South32 Ltd. · ASX:S32
South32 — FY2018 Earnings Presentation
45 slides from South32's earnings presentation, Aug 23, 2018
Slide 1: 2018 Full Year Financial Results Presentation
23 August 2018 South32 Limited For personal use only (Incorporated in Australia under the Corporations Act 2001 (Cth)) (ACN 093 732 597) ASX / LSE / JSE Share Code: S32 ADR: SOUHY ISIN: AU000000S320 south32.net 2018 FULL YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: S
Slide 2: 2018 Financial Results
For personal use only 2018 Financial Results • 23 August 2018
Slide 3: Important notices
Important notices • This presentation should be read in conjunction with the “Financial results and outlook – year ended 30 June 2018” announcement released on 23 August 2018, which is available on South32’s website (www.south32.net). For personal use only Figures in Italics indicate that an adjustm
Slide 4: FY18 Overview
For personal use only FY18 Overview Underlying earnings Underlying EBITDA Free cash flow(a) US$1.4B US$1.3B US$2.5B Net Cash balance US$2B ↑16% Operating margin 37% Final ordinary dividend 6.2 US cents per share Reshaping our portfolio US$380M of US$1B Arizona Mining US$946M returned capital managem
Slide 5: Sustainability performance
Sustainability performance 4 For personal use only 1 1 Fatalities(a)(b) FY16 FY17 FY18¹ 7.7 6.1 5.1 TRIF(a)(b) FY16 FY17² FY18¹ 2.8 Employee Occupational 1.7 2.0 Illness(a)(b) FY16³ FY17³ FY18¹ 23.4 22.6 22.9 GHG emissions(a)(b) (Mt CO2-e) FY16⁴ FY17 FY18¹ 16.5 20.4 14.3 Community investment(b) (US$
Slide 6: Workforce diversity
Workforce diversity Black People in our Women in our For personal use only South African management team(a) workforce 45% 16% 17% 42% Continuing Continuing improvement improvement FY17 FY18¹ FY20 Target FY17 FY18¹ FY20 Target Women in leadership Board South32 Lead Team Senior Leadership(b) Operation
Slide 7: Our performance highlights
For personal use only Our performance highlights 10% increase in total manganese ore production 20% increase in Another production record payable nickel production at Mozal Aluminium Record Optimise ore the production performance of at our Unlock their potential at Cerro Matoso Australia Manganese e
Slide 8: 2018 Results analysis
For personal use only 2018 Results analysis • Brendan Harris • CFO
Slide 9: Operating margin analysis
Operating margin analysis Operating margin5 Mitigating inflationary pressure and enhancing margins For personal use only Australia Manganese ore Estimated impact on margin South Africa Manganese ore Energy and materials ~US$25M Power usage and price renegotiation (Cerro Matoso and Cannington) Worsle
Slide 10: Earnings analysis
Earnings analysis Sales volumes & Controllable costs by type (US$M) controllable costs 49 For personal use only by operation (71) (35) Other (158) IMC Cannington SAEC operations Sales volumes (525) (221) 14 125 Controllable costs 4 (1) (106) (112) Labour and Inventory Volume Other Net Underlying EBI
Slide 11: Costs analysis
Costs analysis Price-linked costs Royalties (YoY impact on costs) (US$M) For personal use only Caustic soda YoY impact on costs Contribution LME linked electricity 5 5 20 4 Smelter raw materials 29% 23% (10) (17) Other power and diesel (30) 84 86 15% Other8 16 15% Illawarra South Africa Australia So
Slide 12: Operating unit costs
Operating unit costs Operating unit costs11 For personal use only FY18 vs. H1 H2 FY18 Operation FY17 FY18 FY18 guidance Performance notes FY18 FY18 guidance (10%) (5%) 0% 5% 10% Worsley Alumina (US$/t) 203 224 247 235 235 In-line with guidance despite lower production Higher prices for caustic soda
Slide 13: Operating unit costs guidance
Operating unit costs guidance Operating unit costs11 For personal use only FY19 guidance vs. FY18 H2 FY19 Operation FY18 Operating unit costs movement FY19 guidance assumptions FY18 guidance14 (40%) (20%) 0% 20% Worsley Alumina (US$/t) 247 235 230 Lower caustic prices and consumption rates An extend
Slide 14: Capital expenditure analysis
Capital expenditure analysis Sustaining capital expenditure, including equity accounted investments15 For personal use only (US$M) US$60M increase in underground development at Illawarra Metallurgical Coal to facilitate the US$M (South32’s share) FY18 FY19e Guidance assumptions progressive ramp-up i
Slide 15: Cash flow and balance sheet
Cash flow and balance sheet (US$M) Free cash flow from Operations, including net distributions from EAI, of US$1.4B: For personal use only • Build in working capital (+US$392M) with stronger prices and higher raw material input costs • Increase in tax payments (+US$179M to US$306M)16 with an increas
Slide 16: Shareholder returns
For personal use only Shareholder returns Since FY16 we have committed to return 81% of Underlying earnings to shareholders Net cash generated from operations, invested and returned ROIC 13.5% (FY16 to FY18 including committed funds20, US$M) 5,000 Net, to the balance sheet Net distributions from Man
Slide 17: Outlook
For personal use only Outlook Graham Kerr CEO
Slide 18: Our Portfolio
Our Portfolio Managing South Africa Energy Coal as a stand-alone business has allowed us to FY18 Underlying EBITDA contribution by commodity(a) For personal use only simplify the Group, delivering US$50M in annual savings from FY20, 14% Aluminium & alumina further mitigating industry wide inflationa
Slide 19: Production guidance
Production guidance Year on year variance by operation from FY18 For personal use only (South32’s share) Operation Unit Production Guidance Assumption Worsley Alumina FY18 FY19e FY20e Improvement in calciner availability and kt 3,764 3,965 3,965 a drawdown of excess hydrate Brazil Alumina kt 1,304 1
Slide 20: Production guidance
Production guidance Year on year variance by operation from FY18 For personal use only (South32’s share) Operation Unit Production Guidance Assumption Illawarra Metallurgical Coal FY18 FY19e FY20e +155% Metallurgical coal +183% kt 3,165 4,900 5,800 Single longwall configuration at the Appin colliery
Slide 21: Alumina market update
Alumina market update FY18 alumina book (5.1Mt including sales to own smelters) LME aluminium For personal use only linkage23 Vast majority of our 3.2Mt 78% 11% 11% LME price linkage and long alumina position cap/floor structure relates to achieves index linked pricing M-1 alumina index legacy contr
Slide 22: Manganese market update
Manganese market update Manganese ore trade flows Manganese ore price For personal use only • • CY2015 CY2016 CY2017 CY2018 annualised • (Mt, Mn content unadjusted) • (US$/dmtu; Mt) Prices recover with demand, while increase 28 in South African supply is offset by Supply tightness in reduced Chinese
Slide 23: Worsley Alumina
Worsley Alumina Operating margin5 Operating unit cost11 FY18 cost split For personal use only Spot 550 (US$/t) Fixed 50% Variable 50% Caustic soda FY18 391 Other costs (7)% 247 228 224 230 42% 200 205 192 37% 35% 22% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 FY19e 20% 19% • Higher prices under
Slide 24: Brazil Alumina
Brazil Alumina Operating margin (Alumina)5 Operating unit cost11 FY18 cost split For personal use only Spot 550 (US$/t) Variable 84% Fixed 16% Caustic soda FY18 411 Other costs 40% 269 39% 37% 234 34% 193 194 199 185 24% 16% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY16 H2 FY16 H1 FY17 H2
Slide 25: South Africa Aluminium
South Africa Aluminium Operating margin5 Operating unit cost11 FY18 cost split For personal use only (US$/t) Variable 80% FY18 2,226 Fixed 20% Power and raw material inputs28 Other costs Spot 1,999 23% 1,962 21% 1,680 20% 1,496 1,525 1,361 1,380 17% 15% 9% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2
Slide 26: Mozal Aluminium
Mozal Aluminium Operating margin5 Operating unit cost11 FY18 cost split For personal use only FY18 2,296 (US$/t) Variable 83% Fixed 17% Raw material inputs28 Other costs Spot 1,999 1,945 24% 24% 1,653 1,694 1,540 1,474 1,448 18% 18% 12% 4% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY16 H2 F
Slide 27: Illawarra Metallurgical Coal
Illawarra Metallurgical Coal Operating margin5 Operating unit cost11 FY18 cost split For personal use only (US$/t) Fixed 79% FY18 203 Variable 21% (23)% 52% Spot 184 43% 149 136 105 75 86 62 60 23% 24% 18% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 FY19e (2)% • Margin impacted by the extended o
Slide 28: Australia Manganese ore
Australia Manganese ore Operating margin5 Operating unit cost11 FY18 cost split For personal use only Spot 6.93 (US$/dmtu) Fixed 54% Variable 46% Royalties (5)% 6.38 Other costs 1.72 FY18 1.61 1.63 1.50 1.55 1.44 68% 69% 1.31 66% 66% 42% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 FY19e 39% • An
Slide 29: South Africa Manganese ore
South Africa Manganese ore Operating margin5 Operating unit cost11 FY18 cost split For personal use only Spot 5.80 (US$/dmtu) Fixed 39% Variable 61% In-land logistics and royalties Other costs (7)% FY18 5.21 2.74 2.56 46% 2.24 2.31 43% 43% 2.15 41% 1.96 1.61 23% (12)% H1 FY16 H2 FY16 H1 FY17 H2 FY17
Slide 30: Cerro Matoso
Cerro Matoso Operating margin5 Operating unit cost11 FY18 cost split For personal use only Fixed 46% Variable 54% Spot 6.01 Royalties (US$/lb) Other costs (US$/lb) FY18 5.86 Ore to kiln (US$/t) 130 137 136 122 119 40% 115 115 6.00 34% 4.43 +7% 3.81 3.92 4.21 100 3.76 3.73 4.00 3.41 21% 50 2.00 18% 0
Slide 31: Cannington
Cannington Operating margin5 Operating unit cost11 FY18 cost split For personal use only (US$/t) Fixed 71% 200 Variable 29% 1.2 +13% 1 48% 150 47% 0.8 46% 100 0.6 170 43% 146 143 147 131 136 130 0.4 41% 50 0.2 0 0 H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 FY19e 33% FY18 • Strong increase in ma
Slide 32: South Africa Energy Coal
South Africa Energy Coal Operating margin5 Operating unit cost11 FY18 cost split For personal use only Spot(a) 98 (US$/t) Fixed 74% Variable 26% FY18 79 +11% 28% 27% 24% 21% 21% 37 41 32 36 25 26 26 14% H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 H2 FY18 FY19e • Additional washing and logistics costs as
Slide 33: Hermosa project
Hermosa project Large regional land package For personal use only • High grade development option and prospective land package in an attractive mining jurisdiction • Measured and Indicated Mineral Resource 101M tons @ 10.4% zinc equivalent(a) • Expect to invest ~US$100M in FY19 to advance the projec
Slide 34: Eagle Downs metallurgical coal project
Eagle Downs metallurgical coal project Eagle Downs location map For personal use only • Conditional agreement to acquire 50% interest and assume operatorship31 • Expected to close in the September 2018 quarter • Planning to commence feasibility study to optimise mine design Upfront acquisition cost
Slide 35: Our exploration footprint
For personal use only Our exploration footprint Trilogy Metals Embedding high quality options 12.5% equity stake plus 50% project option Arctic EMX Bornite Riddarhyttan Added 9 Strategy to opportunities and 18 active projects identify and exited 1 project at end of FY18 cycle over time in FY18 10 ea
Slide 36: FY18 Summary
For personal use only FY18 Summary Underlying earnings Underlying EBITDA Free cash flow(a) US$1.4B US$1.3B US$2.5B Net Cash balance US$2B ↑16% Operating margin 37% Final ordinary dividend 6.2 US cents per share Reshaping our portfolio US$380M of US$1B Arizona Mining US$946M returned capital manageme
Slide 37: Supplementary information
For personal use only Supplementary information
Slide 38: Earnings adjustments
For personal use only Earnings adjustments FY18 FY17 Earnings adjustments33 US$M US$M Adjustments to Underlying EBIT Significant items (31) - Exchange rate (gains)/losses on restatement of monetary items (15) 37 Fair value (gains)/losses non-trading derivative instruments 73 (194) Major corporate re
Slide 39: Underlying income tax expense
For personal use only Underlying income tax expense FY18 FY17 Underlying income tax expense reconciliation and Underlying effective tax rate34 US$M US$M Underlying EBIT 1,774 1,648 Include: Underlying net finance cost (123) (136) Remove: Share of profit/(loss) of equity accounted investments (491) (
Slide 40: Underlying net finance cost
For personal use only Underlying net finance cost FY18 FY17 Underlying net finance cost reconciliation35 US$M US$M Unwind of discount applied to closure and rehabilitation provisions (105) (98) Finance lease interest (52) (52) Other 34 14 Underlying net finance cost (123) (136) Add back earnings adj
Slide 41: Closure provisions
For personal use only Closure provisions Closure and rehabilitation Profit and Loss impact (+US$83M) Balance FY18 FY17 Sheet36 provisions by operation US$M US$M (+US$24M) (South32 share) 105 3 15 10 24 South Africa Energy Coal 739 746 South South America South Africa Aluminium 191 195 America Worsle
Slide 42: Earning sensitivities
For personal use only Earning sensitivities EBIT impact +/- 10% Estimated impact on FY19 Underlying EBIT of a 10% change in commodity or currency(a) US$M Alumina 196 Aluminium(b) 191 Manganese ore(c) 136 Energy coal 106 Metallurgical coal 60 Nickel 49 Manganese alloy(c) 29 Lead 24 Silver 20 Zinc 13
Slide 43: Footnotes
Footnotes 1. All as at 30 June 2018. FY18 information is unaudited. For personal use only 2. Figure has been restated since it was previously reported due to the reclassification of a recordable illness to a recordable injury. 3. Figure has been restated since it was previously reported due to recla
Slide 44: Footnotes
Footnotes 29. The quarterly sales volume weighted average of the Argus/McCloskey API4 index (Richards Bay Coal Terminal FOB) on the basis of a one month lag to published pricing (Month minus one or “M-1”) was US$91/t in FY18. For personal use only 30. For ZnEq (%) and ZnEq x Thickness (ft%) calculat
Slide 45: South32
For personal use only SOUTH32