Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — H1 FY2020 Earnings Presentation
51 slides from Fortescue's earnings presentation, Feb 19, 2020
Slide 1: FY20 Half Year Results
For personal use only FY20 Half Year Results 19 February 2020 Global force Thriving communities
Slide 2: Important Notice
Important Notice The purpose of this presentation is to provide general information about Fortescue Metals Group Ltd ("Fortescue"). It is not recommended that any person makes any investment decision in relation to Fortescue based on this presentation. This presentation contains certain statements w
Slide 3: A world class company
For personal use only A world class company Wholly owned, >1.3billion tonnes ~170 - 175mtpa fully integrated Shipped Shipping rate supply chain Core supplier to Industry leading China cost position 3
Slide 4: Integrated mine to market infrastructure
Integrated mine to For personal use only market infrastructure Delivering sustained operational efficiencies 4
Slide 5: Safety and unique culture
Safety and For personal use only unique culture 2.5 TRIFR Total Recordable Injury Frequency Rate on a 12 month rolling basis 38% Improvement compared to 31 December 2018 Reducing fatality risk profile 5
Slide 6: Health and wellbeing
Health and wellbeing For personal use only Village facilities Family site visits Community activities 1,000 family and friends in 2019 Flexibility Mental health support Job share, Perth operations centre Fortescue’s Chaplains, EAP, Mates in Construction 6
Slide 7: 1H20 Highlights
1H20 Highlights For personal use only 88.6 million tonnes US $6.5 billion Shipped Revenue US $4.2 billion US $2.5 billion Underlying EBITDA Net profit after tax (NPAT) US US $3.3 billion $0.7billion Cash at 31 December 2019 Net debt at 31 December 2019 7
Slide 8: Shareholder returns
For personal use only Shareholder A $0.76 per share returns Fully franked interim dividend Dividend policy of a ratio 65% of 1H20 NPAT Dividend pay-out ratio of 50 to 80 per cent of full year NPAT A $1.60 per share Declared in the last 12 months 8
Slide 9: Financial results
For personal use only results Financial 9
Slide 10: 1H20 Financial highlights
1H20 Financial highlights For personal use only US US $6.5 billion $80/dmt Revenue Realised price US $4.2 billion 65% Underlying EBIDTA Underlying EBITDA margin US $2.5 billion US $0.80 ( A $1.16) Earnings per share NPAT 10
Slide 11: 1H20 Highlights: Generating strong earnings
1H20 Highlights For personal use only Generating strong earnings Revenue (US$m) Underlying EBITDA (US$m) NPAT (US$m) 4,414 4,228 • Delivering strong results 6,425 6,485 2,543 2,453 3,540 1,633 644 1H19 2H19 1H20 1H19 2H19 1H20 1H19 2H19 1H20 11
Slide 12: Price and margins
Price and margins For personal use only Strong underlying EBITDA margins through all market cycles US$/dmt 100 80 60 40 20 17 24 33 27 24 17 21 57 53 0 1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19 1H20 Underlying EBITDA margin Avg Underlying EBITDA 62 Platts CFR Index 12 Fortescue realised price Avg Fort
Slide 13: Sustainable low cost producer
Sustainable low cost producer For personal use only Industry leading cost position below US$13/wmt C1 US$/wmt Structural improvements 33.84 Solomon + blending + processing 27.15 Productivity and efficiency 15.43 Utilisation, recoveries, maintenance 12.82 12.36 13.11 12.73 Innovation and technology A
Slide 14: Underlying EBITDA
Underlying EBITDA For personal use only 159 per cent increase in underlying EBITDA compared to 1H19 Underlying EBITDA (US$m) Underlying EBITDA Margin 69% 65% 46% 1H19 2H19 1H20 14
Slide 15: Cashflow
Cashflow For personal use only Strong free cash flow and investment in growth Net cash from operations Capital expenditure Free cash flows (US$m) (US$m) (US$m) 852 3,426 3,114 2,909 2,262 531 517 948 417 1H19 2H19 1H20 1H19 2H19 1H20 1H19 2H19 1H20 15
Slide 16: Capital expenditure
Capital For personal use only expenditure 1H20 capital expenditure (US$m) Capital expenditure FY20 guidance (US$m) Incorporating Pilbara Energy Connect Sustaining capital 362 2,400 Operational development projects 79 Queens Valley development 59 852 Major projects 280 Exploration 72 1H20 actual FY20
Slide 17: Investing in growth
Investing in growth For personal use only Eliwana Mine and Rail (US$m) Iron Bridge Magnetite (US$m) Pilbara Energy Connect (US$m) 700 - 800 1,200 - 1,300 350 - 400 Disciplined allocation to core business, innovation and growth 250 - 300 350 - 450 400 - 500 300 - 400 50 FY20 FY21 FY22 FY20 FY21 FY22
Slide 18: Delivering dividends
Delivering dividends For personal use only Fully franked interim dividend of A$0.76 Dividends declared and payout ratios (A cents) Dividend pay-out ratio (%) 125 100% 100 80% 75 60% 114 50 40% 76 25 45 20% 20 23 10 15 7 8 5 0 0% FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1H20 Dividend, A$ cents/sh
Slide 19: Capital allocation
Capital allocation For personal use only To date, Fortescue has generated NPAT of US$17bn and allocated US$9bn of capital to debt repayment and US$6bn to dividends Capital allocation to debt and dividends Cumulative Allocation of NPAT: FY05-HY20 US$m US$m 4000 18,000 3000 13,000 2000 8,000 1000 3,00
Slide 20: Debt repayments
Debt For personal use only repayments US$m 16000 80% 12000 12,691 60% 10,533 9,557 9,569 8000 40% 7,158 7,188 6,771 5,189 4000 4,471 20% 3,975 3,952 4,033 3,112 2,633 2,078 719 0 0% FY13 FY14 FY15 FY16 FY17 FY18 FY19 1H20 Debt Net debt Gross gearing (RHS) Net gearing (RHS) 20
Slide 21: Credit metrics
Credit metrics For personal use only Target investment and credit metrics Gearing % Debt maturities profile (US$m) Target 30 – 40 % (Gross debt) (excluding leases) 69% 56% 45% 31% 29% 27% 62% 24% 750 750 49% 38% 21% 24% 16% 5% FY12 FY15 FY16 FY17 FY18 FY19 1H20 600 600 Net gearing Gross gearing 500
Slide 22: Integrated operations and marketing
For personal use only Integrated operations and marketing 22
Slide 23: Fully integrated supply chain
Fully integrated supply chain For personal use only Supported by a culture of innovation 23
Slide 24: Automated mining
Automated mining For personal use only Innovation delivering safety and productivity improvements AHS operation AHS conversion >39 million km safely travelled 158 trucks in operation Autonomous drills Advanced analytics 8 drills in operation Data driving efficiencies 24
Slide 25: Operational development projects
Operational development projects For personal use only Wet High Intensity Magnetic Separators (WHIMS) Yield improvement Extension of relocatable conveyor Lowers cost of moving material Autonomous haulage Christmas Creek completed Cloudbreak completed by mid 2020 25
Slide 26: Tailings storage facilities (TSFs)
Tailings storage facilities (TSFs) For personal use only Fortescue has no TSFs constructed using the sequential upstream raise method 3 active TSFs 6 inactive TSFs Compliant with Integrated monitoring, ANCOLD* and DMIRS* surveillance, guidelines management Daily inspections Annual independent Instru
Slide 27: Direct customer engagement driving deep market insights
Direct customer engagement For personal use only driving deep market insights A product mix that meets customers’ needs Aligning delivery with Marketing customers’ needs Ongoing operation and Responsive to marketing collaboration changing markets Co-location of key decision makers 27
Slide 28: Crude steel production
Crude steel production For personal use only China Monthly Crude Steel Output 95 Strong growth in China’s 90 85 crude steel production Million tonnes 80 75 996 million tonnes in 2019 70 65 8.3% increase compared to 60 2018 55 50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 2018 2019 Source:
Slide 29: Strong demand for Fortescue products
Strong demand for Fortescue products For personal use only China port stocks by origin (mt) 170 China’s iron ore port 150 stockpiles 124.7mt 130 (14 February 2020) 110 90 Peak stockpiles of 163mt (March 2018) 70 50 Australia Brazil Other Source: Mysteel 29
Slide 30: Iron ore price
Iron ore price For personal use only Fortescue’s realised price increased by 73 per cent over 1H19 compared to a 38 per cent increase in the Platts 62% index 140 130 Optimising product mix 120 110 100 Steel mill margins US/dmt 90 80 Strength in Chinese steel 70 production 60 50 40 Platts 62% IODEX P
Slide 31: Enhanced product mix
Enhanced product mix For personal use only Average realised price of US$80/dmt for 1H20 Product mix optimisation delivers value: Tonnes shipped Product Mix Product Mix West Pilbara Fines well millions (wmt) 1H20 % 1H19 % established West Pilbara Fines 9.0 10 0.4 0 Kings Fines 7.6 9 6.7 8 Fortescue L
Slide 32: Sustainability
For personal use only Sustainability 32
Slide 33: Communities benefit from our growth and development
For personal use only Communities Setting high benefit from standards our growth and Safeguarding the development environment Creating positive social change 33
Slide 34: Setting high standards
Setting high For personal use only standards Safety, diversity and integrity TRIFR 2.5 A $1.7 billion Improved by 38% from 1H19 FY19 total income tax 19% Modern slavery Female employment Industry leadership 34
Slide 35: Safeguarding the environment
Safeguarding For personal use only the environment For future generations Commitment to the Paris UN Framework Convention Agreement on Climate Change Taskforce on Climate-related Voluntary short term targets Financial Disclosure reporting and long term goal 35
Slide 36: Practical initiatives and innovative solutions
Practical initiatives and For personal use only innovative solutions Managing emissions and cost of supply Transitioning to gas Automation and solar Offsetting haul distance, reducing Displacing diesel fleet requirements Relocatable conveyor Hydrogen Increasing efficiency of material Partnership wit
Slide 37: Creating positive social change
Creating positive social change For personal use only Building strong communities 15% Aboriginal employment across Pilbara operations 875 VTEC graduates employed since 2006 A $2.5 billion Nine graduates Contracts to Aboriginal businesses and JVs Inaugural Trade Up graduation 37
Slide 38: Growth and development
For personal use only Growth and development 38
Slide 39: Eliwana project
Eliwana project For personal use only US$1.275 billion capital investment Progressing on schedule and budget Infrastructure Efficient design 143km rail; 30mtpa dry OPF Significantly smaller footprint compared to Firetail OPF Rail license granted Rail fleet Enabling construction and operation 126 ore
Slide 40: Iron Bridge Magnetite Project
Iron Bridge Magnetite Project For personal use only $2.6 billion investment delivering enhanced returns to shareholders and JV partners 22 mpta 67% Fe First ore on ship mid-2022 Low impurity premium concentrate product Design and procurement Bulk earthworks advanced commenced 40
Slide 41: Achieving our strategy to deliver majority of product over 60% Fe
Achieving our strategy to deliver majority of For personal use only product over 60% Fe Competitively positioned Increasing across allFortescue’s average grade product segments Flexibility to optimise margins through iron ore market cycles Iron Bridge will deliver highest grade Australian product 41
Slide 42: Pilbara Energy Connect
Pilbara Energy Connect For personal use only US$700 million investment providing 25–30 per cent of stationary energy requirements from solar 42
Slide 43: Integrated transmission and generation
Integrated transmission and generation For personal use only Efficient network, lowering the cost of electricity to existing and future sites Pilbara Transmission project Pilbara Generation project 275km of high voltage transmission lines 150MW gas, 150MW solar PV Large scale battery storage Built,
Slide 44: Chichester Solar Gas Hybrid
Chichester Solar For personal use only Gas Hybrid Integrate with Pilbara Energy Connect 60MW solar PV 60 kilometre generation facility transmission line Displacing around 100 Built, owned and operated million litres of diesel by Alinta Energy at Christmas Creek and Cloudbreak 44
Slide 45: Fortescue mineral base
Fortescue For personal use only mineral base Mineral Resources (Mt) dry insitu 14000 12000 10000 8000 6000 4000 2000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Chichester Hub Greater Chichester Hub Solomon Hub Western Hub (inc Eliwana) Nyidinghu Magnetite The detail in this chart
Slide 46: World class exploration
World class exploration For personal use only Opportunities will be driven by market demand across iron ore and other commodities Pilbara Extensive tenement footprint Australia NSW 3,000km2 tenure SA 15,000km2 tenure South America Ecuador, Argentina, Colombia 46
Slide 47: Guidance
For personal use only 170-175mt FY20 Shipments expected to be at the upper end of range Guidance US$12.75-$13.25 C1 cost / wmt US$2.4 billion Capital investment 47
Slide 48: Key strategic focus
For personal use only Key strategic focus Balance sheet Long term strength sustainability Growth and Enhanced returns development to shareholders 48
Slide 49: For personal use only
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Slide 50: For personal use only
For personal use only
Slide 51: Glossary
Glossary For personal use only C1 - Operating costs of mining, processing, rail and port on a per tonne basis, Underlying EBITDA - Earnings before interest, tax, depreciation and amortisation, including allocation of direct administration charges and production overheads. exploration, development an
Fortescue Metals Group — H1 FY2020 Earnings Presentation on 6ix