Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — H1 FY2018 Earnings Presentation
43 slides from Fortescue's earnings presentation, Feb 21, 2018
Slide 1: FY18 Half Year Results
For personal use only FY18 Half Year Results
Slide 2: Forward looking statements Disclaimer
Forward looking statements For personal use only Disclaimer Important Notice Additional Information The purpose of this presentation is to provide general information about This presentation should be read in conjunction with the Annual Report at Fortescue Metals Group Limited ("Fortescue"). It is n
Slide 3: Building a world class company
Building a world class company For personal use only Safety focus: engagement, empowerment, leadership Shipped over Core supplier to China 975mt* Low cost 170mt producer Production rate * At 31 January 2018 3
Slide 4: Our Vision: The safest, lowest cost, most profitable iron ore producer
Our Vision: The safest, lowest cost, most profitable iron ore producer — Our Values — Safety Family Empowerment Frugality Stretch targets w Courage and Fo rtescue Integrity Enthusiasm a, Generating ideas Humility The New Force in Iron Ore
Slide 5: Generating shareholder value
Generating shareholder value Focus on safety, productivity and efficiency For personal use only Market strategy Operational performance Long life resources Capital discipline Shareholder returns 5
Slide 6: Delivering on our targets in HY18
Delivering on our targets in HY18 For personal use only Sustainable cost reduction and consistent production performance TRIFR 3.1 84.5mt C1 cost 3% reduction Shipped US$12.11/wmt 25% A$0.11 US$4.2bn Net gearing 40% pay-out ratio Gross debt 6
Slide 7: Sustainable cost improvements
Sustainable cost improvements For personal use only Initiatives delivering long term low cost outcomes - US$12.08/wmt in Dec Q C1 US$/wmt Structural improvements 48 44 Solomon + Blending + Processing 34 Productivity and Efficiency 27 Utilisation, Recoveries, Maintenance 15 12.82 11-12 Innovation and
Slide 8: Maintaining position on the cost curve
Maintaining position on the cost curve For personal use only China's Iron Ore Supply CFR Costs (including royalties & ocean freight) 2012 2018 (projected) Source: Metalytics – October 2017 8
Slide 9: Financial performance
For personal use only Financial performance
Slide 10: HY18 financial outcomes
HY18 financial outcomes For personal use only Operational performance delivering financial results US$681m US$892m US$1.4bn Cash on hand Cash from NPAT operations US$0.22 US$1.8bn A$0.11 Earnings Underlying Interim dividend per share EBITDA 40% pay-out 10
Slide 11: Underlying EBITDA
Underlying EBITDA For personal use only Maintaining solid underlying earnings margins Underlying EBITDA Margin US$m 59% 60% 3,000 2,645 51 734 50% 2,500 2,000 79 127 66 40% 48 2 1,828 1,500 1,000 20% 500 - 0% HY17 Volume Price C1 Shipping Royalty Fx Other HY18 HY17 HY18 costs Refer to attached gloss
Slide 12: Price and margins
Price and margins For personal use only Managing operations to maximise margins US$/dmt 90 80 70 60 50 40 30 20 10 20 15 17 24 33 27 24 - 1HY15 2HY15 1HY16 2HY16 1HY17 2HY17 1HY18 Underlying EBITDA per dmt 62 Platts CFR Index Fortescue realised price Avg Underlying EBITDA per dmt 12
Slide 13: HY18 highlights
HY18 highlights For personal use only Delivering solid returns through the cycle Revenue Underlying EBITDA NPAT US$m US$m US$m 5,000 5,000 5,000 4,000 4,000 4,000 3,000 3,000 3,000 2,000 2,000 2,000 1,000 1,000 1,000 - - - Refer to attached glossary for definition of non-IFRS terms 13
Slide 14: Returns to shareholders
Returns to shareholders For personal use only Dividend pay-out ratio guidance maintained at 50-80% of full year NPAT Earnings per share Interim dividends + pay-out ratio US A$cents / Pay-out cents share ratio % 60 40 40% 55 45 30 30% 39 20 30 20 20% 22 10 11 15 11 10 10 10% 3 3 - - 0% HY14 HY15 HY16
Slide 15: Balance sheet
For personal use only Balance sheet
Slide 16: Debt repayments
Debt repayments For personal use only Free cash flows lowering gross debt and gearing US$m % 16,000 80 12,000 12,691 60 10,533 9,557 9,569 8,000 40 7,159 7,188 6,771 4,000 5,188 20 4,471 4,181 3,289 2,633 - - FY13 FY14 FY15 FY16 FY17 1HY18 Debt Net debt Gross gearing (RHS) Net gearing (RHS) Refer to
Slide 17: Debt
Debt For personal use only Maintaining strong credit margins Debt Cash Net debt US$m US$m US$m 5,000 5,000 5,000 4,471 4,181 4,000 4,000 4,000 3,289 3,000 3,000 3,000 2,633 2,000 1,838 2,000 2,000 892 1,000 1,000 1,000 - - - FY17 HY18 FY17 HY18 FY17 HY18 Gross gearing 30% Maintaining strong liquidit
Slide 18: Debt maturity
Debt maturity For personal use only Lowering borrowing costs and improving flexibility of capital management US$m 4,000 3,000 2,000 1,400 1,000 760 750 750 0 2018 2019 2020 2021 2022 2023 2024 Senior Unsecured Notes Senior Secured Notes Term Loan Refer to attached glossary for definition of non-IFRS
Slide 19: Capital expenditure
Capital expenditure For personal use only Sustaining iron ore business with low cost growth options Capital spend FY18 Guidance on track in HY18 90 68 Sustaining capital $3/wmt 50 510 Development and exploration 190 in line Ore carriers and tugs on schedule Sustaining Ore carriers Exploration Develo
Slide 20: The New Force in Iron Ore
The New Force in Iron Ore Fortescue
Slide 21: Core supplier to Asia
Core supplier to Asia For personal use only Well established market share of imported iron ore to China 2017 global steel production 1,691mt Low impurity products Competitive Diverse 572 value in use customer base 832 82 Responsive Proximity 101 to market needs to high growth region 105 China Japan
Slide 22: China's 13th Five Year Plan (2016-2020)
China’s 13th Five Year Plan (2016-2020) For personal use only RMB12.5 trillion for ~ 11,000 listed projects 3,000km 152,000km +480 GW New urban Roads in rural areas New power rail lines projects 80% cities Over 50 40,000km with high speed rail civilian airports of gas pipelines Source: China Daily 2
Slide 23: Developing and emerging Asia
Developing and emerging Asia For personal use only Asian economies generating two thirds of global growth Source: IMF Source: IMFWorld WorldEconomic EconomicDatabase DatabaseOct October 2016 2017 23
Slide 24: Product and Processing strategy
Product and Processing strategy For personal use only Maximising value from asset base 24
Slide 25: Product strategy – maximise margins
Product strategy – maximise margins For personal use only Pathway to developing >60% iron content product Eliwana Blending Key to 60% Fe Chichester + product Solomon + Eliwana Greater Optimise margins operational Product spec flexibility Cost Mine lives 25
Slide 26: Steel outlook
Steel outlook For personal use only Trends in China steel production landscape China steel production Steel outlook robust ~ 5% growth in 2017 by province Market share 2016 to 2018 New mill construction outside 2+26 47.7 41.7% 1.4 2.6% Old mills in 2+26 region closing Steel margins normalising 21.6
Slide 27: Iron ore prices
For personal use only 100% 110% 120% 130% 140% 50% 60% 70% 80% 90% 8/01/2016 8/02/2016 8/03/2016 8/04/2016 8/05/2016 Iron ore prices 8/06/2016 8/07/2016 Platts 62 8/08/2016 8/09/2016 8/10/2016 Platts 65 8/11/2016 8/12/2016 8/01/2017 8/02/2017 8/03/2017 MBIOI 58 Premium 8/04/2017 8/05/2017 8/06/2017
Slide 28: Innovation
For personal use only Innovation
Slide 29: Innovation projects
Innovation projects For personal use only Delivering future operational and cost improvements AHS* >500mt 10 autonomous material moved drills in operation at Solomon Chichester Relocatable 100 AHS* trucks conveyor >3 years at Cloudbreak *AHS - Autonomous Haulage System 29
Slide 30: Reserves and resources
For personal use only Reserves and resources
Slide 31: Resource portfolio supports asset base
Resource portfolio supports asset base For personal use only 20.9bn tonnes in mineral resources, including 7.9bn tonnes of magnetite 14,000 12,000 2,463 Mineral Resources dry in situ (Mt) 2,463 2,463 2,463 10,000 2,463 2,125 740 740 740 8,000 2,013 624 1,032 624 624 6,000 4,877 4,793 4,755 4,767 3,5
Slide 32: Delivering on targets
Delivering on targets For personal use only Focus on safety, productivity and efficiency 32
Slide 33: Active exploration
Active exploration For personal use only Developing low cost growth options across Iron Ore, Lithium, Copper and Gold Pilbara New South Wales ~2,000km2 tenure South Australia ~6,000km2 tenure South America Ecuador, Columbia, Argentina 33
Slide 34: Building strong communities
For personal use only Building strong communities
Slide 35: Building strong communities
Building strong communities For personal use only Ensuring communities benefit from the growth and development of our business 35
Slide 36: Creating positive social change
Creating positive social change For personal use only By building local communities and empowering Aboriginal people 15% $2billion Aboriginal Contracts with employment Aboriginal businesses Training $50million VTEC 775 trained Guaranteed Trade Up Leasing Facility 36
Slide 37: Setting high standards
Setting high standards For personal use only Practical initiatives to creating a supportive and encouraging environment for women 17% 25% Female employment Female management Fortescue Family Room Job Share 25% Females in Trade Up Flexible work 37
Slide 38: Focussed strategy
For personal use only Focussed strategy
Slide 39: FY18 guidance
FY18 guidance For personal use only Sustainable performance driven by innovation 170mt US$11-12/wmt 70-75% Shipments C1 cost Price realisation US$3/wmt Depreciation Dividend policy Sustaining capital US$7.30/wmt 50-80% pay-out of full year NPAT 39
Slide 40: Key strategic focus
Key strategic focus For personal use only Disciplined capital management Balance sheet strength and flexibility Long term sustainability Low cost growth options Returns to shareholders 40
Slide 41: Sustainable low cost producer, world class assets and people
For personal use only Sustainable World class Low cost producer Assets and people Customer focus Unique culture Reliable and competitive Drives performance 41
Slide 42: For personal use only
For personal use only www.fmgl.com.au @FortescueNews Proudly supporting:
Slide 43: Glossary
Glossary For personal use only C1: Operating costs of mining, processing, rail and Underlying EBITDA: Earnings before interest, tax, depreciation and port on a per tonne basis, including allocation of amortisation, exploration, development and other direct administration charges and production expen
Fortescue Metals Group — H1 FY2018 Earnings Presentation on 6ix