,244 The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Asia Europe Australia Trade receivables 87,411 21,867 4,163 113,441 45,169 11,528 1,138 57,835 The Group‘s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Approximately 29.4% of the Group’s revenue is attributable to sales transactions with three customers (2018: 27.4% with three customers). The Group trades only with recognised, creditworthy third parties and generally does not require collateral in respect of trade receivables. Receivable balances are monitored on an ongoing basis and as a result the exposure to bad debts is not significant. The Group recognised an impairment loss for trade receivables of $nil during the year ended 30 June 2019 (2018: $nil). 94 Notes to the consolidated financial statementsFor the year ended 30 June 2019 The aging of the Group’s trade receivables at the reporting date was: Not past due Past due 0–30 days Past due 31–120 days Past due 121 days to one year More than one year Guarantees Gross 2019 $’000 110,938 2,492 11 - - Gross 2018 $’000 50,464 4,105 3,266 - - 113,441 57,835 The policy of the Group is to provide bank guarantees for bonding requirements associated with the mining operations, infrastructure assets and other purposes such as security of leased premises. Guarantees are provided under the senior secured bank facility, secured bilateral bank guarantee facilities, as well as unsecured bank facilities. Details of outstanding guarantees are provided in note 7.4. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically, the Group ensures that it has sufficient cash on demand to meet all expected operational expenses as and when due, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 30 June 2019 Carrying amount Contractual cash flows 6 mths or less 6–12 mths 1–2 years 2–5 years More than 5 years $’000 $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities Lease liabilities 241,524 285,649 46,477 39,831 63,036 90,389 45,916 Senior bank facility 160,000 160,000 - - - 160,000 - Secured loans Trade and other payables Forward exchange contracts: 28,352 197,731 30,849 6,512 6,373 4,190 10,238 3,536 197,731 197,731 - Outflow Inflow 198,117 197,267 173,407 23,860 (195,430) (196,280) (172,295) (23,985) - - - - - - - - - 630,294 675,216 251,832 46,079 67,226 260,627 49,452 95 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) c) Risk exposures and responses (cont.) 30 June 2018 Carrying amount Contractual cash flows 6 mths or less 6–12 mths 1–2 years 2–5 years More than 5 years $’000 $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities Lease liabilities (restated) 292,215 343,328 65,001 45,686 79,312 85,260 68,069 Senior bank facility 275,000 275,000 - - - 275,000 - Secured loans 40,261 44,282 6,788 6,645 12,885 11,227 6,737 Trade and other payables 223,984 223,984 223,984 - Forward exchange contracts: Outflow Inflow (16,138) 112,086 44,564 67,522 14,429 (108,289) (43,671) (64,618) - - - - - - - - - 829,751 890,391 296,666 55,235 92,197 371,487 74,806 d) Net fair values The following table provides the fair value measurement hierarchy of the Group’s financial assets and financial liabilities as at 30 June 2019 and 30 June 2018. – Level 1 – measurements based upon quoted prices (unadjusted) in active markets for identical assets or liabilities, – Level 2 – measurements based upon inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices), and – Level 3 – measurements based on inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group held the following financial instruments carried at fair value in the consolidated statement of financial position: Assets measured at fair value Equity shares Forward exchange contracts – receivable Liabilities measured at fair value Forward exchange contracts – payable Interest rate swaps – payable 30 June 2019 $’000 Level 1 $’000 Level 2 $’000 Level 3 $’000 37 47 84 (2,734) (140) (2,874) - - - - - - - 47 47 (2,734) (140) (2,874) 37 - 37 - - - 96 Notes to the consolidated financial statementsFor the year ended 30 June 2019 Assets measured at fair value Equity shares Forward exchange contracts – receivable Liabilities measured at fair value Forward exchange contracts – payable Interest rate swaps – payable 30 June 2018 $’000 Level 1 $’000 Level 2 $’000 Level 3 $’000 37 2,595 2,632 (888) (248) (1,136) - - - - - - - 2,595 2,595 (888) (248) (1,136) 37 - 37 - - - The fair value of derivative financial instruments is derived using valuation techniques based on observable market inputs, such as forward currency rates, at the end of the reporting period. The amounts disclosed in the consolidated statement of financial position are the fair values and are classified under level 2 in the fair value measurement hierarchy. During the period the Group entered into forward exchange contracts to hedge foreign exchange risk. A number of these contracts remained open at 30 June 2019. The carrying values of financial assets and financial liabilities recorded in the financial statements materially approximates their respective net fair values, determined in accordance with the accounting policies disclosed in note 3.1, 3.3 and 5.1 to the financial statements. e) Financial assets and liabilities by categories Financial assets Cash and cash equivalents Trade and other receivables Investments Other financial assets1 Total financial assets 2019 2018 Amortised cost $’000 Other1 $’000 Amortised cost $’000 119,531 166,263 - - 285,794 - - 37 47 84 111,777 109,430 - - 221,207 Note 3.1 5.3(d) 1 Other financial assets include $0.1 million (2018: $2.6 million) relating to derivatives in designated hedges. Financial liabilities Trade and other payables Loans and borrowings (restated) Other financial liabilities2 Total financial liabilities 2019 Amortised cost1 Note $’000 3.3 5.1 5.3(d) 197,731 415,257 - 612,988 2018 Amortised cost1 $’000 223,984 588,094 - 812,078 Other2 $’000 - - 2,874 2,874 Other1 $’000 - - 37 2,595 2,632 Other2 $’000 - - 1,136 1,136 1 Loans at amortised cost are non-derivatives with fixed or determinable payments and are not quoted on an active market. Loans and payables are valued at amortised cost. 2 Other financial liabilities include $2.9 million (2018: $1.1 million) relating to derivatives in designated hedges. 97 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.3 Financial risk management objectives and policies (cont.) f) Changes in liabilities arising from financing activities As at 1 July Outflows from secured loans Outflows from lease liabilities Outflows from senior bank facility Increase in lease liabilities As at 30 June Consisting of: Current Loans and Borrowings1 Non-Current Loans and Borrowings2 30 June 2019 30 June 2018 $’000 607,476 (11,908) (93,116) $’000 Restated 648,971 (11,908) (74,166) (115,000) (50,000) 42,424 94,579 429,876 607,476 88,440 341,436 111,583 495,893 1 Current Loans and Borrowings does not include capitalised borrowing costs of $6,712,000 (2018: $6,130,000) 2 Non-Current Loans and Borrowings does not include capitalised borrowing costs of $7,907,000 (2018: $13,252,000). The Group classifies interest paid as cash flows from operating activities. Recognition and measurement: Financial assets: Classification and measurement The Group classifies its financial assets into the following categories: those to be measured subsequently at fair value (either through OCI, or profit or loss) and those to be held at amortised cost. Classification depends on the business model for managing the financial assets and the contractual terms of the cash flows. At initial recognition, the Group measures a financial asset at its fair value. Financial liabilities: Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables or as derivatives designated as hedging instruments. All financial liabilities are recognised initially at fair value. The Group’s financial liabilities include trade and other payables and loans and borrowings. Derivatives and hedge accounting: The Group uses derivative financial instruments to hedge its risks associated with foreign currency and interest rate fluctuations arising from operating activities. Such derivative financial instruments are initially recognised at fair value as at the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Cash flow hedges: The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income in the cash flow hedge reserve. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. Amounts taken to other comprehensive income are transferred out of other comprehensive income and included in the measurement of the hedged transaction when the forecast transaction occurs. When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction occurs. 98 Notes to the consolidated financial statementsFor the year ended 30 June 2019 5.4 Share capital and reserves a) Share capital 2019 2018 No. of shares $’000 No. of shares $’000 Fully paid ordinary share capital 1,026,045,885 2,980,933 1,026,045,885 2,993,458 Ordinary share capital at the beginning of the period 1,026,045,885 2,993,458 1,026,045,885 3,136,941 Transfer of shares by share plan Shares purchased by share plan Capital return - - - 15,814 (28,339) - - - - 6,188 (10,787) (138,884) Ordinary share capital at the end of the period 1,026,045,885 2,980,933 1,026,045,885 2,993,458 At 30 June 2019, a trust on behalf of the Company held 5,337,876 (30 June 2018: 3,916,379) ordinary fully paid shares in the Company. These were purchased during the year for the purpose of allowing the Group to satisfy performance rights to certain management of the Group. Refer to Note 5.5 for further details on the performance rights plan. Terms and conditions of issued capital Ordinary shares are classified as equity. Fully paid ordinary shares carry one vote per share, either in person or by proxy, at a meeting of the Company and carry the right to receive dividends as declared. In the event of a winding up of the Company, fully paid ordinary shares carry the right to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Under the terms of the acquisition of Boardwalk Resources Limited, 34,020,000 ordinary shares are subject to a restriction deed which removes their entitlement to vote, receive dividends as declared or participate in the proceeds from the sale of all surplus assets. These restrictions will be released on reaching certain milestones. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit. b) Nature and purpose of reserves Hedge reserve The hedging reserve comprises the effective portion of the cumulative change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Share-based payment reserve The share-based payment reserve is used to record the value of share-based payments provided to director related entities and senior employees under share option and long term incentive plans. Refer to note 5.5 for further details of these plans. c) Dividends Dividends of $464,854,000 were paid to shareholders during the year ended 30 June 2019 (2018: distribution of $326,936,000 comprising a dividend of $188,052,000 and a capital return of $138,884,000). On 15 August 2019 the Directors declared a dividend of 30 cents per share totalling $298 million to be paid on 19 September 2019 and be comprised of an ordinary dividend of 13 cents, franked to fifty percent and a special dividend of 17 cents, unfranked. The financial effect of this dividend has not been brought to account in the financial statements for this period. Dividend franking account As at 30 June 2019 there were franking credits of $15.1 million available to shareholders of Whitehaven Coal Limited (2018: nil). 99 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.5 Share-based payments a) Recognised share-based payment expenses Employee expenses Share options and performance rights – senior employees 2019 $’000 7,684 2018 $’000 9,927 Recognition and measurement: The grant date fair value of options and performance rights granted to employees is recognised as an expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the equity instruments. The amount recognised is adjusted to reflect the actual number of instruments that vest, except for those that fail to vest due to market conditions not being met. Once the instruments have vested, no further expenses are recognised nor reserves reversed in respect to costs already charged. However, where the share rights or options have lapsed after vesting the Group transfers the equivalent amount of the cumulative cost for the lapsed awards from the share-based payments reserve to another component of equity. b) Types of share-based payment plans Performance right and option grant to CEO and senior employees The Company issued performance rights and options to the CEO and senior employees under the Company’s medium and long term incentive programs in FY2018 and FY2019. The terms and conditions of the grant are as follows. Performance Rights MTI LTI tranche 1 LTI tranche 2 LTI tranche 3 Total Options LTI tranche 1 LTI tranche 2 LTI tranche 3 Total 2019 2018 Number of instruments Vesting date Number of instruments Vesting date 397,596 30 June 2021 742,121 30 June 2020 337,300 30 June 2021 371,147 30 June 2020 337,294 30 June 2022 371,139 30 June 2021 674,571 30 June 2021/221 742,275 30 June 2020/211 1,746,761 2,226,682 2019 2018 Number of instruments Vesting date Number of instruments Vesting date - - - - - - - 587,009 30 June 2020 587,006 30 June 2021 1,174,013 30 June 2020/211 2,348,028 1 To the extent that the Costs Hurdle Award is satisfied at the end of the year of testing, 50% of the Awards will vest and become exercisable immediately and the remaining 50% will continue on foot, subject to a further one year service condition. The performance rights and options are subject to a performance measure linked to relative total shareholder return (TSR) and a costs hurdle. The TSR performance measure compares the TSR performance of the Company with the TSR performance of a peer group of companies operating in the Australian resources sector. The costs hurdle performance measure relates to the Company achieving a cost per tonne target. Detailed disclosures of LTI outcomes against the target are provided in the Remuneration Report. 100 Notes to the consolidated financial statementsFor the year ended 30 June 2019 The table below details the outcomes of MTI awards that were tested in FY2019 (or for which the test period concluded on 30 June 2019) and the results of the relevant test. MTI Year 2016 2016 Test Type Relative TSR Costs Target Hurdle Performance 1st in 21 $67/tonne Outcomes Vested 100% 0% Lapsed 0% 100% c) Movement in options and performance rights The following table illustrates the number and weighted average exercise prices of, and movements in, options and performance rights during the year: Outstanding at beginning of period Exercised during the period Granted during the period Forfeited during the period Lapsed during the period Outstanding at 30 June Exercisable at 30 June Weighted average exercise price Number of options/rights Weighted average exercise price Number of options/rights 2019 $0.58 $0.00 $0.00 $0.00 $0.00 $0.64 $0.00 2019 22,952,635 (4,041,556) 2,183,658 1 (89,819) (358,586) 20,646,332 882,319 2018 $0.30 $0.00 $1.10 $0.00 $0.00 $0.58 $0.00 2018 22,067,094 (4,542,478) 6,086,6822 (132,440) (526,223) 22,952,635 328,083 1 2 Includes 436,897 performance rights granted during the year under the FY2018 STI scheme. Includes 1,011,972 performance rights granted during the year under the FY2017 STI scheme. The outstanding balance as at 30 June 2019 is represented by: i) 5,440,707 options over ordinary shares having an exercise price of $1.21, exercisable between 30 June 2019 and 31 August 2021 ii) 2,348,028 options over ordinary shares having an exercise price of $2.85, exercisable between 30 June 2020 and 27 October 2022 iii) 2,209,740 performance rights over ordinary shares having an exercise price of nil, exercisable between 15 August 2019 and 13 August 2025 iv) 4,899,574 performance rights over ordinary shares having an exercise price of nil, exercisable between 15 August 2019 and 31 August 2026 v) 3,584,802 performance rights over ordinary shares having an exercise price of nil, exercisable between 15 August 2019 and 27 October 2027 vi) 2,163,481 performance rights over ordinary shares having an exercise price of nil, exercisable between 15 August 2019 and 27 October 2028 No share options were exercised during the year ended 30 June 2019 (2018: nil). The weighted average remaining contractual life of share options and performance rights outstanding at 30 June 2019 is 5.7 years (2018: 4.6 years). 101 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 5. Capital structure and financing (cont.) 5.5 Share-based payments (cont.) d) Option pricing models The fair value of performance rights granted under the incentive programs with a TSR performance hurdle is measured using a Monte Carlo Simulation model incorporating the probability of the performance hurdles being met. The fair value of performance rights with the non-market performance hurdle (costs target) is measured using the Black-Scholes option pricing formula. The fair value of options with a TSR performance hurdle and non-market performance hurdle is measured using a combination of the Monte Carlo Simulation model and Binomial Option Pricing methods. The following table lists the inputs to the models used for the years ended 30 June 2019 and 30 June 2018: Rights 2019 MTI MTI LTI LTI LTI LTI Performance hurdle TSR Cost TSR TSR Cost Cost Grant date 27 Oct 18 27 Oct 18 27 Oct 18 27 Oct 18 27 Oct 18 27 Oct 18 Vesting date 30 Jun 21 30 Jun 21 30 Jun 21 30 Jun 22 30 Jun 21 30 Jun 22 Fair value at grant date Share price Expected volatility Performance Right life Risk-free interest rate $2.98 $4.81 $5.07 $4.81 $2.99 $4.81 $3.15 $4.81 $5.07 $4.81 $5.07 $4.81 30% 30% 30% 30% 30% 30% 10 years 10 years 10 years 10 years 10 years 10 years 2.0% 2.0% 2.0% 2.1% 2.0% 2.1% Rights Options 2018 MTI MTI LTI LTI LTI LTI LTI LTI LTI LTI Performance hurdle TSR Cost TSR TSR Cost Cost TSR TSR Cost Cost Grant date 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 27 Oct 17 Vesting date 30 Jun 20 30 Jun 20 30 Jun 20 30 Jun 21 30 Jun 20 30 Jun 21 30 Jun 20 30 Jun 21 30 Jun 20 30 Jun 21 Fair value at grant date Share price Exercise price Expected volatility Performance Right life Expected dividends Risk-free interest rate $2.43 $3.65 $3.65 $3.65 $2.43 $3.65 $2.50 $3.65 $3.65 $3.65 $3.65 $3.65 $0.61 $3.65 $0.61 $3.65 $0.72 $3.65 $0.69 $3.65 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $2.85 $2.85 $2.85 $2.85 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 10 years 10 years 10 years 10 years 10 years 10 years 4 years 5 years 4 years 5 years 8.34% 8.34% 8.34% 8.34% 8.34% 8.34% 8.34% 8.34% 8.34% 8.34% 2.0% 2.0% 2.0% 2.1% 2.0% 2.1% 2.0% 2.1% 2.0% 2.1% All shared-based payments are equity settled. 102 Notes to the consolidated financial statementsFor the year ended 30 June 2019 6. Group structure 6.1 Acquisition of business Acquisitions in the year ended 30 June 2019 There were no business combinations or acquisitions of non-controlling interests in the current year. Acquisitions in the year ended 30 June 2018 On 30 April 2018, the Group acquired a 30% interest in the Tarrawonga Coal Project Joint Venture from Idemitsu, of which the Group already owned 70%. Details of the purchase consideration, the net assets acquired and the impact of the acquisition on the Group are as follows: a) Purchase consideration: Cash consideration1 Total consideration Less: cash acquired as part of the acquisition Net cash flow on acquisition 1 Cash consideration includes $4,803,000 paid in the year ended 30 June 2019. b) Assets acquired and liabilities assumed: $’000 26,315 26,315 (1,298) 25,017 The fair values of the identifiable assets and liabilities of the 30% share in the Tarrawonga Coal Project Joint Venture at the date of acquisition were as follows: Assets Cash and cash equivalents Trade and other receivables Inventory Property, plant and equipment Liabilities Trade and other payables Provision for decommissioning costs Total identifiable net assets at fair value Fair value recognised on acquisition $’000 1,298 3,147 7,921 27,888 40,254 (5,173) (8,766) (13,939) 26,315 103 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 6. Group structure (cont.) 6.2 Group’s subsidiaries The below is a list of the Group’s subsidiaries, all of which are incorporated in Australia, unless otherwise noted: Ownership interest 2019 2018 Ownership interest 2019 2018 Parent entity Whitehaven Coal Limited Subsidiaries Whitehaven Coal Mining Limited1 100% 100% Boardwalk Resources Limited1 100% 100% Namoi Mining Pty Ltd1 100% 100% Boardwalk Coal Management Pty Ltd1 100% 100% Namoi Agriculture & Mining Pty Ltd 100% 100% Boardwalk Coal Marketing Pty Ltd1 Betalpha Pty Ltd1 Betalpha Unit Trust 100% 100% Boardwalk Sienna Pty Ltd1 100% 100% Boardwalk Monto Pty Ltd1 Tarrawonga Coal Pty Ltd1 100% 100% Boardwalk Dingo Pty Ltd1 Whitehaven Coal Holdings Pty Ltd1 100% 100% Boardwalk Ferndale Pty Ltd1 Whitehaven Coal Infrastructure Pty Ltd1 100% 100% Coalworks Limited1 Narrabri Coal Pty Ltd1 100% 100% Yarrawa Coal Pty Ltd1 Narrabri Coal Operations Pty Ltd1 100% 100% Loyal Coal Pty Ltd Narrabri Coal Sales Pty Ltd1 100% 100% Ferndale Coal Pty Ltd 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 92.5% 92.5% 92.5% 92.5% Creek Resources Pty Ltd1 100% 100% Coalworks (Oaklands North) Pty Ltd1 100% 100% Werris Creek Coal Sales Pty Ltd1 100% 100% CWK Nominees Pty Ltd1 Werris Creek Coal Pty Ltd1 100% 100% Oaklands Land Pty Ltd1 100% 100% 100% 100% WC Contract Hauling Pty Ltd1 100% 100% Coalworks (Vickery South ) Pty Ltd1 100% 100% Whitehaven Blackjack Pty Ltd1 100% 100% Coalworks Vickery South Operations Pty Ltd1 100% 100% Whitehaven Project Pty Ltd1 100% 100% Vickery South Marketing Pty Ltd1 Whitehaven Employee Share Plan Pty Ltd1 100% 100% Vickery South Operations Pty Ltd1 Aston Resources Limited1 100% 100% Vickery Pty Ltd1 100% 100% 100% 100% 100% 100% 100% 100% Aston Coal 2 Pty Ltd1 Aston Coal 3 Pty Ltd1 100% 100% Winchester South WS Pty Ltd 100% 100% Winchester South Coal Operations Pty Ltd 100% 100% Maules Creek Coal Pty Ltd1 100% 100% 1 These subsidiaries entered into a Class Instrument 2016/785 dated 28 September 2016 and related deed of cross guarantee with Whitehaven Coal Limited. Refer to Note 6.5 for further information. Recognition and measurement: Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until that control ceases. All intercompany balances and transactions have been eliminated in preparing the consolidated financial statements. 104 Notes to the consolidated financial statementsFor the year ended 30 June 2019 6.3 Interest in joint operations The Group has interests in the following joint operations which are proportionately consolidated in the consolidated financial statements: Tarrawonga Coal Project Joint Venture2 Narrabri Coal Joint Venture2 Maules Creek Joint Venture2 Dingo Joint Venture2 Ferndale Joint Venture2 Boggabri-Maules Creek Rail Spur Joint Venture2 Tarrawonga Coal Sales Pty Ltd1,3 Maules Creek Marketing Pty Ltd3 Boggabri-Maules Creek Rail Pty Ltd3 Country of incorporation Australia Australia Australia Ownership interest and voting rights 2019 100% 70% 75% 70% 92.5% 39% 100% 75% 39% 2018 100% 1 70% 75% 70% 92.5% 39% 100% 75% 39% 1 During the financial year ended 30 June 2018 the Group acquired Idemitsu’s 30% interest in the Tarrawonga Coal project Joint Venture. Refer to note 6.1. 2 These entities have been classified as joint operations under AASB 11 Joint Arrangements, as these joint arrangements are not structured through separate vehicles. 3 The joint operations above operate as the sales and marketing vehicles or manager of the related unincorporated joint operations and require joint consent from all joint venture partners on all significant management and financial decisions. The Group recognises its share of assets, liabilities, revenues and expenses of the above entities as joint operations under AASB 11 Joint Arrangements. Recognition and measurement: Joint arrangements are arrangements in which two or more parties have joint control. Joint control is the contractually agreed sharing of control over an arrangement, which exists only when decisions about relevant strategic and/or key operating decisions require unanimous consent of the parties sharing control. The Group recognises its interest in jointly controlled operations by recognising its share in the assets and liabilities of the joint operation. The Group also recognises the expenses it incurs and its share of the income that it earns from the sale of goods or services by the joint operation. Significant accounting judgements, estimates and assumptions The Group assesses whether it has the power to direct the relevant activities of the investee by considering the rights it holds with respect to the work programme and budget approval, investment decision approval, voting rights in joint operating committees and changes to joint arrangement participant holdings. Where the Group has joint control, judgement is also required to assess whether the arrangement is a joint operation or a joint venture. 6.4 Parent entity information Information relating to Whitehaven Coal Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Share-based payments reserve Total shareholders’ equity Profit of the parent entity Total comprehensive income of the parent entity Company 2019 $’000 692,782 2018 $’000 359,623 3,744,008 3,484,062 - - 3,136,412 590,687 16,909 - - 3,136,412 333,702 13,948 3,744,008 3,484,062 734,328 734,328 391,780 391,780 105 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 6. Group structure (cont.) 6.5 Deed of Cross Guarantee Pursuant to ASIC Corporations Instrument 2016/785 dated 28 September 2016, the wholly-owned subsidiaries listed in Note 6.2 (refer footnote 1) are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ reports. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee (the ‘Deed’). The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The Company and each of the relevant subsidiaries entered into the Deed on 27 June 2008 with subsequent assumption deeds entered into on 27 June 2012 and 25 June 2013. The following consolidated statement of comprehensive income and statement of financial position comprises the Company and its controlled entities which are party to the Deed of Cross Guarantee (the ‘Closed Group’) after eliminating all transactions between parties to the Deed. Statement of comprehensive income Profit before tax Income tax expense Profit after tax Other comprehensive income Items that may be reclassified subsequently to profit or loss Net movement on cash flow hedges Income tax effect Other comprehensive income for the period, net of tax Closed group 2019 $’000 735,868 2018 $’000 Restated 758,889 (207,970) (234,379) 527,898 524,510 (4,287) 1,286 (3,001) (372) 112 (260) Total comprehensive income for the period, net of tax 524,897 524,250 Statement of financial position Assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Total current assets Trade and other receivables Investments Property, plant and equipment Exploration and evaluation Intangible assets Total non-current assets Total assets 106 119,407 518,183 148,939 47 786,576 10,518 37 111,653 377,173 124,567 2,595 615,988 11,732 37 3,841,575 3,746,461 186,427 21,350 166,331 22,200 4,059,907 3,946,761 4,846,483 4,562,749 Notes to the consolidated financial statementsFor the year ended 30 June 2019 Statement of financial position Liabilities Trade and other payables Interest bearing loans and borrowings Employee benefits Income tax payable Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing loans and borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Issued capital Share-based payments reserve Hedge reserve Retained earnings Equity 6.6 Related parties Compensation to Executive KMP and Non-executive Directors of the Group Short term employee benefits Contributions to superannuation plans Share-based compensation payments Total compensation Closed group 2019 $’000 196,028 81,728 26,510 288 29,985 2,874 2018 $’000 Restated 157,763 105,453 22,560 - 6,136 1,136 337,413 293,048 333,529 390,068 260,219 983,816 482,641 198,993 102,201 783,835 1,321,229 1,076,883 3,525,254 2,978,429 16,909 (1,979) 531,895 3,485,866 2,990,954 13,948 1,022 479,942 3,525,254 3,485,866 2019 $’000 6,444 258 3,848 10,550 2018 $’000 7,479 233 7,767 15,479 107 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 7. Other notes 7.1 Employee benefits Consolidated Statement of Comprehensive Income Wages and salaries Contributions to superannuation plans Other associated personnel expenses Increase in liability for annual leave Increase in liability for long service leave Share-based compensation payments1 1 Disclosed in “Other expenses” in the Statement of Comprehensive Income. Consolidated Statement of Financial Position Salaries and wages accrued Liability for long service leave Liability for annual leave Recognition and measurement: Wages, salaries, annual leave and sick leave 2019 $’000 169,971 10,947 6,228 2,365 436 7,684 2018 $’000 153,966 10,019 6,251 1,713 162 9,927 197,631 182,038 2019 $’000 8,156 867 17,487 26,510 2018 $’000 7,007 431 15,122 22,560 Liabilities for wages, salaries, annual leave and sick leave are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled i.e. at undiscounted amounts based on remuneration wage and salary rates including related on-costs, such as workers compensation insurance and payroll tax. Long-term service benefits Liabilities for long-service leave and other long term benefits are recognised and measured at the present value of the estimated future cash outflows resulting from employees’ services provided up to the reporting date. Long term benefits not expected to be settled within twelve months are discounted using the rates attached to the high quality corporate bonds at the reporting date, which most closely match the maturity dates of the related liability. Defined contribution superannuation funds Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the consolidated statement of comprehensive income as incurred. 108 Notes to the consolidated financial statementsFor the year ended 30 June 2019 7.2 Auditors’ Remuneration Auditors of the Company – Ernst & Young Assurance services: Audit and review of statutory financial statements current year Audit of joint operations Other assurance services: Non-statutory assurance services Review of National Greenhouse Energy Reporting Act requirements Total assurance services Non audit services: Auditors of the Company – Ernst & Young Taxation compliance services Due diligence services Other non-audit services 2019 $ 571,625 283,375 855,000 - 62,629 62,629 917,629 125,000 - 69,790 194,790 2018 $ 551,000 314,000 865,000 98,954 58,568 157,522 1,022,522 63,978 836,881 71,226 972,085 109 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report 7. Other notes (cont.) 7.3 Commitments a) Capital expenditure commitments Plant and equipment and intangibles Contracted for but not provided for and payable: Within one year 1 1 There were no commitments for capital expenditure beyond one year. b) Lease commitments 2019 $’000 2018 $’000 83,663 13,081 Leases relate to property, plant and equipment with lease terms of between one to five years as well as leases recognised for the first time in accordance with AASB 16 Leases. As a result, 30 June 2018 balances have been restated. Refer to Note 1.5 for more details. 2019 $’000 86,308 153,425 45,916 2018 $’000 Restated 110,698 164,572 68,070 285,649 343,340 (44,125) 241,524 (51,125) 292,215 76,532 164,992 241,524 2019 $’000 99,675 192,540 292,215 2018 $’000 153,297 30,503 104,240 24,522 2,629 315,191 Within one year Between one and five years More than five years Minimum lease payments Future finance charges Total lease liabilities Included in the financial statements in note 5.1 as: Current borrowings Non-current borrowings 7.4 Contingencies a) Bank guarantees The Group provided bank guarantees to (i) Government departments as a condition of continuation of mining and exploration licences 235,826 (ii) Rail capacity providers (iii) Port capacity providers (iv) Electricity network access supplier (vi) Other 27,936 115,941 23,534 2,072 405,309 110 Notes to the consolidated financial statementsFor the year ended 30 June 2019 b) Other During the current period, the Group was served with a Statement of Claim commencing representative proceedings against the Group in the Supreme Court of Queensland. The proceedings were commenced by Nathan Tinkler, who claimed to be trustee of the Boardwalk Resources Trust, and were purportedly brought on behalf of Nathan Tinkler and a number of parties who were issued with Milestone Shares (subject to restrictions on voting and transfer until various development milestones are met) in Whitehaven Coal Limited in May 2012. On 7 May 2019, the Supreme Court of Queensland ordered that the proceedings be transferred to the Equity Division of the Supreme Court of New South Wales. On 12 July 2019, Nathan Tinkler was given leave to file an amended claim and amended statement of claim removing Nathan Tinkler, and joining and substituting Les & Zelda Investments Pty Ltd (ACN 148 907 573) as Trustee for the Les & Zelda Family Trust, as representative plaintiff. The pleadings make various allegations against the Group concerning an alleged breach of contract and misleading or deceptive conduct in connection with the Milestone Shares. With effect from 26 July 2019, the proceedings have been stayed due to the representative plaintiff failing to provide security for the Group’s costs as ordered. Other than the above, there is a number of legal and potential claims against the Group which have arisen in the ordinary course of business. As the Group believes that it has no liability for the above matters, a provision has not been made for any potential adverse outcome. The Group will vigorously defend these matters, and believes that any adverse outcome would not be material based on information currently available to the Group. 7.5 Subsequent events In the interval between the end of the financial year and the date of this report there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years, other than the following: Subsequent to the end of the financial period, the Directors have proposed a 30 cent per share dividend to be paid on 19 September 2019 and be comprised of an ordinary dividend of 13 cents, franked to fifty percent and a special dividend of 17 cents, unfranked. 111 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report Directors’ declaration Directors’ declaration In accordance with a resolution of the directors of Whitehaven Coal Limited, I state that: In the opinion of the Directors: (a) the financial statements and notes of Whitehaven Coal Limited are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; and (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (d) this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2019. (e) as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 6.5 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. On behalf of the Board The Hon. Mark Vaile AO Chairman Paul Flynn Managing Director and Chief Executive Officer Sydney 15th August 2019 112 Independent Auditor’s report For the year ended 30 June 2019 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 113 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 114 Auditor’s reportFor the year ended 30 June 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 115 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 116 Auditor’s reportFor the year ended 30 June 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 117 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 118 Auditor’s reportFor the year ended 30 June 2019 A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation 119 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report ASX additional information Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below. Shareholdings Substantial shareholders The number of shares recorded as owned by substantial shareholders and their associates in the most recent substantial shareholder notices advised to the Company by these shareholders are set out below: Shareholder Farallon Capital Management LLC Fritz Kundrun* Hans Mende* AMCI Group* Lazard Asset Management Pacific Co Prudential Plc Percentage of capital held Number of ordinary shares held Date of substantial shareholder notice 14.23% 12.09% 11.13% 8.40% 8.80% 5.12% 146,007,208 124,042,252 114,190,086 86,170,596 90,304,489 52,580,134 23 Nov 2017 17 Oct 2014 17 Oct 2014 17 Oct 2014 6 Aug 2019 26 Apr 2019 * The holdings of Mr Kundrun and Mr Mende both include the 86,170,596 shares owned by AMCI Group. Voting rights Ordinary shares Refer to note 5.4 in the financial statements Options There are no voting rights attached to the options. Distribution of equity security holders Category 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Number of equity security holders 3,572 4,209 1,498 1,304 122 10,705 There are 6 holders of options over ordinary shares. Refer to section 7.2 of the Remuneration Report. The number of shareholders holding less than a marketable parcel of ordinary shares is 533. 120 Securities exchange The Company is listed on the Australian Securities Exchange. Other information Whitehaven Coal Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Twenty largest shareholders (legal ownership) Name HSBC CUSTODY NOMINEES (AUSTRALIA) LTD CITICORP NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA AET SFS PTY LTDBNP PARIBAS NOMINEES PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD WOODROSS NOMINEES PTY LTD WHITEHAVEN EMPLOYEE SHARE PLAN PTY LIMITED VESADE PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED GSCO ECA BNP PARIBAS NOMS PTY LTD INVIA CUSTODIAN PTY LIMITED AMP LIFE LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 CITICORP NOMINEES PTY LIMITED MR LEENDERT HOEKSEMA + MRS AALTJE HOEKSEMA WENDMAR PTY LIMITED This information is current as at 12 August 2019 Number of ordinary shares held 273,348,989 247,932,405 147,107,702 144,191,217 26,678,979 26,001,481 16,065,851 8,366,933 6,496,214 5,835,610 5,337,876 5,306,152 4,409,572 3,177,272 2,025,000 1,968,986 1,856,059 1,833,835 1,760,000 1,450,000 Percentage of capital held 26.64 24.16 14.34 14.05 2.60 2.53 1.57 0.82 0.63 0.57 0.52 0.52 0.43 0.31 0.20 0.19 0.18 0.18 0.17 0.14 931,150,133 90.75 121 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report Glossary | Corporate directory || |Financial Report Glossary ARTC Australian Rail Track Corporation ASEAN Association of Southeast Asian Nations CHPP Coal Handling and Processing Plant EBITDA earnings before interest, taxation, depreciation and amortisation ECA FEC FOB Export Credit Agency forward exchange contract Free on Board FVLCD fair value less costs of disposal GW gigawatt HELE JORC KMP KPI kt LTI LW m high-efficiency, low-emissions Joint Ore Resources Committee key management personnel key performance indicator thousand tonnes long term incentive longwall million MRRT Minerals Resource Rent Tax Mt MTI Mtpa NCIG NPAT million tonnes medium term incentive million tonnes per annum Newcastle Coal Infrastructure Group net profit after tax PWCS Port Waratah Coal Services ROM run of mine STI t TAL TFR short term incentive tonne tonne axle loads total fixed remuneration TRIFR total recordable injury frequency rate TSR total shareholder return 122 Corporate directory Share Registry Computershare Investor Services Pty Limited GPO Box 2975 Melbourne Victoria 3001 Australia P 1300 855 080 (or +61 3 9415 4000) Country of Incorporation Australia Web address www.whitehavencoal.com.au Directors The Hon. Mark Vaile AO Chairman John Conde AO Deputy Chairman Dr Julie Beeby Non-executive Director Paul Flynn Managing Director and CEO Lindsay Ward Non-executive Director Fiona Robertson Non-executive Director Raymond Zage Non-executive Director Company Secretary Timothy Burt Registered and Principal Administrative Office Level 28, 259 George Street Sydney NSW 2000 P +61 2 8222 1100 F +61 2 8222 1101 Australian Business Number ABN 68 124 425 396 Stock Exchange Listing Australian Securities Exchange Limited ASX Code: WHC Auditor Ernst & Young Ernst & Young Centre 200 George Street, Sydney NSW 2000 P +61 2 9248 5555 F +61 2 9248 5199 123 Whitehaven Coal Annual Report 2019| FY2019 in review | Introductions | About us | Resources & Reserves | Directors’ Report | Financial Report | ||GlossaryCorporate directory Whitehaven Coal Level 28, 259 George Street Sydney NSW 2000 P +61 2 8222 1100 F +61 2 8222 1101 ASX Code: WHC whitehavencoal.com.au