South32 Ltd. · ASX:S32
South32 — FY2019 Earnings Presentation
45 slides from South32's earnings presentation, Aug 22, 2019
Slide 1: 2019 Full Year Financial Results Presentation
22 August 2019 South32 Limited (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 2019 FULL YEAR FINANCIAL RESULTS PRESENTATION South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will h
Slide 2: 2019 Financial Results
2019 Financial Results 22 August 2019
Slide 3: Important notices
Important notices • This presentation should be read in conjunction with the “Financial Results and Outlook – year ended 30 June 2019” announcement released on 22 August 2019, which is available on South32’s website (www.south32.net). Figures in italics indicate that an adjustment has been made sinc
Slide 4: FY19 Overview
FY19 Overview Underlying earnings Free cash flow(a) Underlying EBITDA US$992M US$1B US$2.2B Underlying earnings per share Net cash balance Operating margin 34% US 19.7 cents per share US$504M Final ordinary dividend US 2.8 cents per share Capital management program South Africa Energy Coal expanded
Slide 5: Sustainability performance
Sustainability performance 1 Fatalities(a)(b) 1 0 FY17 FY18 FY19¹ 6.1 5.1 4.5 TRIF(a)(b) FY17 FY18 FY19¹ 2.8 Employee 2.0 2.0 Occupational Illness(a)(b) FY17 FY18 FY19¹ 22.6 22.8 23.5 GHG emissions(a)(b) (Mt CO2-e) FY17 FY18 FY19¹ 20.5 17.3 14.3 Community investment(b) (US$M) FY17 FY18 FY19¹ Notes:
Slide 6: Workforce inclusion and diversity
Workforce inclusion and diversity Black People(a) in our Women in our South African management team workforce 17% 18% 49% 16% 42% 45% Continuing Continuing improvement improvement FY17 FY18 FY19¹ FY20 Target FY17 FY18 FY19¹ FY20 Target Women in leadership Board South32 Lead Team Senior Leadership(b)
Slide 7: FY19 performance analysis
FY19 performance analysis FY19 Underlying EBITDA contribution Group operating margin2 Mitigating inflation and protecting margins by commodity(a)(b) Estimated impact on margins Aluminium & alumina 11% 39% 37% Volume and distribution ~US$125M Manganese ore & alloys 34% 34% Energy coal 20% • Longwall
Slide 8: South Africa Energy Coal update
South Africa Energy Coal update Our rationale for divesting has not changed Following a comprehensive and competitive process we have We are on target to sell a transformed business with a sustainable future entered into exclusive negotiations with Seriti Resources Presented December 2017 For South3
Slide 9: South Africa Energy Coal update
South Africa Energy Coal update South Africa Energy Coal net assets Key impairment assumptions: (US$M) • A modest upfront payment with a deferred payment mechanism whereby both companies will share commodity price upside for an agreed period • Transaction approvals fulfilled by 30 June 2020 Net oper
Slide 10: 2019 Financial Results
2019 Financial Results Katie Tovich CFO
Slide 11: Earnings analysis
Earnings analysis Sales price by commodity Sales volume & (US$M) 105 controllable costs by operation 12 (16) (22) (41) (44) (45) IMC SAEC Worsley SA Other (88) Alumina Manganese operations Sales volume 449 (215) 37 42 (79) (194) Controllable costs (46) (66) (111) (33) (98) Alumina Metallurgical Mang
Slide 12: Costs analysis
Costs analysis Lower foreign exchange on costs Price-linked costs (US$M) YoY impact on costs FY19 Contribution Caustic soda 35 34 LME linked electricity 20 12% (21) (19) 17 Smelter raw materials 23% 8% Bauxite 19% Other power and diesel 32% (166) (160) (19) Other6 South African Australian Brazilian
Slide 13: FY19 Operating unit costs
FY19 Operating unit costs FY19 actual vs. FY19 Operating unit costs9 FY18 H1 FY19 H2 FY19 FY19 FY19 guidance Performance notes guidance (5%) 0% 5% 10% Worsley Alumina Above guidance: lower production and additional costs to 235 233 242 238 227 (US$/t) sustainably return to nameplate capacity Brazil
Slide 14: FY20 Operating unit cost guidance
FY20 Operating unit cost guidance FY20 guidance vs FY19 operating unit FY20 Operating unit costs9 H2 FY19 FY19 cost movement FY20 guidance assumptions guidance12 (10%) (5%) 0% 5% 10% Worsley Alumina 242 238 230 Lower caustic soda and energy prices and higher volume (US$/t) Brazil Alumina (non-operat
Slide 15: Capital expenditure analysis
Capital expenditure analysis Successful divestment of Increase in Sustaining capital to facilitate Major project activity to ramp-up at South Africa Energy Coal the planned return to three longwalls at Hermosa ahead of completing will meaningfully reduce the Illawarra Metallurgical Coal pre-feasibil
Slide 16: Cash flow
Cash flow FY19 (US$M) Invested to reshape July 2019 net cash benefitted from an unwind Generated strong US$938M in in working capital related to: and improve cash flow from operations shareholder returns our portfolio • Receipts from June 2019 sales • Collection of initial Klipspruit dragline 458 43
Slide 17: Capital management program
Capital management program Average buy-back price Program expanded by Flexible program to Shares on issue reduced by A$3.16 per share US$250M to US$1.25B return excess capital efficiently 6% since commencement and in a timely manner (volume weighted average price A$3.36 per share over same period) S
Slide 18: Capital management framework
Capital management framework We returned US$762M to shareholders in respect of FY19, equivalent to 8% of our market capitalisation,16 completed the acquisitions of Hermosa and Eagle Downs and maintained a strong balance sheet Our framework remains unchanged We have balance in our approach We will co
Slide 19: Outlook
Outlook Graham Kerr CEO
Slide 20: Production overview
Production overview Production profile(a) Alumina & aluminium production(b) (kt) Manganese ore production(b) (kwmt) (excluding South Africa Energy Coal) Alumina Aluminium 5,295 5,335 5,541 5,536 5,660 5,068 5,050 Subject to market demand Assumes de-bottlenecking at Brazil Alumina, a full year of 983
Slide 21: Manganese market
Manganese market • Chinese domestic production •Future cost of South African Supply response from high cost Increase in intensity of use in has declined as a result of supply to be set by higher cost South African producers steelmaking environmental restrictions trucking and transition to (lower gra
Slide 22: Alumina market
Alumina market Alumina price FY20e alumina book (US$/t, LHS; Australia Brazil delta US$/t, RHS) (5.3Mt including sales to own smelters) Alunorte refinery Vast majority of our Aluminium LME price linkage production embargo 3.4Mt long alumina and cap/floor structure relates 90 position achieves to leg
Slide 23: Worsley Alumina
Worsley Alumina Caustic soda price and consumption Improvement initiatives expected to deliver a sustainable (US$/t, LHS; kgNaOH/tA, RHS) increase in production to nameplate capacity FY19 cost split Fixed 52% Variable 48% Reduced consumption rate following introduction of West Marradong Resource in
Slide 24: Brazil Alumina (non-operated)
Brazil Alumina (non-operated) Production (South32 share) Production to increase 9% across FY20 and FY21 as an Lower capital life extension project for MRN bauxite (kt) improvement in steam generation allows the full benefits of mine progressed into pre-feasibility De-bottlenecking Phase One project
Slide 25: Hillside Aluminium
Hillside Aluminium H1 FY19 cost breakdown H2 FY19 cost breakdown Record production expected as the smelter Other 5% 7% continues to test its technical capacity Raw materials Electricity 18% 18% 17% Labour 19% FY19 cost split Variable 82% Fixed 18% 60% 56% 2,161 1,962 1,925 1,680 Operating unit cost
Slide 26: Mozal Aluminium
Mozal Aluminium H1 FY19 cost breakdown H2 FY19 cost breakdown AP3XLE energy efficiency project on-track Other 3% 4% with first incremental production expected in FY20 Raw materials ‘Other’ includes inventory Electricity 19% movement of Labour 26% 25% 25% US$176/t in FY19 cost split Variable 82% H2 F
Slide 27: Illawarra Metallurgical Coal
Illawarra Metallurgical Coal Average Appin longwall performance(a) On-track to return to a three longwall Tonnes per day configuration during the June 2020 quarter 12,000 FY19 cost split Fixed 73% Variable 27% 10,000 8,000 149 6,000 136 -5% 102 97 4,000 Operating unit cost 87 (US$/t) 2,000 H1 FY18 H
Slide 28: Australia Manganese ore
Australia Manganese ore Australia Manganese ore production Expect to operate low cost PC02 circuit (PC02 % contribution; Price realisation %) above nameplate capacity in FY20 FY19 cost split Fixed 57% Variable 43% 102% 103% 101% 99% 99% 96% -5% Price realisations have remained around the index despi
Slide 29: South Africa Manganese ore
South Africa Manganese ore Wessels manganese ore production (South32 share) Reconfigured operation, enabling flexibility to (kwmt) respond to changes in market demand Price realisations have benefitted from additional premium material as we extract productivity gains at our high grade Wessels mine F
Slide 30: Cerro Matoso
Cerro Matoso Ore mined & processed; ore grade processed Major refurbishment of a furnace in June 2020 quarter (Mwmt, Mdmt LHS to enable greater optionality of ore mix FY19 cost split Fixed 47% Variable 53% Development of higher grade Expect to exhaust La Esmeralda deposit lifted grade and La Esmeral
Slide 31: Cannington
Cannington Ore processed and payable zinc equivalent production18 Zinc equivalent payable metal production expected (Mdmt; kt) to remain largely unchanged in FY20 400 Mill throughput optimised to support greater 8 FY19 cost split Fixed 87% predictability and stability from the underground mine Varia
Slide 32: Our exploration footprint
Our exploration footprint Trilogy Metals 11.8% equity stake plus 50% option Copper Concept for the Upper Kobuk Mineral Projects Polymetallic Early Stage Arctic EMX Royalty Corp. Bornite Freegold Ventures Riddarhyttan Zinc Advanced Shorty Creek Nickel EMX Royalty Corp. Multiple Options FY20 greenfiel
Slide 33: Hermosa project
Hermosa project Taylor Deposit Mineral Resource (100% basis)(a) We have increased Net Smelter Return (NSR) cut-off US$90/t Regional our regional land Progressing studies exploration targets Total Mineral Resources holdings by 30% and infrastructure Ore Type identified Mt % Zn % Pb g/t Ag since acqui
Slide 34: Eagle Downs Metallurgical Coal project
Eagle Downs Metallurgical Coal project Eagle Downs location map 50% interest and 1.1Bt(a) Coal Resource in the operating control Bowen Basin, Queensland Fully permitted, Feasibility study partially developed mine underway FY20 capital expenditure Final investment decision guidance of US$11M expected
Slide 35: FY19 summary
FY19 summary Underlying earnings Free cash flow(a) Underlying EBITDA US$992M US$1B US$2.2B Underlying earnings per share Net cash balance Operating margin 34% US 19.7 cents per share US$504M Final ordinary dividend US 2.8 cents per share Capital management program South Africa Energy Coal expanded b
Slide 36: Supplementary Information
Supplementary Information
Slide 37: Earnings adjustments
Earnings adjustments FY19 FY18 Earnings adjustments23 US$M US$M Adjustments to Underlying EBIT Significant items - (31) Exchange rate (gains)/losses on restatement of monetary items 3 (15) Impairment losses 504 - Fair value (gains)/losses on non-trading derivative instruments and other investments 3
Slide 38: Underlying income tax expense
Underlying income tax expense FY19 FY18 Underlying income tax expense reconciliation and Underlying effective tax rate23 US$M US$M Underlying EBIT 1,440 1,774 Include: Underlying net finance cost (118) (123) Remove: Share of profit/(loss) of equity accounted investments (450) (491) Underlying profit
Slide 39: Underlying net finance cost
Underlying net finance cost FY19 FY18 Underlying net finance cost reconciliation23 US$M US$M Unwind of discount applied to closure and rehabilitation provisions (103) (105) Finance lease interest (47) (52) Other 32 34 Underlying net finance cost (118) (123) Add back earnings adjustment for exchange
Slide 40: Closure provisions
Closure provisions Closure and rehabilitation FY19 FY18 Profit and loss impact (+US$106M) Balance provisions by operation sheet24 (South32 share) US$M US$M (+US$90M) South Africa Energy Coal 756 739 90 103 8 11 Americas Worsley Alumina 408 295 Americas Hillside Aluminium 209 191 Cannington 164 154 A
Slide 41: Capital expenditure guidance
Capital expenditure guidance Capital expenditure (South32’s share) US$M FY19 FY20e Worsley Alumina 57 60 Brazil Alumina 26 35 Hillside Aluminium 19 23 Mozal Aluminium 19 12 Illawarra Metallurgical Coal 133 185 Australia Manganese 65 64 South Africa Manganese 30 26 Cerro Matoso 32 55 Cannington 55 55
Slide 42: Earning sensitivities
Earning sensitivities EBIT impact +/- 10% Estimated impact on FY20e Underlying EBIT of a 10% change in commodity prices or currency(a) US$M Alumina(b) 226 Aluminium(b) 202 Manganese ore(c) 127 Metallurgical coal 114 Energy coal 76 Nickel 37 Manganese alloy(c) 21 Lead 17 Silver 15 Zinc 12 Australian
Slide 43: Hermosa Resources
Hermosa Resources Mineral Resources for the Taylor Deposit as at 31 May 2019 in 100% terms (a) Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Ore Type Mt(b) % Zn % Pb g/t Ag Mt(b) % Zn % Pb g/t Ag Mt(b) % Zn % Pb g/t Ag Mt(b) % Zn % Pb g/t A
Slide 44: Footnotes
Footnotes 1. All as at 30 June 2019. FY19 information is unaudited. 2. Operating margin comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue. 3. The FY19 results reflect the Group’s adoption of AASB 15 Revenue from Contracts with
Slide 45: Slide 45