South32 Ltd. · ASX:S32
South32 — H1 FY2016 Earnings Presentation
29 slides from South32's earnings presentation, Feb 25, 2016
Slide 1: 2016 Half Year Financial Results and Outlook
For personal use only 2016 HALF YEAR FINANCIAL RESULTS AND OUTLOOK • 25 FEBRUARY 2016
Slide 2: Important Notices
• IMPORTANT NOTICES • THIS PRESENTATION SHOULD BE READ IN CONJUNCTION WITH THE “FINANCIAL RESULTS AND OUTLOOK – HALF YEAR ENDED 31 DECEMBER 2015” ANNOUNCEMENT RELEASED ON 25 FEBRUARY 2016, WHICH IS AVAILABLE ON SOUTH32’S WEBSITE (WWW.SOUTH32.NET). For personal use only • FINANCIAL INFORMATION • To a
Slide 3: H1 FY16 Introduction and Highlights
For personal use only H1 FY16 INTRODUCTION AND HIGHLIGHTS • GRAHAM KERR • CEO
Slide 4: A Simple Strategy to Maximise Returns
• A SIMPLE STRATEGY TO MAXIMISE RETURNS OUR STRATEGY For personal use only Our strategy is to invest in high quality metals and mining operations where our distinctive capabilities and regional model enable us to stretch performance in a sustainable way. By maintaining financial discipline and conti
Slide 5: H1 FY16 Highlights
For personal use only • H1 FY16 HIGHLIGHTS Controllable costs reduced by US$182M Net debt reduced to US$116M Continued optimisation of our operations and balance sheet (US$36M at 31 Jan 2016) Capital expenditure reduced by US$88M Restructuring initiatives to To significantly exceed Remain focused on
Slide 6: Care Is a Core Value
• CARE IS A CORE VALUE • One fatality is one too many Eliminate all significant events For personal use only ⎯ South Africa Aluminium July 2015 ⎯ South Africa Manganese November 2015 Safe Choices and Decisions • Implementing our Care and Safety Strategy • Gap assessments completed in December 2015 P
Slide 7: H1 FY16 Financial Results
For personal use only H1 FY16 FINANCIAL RESULTS • BRENDAN HARRIS • CFO
Slide 8: Non-Cash Impairment Related Charges
For personal use only • NON-CASH IMPAIRMENT RELATED CHARGES Earnings Impairments Significant Items adjustments to Pre-tax total (US$M) equity accounted investments Australia Manganese Investment 726 - 190 916 South Africa Manganese Investment - - 97 97 Manganese Marketing Investment 64 - - 64 South
Slide 9: Earnings Analysis
EARNINGS ANALYSIS (US$M) For personal use only Uncontrollable Net finance cost and taxation expense2 710 1,027 401 70 38 141 71 227 40 182 44 26 94 Underlying EBIT Underlying EBIT Sales price accounted investments) Underlying earnings Foreign exchange Underlying net Inflation Controllable costs Pric
Slide 10: Cost Analysis
• COST ANALYSIS (US$M) For personal use only 3,541 443 Uncontrollable (US$467M) 62 70 182 32 96 2 2,798 Inflation product cost Other ² FX on costs Price-linked costs Royalties cost base ¹ Controllable cost base¹ H1 FY16 Third party H1 FY15 costs 1. Cost base includes Equity Accounted Investments and
Slide 11: Controllable Costs Analysis
For personal use only 1. (US$M) (US$M) Cost initiatives 788 Volume Note: Including Equity Accounted Investments. Group and unallocated includes Brazil Alumina. Inventory 55 Australia (US$26M) Controllable cost savings 26 25 FEBRUARY 2016 SOUTH32 H1 FY16 FINANCIAL RESULTS Cost initiatives 121 Volume
Slide 12: Capital Expenditure Analysis
CAPITAL EXPENDITURE ANALYSIS (US$M) For personal use only (US$M) -US$218M 768 265 550 373 88 H1 FY15 285 H1 FY16 FY15 guidance guidance HoH reduction H2 FY16 FY16 Note: Including Equity Accounted Investments capital expenditure. Excludes expenditure related to the purchase of intangibles and capital
Slide 13: Financial Robustness
For personal use only • FINANCIAL ROBUSTNESS ROIC (US$M) 1 674 Net debt reduced by US$286M Competition for excess capital • Resolved two legacy tax disputes (+US$46M) Maximise cash flow Cash flow priorities • Restructured legacy financing Distribute a minimum 402 -US$286M arrangement (+US$90M) 40% o
Slide 14: Outlook
For personal use only OUTLOOK • GRAHAM KERR • CEO
Slide 15: A Simple Strategy to Maximise Returns
• A SIMPLE STRATEGY TO MAXIMISE RETURNS OUR STRATEGY For personal use only Our strategy is to invest in high quality metals and mining operations where our distinctive capabilities and regional model enable us to stretch performance in a sustainable way. By maintaining financial discipline and conti
Slide 16: Major Restructuring Underway
MAJOR RESTRUCTURING UNDERWAY • Particular focus on 5 operations: For personal use only Group employee and contractor headcount1,4 − South Africa Manganese − Worsley Alumina − Illawarra Metallurgical Coal ~27,000 -17% − Australia Manganese − Cerro Matoso • Restructuring initiatives to deliver: ~22,50
Slide 17: Resetting the Cost Base: South Africa Manganese
RESETTING THE COST BASE: SOUTH AFRICA MANGANESE • 900ktpa1 cut in saleable manganese ore production All-in cost and volume For personal use only (US$/dmtu) • Hotazel all-in cost2 decline by 24%3 to US$1.90/dmtu in 2.3 1.7 Ore production5,6 FY17 (Mt) − Reduction of ~ 6204 employees -24% 2.50 − Accele
Slide 18: Resetting the Cost Base: Worsley
RESETTING THE COST BASE: WORSLEY • Production guidance increase to 4.0Mt1 in FY17 All-in cost and volume For personal use only (US$/t) − Targeting ~3% lift in refinery availability and 3.8 4.0 Production1 utilisation (Mt) • All-in cost2 to decline by 25%3 to US$200/t in FY17 266 -25% − Reorganisatio
Slide 19: Resetting the Cost Base: Illawarra
RESETTING THE COST BASE: ILLAWARRA • Stretching longwall utilisation to lift production to 9.5Mt1 in All-in cost and volume For personal use only (US$/t) FY17 • All-in costs2 to decline by 37%3 to US$66/t in FY17 8.7 9.5 Production1 (Mt) − Reorganisation of mines into two operations -37% 104 − Reduc
Slide 20: Resetting the Cost Base: Australia Manganese
RESETTING THE COST BASE: AUSTRALIA MANGANESE • Manganese saleable ore production guidance in FY17 is All-in cost and volume For personal use only (US$/dmtu) lowered by 4% to 3.1Mt1 2.9 3.1 Ore production1 − Revised ramp up of Premium Concentrate Ore (Mt) project -43% 2.74 • All-in costs2 expected to
Slide 21: Resetting the Cost Base: Cerro Matoso
RESETTING THE COST BASE: CERRO MATOSO • No change in production guidance. All-in cost and volume For personal use only (US$/lb) • All-in costs2 expected to decline by 30%3 to US$3.90/lb in Production1 40.4 36.0 FY17 (kt) − Reduction of at least 3504 employees and -30% 5.54 contractors All-in cost2 3
Slide 22: Optimising Performance Across Our Portfolio
OPTIMISING PERFORMANCE ACROSS OUR PORTFOLIO Production1 For personal use only Ore processed (kt) Coal production (Mt) Saleable aluminium (kt) Mozal 3,350 3,289 34.3 SA Aluminium 31.0 699 694 265 267 FY15 FY17e FY15 FY17e FY15 FY17e FY15 FY17e Employee and contractor headcount2 9,530 -21% -11% 990 -1
Slide 23: H1 FY16 Highlights
For personal use only • H1 FY16 HIGHLIGHTS Controllable costs reduced by H1 FY16 US$182M Net debt reduced to US$116M Optimising the performance of our operations (US$36M at 31 Jan 2016) Capital expenditure reduced by US$88M Targeting US$300M reduction Low financial gearing + FY16 Focus on in control
Slide 24: Appendices
For personal use only APPENDICES
Slide 25: H1 FY16 Financial Results
For personal use only • H1 FY16 FINANCIAL RESULTS Underlying EBITDA of Underlying EBIT Statutory loss of US$1.7B US$542M of US$141M includes non-cash impairments of US$1.7B Operating margin of 20% Underlying earnings of US$26M Free cash flow of operations of Net debt reduced to US$116M ROIC 1.4% US$
Slide 26: Earnings Sensitivities
• EARNINGS SENSITIVITIES EBIT impact +/- 10% Estimated full-year impact on FY16 Underlying EBIT of a 10% change in commodity or currency For personal use only US$M Aluminium 147 Alumina 149 Energy coal 72 Metallurgical coal 68 Manganese ore1 47 Nickel 30 Silver 34 Manganese alloy1 20 Lead 32 Zinc 13
Slide 27: Capital Expenditure Guidance
• CAPITAL EXPENDITURE GUIDANCE FY16e FY16e For personal use only Capital expenditure (South32 share) FY15 H1 FY15 H1 FY16 (Guidance) (Prior Guidance) US$M US$M US$M US$M US$M Major projects 51 25 26 50 50 All other capital expenditure (including Deferred stripping) 578 292 211 410 550 Capital expend
Slide 28: Production Guidance
• PRODUCTION GUIDANCE Upstream production guidance (South32 share) FY15 FY16e FY17e For personal use only Worsley Alumina Alumina production (kt) 3,819 3,950 (Revised ↑) 3,965 Brazil Alumina Alumina production (kt) 1,328 1,320 1,320 South Africa Energy Coal (100%) Domestic coal production (kt) 18,12
Slide 29: South32
For personal use only SOUTH32