Slide 1: 2017 Financial Results Presentation
24 August 2017 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 2017 FINANCIAL RESULTS PRESENTATION An audio presentation of the attached materials by So
Slide 2: 2017 Financial Results
For personal use only 2017 FINANCIAL RESULTS • 24 AUGUST 2017
Slide 3: Important Notices
• IMPORTANT NOTICES • THIS PRESENTATION SHOULD BE READ IN CONJUNCTION WITH THE “FINANCIAL RESULTS AND OUTLOOK – YEAR ENDED 30 JUNE 2017” ANNOUNCEMENT RELEASED ON 24 AUGUST 2017, WHICH IS AVAILABLE ON SOUTH32’S WEBSITE For personal use only (WWW.SOUTH32.NET). • FINANCIAL INFORMATION • To assist share
Slide 4: FY17 Overview
For personal use only • FY17 OVERVIEW Underlying earnings Free cash flow Net Cash US$1.1B US$1.9B1 US$1.6B US$1.0B US$1.3B US$1.3B Continuing to unlock value Embedding high quality Substantially increasing from our portfolio future options returns to shareholders Notes: 1. Group free cash flow inclu
Slide 5: Sustainability Performance
For personal use only • SUSTAINABILITY PERFORMANCE 4 2 1 1 fatality FY15 FY16 FY17 7.7 5.8 6.0 TRIF 6.0 FY15 FY16 FY17 3.5 TRILF 1.3 1.3 1.3 FY15 FY16 FY17 24.4 23.5 22.6 GHG emissions 22.6 Mt CO2-e FY15 FY16 FY17 Notes: Fatalities, Total Recordable Injury Frequency (TRIF) per million hours worked a
Slide 6: Workforce Diversity
For personal use only • WORKFORCE DIVERSITY Measurable FY20 Level Actual1 objectives Target Corporate & Marketing 47% Women Continuing in workforce improvement Total 16% Board 14% 30% Women Executive Committee 25% 30% in leadership Leadership2 18% - 33% 30 - 40% Black People3 Management 42% 70% in S
Slide 7: 2017 Results Analysis
For personal use only 2017 RESULTS ANALYSIS • BRENDAN HARRIS • CFO Update Photo – we have used this before
Slide 8: Earnings Analysis
• EARNINGS ANALYSIS Depreciation & Amortisation1 (US$M) For personal use only 900 847 845 Uncontrollable (US$1,578M) Net finance cost and tax expense2 1,890 29 139 FY16 FY17 FY18e 144 447 360 13 212 1,648 136 366 1,146 356 Underlying EBIT Underlying EBIT Foreign exchange Underlying net Underlying ea
Slide 9: Costs Analysis
• COSTS ANALYSIS (US$M) Group and Unallocated costs4 US$7M increase in greenfield exploration For personal use only spend from US$13M to US$20M in FY18 100 70 80 FY16 FY17 FY18e Uncontrollable (US$334M) 780 5,727 5,555 581 144 360 161 38 67 4,974 6 7 4,947 FY16 cost base¹ FY17 cost base¹ Inflation F
Slide 10: Operating Unit Costs Analysis
• OPERATING UNIT COSTS ANALYSIS FY17 vs. FY16 FY18e vs. FY17 For personal use only Operating unit Operating unit FY17 FY18e FY18e costs movement costs movement Operating unit costs1 Unit FY15 FY16 FY17 FY18e2 vs. vs. vs. (15%) 0% 15% 30% (15%) 0% 15% 30% FY16 FY17 FY15 WORSLEY ALUMINA US$/t 250 210
Slide 11: Capital Expenditure Analysis
CAPITAL EXPENDITURE ANALYSIS Capital expenditure, including equity accounted investments1 Sustaining capital expenditure For personal use only (US$M) US$M FY17 FY18e FY18 Major project expenditure US$50M 2: • Klipspruit Life Extension project (US$265M, Worsley Alumina 43 48 South Africa Energy Coal)
Slide 12: Balance Sheet and Capital Management
• BALANCE SHEET AND CAPITAL MANAGEMENT (US$M) For personal use only Free cash flow from FY17 shareholder Pending returns ROIC 11.4% • US$334M fully franked operations returns FY17 final dividend • US$539M of US$750M capital management program to be completed Competition for 446 81 excess capital 67
Slide 13: Outlook
For personal use only OUTLOOK • GRAHAM KERR • CEO
Slide 14: Our Strategy
For personal use only OUR STRATEGY Optimise the performance of Unlock their potential Identify new opportunities to our existing operations compete for capital • Reduced controllable costs by • Pursuing efficiency opportunities • Completed US$81M investment ~US$700M over two years across the alumini
Slide 15: Production Guidance
PRODUCTION GUIDANCE Year on year variance by operation1 For personal use only 60% 80% 100% 120% 140% 60% 80% 100% 120% 140% Australia Worsley Alumina Worsley Alumina Australia Manganese2- Ore Manganese – Ore South Africa South Africa South Africa Aluminium South Africa Manganese2- Ore Aluminium Mang
Slide 16: Illawarra Metallurgical Coal
ILLAWARRA METALLURGICAL COAL Longwall overall equipment effectiveness (OEE)1 Plan view of Appin and West Cliff and the ventilation system For personal use only (%) Single longwall at Appin Twin longwalls at Appin 60% Increased complexity for critical equipment with two 50% longwalls in Appin collier
Slide 17: Illawarra Metallurgical Coal
ILLAWARRA METALLURGICAL COAL Phase I (~ 2 to 3 months) For personal use only Phase II Phase III Review systems, processes and organisational structure Safe commencement of staged ramp-up Work with the regulator to address Focus on gas drainage and ventilation at Ability to safely return operation to
Slide 18: Cannington
CANNINGTON Maximising metal production over the life of mine Underground Ore Reserves2 (Mt) For personal use only 0.4 2.7 3.3 3.8 • Reserve Life1 increased to 10 years, reflecting: • 4.8Mt of additional underground Ore Reserves identified 23 in FY17 more than offsetting FY17 depletion 18 18 17 • Pla
Slide 19: Cannington
CANNINGTON • Trucking to replace all shaft haulage from September 2017 to March 2018 when the replacement • FY18 operating costs increase on reduced For personal use only crusher chamber becomes operational throughput and stock build partially offset by • Rebuilding ROM stocks in FY18 following an u
Slide 20: South Africa Energy Coal
For personal use only • SOUTH AFRICA ENERGY COAL Targeting an improvement in performance at Managing contractual exposure for take-or-pay US$265M Klipspruit Life Extension project Wolvekrans-Middelburg Complex (WMC) rail and domestic power supply contracts pending final investment decision following
Slide 21: Manganese
• MANGANESE FY17 Underlying EBITDA FY17 Operating FY17 Average Manganese ore price and China port stocks3 For personal use only (South32 share) Margin1 realised price2 (US$/dmtu; Mt) Australia Manganese Ore Mn ore Port Stocks 66% $5.22 US$456M Mn ore 44% Mn, CIF China Downward correction as South Af
Slide 22: Aluminium Value Chain
• ALUMINIUM VALUE CHAIN FY17 Underlying EBITDA FY17 Operating FY17 Average Group alumina and aluminium operations For personal use only (South32 share) Margin1 realised price2 FY17 equity share: Alumina 30% $289 Atlantic 55% US$452M Pacific 45% FY17 equity share: Atlantic 10% Pacific 45% Aluminium 2
Slide 23: Alumina
• ALUMINA Worsley Alumina (86% share) Caustic soda price For personal use only (US$/t) • Refinery operating at technical capacity • Tight cost control offset impact of higher caustic soda 450 $392 Average price1 price in FY17 • 25% year on year caustic price increase assumed in FY18 Spot price2 $465
Slide 24: Aluminium
• ALUMINIUM South Africa Aluminium (100% share) Raw material input prices vs LME Aluminium2 For personal use only (US$/t) • Smelter achieving benchmark levels of operating efficiency 2,500 700 • Restarted 22 pots in December 2016 quarter 600 2,000 1,500 • Targeting record production in FY18 500 400
Slide 25: Summary
For personal use only • SUMMARY Underlying earnings Free cash flow Net Cash US$1.1B US$1.9B1 US$1.6B US$1.0B US$1.3B US$1.3B Continuing to unlock value Embedding high quality Substantially increasing from our portfolio future options returns to shareholders Notes: 1. Group free cash flow includes di
Slide 26: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 27: Earnings Adjustments
For personal use only • EARNINGS ADJUSTMENTS FY17 FY16 Earnings adjustments1 US$M US$M Adjustments to Underlying EBIT Significant items - 24 Exchange rate (gains)/losses on restatement of monetary items 37 (43) Impairment losses - 1,386 Fair value (gains)/losses on derivative instruments (194) 60 Ma
Slide 28: Underlying Tax Expense
For personal use only • UNDERLYING TAX EXPENSE FY17 FY16 Underlying income tax expense reconciliation and Underlying effective tax rate1 US$M US$M Underlying EBIT 1,648 356 Include: Underlying net finance cost (136) (125) Remove: Share of profit/(loss) of equity accounted investments (320) 23 Underl
Slide 29: Underlying Net Finance Cost
For personal use only • UNDERLYING NET FINANCE COST FY17 FY16 Underlying net finance cost reconciliation1 US$M US$M Unwind of discount applied to closure and rehabilitation provisions (98) (96) Finance lease interest (52) (37) Other 14 8 Underlying net finance cost (136) (125) Add back earnings adju
Slide 30: Closure Provisions
For personal use only • CLOSURE PROVISIONS Closure and rehabilitation Profit and Loss impact (+US$109M) Balance FY17 FY16 provisions by operation Sheet1 US$M US$M (South32 share) (+US$42M) 29 12 42 South Africa Energy Coal 746 616 98 6 South South Africa Aluminium 195 164 America South Worsley Alumi
Slide 31: FY18 Unit Costs Guidance
For personal use only • FY18 UNIT COSTS GUIDANCE Operating unit costs, including Sustaining capital expenditure by H1 FY17 H2 FY17 FY17 FY18e3 upstream operation Operating 200 205 203 211 Worsley Alumina Sustaining capital 10 13 11 12 (US$/t) Total 210 218 214 223 Operating 26 32 29 32 South Africa
Slide 32: Earnings Sensitivities
For personal use only • EARNINGS SENSITIVITIES EBIT impact +/- 10% Estimated impact on FY18 Underlying EBIT of a 10% change in commodity or currency US$M Aluminium1 172 Alumina 154 Metallurgical coal 81 Energy coal 79 Manganese ore2 76 Nickel 33 Manganese alloy2 25 Lead 23 Silver 22 Zinc 13 Australi
Slide 33: For personal use only
For personal use only