Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — FY2014 Earnings Presentation
44 slides from Fortescue's earnings presentation, Aug 20, 2014
Slide 1: 2014 Full year results
2014 Full year results For personal use only August 2014
Slide 2: Disclaimer
Disclaimer For personal use only Important Notice The purpose of this presentation is to provide general information about Fortescue Metals Group Limited ("Fortescue"). It is not recommended that any person makes any investment decision in relation to Fortescue based on this presentation. This prese
Slide 3: Fortescue Update: The journey continues
Fortescue Update For personal use only The journey continues
Slide 4: Building a world class company
Building a world class company Reliable and competitive supplier to Asia For personal use only • First ore 2008 • 400mt shipped to date • 155mtpa production rate • Large growing resource base • Unique culture 4
Slide 5: For personal use only
For personal use only 5
Slide 6: FY14 in review
FY14 in review Delivering 155mtpa For personal use only 124.2mt YTD $US3.1bn 38.7mt June Qtr debt reduction Infrastructure complete 155 mtpa Annualised run rate Mines and processing facilities ramped up US$2.4bn Costs 23% cash on hand efficiency focus 6
Slide 7: Fortescue overview
Fortescue overview Record operational performance delivers NPAT of US$2.7bn and EBITDA* of US$5.6bn For personal use only Volume 54% Costs 23% 140.0 50 US$/wmt 105.0 40 mt 70.0 30 35.0 - 20 FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14 Earnings EBITDA 58% NPAT 57% Debt US$3.1bn 6.0 14.0 +$0.5bn
Slide 8: Building a world class company: World class infrastructure
Building a world class company World class infrastructure For personal use only • Over 10,000 jobs • 5 mines; 5 processing plants • 3 airports; 30,000 passengers/month • 5 berths; 75 ships/month • 620km rail; 45 locos, 3,384 ore cars 8
Slide 9: Foundation for the future
Foundation for the future For personal use only
Slide 10: Disciplined capital management
Disciplined capital management Track record of debt repayment delivering investment grade metrics For personal use only • Increased cashflow and lower capex 7.0 160 • US$2-$2.5bn targeted additional 6.0 140 repayments 5.0 120 100 - Gearing ~40% 4.0 80 3.0 - Net Debt to Equity ~50% 60 2.0 40 • Net de
Slide 11: Ongoing projects
Ongoing projects For personal use only • Targeted exploration continues to increase resource base • AP5 berth adds 15 – 20mtpa outload capacity • Detrital processing plant adds 5mtpa capacity at Solomon • Autonomous haulage increases operational cost efficiencies • Ship construction 260k dwt ore car
Slide 12: Port – flexible design for future growth
Port – flexible design for future growth Fifth berth under construction For personal use only AP3 AP2 AP1 AP4 AP5 2015 12
Slide 13: Financials
For personal use only Financials
Slide 14: Highlights
Highlights Record financial results For personal use only Revenue Debt re-paid US$11.8bn 45% US$3.1bn + US$0.5bn committed C1 costs US$34/wmt 23% Interest savings in excess of US$330m p.a. EBITDA US$5.6bn 58% Total FY14 dividends NPAT A$0.20 / share fully franked US$2.7bn 57% 14
Slide 15: Earning growth
Earning growth Strong financial results reflect operational performance For personal use only Revenue and price realisation EBITDA, US$ millions 14.0 160 5,636 Operating revenue, US$bn Price realisation, US$/dmt 10.5 120 3,575 7.0 80 3,035 2,661 3.5 40 1,107 0.0 - FY10 FY11 FY12 FY13 FY14 Revenue Re
Slide 16: Operating margins
Operating margins Solid operating margins maintained For personal use only US$/wmt 62% Platts US$/dmt 200 200 180 180 160 $146 160 140 $127 $127 140 120 $114 $110 $113 120 $100 $74 $96 100 $65 $57 $85 100 $45 80 $28 $53 $60 80 $64 $44 $35 60 $22 $22 $20 $18 60 $18 $24 $22 $18 $20 $16 40 $19 40 20 $3
Slide 17: EBITDA
EBITDA Ramp-up of operations and sustained cost savings deliver record financial results For personal use only 1,203 829 276 2,079 149 33 5,636 3,575 FY13 Volume Costs Price Royalty Fx Other FY14 • Increased shipments - record production 54% • Continued focus on production costs C1 $34/wmt 23% 17
Slide 18: Production costs
Production costs 35% reduction generating ~ US$2.6bn lower costs For personal use only CB and CC1 operations FY12 $48 Driving down the global cost curve 58mt production @ SR 4.3 with 2 OPF’s + 3 Berths CC2, Hamersley line, Firetail, CB WFE FY13 $44 80mt production @ SR 3.9 from 4 OPF’s + 3 Berths AP
Slide 19: Cashflow FY14
Cashflow FY14 Record net free cash flow US$4.3bn For personal use only US$m 9,000 6,248 6,000 2,778 2,808 3,004 3,000 1,294 - (3,000) (584) (1,477) (1,931) (6,000) (6,044) (6,355) (9,000) FY10 FY11 FY12 FY13 FY14 Operating cash flow Capital expenditure • Increased production volumes and lower costs
Slide 20: Capital expenditure
Capital expenditure Significant reduction in expenditure as expansion complete For personal use only US$bn 7.5 6.0 4.5 3.0 1.5 0.0 FY10 FY11 FY12 FY13 FY14 FY15(est) • FY15 capital US$1.3bn • Depreciation and amortisation ~$8.50/t 20
Slide 21: US$3.1bn re-paid + US$0.5bn committed
US$3.1bn re-paid + US$0.5bn committed Flexibility to enables further repayments and re-financing For personal use only 5,000 4,500 4,913 Repayable at Fortescue's option 4,000 3,500 3,000 Callable Callable at US$m 2,500 in April Fortescue's Callable in 2015 option 2,000 April 2017 1,500 1,500 Callabl
Slide 22: Cost of borrowings
Cost of borrowings Focus on debt reduction lowering interest costs For personal use only • Cost of borrowings reduced to 5.3%* 10.1% • Debt repayments US$3.1bn 7.0% 7.0% + US$0.5bn committed in Oct 14 6.3% 5.3% • Intention to re-pay additional US$0.5bn to US$1.0bn in FY15 • Debt reductions + refinan
Slide 23: Key credit metrics
Key credit metrics Moving towards investment grade metrics For personal use only Debt to EBITDA Gearing: Debt / (Debt+Equity) 69% 71% 3.5x 67% 67% 56% 2.7x 2.8x 1.8x 1.7x FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14 Interest coverage: EBITDA / Interest Cash and debt (US$bn) 12.7 6.9x 9.6 5.4x 8
Slide 24: Dividends
Dividends Fully franked A$0.20 dividend for FY14 For personal use only Dividends, AUD cents per share Dividend payout ratio, % 30 3,000 30% 20 20 2,000 20% 10 10 8 7 1,000 10% - - - 0% FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14 Interim Final Net income Dividend payout ratio(RHS) • Modest divi
Slide 25: Market
For personal use only Market
Slide 26: China's growth cities
China’s growth cities 200m people to urbanise by 2020 For personal use only • GDP doubled in 6 years • China has just reached steel consumption levels of a developed country • Record daily steel production 2.3mt • Iron ore imports +20% YTD 26
Slide 27: Iron ore price volatility
For personal use only 27 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 $170 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Iron ore price volatility Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14
Slide 28: Steel consumption per capita
Steel consumption per capita China has only just reached levels of consumption of a developed country For personal use only 2014 - 2020 Forecast Kg per capita 800 700 600 500 400 300 200 GDP 100 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 China US 28 Source: Macquarie Research
Slide 29: Demand for seaborne supply
Demand for seaborne supply New coastal steel capacity moving away from domestic iron ore For personal use only Iron Ore Reserves New/proposed steel capacity Seaborne iron ore Seaborne iron ore imports (Ex. Australia, Brazil etc.) 29 Source: ANZ Research
Slide 30: Clear strategy
For personal use only 30 Clear strategy
Slide 31: Moving down the global cost curve
Moving down the global cost curve Targeting bottom quartile For personal use only China Iron Ore Supply CFR Costs – May 2014 (including royalties and freight) 200 Domestic Chinese Ore Australia Brazil India 150 South Africa Other US$/dry tonne 100 50 Fortescue 0 0 100 200 300 400 500 600 700 800 900
Slide 32: Significant reliance on diesel fuel
Significant reliance on diesel fuel Driven by remote power and mobile fleet consumption For personal use only Total energy spend >US$800 million Diesel (Mine Fleet) Diesel (Rail) Diesel (Mine Power Generation) Diesel Gas (Ancillary) (Power Generation) 32
Slide 33: Fortescue River gas pipeline
Fortescue River gas pipeline Stage 1 – to Solomon Hub For personal use only 33
Slide 34: Competitive energy powering the future
Competitive energy powering the future Unlocking Australia’s energy advantage For personal use only • Transparent Retention Leases enforce “Use it or lose it” policy • Competitively priced energy for our economy • Reducing carbon emissions • Gross State Product +$2.5 billion in 2020 34
Slide 35: Reserves and resources
Reserves and resources For personal use only
Slide 36: Resource portfolio supports asset base
Resource portfolio supports asset base Drilling as required and extend through near mine exploration For personal use only 12,000 Mineral Resources dry in situ (Mt) 2,463 10,000 2,463 2,013 740 8,000 624 624 1,032 624 6,000 4,877 3,246 3,504 3,070 2,860 4,000 1,715 2,224 695 695 303 695 695 695 695
Slide 37: Mine lives based on current reserves
Mine lives based on current reserves Fortescue mine lives compare favourably For personal use only Reserve and Resource Tonnages (dry) Ore Reserve Life (Years) 25 25 20 20 15 15 10 10 5 5 0 0 Fortescue BHPBIO RTIO Fortescue BHPBIO RTIO Reserves M&I Resources Total Resources Based on last 12 months S
Slide 38: Hematite reserves
Hematite reserves Reserve base supports extended operations For personal use only • Focused exploration programs Million Tonnes* Fe % Cloudbreak 500 57.6 • Significant reserve lives Christmas Creek 970 57.3 Chichester Total 1,470 57.4 • Chichester single ore body, Firetail 174 58.7 transferable betw
Slide 39: Supporting our local community
Supporting our local community For personal use only
Slide 40: VTEC
VTEC Creating opportunities through training and employment For personal use only 1,100 Aboriginal employees Aboriginal people in 12% Fortescue workforce Contracts to Aboriginal $1.5bn+ companies and JV’s VTEC Roebourne, Training Centres South Hedland 40
Slide 41: Building our economy
Building our economy Unlocking the potential of WA’s North West For personal use only 15,000 employed AU$800m* wages p.a. AU$2.1bn taxes and royalties p.a. AU$490m localised spend FY14 41 * applies to full time employee wages only
Slide 42: Delivering on targets
Delivering on targets Focused on shareholder value For personal use only • 155mt production rate achieved • Committed to debt reduction – initial gearing target 40% • Moving towards dividend payout ratio of 30% - 40% once the gearing target is achieved • Early work to secure strategic options with h
Slide 43: For personal use only
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Slide 44: Glossary
Glossary Definition of non-IFRS terms For personal use only Reconciliation of EBITDA to IFRS items NPAT = net profit after income tax 2014 2013 EBITDA = profit before income tax adjusted for depreciation and US$m US$m amortisation, asset write offs, exploration, development and other Profit before i
Fortescue Metals Group — FY2014 Earnings Presentation on 6ix