Anglo American Plc · LSE:AAL
Anglo American — H1 2013 Earnings Presentation
67 slides from Anglo American's earnings presentation, Jul 26, 2013
Slide 1: Interim Results, Six Months Ended 30 June 2013
INTERIM RESULTS SIX MONTHS ENDED 30 JUNE 2013 26 July 2013
Slide 2: Cautionary Statement
CAUTIONARY STATEMENT Disclaimer: This presentation has been prepared by Anglo American plc (“Anglo American”) and comprises the written materials/slides for a presentation concerning Anglo American. By attending this presentation and/or reviewing the slides you agree to be bound by the following con
Slide 3: I. Operational Performance
I. OPERATIONAL PERFORMANCE Mark Cutifani
Slide 4: Highlights
HIGHLIGHTS Delivering our commitment on dividend… Underlying EPS • Group underlying operating profit $3.3bn 15% $ per share H1 H2 • Underlying earnings 28% to $1.3bn, EPS of $0.98 2.48 2.29 • Weaker prices coupled with cost inflation across 1.23 0.87 the industry led to margin compression 2.58 1.84
Slide 5: Safety, Health & Environment
SAFETY, HEALTH & ENVIRONMENT Performance overview 0.76 Safety 0.80 25 • Injury performance continues to improve: Lost-time injury frequency rate 0.64 0.64 0.70 0.60 20 0.51 0.60 ̶ LTIFR down 12% 6 0.50 Fatal injuries 15 7 ̶ TRCFR down 16% 0.40 7 10 5 0.30 • The loss of 8 colleagues is deeply disappo
Slide 6: Iron Ore
IRON ORE KUMBA IRON ORE • Strong Kolomela performance offset Sishen strike impacts and higher waste stripping • Sishen unit cost impacted by cost escalation, higher waste stripping and lower production • Northern Cape optimisation under way; finalisation expected in H2 2013 MINAS-RIO PROJECT • Signi
Slide 7: Metallurgical Coal
METALLURGICAL COAL Australian FOB cash cost(1) (A$/t) • Record metallurgical coal production: -18% 111 ̶ Business process model driving performance and 91 efficiency 86 ̶ Moranbah achieved record cutting hours and record cutting rate to deliver consistent strong performance (highest weekly hours of
Slide 8: Thermal Coal and Nickel
THERMAL COAL AND NICKEL THERMAL COAL • 3 fatalities at the start of the year at Goedehoop, Greenside and New Denmark • Production in SA 3% higher due to new equipment at continuous miner sections, and improved longwall production at New Denmark • SA FOB cash costs contained at 6.6% in a high mining
Slide 9: Copper
COPPER Declining copper unit costs C1 unit cost (c/lb) • Production increased by 7% to 353 kt due to full ramp up of Los Bronces expansion project -9% 188 171 ̶ Los Bronces production increased by 9% to 200 Kt ̶ Mine development at Los Bronces has reduced congestion, leading to improved continuity o
Slide 10: Platinum and Diamonds
PLATINUM AND DIAMONDS PLATINUM • Significant improvement in safety; regrettably 1 loss of life • Equivalent refined production at 1.2 Moz, in line with H1 2012 • Refined platinum sales volume up 11% y-o-y to 1.1 Moz • Cash operating costs increased 5%(1) to R16,284 per equivalent refined platinum oz
Slide 11: Managing Today – The Issues
MANAGING TODAY – THE ISSUES We have not forgotten our current challenges... Platinum restructure Implementation now in process • Reschedule and optimise pit development Kumba revitalisation • Resolve AMSA and DMR disputes South Africa challenges Dealing with social complexity and industrial threats
Slide 12: II. Financials
II. FINANCIALS RENE MEDORI
Slide 13: H1 2013 Results
H1 2013 RESULTS Underlying EPS ($/share) Key financials 2.58 H1 H1 Change vs. 2.48 $bn 2013 2012(1) 2012 Underlying EBITDA 4.7 5.1 (7)% 33% Underlying operating 3.3 3.8 (15)% profit 1.41 Effective tax rate 33% 30% 0.98 Underlying earnings 1.3 1.7 (28)% 0.87 Capital expenditure(2) 2.4 2.5 11% Net deb
Slide 14: H1 2013 Operating Profit Variance
H1 2013 OPERATING PROFIT VARIANCE H1 2013 vs. H1 2012 ($bn) 3.8 (1.2) (0.7) Bulks 3.3 (0.3) 3.0 0.2 (0.2) 0.0 0.1 (0.5) 0.7 (0.2) 0.3 Base & 33% precious De Beers • to 100% holding: $0.3bn • Acquisition depreciation: $(0.1)bn • Improved result: $0.1bn 11% H1 2012 Price(1) Exchange Inflation(2) Volum
Slide 15: Price Variance – Bulks
PRICE VARIANCE – BULKS H1 2013 vs. H1 2012 ($m) Other(1) Iron ore sales(2) (Mt) Metallurgical coal sales (Mt) Metallurgical coal sales (Mt) 4 Moving to shorter term contracts Improved mix Realised price $134/t $125/t $191/t(4) $151/t(4) 20.7 20.1 7.6(5) 7.9(5) 7.6(5) 7.9(5) 28% 23% Export Metallurgi
Slide 16: Price Variance – Base & Precious
PRICE VARIANCE – BASE & PRECIOUS H1 2013 vs. H1 2012 ($m) Platinum price Platinum market price ($/oz) Rand Pt. achieved basket price (7) (6) $/oz Rand/oz Niobium Nickel Realised price H2 2012 Realised price H1 2013 1,900 26,000 $1,517/oz $1,549/oz (135) Platinum 1,800 24,000 1,700 22,000 1,600 20,00
Slide 17: Operating Profit Variances: Sales Volume
OPERATING PROFIT VARIANCES: SALES VOLUME(1) H1 2013 vs. H1 2012 ($m) Sales performance (% change vs. H1 2012) 182 11% Copper 107 7% Metallurgical 102 Coal 4% Platinum 88 (2) Thermal (38) Other(2) Coal (75) (3%) KIO Platinum Copper Met Coal(3) KIO(4) (1) Total Business Unit variance (excludes Barro A
Slide 18: Above-CPI Cash Cost Movements
ABOVE-CPI CASH COST MOVEMENTS 11% 4% 8% 3% 5% 1% 7% 5% 2% 4% 1% 1% 2% 1% 1% (2%) (3%) (5%) 2007 2008 2009 2010 2011 2012 H1 2013 Non controllable costs Controllable costs Note: 2007 to 2009 excludes AngloGold Ashanti, Mondi, Highveld Steel and Tongaat-Hulett/ Hulamin; 2010 onwards is for core operat
Slide 19: Group Capital Expenditure
GROUP CAPITAL EXPENDITURE Capital expenditure ($bn) Expansionary capital expenditure ($bn) 2.5 H1 2013 H1 2012 2.4 Minas-Rio 1 0.6 0.6 1.2 1.3 Grosvenor 1 0.2 0.1 Platinum projects 0.1 0.2 0.4 0.4 Others(5) 0.3 0.4 0.8 0.9 Total 1.2 1.3 Expansionary H1 H1 2013(1) 2012(1) Expansionary(2) Stay in Busi
Slide 20: Liquidity Headroom and Debt Profile
LIQUIDITY HEADROOM AND DEBT PROFILE Net debt ($bn) Liquidity headroom Bond maturity profile ($bn) ($bn) Opening net debt – 1 January(1) 8.5 16.7 1.9 Operating cash flow (3.7) 1.7 Capital expenditure(2) 2.4 8.6 1.3 1.1 Cash tax paid 0.5 1.6 Net interest paid(3) 0.2 1.3 Dividends paid to non-controlli
Slide 21: Driving Value
DRIVING VALUE TATUS: 7 DAYS: Mark Cutifani TS oe
Slide 22: Agenda
AGENDA Opening Remarks A Starting Point The Future - Business Execution - Capital Allocation - Stakeholder Engagement - Organisation The Value Equation Wrap 22
Slide 23: We Hear You!
WE HEAR YOU! We understand the concerns… • “Shareholders have demanded an end to value-destroying M&A and a tighter focus on returns.” April 2013 • “There was a drive to establish future market share. Now boards are looking to regain investors’ confidence – that they can return cash and not pour it
Slide 24: We Can See the Issues
WE CAN SEE THE ISSUES The investment in growing size and quality... The portfolio has been re-shaped… …by expanding the capital base… …but we have not seen a return. Share of capital employed Reported Total Capital Employed ($bn) Reported Total ROCE (%) 2007 Iron ore (2) Underlying operating profit
Slide 25: Critical Drivers
CRITICAL DRIVERS We have distilled the issues down to critical drivers… The Issues Business Strategy and planning……….............making sure we know what we have and how to deliver Execution Operations execution……………........…..….….….…….having the process and the discipline Project delivery……………………….
Slide 26: Agenda
AGENDA Opening Remarks A A Starting Starting Point Point The Future - Business Execution - Capital Allocation - Stakeholder Engagement - Organisation The Value Equation Wrap 26
Slide 27: A Starting Point – Quality Portfolio
A STARTING POINT – QUALITY PORTFOLIO We have a diversified and high quality portfolio... Commodity diversification Majority of profits from low cost assets Commodity Diversification Share of 2012 EBITDA by commodity 32% 68% Peer 1 Peer 2 Peer 3 Peer 4 Anglo American Aluminium Thermal Coal Platinum A
Slide 28: Focus on Value and Return
FOCUS ON VALUE AND RETURN Our business philosophy is changing... From… …to. Structurally Attractive Commodities Asset Quality & Return Potential Focus on Copper, Iron Ore and Metallurgical Coal Structural advantage in commodity context World-Class ‘Tier 1’ Assets Competitive Position within Industry
Slide 29: Agenda
AGENDA Opening Remarks A Starting Point The Future - Business Execution - Capital Allocation - Stakeholder Engagement - Organisation The Value Equation Wrap 29
Slide 30: Business Execution – Asset Review
BUSINESS EXECUTION – ASSET REVIEW Our early diagnostic has flagged an important issue around delivery… Only 11% of our operations Category Description consistently meet targets 68% • Budget hit for less than 75% of recent quarters for either production or cost 1 Negative cash risk • No recovery plan
Slide 31: Business Execution – Asset Review
BUSINESS EXECUTION – ASSET REVIEW …with delivery weaknesses being identified... Daily production A • Operations “not stable” - Inadequate planning and scheduling - Processes not delivering to potential - Recovery pathway not understood Capability histogram B • “Unplanned” events - Not seeing what ca
Slide 32: Business Execution – The Foundations for Delivery
BUSINESS EXECUTION – THE FOUNDATIONS FOR DELIVERY …and we have operations that have already been working… Moranbah North – Product output MORANBAH NORTH • Focus…stabilising the process • Drivers…reliability and cutting rates • Impacting…business performance outcomes (YOY): – Safety………………...64% impro
Slide 33: Business Execution – Commercial
BUSINESS EXECUTION – COMMERCIAL We are implementing a commercial model and improving supply chain… Commercial model value of $400m p.a. by 2016 Supply chain benefit of $100m p.a. by 2016 • Singapore and London commercial hubs • Improved scope definition and Global Platform Optimisation of effective
Slide 34: Business Execution – Project Delivery
BUSINESS EXECUTION – PROJECT DELIVERY We have seen capital and schedule overruns on our projects… Select completed projects – NPV at approval date vs. today (Illustrative NPV) External Factors Internal Factors – Management Levers NPV @ Commodity FX & Macro Cost escalation NPV post Operating SIB Cape
Slide 35: Capital Allocation – Value Leakage
CAPITAL ALLOCATION – VALUE LEAKAGE We are also spending too much on early stage projects… Project pipeline – attributable capex by stage(1),(2) Capital efficiency – pre-feasibility stage ($bn – in real 2013 $ terms) (NPV / Capex) Low value and needs more work Pre Concept Concept PFS FS Approved (1)
Slide 36: Capital Allocation – Value Leakage
CAPITAL ALLOCATION – VALUE LEAKAGE By reallocating phasing we can reduce spend by +$300m p.a. Project pipeline – attributable capex by stage(1), (2) Capital efficiency – pre-feasibility stage ($bn – in real 2013 $ terms) (NPV / Capex) Low value and needs more work Pre Concept Concept PFS FS Approved
Slide 37: Capital Allocation – Working the Opportunities
CAPITAL ALLOCATION – WORKING THE OPPORTUNITIES We must drive each part of the portfolio to carry its weight… We have invested in growth… …unproductive capital “drags” returns… …net debt is increasing. Reported closing total capital employed ($bn) Attributable ROCE (3) Total net debt ($bn) Share of A
Slide 38: Capital Allocation – Working the Opportunities
CAPITAL ALLOCATION – WORKING THE OPPORTUNITIES We must drive each part of the portfolio to carry its weight… We have invested in growth… …unproductive capital “drags” returns… …all assets to pay their way. Reported closing total capital employed ($bn) Attributable ROCE (3) Attributable capital emplo
Slide 39: Capital Allocation – A Philosophy and a Process
CAPITAL ALLOCATION – A PHILOSOPHY AND A PROCESS Making the hard choices Disciplined capital allocation aligned with strategic priorities • Manage for cash flow and protect dividend • Retain strong investment grade credit rating (target BBB+) Priorities Criteria • Portfolio / disposals driven by focu
Slide 40: Stakeholder Engagement – Geographic Diversity
STAKEHOLDER ENGAGEMENT – GEOGRAPHIC DIVERSITY Many shareholders are worried about our exposure to South Africa… 2012 Geographic split Operating margin % 35 30 25 South Africa 20 Group ROW 15 Peer 1 Peer B Peer 3 Peer 4 Anglo Anglo (EBITDA) (EBITDA) (EBITDA) (EBITDA) American American (EBITDA) (asset
Slide 41: Stakeholder Engagement – A Sustainable Model
STAKEHOLDER ENGAGEMENT – A SUSTAINABLE MODEL We recognise we must build partnerships across the business… A POINT ON PHILOSOPHY… • Shareholders own the business… and are entitled to attractive returns reflecting the risks they take in funding the business and the social development programs • Employ
Slide 42: Organisation – New Structure
ORGANISATION – NEW STRUCTURE We are implementing a new organisation structure … Chief Executive Chief Executive's Office Mark • Business Process Model Cutifani • Driving Value programme Executive Director Human Resources Technical Strategy, Business Finance Kumba Iron Ore Coal Base Metals Platinum D
Slide 43: Organisation – Effectiveness
ORGANISATION – EFFECTIVENESS We are streamlining our organisation… Global commodity groupings Creation of global Base Metals and Coal groupings A more focused From 15 to 11 direct reports to the Chief Executive leadership team Direct representation of Group Management Committee (GMC) to include CEOs
Slide 44: Organisation – Efficiency
ORGANISATION – EFFICIENCY Creating an agile and effective organisation… We will reduce overhead costs by $500m p.a. by 2016 through: – Focusing on critical value adding activities. – Eliminating duplication across organisation layers. – Streamlining key processes. – Sharing and adopting best practic
Slide 45: Agenda
AGENDA Opening Remarks A Starting Point The Future - Business Execution - Capital Allocation - Stakeholder Engagement - Organisation The Value Equation Wrap 45
Slide 46: Where We Started
WHERE WE STARTED We started with a “VALUE PROPOSITION”… Value proposition Value proposition Project Capital Alllocation Delivery Asset Operations Overheads Delivery Delivery & Costs Commercial Organisation Asset Model Model Sales …and we have connected the component parts to drive performance. 46
Slide 47: Focus on Returns – A Key Measure of Performance
FOCUS ON RETURNS – A KEY MEASURE OF PERFORMANCE We recognise how we use shareholders’ capital is critical… Review Review ongoing ongoing Attributable ROCE (2) Illustrative, not to scale • Minas-Rio completion • Copper recovery • Platinum restructure $1.3bn identified today • Barro Alto ramp-up • Met
Slide 48: Our Scorecard
OUR SCORECARD We will haveprovide identified transparency incremental onvalue our metrics in the portfolio and targets… already… Value Drivers SCORECARD Safety and Health • Production levels • Grades / yields Production and drivers • Development Environmental Sustainable • Labour Socio-political • P
Slide 49: Agenda
AGENDA Opening Remarks A Starting Point The Future - Business Execution - Capital Allocation - Stakeholder Engagement - Organisation The Value Equation Wrap 49
Slide 50: Building the New Anglo American
BUILDING THE NEW ANGLO AMERICAN We will do the important things well… BUSINESS EXECUTION …rebuilding our performance engine. CAPITAL ALLOCATION …managing the discipline of returns. STAKEHOLDER SUPPORT …focused sustainable value delivery. …and make the tough decisions when and where they are needed.
Slide 51: Appendix
AngloAmerican APPENDIX
Slide 52: ROCE and Attributable ROCE – Definition
ROCE AND ATTRIBUTABLE ROCE – DEFINITION • Return on capital employed (ROCE) is a ratio that measures the efficiency and profitability of a company's capital investments. It displays how effectively assets are generating profit for the size of invested capital • ROCE calculation is annualised underly
Slide 53: ROCE and Attributable ROCE – Calculation
ROCE AND ATTRIBUTABLE ROCE – CALCULATION Annualised Annualised FY 2012 H1 2013(1) H1 2012(1) Underlying operating Profit ($bn) Underlying operating profit 6.5 6.3 7.7 Underlying operating profit to Non-Controlling Interest (2.3) (2.0) (2.5) Underlying operating profit attributable to AA plc 4.2 4.3
Slide 54: Analysis of Underlying Operating Profit
ANALYSIS OF UNDERLYING OPERATING PROFIT $m H1 2013 H1 2012(1) Iron Ore and Manganese 1,653 1,838 Metallurgical Coal 98 159 Thermal Coal 247 433 Copper 635 1,022 Nickel (11) 58 Platinum 187 84 Diamonds 571 249 Other Mining and Industrial 60 180 Exploration (93) (72) Corporate Activi
Slide 55: Analysis of Underlying Earnings
ANALYSIS OF UNDERLYING EARNINGS $m H1 2013 H1 2012(1) Iron Ore and Manganese 609 565 Metallurgical Coal 96 110 Thermal Coal 177 285 Copper 207 546 Nickel (17) 31 Platinum 92 21 Diamonds 295 172 Other Mining and Industrial 23 102 Exploration (85) (69) Corporate Activities and Unallo
Slide 56: Average Market Prices
AVERAGE MARKET PRICES H1 2013 H1 2012 Iron ore (FOB Australia) - $/t 130 135 Thermal coal (FOB South Africa) - $/t 83 99 Thermal coal (FOB Australia) - $/t 89 104 HCC (FOB Australia average quarterly benchmark) - $/t 169 223 Copper (LME) - cents/lb 342 367 Nickel (LME) - cents/lb 732 836
Slide 57: Underlying Earnings Sensitivities
UNDERLYING EARNINGS SENSITIVITIES(1) Commodity / currency Change in price / exchange $m Iron ore(2) + $10/t 78 Metallurgical coal + $10/t 48 Thermal coal + $10/t 105 Copper + 10c/lb 34 Nickel(3) + 10c/lb 2 Platinum + $100/oz 49 Rhodium + $100/oz 6 Palladium + $10/oz 3 ZAR / USD + every 10c movement
Slide 58: Regional Analysis – Underlying Operating Profit
REGIONAL ANALYSIS – UNDERLYING OPERATING PROFIT $m H1 2013 H1 2012(1) South Africa 2,159 2,196 Other Africa 352 207 South America 844 1,450 North America (49) (54) Australia and Asia 167 204 Europe (211) (177) Total underlying operating profit 3,262 3,826 (1) Certain balances related to
Slide 59: Capital Expenditure
CAPITAL EXPENDITURE(1) $m H1 2013 H1 2012(2) Iron Ore and Manganese 877 844 Metallurgical Coal 420 370 Thermal Coal 56 101 Copper 472 606 Nickel (18)(3) 89 Platinum 235 356 Diamonds 255 n/a Other Mining and Industrial 90 109 Exploration - 1 Corporate Activities and Unallocated Costs 10 10 Total capi
Slide 60: Operating Profit Variances: Exchange Rate
OPERATING PROFIT VARIANCES: EXCHANGE RATE H1 2013 vs. H1 2012 ($m) ZAR/US$ exchange rate 11.0 690 +17% 52 10.0 9.0 8.0 33% 7.0 636 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 US$/AUD exchange rate 11% 1.1 -12% 2 1.0 AUD ZAR Other(1) 0.9 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 (1) Principally c
Slide 61: Debt Maturity Profile at 30 June 2013
DEBT MATURITY PROFILE AT 30 JUNE 2013 Debt repayments(1) ($bn) at 30 June 2013 2.8 2.4 2.3 2.0 2.0 1.9 1.6 1.5 33% 0.6 2013 2014 2015 2016 2017 2018 2019 2020 >2020 11% US Bonds EMTNs South Africa Bonds Corporate Bank Debt De Beers BNDES Financing Subsidiary Financing Other Corp. BNDES Other subs. b
Slide 62: Restatement of 2012 Underlying Operating Profit and Underlying Earnings
RESTATEMENT OF 2012 UNDERLYING OPERATING PROFIT AND UNDERLYING EARNINGS Operating Profit ($m) H1 2012 FY 2012 Pre-restatement 3,724 6,164 IFRS 11 - - IFRIC 20 102 89 IAS 19R - - Post-restatement 3,826 6,253 Underlying Earnings ($m) H1 2012 FY 2012 Pre-restatement 1,691 2,839 IFRS 11 - - IFRIC 20 56
Slide 63: Restatement of Capital Expenditure
RESTATEMENT OF CAPITAL EXPENDITURE Stay in Business (SIB) - Capital Expenditure ($m) H1 2013 H1 2012 SIB Capital Expenditure pre-reclassification 993 1,048 Reclassification of post-production development spend from SIB to (178) (178) Development & Stripping SIB Capital Expenditure post-reclassificat
Slide 64: Business Execution – The Foundations for Delivery
BUSINESS EXECUTION – THE FOUNDATIONS FOR DELIVERY We are creating a new language and process to drive and support change… 1. Set • Purpose …to deliver the agreed business Business 2. Integrated 3. Work Expectations Planning Management targets and returns. Labour, Materials & Equipment • Focus …to in
Slide 65: Project Pipeline – Trading Assets for Value
PROJECT PIPELINE – TRADING ASSETS FOR VALUE Disposals Anglo American Sur • Total pre-tax proceeds of c.$19bn since 2007 • Proceeds received by Anglo American (US$bn) • Realised premium valuations (Zinc, Moly-cop, Scaw) • Creative solutions (Mondi, Tarmac UK JV, Post-tax proceeds 4.1 6.1 £60m p.a. sy
Slide 66: Stakeholder Engagement – Sustainability Excellence
STAKEHOLDER ENGAGEMENT – SUSTAINABILITY EXCELLENCE Excellence in sustainability programme… Impact Examples Value from sustainability • Enterprise development Access to Access to • Local procurement resources Resources • Infrastructure partnerships • Municipal capacity development Fewer • Incidents m
Slide 67: Project Pipeline – Leveraging Exploration Success
PROJECT PIPELINE – LEVERAGING EXPLORATION SUCCESS Exploration has been an effective value model… Estimate of value creation • Significant value creation since 2000 (2000-2012 US$m) – Added Resources from discoveries(1) - 30Mt Cu, 4Mt Ni, 5,000 Value of retained 3Mt Zn assets (1) 4,000 • Discoveries