Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — H1 FY2014 Earnings Presentation
34 slides from Fortescue's earnings presentation, Feb 19, 2014
Slide 1: Half year results
31 December 2013 Half year results For personal use only February 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: Building a World Class Company
Building a World Class Company Unprecedented ramp up For personal use only • Founded 2003 • First ore 2008 • 100mt expansion 2011 - 2013 • Over 300mt shipped to date • Ramping up to 155mtpa in 2014 3
Slide 4: Our Highest Priority is Safety
Our Highest Priority is Safety Safety is at the heart of Fortescue’s family values For personal use only • Increased engagement with all employees and contractors • Stepped up visible leadership • Driving a step change in safety • Reinforcement of our Life Saving Choices • External review of safety
Slide 5: Record production and costs reduction
Record production and costs reduction Continued growth in all operational areas aspects For personal use only Ore mined (wmt) Ore processed (wmt) 40.0 40 35.0 35 30.0 30 Million tonnes Million tonnes 25.0 25 20.0 20 15.0 15 10.0 10 5.0 5 0.0 0 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q
Slide 6: 1H14: record financials and cashflows
1H14: record financials and cashflows World’s fourth largest seaborne exporter For personal use only shipped 100mt in CY13 $US3.1bn 54mt 1H14 debt reduction Infrastructure complete 155 end March 2014 Ramp up across mines and mtpa processing facilities Strong operating cashflows Realised price
Slide 7: A differentiated model
A differentiated model Delivering results For personal use only China Leveraging China’s growth and manufacturing capability Speed Speed of delivery – time is money Planning Planning for scale today and efficiency into the future Relationships Direct relationships with sub contractors and local supp
Slide 8: Financials
For personal use only Financials
Slide 9: Highlights 1H14
Highlights 1H14 Record financial results For personal use only • Record revenue US$5.9bn 77% • EBITDA of US$3.2bn 184% • NPAT US$1.7bn 260% • Debt paid/called US$3.1bn – interest savings of US$300m • Interim dividend of A$0.10 per share 9
Slide 10: EBITDA analysis
EBITDA analysis Record financial performance For personal use only 4,000 EBITDA US$m 853 194 3,500 46 3,220 3,000 874 2,500 2,000 599 1,500 1,134 1,000 500 - 1HY13 Volume Price Costs Royalty Other 1HY14 Increased shipments 51% - record production Realised price $124/dmt 18% Continued focus
Slide 11: Operating margins support
Operating margins support Fortescue’s average realised selling price and C1 costs For personal use only US$/wmt 62% Platts US$/dmt 180 180 160 160 $146 140 140 $119 $115 120 $110 $115 $114 $111 120 $73 $102 $103 100 100 $40 $89 $42 $49 $58 $33 $60 $61 80 $21 $48 80 60 $23 $23 60 $21 $18 $18 $19 $18
Slide 12: Sustained operating cost reduction
Sustained operating cost reduction C1 trending lower as steady state operations commence For personal use only C1 Cash Cost (US$/wmt shipped) Strip Ratio 60 6.0 50 5.0 Estimate for Q3 and Q4 40 4.0 30 3.0 20 2.0 10 1.0 0 0.0 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 FY12 FY13 F
Slide 13: Capital Expenditure
Capital Expenditure FY14 guidance For personal use only FY14 US$bn guidance 155mtpa expansion 0.7 Operational capital 0.8 Other capital projects 0.2 Exploration 0.1 Fleet 0.3 Total 2.1 T155 expansion complete in FY14 D&A ~$8.50/t at 155mtpa 13
Slide 14: Debt repayment well advanced
Debt repayment well advanced Staged debt reduction focused on short term bond maturities For personal use only 5,000 Callable at 4,950 4,500 Fortescue's 4,000 option 3,500 3,000 US$m 2,500 2015 and 2016 Notes 2018 Notes 2,000 called are now 1,500 callable 1,500 1,000 1,040 1,000 1,000 900 500 600 0
Slide 15: Cashflow 1H14
Cashflow 1H14 Record cash generation from operations For personal use only Operating cashflows US$3.6bn reflect: • Increased production volumes, prices and lower C1 • Iron ore prepayments US$712m • Formosa port access fees US$500m • Tax and royalty payments US$404m est. FY14 total payments ~US$950m*
Slide 16: Return on capital metrics
Return on capital metrics Increasing returns on capital as production ramps up For personal use only 80% Return on equity % 60% 40% 61% 50% 55% 20% 39% 34% 16% 8% 6% 10% 0% 1HFY12 2HFY12 1HFY13 2HFY13 1HFY14 BHP (Au) RIO (AU) Vale (SA) Peer group average Fortescue Source: Bloomberg at February 14, 2
Slide 17: Key credit metrics
Key credit metrics Improving credit profile For personal use only Debt / EBITDA Gearing % 5.0 80% 4.0 60% 3.0 4.8 40% 76% 2.0 67% 69% 71% 3.5 63% 59% 2.8 20% 1.0 2.2 2.0 0.0 0% 31-Dec-11 30-Jun-12 31-Dec-12 30-Jun-13 31-Dec-13 31-Dec-11 30-Jun-12 31-Dec-12 30-Jun-13 31-Dec-13 Pro-forma Interest cove
Slide 18: Earnings analysis
Earnings analysis Compelling valuation metrics For personal use only 19.2x FY14 forecast PE ratio 14.4x 12.5x 11.9x 11.8x 9.7x 10.5x 8.5x 6.3x 6.1x 4.9x Newcrest Cliffs BHP (AU) Mount Gibson Kumba Iron Ore RIO (AU) Atlas Iron BC Iron Vale SA Fortescue Average 8.7x FY14 EV/EBITDA 7.5x 6.2x 6.1x 5.7x
Slide 19: Market
For personal use only Market
Slide 20: Long term confidence in China
Long term confidence in China Strong underlying economy For personal use only • Leadership committed to growth • 7.7% GDP growth 2013 • Steel demand growth ~8% 2013 • Imported iron ore +10% to 820mt • +200m people to urbanise by 2020 • 90% steel coastal and Yangtze River 20
Slide 21: China GDP Volume
China GDP Volume GDP doubled in 6 years For personal use only GDP % GDP Trillion RMB Growth 70 16 % GROWTH 14 60 12 50 FORECAST* 10 40 8 30 6 20 GDP 4 10 2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP Forecast % Growth (RHS) * Based on IMF forecasts 21
Slide 22: 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 Kg per capita Forecast 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 Source: Macquarie Research 22
Slide 23: 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 Source: ANZ Research Seaborne iron ore imports (Ex. Australia, Brazil etc.) 23
Slide 24: Strong rebounds follow price drops
For personal use only 24 $100 $110 $120 $130 $140 $150 $160 $170 $180 $190 $200 $80 $90 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 Strong rebounds follow price drops May-12 Jun-12 Jul-12 Au
Slide 25: Clear Strategy
For personal use only Clear Strategy
Slide 26: Port – flexible design for future growth
Port – flexible design for future growth Fourth berth commissioned with fifth berth approved For personal use only AP3 AP2 AP1 AP4 AP5 2014 26
Slide 27: Product Strategy
Product Strategy Revised product strategy at 155mtpa - average grade 58% For personal use only Bonnie Fines 6mtpa Super Special Fines 30mtpa Fortescue Blend 70mtpa Rocket 10mtpa Kings CID 40mtpa • Focused on maximising resource recovery • Optimising revenue by an integrated product 27
Slide 28: Moving down the global cost curve
Moving down the global cost curve Targeting bottom quartile For personal use only October 2013 CFR Cost of China's Iron Ore Supply (including royalties & freight) 200 Domestic Chinese Ore Australia Brazil India 150 South Africa Other US$/dry tonne 100 50 Fortescue 0 0 100 200 300 400 500 600 700 800
Slide 29: Resource portfolio sets expansion platform
Resource portfolio sets expansion platform Leverage existing assets for low cost growth For personal use only 18,000 16,000 14,000 5,205 5,205 Mineral Resources (Mt) 12,000 3,236 10,000 2,465 2,463 2,463 8,000 2,013 624 624 1,032 624 624 1,230 6,000 1,230 3,247 3,504 3,070 3,070 2,860 4,000 1,715 2,
Slide 30: Making a difference
Making a difference Jobs and opportunities replacing welfare For personal use only Direct Aboriginal ~ 500 employees 13% Aboriginal people in Fortescue workforce Aboriginal people ~ 450 employed by contractors Contracts to Aboriginal US$1.5bn+ companies and JV’s 30
Slide 31: Beyond 155mtpa
Beyond 155mtpa Increasing shareholder returns For personal use only 1. Incremental production from optimising existing assets 2. Continue debt reduction ~40% gearing 3. Moving to investment grade metrics 4. Dividend payout ratio to 30-40% once gearing achieved 5. Continued exploration of our extensi
Slide 32: Delivering on targets
Delivering on targets 10 years strong For personal use only • Strong financial results • Expansion to 155mtpa • Debt reduction underway • Increasing dividends • Flexible incremental growth • Unique culture drives performance 32
Slide 33: For personal use only
For personal use only Sign up to alerts online: www.fmgl.com.au Proudly supporting: 33
Slide 34: Glossary
Glossary Definition of non-IFRS items For personal use only EBITDA = profit before income tax adjusted for depreciation and amortisation, impairment expense, other write-offs, net finance costs and gain on refinancing Return on equity = profit for the year after income tax divided by total equity Re
Fortescue Metals Group — H1 FY2014 Earnings Presentation on 6ix