South32 Ltd. · ASX:S32
South32 — H1 FY21 Earnings Presentation
43 slides from South32's earnings presentation, Feb 18, 2021
Slide 1: 2021 Half Year Financial Results Presentation announcement
18 February 2021 South32 Limited (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 2021 HALF YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will
Slide 2: 2021 Half Year Financial Results
2021 HALF YEAR FINANCIAL RESULTS 18 February 2021
Slide 3: Important Notices
IMPORTANT NOTICES • This presentation should be read in conjunction with the “Financial Results and Outlook – half year ended 31 December 2020” announcement released on 18 February 2021, which is available on South32’s website (www.south32.net). Figures in italics indicate that an adjustment has bee
Slide 4: Our Portfolio
OUR PORTFOLIO Multiple growth projects Pipeline of greenfield Large producer of Exiting lower progressing through exploration partnerships manganese ore and alumina returning businesses study phase with a bias to base metals AMBLER METALS Copper, Zinc, Lead, Silver & Gold Copper & Gold Copper, Zinc,
Slide 5: Our Strategy
OUR STRATEGY A simple strategy underpinned by a disciplined capital management framework U N LO C K OPTIMISE IDENTIFY the full value of our business. our business by working and pursue opportunities to safely, minimising our impact, sustainably reshape our consistently delivering stable business for
Slide 6: H1 FY21 Progress
H1 FY21 PROGRESS • Production records at three operations (Australia Manganese, Brazil Alumina, Worsley Alumina) • FY21 production guidance increased at three operations (Cannington, Cerro Matoso, Illawarra Met Coal) • H1 FY21 Operating unit costs in-line or below guidance for the majority of operat
Slide 7: Health & Safety Performance
HEALTH & SAFETY PERFORMANCE We are committed to working together, continually improving our systems, processes and safety performance at all our operations 1 1,2 1,2 Fatalities TRIF TRILF 4.6 4.4 4.2 1.4 1.3 1.1 1 0 0 (a) FY19 FY20 H1 FY21 FY19 FY20 H1 FY21 FY19 FY20 H1 FY21 Notes: a. Incidents are
Slide 8: H1 FY21 Financial Summary
H1 FY21 FINANCIAL SUMMARY Net profit after tax Underlying EBITDA US$53M Operating unit costs US$633M in-line with or below guidance Underlying earnings for the majority of operations Operating margin 23% US$136M US$160M returned Capital management Free cash flow(a) to shareholders(b) program expande
Slide 9: Production Overview
PRODUCTION OVERVIEW Alumina (Mt) Aluminium (kt) Manganese ore (Mwmt) 2.6 2.6 2.7 2.6 496 496 497 2.8 2.9 490 2.5 2.6 H1 FY20 H2 FY20 H1 FY21 H2 FY21e H1 FY20 H2 FY20 H1 FY21 H2 FY21e H1 FY20 H2 FY20 H1 FY21 H2 FY21e Record year to date production at Record year to date production at both Both smelte
Slide 10: Emissions Progress
EMISSIONS PROGRESS Scope 1 & 2 emissions1,4 Scope 1 emissions We are advancing our climate change initiatives aligned to • • (%, FY20) our strategy and commitment to net zero by 2050 17% 36% • On-track to achieve our five year Scope 1 emissions reduction target in FY21 11% 10.4Mt CO2-e 13% • New Sco
Slide 11: Inclusion and Diversity Progress
INCLUSION AND DIVERSITY PROGRESS • Percentage of total employees who are women • Women on our Board • Women on our Lead Team 38% 38% 38% 44% 44% 40% >40% >33% 19% 19% 18% Targeting continuing improvement FY19 FY20 H1 FY21 FY21 Target FY19 FY20 H1 FY21 FY21 Target • Women in senior leadership6 • Wome
Slide 12: Social Progress
SOCIAL PROGRESS Community investment Cultural heritage • Our Community Investment Framework is based on four priority areas • During CY20 we undertook a review of our approach to cultural heritage aligned with the UN Sustainable Development Goals: management o Education and leadership • Whilst we ha
Slide 13: Performance and Guidance
PERFORMANCE AND GUIDANCE
Slide 14: H1 FY21 Performance Analysis
H1 FY21 PERFORMANCE ANALYSIS Our strong operating result supported an improvement in our H1 FY21 Group operating margin H1 FY21 Underlying EBITDA contribution by commodity(a)(b) Alumina Aluminium Manganese ore operating margin(b) operating margin operating margin Alumina 47% 19% 64% 6% 58% 56% Alumi
Slide 15: Earnings Analysis
EARNINGS ANALYSIS Lower controllable costs and higher sales volumes helped to offset weaker prices Controllable costs (US$M) 121 29 29 15 Inventory Cost efficiencies Lower marketing and Production volume corporate functions controllable costs 194 20 233 9 60 293 282 86 50 59 31 35 136 Other⁹ Sales p
Slide 16: Revenue Analysis
REVENUE ANALYSIS We have seen a broad based recovery in our commodity basket to start H2 FY21 Revenue analysis South32 commodity basket reference prices11 (US$M) (Spot to H1 FY21 average prices for reference index) H1 FY20 Revenue (a) 3,481 (excl. third party product) 150 Spot prices as at 12 Februa
Slide 17: Costs Analysis
COSTS ANALYSIS We reduced our cost base by 9%(a) with cost efficiencies and weaker FX more than offsetting an increase in power costs Price-linked costs12 H1 FY21 (US$M) 51 HoH impact expenditure 15% 11% (11) (6) 9% (21) (19) (19) 35% Caustic Higher Smelter Power and Bauxite Other13 17% soda smelter
Slide 18: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE Cost and volume efficiencies are expected to partially offset strengthening producer currencies(a) in H2 FY21 Worsley Alumina (US$/t)16 Brazil Alumina (non-operated) (US$/t) 238 -3% +2% 270 -16% 244 210 204 205 210 Guidance not provided Guidance increase
Slide 19: Operating Unit Costs Performance and Guidance
OPERATING UNIT COSTS PERFORMANCE AND GUIDANCE Cerro Matoso (US$/lb)16 South Africa Energy Coal (US$/t)16 +3% +3% 4.10 3.99 3.97 42 42 3.79 40 Guidance not provided 3.69 Guidance increased by 3% Q3 FY21 costs expected to Higher price-linked royalties reflect adjustments to and electricity prices part
Slide 20: Cash Flow Analysis
CASH FLOW ANALYSIS Our disciplined approach to capital allocation balances investment in our business with returns to shareholders (US$M) Timing differences that are Capital expenditure Shareholder returns expected to unwind in H2 FY21 have resulted in excess cash being (US$276M) (US$160M) retained
Slide 21: Capital Expenditure Analysis
CAPITAL EXPENDITURE ANALYSIS Successful divestment of Additional capital to Major capital expenditure South Africa Energy Coal will accelerate development of the weighted to Hermosa in H2 FY21 meaningfully reduce the Q&P project at Cerro Matoso Group’s capital intensity Sustaining capital expenditur
Slide 22: Portfolio and Returns Outlook
PORTFOLIO AND RETURNS OUTLOOK
Slide 23: Capital Management Framework
CAPITAL MANAGEMENT FRAMEWORK Framework designed to reward Our framework A strong balance sheet is at shareholders as financial remains unchanged the core of our strategy performance improves Capital management framework Net cash/(debt) Shareholder returns (paid and committed) (US$M) (US$M) 2,400 600
Slide 24: Capital Management Program
CAPITAL MANAGEMENT PROGRAM Program expanded by Shares on issue reduced Program is flexible On-market share buy-back US$250M to US$1.68B by 10% at an average price to efficiently return resumed in October 2020 US$259M remaining of A$2.87/share since the excess capital returning a further US$112M to b
Slide 25: Reshaping Our Portfolio
RESHAPING OUR PORTFOLIO We are simplifying our portfolio, exiting lower returning businesses METALLOYS (60%) Alloy smelter on care and maintenance SOUTH AFRICA ENERGY COAL (100%) Targeting divestment by 31 March 2021(a) EAGLE DOWNS METALLURGICAL COAL (50%) Project placed on hold while we assess opti
Slide 26: Our Life Extension and Improvement Options
OUR LIFE EXTENSION AND IMPROVEMENT OPTIONS We are advancing options at our existing operations to compete for capital and grow returns CERRO MATOSO (100%) ILLAWARRA METALLURGICAL COAL (100%) Development of the higher-grade Q&P project approved Assessing the impact of the Independent Planning Commiss
Slide 27: Our Growth Options & Exploration Footprint
OUR GROWTH OPTIONS & EXPLORATION FOOTPRINT Our pipeline of growth opportunities and greenfield exploration partnerships has a bias to base metals Ambler Metals Joint Venture (50%) Arctic (copper, zinc, lead, silver, gold) PFS underway Exploration partnerships AMBLER METALS (50%) Copper, Zinc, Lead,
Slide 28: Markets Outlook
MARKETS OUTLOOK
Slide 29: Manganese Market
MANGANESE MARKET Long term price to be set by marginal Global supply remains tight despite CY21 outlook to be driven by supply South African supply transitioning rebound, supporting ore prices with alloy demand expected to remain strong underground over time • Manganese ore supply Manganese ore pric
Slide 30: Alumina Market
ALUMINA MARKET Cost curve expected to lift in the long term Growth in Chinese imports and strong smelter Cost curve expected to shift upwards in CY21 due to raw material cost increases and margins have supported price recovery due to rising energy and caustic soda costs deterioration of Chinese baux
Slide 31: Metallurgical Coal Market
METALLURGICAL COAL MARKET Increasing demand in India and CY20 prices impacted by Trade flow disruption CY21 outlook supported by strong emerging Asian economies disruption in trade flows has led to higher demand for ex-China demand while trade policy expected to provide and weak ex-China demand Aust
Slide 32: H1 FY21 Summary
H1 FY21 SUMMARY Record production Net cash balance Underlying EBITDA at 3 operations US$275M US$633M H1 FY21 Operating unit costs US$160M returned Operating margin 23% in-line with or below guidance to shareholders(a) for the majority of operations Interim ordinary dividend US$67M (1.4 US cents per
Slide 33: Supplementary Information
SUPPLEMENTARY INFORMATION
Slide 34: Earnings Sensitivities
EARNINGS SENSITIVITIES EBIT impact +/- 10% Annualised estimated impact on FY21e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Aluminium(b) 185 Alumina(b) 146 Manganese ore(c) 86 Metallurgical coal 67 Nickel 43 Silver 34 Energy coal(d) 31 Lead 22 Zinc 15 Australian dollar 18
Slide 35: Operating Unit Costs
OPERATING UNIT COSTS H1 FY21 actual vs. H1 FY21 FY21 prior Operating unit costs H1 FY20 H2 FY20 H1 FY21 FY21 prior guidance Commentary to guidance or H1 FY20 adjusted guidance21 (15%) (5%) 5% 15% Record production volumes, lower caustic soda prices Worsley Alumina 225 196 204 202 205 and cost effici
Slide 36: Operating Unit Cost Guidance
OPERATING UNIT COST GUIDANCE FY21 FY21 new guidance vs. H1 FY21 FY21 prior FY21 new Operating unit costs adjusted FY21 prior guidance Commentary actual guidance21 guidance16 guidance (15%) (5%) 5% 15% Worsley Alumina Stronger Australian dollar partially offset by lower caustic 204 205 209 210 prices
Slide 37: Closure & Rehabilitation Provisions
CLOSURE & REHABILITATION PROVISIONS Combined with a weaker US dollar 73% of the increase relates Discount rate assumptions updated to reflect and changes to our closure cost estimates to South Africa Energy Coal and our changes to long term outlook for risk free rates to increase provisions by US$56
Slide 38: Earnings Adjustments
EARNINGS ADJUSTMENTS H1 FY21 H1 FY20 Earnings adjustments US$M US$M Adjustments to Underlying EBIT Exchange rate (gains)/losses on restatement of monetary items 71 3 Impairment losses 36 - (Gains)/losses on non-trading derivative instruments and other investments measured at fair value (19) 39 Major
Slide 39: Underlying Income Tax Expense
UNDERLYING INCOME TAX EXPENSE H1 FY21 H1 FY20 Underlying income tax expense reconciliation and Underlying effective tax rate US$M US$M Underlying EBIT 282 293 Include: Underlying net finance costs (60) (69) Remove: Share of profit/(loss) of equity accounted investments (59) (100) Underlying profit/(
Slide 40: Underlying Net Finance Costs
UNDERLYING NET FINANCE COSTS H1 FY21 H1 FY20 Underlying net finance costs reconciliation US$M US$M Unwind of discount applied to closure and rehabilitation provisions (55) (54) Change in discount rate on closure and rehabilitation provisions 23 - Interest on lease liabilities (27) (26) Other (1) 11
Slide 41: Capital Expenditure Guidance
CAPITAL EXPENDITURE GUIDANCE Capital expenditure (excluding exploration and intangibles) (South32 share) US$M H1 FY21 FY21e Worsley Alumina 28 57 Brazil Alumina 15 27 Hillside Aluminium 6 16 Mozal Aluminium 6 10 Illawarra Metallurgical Coal 75 146 Australia Manganese 29 58 South Africa Manganese 10
Slide 42: Footnotes
FOOTNOTES 1. Metrics describing sustainability and Health, safety, environment and community performance apply to operations that have been wholly owned and operated by South32, or that have been operated by South32 in a joint arrangement. 2. Total Recordable Injury Frequency (TRIF) per million hour
Slide 43: Slide 43