Fortescue Ltd · ASX:FMG
Fortescue — Fortescue Metals Group — HY2017 Earnings Presentation
48 slides from Fortescue's earnings presentation, Feb 22, 2017
Slide 1: HY17 Results Presentation
For personal use only HY17 Results Presentation
Slide 2: Forward looking statements
Forward looking statements For personal use only 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 30 Fortescue Metals Group Limited ("Fortescue"). It is not recom
Slide 3: Building a world class company
Building a world class company Core supplier to China’s growth For personal use only Safety focus First ore Low cost Engagement Empowerment Leadership in 2008 producer Shipped over 165-170mt Production rate 800mt Unique culture 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 v Fortescue i Determination The New Force in Iro! Set yourself stretch targets Enthusiasm Empowerment Generating ideas
Slide 5: Delivering on targets
Delivering on targets For personal use only Focus on safety, productivity and efficiency Safety 165-170mt shipped Productivity + efficiency Low cost global producer Debt repayments Consistent dividend policy 5
Slide 6: Safety performance
Safety performance For personal use only Continuing to improve the safety of all our employees and contractors 12 month rolling TRIFR 15 14.4 10 9.2 7.6 6.0 5.1 5 4.3 3.2 0 FY11 FY12 FY13 FY14 FY15 FY16 HY17 12-13 6
Slide 7: HY snapshot
HY 17 snapshot For personal use only Productivity initiatives delivering sustainable cost reductions and financial results 86.1mt US$2.6bn US$4.0bn Shipped Underlying Net debt EBITDA C1 Cost US$1.2bn A$0.20 $13.06/wmt Interim dividend 20% reduction NPAT 38% payout Refer to attached glossary for defi
Slide 8: Continuous + sustainable cost improvements
Continuous + sustainable cost improvements For personal use only Focus on productivity and efficiency delivering cost savings US$/wmt 1 Solomon operations 60 50 48 44 2 Blending strategy 58% Fe 40 34 3 Processing, wet plants + de-sands 30 27 15 4 Operational efficiencies 20 10 $12 - $13 12-13 5 Fx a
Slide 9: Innovative shipping fleet
Innovative shipping fleet Eight ore carriers - natural extension of Fortescue’s supply chain For personal use only • Provides 12% shipping requirements • Complement port infrastructure • Maximise tonnage, improve load rates • Safe manoeuvring within the port • CDB Leasing agreement US$473m 9
Slide 10: Iron ore supply in balance
For personal use only Mt 20 40 60 80 0 100 120 140 160 180 Jul-10 Sep-10 Nov-10 Source: Bloomberg and Umetal Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Iron ore supply in balance Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov
Slide 11: Moving down the global cost curve
Moving down the global cost curve For personal use only China's Iron Ore Supply CFR Costs (including royalties & ocean freight) 2012 2016 Tonnes millions Source: Metalytics – November 2016 11
Slide 12: Financial performance
For personal use only Financial performance
Slide 13: Financial drivers
Financial drivers For personal use only Focused on delivering shareholder value SHAREHOLDER RETURNS AND VALUE Debt repayments and capital management Price + cost improvements + capital management 13
Slide 14: HY17 financial outcomes
HY17 financial outcomes For personal use only Operational performance delivering financial results US$1.2bn US$1.7bn US$1.5bn Cash on hand Debt repaid Free cashflows 52% in six months 7.00 US$0.39 30% 6.50 6.00 Earnings per share 282% Net gearing 5.50 5.00 4.50 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan
Slide 15: Underlying EBITDA
Underlying EBITDA For personal use only 103% increase through cost improvement and higher prices Underlying EBITDA (US$m) Underlying EBITDA Margin US$ 3,000 60% 59% 1,016 93 32 1 2,645 39% 2,000 40% 312 78 1,301 1,000 20% - 0% HY16 Volume Cost Price Royalty Fx Other HY17 HY16 HY17 Refer to attached
Slide 16: HY17 Earnings
HY17 Earnings For personal use only Improvements driven by continued cost performance and higher prices US$m Revenue US$m Underlying EBITDA US$m NPAT 6,000 3,000 1,500 2,645 1,222 4,492 4,000 2,000 1,000 3,344 1,301 2,000 1,000 500 319 - - - HY16 HY17 HY16 HY17 HY16 HY17 34% 103% 283% Refer to attac
Slide 17: Cost savings delivered
Cost savings delivered For personal use only US$3.7bn in operating cost savings delivered since achieving full operational capacity US$bn 4.0 0.3 0.2 3.0 1.9 2.0 4.0 3.7 0.8 1.0 0.8 - FY14 FY15 FY16 HY17 FY14 - HY17 2HY17 fcst FY14 - FY17 fcst delivered delivered savings 17
Slide 18: Returns to shareholders
Returns to shareholders For personal use only Operational performance continuing to increase shareholder value US US AUD Earnings per share Free cash flows per share Dividends per share cents cents cents 20 45 60 20 39.3 49.7 15 30 40 12 32.4 10 15 20 10.3 5 3 - - - HY16 HY17 HY16 HY17 HY16 Final FY
Slide 19: Cash and Balance sheet
For personal use only Cash and Balance sheet
Slide 20: Cash flows
Cash flows For personal use only Growing operating cash flows support returns to shareholders and investment US$m Net cash from operations US$m Capital expenditure US$m Free cash flows 2,000 1,857 2,000 2,000 1,545 1,500 1,500 1,500 1,097 1,009 1,000 1,000 1,000 500 500 500 312 88 - - - HY16 HY17 HY
Slide 21: Cash movements
Cash movements For personal use only Cash levels supporting additional debt repayments and dividends US$bn 4.0 0.3 3.0 1.9 1.7 2.0 0.3 1.0 1.6 1.2 - Jun 16 cash Operating Capex Debt repayment Dividends Dec 16 cash Refer to attached glossary for definition of non-IFRS terms 21
Slide 22: Debt repayments
Debt repayments For personal use only US$7.5bn of net debt repaid since expansion complete improving gross gearing to 36% US$m % 16,000 80 12,000 12,691 60 10,533 9,557 9,569 8,000 40 7,159 7,188 6,771 5,188 5,156 4,000 20 3,996 - - FY13 FY14 FY15 FY16 1HY17 Debt Net debt Gross gearing (RHS) Net gea
Slide 23: Debt maturity
Debt maturity For personal use only US$1.7bn repaid in FY17 with flexibility to continue voluntary early repayments 5,000 4,000 3,000 US$m 2,000 1,976 2,160 1,000 478 0 0 CY2017 CY2018 CY2019 CY2020 CY2021 CY2022 Senior Secured Credit Facility Senior Unsecured Notes Senior Secured Notes Refer to att
Slide 24: Capital expenditure
Capital expenditure For personal use only Free cash prioritised to debt with cash funding of ore carriers US$m FY17 Guidance 800 90 40 600 • Sustaining capex US$2/wmt 270 400 • Development of Firetail replacement 40 48 31 200 • Ore carriers 85% cash funded via CDB 340 225 - • D&A US$7.10/wmt FY16 FY
Slide 25: Market
For personal use only Market
Slide 26: Fortescue values its relationship with China
Fortescue values its relationship with China For personal use only Four key areas of engagement
Slide 27: Chinese economic momentum
Chinese economic momentum For personal use only IMF projected GDP growth for 2017 Source: IMF World Economic Database Oct 2016 27
Slide 28: Developing and emerging Asia
Developing and emerging Asia For personal use only Asian economies generating two thirds of global growth Source: IMF World Economic Database Oct 2016
Slide 29: 13th Five Year Plan (2016-2020)
13th Five Year Plan (2016-2020) For personal use only RMB12.5 trillion for ~ 11,000 listed projects New power 3,000km 152,000km New urban projects rail lines Roads in rural areas +480,000 MW 80% cities Over 50 Pipelines with high civilian + speed rail airports gas storage Source: China Daily 29
Slide 30: Property and infrastructure driving steel demand
Property and infrastructure driving steel demand For personal use only Residential sales and tier 1 house prices have increased 80 35 30 60 25 40 20 15 % % 20 10 0 5 0 -20 -5 Sales (left) Prices (right) -40 -10 01-Jan-14 01-Jan-17 01-Jul-15 01-Jan-11 01-Jan-12 01-Jan-13 01-Jan-15 01-Jan-16 01-Jul-11
Slide 31: Core supplier to Asia
Core supplier to Asia For personal use only Well established 17% market share of imported iron ore to China Total 2016 global steel production 1,629mt • Low impurity 58% Fe average • Competitive value in use 541 808 • Large diverse customer base 79 • Responsive to market needs 96 105 • Proximity to
Slide 32: Steel capital stock tonnes/capita
For personal use only Steel capital stock tonnes/capita - 2 4 8 6 10 12 14 16 1950 1952 1954 1956 1958 1960 1962 1964 1966 Source: NBS, worldsteel, Macquarie, February 2017 1968 1970 USA 1972 1974 1976 1978 1980 1982 1984 1986 Japan 1988 1990 1992 1994 Steel stock tonnes per capita 1996 1998 2000 Ch
Slide 33: China iron ore supply
China iron ore supply Chinese ore replaced with lower cost seaborne supply – mainly Australian For personal use only 2013: 1,219mt 2016: 1,257mt 232 399 417 170 640 215 248 155 Australia Brazil Other China Australia Brazil Other China Source: National Bureau of Statistics, PRC 33
Slide 34: China's One Belt One Road
China’s One Belt One Road For personal use only Generating regional demand for steel and opportunities for Northern Australia
Slide 35: Price realisations consistent
For personal use only $0 $100 $20 $40 $60 $80 29/07/2014 29/08/2014 29/09/2014 29/10/2014 29/11/2014 29/12/2014 Platts 62 CFR 29/01/2015 28/02/2015 31/03/2015 30/04/2015 31/05/2015 30/06/2015 31/07/2015 Price realisations consistent 31/08/2015 30/09/2015 MBIO58 [P] CFR 31/10/2015 30/11/2015 87% real
Slide 36: Reserves and resources
Reserves and resources For personal use only
Slide 37: Resource portfolio supports asset base
Resource portfolio supports asset base For personal use only Largest Pilbara tenement footprint 12,000 2,463 2,463 2,463 10,000 Mineral Resources dry in situ (Mt) 2,463 740 740 740 8,000 2,013 624 1,032 624 624 4,877 4,793 6,000 4,755 3,504 3,070 3,070 2,860 4,000 1,715 2,224 695 303 491 491 6,706 6
Slide 38: Firetail replacement - 2021
Firetail replacement - 2021 For personal use only Options for Firetail replacement being developed 38
Slide 39: Supporting our community
Supporting our community For personal use only
Slide 40: Building strong communities
Building strong communities For personal use only Creating opportunities through training, employment and business development 40 40
Slide 41: Championing diversity
Championing diversity For personal use only Diversity is fundamental to driving innovation and business success 41
Slide 42: Business activity key to community development
Business activity key to community development For personal use only Ensure our communities benefit from growth and success of Fortescue • Mining provides income and jobs for remote communities • Empowering people through opportunity, not welfare • Developing pride through self sufficiency and achie
Slide 43: Focussed strategy
For personal use only Focussed strategy
Slide 44: Moving down the global cost curve
Moving down the global cost curve For personal use only China's Iron Ore Supply CFR Costs (including royalties & ocean freight) 2012 2016 Tonnes millions Source: Metalytics – November 2016 44
Slide 45: Strategic delivery
Strategic delivery For personal use only Culture, continuous improvement, speed and flexibility Consistent 165-170mtpa Lowering costs to US$12-13/wmt Maximising resource value Capital management Consistent dividend policy 45
Slide 46: The new force in iron ore
The new force in iron ore For personal use only Continuous improvement Sustainable low cost World class producer assets & people Customer focus Unique culture Reliable drives performance Competitive 46
Slide 47: For personal use only
For personal use only www.fmgl.com.au @FortescueNews Proudly supporting:
Slide 48: Glossary
Glossary For personal use only C1: Operating costs of mining, processing, rail Underlying EBITDA: Earnings before interest, tax, depreciation and amortisation, and port on a per tonne basis, including exploration, development and other expenses. The reconciliation of allocation of direct administrat
Fortescue Metals Group — HY2017 Earnings Presentation on 6ix