South32 Ltd. · ASX:S32
South32 — H1 FY17 Earnings Presentation
32 slides from South32's earnings presentation, Feb 16, 2017
Slide 1: 2017 Half Year Financial Results Presentation
16 February 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 ISIN: AU000000S320 south32.net 2017 HALF YEAR FINANCIAL RESULTS PRESENTATION An audio presentation of the attached materials by S
Slide 2: 2017 Half Year Financial Results
For personal use only 2017 HALF YEAR FINANCIAL RESULTS • 16 FEBRUARY 2017
Slide 3: Important Notices
• IMPORTANT NOTICES • THIS PRESENTATION SHOULD BE READ IN CONJUNCTION WITH THE “FINANCIAL RESULTS AND OUTLOOK – HALF YEAR ENDED 31 DECEMBER 2016” ANNOUNCEMENT RELEASED ON 16 FEBRUARY 2017, WHICH IS AVAILABLE ON SOUTH32’S WEBSITE For personal use only (WWW.SOUTH32.NET). • • FORWARD LOOKING STATEMENTS
Slide 4: H1 FY17 Overview
For personal use only • H1 FY17 OVERVIEW Underlying earnings Free cash flow Net cash US$479M US$626M1 US$859M Announced US$200M Managing our financial Metropolitan acquisition Pursuing cost saving position to retain the and US$192M interim targets at our operations right balance of flexibility
Slide 5: Sustainability Performance
For personal use only • SUSTAINABILITY PERFORMANCE 1 fatality TRIF1 5.3 (H1 FY16: 7.9) Employee occupational illness frequency2 1.7 (H1 FY16: 1.5) GHG emissions3 11.7 Mt CO2-e (H1 FY16: 11.9) Notes: Worsley Alumina – Boddington rehabilitation 1. Total Recordable Injury Frequency per million hours wo
Slide 6: 2017 Half Year Financial Results - Brendan Harris, CFO
For personal use only 2017 HALF YEAR FINANCIAL RESULTS • BRENDAN HARRIS • CFO
Slide 7: Earnings Analysis
• EARNINGS ANALYSIS (US$M) For personal use only Uncontrollable US$645M Net finance cost and taxation expense2 47 12 51 661 243 239 19 72 691 71 141 479 141 Underlying EBIT Underlying EBIT Sales price accounted investments) Underlying earnings Foreign exchange Underlying net Inflation Controllable c
Slide 8: Costs Analysis
• COSTS ANALYSIS (US$M) Group and Unallocated costs3 For personal use only ~30% 70 Uncontrollable (US$11M) 100 2,845 7 77 51 239 FY16 FY17e 30 33 2,738 41 47 product cost Brazil power FX on costs Royalties Inflation Price-linked cost base¹ Other² cost base¹ Controllable H1 FY16 H1 FY17 Third party c
Slide 9: H1 FY17 Unit Costs
• H1 FY17 UNIT COSTS Operating unit costs, including Sustaining capital expenditure For personal use only Foreign exchange Price H1 FY17 foreign H1 FY17 Adjusted costs vs. FY17e exchange and price H1 FY16 H1 FY17 adjusted1 for prior guidance Unit prior impacts1 actual actual prior guidance guidance2
Slide 10: FY17 Unit Costs
• FY17 UNIT COSTS Operating unit costs, including Sustaining capital expenditure For personal use only Foreign exchange Price Other costs FY17e FY17e FY17e new guidance vs. FY17e prior guidance3 FY16 Unit prior new Actual guidance1 guidance2 (10%) 0% 10% 20% 30% WORSLEY ALUMINA US$/t 221 204 218 SOU
Slide 11: Depreciation and Capital Expenditure
For personal use only DEPRECIATION AND CAPITAL EXPENDITURE Depreciation and amortisation, including equity accounted Capital expenditure, including equity accounted investments (US$M) investments (US$M) 1,020 768 - 41% 900 840 FY17e guidance 462 450 restated from US$790M to Unchanged US$840M1 FY17e
Slide 12: Balance Sheet and Capital Management
• BALANCE SHEET AND CAPITAL MANAGEMENT (US$M) Free cash flow Future For personal use only US$626M commitments ROIC 137 53 26 859 200 489 192 Competition for excess capital 312 Maximise cash flow Cash flow priorities (402) (116) Distribute a minimum 40% of Underlying earnings as ordinary dividends FY
Slide 13: Outlook - Graham Kerr, CEO
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 • Accelerated La Esmeralda • Demonstrated flexibility by development, increasing nickel • Agreement to acquire Metropolitan opportunistica
Slide 15: FY17 Production Guidance
• FY17 PRODUCTION GUIDANCE Production by upstream operation For personal use only FY17 FY18 H1 FY17 H2 FY17 guidance Guidance1 Guidance1 WORSLEY ALUMINA 3,965kt 3,965kt BRAZIL ALUMINA 1,320kt 1,350kt SOUTH AFRICA ENERGY COAL – DOMESTIC COAL 17,000kt 17,000kt SOUTH AFRICA ENERGY COAL – EXPORT COAL 13
Slide 16: Illawarra Metallurgical Coal
• ILLAWARRA METALLURGICAL COAL • FY17 production and unit cost guidance unchanged: Production guidance For personal use only (kt) ⎯ Appin Area 7 operating at full capacity 1,450 1,540 ⎯ Appin Area 9 has recommenced production as planned ⎯ Dendrobium performing strongly 7,550 6,360 • Timing of longwa
Slide 17: Cannington
• CANNINGTON Visualisation of the Cannington mine plan, critical underground infrastructure and stope design1 Stope 60L volume and grade For personal use only 60L Volume (Mt) 2,3 0.235 Lead ore grade (%, Pb) 9.1 Silver ore grade (g/t, Ag) 347 Zinc ore grade (%, Zn) 4.5 Ore hoisting shaft: capacity ~
Slide 18: Cannington
• CANNINGTON Payable metal production and guidance For personal use only 25,000 350 FY17 production is predicated on the 300 extraction of high grade stope 60L 20,000 19,050 16,550 250 Stope 60L is in close proximity to the 15,000 200 existing crusher chamber 163 147 150 10,000 Increasing rate of de
Slide 19: Manganese
• MANGANESE Manganese ore price and China port stocks1 • Responded to market demand in H1 FY17 For personal use only • • (US$/dmtu; Mt) • Captured value with low/no capital volume levers Mn ore Port Stocks Mn ore 44% Mn, CIF China Downward correction as higher ⎯ Increased PC02 production to capacity
Slide 20: Cerro Matoso: La Esmeralda
CERRO MATOSO: LA ESMERALDA Aerial view of proposed La Esmeralda development Aerial view of Cerro Matoso operation For personal use only River Crossing Main Pit La Esmeralda Payable nickel production (kt) 41.6 • Accelerated development with the use of a temporary bridge 36.8 36.0 • FY18 production gu
Slide 21: Klipspruit Life Extension Project
• KLIPSPRUIT LIFE EXTENSION PROJECT • Significantly extends mine life1 South Africa Energy Coal location map For personal use only • Capacity of at least 8.0Mtpa • Export oriented operation with domestic potential • Utilises existing rail access • Maintains feed for our 50% share of the Phola wash p
Slide 22: Metropolitan Colliery Acquisition
• METROPOLITAN COLLIERY ACQUISITION • Agreement to acquire Metropolitan Colliery for US$200M1 Location Map For personal use only subject to ACCC approval ⎯ Single-seam underground longwall coal mine ⎯ Average historical production capacity of 1.9Mtpa2 • Located in close proximity to Illawarra Metall
Slide 23: H1 FY17 Overview
For personal use only • H1 FY17 OVERVIEW Underlying earnings Free cash flow Net cash US$479M US$626M1 US$859M Announced US$200M Managing our financial Metropolitan acquisition Pursuing cost saving position to retain the and US$192M interim targets at our operations right balance of flexibility
Slide 24: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 25: Earnings Adjustments
For personal use only • EARNINGS ADJUSTMENTS H1 FY17 H1 FY16 Earnings adjustments1 US$M US$M Adjustments to Underlying EBIT Significant items - 92 Exchange rate (gains)/losses on restatement of monetary items 20 (87) Impairment losses 4 1,384 Fair value (gains)/losses on derivative instruments (189)
Slide 26: Underlying Taxation Expense
For personal use only • UNDERLYING TAXATION EXPENSE H1 FY17 H1 FY16 Underlying income tax expense reconciliation and Underlying effective tax rate1 US$M US$M Underlying EBIT 691 141 Include: Underlying net finance cost (71) (71) Remove: Share of profit/(loss) of equity accounted investments (161) 58
Slide 27: Underlying Net Finance Cost
For personal use only • UNDERLYING NET FINANCE COST H1 FY17 H1 FY16 Underlying net finance cost reconciliation1 US$M US$M Unwind of discount applied to closure and rehabilitation provisions (48) (49) Finance lease charges (26) (25) Other 3 3 Underlying net finance cost (71) (71) Add back earnings ad
Slide 28: Closure Provisions
• CLOSURE PROVISIONS South For personal use only H1 FY17 FY16 Closure and rehabilitation provisions by operation (South32 share) America US$M US$M South Africa Energy Coal 665 616 Australia South Africa Aluminium 185 164 Worsley Alumina 271 278 Cerro Matoso 84 100 Cannington 84 88 Mozal Aluminium 56
Slide 29: Revenue Variance by Commodity
• REVENUE VARIANCE BY COMMODITY H1 FY17 vs. H1 FY16 Sales revenue: price variance by commodity1 (US$M) For personal use only 28 22 14 39 34 31 121 42 192 661 216 Manganese Metallurgical Energy Coal Aluminium Zinc Lead Silver Nickel Manganese Alumina Total Ore Coal Alloy H1 FY17 vs. H1 FY16 Sales rev
Slide 30: Capital Expenditure Guidance
• CAPITAL EXPENDITURE GUIDANCE FY17e For personal use only Capital expenditure (South32 share) FY16 H1 FY16 H1 FY17 (Guidance) US$M US$M US$M1 Major projects2 32 26 8 35 All other capital expenditure (including Deferred stripping) 351 211 142 365 Capital expenditure (excluding equity accounted inves
Slide 31: Earnings Sensitivities
For personal use only • EARNINGS SENSITIVITIES EBIT impact +/- 10% Estimated impact on FY17 Underlying EBIT of a 10% change in commodity or currency US$M Aluminium 157 Alumina 134 Energy coal 96 Metallurgical coal 94 Manganese ore1 84 Nickel 34 Silver 32 Lead 32 Manganese alloy1 23 Zinc 19 Australia
Slide 32: For personal use only
For personal use only