Financial Results & Outlook Half Year 31 Dec2018
14 February 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 Limited
Financial Results and Outlook Half Year ended 31 December 2018
South32 delivers earnings growth, reshapes portfolio and continues shareholder returns
"Record production at Australia Manganese, strong operating performance more broadly and higher commodity prices delivered a 17 per cent increase in Profit after tax for the half year, while Underlying earnings per share grew by 20 per cent as we continued to benefit from our on-market share buy-back program.
"Our strong start to the year means that our production guidance is unchanged for all of our operations with the exception of Illawarra Metallurgical Coal where we have upgraded guidance by 7 per cent. We have also lowered our unit cost guidance as we have maintained operating discipline and benefited from a stronger US dollar.
"We continued to reshape our portfolio by acquiring the high-grade Hermosa resource and a 50% interest in and operatorship of the Eagle Downs Metallurgical Coal project during the period. We are also progressing our early stage exploration projects and remain on track to divest South Africa Energy Coal with binding bids expected by 30 June 2019.
"We are well positioned for the second half of the year, with a net cash balance of US$678M and an improving outlook for production and costs. This strong position has allowed us to return US$511M to shareholders in respect of the period with today's declaration of a US$258M fully franked interim dividend and an US$86M fully franked special dividend.
"Having established a strong track record, we will continue to return any excess capital to shareholders in a timely and efficient manner by monitoring our financial position within the context of the prevailing macro-economic environment and our capital management framework. This will involve the continuation of our existing US$1B capital management program with the recommencement of our on-market share buy-back following release of our financial results."
Graham Kerr, South32 CEO
|
Financial highlights |
|
|
|
|
US$M |
H1 FY19 |
H1 FY18 |
% Change |
|
Revenue(1) |
3,811 |
3,494 |
9% |
|
Profit/(loss) |
908 |
673 |
35% |
|
Profit/(loss) after tax |
635 |
543 |
17% |
|
Basic earnings per share (US cents)(2) |
12.5 |
10.5 |
19% |
|
Ordinary dividends per share (US cents)(3) |
5.1 |
4.3 |
19% |
|
Special dividends per share (US cents)(4) |
1.7 |
3.0 |
(43)% |
|
Other financial measures |
|
|
|
|
Underlying EBITDA(5) |
1,305 |
1,087 |
20% |
|
Underlying EBITDA margin(6) |
38.3% |
35.7% |
2.6% |
|
Underlying EBIT(5) |
925 |
724 |
28% |
|
Underlying EBIT margin(7) |
26.9% |
23.7% |
3.2% |
|
Underlying earnings(5) |
642 |
544 |
18% |
|
Basic Underlying earnings per share (US cents)(2) |
12.6 |
10.5 |
20% |
|
ROIC(8) |
13.9% |
12.1% |
1.8% |
|
Ordinary shares on issue (million) |
5,051 |
5,181 |
(2.5)% |
Safety
We are working hard to create a workplace where we can guarantee that everyone goes home safe and well at the end of every shift. In order to make this breakthrough we are creating an inclusive workplace where all work is well-designed and we continuously improve and learn. Our Total Recordable Injury Frequency (TRIF)(9)(10) declined from 5.1 to 4.8 per million hours worked in H1 FY19.
Performance summary
The Group's statutory profit after tax increased by 17% to US$635M in H1 FY19, Underlying earnings increased by 18% (or US$98M) to US$642M and basic Underlying earnings per share increased by 20% to US12.6 cents per share as we benefitted from our on-market share buy-back program. This significant increase in profitability was driven by strong production, higher commodity prices and disciplined cost control.
Following our strong start to the year and a favourable movement in currency markets, we have lowered FY19 Operating unit cost guidance for the majority of operations, while production guidance for Illawarra Metallurgical Coal has been increased by 7% to 6.5Mt.We have also lowered Capital expenditure(11) guidance, including equity accounted investments (EAI), by 9% to US$762M to reflect the reclassification of US$20M of planned exploration expenditure at Hermosa to capitalised exploration, the appreciation of the US dollar and a lower rate of spend in H1 FY19 (US$349M).
Specific highlights included:
|
● |
A 106% increase in production at Illawarra Metallurgical Coal as the Appin colliery continued to ramp-up towards historical rates; |
|
● |
Record ore production at Australia Manganese as the primary circuit maintained high utilisation rates and the Premium Concentrate Ore (PC02) circuit operated at 120% of design capacity; |
|
● |
The commencement of several improvement initiatives at Worsley Alumina that are expected to support a sustainable increase in production to nameplate capacity of 4.6Mt (100% basis) ahead of future de-bottlenecking activities; |
|
● |
Mineração Rio do Norte S.A (MRN) partner approval to undertake a pre-feasibility study for a project that has the potential to extend the life of the bauxite mine by more than 20 years(12) at a relatively low capital cost; |
|
● |
The acquisition of the remaining 83% interest in Arizona Mining(13) for US$1.4B (including transaction costs), which adds the Hermosa project's high grade zinc-lead-silver resource(14) and a prospective land package to our portfolio; and |
|
● |
The commencement of a feasibility study at Eagle Downs Metallurgical Coal, following our acquisition of a 50% interest in the project and assumption of operating control for US$106M(15). |
Subsequent to period end we also elected to maintain our option with Trilogy Metals Inc. (TSX:TMQ) for the third and final year, which retains our right to earn a 50% interest in the Upper Kobuk Mineral projects in Alaska by committing approximately US$150M to a 50:50 joint venture by 31 January 2020.
We finished the period with a net cash balance of US$678M having generated free cash flow from operations, including distributions from our manganese EAI, of US$718M. Our strong financial position and disciplined approach to capital management has allowed us to return US$511M to shareholders in respect of the period, including:
|
● |
A US$258M fully franked interim dividend, which we have resolved to pay in April in accordance with our dividend policy which seeks to return a minimum 40% of Underlying earnings in each six month period; |
|
● |
An US$86M fully franked special dividend, which we have also resolved to pay in April; and |
|
● |
The continuation of our on-market share buy-back program whereby we purchased 68M shares at an average price of A$3.39 per share for a cash consideration of US$167M. |
With payment of this special dividend we will have completed 87% of our US$1B capital management program with the remaining US$127M scheduled to be returned to shareholders by 10 April 2019, depending on market liquidity and value. Having established a strong track record, we will continue to return any excess capital to shareholders in a timely and efficient manner by monitoring our financial position within the context of the prevailing macroeconomic environment and our capital management framework.
Earnings
The Group's statutory profit after tax increased by US$92M (or 17%) to US$635M in H1 FY19. Consistent with our accounting policies, various items are excluded from the Group's statutory profit to derive Underlying earnings including: losses on fair value movements of non-trading derivative instruments and other investments (US$28M pre-tax); exchange rate gains associated with the Group's non US dollar denominated net debt (US$21M pre-tax); the tax expense for all pre-tax earnings adjustments and exchange rate variations on tax balances (US$11M), and profit associated with earnings adjustments included in our EAI (US$11M). Further information on these earnings adjustments is included further on.
On this basis, the Group generated Underlying EBITDA of US$1.3B for an operating margin of 38% as stronger volumes, primarily at Illawarra Metallurgical Coal, and higher average realised prices underpinned a US$300M increase in sales revenue, excluding third party products. The Group's Operating unit costs also benefitted from weaker producer currencies, however total costs rose with higher production and price-linked royalties, elevated raw material costs across our aluminium value chain and an increase in maintenance costs at Worsley Alumina. Depreciation and amortisation also increased by a modest US$17M to US$380M, meaning that Underlying EBIT increased by US$201M (or 28%) to US$925M. This higher level of profitability, a change in our geographic earnings mix and permanent differences led to a US$103M (or 85%) increase in our Underlying income tax expense to US$224M. As a result, Underlying earnings increased by US$98M (or 18%) to US$642M.
|
Profit/(loss) to Underlying EBITDA reconciliation |
|
|
|
US$M |
H1 FY19 |
H1 FY18 |
|
Profit/(loss) |
908 |
673 |
|
Earnings adjustments to derive Underlying EBIT |
17 |
51 |
|
Underlying EBIT |
925 |
724 |
|
Depreciation and amortisation |
380 |
363 |
|
Underlying EBITDA |
1,305 |
1,087 |
|
|
|
|
|
Profit/(loss) after tax to Underlying earnings reconciliation |
|
|
|
US$M |
H1 FY19 |
H1 FY18 |
|
Profit/(loss) after tax |
635 |
543 |
|
Earnings adjustments to derive Underlying EBIT |
17 |
51 |
|
Earnings adjustments to derive Underlying net finance cost |
(21) |
11 |
|
Earnings adjustments to derive Underlying income tax expense |
11 |
(61) |
|
Underlying earnings |
642 |
544 |
Earnings analysis
The following key factors influenced Underlying EBIT in H1 FY19, relative to H1 FY18.
(The reconciliation of movements in Underlying EBIT graph can be found within the National Storage Mechanism version of the release)
|
Earnings analysis |
US$M |
Commentary |
|
H1 FY18 Underlying EBIT |
724 |
|
|
Change in sales price |
223 |
|
|
|
|
Higher average realised prices: Alumina (+US$175M) Manganese ore (+US$88M) Energy coal (+US$39M) Lower average realised prices: Precious and base metals (-US$62M) |
|
Treatment & refining charges |
- |
Net impact from reclassifying (AASB 15)(19) Cannington's treatment and refining charges |
|
Net impact of price-linked costs
|
(116) |
|
|
|
LME-linked electricity costs at Hillside Aluminium (+US$5M) Smelter raw material costs (-US$46M), including pitch and coke Distribution costs and diesel price (-US$26M) Royalties (-US$25M, volume and price) Caustic soda prices at Worsley Alumina and Brazil Alumina (-US$12M) Bauxite costs at Brazil Alumina (-US$12M) |
|
|
Change in exchange rates |
128 |
|
|
|
|
Australian dollar (+US$70M) South African rand (+US$42M) Brazilian real (+US$14M) |
|
Change in inflation |
(68) |
|
|
|
|
Southern Africa (-US$43M) Australia (-US$17M) |
|
Change in sales volume |
216 |
|
|
|
|
Illawarra Metallurgical Coal (+US$327M) Hillside Aluminium (+US$35M) Australia Manganese (+US$29M) South Africa Energy Coal (-US$134M) Mozal Aluminium (-US$40M) |
|
Controllable costs |
(160) |
|
|
|
|
Hillside Aluminium (-US$78M, primarily inventory movements) Worsley Alumina (-US$38M, primarily maintenance) Illawarra Metallurgical Coal (-US$28M, primarily volume) Brazil Alumina (-US$16M, primarily inventory movements) |
|
Other |
15 |
|
|
|
|
EBIT on third party product (+US$23M) Depreciation and amortisation (-US$18M) |
|
Interest & tax (EAI) |
(37) |
|
|
|
Stronger profitability in our jointly controlled manganese operations |
|
|
H1 FY19 Underlying EBIT |
925 |
|
Net finance cost
The Group's Underlying net finance cost, excluding EAI, was US$59M in H1 FY19, which primarily reflects the unwinding of the discount applied to our closure and rehabilitation provisions (US$52M), finance lease interest (US$25M) and interest on our net cash balances (US$22M).
|
Underlying net finance cost reconciliation |
|
|
|
US$M |
H1 FY19 |
H1 FY18 |
|
Unwind of discount applied to closure and rehabilitation provisions |
(52) |
(52) |
|
Finance lease interest |
(25) |
(27) |
|
Other |
18 |
20 |
|
Underlying net finance cost |
(59) |
(59) |
|
Add back earnings adjustment for exchange rate variations on net debt |
21 |
(11) |
|
Net finance cost |
(38) |
(70) |
Tax expense
The Group's Underlying income tax expense, which excludes tax associated with EAI, was US$224M for an Underlying effective tax rate(20) (ETR) of 37.3% in H1 FY19 (H1 FY18: 28.0%). The increase in ETR reflects the differing tax rates that our operations are exposed to and the change in our geographic earnings mix, and the disproportionate effect of intragroup agreements and other permanent differences when margins are compressed or losses are incurred in specific jurisdictions. The primary corporate tax rates applicable to the Group for H1 FY19 include: Australia 30%, South Africa 28%, Colombia 37%(21), Mozambique 0%(21) and Brazil 34%.
The Underlying income tax expense for our manganese EAI was US$172M, including royalty related taxation of US$42M at GEMCO (Australia Manganese), for an Underlying ETR of 38.8% (H1 FY18: 36.2%).
|
Underlying income tax expense reconciliation and Underlying ETR |
|
|
|
US$M |
H1 FY19 |
H1 FY18 |
|
Underlying EBIT |
925 |
724 |
|
Include: Underlying net finance cost |
(59) |
(59) |
|
Remove: Share of profit/(loss) of equity accounted investments |
(265) |
(232) |
|
Underlying profit/(loss) before tax |
601 |
433 |
|
Income tax expense |
235 |
60 |
|
Tax effect of earnings adjustments to Underlying EBIT |
5 |
23 |
|
Tax effect of earnings adjustments to net finance cost |
(7) |
4 |
|
Exchange rate variations on tax balances |
(9) |
34 |
|
Underlying income tax expense |
224 |
121 |
|
Underlying effective tax rate |
37.3% |
28.0% |
Cash flow
The Group's free cash flow from operations, excluding EAI, was US$456M in H1 FY19. Working capital increased by US$93M as we established inventories at Illawarra Metallurgical Coal ahead of two longwall moves in Q3 FY19 and the timing of shipments impacted sales at Mozal Aluminium. Provisions and other liabilities also declined as we continued to invest in progressive rehabilitation at South Africa Energy Coal. These impacts were partially offset by movements in receivables and payables, with no change to our payment terms with customers or suppliers. Our debtor days remained broadly unchanged at 22.
|
Working capital movement reconciliation |
|
|
US$M |
Movement |
|
Trade and other receivables |
82 |
|
Inventories |
(108) |
|
Trade and other payables |
50 |
|
Provisions and other liabilities |
(117) |
|
Working capital movement |
(93) |
Total capital expenditure(11), excluding EAI, increased by US$104M to US$306M in H1 FY19 as Major project activity ramped up at the Klipspruit Life Extension (KPSX) project(22) and preliminary work was undertaken to progress the Hermosa project following the acquisition of Arizona Mining in August 2018. Total capital expenditure included:
|
● |
Sustaining capital expenditure, comprising Stay-in-business, Minor discretionary and Deferred stripping (including underground development) of US$206M (H1 FY18: US$195M); and |
|
● |
Major project capital expenditure of US$90M (H1 FY18: US$4M) relating to the KPSX US$55M), Hermosa (US$33M) and Eagle Downs Metallurgical Coal (US$2M) projects. |
The purchase of intangibles and the capitalisation of exploration expenditure accounted for a further US$10M (H1 FY18: US$3M).
Total capital expenditure associated with EAI increased by US$24M to US$53M during H1 FY19 as we invested in additional tailings storage capacity at Australia Manganese.
Total capital expenditure, including EAI, in H1 FY19 was US$359M (H1 FY18: US$231M).
|
Free cash flow from operations, excluding equity accounted investments |
|
|
|
US$M |
H1 FY19 |
H1 FY18 |
|
Profit/(loss) |
908 |
673 |
|
Non-cash items |
429 |
418 |
|
(Profit)/loss from equity accounted investments |
(276) |
(232) |
|
Change in working capital |
(93) |
(421) |
|
Cash generated |
968 |
438 |
|
Total capital expenditure, excluding equity accounted investments, including intangibles and capitalised exploration |
(306) |
(202) |
|
Operating cash flows before financing activities and tax, and after capital expenditure |
662 |
236 |
|
Interest (paid)/received |
1 |
(3) |
|
Income tax (paid)/received |
(207) |
(181) |
|
Free cash flow from operations |
456 |
52 |
We also received (net) distributions totalling US$262M from our manganese EAI in H1 FY19, comprising dividends and capital returns totalling US$286M and a modest drawdown in shareholder loans (-US$24M).
Balance sheet, dividends and capital management
While the Group generated free cash flow from operations, including net distributions from EAI, of US$718M (H1 FY18: US$290M), our net cash balance decreased by US$1.4B to US$678M at 31 December 2018 (30 June 2018: US$2.0B) as we funded the Arizona Mining and Eagle Downs Metallurgical Coal transactions out of our cash reserves for a combined investment of US$1.5B. We also paid our final shareholder dividend in respect of FY18 of US$316M and directed US$167M towards our on-market share buy-back program as we purchased 68M shares at an average price of A$3.39 per share.
|
Net cash/(debt) |
|
|
|
US$M |
H1 FY19 |
FY18 |
|
Cash and cash equivalents |
1,565 |
2,970 |
|
Finance leases |
(553) |
(570) |
|
Other interest bearing liabilities |
(334) |
(359) |
|
Net cash/(debt) |
678 |
2,041 |
Demonstrating the disciplined and flexible approach we are taking to our capital management program, our Board resolved to pay a fully franked interim dividend of US$258M, representing 40% of Underlying earnings in H1 FY19, and a fully franked special dividend of US$86M. With payment of this special dividend we will have completed 87% of our US$1B capital management program with the remaining US$127M scheduled to be returned to shareholders by 10 April 2019, depending on market liquidity and value.
Our capital management framework remains unchanged and we continue to believe that a combination of high operating leverage and undue financial leverage delivers a sub-optimal outcome for shareholders. With the declaration of our interim and special dividends, this approach will allow us to return US$2.4B to shareholders in respect of the last three year period, equivalent to 20% of our market capitalisation(23). Having established this strong track record, we will continue to return any excess capital to shareholders in a timely and efficient manner by monitoring our financial position within the context of the prevailing macroeconomic environment and our capital management framework.
Consistent with our commitment to maintain an investment grade credit rating, Standard and Poor's and Moody's reaffirmed their respective BBB+ and Baa1 credit ratings for the Group.
|
Dividends announced |
|
|
|
|
|
Period |
Dividend per share (US cents) |
US$M |
Franking |
Pay-out ratio |
|
H1 FY18 |
4.3 |
223 |
100% |
41% |
|
February 2018 special dividend |
3.0 |
155 |
81% |
NA |
|
H2 FY18 |
6.2 |
317 |
100% |
40% |
|
H1 FY19 |
5.1 |
258 |
100% |
40% |
|
February 2019 special dividend |
1.7 |
86 |
100% |
NA |
South32 shareholders registered on the South African branch register will not be able to dematerialise or rematerialise their shareholdings between 6 and 8 March 2019 (both dates inclusive), nor will transfers to/from the South African branch register be permitted between 28 February and 8 March 2019 (both dates inclusive).
Details of the currency exchange rates applicable for the dividend will be announced to the relevant stock exchanges. Further dividend information is available on our website (www.south32.net).
South32 American Depositary Receipts (ADRs) each represent five fully paid ordinary shares in South32 and ADR holders will receive dividends accordingly, subject to the terms of the Depositary Agreement.
|
Dividend timetable |
Date |
|
Announce currency conversion into rand |
1 March 2019 |
|
Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE) |
5 March 2019 |
|
Ex-dividend date on the JSE |
6 March 2019 |
|
Ex-dividend date on the ASX and London Stock Exchange (LSE) |
7 March 2019 |
|
Record date (including currency election date for ASX) |
8 March 2019 |
|
Payment date |
4 April 2019 |
Outlook
Production
The Group's production volumes are expected to rise by 5%(24) in FY19, or 7%(24) on a per share basis as we benefit from our ongoing on-market share buy-back program.
|
Production guidance (South32's share)(18) |
|||||
|
|
FY18 |
H1 FY19 |
FY19e |
FY20e |
Key guidance assumptions |
|
Worsley Alumina |
|
|
|
|
Unchanged |
|
Alumina production (kt) |
3,764 |
1,906 |
3,965 |
3,965 |
Improvement in calciner availability in H2 FY19, notwithstanding maintenance scheduled for Q3 FY19 |
|
Brazil Alumina (non-operated) |
|
|
|
|
Unchanged |
|
Alumina production (kt) |
1,304 |
636 |
1,355 |
1,370 |
Introduction of package boilers in H2 FY19 to support the ramp-up of the De-bottlenecking Phase One project |
|
Hillside Aluminium |
|
|
|
|
Unchanged (subject to load-shedding) |
|
Aluminium production (kt) |
712 |
360 |
720 |
720 |
Pot relining cycle to reach its peak in FY19 To test technical capacity |
|
Mozal Aluminium |
|
|
|
|
Unchanged (subject to load-shedding) |
|
Aluminium production (kt) |
271 |
135 |
269 |
273 |
Pot relining cycle to reach its peak in FY19 AP3XLE energy efficiency project to add production from FY20 |
|
South Africa Energy Coal(25) |
|
|
|
|
Unchanged |
|
Total coal production (kt) |
27,271 |
12,171 |
29,000 |
30,300 |
Domestic volumes to benefit from the sale of lower quality stockpiled material and a new shift pattern at Khutala Export volumes to increase following the recommissioning of the Klipspruit dragline in January 2019 |
|
Domestic coal production (kt) |
15,154 |
7,731 |
17,500 |
16,900 |
|
|
Export coal production (kt) |
12,117 |
4,440 |
11,500 |
13,400 |
|
|
Illawarra Metallurgical Coal |
|
|
|
|
FY19 guidance increased by 7% |
|
Total coal production (kt) |
4,244 |
3,840 |
↑6,500 |
7,000 |
Two longwall moves scheduled for Q3 FY19 A substantial uplift in development rates at Appin is required to sustain the operation of two longwalls in parallel from H2 FY20 |
|
Metallurgical coal production (kt) |
3,165 |
3,082 |
↑5,200 |
5,800 |
|
|
Energy coal production (kt) |
1,079 |
758 |
↑1,300 |
1,200 |
|
|
Australia Manganese |
|
|
|
|
Unchanged (subject to market demand) |
|
Manganese ore production (kwmt) |
3,396 |
1,811 |
3,350 |
Subject to demand |
Wet season expected to impact production across H2 FY19 |
|
South Africa Manganese |
|
|
|
|
Unchanged (subject to market demand) |
|
Manganese ore production (kwmt) |
2,145 |
1,075 |
2,050 |
Subject to demand |
Dependent on the economics of higher cost trucking |
|
Cerro Matoso |
|
|
|
|
Unchanged |
|
Ore to kiln (kt) |
2,722 |
1,401 |
2,750 |
2,500 |
Continued use of lower grade stockpiled ore Planned furnace outage in H2 FY20 |
|
Payable nickel production (kt) |
43.8 |
21.1 |
40.5 |
35.6 |
|
|
Cannington |
|
|
|
|
Unchanged (subject to review) |
|
Ore processed (kdmt) |
2,355 |
1,244 |
2,400 |
2,500 |
Guidance is unchanged, but remains subject to review pending our assessment of the impact to logistics infrastructure resulting from the floods in North Queensland |
|
Payable zinc equivalent production (kt)(26) |
187.2 |
95.2 |
188.1 |
187.1 |
|
|
Payable silver production (koz) |
12,491 |
6,067 |
11,750 |
10,850 |
|
|
Payable lead production (kt) |
104.4 |
48.3 |
98.0 |
94.7 |
|
|
Payable zinc production (kt) |
41.3 |
26.3 |
51.0 |
57.3 |
|
The denotation (e) refers to an estimate or forecast year.
Costs and capital expenditure
Operating unit cost performance
Broad appreciation of the US dollar and robust operating performance ensured that Operating unit costs were well controlled at the majority of our upstream operations in H1 FY19, however underlying inflationary pressure from raw materials continued to impact our aluminium value chain with the greatest pressure being felt at our smelters.
|
Operating unit cost(18)(27) |
||||||
|
|
H1 FY18 |
H2 FY18 |
H1 FY19 |
H1 FY19 adjusted(a) |
FY19 prior guidance(b) |
Commentary H1 FY19 performance to guidance |
|
(US$/t) |
224 |
247 |
233 |
237 |
230 |
Lower volumes, a skew in caustic soda costs as high priced inventory was consumed and additional maintenance activity, partially offset by depreciation of the Australian dollar |
|
(US$/t) |
234 |
269 |
291 |
NA |
NA |
Depreciation of the Brazilian real, offset by a skew in caustic soda costs as high priced inventory was consumed, lower volumes and higher maintenance and bauxite costs |
|
|
|
|
|
|
|
|
|
(US$/t) |
1,680 |
1,962 |
2,161 |
NA |
NA |
Higher raw material inputs costs, primarily alumina, partially offset by lower LME-linked electricity costs |
|
|
|
|
|
|
|
|
|
(US$/t) |
1,694 |
1,945 |
1,938 |
NA |
NA |
Largely unchanged from H2 FY18 |
|
South Africa Energy Coal(25) |
||||||
|
(US$/t) |
36 |
37 |
38 |
40 |
41 |
Depreciation of the South African rand, noting that FY19 guidance includes a skew in export production to H2 FY19 |
|
(US$/t) |
149 |
136 |
87 |
90 |
105 |
Significant improvement in longwall performance and depreciation of the Australian dollar, noting that FY19 guidance includes two longwall moves in Q3 FY19 |
|
(US$/dmtu) |
1.55 |
1.72 |
1.51 |
1.54 |
1.63 |
Depreciation of the Australian dollar and record production with the PC02 circuit operating at ~120% of design capacity |
|
(US$/dmtu) |
2.31 |
2.74 |
2.63 |
2.65 |
2.56 |
Greater utilisation of high cost trucking and higher price-linked royalties, partially offset by depreciation of the South African rand |
|
(US$/t)(c) |
119 |
137 |
136 |
139 |
136 |
Depreciation of the Colombian peso and higher volumes, noting FY19 guidance reflects a production skew to H1 FY19 |
|
(US$/lb) |
3.41 |
3.92 |
4.05 |
4.15 |
4.21 |
|
|
(US$/t)(d) |
170 |
130 |
120 |
128 |
131 |
Depreciation of the Australian dollar and higher mill throughput, noting FY19 guidance reflects a production skew to H1 FY19 |
(a) H1 FY19 adjusted is restated to reflect price and foreign exchange rate assumptions used for FY19 prior guidance (refer to footnote 28).
(b) FY19 prior guidance includes commodity price and foreign exchange rate forward curves or our internal expectations (refer to footnote 28).
(c) US dollar per tonne of ore to kiln.
(d) US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact Operating unit costs as related marketing costs may change. The H1 FY19 results reflect the Group's adoption of AASB 15 Revenue from Contracts with Customers, with revenue recognised net of treatment and refining charges (previously recognised on a gross basis with treatment and refining charges included as a separate expense). These changes result in lower realised prices and Operating unit costs, with no net impact to earnings. FY19 prior guidance has been adjusted from US$147/t to US$131/t to reflect these changes. Prior periods have not been restated to reflect these changes.
Operating unit cost guidance
Updated FY19 Operating unit cost guidance primarily reflects revised currency and price assumptions as production guidance has been maintained for the majority of our operations. Illawarra Metallurgical Coal is the exception as an improvement in longwall performance has underpinned a 7% increase to prior production guidance. That being said, the relative skew in production to either H1 FY19 or H2 FY19 for a number of operations will have a meaningful impact on half-on-half unit cost performance. Separately, Operating unit costs at our refineries will benefit from lower raw material costs in H2 FY19 as higher priced material that was held in inventory was consumed in H1 FY19.
|
Operating unit cost guidance by upstream operation(18)(27) |
||||
|
|
FY19 prior guidance(a) |
FY19 adjusted guidance(b) |
FY19 new guidance(c) |
Commentary |
|
Worsley Alumina |
||||
|
(US$/t) |
230 |
216 |
227 |
Depreciation of the Australian dollar, partially offset by additional expenditure to improve calciner performance and sustainably achieve nameplate capacity Caustic soda costs and consumption rates to decline in H2 FY19 |
|
South Africa Energy Coal(25) |
||||
|
(US$/t) |
41 |
39 |
38 |
Depreciation of the South African rand Production to recover in H2 FY19 with recommissioning of the Klipspruit dragline |
|
Illawarra Metallurgical Coal |
||||
|
(US$/t) |
105 |
102 |
97 |
Upgraded production guidance and depreciation of the Australian dollar Two longwall moves scheduled for H2 FY19 |
|
Australia Manganese ore (FOB) |
||||
|
(US$/dmtu) |
1.63 |
1.59 |
1.57 |
Depreciation of the Australian dollar and an improvement in equipment productivity H2 FY19 to be impacted by the wet season |
|
South Africa Manganese ore (FOB) |
||||
|
(US$/dmtu) |
2.56 |
2.55 |
2.56 |
Higher price-linked royalties offset by depreciation of the South African rand |
|
Cerro Matoso |
||||
|
(US$/t)(d) |
136 |
139 |
135 |
Depreciation of the Colombian peso, partially offset by costs arising from the recent Constitutional Court of Colombia ruling(30) |
|
(US$/lb) |
4.21 |
4.02 |
4.12 |
|
|
Cannington |
||||
|
(US$/t)(e) |
131 |
127 |
129 |
Depreciation of the Australian dollar, partially offset by additional mining and rehabilitation activity |
(a) FY19 prior guidance includes commodity price and foreign exchange rate forward curves or our internal expectations (refer to footnote 28).
(b) FY19 adjusted guidance is FY19 prior guidance, restated to reflect price and foreign exchange rate assumptions used for FY19 new guidance (refer to footnote 29).
(c) FY19 new guidance includes commodity price and foreign exchange rate forward curves or our internal expectations for the remainder of FY19, as at January 2019 (refer to footnote 29).
(d) US dollar per tonne of ore to kiln.
(e) US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact Operating unit costs as related marketing costs may change. FY19 Prior guidance has been adjusted from US$147/t to US$131/t to reflect the Group's adoption of AASB 15 Revenue from Contracts with Customers, with revenue recognised net of treatment and refining charges (previously recognised on a gross basis with treatment and refining charges included as a separate expense). These changes result in lower realised prices and Operating unit costs, with no net impact to earnings.
Other expenditure guidance
FY19 guidance for Group and unallocated costs, excluding greenfield exploration, is unchanged at US$80M (H1 FY19: US$40M). While guidance for greenfield exploration expenditure to progress our early stage projects also remains unchanged at US$41M (H1 FY19: US$8M), we do expect to capitalise US$20M (H1 FY19: US$7M) of exploration expenditure to increase our knowledge of the Hermosa resource(14).
Depreciation and amortisation, and tax expense
Depreciation and amortisation guidance for FY19 is unchanged at approximately US$750M (H1 FY19: US$380M), excluding EAI, and US$85M (H1 FY19: US$44M) for our EAI. From a taxation perspective, our geographic earnings mix will have a significant bearing on our ETR given differing country tax rates, while the impact of intragroup agreements and other permanent differences will continue to be magnified when margins are compressed or losses are incurred in specific jurisdictions. Whilst it is therefore difficult to predict our ETR (excluding EAI), we do expect it to decline in H2 FY19, particularly if the alumina to aluminium price ratio falls.
Capital expenditure guidance
We have lowered FY19 guidance for Sustaining capital expenditure, including EAI, by US$30M to US$545M. This adjustment primarily reflects appreciation of the US dollar, the lower rate of underground development at Illawarra Metallurgical Coal in H1 FY19 and additional expenditure incurred to recover from and mitigate the impact of the Klipspruit dragline incident at South Africa Energy Coal. This incident has been confirmed as an insurable event and we are working through the claim to assess the quantum and timing of any recovery.
Major project capital expenditure guidance for FY19 has been lowered by US$48M to US$217M. This reduction primarily reflects the reclassification of US$20M of expenditure to capitalised exploration at Hermosa, the timing of activity at South Africa Energy Coal's KPSX project and appreciation of the US dollar. The modest reduction in underlying activity at Hermosa from Arizona Mining's preliminary estimate is not expected to have a bearing on the development schedule as the deferral of activity to progress the twin exploration declines does not impact the critical path. Capital expenditure required to progress the Eagle Downs Metallurgical Coal project (US$7M) is also included within guidance for the first time as the transaction was concluded in the period. Major project capital expenditure guidance does not account for the potential progression of the Dendrobium next domain project at Illawarra Metallurgical into final feasibility in H2 FY19.
|
Capital expenditure (South32's share)(11)(18) |
|||
|
US$M |
FY19e prior guidance |
FY19e new guidance |
Commentary |
|
Worsley Alumina |
56 |
60 |
Initiatives to support uplift in production to nameplate |
|
Brazil Alumina |
40 |
32 |
|
|
Hillside Aluminium |
24 |
18 |
|
|
Mozal Aluminium |
18 |
20 |
|
|
South Africa Energy Coal(25) |
66 |
100 |
Recovery from Klipspruit dragline incident in H1 FY19 |
|
Illawarra Metallurgical Coal |
170 |
128 |
Lower rate of underground development in H1 FY19 |
|
Australia Manganese |
75 |
65 |
|
|
South Africa Manganese |
35 |
30 |
|
|
Cerro Matoso |
41 |
37 |
|
|
Cannington |
50 |
55 |
Additional investment in underground development |
|
Sustaining capital expenditure (including EAI) |
575 |
545 |
|
|
Equity accounted adjustment(a) |
(110) |
(95) |
|
|
Sustaining capital expenditure (excluding EAI) |
465 |
450 |
|
|
South Africa Energy Coal(22)(25) |
165 |
140 |
Timing of activity at KPSX |
|
Hermosa |
100 |
70 |
Re-classification of US$20M of expenditure to exploration |
|
Eagle Downs Metallurgical Coal |
- |
7 |
Initial guidance |
|
Major capital expenditure (including EAI) |
265 |
217 |
|
|
Equity accounted adjustment(a) |
- |
- |
|
|
Major capital expenditure (excluding EAI) |
265 |
217 |
|
(a) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese operations on an equity accounted basis.
Operations analysis
A summary of the underlying performance of the Group's operations is presented below and more detailed analysis is presented further on. Unless otherwise stated: all metrics reflect South32's share; Operating unit cost is Revenue less Underlying EBITDA excluding third party sales divided by sales volumes; and Operating cost is Revenue less Underlying EBITDA excluding third party sales.
|
Operations table (South32 share)(18) |
|
|
|
|
|
|
Revenue |
Underlying EBIT |
||
|
US$M |
H1 FY19 |
H1 FY18 |
H1 FY19 |
H1 FY18 |
|
Worsley Alumina |
864 |
668 |
344 |
164 |
|
Brazil Alumina |
312 |
240 |
97 |
47 |
|
Hillside Aluminium |
772 |
734 |
(39) |
120 |
|
Mozal Aluminium |
280 |
326 |
13 |
60 |
|
South Africa Energy Coal(25) |
517 |
622 |
14 |
115 |
|
Illawarra Metallurgical Coal |
574 |
243 |
195 |
(84) |
|
Australia Manganese |
581 |
516 |
352 |
299 |
|
South Africa Manganese |
275 |
228 |
100 |
86 |
|
Cerro Matoso |
244 |
244 |
10 |
41 |
|
Cannington |
223 |
296 |
47 |
72 |
|
Third party products and services(31) |
487 |
463 |
28 |
5 |
|
Inter-segment / Group and unallocated |
(455) |
(342) |
(47) |
(48) |
|
Total |
4,674 |
4,238 |
1,114 |
877 |
|
Equity accounting adjustment(a) |
(863) |
(744) |
(189) |
(153) |
|
South32 Group |
3,811 |
3,494 |
925 |
724 |
(a) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese operations on an equity accounted basis (including third party product).
Worsley Alumina (86% share)
Volumes
Worsley Alumina saleable production increased by 2% (or 41kt) in H1 FY19 to 1,906kt as the refinery benefitted from improved calciner availability in Q2 FY19 and three shipments of stockpiled hydrate were sold opportunistically at alumina equivalent rates. FY19 production guidance remains unchanged at 3,965kt with calciner maintenance scheduled for Q3 FY19.
Operating costs
Operating unit costs increased by 4% in H1 FY19 to US$233/t as additional calciner maintenance was undertaken and the cost of caustic soda increased as higher priced inventory was consumed (H1 FY19: US$535/t, H1 FY18: US$516/t), which more than offset the impact of a weaker Australian dollar.
We have lowered FY19 Operating unit cost guidance by US$3/t to US$227/t with revised exchange rate and raw material price assumptions partially offset by additional maintenance activity that is designed to improve calciner performance and sustainably achieve nameplate capacity. Conversely, caustic soda costs are expected to decline in H2 FY19 as we benefit from the recent reduction in market prices and a fall in consumption rates as the contribution of West Marradong feed rises. Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in, footnote 29.
Financial performance
Underlying EBIT increased by 110% (or US$180M) in H1 FY19 to US$344M. A 29% rise in the average realised price of alumina (+US$188M) and a weaker Australian dollar (+US$23M) were partially offset by additional maintenance costs (-US$10M) and an increase in the price of caustic soda (-US$4M).
The average realised price for alumina sales in H1 FY19 reflected a discount of 9% to the Platts Alumina Index (PAX) on a volume weighted M-1 basis. This discount reflects the structure of specific legacy supply contracts with our Mozal Aluminium smelter that are linked to the LME aluminium price and the elevated alumina to aluminium price ratio in the spot market. All alumina sales to other customers were at market based prices.
Capital expenditure
Sustaining capital expenditure increased by US$3M in H1 FY19 to US$25M and is expected to increase to US$60M in FY19 as we commence several improvement initiatives to support a sustainable increase in production to nameplate capacity of 4.6Mt (100% basis) and continue to invest in additional bauxite residue disposal capacity.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Alumina production (kt) |
1,906 |
1,865 |
|
Alumina sales (kt)(32) |
1,885 |
1,886 |
|
Realised alumina sales price (US$/t)(32) |
458 |
354 |
|
Operating unit cost (US$/t)(27) |
233 |
224 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue |
864 |
668 |
|
Underlying EBITDA |
425 |
246 |
|
Underlying EBIT |
344 |
164 |
|
Net operating assets(a) |
2,871 |
3,028 |
|
Capital expenditure |
25 |
22 |
|
All other capital expenditure |
25 |
22 |
|
Exploration expenditure |
1 |
- |
|
Exploration expensed |
1 |
- |
(a) H1 FY18 reflects balance as at 30 June 2018.
Brazil Alumina (Alumina 36% share, Aluminium 40% share)
Volumes
Brazil Alumina saleable production decreased by 6% (or 40kt) in H1 FY19 to 636kt as unplanned maintenance and power outages impacted performance. FY19 production is expected to approach guidance of 1,355kt with the addition of package boilers designed to support the ramp-up of the De-bottlenecking Phase One project.
Operating costs
Operating unit costs increased by 24% in H1 FY19 to US$291/t as additional maintenance costs were incurred, higher priced caustic soda inventory was consumed and the cost of bauxite supplied by MRN increased as the price reset to reflect the movement in alumina and aluminium prices on a trailing basis.
While specific Operating unit cost guidance is not provided as we are not the operator of the refinery, we do expect some relief from recent inflationary pressure in H2 FY19 given an expected reduction in bauxite and caustic soda costs.
Financial performance
Alumina Underlying EBIT increased by 76% (or US$45M) in H1 FY19 to US$104M as a 36% increase in the average realised price of alumina (+US$84M) was partially offset by lower sales volumes (-US$11M), additional maintenance (-US$4M) and higher bauxite (-US$12M) and caustic soda (-US$8M) costs.
Aluminium Underlying EBIT increased by US$5M in H1 FY19 to a loss of US$7M as an indirect legacy tax obligation was settled and our commitment to purchase electricity from Eletronorte was fulfilled during the prior period following termination of the contract in December 2015.
Capital expenditure
Sustaining capital expenditure increased by US$6M in H1 FY19 to US$16M and is expected to increase to US$32M in FY19 as we invest in additional bauxite residue disposal capacity.
The partners of MRN also agreed to undertake a pre-feasibility study for a project that has the potential to extend the life of the mine by more than 20 years at a relatively low capital cost. MRN has a substantial 503Mt(12) high grade bauxite resource.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Alumina production (kt) |
636 |
676 |
|
Alumina sales (kt)(32) |
619 |
649 |
|
Realised alumina sales price (US$/t)(32) |
504 |
370 |
|
Alumina operating unit cost (US$/t)(27) |
291 |
234 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue |
312 |
240 |
|
Alumina |
312 |
240 |
|
Aluminium |
- |
- |
|
Other income |
- |
41 |
|
Underlying EBITDA |
125 |
76 |
|
Alumina |
132 |
88 |
|
Aluminium |
(7) |
(12) |
|
Underlying EBIT |
97 |
47 |
|
Alumina |
104 |
59 |
|
Aluminium |
(7) |
(12) |
|
Net operating assets/(liabilities)(a) |
662 |
644 |
|
Alumina |
670 |
656 |
|
Aluminium |
(8) |
(12) |
|
Capital expenditure |
16 |
10 |
|
All other capital expenditure |
16 |
10 |
(a) H1 FY18 reflects balance as at 30 June 2018.
Hillside Aluminium (100%)
Volumes
Hillside Aluminium saleable production increased by 1% (or 2kt) in H1 FY19 to 360kt as the smelter continued to test its maximum technical capacity, despite an increase in the frequency of load-shedding events. FY19 production guidance remains unchanged at 720kt, but remains subject to load-shedding.
Operating costs
Operating unit costs increased by 29% in H1 FY19 to US$2,161/t as a significant rise in raw material costs created inflationary pressure across the aluminium industry. Alumina, coke, pitch and aluminium price-linked electricity accounted for 71% of the smelter's cost base in H1 FY19 (H1 FY18: 69%). 108 pots were also relined at a cost of US$233k per pot (H1 FY18: 44 pots at US$196k per pot), while 177 pots are scheduled to be relined across FY19 as we reach a peak in the relining cycle.
While Operating unit cost guidance is not provided, the cost profile of Hillside Aluminium will continue to be heavily influenced by the price of power and raw material inputs, given its highly variable cost base. The smelter sources alumina from our Worsley Alumina refinery with prices linked to the Platts alumina index on an M-1 basis, while its power is sourced from Eskom under long-term contracts. The price of electricity supplied to potlines 1 and 2 is linked to the LME aluminium price and the South African rand/US dollar exchange rate. The price of electricity supplied to potline 3 is South African rand based.
Financial performance
Underlying EBIT decreased by 133% (or US$159M) in H1 FY19 to a loss of US$39M as stronger sales volumes (+US$35M) and lower aluminium price-linked power costs (+US$5M) were more than offset by higher raw material input costs (-US$136M), an increase in pot relining costs (-US$16M) and an unfavourable movement in inventory (-US$50M).
Capital expenditure
Sustaining capital expenditure remained largely unchanged in H1 FY19 at US$12M and is expected to increase to US$18M in FY19.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Aluminium production (kt) |
360 |
358 |
|
Aluminium sales (kt)(32) |
360 |
344 |
|
Realised sales price (US$/t)(32) |
2,144 |
2,134 |
|
Operating unit cost (US$/t)(27) |
2,161 |
1,680 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue |
772 |
734 |
|
Underlying EBITDA |
(6) |
156 |
|
Underlying EBIT |
(39) |
120 |
|
Net operating assets(a) |
1,147 |
1,202 |
|
Capital expenditure |
12 |
13 |
|
All other capital expenditure |
12 |
13 |
(a) H1 FY18 reflects balance as at 30 June 2018.
Mozal Aluminium (47.1% share)
Volumes
Mozal Aluminium saleable production decreased by 1% (or 2kt) in H1 FY19 to 135kt as the smelter's operating performance was impacted by an increase in the frequency of load-shedding events. FY19 production guidance remains unchanged at 269kt, subject to load-shedding, whilst the shortfall in sales volumes in H1 FY19 simply reflects timing differences.
Operating costs
Operating unit costs increased by 14% in H1 FY19 to US$1,938/t as a significant rise in raw material input costs created inflationary pressure across the aluminium industry. Alumina, coke and pitch accounted for 53% of the smelter's cost base in H1 FY19 (H1 FY18: 48%). 40(33) pots were also relined across H1 FY19 at a cost of US$219k per pot (H1 FY18: 34(33) pots at US$191k per pot), with 103(33) pots scheduled to be relined in FY19 as we reach a peak in the relining cycle.
While Operating unit cost guidance is not provided, the cost profile of Mozal Aluminium will continue to be heavily influenced by the price of power and raw material inputs, given its highly variable cost base. The smelter sources alumina from our Worsley Alumina refinery with approximately 50% priced as a percentage of the LME aluminium index under a legacy contract and the remainder linked to the Platts alumina index on an M-1 basis, with caps and floors embedded within specific contracts. Its electricity requirements are largely met by hydroelectric power that is generated by Hidroeléctrica de Cahora Bassa (HCB). HCB delivers power into Eskom's South African grid and Mozal Aluminium sources electricity via the Mozambique Transmission Company (Motraco) under a long-term contract. The price of electricity is South African rand based with the rate of escalation linked to a South Africa domestic producer price index.
Financial performance
Underlying EBIT decreased by 78% (or US$47M) in H1 FY19 to US$13M as lower sales volumes (-US$40M) and higher raw material costs (-US$29M) were partially offset by a build in finished goods (+US$28M).
Capital expenditure
Sustaining capital expenditure was unchanged in H1 FY19 at US$8M as the US$18M AP3XLE energy efficiency project commenced the roll out of its pot relining program ahead of schedule. The project is expected to deliver a circa 5% (or 10kt pa) increase in annual production with no associated increase in power consumption. First incremental production is anticipated in FY20, with the full benefit to be realised by FY24. Sustaining capital expenditure of US$20M is anticipated in FY19.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Aluminium production (kt) |
135 |
137 |
|
Aluminium sales (kt)(32) |
129 |
147 |
|
Realised sales price (US$/t)(32) |
2,171 |
2,218 |
|
Operating unit cost (US$/t)(27) |
1,938 |
1,694 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue |
280 |
326 |
|
Underlying EBITDA |
30 |
77 |
|
Underlying EBIT |
13 |
60 |
|
Net operating assets(a) |
526 |
553 |
|
Capital expenditure |
8 |
8 |
|
All other capital expenditure |
8 |
8 |
(a) H1 FY18 reflects balance as at 30 June 2018.
South Africa Energy Coal (92% share(25))
Volumes
South Africa Energy Coal saleable production decreased by 9% (or 1,252kt) in H1 FY19 to 12.2Mt as export production was impacted by the dragline incident at Klipspruit in August 2018. Conversely, domestic production benefitted from the commencement of a contract to sell lower quality stockpiled product in Q1 FY19.
FY19 production guidance remains unchanged at 29Mt (17.5Mt domestic, 11.5Mt export), with the recommissioning of the Klipspruit dragline in January 2019 underpinning an increase in export volumes in H2 FY19. Domestic volumes are also expected to benefit from a further increase in the sale of lower quality stockpiled product and the implementation of a new shift pattern at Khutala.
Operating costs
Operating unit costs increased by 6% in H1 FY19 to US$38/t as the impact of the extended dragline outage more than offset a weaker South African rand.
We have lowered FY19 Operating unit cost guidance by US$3/t to US$38/t to reflect the dragline's return to service ahead of schedule and revised exchange rate and price assumptions. Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in footnote 29.
Financial performance
Underlying EBIT decreased by 88% (or US$101M) in H1 FY19 to US$14M as lower sales volumes (-US$134M), a drawdown in inventory associated with the extended dragline outage (-US$10M), higher depreciation (-US$10M) and general inflation (-US$24M) were only partially offset by higher average realised prices (+US$39M), a volume related reduction in rail costs (+US$22M) and a weaker South African rand (+US$18M).
Capital expenditure
Sustaining capital expenditure decreased by US$20M in H1 FY19 to US$48M. FY19 guidance has been increased by US$34M to US$100M as additional expenditure has been incurred to recover from and mitigate the impact of the Klipspruit dragline incident. This incident has been confirmed as an insurable event and we are working through the claim to assess the quantum and timing of any recovery.
We also invested US$55M in Major project capital expenditure in H1 FY19 to progress the 4.3B(22) South African rand KPSX project, which was approved by the Board in November 2017. The 8Mt per annum brownfield project extends the life of the colliery by more than 20 years(34). The project is approximately 33% complete and remains on schedule and budget, with first production expected in H2 FY19. Major project expenditure of US$140M is expected in FY19.
|
100 per cent terms(25) |
H1 FY19 |
H1 FY18 |
|
Energy coal production (kt) |
12,171 |
13,423 |
|
Domestic sales (kt)(32) |
7,749 |
7,334 |
|
Export sales (kt)(32) |
4,206 |
5,865 |
|
Realised domestic sales price (US$/t)(32) |
22 |
24 |
|
Realised export sales price (US$/t)(32) |
83 |
76 |
|
Operating unit cost (US$/t)(27) |
38 |
36 |
|
100 per cent terms(25) (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue(35) |
517 |
622 |
|
Underlying EBITDA |
58 |
149 |
|
Underlying EBIT |
14 |
115 |
|
Net operating assets/(liabilities)(a) |
75 |
(23) |
|
Capital expenditure |
103 |
72 |
|
Major projects (>US$100M) |
55 |
4 |
|
All other capital expenditure |
48 |
68 |
(a) H1 FY18 reflects balance as at 30 June 2018.
Illawarra Metallurgical Coal (100% share)
Volumes
Illawarra Metallurgical Coal saleable production increased by 106% (or 1,980kt) in H1 FY19 to 3.8Mt as the Dendrobium and Appin longwalls performed strongly. Metallurgical coal stockpiles were also established during H1 FY19 in advance of the two longwall moves scheduled in Q3 FY19. FY19 production guidance has been increased by 7% to 6.5Mt to reflect the strong start to the year.
We also reached agreement with employees covered by the Dendrobium Coal Prep Plant Enterprise Agreement in January 2019, having previously reached agreement with the Dendrobium mine's trades and operators, and Appin deputies during H1 FY19. We continue to renegotiate the remaining labour agreements at Illawarra Metallurgical Coal.
Operating costs
Operating unit costs decreased by 42% in H1 FY19 to US$87/t as the operation benefitted from a substantial increase in sales volumes.
We have lowered FY19 Operating unit cost guidance by US$8/t to US$97/t to reflect the increase in production guidance and revised exchange rate and price assumptions. Notwithstanding this reduction in FY19 guidance, costs are expected to increase in H2 FY19 as a result of the planned longwall moves. Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in footnote 29.
Financial performance
Underlying EBIT increased by US$279M in H1 FY19 to US$195M as stronger sales volumes (+US$327M) and a weaker Australian dollar (+US$20M) were partially offset by an increase in price-linked royalties (-US$22M) and depreciation (-US$18M). The volume related impact on costs (-US$41M) was tempered by the high fixed cost base of the operation.
Capital expenditure
Sustaining capital expenditure increased by US$16M in H1 FY19 to US$56M as underground development progressively recovered at Appin, albeit at a slower rate than planned. A substantial uplift in development rates is required to sustain the operation of two longwalls in parallel from H2 FY20.
Sustaining capital expenditure guidance for FY19 has been reduced by US$42M to US$128M, including underground development of US$75M (US$97M previously).
South32 share |
H1 FY19 |
H1 FY18 |
|
Metallurgical coal production (kt) |
3,082 |
1,282 |
|
Energy coal production (kt) |
758 |
578 |
|
Metallurgical coal sales (kt)(32) |
2,527 |
1,057 |
|
Energy coal sales (kt)(32) |
732 |
603 |
|
Realised metallurgical coal sales price (US$/t)(32) |
207 |
189 |
|
Realised energy coal sales price (US$/t)(32) |
68 |
71 |
|
Operating unit cost (US$/t)(27) |
87 |
149 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue(36) |
574 |
243 |
|
Underlying EBITDA |
292 |
(5) |
|
Underlying EBIT |
195 |
(84) |
|
Net operating assets(a) |
1,382 |
1,408 |
|
Capital expenditure |
56 |
40 |
|
Major projects (>US$100M) |
- |
- |
|
All other capital expenditure |
56 |
40 |
|
Exploration expenditure |
4 |
4 |
|
Exploration expensed |
3 |
4 |
(a) H1 FY18 reflects balance as at 30 June 2018.
Australia Manganese (60% share)
Volumes
Australia Manganese achieved record ore performance in H1 FY19, increasing saleable ore production by 6% (or 110kwmt) to 1,811kwmt. The primary circuit continued to achieve high utilisation rates, while the PC02 circuit operated at approximately 120% of its design capacity, contributing 9% of total production. FY19 production guidance remains unchanged at 3,350kwmt, with the wet season expected to impact production across H2 FY19.
Saleable manganese alloy production decreased by 7% (or 6kt) in H1 FY19 to 76kt as a result of an unplanned outage at one of the four furnaces during Q2 FY19. While the furnace has subsequently returned to service, additional maintenance is planned for H2 FY19.
Operating costs
FOB manganese ore Operating unit costs decreased by 3% in H1 FY19 to US$1.51/dmtu as record performance mitigated a further increase in strip ratio (H1 FY19: 4.1, H1 FY18: 3.6).
We have lowered FY19 Operating unit cost guidance by US$0.06/dmtu to US$1.57/dmtu to reflect the continued improvement in equipment productivity and revised exchange rate and price assumptions. Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in footnote 29.
Financial performance
Underlying EBIT increased by 18% (or US$53M) in H1 FY19 to US$352M as higher realised ore prices (+US$45M), an increase in ore sales volumes (+US$28M) and a weaker Australian dollar (+US$9M) were only partially offset by lower realised alloy prices (-US$9M) and a rise in raw material and freight costs (-US$10M).
Our average realised price for external ore sales in H1 FY19 reflected the high grade 44% manganese lump ore index (CIF China) on a FOB adjusted, volume weighted M-1 basis(37), despite the higher contribution of 40% grade PC02 product to the sales mix.
Capital expenditure
Sustaining capital expenditure increased by US$15M in H1 FY19 to US$36M as we invested in additional tailings capacity. Sustaining capital expenditure of US$65M is anticipated in FY19.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Manganese ore production (kwmt) |
1,811 |
1,701 |
|
Manganese alloy production (kt) |
76 |
82 |
|
Manganese ore sales (kwmt)(38) |
1,740 |
1,612 |
|
External customers |
1,569 |
1,441 |
|
TEMCO |
171 |
171 |
|
Manganese alloy sales (kt)(38) |
76 |
78 |
|
Realised external manganese ore sales price (US$/dmtu, FOB)(38)(39) |
6.59 |
5.96 |
|
Realised manganese alloy sales price (US$/t)(38) |
1,408 |
1,526 |
|
Ore operating unit cost (US$/dmtu)(39)(40) |
1.51 |
1.55 |
|
Alloy operating unit cost (US$/t)(40) |
987 |
910 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue(41) |
581 |
516 |
|
Manganese ore |
490 |
411 |
|
Manganese alloy |
107 |
119 |
|
Intra-segment elimination |
(16) |
(14) |
|
Underlying EBITDA |
382 |
328 |
|
Manganese ore |
350 |
280 |
|
Manganese alloy |
32 |
48 |
|
Underlying EBIT |
352 |
299 |
|
Manganese ore |
322 |
253 |
|
Manganese alloy |
30 |
46 |
|
Net operating assets/(liabilities)(a) |
308 |
289 |
|
Manganese ore |
312 |
284 |
|
Manganese alloy |
(4) |
5 |
|
Capital expenditure |
36 |
21 |
|
All other capital expenditure |
36 |
21 |
|
Exploration expenditure |
1 |
1 |
|
Exploration expensed |
- |
1 |
(a) H1 FY18 reflects balance as at 30 June 2018.
South Africa Manganese (Ore 44.4% share, Alloy 60% share)
Volumes
South Africa Manganese saleable ore production decreased by 5% (or 54kwmt) in H1 FY19 to 1,075kwmt as an increase in higher quality premium material was more than offset by a decline in fine grained secondary products. While FY19 production guidance remains unchanged at 2,050kwmt, we will continue to monitor market demand and optimise the use of higher cost trucking.
Saleable manganese alloy production decreased by 8% (or 3kt) in H1 FY19 to 33kt as a planned furnace shutdown was completed.
Operating costs
FOB manganese ore Operating unit costs increased by 14% in H1 FY19 to US$2.63/dmtu as we continued to utilise higher cost trucking as an additional route to market and the contribution of premium ore from our underground Wessels mine increased.
FY19 Operating unit cost guidance is unchanged at US$2.56/dmtu. Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in footnote 29.
Financial performance
Underlying EBIT increased by 16% (or US$14M) in H1 FY19 to US$100M as higher realised ore prices (+US$43M) and a weaker South African rand (+US$6M) were partially offset by lower realised alloy prices (-US$8M), a reduction in other income (-US$11M) and general inflation (-US$5M).
Our lower quality fine grained material, which accounted for 10% of sales across H1 FY19 (15% H1 FY18; 13% FY18), receives a product discount when referenced to index prices. Notwithstanding the contribution of this secondary material to our sales mix, our average realised price for external sales of South African ore achieved the medium grade 37% manganese lump ore index price (FOB Port Elizabeth, South Africa) on a volume weighted M-1 basis(42).
Capital expenditure
Sustaining capital expenditure increased by US$9M in H1 FY19 to US$17M and is expected to increase to US$30M in FY19.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Manganese ore production (kwmt) |
1,075 |
1,129 |
|
Manganese alloy production (kt) |
33 |
36 |
|
Manganese ore sales (kwmt)(43) |
1,010 |
1,067 |
|
External customers |
951 |
985 |
|
Metalloys |
59 |
82 |
|
Manganese alloy sales (kt)(43) |
35 |
28 |
|
Realised external manganese ore sales price (US$/dmtu, FOB)(43)(44) |
5.85 |
4.57 |
|
Realised manganese alloy sales price (US$/t)(43) |
1,086 |
1,321 |
|
Ore operating unit cost (US$/dmtu)(44)(45) |
2.63 |
2.31 |
|
Alloy operating unit cost (US$/t)(45) |
1,171 |
821 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue(46) |
275 |
228 |
|
Manganese ore(47) |
243 |
200 |
|
Manganese alloy |
38 |
37 |
|
Intra-segment elimination |
(6) |
(9) |
|
Underlying EBITDA |
114 |
100 |
|
Manganese ore(47) |
117 |
86 |
|
Manganese alloy |
(3) |
14 |
|
Underlying EBIT |
100 |
86 |
|
Manganese ore(47) |
107 |
77 |
|
Manganese alloy |
(7) |
9 |
|
Net operating assets(a) |
310 |
297 |
|
Manganese ore(47) |
250 |
234 |
|
Manganese alloy |
60 |
63 |
|
Capital expenditure |
17 |
8 |
|
All other capital expenditure |
17 |
8 |
(a) H1 FY18 reflects balance as at 30 June 2018.
Cerro Matoso (99.9% share)
Volumes
Cerro Matoso payable nickel production decreased by 3% (or 0.7kt) in H1 FY19 to 21.1kt following a planned increase in the contribution of lower grade stockpiled ore feed. FY19 production guidance remains unchanged at 40.5kt.
Operating costs
Operating unit costs increased by 19% in H1 FY19 to US$4.05/lb, primarily as a result of higher price-linked royalties and energy costs.
We have lowered FY19 Operating unit cost guidance by US$0.09/lb to US$4.12/lb to primarily reflect the benefit of revised exchange rate and price assumptions, which are partially offset by costs arising from the Constitutional Court of Colombia ruling(30). Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in footnote 29.
Financial performance
Underlying EBIT decreased by US$31M in H1 FY19 to US$10M as higher price-linked royalties (-US$8M), energy costs (-US$8M), general inflation (-US$4M) and throughput (-US$3M) were partially offset by a weaker Colombian peso (+US$3M).
Finalisation adjustments and the provisional pricing of Nickel sales decreased Underlying EBIT by US$16M in H1 FY19 (+US$19M FY18; +US$5M H1 FY18). Outstanding Nickel sales (3.3kt of nickel) were revalued at 31 December 2018. The final price of these sales will be determined in H2 FY19.
Capital expenditure
Sustaining capital expenditure increased marginally to US$13M in H1 FY19 and is expected to increase to US$37M in FY19 as we prepare for the planned furnace refurbishment in FY20.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Ore mined (kwmt) |
1,209 |
2,087 |
|
Ore processed (kdmt) |
1,401 |
1,340 |
|
Ore grade processed (%, Ni) |
1.68 |
1.83 |
|
Payable nickel production (kt) |
21.1 |
21.8 |
|
Payable nickel sales (kt)(48) |
21.3 |
21.3 |
|
Realised nickel sales price (US$/lb)(48) |
5.20 |
5.20 |
|
Operating unit cost (US$/lb)(27) |
4.05 |
3.41 |
|
Operating unit cost (US$/t) |
136 |
119 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue |
244 |
244 |
|
Underlying EBITDA |
54 |
84 |
|
Underlying EBIT |
10 |
41 |
|
Net operating assets(a) |
505 |
551 |
|
Capital expenditure |
13 |
11 |
|
All other capital expenditure |
13 |
11 |
|
Exploration expenditure |
4 |
5 |
|
Exploration expensed |
3 |
4 |
(a) H1 FY18 reflects balance as at 30 June 2018.
Cannington (100% share)
Volumes
Cannington payable zinc equivalent(26) production increased by 11% (or 9.8kt) in H1 FY19 to 95.2kt as silver and zinc grades improved and mill throughput tracked to plan. FY19 zinc equivalent production guidance is unchanged at 188.1kt (silver 11,750koz, lead 98.0kt and zinc 51.0kt), but remains subject to review pending our assessment of the impact to logistics infrastructure resulting from the floods in North Queensland.
Operating costs
Operating unit costs decreased by 29% to US$120/t in H1 FY19 as the adoption of AASB 15 Revenue from Contracts with Customers(19), which affects the accounting classification of treatment and refining charges, reduced costs by US$21/t. A temporary build in finished goods inventory and stronger throughput rates provided a further benefit.
We have lowered FY19 Operating unit cost guidance by US$2/t to US$129/t(a) to reflect the benefit of revised exchange rate and price assumptions, which are partially offset by an increase in mining and rehabilitation activity. Exchange rate and price assumptions for FY19 Operating unit cost guidance are detailed in footnote 29.
Financial performance
Underlying EBIT decreased by 35% (or US$25M) in H1 FY19 to US$47M as lower average realised prices (-US$61M)(b) were partially offset by inventory movements (+US$13M), a weaker Australian dollar (+US$10M) and higher sales volumes (+US$8M).
Finalisation adjustments and the provisional pricing of Cannington concentrates decreased Underlying EBIT by US$9.8M in H1 FY19 (US$0.1M FY18; US$5.5M H1 FY18). Outstanding concentrate sales (containing 2Moz of silver, 25.3kt of lead and 6.2kt of zinc) were revalued at 31 December 2018. The final price of these sales will be determined in H2 FY19.
Capital expenditure
Sustaining capital expenditure increased by US$5M in H1 FY19 to US$28M and is expected to increase to US$55M in FY19.
|
South32 share |
H1 FY19 |
H1 FY18 |
|
Ore mined (kwmt) |
1,306 |
1,209 |
|
Ore processed (kdmt) |
1,244 |
1,168 |
|
Ore grade processed (g/t, Ag) |
183 |
165 |
|
Ore grade processed (%, Pb) |
4.8 |
5.1 |
|
Ore grade processed (%, Zn) |
2.9 |
2.6 |
|
Zinc equivalent production (kt) |
95.2 |
85.4 |
|
Payable silver production (koz) |
6,067 |
5,175 |
|
Payable lead production (kt) |
48.3 |
49.4 |
|
Payable zinc production (kt) |
26.3 |
20.2 |
|
Payable silver sales (koz)(32) |
6,340 |
5,429 |
|
Payable lead sales (kt)(32) |
47.1 |
48.6 |
|
Payable zinc sales (kt)(32) |
24.7 |
25.7 |
|
Realised silver sales price (US$/oz)(32) |
14.7 |
16.8 |
|
Realised lead sales price (US$/t)(32) |
1,625(19) |
2,517 |
|
Realised zinc sales price (US$/t)(32) |
2,120(19) |
3,192 |
|
Operating unit cost |
120(19) |
170 |
|
South32 share (US$M) |
H1 FY19 |
H1 FY18 |
|
Revenue |
223 |
296 |
|
Underlying EBITDA |
74 |
97 |
|
Underlying EBIT |
47 |
72 |
|
Net operating assets(c) |
234 |
210 |
|
Capital expenditure |
28 |
23 |
|
All other capital expenditure |
28 |
23 |
|
Exploration expenditure |
3 |
2 |
|
Exploration expensed |
2 |
2 |
(a) FY19 Prior guidance has been adjusted from US$147/t to US$131/t to reflect the Group's adoption of AASB 15 Revenue from Contracts with Customers, with revenue recognised net of treatment and refining charges (previously recognised on a gross basis with treatment and refining charges included as a separate expense). These changes result in lower realised prices and Operating unit costs, with no net impact to earnings. Prior periods have not been restated to reflect the changes.
(b) Excludes the impact of the change in accounting treatment for treatment and refining charges on revenue (-US$20M). This impact is equally offset by a reduction in costs (+US$20M).
(c) H1 FY18 reflects balance as at 30 June 2018.
Notes
(1) Revenue includes revenue from third party products and services.
(2) H1 FY19 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for H1 FY19 (5,079 million).
H1 FY19 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for H1 FY19.
H1 FY18 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for H1 FY18 (5,191 million).
H1 FY18 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for H1 FY18.
(3) H1 FY19 ordinary dividends per share is calculated as H1 FY19 ordinary dividend announced (US$258M) divided by the number of shares on issue at 31 December 2018 (5,051 million).
(4) H1 FY19 special dividends per share is calculated as H1 FY19 special dividend announced (US$86M) divided by the number of shares on issue at 31 December 2018 (5,051 million). Paragraph 16.26(i) of the Johannesburg Stock Exchange (JSE) listing rules states that the requisite exchange control authority from the Financial Surveillance Department of the South African Reserve Bank (SARB) is required to be provided to the JSE before the JSE can approve payment of special dividends to South African shareholders.
(5) Underlying EBIT is profit before net finance costs, tax and any earnings adjustment items, including impairments. Underlying EBIT is reported inclusive of South32's share of net finance costs and tax of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation. Underlying earnings is Profit/(loss) after tax and earnings adjustment items. Underlying earnings is the key measure that South32 uses to assess the performance of the South32 Group, make decisions on the allocation of resources and assess senior management's performance. In addition, the performance of each of the South32 operations and operational management are assessed based on Underlying EBIT. In order to calculate Underlying earnings, Underlying EBIT and Underlying EBITDA, the following items are adjusted as applicable each period, irrespective of materiality:
· Exchange rate (gains)/losses on restatement of monetary items;
· Impairment losses/(reversals);
· Net (gains)/losses on disposal and consolidation of interests in businesses;
· Fair value (gains)/losses on non-trading derivative instruments and other investments;
· Major corporate restructures; and
· Earnings adjustments included in profit/(loss) of equity accounted investments.
In addition, items that do not reflect the underlying operations of South32, and are individually significant to the financial statements, are excluded to determine Underlying earnings. Significant items are detailed in the Financial Information.
(6) Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue.
(7) Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product revenue.
(8) Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as annualised Underlying EBIT less the discount on rehabilitation provisions included in net finance cost, tax effected by the Group's Underlying effective tax rate (ETR), divided by the sum of fixed assets (excluding any rehabilitation asset, and unproductive capital spent on Major projects) and inventories. Manganese is included in the calculation on a proportional consolidation basis.
(9) To ensure that incident classification definitions are applied uniformly across our workforce, we have adopted the United States Government Occupational Safety and Health Assessment (OSHA) guidelines for the recording and reporting of occupational injuries and illnesses.
(10) Total Recordable Injury Frequency (TRIF): The sum of (fatalities + lost-time cases + restricted work cases + medical treatment cases) x 1,000,000 ÷ actual hours worked, for employees and contractors. Stated in units of per million hours worked.
(11) Total capital expenditure comprises Capital expenditure, the purchase of intangibles and capitalised exploration expenditure. Capital expenditure comprises Sustaining capital expenditure and Major projects capital expenditure. Sustaining capital expenditure comprises Stay-in-business (SIB), Minor discretionary and Deferred stripping (including underground development) capital expenditure.
(12) The information in this report that relates to Mineral Resource estimates for MRN was declared as part of South32's Annual Resource and Reserve declaration in the Annual Report 2018 (www.south32.net) issued on 7 September 2018 and prepared by M A H Monteiro in accordance with the requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially affects the information included in the original announcement. All material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. South32 confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.
(13) Refer to exchange release on 13 August 2018 "South32 completes acquisition of Arizona Mining".
(14) The information that relates to estimates of Mineral Resources for the Hermosa Project are qualifying foreign estimates under ASX Listing Rules and reference should be had to the clarifying statement on Mineral Resources in the market announcement 'South32 to acquire Arizona Mining in agreed all cash offer' dated 18 June 2018, in accordance with ASX Listing Rule 5.12. South32 is not in possession of any new information or data relating to the foreign estimate that materially impacts on the reliability of the estimates. South32 confirms that the information contained in the clarifying statement in the 18 June 2018 market announcement continues to apply and has not materially changed. The estimates of Mineral Resources are not reported in accordance with the JORC Code. Competent persons have not done sufficient work to classify the foreign estimates as Mineral Resources in accordance with JORC Code. It is uncertain that following evaluation and further exploration that the foreign estimates will be able to be reported as Mineral Resources or Ore Reserves in accordance with the JORC Code.
(15) Refer to media release on 14 September 2018 "South32 completes acquisition of 50% interest in Eagle Downs and assumes operatorship".
(16) Sales price variance reflects the revenue impact of changes in commodity prices, based on the current period's sales volume. Price-linked costs variance reflects the change in royalties together with the change in input costs driven by changes in commodity prices or market traded consumables. Foreign exchange reflects the impact of exchange rate movements on local currency denominated costs and sales. Volume variance reflects the revenue impact of sales volume changes, based on the comparative period's sales prices. Controllable costs variance represents the impact from changes in the Group's controllable local currency cost base, including the variable cost impact of production volume changes on expenditure, and period-on-period movements in inventories. The controllable cost variance excludes earnings adjustments including significant items.
(17) Underlying net finance cost and Underlying income tax expense are actual H1 FY19 results, not half-on-half variances.
(18) South32's ownership share of operations are presented as follows: Worsley Alumina (86% share), Hillside Aluminium (100%), Mozal Aluminium (47.1% share), Brazil Alumina (Alumina 36% share, Aluminium 40% share), South Africa Energy Coal (100% share until Broad-Based Black Economic Empowerment (B-BBEE) vendor loans are repaid), Illawarra Metallurgical Coal (100%), Australia Manganese (60% share), South Africa Manganese (60% share), Cerro Matoso (99.9% share), and Cannington (100%).
(19) The H1 FY19 results reflect the Group's adoption of AASB 15 Revenue from Contracts with Customers, with revenue recognised net of treatment and refining charges (previously recognised on a gross basis with treatment and refining charges included as a separate expense). These changes result in lower realised prices and Operating unit costs, with no net impact to earnings. Prior periods have not been restated to reflect these changes.
(20) Underlying ETR is Underlying income tax expense, excluding royalty related tax, divided by Underlying profit before tax; both the numerator and denominator exclude equity accounted investments.
(21) The Colombian corporate tax rate was 40% during CY17, 37% during CY18 and is 33% in CY19. The corporate tax rate will decrease on an annual basis by a percent each year, stabilising at 30% from 1 January 2022. The Mozambique operations are subject to a royalty on revenues instead of income tax.
(22) Refer to the market announcement "South32 approves Klipspruit Life Extension Project" dated 27 November 2017.
(23) Market capitalisation as at 31 December 2018. Calculated as the number of shares on issue (5,051 million), the South32 closing share price A$3.35, and an AUD:USD exchange rate of 0.71.
(24) Based on revenue equivalent sales or production (where applicable) which assumes average realised prices remain unchanged from FY18. Figures are converted to per share basis by dividing FY18 and FY19e revenue equivalent sales or production (where applicable) by the weighted average number of shares for FY18 (5,159 million) and H1 FY19 (5,079 million) respectively.
(25) South32's interest in South Africa Energy Coal is accounted at 100% until Broad-Based Black Economic Empowerment (B-BBEE) vendor loans are repaid.
(26) Payable zinc equivalent (kt) was calculated by aggregating revenues from payable silver, lead and zinc, and dividing the total Revenue by the price of zinc. FY18 realised prices for zinc (US$3,185/t), lead (US$2,463/t) and silver (US$16.6/oz) have been used for FY18, FY19e and FY20e. Zinc equivalent is used to compare Cannington with the recently acquired Hermosa project which is currently reported in zinc equivalent terms.
(27) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes. Operating cost is Revenue less Underlying EBITDA excluding third party sales. Additional manganese disclosures are included in footnotes 39 and 44.
(28) FY19 prior Operating unit cost guidance included royalties (where appropriate) and the influence of exchange rate assumptions, and were predicated on various assumptions for FY19, including: an alumina price of US$411/t; an average blended coal price of US$149/t for Illawarra Metallurgical Coal; a manganese ore price of US$6.20/dmtu for 44% manganese product; a nickel price of US$6.92/lb; a thermal coal price of US$93/t (API4) for South Africa Energy Coal; a silver price of US$17.58/troy oz; a lead price of US$2,406/t; a zinc price of US$3,066/t; an AUD:USD exchange rate of 0.76; a USD:ZAR exchange rate of 13.43; a USD:COP exchange rate of 2,927; and a reference price for caustic soda; all of which reflected forward markets as at June 2018 or our internal expectations.
(29) FY19 new Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY19, including: an alumina price of US$443/t; an average blended coal price of US$173/t for Illawarra Metallurgical Coal; a manganese ore price of US$6.58/dmtu for 44% manganese product; a nickel price of US$5.47/lb; a thermal coal price of US$92/t (API4) for South Africa Energy Coal; a silver price of US$15.06/troy oz; a lead price of US$2,023/t (gross of treatment and refining charges); a zinc price of US$2,587/t (gross of treatment and refining charges); an AUD:USD exchange rate of 0.72; a USD:ZAR exchange rate of 14.02; a USD:COP exchange rate of 3,096; and a reference price for caustic soda; all of which reflected forward markets as at January 2019 or our internal expectations.
(30) On 24 September 2018, we announced that the Constitutional Court of Colombia had issued its final ruling on our application to annul its decision regarding the alleged health and environmental impacts of our Cerro Matoso operation on the surrounding communities. The Court annulled those orders requiring Cerro Matoso to pay direct financial compensatory damages to community members and establish an ethnic development fund. The orders requiring Cerro Matoso to provide ongoing health care to community members alleging health impacts, and to submit to a new consultative environmental licensing process, were not annulled.
(31) Third party products and services sold comprise US$33M for aluminium, US$16M for alumina, US$241M for coal, US$129M for freight services, US$61M for aluminium raw materials and US$7M for manganese. Underlying EBIT on third party products comprise nil for aluminium, US$3M for alumina, US$27M for coal, (-US$3M) for freight services, US$1M for aluminium raw materials and nil for manganese.
(32) Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Realised sales price is calculated as sales Revenue divided by sales volume.
(33) Presented on a 100% basis.
(34) The information in this report that relates to Coal Reserve estimates for Klipspruit was declared as part of South32's Annual Resource and Reserve declaration in the Annual Report 2018 (www.south32.net) issued on 7 September 2018 and prepared by P Mulder in accordance with the requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially affects the information included in the original announcement. All material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. South32 confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.
(35) South Africa Energy Coal Revenue includes domestic and export sales Revenue.
(36) Illawarra Metallurgical Coal Revenue includes metallurgical coal and energy coal sales Revenue.
(37) The quarterly sales volume weighted average of the Metal Bulletin 44% manganese lump ore index (CIF Tianjin, China) on the basis of a one month lag to published pricing (Month minus one or "M-1") was US$6.98/dmtu in H1 FY19.
(38) Volumes and realised prices do not include any third party trading that may be undertaken independently of equity production. Realised ore prices are calculated as external sales Revenue less freight and marketing costs, divided by external sales volume. Realised alloy prices are calculated as sales Revenue, including sinter Revenue, divided by alloy sales volume. Ore converted to sinter and alloy, and sold externally, is eliminated as an intracompany transaction.
(39) Manganese Australia H1 FY19 average manganese content of external ore sales was 45.8% on a dry basis (H1 FY18: 46.1%). 95% of H1 FY19 external manganese ore sales (H1 FY18: 94%) were completed on a CIF basis. H1 FY19 realised FOB ore prices and Operating unit costs have been adjusted for freight and marketing costs of US$25M (H1 FY18: US$21M), consistent with our FOB cost guidance.
(40) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit cost is Revenue less Underlying EBITDA divided by alloy sales volumes and includes costs associated with sinter sold externally.
(41) Revenues associated with sales from GEMCO to TEMCO are eliminated as part of the consolidation. Internal sales occur on a commercial basis.
(42) The quarterly sales volume weighted average of the Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, South Africa) on the basis of a one month lag to published pricing (Month minus one or "M-1") was US$5.91/dmtu in H1 FY19.
(43) Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Realised ore prices are calculated as external sales Revenue less freight and marketing costs, divided by external sales volume. Realised alloy prices are calculated as sales Revenue, divided by alloy sales volume. Ore converted to sinter and alloy, and sold externally, is eliminated as an intracompany transaction. Manganese ore sales are grossed-up to reflect a 60% accounting effective interest.
(44) Manganese South Africa H1 FY19 average manganese content of external ore sales was 40.3% on a dry basis (H1 FY18: 40.3%). 71% of H1 FY19 external manganese ore sales (H1 FY18: 68%) were completed on a CIF basis. H1 FY19 realised FOB ore prices and operating costs have been adjusted for freight and marketing costs of US$20M (H1 FY18: US$16M), consistent with our FOB cost guidance.
(45) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit cost is Revenue less Underlying EBITDA divided by alloy sales volumes.
(46) Revenues associated with sales from Hotazel Manganese Mines (HMM) to Metalloys are eliminated as part of the consolidation. Internal sales occur on a commercial basis.
(47) Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. South32 has a 44.4% ownership interest in HMM. 26% of HMM is owned by a B-BBEE consortium comprising Ntsimbintle Mining (9%), NCAB Resources (7%), Iziko Mining (5%) and HMM Education Trust (5%). The interest owned by NCAB Resources, Iziko Mining and HMM Education Trust were acquired using vendor finance with the loans repayable via distributions attributable to these parties, pro rata to their share in HMM. Until these loans are repaid, South32's interest in HMM is accounted at 54.6%.
(48) Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Cerro Matoso realised nickel sales price is inclusive of by-products. Realised sales price is calculated as sales Revenue divided by sales volume.
(49) Cannington Operating unit cost is Revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may impact operating unit costs as related marketing costs may change.
Figures in Italics indicate that an adjustment has been made since the figures were previously reported.
The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); December half year (H1 FY19); calendar year (CY); grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); thousand dry metric tonnes (kdmt); dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); Johannesburg Stock Exchange (JSE); equity accounted investments (EAI); and American Depositary Receipts (ADR).
South32 Financial Information
For the half year ended 31 December 2018
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2018
|
US$M |
Note |
H1 FY19 |
H1 FY18 |
|
Revenue |
|
|
|
|
Group production |
4 |
3,331 |
3,031 |
|
Third party products and services |
4 |
480 |
463 |
|
|
|
3,811 |
3,494 |
|
Other income |
|
84 |
130 |
|
Expenses excluding net finance cost |
|
(3,263) |
(3,183) |
|
Share of profit/(loss) of equity accounted investments |
|
276 |
232 |
|
Profit/(loss) |
|
908 |
673 |
|
Comprising: |
|
|
|
|
Group production |
|
880 |
668 |
|
Third party products and services |
|
28 |
5 |
|
Profit/(loss) |
|
908 |
673 |
|
Finance expenses |
|
(72) |
(100) |
|
Finance income |
|
34 |
30 |
|
Net finance cost |
7 |
(38) |
(70) |
|
Profit/(loss) before tax |
|
870 |
603 |
|
Income tax (expense)/benefit |
|
(235) |
(60) |
|
Profit/(loss) after tax |
|
635 |
543 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of South32 Limited |
|
635 |
543 |
|
|
|
|
|
|
Profit/(loss) for the period attributable to the equity holders of South32 Limited |
|
|
|
|
Basic earnings per share (cents) |
6 |
12.5 |
10.5 |
|
Diluted earnings per share (cents) |
6 |
12.4 |
10.3 |
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2018
|
US$M |
|
H1 FY19 |
H1 FY18 |
|
Profit/(loss) for the period |
|
635 |
543 |
|
Other Comprehensive Income |
|
|
|
|
Items that may be reclassified to the Consolidated Income Statement: |
|
|
|
|
Available for sale investments: |
|
|
|
|
Net gains/(losses) recognised in equity |
|
- |
76 |
|
Net (gains)/losses transferred to the Consolidated Income Statement |
|
- |
(31) |
|
Tax benefit/(expense) recognised within Other Comprehensive Income |
|
- |
(5) |
|
Cash Flow hedges: |
|
|
|
|
Transfer of net gains/(losses) recognised in equity |
|
(5) |
- |
|
Total items that may be reclassified to the Consolidated Income Statement |
|
(5) |
40 |
|
Items not to be reclassified to the Consolidated Income Statement: |
|
|
|
|
Investments in equity instruments designated as fair value through Other Comprehensive Income (FVOCI) Net fair value gains/(losses) |
|
(28) |
- |
|
Tax benefit/(expense) |
|
10 |
- |
|
Equity accounted investments - share of Other Comprehensive Income/(loss) |
|
(1) |
- |
|
Gains/(losses) on pension and medical schemes |
|
2 |
(1) |
|
Tax benefit/(expense) recognised within Other Comprehensive Income |
|
(1) |
- |
|
Total items not to be reclassified to the Consolidated Income Statement |
|
(18) |
(1) |
|
Total Other Comprehensive Income/(loss) |
|
(23) |
39 |
|
Total Comprehensive Income/(loss) |
|
612 |
582 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of South32 Limited |
|
612 |
582 |
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2018
|
US$M |
|
H1 FY19 |
FY18 |
|
ASSETS |
|
|
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
|
1,565 |
2,970 |
|
Trade and other receivables |
|
737 |
826 |
|
Other financial assets |
|
93 |
80 |
|
Inventories |
|
990 |
886 |
|
Current tax assets |
|
24 |
8 |
|
Other |
|
25 |
51 |
|
Total current assets |
|
3,434 |
4,821 |
|
Non-current assets |
|
|
|
|
Trade and other receivables |
|
301 |
248 |
|
Other financial assets |
|
297 |
613 |
|
Inventories |
|
80 |
76 |
|
Property, plant and equipment |
|
9,848 |
8,196 |
|
Intangible assets |
|
212 |
221 |
|
Equity accounted investments |
|
686 |
697 |
|
Deferred tax assets |
|
228 |
245 |
|
Other |
|
34 |
16 |
|
Total non-current assets |
|
11,686 |
10,312 |
|
Total assets |
|
15,120 |
15,133 |
|
LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
863 |
830 |
|
Interest bearing liabilities |
|
284 |
333 |
|
Other financial liabilities |
|
- |
2 |
|
Current tax payables |
|
116 |
135 |
|
Provisions |
|
304 |
360 |
|
Deferred income |
|
4 |
4 |
|
Total current liabilities |
|
1,571 |
1,664 |
|
Non-current liabilities |
|
|
|
|
Trade and other payables |
|
2 |
5 |
|
Interest bearing liabilities |
|
603 |
596 |
|
Deferred tax liabilities |
|
464 |
445 |
|
Provisions |
|
1,649 |
1,705 |
|
Deferred income |
|
8 |
9 |
|
Total non-current liabilities |
|
2,726 |
2,760 |
|
Total liabilities |
|
4,297 |
4,424 |
|
Net assets |
|
10,823 |
10,709 |
|
EQUITY |
|
|
|
|
Share capital |
|
14,326 |
14,493 |
|
Treasury shares |
|
(60) |
(83) |
|
Reserves |
|
(3,510) |
(3,333) |
|
Retained earnings/(accumulated losses) |
|
68 |
(367) |
|
Total equity attributable to equity holders of South32 Limited |
|
10,824 |
10,710 |
|
Non-controlling interests |
|
(1) |
(1) |
|
Total equity |
|
10,823 |
10,709 |
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED CASH FLOW STATEMENT
for the half year ended 31 December 2018
|
US$M |
H1 FY19 |
H1 FY18 |
|
Operating activities |
|
|
|
Profit/(loss) before tax |
870 |
603 |
|
Adjustments for: |
|
|
|
Non-cash significant items |
- |
(31) |
|
Depreciation and amortisation expense |
380 |
363 |
|
Employee share awards expense |
23 |
24 |
|
Net finance cost |
38 |
70 |
|
Share of (profit)/loss of equity accounted investments |
(276) |
(232) |
|
Fair value (gains)/losses on derivative instruments and other investments |
26 |
62 |
|
Changes in assets and liabilities: |
|
|
|
Trade and other receivables |
82 |
(223) |
|
Inventories |
(108) |
(172) |
|
Trade and other payables |
50 |
38 |
|
Provisions and other liabilities |
(117) |
(64) |
|
Cash generated from operations |
968 |
438 |
|
Interest received |
38 |
30 |
|
Interest paid |
(37) |
(33) |
|
Income tax (paid)/received |
(207) |
(181) |
|
Dividends received |
- |
9 |
|
Dividends received from equity accounted investments |
280 |
70 |
|
Net cash flows from operating activities |
1,042 |
333 |
|
Investing activities |
|
|
|
Purchases of property, plant and equipment |
(296) |
(199) |
|
Exploration expenditure |
(26) |
(23) |
|
Exploration expenditure expensed and included in operating cash flows |
16 |
22 |
|
Purchase of intangibles |
- |
(2) |
|
Investment in financial assets |
(208) |
(63) |
|
Investment in subsidiaries and jointly controlled entities, net of their cash |
(1,507) |
- |
|
Cash outflows from investing activities |
(2,021) |
(265) |
|
Proceeds from financial assets |
166 |
196 |
|
Distribution from equity accounted investments |
6 |
- |
|
Net cash flows from investing activities |
(1,849) |
(69) |
|
Financing activities |
|
|
|
Proceeds from interest bearing liabilities |
2 |
27 |
|
Repayment of interest bearing liabilities |
(60) |
(10) |
|
Purchase of shares by South32 Limited Employee Incentive Plans Trusts (ESOP Trusts) |
(53) |
(36) |
|
Share buy-back |
(167) |
(93) |
|
Dividends paid |
(316) |
(333) |
|
Net cash flows from financing activities |
(594) |
(445) |
|
Net increase/(decrease) in cash and cash equivalents |
(1,401) |
(181) |
|
Cash and cash equivalents, net of overdrafts, at the beginning of the period |
2,970 |
2,675 |
|
Foreign currency exchange rate changes on cash and cash equivalents |
(4) |
1 |
|
Cash and cash equivalents, net of overdrafts, at the end of the period |
1,565 |
2,495 |
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 December 2018
|
Attributable to equity holders of South32 Limited |
|||||||
|
US$M |
Share capital |
Treasury shares |
Reserves |
Retained earnings/ (accumulated losses) |
Total |
Non- controlling interests |
Total equity |
|
Balance as at 1 July 2018 |
14,493 |
(83) |
(3,333) |
(367) |
10,710 |
(1) |
10,709 |
|
Adjustments for transition to new accounting standards(1) |
- |
- |
(12) |
10 |
(2) |
- |
(2) |
|
Restated balance as at 1 July 2018 |
14,493 |
(83) |
(3,345) |
(357) |
10,708 |
(1) |
10,707 |
|
Profit/(loss) for the period |
- |
- |
- |
635 |
635 |
- |
635 |
|
Other Comprehensive Income/(loss) |
- |
- |
(23) |
- |
(23) |
- |
(23) |
|
Total Comprehensive Income/(loss) |
- |
- |
(23) |
635 |
612 |
- |
612 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
Dividends |
- |
- |
- |
(316) |
(316) |
- |
(316) |
|
Shares bought back and cancelled(2) |
(167) |
- |
- |
- |
(167) |
- |
(167) |
|
Accrued employee entitlements for unexercised awards, net of tax |
- |
- |
30 |
- |
30 |
- |
30 |
|
Purchase of shares by ESOP Trusts |
- |
(53) |
- |
- |
(53) |
- |
(53) |
|
Employee share awards exercised |
- |
76 |
(27) |
(49) |
- |
- |
- |
|
Tax recognised for employee share awards exercised |
- |
- |
- |
10 |
10 |
- |
10 |
|
Transfer of cumulative fair value gain on equity instruments designated as FVOCI(3) |
- |
- |
(145) |
145 |
- |
- |
- |
|
Balance as at 31 December 2018 |
14,326 |
(60) |
(3,510) |
68 |
10,824 |
(1) |
10,823 |
|
|
|
|
|
|
|
|
|
|
Balance as at 1 July 2017 |
14,747 |
(26) |
(3,503) |
(982) |
10,236 |
(1) |
10,235 |
|
Profit/(loss) for the period |
- |
- |
- |
543 |
543 |
- |
543 |
|
Other Comprehensive Income/(loss) |
- |
- |
40 |
(1) |
39 |
- |
39 |
|
Total Comprehensive Income/(loss) |
- |
- |
40 |
542 |
582 |
- |
582 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
Dividends |
- |
- |
- |
(333) |
(333) |
- |
(333) |
|
Shares bought back and cancelled(2) |
(93) |
- |
- |
- |
(93) |
- |
(93) |
|
Accrued employee entitlements for unexercised awards |
- |
- |
24 |
- |
24 |
- |
24 |
|
Purchase of shares by ESOP Trusts |
- |
(36) |
- |
- |
(36) |
- |
(36) |
|
Employee share awards exercised |
- |
24 |
(13) |
(11) |
- |
- |
- |
|
Balance as at 31 December 2017 |
14,654 |
(38) |
(3,452) |
(784) |
10,380 |
(1) |
10,379 |
(1) Refer to note 3 New standards and interpretations.
(2) Represents 68,444,442 (31 December 2017: 37,168,657) shares permanently cancelled through the on-market share buy-back during the period.
(3) The Group completed its acquisition of the remaining 83 per cent of issued and outstanding shares of Arizona Mining Inc and derecognised its existing 17 per cent interest as an investment in equity instruments designated as FVOCI.
The accompanying notes form part of the half year consolidated financial statements.
NOTES TO FINANCIAL STATEMENTS
|
NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION |
35 |
|
1. Reporting entity |
35 |
|
2. Basis of preparation |
35 |
|
3. New standards and interpretations |
36 |
|
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD |
38 |
|
4. Segment information |
38 |
|
5. Dividends |
43 |
|
6. Earnings per share |
43 |
|
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING |
44 |
|
7. Net finance cost |
44 |
|
8. Financial assets and financial liabilities |
45 |
|
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES |
49 |
|
9. Acquisition of subsidiaries and jointly controlled operations |
49 |
|
10. Subsequent events |
49 |
|
DIRECTORS' DECLARATION |
50 |
|
DIRECTORS' REPORT |
51 |
|
LEAD AUDITOR'S INDEPENDENCE DECLARATION |
53 |
|
INDEPENDENT AUDITOR'S REVIEW REPORT |
54 |
NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION
The consolidated financial statements of South32 Limited (referred to as the Company) and its subsidiaries and joint arrangements (collectively, the Group) for the half year ended 31 December 2018 were authorised for issue in accordance with a resolution of the Directors on 14 February 2019.
1. Reporting entity
South32 Limited is a for-profit company limited by shares incorporated in Australia with a primary listing on the Australian Securities Exchange (ASX), a standard listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. The nature of the operations and principal activities of the Group are described in note 4 Segment information.
2. Basis of preparation
The half year consolidated financial statements are a general purpose condensed financial report which:
|
● |
Have been prepared in accordance with AASB 134 Interim Financial Reporting, IAS 34 Interim Financial Reporting and the Corporations Act |
|
● |
Have been prepared on a historical cost basis, except for derivative financial instruments and certain other financial assets and liabilities which are required to be measured at fair value |
|
● |
Are presented in US dollars, which is the functional currency of the majority of the Group's operations, and all values are rounded to the nearest million dollars (US$M or US$ million) unless otherwise stated, in accordance with ASIC Corporations Instrument 2016/191 |
|
● |
Present reclassified comparative information where required for consistency with the current period's presentation |
|
● |
Have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the 30 June 2018 annual consolidated financial statements, except for the change in accounting standards set out in note 3 New standards and interpretations which became effective on 1 July 2018 without restatement of prior years |
In preparing these half year consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2018.
For a full understanding of the financial performance and financial position of the Group it is recommended that the half year consolidated financial statements be read in conjunction with the annual consolidated financial statements for the year ended 30 June 2018. Consideration should also be given to any public announcements made by the Company in accordance with the continuous disclosure obligations of the ASX Listing Rules.
The following exchange rates relative to the US dollar have been applied in the half year consolidated financial statements.
|
|
Average for the half year ended 31 December 2018 |
Average for the half year ended 31 December 2017 |
As at 31 December 2018 |
As at 30 June 2018 |
As at 31 December 2017 |
|
Australian dollar(1) |
0.72 |
0.78 |
0.71 |
0.74 |
0.78 |
|
Brazilian real |
3.88 |
3.21 |
3.87 |
3.85 |
3.31 |
|
Colombian peso |
3,062 |
2,982 |
3,250 |
2,945 |
2,984 |
|
South African rand |
14.18 |
13.41 |
14.43 |
13.73 |
12.40 |
|
Euro(2) |
1.15 |
1.18 |
1.14 |
1.16 |
1.19 |
(1) Displayed as US$ to A$ based on common convention.
(2) Displayed as US$ to € based on common convention.
3. New standards and interpretations
New accounting standards and interpretations effective from 1 July 2018
The Group has changed some of its accounting policies as a result of new or revised accounting standards which became effective for the annual reporting period commencing on 1 July 2018. New policies and standards are:
AASB 9 Financial Instruments
The Group has adopted AASB 9 Financial Instruments with a date of initial application of 1 July 2018. The nature and impact of the key changes to the Group's accounting policies resulting from the adoption of AASB 9 are summarised below.
(i) Classification and measurement of financial assets and financial liabilities
AASB 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through Other Comprehensive Income (FVOCI) and fair value through profit or loss (FVTPL). The classification of a financial asset is based on the cash flow characteristics and the business model used for the management of the financial asset. AASB 9 eliminates the previous AASB 139 Financial Instruments: Recognition and Measurement financial asset classification of held to maturity, loans and receivables and available for sale.
The adoption of AASB 9 has not had a significant impact on the Group's accounting policies for financial liabilities as AASB 9 largely retains the existing requirements in AASB 139 for the classification and measurement of financial liabilities.
(ii) Impairment of financial assets
AASB 9 replaces the 'incurred loss' model in AASB 139 with an expected credit loss model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments classified as FVOCI, but not to investments in equity instruments. Under AASB 9, credit losses are recognised earlier than under AASB 139.
(iii) Transition
For transition, the Group has elected to apply the limited exemption in AASB 9 relating to the classification, measurement and impairment requirements for financial assets and accordingly has not restated comparative periods. Any resulting adjustments to carrying values in the opening balance sheet have been recognised in opening retained earnings as at 1 July 2018.
The following table summarises the impact, net of tax, of transition to AASB 9 on retained earnings at 1 July 2018.
|
US$M |
Impact from adopting AASB 9 on 1 July 2018 |
|
Retained earnings/(accumulated losses) |
|
|
Closing balance under AASB 139 (30 June 2018) |
(367) |
|
Recognition of expected credit losses under AASB 9 |
(2) |
|
Reclassification of available for sale investments to investments held at FVTPL(1) |
17 |
|
Tax impact |
(5) |
|
Opening balance under AASB 9 (1 July 2018) |
(357) |
(1) The investment in unit trusts held by the South32 South Africa Energy Coal Rehabilitation Trust Fund does not meet the definition of an equity instrument under AASB 9. These investments are therefore classified as investments held at FVTPL (FY18: Available for sale). Refer to note 8 Financial assets and financial liabilities.
(iv) Classification of financial assets and financial liabilities on the date of initial application of AASB 9
|
|
Classification under AASB 139 |
Classification under AASB 9 |
Carrying amount US$M |
|
Financial assets |
|
|
|
|
Cash and cash equivalents |
Loans and receivables |
Amortised cost |
2,970 |
|
Trade and other receivables(1) |
Loans and receivables |
Amortised cost |
576 |
|
Trade and other receivables - provisional pricing |
Held at FVTPL |
Held at FVTPL |
87 |
|
Derivative contracts |
Held at FVTPL |
Held at FVTPL |
146 |
|
Derivative contracts |
Cash flow hedges |
Cash flow hedges |
5 |
|
Loans to equity accounted investments(1) |
Loans and receivables |
Amortised cost |
94 |
|
Interest bearing loans receivable |
Loans and receivables |
Amortised cost |
38 |
|
Investments in equity instruments - FVOCI(2) |
Available for sale |
Designated as FVOCI |
406 |
|
Other investments - held at FVTPL(3) |
Available for sale |
Held at FVTPL |
136 |
|
Financial liabilities |
|
|
|
|
Trade and other payables |
Other financial liabilities at amortised cost |
Amortised cost |
820 |
|
Trade and other payables - provisional pricing |
Held at FVTPL |
Held at FVTPL |
2 |
|
Derivative contracts |
Held at FVTPL |
Held at FVTPL |
2 |
|
Finance leases |
Other financial liabilities at amortised cost |
Amortised cost |
570 |
|
Unsecured other |
Other financial liabilities at amortised cost |
Amortised cost |
359 |
(1) Trade and other receivables and loans to equity accounted investments are reduced by the recognition of an impairment provision as a result of applying the expected credit loss model under AASB 9, US$1 million each. The impact was recognised in opening retained earnings at 1 July 2018 on transition to AASB 9.
(2) Investments in equity instruments designated as FVOCI represent investments that the Group intends to hold for long-term strategic purposes. As permitted by AASB 9, on an instrument by instrument basis, the Group has elected to designate these investments as held at FVOCI at the date of initial application.
(3) Other investments held at FVTPL which were previously classified as available for sale, are not equity instruments and are therefore unable to be designated as investments held at FVOCI.
AASB 15 Revenue from Contracts with Customers
The Group adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018 using the modified retrospective approach where transitional adjustments are recognised in retained earnings. Therefore, the comparative information has not been restated and continues to be reported under AASB 118 Revenue.
The impact of the change in accounting policy did not have a material impact on the amount of revenue recognised as the transfer of risk and rewards under AASB 118 is equivalent with the fulfilment of the performance obligation to deliver commodities. Any differences arising from freight services for Cost, Insurance and Freight (CIF) contracts are immaterial in the current and comparative periods.
Revenue will be recognised net of treatment and refining charges (previously recognised on a gross basis with treatment and refining charges included as a separate expense).
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
4. Segment information
(a) Description of segments
The operating segments (also referred to as operations), are organised and managed separately according to the nature of products produced.
Certain members of the Lead Team (the chief operating decision makers) and the Board of Directors monitor the segment results regularly for the purpose of making decisions about resource allocation and performance assessment. The segment information for the manganese operations are presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance.
The principal activities of each operating segment as the Group is currently structured are summarised as follows:
|
Operating segment |
Principal activities |
|
Worsley Alumina |
Integrated bauxite mine and alumina refinery in Western Australia, Australia |
|
Brazil Alumina |
Alumina refinery in Brazil |
|
Hillside Aluminium |
Aluminium smelter in South Africa |
|
Mozal Aluminium |
Aluminium smelter in Mozambique |
|
South Africa Energy Coal |
Open-cut and underground energy coal mines and processing operations in South Africa |
|
Illawarra Metallurgical Coal |
Underground metallurgical coal mines in New South Wales, Australia |
|
Eagle Downs Metallurgical Coal |
Exploration and development of metallurgical coal deposit in Queensland, Australia |
|
Australia Manganese |
Integrated producer of manganese ore in the Northern Territory and alloy in Tasmania, Australia |
|
South Africa Manganese |
Integrated producer of manganese ore and alloy in South Africa |
|
Cerro Matoso |
Integrated laterite ferronickel mining and smelting complex in Colombia |
|
Cannington |
Silver, lead and zinc mine in Queensland, Australia |
|
Hermosa |
Exploration and development option for zinc, lead and silver sulphide deposit in Tucson, United States |
All operations are operated or jointly operated by the Group except Brazil Alumina, which is operated by Alcoa.
(b) Segment results
Segment performance is measured by Underlying EBIT and Underlying EBITDA. Underlying EBIT is profit before net finance cost, tax and other earnings adjustment items including impairments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation. A reconciliation of Underlying EBIT, Underlying EBITDA and the Group's consolidated profit after tax is set out on the following pages. Segment revenue is measured on the same basis as in the Consolidated Income Statement.
The Group separately discloses sales of group production from sales of third party products because of the significant difference in profit margin earned on these sales.
It is the Group's policy that inter-segment transactions are made on a commercial basis.
Group and unallocated items/eliminations represent group centre functions and consolidation adjustments. Group financing (including finance expense and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments.
Total assets and liabilities for each operating segment represent operating assets and liabilities which predominantly exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances. The carrying amount of investments accounted for using the equity method represents the balance of the Group's investment in equity accounted investments, with no adjustment for cash, interest bearing liabilities and tax balances of the equity accounted investment.
Revenue recognition policy applicable from 1 July 2018
The Group has applied AASB 15 using the modified retrospective method. The impact of changes in accounting standards are disclosed in note 3 New standards and interpretations.
Revenue is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. Revenue is not reduced for royalties and other taxes payable from group production.
The following is a description of the principal activities from which the Group generates its revenue.
Revenue from the sale of commodities
The Group primarily sells the following commodities: alumina, aluminium, energy coal, metallurgical coal, manganese ore, manganese alloy, ferronickel, silver, lead and zinc. The sales of these commodities are considered to be performance obligations as they are the contractual promises by the Group, to transfer distinct goods to customers.
The transaction price allocated to each performance obligation is recognised as the performance obligation is satisfied. Satisfaction occurs when control of the promised commodity is transferred to the customer.
For the sale of commodities, revenue is therefore recognised at a point in time, net of treatment and refining charges (where applicable). The majority of the Group's sales agreements specify that title passes on the bill of lading date, which is the date the commodity is delivered to the shipping agent, and the Group no longer has control over the commodity. For these sales, revenue is recognised on the bill of lading date. For certain sales (principally energy coal sales to adjoining power stations), title passes, and revenue is recognised when the goods have been delivered.
For certain commodities, the sales price is determined on a provisional basis at the date of sale and adjustments to the sales price subsequently occur based on movements in quoted market or contractual prices up to the date of final pricing. The period between provisional invoicing and final pricing is up to 180 days. Revenue on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue adjustment mechanism embedded within provisionally priced sales arrangements has the characteristics of a commodity derivative. Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are disclosed separately as 'Other' revenue. In all cases, fair value is estimated by reference to forward market prices.
Revenue from the provision of freight services
The Group sells most of its commodities on either Free On Board (FOB) or CIF Incoterms. In the case of CIF Incoterms, the Group is responsible for shipping services after the date at which control of the commodities passes to the customer at the port of loading. The provision of shipping services in these types of arrangements are a distinct service (and therefore a separate performance obligation) to which a portion of the transaction price should be allocated and recognised over time as the shipping services are provided. The Group also provides third party freight services which are recognised as the shipping service is provided.
The Group does not disclose sales revenue from freight services separately as it does not consider this necessary in order to understand the impact of economic factors on the Group.
|
Half year ended 31 December 2018
US$M |
Worsley Alumina |
Brazil Alumina |
Hillside Aluminium |
Mozal Aluminium |
South Africa Energy Coal |
Illawarra Metallurgical Coal |
Eagle Downs Metallurgical Coal |
Australia Manganese(1) |
South Africa Manganese(1) |
Cerro Matoso |
Cannington |
Hermosa |
Group and unallocated items/ elimination |
Statutory adjustment(1) |
Group |
|
Revenue from customers(2) |
864 |
312 |
774 |
282 |
517 |
571 |
- |
574 |
275 |
260 |
233 |
- |
32 |
(856) |
3,838 |
|
Other |
- |
- |
(2) |
(2) |
- |
3 |
- |
7 |
- |
(16) |
(10) |
- |
- |
(7) |
(27) |
|
Total revenue(2) |
864 |
312 |
772 |
280 |
517 |
574 |
- |
581 |
275 |
244 |
223 |
- |
32 |
(863) |
3,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group production |
409 |
312 |
772 |
280 |
517 |
574 |
- |
581 |
266 |
244 |
223 |
- |
- |
(847) |
3,331 |
|
Third party products and services(3) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
487 |
(7) |
480 |
|
Inter-segment revenue |
455 |
- |
- |
- |
- |
- |
- |
- |
9 |
- |
- |
- |
(455) |
(9) |
- |
|
Total revenue(2) |
864 |
312 |
772 |
280 |
517 |
574 |
- |
581 |
275 |
244 |
223 |
- |
32 |
(863) |
3,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying EBITDA |
425 |
125 |
(6) |
30 |
58 |
292 |
- |
382 |
114 |
54 |
74 |
- |
(10) |
(233) |
1,305 |
|
Depreciation and amortisation |
(81) |
(28) |
(33) |
(17) |
(44) |
(97) |
- |
(30) |
(14) |
(44) |
(27) |
- |
(9) |
44 |
(380) |
|
Underlying EBIT |
344 |
97 |
(39) |
13 |
14 |
195 |
- |
352 |
100 |
10 |
47 |
- |
(19) |
(189) |
925 |
|
Comprising: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group production excluding exploration expensed |
345 |
97 |
(39) |
13 |
13 |
197 |
- |
352 |
100 |
13 |
49 |
- |
(40) |
(452) |
648 |
|
Exploration expensed |
(1) |
- |
- |
- |
- |
(3) |
- |
- |
- |
(3) |
(2) |
- |
(7) |
- |
(16) |
|
Third party products and services(3) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
28 |
- |
28 |
|
Share of profit/(loss) of equity accounted investments(4) |
- |
- |
- |
- |
1 |
1 |
- |
- |
- |
- |
- |
- |
- |
263 |
265 |
|
Underlying EBIT |
344 |
97 |
(39) |
13 |
14 |
195 |
- |
352 |
100 |
10 |
47 |
- |
(19) |
(189) |
925 |
|
Net finance cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59) |
|
Income tax (expense)/benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224) |
|
Underlying earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642 |
|
Earnings adjustments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) |
|
Profit/(loss) after tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenditure |
1 |
- |
- |
- |
- |
4 |
- |
1 |
- |
4 |
3 |
7 |
7 |
(1) |
26 |
|
Capital expenditure(6) |
25 |
16 |
12 |
8 |
103 |
56 |
2 |
36 |
17 |
13 |
28 |
33 |
- |
(53) |
296 |
|
Equity accounted investments |
- |
- |
- |
- |
14 |
2 |
- |
- |
- |
- |
- |
- |
- |
670 |
686 |
|
Total assets(7) |
3,406 |
783 |
1,396 |
635 |
1,067 |
1,630 |
162 |
628 |
501 |
715 |
456 |
1,688 |
2,619 |
(566) |
15,120 |
|
Total liabilities(7) |
535 |
121 |
249 |
109 |
992 |
248 |
1 |
320 |
191 |
210 |
222 |
22 |
1,612 |
(535) |
4,297 |
(1) The segment information reflects the Group's interest in the manganese operations and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. The manganese operations are equity accounted in the half year consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.
(2) Revenue from customers is presented net of treatment and refining charges (previously recognised on a gross basis with treatment and refining charges included as a separate expense). Refer to note 3 New standards and interpretations.
(3) Third party products and services sold comprise US$33 million for aluminium, US$16 million for alumina, US$241 million for coal, US$129 million for freight services and US$61 million for aluminium raw materials. Underlying EBIT on third party products and services comprise nil for aluminium, US$3 million for alumina, US$27 million for coal, (US$3) million for freight services and US$1 million for aluminium raw materials.
(4) Share of profit/(loss) of equity accounted investments includes the impact of earnings adjustments to Underlying EBIT.
(5) Refer to note 4(b)(i) Earnings adjustments.
(6) Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(7) Total assets and liabilities for each operating segment represent operating assets and liabilities which predominantly exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.
|
Half year ended 31 December 2017
US$M |
Worsley Alumina |
Brazil Alumina |
Hillside Aluminium |
Mozal Aluminium |
South Africa Energy Coal |
Illawarra Metallurgical Coal |
Australia Manganese(1) |
South Africa Manganese(1) |
Cerro Matoso |
Cannington |
Group and unallocated items/ elimination |
Statutory adjustment(1) |
Group |
|
Revenue(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group production |
326 |
240 |
734 |
326 |
622 |
243 |
516 |
221 |
244 |
296 |
- |
(737) |
3,031 |
|
Third party products and services(3) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
463 |
- |
463 |
|
Inter-segment revenue |
342 |
- |
- |
- |
- |
- |
- |
7 |
- |
- |
(342) |
(7) |
- |
|
Total revenue |
668 |
240 |
734 |
326 |
622 |
243 |
516 |
228 |
244 |
296 |
121 |
(744) |
3,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying EBITDA |
246 |
76 |
156 |
77 |
149 |
(5) |
328 |
100 |
84 |
97 |
(25) |
(196) |
1,087 |
|
Depreciation and amortisation |
(82) |
(29) |
(36) |
(17) |
(34) |
(79) |
(29) |
(14) |
(43) |
(25) |
(18) |
43 |
(363) |
|
Underlying EBIT |
164 |
47 |
120 |
60 |
115 |
(84) |
299 |
86 |
41 |
72 |
(43) |
(153) |
724 |
|
Comprising: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group production excluding exploration expensed |
164 |
47 |
120 |
60 |
115 |
(80) |
300 |
86 |
45 |
74 |
(36) |
(386) |
509 |
|
Exploration expensed |
- |
- |
- |
- |
- |
(4) |
(1) |
- |
(4) |
(2) |
(12) |
1 |
(22) |
|
Third party products and services(3) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
5 |
- |
5 |
|
Share of profit/(loss) of equity accounted investments(4) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
232 |
232 |
|
Underlying EBIT |
164 |
47 |
120 |
60 |
115 |
(84) |
299 |
86 |
41 |
72 |
(43) |
(153) |
724 |
|
Net finance cost |
|
|
|
|
|
|
|
|
|
|
|
|
(59) |
|
Income tax (expense)/benefit |
|
|
|
|
|
|
|
|
|
|
|
|
(121) |
|
Underlying earnings |
|
|
|
|
|
|
|
|
|
|
|
|
544 |
|
Earnings adjustments(5) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Profit/(loss) after tax |
|
|
|
|
|
|
|
|
|
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenditure |
- |
- |
- |
- |
- |
4 |
1 |
- |
5 |
2 |
12 |
(1) |
23 |
|
Capital expenditure(6) |
22 |
10 |
13 |
8 |
72 |
40 |
21 |
8 |
11 |
23 |
- |
(29) |
199 |
|
Equity accounted investments(7) |
- |
- |
- |
- |
12 |
1 |
- |
- |
- |
- |
- |
684 |
697 |
|
Total assets(7) |
3,516 |
756 |
1,507 |
685 |
1,036 |
1,655 |
596 |
496 |
764 |
450 |
4,239 |
(567) |
15,133 |
|
Total liabilities(7) |
488 |
112 |
305 |
132 |
1,059 |
247 |
307 |
199 |
213 |
240 |
1,669 |
(547) |
4,424 |
(1) The segment information reflects the Group's interest in the manganese operations and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance. The manganese operations are equity accounted in the half year consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.
(2) A portion of Group production may be provisionally priced at the date revenue is recognised. For the half year ended 31 December 2017 there was no requirement under AASB 118 to separate out and disclose provisional price movements. Presentation of revenue is gross of treatment and refining charges.
(3) Third party products and services sold comprise US$148 million for aluminium, US$48 million for alumina, US$128 million for coal, US$85 million for freight services and US$54 million for aluminium raw materials. Underlying EBIT on third party products and services comprise US$6 million for aluminium, nil for alumina, nil for coal, (US$1) million for freight services and nil for aluminium raw materials.
(4) Share of profit/(loss) of equity accounted investments includes the impact of earnings adjustments to Underlying EBIT.
(5) Refer to note 4(b)(i) Earnings adjustments.
(6) Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(7) Equity accounted investments and total assets and liabilities for each operating segment are as at 30 June 2018. Total assets and liabilities represent operating assets and liabilities which predominantly exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.
(i) Earnings adjustments
The following table shows earnings adjustments in determining Underlying earnings:
|
US$M |
H1 FY19 |
H1 FY18 |
|
Adjustments to Underlying EBIT |
|
|
|
Significant items(1) |
- |
(31) |
|
Exchange rate (gains)/losses on restatement of monetary items(2) |
- |
17 |
|
Fair value (gains)/losses on non-trading derivative instruments and other investments(2)(3)(4) |
28 |
65 |
|
Earnings adjustments included in profit/(loss) of equity accounted investments(5)(6) |
(11) |
- |
|
Total adjustments to Underlying EBIT |
17 |
51 |
|
Adjustments to net finance cost |
|
|
|
Exchange rate variations on net debt |
(21) |
11 |
|
Total adjustments to net finance cost |
(21) |
11 |
|
Adjustments to income tax expense |
|
|
|
Tax effect of earnings adjustments to Underlying EBIT |
(5) |
(23) |
|
Tax effect of earnings adjustments to net finance cost |
7 |
(4) |
|
Exchange rate variations on tax balances |
9 |
(34) |
|
Total adjustments to income tax expense |
11 |
(61) |
|
Total earnings adjustments |
7 |
1 |
(1) Refer to note 4(b)(ii) Significant items.
(2) Recognised in expenses excluding net finance cost in the Consolidated Income Statement.
(3) Primarily relates to US$14 million (H1 FY18: US$58 million) included in the Hillside Aluminium segment and US$12 million (H1 FY18: nil) included in the South Africa Energy Coal segment.
(4) The investment in unit trusts held by the South32 South Africa Energy Coal Rehabilitation Trust Fund does not meet the definition of an equity instrument under AASB 9. These investments are therefore classified as investments held at FVTPL (FY18: Available for sale).
(5) Recognised in share of profit/(loss) of equity accounted investments in the Consolidated Income Statement.
(6) Relates to (US$9) million (H1 FY18: (US$3) million) included in the Australia Manganese segment and (US$2) million (H1 FY18: US$3 million) included in the South Africa Manganese segment.
(ii) Significant items
There were no such items included within the Group's (income)/expense for the half year ended 31 December 2018.
|
H1 FY18 |
|
|
|
|
US$M |
Gross |
Tax |
Net |
|
Unwind of the investment in Dreamvision(1)(2) |
(31) |
- |
(31) |
|
Total significant items |
(31) |
- |
(31) |
(1) Recognised in other income in the Consolidated Income Statement.
(2) Attributable to Group and unallocated items.
NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD
5. Dividends
|
US$M |
|
H1 FY19 |
H1 FY18 |
|
Prior year final dividend(1) |
|
316 |
333 |
|
Total dividends declared and paid during the period |
|
316 |
333 |
(1) On 23 August 2018, the Directors resolved to pay a fully franked final dividend of US 6.2 cents per share (US$317 million) in respect of the 2018 financial year. The dividend was paid on 11 October 2018. The South32 Employee Incentive Plans Trust received dividends from South32 Limited of US$1 million, therefore reducing the dividends paid externally to US$316 million.
6. Earnings per share
Basic earnings per share (EPS) amounts are calculated based on profit attributable to equity holders of South32 Limited and the weighted average number of shares outstanding during the period.
Dilutive EPS amounts are calculated based on profit attributable to equity holders of South32 Limited and the weighted average number of shares outstanding after adjustment for the effects of all dilutive potential shares.
The following reflects the profit/(loss) and share data used in the basic and diluted EPS computations:
|
Profit/(loss) attributable to equity holders |
|
|
|
|
US$M |
|
H1 FY19 |
H1 FY18 |
|
Profit/(loss) attributable to equity holders of South32 Limited (basic) |
|
635 |
543 |
|
Profit/(loss) attributable to equity holders of South32 Limited (diluted) |
|
635 |
543 |
|
|
|
|
|
|
Weighted average number of shares |
|
|
|
|
Million |
|
H1 FY19 |
H1 FY18 |
|
Basic earnings per share denominator(1) |
|
5,079 |
5,191 |
|
Shares contingently issuable under employee share ownership plans(2)(3) |
|
61 |
71 |
|
Diluted earnings per share denominator |
|
5,140 |
5,262 |
(1) The basic EPS denominator is the aggregate of the weighted average number of shares after deduction of the weighted average number of Treasury shares outstanding during the period and shares permanently cancelled through the on-market share buy-back.
(2) Included in the calculation of diluted EPS are shares contingently issuable under employee share ownership plans.
(3) Diluted EPS calculation excludes 10,078,148 (31 December 2017: 6,932,916) rights which are considered anti-dilutive and are subject to service and performance conditions.
|
Earnings per share |
|
|
|
|
US cents |
|
H1 FY19 |
H1 FY18 |
|
Basic earnings per share |
|
12.5 |
10.5 |
|
Diluted earnings per share |
|
12.4 |
10.3 |
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
7. Net finance cost
|
US$M |
H1 FY19 |
H1 FY18 |
|
Finance expenses |
|
|
|
Interest on borrowings |
12 |
6 |
|
Finance lease interest |
25 |
27 |
|
Discounting on provisions and other liabilities |
52 |
52 |
|
Net interest expense on post-retirement employee benefits |
4 |
3 |
|
Fair value change on financial asset |
- |
1 |
|
Exchange rate variations on net debt |
(21) |
11 |
|
|
72 |
100 |
|
Finance income |
|
|
|
Interest income |
34 |
30 |
|
Net finance cost |
38 |
70 |
NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING
8. Financial assets and financial liabilities
The following table presents the Group's financial assets and liabilities by class at their carrying amounts which approximates their fair value.
|
31 December 2018 US$M |
Held at FVTPL |
Designated as FVOCI |
Amortised cost |
Total |
|
Financial assets |
|
|
|
|
|
Cash and cash equivalents |
- |
- |
1,565 |
1,565 |
|
Trade and other receivables(1) |
96 |
- |
534 |
630 |
|
Loans to equity accounted investments |
- |
- |
39 |
39 |
|
Other financial assets |
|
|
|
|
|
Derivative contracts |
93 |
- |
- |
93 |
|
Total current financial assets |
189 |
- |
2,138 |
2,327 |
|
Trade and other receivables(1)(2) |
- |
- |
5 |
5 |
|
Loans to equity accounted investments |
- |
- |
86 |
86 |
|
Interest bearing loans receivable |
- |
- |
34 |
34 |
|
Other financial assets |
|
|
|
|
|
Derivative contracts |
42 |
- |
- |
42 |
|
Investments in equity instruments - designated as FVOCI |
- |
124 |
- |
124 |
|
Other investments - held at FVTPL |
131 |
- |
- |
131 |
|
Total non-current financial assets |
173 |
124 |
125 |
422 |
|
Total |
362 |
124 |
2,263 |
2,749 |
|
Financial liabilities |
|
|
|
|
|
Trade and other payables(3) |
1 |
- |
845 |
846 |
|
Finance leases |
- |
- |
12 |
12 |
|
Unsecured other |
- |
- |
272 |
272 |
|
Total current financial liabilities |
1 |
- |
1,129 |
1,130 |
|
Trade and other payables |
- |
- |
2 |
2 |
|
Finance leases |
- |
- |
542 |
542 |
|
Unsecured other |
- |
- |
61 |
61 |
|
Total non-current financial liabilities |
- |
- |
605 |
605 |
|
Total |
1 |
- |
1,734 |
1,735 |
(1) Excludes current input taxes of US$68 million and non-current input taxes of US$97 million included in other receivables.
(2) Excludes a reimbursable right asset in relation to the closure and rehabilitation provision at South Africa Energy Coal of US$79 million included in other receivables.
(3) Excludes input taxes of US$17 million included in other payables.
As shown in note 3 New standards and interpretations the comparative designations are presented under AASB 139.
|
30 June 2018
US$M |
Loans and receivables |
Available for sale securities |
Held at fair value through profit or loss |
Other financial assets and liabilities at amortised cost |
Cash flow hedges |
Total |
|
Financial assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
2,970 |
- |
- |
- |
- |
2,970 |
|
Trade and other receivables(1) |
572 |
- |
87 |
- |
- |
659 |
|
Loans to equity accounted investments |
27 |
- |
- |
- |
- |
27 |
|
Other financial assets |
|
|
|
|
|
|
|
Derivative contracts |
- |
- |
72 |
- |
5 |
77 |
|
Shares |
- |
3 |
- |
- |
- |
3 |
|
Total current financial assets |
3,569 |
3 |
159 |
- |
5 |
3,736 |
|
Trade and other receivables(1)(2) |
4 |
- |
- |
- |
- |
4 |
|
Loans to equity accounted investments |
67 |
- |
- |
- |
- |
67 |
|
Interest bearing loans receivable |
38 |
- |
- |
- |
- |
38 |
|
Other financial assets |
|
|
|
|
|
|
|
Derivative contracts |
- |
- |
74 |
- |
- |
74 |
|
Shares |
- |
403 |
- |
- |
- |
403 |
|
Other investments |
- |
136 |
- |
- |
- |
136 |
|
Total non-current financial assets |
109 |
539 |
74 |
- |
- |
722 |
|
Total |
3,678 |
542 |
233 |
- |
5 |
4,458 |
|
Financial liabilities |
|
|
|
|
|
|
|
Trade and other payables(3) |
- |
- |
2 |
815 |
- |
817 |
|
Finance leases |
- |
- |
- |
12 |
- |
12 |
|
Unsecured other |
- |
- |
- |
321 |
- |
321 |
|
Other financial liabilities |
|
|
|
|
|
|
|
Derivative contracts |
- |
- |
2 |
- |
- |
2 |
|
Total current financial liabilities |
- |
- |
4 |
1,148 |
- |
1,152 |
|
Trade and other payables |
- |
- |
- |
5 |
- |
5 |
|
Finance leases |
- |
- |
- |
558 |
- |
558 |
|
Unsecured other |
- |
- |
- |
38 |
- |
38 |
|
Total non-current financial liabilities |
- |
- |
- |
601 |
- |
601 |
|
Total |
- |
- |
4 |
1,749 |
- |
1,753 |
(1) Excludes current input taxes of US$140 million and non-current input taxes of US$56 million included in other receivables.
(2) Excludes a reimbursable right asset in relation to the closure and rehabilitation provision at South Africa Energy Coal of US$83 million included in other receivables.
(3) Excludes input taxes of US$13 million included in other payables.
Investments in equity instruments - designated as FVOCI
At 1 July 2018, on an instrument by instrument basis, the Group has elected under AASB 9 to designate investments in equity instruments as FVOCI as they represent investments that the Group intends to hold for long-term strategic purposes. In FY18 these investments were classified as available for sale (refer to note 3 New standards and interpretations).
Other investments - held at FVTPL
The investment in unit trusts held by the South32 South Africa Energy Coal Rehabilitation Trust Fund does not meet the definition of an equity instrument under AASB 9. These investments are therefore classified as investments held at FVTPL (FY18: Available for sale). On transition to AASB 9 (1 July 2018), a net gain of US$12 million was transferred from the financial asset reserve to retained earnings.
Measurement of fair value
The following table shows the Group's financial assets and liabilities carried at fair value with reference to the nature of valuation inputs used:
Level 1 Valuation is based on unadjusted quoted prices in active markets for identical financial assets and liabilities.
Level 2 Valuation is based on inputs (other than quoted prices included in Level 1) that are observable for the financial asset or liability, either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).
Level 3 Valuation includes inputs that are not based on observable market data.
|
31 December 2018 US$M |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets and liabilities |
|
|
|
|
|
Trade and other receivables |
- |
96 |
- |
96 |
|
Trade and other payables |
- |
(1) |
- |
(1) |
|
Derivative contracts |
- |
6 |
129 |
135 |
|
Investments in equity instruments - designated as FVOCI |
28 |
- |
96 |
124 |
|
Other investments - held at FVTPL |
- |
131 |
- |
131 |
|
Total |
28 |
232 |
225 |
485 |
|
30 June 2018 US$M |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets and liabilities |
|
|
|
|
|
Trade and other receivables |
- |
87 |
- |
87 |
|
Trade and other payables |
- |
(2) |
- |
(2) |
|
Derivative contracts |
- |
6 |
143 |
149 |
|
Shares - available for sale |
277 |
- |
129 |
406 |
|
Other investments - available for sale |
- |
136 |
- |
136 |
|
Total |
277 |
227 |
272 |
776 |
Level 3 financial assets and liabilities
The following table shows the movements in the Group's Level 3 financial assets and liabilities.
|
US$M |
H1 FY19 |
H1 FY18 |
|
At the beginning of the period |
272 |
334 |
|
Disposals |
(2) |
(31) |
|
Realised gains/(losses) recognised in the Consolidated Income Statement(1) |
(31) |
(47) |
|
Unrealised gains/(losses) recognised in the Consolidated Income Statement(2) |
17 |
(11) |
|
Unrealised gains/(losses) recognised in the Consolidated Statement of Comprehensive Income(3) |
(31) |
5 |
|
At the end of the period |
225 |
250 |
(1) Realised gains and losses recognised in the Consolidated Income Statement are recorded in expenses excluding net finance cost.
(2) Unrealised gains and losses recognised in the Consolidated Income Statement are recorded in expenses excluding net finance cost.
(3) Unrealised gains and losses recognised in the Consolidated Statement of Comprehensive Income are recorded in the financial assets reserve.
Sensitivity analysis
The carrying amount of financial assets and liabilities that are valued using inputs other than observable market data are calculated using appropriate valuation models, including discounted cash flow modelling, with inputs such as commodity prices, foreign exchange rates and inflation. The potential effect of using reasonably possible alternative assumptions in these models, based on changes in the most significant inputs by 10 per cent while holding all other variables constant, is shown in the following table.
|
31 December 2018 |
|
|
Profit after tax |
Other Comprehensive Income, net of tax |
||||
|
US$M |
Carrying amount |
Significant inputs |
10% increase in input |
10% decrease in input |
10% increase in input |
10% decrease in input |
||
|
Financial assets and liabilities |
|
|
|
|
|
|
||
|
Derivative contracts(1) |
129 |
Aluminium price(2) Foreign exchange rate(2) Electricity price(3) |
(63) |
60 |
- |
- |
||
|
Investments in equity instruments - designated as FVOCI(1) |
96 |
Alumina price(4) Aluminium price(4) Foreign exchange rate(4) |
- |
- |
43 |
(53) |
||
|
Total |
225 |
|
(63) |
60 |
43 |
(53) |
||
(1) Sensitivity analysis is performed assuming all inputs are directionally moving unfavourably and favourably.
(2) Aluminium prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price based on inputs from published data.
(4) Alumina and aluminium prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates.
|
30 June 2018 |
|
|
Profit after tax |
Other Comprehensive Income, net of tax |
||||
|
US$M |
Carrying amount |
Significant inputs |
10% increase in input |
10% decrease in input |
10% increase in input |
10% decrease in input |
||
|
Financial assets and liabilities |
|
|
|
|
|
|
||
|
Derivative contracts(1) |
143 |
Aluminium price(2) Foreign exchange rate(2) Electricity price(3) |
(89) |
84 |
- |
- |
||
|
Investments - available for sale(1) |
129 |
Alumina price(4) Aluminium price(4) Foreign exchange rate(4) |
- |
- |
41 |
(52) |
||
|
Total |
272 |
|
(89) |
84 |
41 |
(52) |
||
(1) Sensitivity analysis is performed assuming all inputs are directionally moving unfavourably and favourably.
(2) Aluminium prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price based on inputs from published data.
(4) Alumina and aluminium prices are comparable to market consensus forecasts and foreign exchange rates are aligned with forward market rates.
NOTES TO FINANCIAL STATEMENTS - OTHER NOTES
9. Acquisition of subsidiaries and jointly controlled operations
(a) Acquisition of Arizona Mining Inc.
On 10 August 2018, the Group completed its acquisition of the remaining 83 per cent of issued and outstanding shares of Arizona Mining Inc. that it did not already own via a plan of arrangement. The transaction was completed for a total consideration of US$1,351 million via a fully funded, all cash offer. The Group's existing 17 per cent interest was derecognised as an investment in equity instruments designated as FVOCI and US$253 million was transferred to form part of the consolidated investment in Arizona Mining Inc. The acquisition was treated as an acquisition of assets including mineral rights, exploration licences and exploration surface facilities.
|
US$M |
|
|
|
Cash outflow on acquisition |
|
|
|
Net cash acquired |
|
10 |
|
Direct costs relating to the acquisition(1) |
|
(1,392) |
|
Net consolidated cash outflow |
|
(1,382) |
|
Net assets |
|
|
|
Cash and cash equivalents |
|
10 |
|
Other assets |
|
1 |
|
Property, plant and equipment(2) |
|
1,661 |
|
Other liabilities |
|
(27) |
|
Net assets |
|
1,645 |
(1) Inclusive of acquisition related transaction costs and other directly attributable costs.
(2) Includes mineral rights of US$1,629 million.
(b) Acquisition of the Eagle Downs Metallurgical Coal project
On 14 September 2018, the Group completed its acquisition of a 50 per cent interest in the Eagle Downs Metallurgical Coal project in Queensland's Bowen Basin. The remaining 50 per cent interest continues to be held by Aquila Resources Pty Ltd, a subsidiary of China BaoWu Steel Group. The transaction was completed for a total upfront payment of US$106 million, a deferred payment of US$27 million and a coal price-linked production royalty capped at US$80 million. The acquisition was treated as an acquisition of assets including mineral rights, site infrastructure and dual drifts which are approximately 40 per cent complete. The joint arrangement is an unincorporated entity and is classified as a joint operation as activities are primarily designed for the provision of output to the parties of the arrangement.
|
US$M |
|
|
|
Cash outflow on acquisition |
|
|
|
Direct costs relating to the acquisition(1) |
|
(112) |
|
Net consolidated cash outflow |
|
(112) |
|
Net assets |
|
|
|
Property, plant and equipment(2) |
|
160 |
|
Interest bearing liabilities(3) |
|
(35) |
|
Other liabilities |
|
(13) |
|
Net assets |
|
112 |
(1) Inclusive of acquisition related transaction costs.
(2) Includes mineral rights of US$107 million.
(3) Includes the deferred payment obligation of US$27 million. The coal price-linked production royalty capped at US$80 million will be expensed as incurred.
10. Subsequent events
On 14 February 2019, the Directors resolved to pay a fully franked interim dividend of US 5.1 cents per share (US$258 million) in respect of the 2019 half year and a fully franked special dividend of US 1.7 cents per share (US$86 million). The dividends will be paid on 4 April 2019. The dividends have not been provided for in the half year consolidated financial statements and will be recognised in the 2019 financial year.
No other matters or circumstances have arisen since the end of the half year that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.
DIRECTORS' DECLARATION
In accordance with a resolution of the Directors of the Group, we state that:
In the opinion of the Directors:
(a) The consolidated financial statements and notes that are set out on pages 28 to 49 for the half year ended 31 December 2018 are in accordance with the Corporations Act, including:
(i) Giving a true and fair view of the Group's financial position as at 31 December 2018 and of its performance for the half year ended on that date; and
(ii) Complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.
(b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the Board of Directors.
David Crawford AO
Chairman
Graham Kerr
Chief Executive Officer and Managing Director
Date: 14 February 2019
DIRECTORS' REPORT
The Directors of the Group present the Consolidated Financial Report for the half year ended 31 December 2018 and the auditor's review report thereon.
Directors
The Directors of the Company during or since the end of the half year are:
David Crawford AO
Frank Cooper AO
Graham Kerr
Xiaoling Liu
Xolani Mkhwanazi
Ntombifuthi (Futhi) Mtoba
Wayne Osborn
Keith Rumble
Karen Wood
The company secretaries of the Company during or since the end of the half year are:
Nicole Duncan
Melanie Williams
Review and results of operations
A review of the operations of the consolidated entity during the period and of the results of those operations is contained on pages 3 to 27.
Principal risks and uncertainties
Due to the international scope of the Group's operations and the industries in which it is engaged, there are a number of risk factors and uncertainties which could have an effect on the Group's results and operations over the next six months.
The following information outlines the most significant strategic, external and operational risks identified across the Group. The list is not exhaustive, nor listed in any particular order:
|
● |
Fluctuations in commodity prices, exchange rates, interest rates and global economy |
|
● |
Actions by governments, political events or tax authorities |
|
● |
Cost inflation and labour dispute impact on operating margins and expansion |
|
● |
Access to water and energy |
|
● |
Failure to maintain, realise or enhance value due to inadequate knowledge of our resources and reserves |
|
● |
Deterioration in liquidity and cash flow |
|
● |
Climate change impacts |
|
● |
Health and safety risks in respect of our operational activities |
|
● |
Water, waste and environmental risks |
|
● |
Unexpected operational or natural catastrophes |
|
● |
Commercial counterparties that we transact with may not meet their obligations |
|
● |
Fraud and corruption |
|
● |
Breaches of information technology security |
|
● |
Failure to retain and attract key people |
|
● |
Support of our local communities |
Further information on these risks and how they are managed can be found on pages 19 to 23 of the Annual Report for the year ended 30 June 2018, a copy of which is available on the Group's website at www.south32.net.
Events subsequent to the balance date
On 14 February 2019, the Directors resolved to pay a fully franked interim dividend of US 5.1 cents per share (US$258 million) in respect of the 2019 half year and a fully franked special dividend of US 1.7 cents per share (US$86 million). The dividends will be paid on 4 April 2019. The dividends have not been provided for in the half year consolidated financial statements and will be recognised in the 2019 financial year.
No other matters or circumstances have arisen since the end of the half year that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.
UK responsibility statements
The Directors state that to the best of their knowledge:
|
● |
The Financial Results and Outlook on pages 3 to 27, includes a fair review of important events during the first six months of the current financial year and their impact on the half year consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and |
|
● |
That disclosure has been made for related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the last annual report that could have such a material effect. |
Lead auditor's independence declaration
A copy of the lead auditor's independence declaration as required under Section 307C of the Corporations Act is set out on page 53.
Rounding of amounts
The Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 applies to the Group and amounts in the half year consolidated financial statements and this Directors' Report have been rounded in accordance with this instrument to the nearest million US dollars, unless stated otherwise.
This Directors' Report is made in accordance with a resolution of the Board.
David Crawford AO
Chairman
Graham Kerr
Chief Executive Officer and Managing Director
Date: 14 February 2019
Lead Auditor's Independence
Declaration under Section 307C of the Corporations Act 2001
|
To the Directors of South32 Limited |
||
|
I declare that, to the best of my knowledge and belief, in relation to the review of South32 Limited for the half-year ended 31 December 2018 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and (ii) no contraventions of any applicable code of professional conduct in relation to the review. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KPMG
Denise McComish Partner
Perth 14 February 2019 |
|
|
Independent Auditor's Review Report
|
|
|||||||||||||
|
To the shareholders of South32 Limited |
|||||||||||||
|
|
|||||||||||||
|
We have reviewed the accompanying Half-year Financial Statements of South32 Limited. Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the Half-year Financial Statements of South32 Limited are not in accordance with the Corporations Act 2001, including:
|
The Half-year Financial Statements comprise:
The Group comprises South32 Limited (the Company) and the entities it controlled at the half-year's end or from time to time during the half-year.
|
||||||||||||
|
|
|||||||||||||
|
The Directors of the Company are responsible for:
|
|||||||||||||
|
|
|
Our responsibility is to express a conclusion on the Half-year Financial Statements based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the Half-year Financial Statements are not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group's financial position as at 31 December 2018 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As auditor of South32 Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual Financial Report.
A review of Half-year Financial Statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.
KPMG
Denise McComish Partner
Perth
14 February 2019 |
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
Disclaimer
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements, including statements about trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions and contingent liabilities. These forward-looking statements reflect expectations at the date of this release, however they are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. Readers are cautioned not to put undue reliance on forward-looking statements. Except as required by applicable laws or regulations, the South32 Group does not undertake to publicly update or review any forward-looking statements, whether as a result of new information or future events. Past performance cannot be relied on as a guide to future performance.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and Underlying EBITDA, Basic Underlying earnings per share, Underlying effective tax rate, Underlying EBIT margin, Underlying EBITDA margin, Underlying return on capital, Free cash flow, net debt, net operating assets and ROIC. These measures are used internally by management to assess the performance of our business, make decisions on the allocation of our resources and assess operational management. Non-IFRS measures have not been subject to audit or review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.
NO OFFER OF SECURITIES
Nothing in this release should be read or understood as an offer or recommendation to buy or sell South32 securities, or be treated or relied upon as a recommendation or advice by South32.
NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA
South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice.
Further information
|
Investor Relations Alex Volante T +61 8 9324 9029 M +61 403 328 408 E Alex.Volante@south32.net |
Media Relations James Clothier T +61 8 9324 9697 M +61 413 391 031 E James.Clothier@south32.net |
Media Relations Jenny White T +44 20 7798 1773 M +44 7900 046 758 E Jenny.White@south32.net |
Further information on South32 can be found at www.south32.net.
South32 Limited (ABN 84 093 732 597)
Registered in Australia
(Incorporated in Australia under the Corporations Act 2001)
Registered Office: Level 35, 108 St Georges Terrace
Perth Western Australia 6000 Australia
ISIN: AU000000S320
JSE Sponsor: UBS South Africa (Pty) Ltd
14 February 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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