South32 Ltd. · ASX:S32
South32 — H1 FY19 Earnings Presentation
33 slides from South32's earnings presentation, Feb 14, 2019
Slide 1: 2019 Half Year Financial Results Presentation
14 February 2019 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 2019 HALF YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR:
Slide 2: 2019 Half Year Financial Results
For personal use only 2019 Half Year Financial Results • 14 February 2019
Slide 3: Important notices
Important notices • This presentation should be read in conjunction with the “Financial results and outlook – half year ended 31 December 2018” announcement released on 14 February 2019, which is available on South32’s website (www.south32.net). Figures in italics indicate that an adjustment has bee
Slide 4: H1 FY19 Overview
For personal use only H1 FY19 Overview Underlying EBITDA Underlying earnings ↑18% to US$642M Free cash flow(a) US$718M US$1.3B Underlying earnings per share Net cash balance US$678M Operating margin 38% ↑20% to US 12.6 cents per share Ordinary dividend US 5.1 cents per share Reshaping our portfolio
Slide 5: Sustainability performance
For personal use only Sustainability performance 1 Fatalities(a)(b) 1 0 FY17 FY18 H1 FY19¹ 6.1 5.1 4.8 TRIF(a)(b) FY17 FY18 H1 FY19¹ 2.8 Employee 2.0 1.7 Occupational Illness(a)(b) FY17 FY18 H1 FY19¹ 22.6 22.9 11.8 GHG emissions(a)(b) (Mt CO2-e) FY17 FY18 H1 FY19¹ 20.4 14.3 16.3 Community investment
Slide 6: Tailings management
Tailings management As an industry we need to build trust, increase transparency and establish a common reporting framework For personal use only May 2015 (listing) Our Dam Management Standard(b) FY15 • Publicly released our information memorandum with independent expert reports for • Clear accounta
Slide 7: Workforce diversity
Workforce diversity Black People(a) in our Women in our For personal use only South African management team workforce 45% 46% 16% 17% 17% 42% Continuing Continuing improvement improvement FY17 FY18 H1 FY19¹ FY20 Target FY17 FY18 H1 FY19¹ FY20 Target Women in leadership Board South32 Lead Team Senior
Slide 8: 2019 Half Year Financial Results
For personal use only 2019 Half Year Financial Results • Brendan Harris Katie Tovich • CFO Deputy CFO
Slide 9: Operating margin analysis
Operating margin analysis H1 FY19 Underlying EBITDA contribution Group operating margin2 Mitigating inflationary pressure & enhancing margins by commodity(a)(b) For personal use only Estimated impact on margin 8% Volume and equipment efficiencies ~US$60M 39% 38% (Australia Manganese ore and Illawarr
Slide 10: Earnings analysis
Earnings analysis Sales volumes & Controllable costs by type (US$M) controllable costs 6 For personal use only by operation (12) (17) (16) IMC SAEC Hillside Worsley Other (32) (36) Sales volumes 327 (134) 35 (7) (5) Controllable costs (28) - (78) (38) (16) (53) Caustic soda Labour & Net Underlying E
Slide 11: Costs analysis
Costs analysis FX on costs Price-linked costs (US$M) HoH impact on costs For personal use only Australian South African Brazilian Other Caustic soda 46 dollar rand real currencies LME linked electricity Smelter raw materials 23 2 20 14 Other power and diesel 12 Treatment & refining charges 51 Other6
Slide 12: Operating unit costs
Operating unit costs H1 FY19 actual vs. H1 FY18 H2 FY18 H1 FY19 H1 FY19 FY19 prior Commentary Operating unit costs9 FY19 prior guidance actual actual actual adjusted12 guidance13 H1 FY19 performance to guidance For personal use only (20%) (10%) 0% 10% Worsley Alumina Lower volumes, high cost caustic
Slide 13: Operating unit costs guidance
Operating unit costs guidance FY19 FY19 new guidance vs. H1 FY19 FY19 prior FY19 new Operating unit costs9 adjusted FY19 prior guidance Commentary actual guidance13 guidance14 For personal use only guidance12 (10%) 0% 10% Worsley Alumina Additional expenditure to improve calciner performance and 233
Slide 14: Capital expenditure analysis
Capital expenditure analysis Sustaining capital expenditure FY19 capital guidance For personal use only (US$M) Prior New Commentary US$M (South32’s share) -US$30M 575 or -5% Worsley Alumina 56 60 Initiatives to support increase in production to nameplate 545 Brazil Alumina (non-operated) 40 32 Hills
Slide 15: Cash flow and balance sheet
For personal use only FY18 net cash (US$M) 2,041 Free cash flow from operations excluding 752 capital expenditure Net distributions from 262 manganese EAI¹⁷ Sustaining capital expenditure 206 (excluding EAI) from operations Generated strong cash flow Major project 90 capital expenditure H1 FY19 Ariz
Slide 16: Capital management program
Capital management program Average buy-back price Flexible program to A$3.09 per share Shares on issue reduced by For personal use only return excess capital efficiently 5% since commencement and in a timely manner ~20% discount to consensus NPV US$240M in special dividends A$3.98 per share19 South3
Slide 17: Shareholder returns
Shareholder returns Our capital management framework has allowed us to return US$2.4B to shareholders For personal use only in respect of the last three years, equivalent to 20% of our market capitalisation20 Shareholder returns (paid and committed) US$2.4B shareholder ROIC 13.9% (US$M) returns by t
Slide 18: Outlook
For personal use only Outlook Graham Kerr CEO
Slide 19: Overview
Overview H1 FY19 Underlying EBITDA contribution by commodity(a)(b) Forecast revenue equivalent production21 (FY18 baseline) For personal use only 100% Aluminium & alumina 8% FY18 Manganese ore & alloys 19% Energy coal 35% Metallurgical coal Base & precious metals 4% Group production volumes Mn alloy
Slide 20: Production guidance
Production guidance FY19e production For personal use only (South32’s share) Operation Unit Guidance Key assumptions Worsley Alumina FY19e FY20e Improvement in calciner availability, notwithstanding 1,906 2,059 kt 3,965 3,965 maintenance scheduled for Q3 FY19 Brazil Alumina (non-operated) Introducti
Slide 21: Production guidance
Production guidance FY19e production For personal use only (South32’s share) Operation Unit Guidance Key assumptions Illawarra Metallurgical Coal FY19e FY20e Metallurgical coal 3,082 2,118 kt ↑5,200 5,800 • Two longwall moves scheduled for Q3 FY19 • A substantial uplift in development rates at Appin
Slide 22: Manganese market
Manganese market • Manganese ore trade flows • Kalahari basin routes to market (Mt, Mn content unadjusted) For personal use only • MECA rail CY16 CY17 CY18 Other rail Johannesburg 32 Road Exports Imports Kalahari basin 28 Chinese 24 imports have Richards Bay increased by Durban 20 ~60% since CY16 16
Slide 23: Manganese market
Manganese market Manganese cost curve CY19 Manganese ore price and China port stocks For personal use only (US$/dmtu, 44% Mn ore normalised, CIF China) (US$/dmtu; Mt) 12 12 Higher grade (44%) ore Low to medium grade (30-37%) High grade index historically primarily from low cost ore primarily from 2Q
Slide 24: Alumina market
Alumina market Alumina: price and % of LME aluminium price FY19e alumina book For personal use only (US$/t; %) (5.3Mt including sales to own smelters) FOB Australia price traded higher than historical linkage rates Vast majority of our 3.4Mt Aluminium LME price linkage and in CY18 in response to sup
Slide 25: Our portfolio and exploration footprint
Our portfolio and exploration footprint Acquisitions of Hermosa and Life extension Pipeline of exploration South Africa Energy Coal For personal use only Eagle Downs completed options advanced partnerships established divestment on-track Upper Kobuk Mineral Projects Option to earn a 50% interest in
Slide 26: Hermosa project
Hermosa project Taylor deposit outline27 Large regional land package For personal use only High grade Progressing studies, Open zinc-lead-silver resource drilling and resource(a) infrastructure build Open Open Open On track to declare a maiden Regional exploration Mineral Resource targets identified
Slide 27: Eagle Downs Metallurgical Coal project
Eagle Downs Metallurgical Coal project Eagle Downs location map For personal use only 50% interest and 1.1Bt(a) coal resource in the operating control Bowen Basin, Queensland Review of existing Fully permitted, development plan completed partially developed mine in H1 FY19 Initial capital expenditur
Slide 28: H1 FY19 Summary
For personal use only H1 FY19 Summary Underlying EBITDA Underlying earnings ↑18% to US$642M Free cash flow(a) US$718M US$1.3B Underlying earnings per share Net cash balance US$678M Operating margin 38% ↑20% to US 12.6 cents per share Ordinary dividend US 5.1 cents per share Reshaping our portfolio U
Slide 29: Supplementary information
For personal use only Supplementary information
Slide 30: Closure provisions
For personal use only Closure provisions Closure and rehabilitation Profit and loss impact Balance H1 FY19 FY18 provisions by operation (+US$40M) sheet28 US$M US$M (South32 share) (-US$91M) South Africa Energy Coal 692 739 52 12 91 Hillside Aluminium 190 191 Americas Americas Worsley Alumina 278 295
Slide 31: Earning sensitivities
For personal use only Earning sensitivities EBIT impact +/- 10% Estimated impact on FY19e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Alumina(b) 247 Aluminium(b)(c) 185 Manganese ore(d) 127 Energy coal 118 Metallurgical coal 101 Nickel 40 Manganese alloy(d) 30 Silver 16 L
Slide 32: Footnotes
Footnotes 1. All as at 31 December 2018. H1 FY19 information is unaudited. 2. Operating Margin comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue. 3. The H1 FY19 results reflect the Group’s adoption of AASB 15 Revenue from Contr
Slide 33: For personal use only
For personal use only