South32 Ltd. · ASX:S32
South32 — H1 FY18 Earnings Presentation
35 slides from South32's earnings presentation, Feb 15, 2018
Slide 1: 2018 Half Year Financial Results Presentation
15 February 2018 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 2018 HALF YEAR FINANCIAL RESULTS PRESENTATION An audio presentation of the attached mat
Slide 2: 2018 Half Year Financial Results
For personal use only 2018 HALF YEAR FINANCIAL RESULTS • 15 FEBRUARY 2018
Slide 3: Important Notices
• IMPORTANT NOTICES • THIS PRESENTATION SHOULD BE READ IN CONJUNCTION WITH THE “FINANCIAL RESULTS AND OUTLOOK – HALF YEAR ENDED 31 DECEMBER 2017” ANNOUNCEMENT RELEASED ON 15 FEBRUARY 2018, WHICH IS AVAILABLE ON SOUTH32’S WEBSITE For personal use only (WWW.SOUTH32.NET). FORWARD-LOOKING STATEMENTS • T
Slide 4: H1 FY18 Highlights
For personal use only • H1 FY18 HIGHLIGHTS Ordinary dividend US 4.3 cents per share Underlying EBITDA South Africa Energy Coal US$1.1B to be managed as a Special dividend stand-alone business US 3.0 cents per share Operating Margin 36% Simplifying the way we work Total dividends US$378M Net Cash Exp
Slide 5: Sustainability Performance
For personal use only • SUSTAINABILITY PERFORMANCE 4 Fatalities(a) 1 0 FY16 FY17 H1 FY18 7.7 6.0 4.9 TRIF(a) FY16 FY17 H1 FY18 3.1 1.4 1.9 EOI(a) FY16 FY17 H1 FY18 23.5 22.6 GHG emissions(a)(b) 11.1 (Mt CO2-e) FY16 FY17 H1 FY18 Notes: a. Fatalities, Total Recordable Injury Frequency (TRIF) per milli
Slide 6: Workforce Diversity
For personal use only • WORKFORCE DIVERSITY Actual FY20 Measurable objectives Level Target FY17 H1 FY181 Corporate and Marketing 47% 49% Women in workforce Continuing improvement Total 16% 17% Board 14% 33% 30% Women in leadership South32 Lead Team 17% 29% 30% Leadership2 18 – 33% 14 – 36% 30 – 40%
Slide 7: Brendan Harris, CFO
For personal use only 2018 HALF YEAR FINANCIAL RESULTS • BRENDAN HARRIS • CFO Update Photo – we have used this before
Slide 8: Earnings Analysis
• EARNINGS ANALYSIS (US$M) Sales price increase Lower sales volumes at Illawarra 4% For personal use only 7% Metallurgical Coal reduced Underlying EBIT Aluminium & alumina by -US$216M Manganese ore & alloys 16% Energy coal Base & precious metals 51% Metallurgical coal 22% 216 258 42 Sales volume Cos
Slide 9: Costs Analysis
• COSTS ANALYSIS Price-linked costs breakdown Depreciation and amortisation, including (US$M) 10% equity accounted investments For personal use only Caustic soda 900 847 815 LME linked electricity 28% 44% Smelter raw materials Other6 18% FY16 FY17 FY18e⁸ Group Equity accounted investments 458 3,071
Slide 10: H1 FY18 Unit Costs
• H1 FY18 UNIT COSTS Operating unit costs9 For personal use only H1 FY18 FY18 H1 FY17 H1 FY18 adjusted11 for H1 FY18 Actual vs Prior guidance11 Operation Unit Prior Actual Actual Prior guidance guidance12 assumptions (5%) 0% 5% 10% 15% 20% WORSLEY ALUMINA US$/t 200 224 216 211 SOUTH AFRICA ENERGY CO
Slide 11: FY18 Unit Cost Guidance
• FY18 UNIT COST GUIDANCE Operating unit costs9 For personal use only FY18 New guidance vs. Change in realised price FY18 FY18 FY18 FY18 Prior guidance15 assumption H1 FY18 Operation Unit Prior Adjusted New (New guidance vs. Actual guidance12 guidance13 guidance14 Prior guidance)16 (10%) 0% 10% 20%
Slide 12: Cashflow Analysis
• CASHFLOW ANALYSIS (US$M) H1 FY18 build in working capital (+US$421M) FY18e Capital expenditure guidance For personal use only Increased US$5M to US$525M • Higher receivables, including Arizona prepayment • Increased raw material and finished goods inventory 60 32 H1 FY18 increase in tax payments (
Slide 13: Capital Management Program
• CAPITAL MANAGEMENT PROGRAM Expanded capital management program +US$250M to US$1B For personal use only Flexible and value focused approach designed to return capital efficiently: On-market buy-back US$305M completed at an average price of A$2.80 H1 FY18 US$155M Special dividend (franked to 81%) Ge
Slide 14: Shareholder Returns
• SHAREHOLDER RETURNS (US$M) Since the commencement of FY16 we have announced For personal use only 1,799 shareholder returns totalling US$1.8B 540 • 98% of Underlying earnings • 63% of Free cash flow, including distributions from equity accounted investments 155 • 11% of market capitalisation22 223
Slide 15: Outlook
For personal use only OUTLOOK • GRAHAM KERR • CEO
Slide 16: Our Strategy
For personal use only OUR STRATEGY Optimise the performance of our Unlock their potential Identify new opportunities to existing operations compete for capital • Increased manganese production and guidance • Approved 4.3B South African rand investment in • Second year of Trilogy Metals option, targe
Slide 17: FY18 Production Guidance
• FY18 PRODUCTION GUIDANCE FY18 FY19 For personal use only Guidance Guidance H1 FY18 H2 FY18 guidance WORSLEY ALUMINA 3,975kt 3,965kt BRAZIL ALUMINA 1,345kt 1,355kt SOUTH AFRICA ALUMINIUM 720kt 720kt MOZAL ALUMINIUM 269kt 269kt SOUTH AFRICA ENERGY COAL – DOMESTIC COAL 16,000kt 15,850kt SOUTH AFRICA
Slide 18: FY18 Production Guidance
• FY18 PRODUCTION GUIDANCE FY18 FY19 For personal use only Guidance Guidance H1 FY18 H2 FY18 guidance AUSTRALIA MANGANESE - ORE Subject to 3,125kwmt demand Subject to SOUTH AFRICA MANGANESE - ORE ↑ 2,040kwmt demand CERRO MATOSO 41.6kt 38.8kt CANNINGTON – ORE PROCESSED ↓ 2,300kdmt ↓ 2,400kdmt – Silve
Slide 19: Cannington Overview
For personal use only CANNINGTON OVERVIEW Change in stress regime at Cannington (FY16 to FY18) Looking East Ore hoisting shaft Increased rates of deformation in the underground mine With orebody depletion, stress regime is evolving and we are shifting into more challenging parts of the mine plan Add
Slide 20: Cannington Stope Design
• CANNINGTON STOPE DESIGN Stope in TU89 block Stope Split stopes in TU89 For personal use only – prior design workstreams block – new design Visualisation of the Cannington mine plan, critical underground infrastructure and stope design23 Looking West Rehab Develop Fire Bog TU89 block Fill Four Once
Slide 21: Revised Cannington Guidance
REVISED CANNINGTON GUIDANCE Underground activity Average stope size and number of stopes extracted New guidance For personal use only Prior guidance 91 85 88 82 We have responded to changing stress regime and 73 69 63 62 challenging ground conditions 54 43 48 47 38 39 34 33 Decreasing stope sizes an
Slide 22: Revised Cannington Guidance
• REVISED CANNINGTON GUIDANCE Payable metal production and guidance Cost base For personal use only (US$M) Silver (koz) Lead (kt) Zinc (kt) 14 6 21 150 14,000 12,200 11,750 130 12,000 102 98 456 110 404 370 10,000 369 90 8,000 51 70 6,000 39 50 FY18e FY18e Inventory Other FY16 FY17 and royalties 4,0
Slide 23: Illawarra Metallurgical Coal
ILLAWARRA METALLURGICAL COAL Appin colliery restart plan on track FY18 half-on-half production FY18 half-on-half unit costs For personal use only (kt) (US$/t) Phase II (~12 months) Metallurgical Coal Energy Coal Phase III Safe commencement of staged +42% ramp-up 572 -15% Focus on gas drainage and Ab
Slide 24: Manganese and Alumina Prices
• MANGANESE AND ALUMINA PRICES • Manganese ore price and South Africa Manganese quarterly Alumina price(b) For personal use only Price to be supported by higher ore production(a) (US$/t) Chinese conversion costs and Increased production in • (US$/dmtu; kwmt) response to stronger the continued deteri
Slide 25: Worsley Alumina
• WORSLEY ALUMINA West Marradong will be accessed under an existing For personal use only sublease agreement with Alcoa Adjacent to existing Lower reactive silica Defers capital spend infrastructure Converting high quality West Marradong resource to reserve will unlock significant value West Caustic
Slide 26: Aluminium Smelters
ALUMINIUM SMELTERS South Africa Aluminium quarterly production Mozal Aluminium quarterly production For personal use only Decision to temporarily suspend 22 Nameplate capacity (720ktpa) pots in response to market conditions Nameplate capacity (South32 share, 270ktpa) 4,000 4,000 180 68 - 0 - 0 Q3 FY
Slide 27: South Africa Energy Coal
For personal use only • SOUTH AFRICA ENERGY COAL Manage as a Sustainably improve Transform ownership stand-alone business performance On track to manage as a stand-alone business in H2 FY18 • Appointed designate management team to implement stand-alone structure • Completed the redesign of core syst
Slide 28: A New Way of Working
For personal use only • A NEW WAY OF WORKING • Reallocation of Chief Operating Officer accountabilities enabling us to fully capture value across our supply chain • Aggregation of supply and marketing under our Chief Marketing Officer to leverage commercial expertise and optimise working capital • P
Slide 29: H1 FY18 Summary
For personal use only • H1 FY18 SUMMARY Ordinary dividend US 4.3 cents per share Underlying EBITDA South Africa Energy Coal US$1.1B to be managed as a Special dividend stand-alone business US 3.0 cents per share Operating Margin 36% Simplifying the way we work Total dividends US$378M Net Cash Expand
Slide 30: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 31: Group Operating Margin
For personal use only • GROUP OPERATING MARGIN 68% 43% 36% 37% 37% 34% 33% 24% 24% 21% -2% Worsley Brazil South Africa Mozal South Africa Illawarra Australia South Africa Cerro Matoso Cannington Alumina Alumina Aluminium Aluminium Energy Coal Metallurgical Manganese Manganese Coal (Ore) (Ore) H1 FY1
Slide 32: Closure Provisions
For personal use only • CLOSURE PROVISIONS Closure and rehabilitation Profit and Loss impact (+US$65M) Balance H1 FY18 FY17 provisions by operation Sheet28 US$M US$M (South32 share) (+US$8M) 52 12 1 8 South Africa Energy Coal 778 746 South South America South Africa Aluminium 213 195 America Worsley
Slide 33: Earnings Sensitivities
For personal use only • EARNINGS SENSITIVITIES EBIT impact +/- 10% Estimated impact on FY18 Underlying EBIT of a 10% change in commodity or currency(a) US$M Alumina 186 Aluminium(b) 185 Manganese ore(c) 107 Energy coal 95 Metallurgical coal 64 Nickel 42 Manganese alloy(c) 33 Lead 27 Silver 21 Zinc 1
Slide 34: Footnotes
• FOOTNOTES Notes: For personal use only 1. All as at 31 December 2017. H1 FY18 information is unaudited. 2. Leadership measure reflects the range of outcomes for our various Regional, Marketing and Corporate teams. 3. Other includes depreciation and amortisation, adjustments to provisions, ceased a
Slide 35: South32
For personal use only SOUTH32