Wrap Text
Financial Results And Outlook Year Ended 30 June 2015
South32 Limited
(Incorporated in Australia under the Corporations Act 2001)
(ACN 093 732 597)
ASX / LSE / JSE Share Code: S32
ISIN: AU000000S320
south32.net
24 August 2015
FINANCIAL RESULTS AND OUTLOOK
YEAR ENDED 30 JUNE 2015
To assist shareholders in their understanding of the South32 Group, pro forma financial
information has been prepared to reflect the business as it is now structured and as though
it was in effect for the period 1 July 2013 to 30 June 2015 (refer to the pro forma income
statement and Underlying earnings adjustments on pages 4 and 5). The pro forma financial
information must be read in conjunction with the notes on page 2. The statutory financial
results do not reflect the complete 12 months of performance of the South32 Group.
Selected statutory financial information is also included in this document.
"The implementation of our regional operating model and broader cost saving initiatives
are already delivering strong results. Over the next three years, we are seeking to reduce
controllable costs by at least US$350M per annum."
Graham Kerr, South32 CEO
FINANCIAL RESULTS
- Successfully demerged from BHP Billiton on 25 May 2015.
- Pro forma FY15 Profit after taxation of US$28M (FY14 US$64M).
- Pro forma FY15 Underlying earnings of US$575M (FY14 US$407M).
- Pro forma FY15 Underlying EBIT of US$1.00B (FY14 US$642M).
- Pro forma FY15 Underlying EBITDA margin of 26% (FY14 20%).
- Pro forma FY15 Free cash flow before interest and tax(1) of US$1.68B (FY14 US$974M).
- Pro forma productivity-led cost efficiencies(2) totalling US$282M embedded in FY15.
- Closing net debt of US$402M underpins BBB+/Baa1 credit ratings.
- Pro forma FY15 Underlying return on invested capital (ROIC)(12) of 6.2% (FY14 4.0%).
OUTLOOK
- Fast-tracking the implementation of our regional operating model and redesigning the way we work.
- Seeking to reduce controllable costs(3) by a further US$350M per annum (including equity accounted
investments) or more by the end of FY18.
- Reducing sustaining capital expenditure(4) by 9% to US$650M (including equity accounted investments) in FY16.
- Intending to distribute a minimum 40% of Underlying earnings as dividends in each six month reporting period.
- A simple strategy designed to realise the potential of our assets and deliver long-term growth in ROIC.
Financial highlights
Pro forma(5) Change Statutory(5)(6)
US$M FY15 FY14 % FY15 FY14
Revenue(7) 7,743 8,344 (7%) 3,843 853
Profit/(loss) from continuing operations 519 319 63% (331) (59)
Profit/(loss) after taxation 28 64 (56%) (926) 0
Basic earnings per share (US cents)(8) 0.5 1.2 (58%) (26.9) -
Other financial measures
Underlying EBITDA(9) 1,849 1,465 26% 820 114
Underlying EBITDA margin(10) 26.2% 20.2% 6.0% 23.4% 13.4%
Underlying EBIT(9) 1,001 642 56% 345 (56)
Underlying EBIT margin(11) 14.0% 8.6% 5.4% 9.7% (6.6%)
Underlying earnings(9) 575 407 41% 79 4
ROIC(12) 6.2% 4.0% 2.2% N/A N/A
IMPORTANT NOTICE – PLEASE READ
FORMAT OF THIS ANNOUNCEMENT
The information contained in this announcement is as follows:
- Results for announcement to the market (page 3);
- Pro forma financial results and outlook (page 4);
- Pro forma financial results highlights and overview (page 11);
- Reconciliation of pro forma and statutory financial information (page 27);
- Pro forma segment information (page 30); and
- Financial information (page 35).
BACKGROUND
Effective 15 May 2015, BHP Billiton shares ceased trading with an entitlement to South32 shares. On 18 May 2015, South32 Limited was listed
as a separate standalone entity on the Australian Securities Exchange on a deferred settlement basis, on the London Stock Exchange on a
when-issued basis and on the Johannesburg Stock Exchange on a normal settlement basis. Economic separation and distribution of South32
shares to shareholders became effective from 25 May 2015.
Prior to the demerger, the South32 Group and the BHP Billiton Group were required to undertake a number of internal share and asset transfers
in connection with the corporate restructure (Internal Restructure).
STATUTORY FINANCIAL INFORMATION
As required, statutory financial information for the South32 Group has been presented for the 2015 financial year (FY15) and 2014 financial year
(FY14). The South32 Group's statutory financial information only includes the results of the current South32 Group operations (also referred to
as "assets") from their date of acquisition during the financial year as part of the Internal Restructure(13). The exception is Illawarra Metallurgical
Coal, which was part of the South32 Group at 1 July 2013. The South32 Group's statutory financial information also includes:
- The results of New Mexico Coal for the period 1 July 2014 to 27 October 2014, being the date that it ceased to be part of the South32
Group as a result of the Internal Restructure;
- Finance charges on internal borrowings from the BHP Billiton Group in the period from 1 July 2014 to the point immediately prior to
the demerger, that were settled as part of the demerger; and
- Certain corporate costs required for the South32 Group to operate as a stand-alone group.
Accordingly, as a result of the Internal Restructure, the statutory financial information for FY15 and FY14 does not reflect the performance of the
South32 Group as it is currently structured.
PRO FORMA FINANCIAL INFORMATION
To assist shareholders in their understanding of the South32 Group, pro forma financial information for FY15 and FY14 has been prepared to
reflect the business as it is now structured and as though it was in effect for the period 1 July 2013 to 30 June 2015. The pro forma financial
information is not prepared in accordance with IFRS.
The following pro forma adjustments, including the associated tax effect, have been made on a basis consistent with those contemplated in the
South32 Listing Documents:
- Equity accounting of the South32 manganese assets (comprising South Africa Manganese, Australia Manganese and Samancor AG)
from 1 July 2013 (refer note 1(c) of the notes to the Financial Information); and
- Excluding net finance costs charged by the BHP Billiton Group.
Additional pro forma adjustments, including the associated tax effect, have also been made in the presentation of pro forma financial information.
These include:
- Reflecting changes in corporate costs associated with South32 Limited becoming a stand-alone group as if those costs had been
incurred from 1 July 2013;
- Excluding demerger related set up costs, stamp duty on the acquisition of assets, and major corporate restructuring costs;
- Excluding the gain that arises on recording South Africa Manganese and Samancor AG at fair value on adoption of equity accounting
and their subsequent impairment; and
- Excluding certain significant tax items such as the impact of the reset of Australian tax balances post demerger and the Brazil
Aluminium tax accounting adjustments (refer note 2(b)(ii) to the Financial Information).
A reconciliation between the pro forma financial information and the statutory financial information is included. The statutory financial information,
reconciliations and pro forma financial information have not been audited or reviewed by the Group's external auditor.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 2
Results for announcement to the market 24 August 2015
This statement includes the consolidated results of the South32 Group for the year ended 30 June 2015
compared with the year ended 30 June 2014.
In accordance with the JSE Listing Requirements, Headline Earnings is presented below.
Proforma Statutory
US$M FY15 FY14 FY15 FY14
Profit/(Loss) attributable to ordinary equity holders of South32 Limited 28 64 (919) 46
Adjusted for
Loss/(Gain) on disposal of property, plant and equipment 10 (21) 10 (4)
(Gain) on disposal of intangible assets - (84) - -
Fair value uplift on equity accounted investments - - (921) -
Impairment losses 594 327 1,389 -
Impairment reversal - (8) - -
Adjustments included in share of loss of equity accounted investments 41 - 41 -
Total tax (benefit)/expense on the above items (174) (34) (182) 1
Headline Earnings 499 244 (582) 43
Diluted Headline Earnings 499 244 (582) 43
Basic earnings per share denominator (millions) 5,324 5,324 3,437 3,212
Diluted earnings per share denominator (millions) 5,324 5,324 3,437 3,212
Headline Earnings from continuing operations
Headline Earnings per share (US cents) 9.4 4.6 (17.1) (0.1)
Diluted Headline Earnings per share (US cents) 9.4 4.6 (17.1) (0.1)
Headline Earnings
Headline Earnings per share (US cents) 9.4 4.6 (16.9) 1.3
Diluted Headline Earnings per share (US cents) 9.4 4.6 (16.9) 1.3
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 3
PRO FORMA FINANCIAL RESULTS AND OUTLOOK
To assist shareholders in their understanding of the South32 Group, pro forma financial information for FY15 and FY14 has
been prepared to reflect the business as it is now structured and as though it was in effect for the period 1 July 2013 to
30 June 2015. To provide further insight into the underlying performance of the South32 Group, we also present internal
earnings measures utilised by South32 management. These internal measures include Underlying EBITDA, Underlying
EBIT and Underlying earnings.
Pro forma income statement
US$M FY15 FY14
Revenue 7,743 8,344
Other income 261 269
Expenses excluding net finance costs (7,479) (8,399)
Share of (loss)/profit of equity accounted investments (6) 105
Profit from operations 519 319
Net finance costs (60) (187)
Taxation expense (431) (68)
Profit after taxation 28 64
Basic earnings per share (US cents) 0.5 1.2
Other financial information
Profit from operations 519 319
Earnings adjustments to derive Underlying EBIT 482 323
Underlying EBIT 1,001 642
Depreciation and amortisation 848 823
Underlying EBITDA 1,849 1,465
Profit after taxation 28 64
Earnings adjustments after taxation 547 343
Underlying earnings 575 407
Basic Underlying earnings per share (US cents) 10.8 7.6
A pro forma reconciliation of consolidated operating cash flows from continuing operation , before financing activities
and tax, and after capital expenditure (defined as "Free cash flow before interest and tax" for these pro forma results)
has also been provided.
Pro forma FY15 operating cash flow from continuing operations before financing activities and tax, and after capex
US$M FY15 FY14
Profit from continuing operations 519 319
Non-cash items 1,427 1,129
Profit/(loss) from equity accounted investments 6 (105)
Change in working capital (114) 15
Cash generated from continuing operations 1,838 1,358
Dividends received (including equity accounted investments) 472 206
Capital expenditure (629) (590)
Operating cash flows from continuing operations before financing activities and tax, and after
capital expenditure 1,681 974
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 4
The following table notes the relevant significant items excluded from the Group's Underlying measures.
Earnings adjustments
Pro forma
US$M FY15 FY14
Earnings adjustments to Underlying EBIT
Exchange rate (gains)/losses on restatement of monetary items (93) (53)
Impairment 594 327
Impairment reversals - (8)
Fair value (gains)/losses on derivative instruments (25) 2
Earnings adjustment included in operating loss of equity accounted investments 6 1
Other:
Bayside closure costs (excluding impairments) - 138
Gain on sale of Optimum coal rights - (84)
Total earnings adjustments to Underlying EBIT 482 323
Earnings adjustments to net finance costs
Exchange rate variations on net debt (134) 40
Total earnings adjustments to net finance costs (134) 40
Earnings adjustments to income tax expense
Tax effect of earnings adjustments to Underlying EBIT (134) (25)
Tax effect of earnings adjustments to net finance costs 40 (13)
Exchange rate variations on tax balances 197 (9)
Non-recognition of tax benefits - 27
Other:
Repeal of Minerals Resource Rent Tax legislation 96 -
Total earnings adjustments to income tax expense 199 (20)
Total earnings adjustments after taxation 547 343
Impairments for FY15 include an adjustment to the carrying value of the Wolvekrans Middelburg Complex at South Africa
Energy Coal (-US$551M pre-tax) and the write-off of the Metallic Nickel Recovery project at Cerro Matoso
(-US$41M pre-tax).
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 5
SAFETY
The health and safety of our people is paramount. Tragically, there were two fatalities (at Worsley Alumina and South
Africa Manganese) during FY15 and another (at South Africa Aluminium) in July 2015. The loss of our colleagues is a
stark reminder that our focus on safety must permeate everything we do to ensure every person goes home safely,
every day. The Group's pro forma FY15 Total Recordable Injury Frequency (TRIF) was 5.8 per million hours worked
(FY14 4.7 per million hours worked).
EARNINGS
South32 took operational control of its assets on 1 February 2015 and was successfully demerged from BHP Billiton on
25 May 2015. The Group's inaugural financial results highlight the importance of our continued focus on costs and the
optimisation of capital expenditure as we seek to deliver long-term growth in return on invested capital (ROIC).
Pro forma Underlying EBITDA increased by 26% to US$1.85B in FY15 (FY14 US$1.47B) as production records were
achieved at four assets, namely Illawarra Metallurgical Coal, Australia Manganese, South Africa Manganese and Brazil
Aluminium.
Pro forma FY15 segment earnings(14)
Depreciation
US$M Total Underlying & Underlying Net
revenue EBITDA amortisation EBIT Capex assets(15)
Worsley Alumina 1,291 325 (151) 174 62 3,361
South Africa Aluminium 1,541 317 (67) 250 35 1,151
Mozal Aluminium 630 149 (37) 112 14 626
Brazil Aluminium 497 259 (78) 181 8 928
South Africa Energy Coal 1,315 276 (182) 94 98 395
Illawarra Metallurgical Coal 814 167 (197) (30) 308 1,518
Australia Manganese 595 243 (120) 123 98 1,384
South Africa Manganese 420 32 (52) (20) 41 530
Cerro Matoso 593 133 (75) 58 36 763
Cannington 902 342 (55) 287 39 280
Third party products(16) 795 28 - 28 - -
Group and unallocated items / eliminations (635) (145) (6) (151) 29 69
Equity accounted adjustments (1,015) (277) 172 (105) (139) 30
Total South32 7,743 1,849 (848) 1,001 629 11,035
Underlying net finance costs (194)
Underlying income tax expense (232)
Underlying earnings 575
Earnings adjustments (547)
Profit after taxation 28
Pro forma depreciation and amortisation remained largely unchanged from FY14 at US$848M.
Pro forma Underlying EBIT increased by 56% to US$1.00B (FY14 US$642M). A US$282M increase in productivity-led
cost efficiencies was the key driver of this year-on-year improvement, while contracted power sales in Brazil increased
Underlying EBIT by a further US$53M. Notably, the combined impact of weaker commodity prices (-US$268M) and
inflation (-US$197M) was largely offset by the resurgence of the US dollar against a basket of producer currencies
(+US$435M).
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 6
Pro forma Underlying net finance costs of US$194M largely reflects the unwinding of the discount applied to restoration
and rehabilitation provisions (US$120M), and finance lease charges (US$60M) primarily at Worsley Alumina.
Pro forma Underlying income tax expense was US$232M in FY15, excluding taxation associated with equity accounted
investments. This equates to an Underlying effective tax rate (ETR)(17) of 28.7%. Pro forma tax expense for equity
accounted investments was US$47M, excluding royalty related taxation. The recognition of the GEMCO
(Australia Manganese) Northern Territory royalty as a profits based tax gives rise to a royalty related taxation expense of
US$30M in equity accounted investments in FY15.
Pro forma Underlying earnings increased by 41% to US$575M in FY15 (FY14 US$407M). Consistent with our
accounting policy, various adjustments have been made in arriving at Underlying earnings, including: impairment losses
(-US$594M pre-tax); exchange rate gains associated with the restatement of monetary items (+US$93M pre-tax); fair
value gains on derivative instruments (+US$25M pre-tax); and exchange rate gains associated with the Group's non US
dollar denominated net debt (+US$134M pre-tax). The tax impact of earnings adjustments (-US$199M) includes tax on
the aforementioned items, exchange rate losses on tax balances and a charge associated with the repeal of the Mineral
Resources Rent Tax (MRRT). Pro forma Profit after taxation was US$28M in FY15 (FY14 US$64M).
CASH FLOW
On a pro forma basis, cash generated from continuing operations increased by 35% to US$1.84B in FY15
(FY14 US$1.36B). This included an increase in working capital of US$114M, primarily driven by payments from
provisions in excess of amounts charged (-US$167M), partly offset by a decrease in inventories (+US$98M).
Pro forma capital expenditure (including equity accounted investments) was US$768M in FY15 (FY14 US$697M),
comprising:
- Stay-in-business (SIB), Minor discretionary and Deferred stripping (including underground development) capital
expenditure of US$578M;
- Major project capital expenditure of US$51M; and
- South32's share of capital expenditure associated with equity accounted investments of US$139M.
The Appin Area 9 underground extension at Illawarra Metallurgical Coal is the Group's sole Major project in
development. This project, which is now expected to be completed ahead of schedule and approximately 20% under
budget, also accounted for the majority of Deferred stripping in FY15.
Capital expenditure associated with the Premium Concentrate Ore (PC02) project at GEMCO (Australia Manganese)
and the second phase of the Central Block project at the Wessels mine (South Africa Manganese) is included in
South32's share of capital expenditure associated with equity accounted investments.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 7
BALANCE SHEET
South32's strong balance sheet represents a key point of differentiation in the currently volatile operating environment.
At 30 June 2015, net debt (including finance leases of US$631M) was US$402M. The Group's liquidity and flexibility is
underpinned by an undrawn US$1.5B revolving credit facility (RCF).
Consistent with our commitment to maintain an investment grade credit rating, Standard and Poor's and Moody's
assigned BBB+ and Baa1 credit ratings, respectively, to South32 on 22 May 2015.
DIVIDEND
As indicated in the South32 Listing Documents, the Board has not declared a final dividend for FY15.
The Group's simple capital management framework prioritises investment in safe and reliable operations, and an
investment grade credit rating through the cycle. Once those core priorities have been satisfied, South32 intends to
distribute a minimum 40% of Underlying earnings as dividends to its shareholders in each six month reporting period.
"South32's strong balance sheet is a key point of differentiation and we value it
highly. Our simple capital management framework and dividend policy ensures our
shareholders will be rewarded as financial performance improves."
Brendan Harris, South32 CFO
OUTLOOK
PRODUCTION
The South32 asset base is well capitalised, having received significant investment over many years.
Our strategy includes a deliberate focus on the Group's existing assets as we seek to optimise their performance. Given
the geographic, commodity and technical diversity of our portfolio, a flexible and entrepreneurial approach is required.
The majority of South32's assets occupy the first and second quartiles of their respective industry cost or margin curves.
For those assets, we typically endeavour to maximise production, safely and sustainably. For example, at Worsley
Alumina, incremental production growth is being pursued given the potential to realise additional economies of scale.
Similarly, at Cannington, by stretching the performance of the paste plant and underground mine we are seeking to
minimise the impact of grade decline. Conversely, the decision to temporarily suspend cash flow negative downstream
processing capacity at Metalloys (South Africa Manganese) and Brazil Aluminium reflects our commitment to maximise
financial performance per share, rather than volume.
We will continue to take decisive action where appropriate. For example, a review of South Africa Manganese is
currently underway to ensure it is appropriately structured for the current environment. While a final decision is yet to be
taken, this may lead to a further reduction in planned alloy and ore production.
Production guidance for FY16 and FY17 reflects the targets that have been set for our operations in the current
environment. We will deviate from this guidance should superior long-term returns be attainable by varying the output of
any asset.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 8
FY16/17 attributable upstream production guidance
FY15 FY16e FY17e
Worsley Alumina
Alumina production (kt) 3,819 3,950 3,955
Brazil Aluminium
Alumina production (kt)(18) 1,328 1,320 1,320
South Africa Energy Coal
Domestic coal production (kt) 18,127 16,650 15,300
Export coal production (kt) 16,150 15,300 15,700
Illawarra Metallurgical Coal
Metallurgical coal production (kt) 7,455 7,200 7,500
Energy coal production (kt) 1,471 1,700 1,500
Australia Manganese
Manganese ore production (kt) 2,942 3,050 3,250
South Africa Manganese
Manganese ore production (kt) 1,682 1,650 1,650
Cerro Matoso
Payable nickel production (kt) 40.4 36.5 36.0
Cannington
Payable silver production (koz) 22,601 21,650 19,500
Payable lead production (kt) 183 175 168
Payable zinc production (kt) 72 80 78
The plans for our downstream assets differ depending on their unique circumstances.
Efficiency gains at our South Africa Aluminium and Mozal Aluminium smelters have continued to mitigate the increasing
prevalence of electricity load-shedding events. Metal production is expected to remain broadly unchanged at both
smelters in FY16 and FY17. That being said, electricity grid stability and the frequency of load-shedding events remains
an ever present risk to these targets, notwithstanding the fact that load-shedding has remained within the permissible
limits defined by our electricity supply agreements.
At Brazil Aluminium, all three potlines remain temporarily suspended and contracted electricity has been forward sold
until the end of December 2016. This temporary curtailment of smelting capacity will be the subject of ongoing review.
Based on current plans, alloy production at TEMCO (Australia Manganese) is expected to remain broadly unchanged
from FY15. In contrast, Metalloys (South Africa Manganese) remains under review and is currently operating only one of
its four furnaces in response to challenging market conditions.
COSTS AND CAPITAL EXPENDITURE
Controllable costs
US$282M of productivity-led and other cost efficiencies (hereinafter productivity-led cost efficiencies) were embedded
during FY15 as we fast-tracked the implementation of our regional operating model. This included the decision to close
offices in Wollongong, Brisbane, Townsville and Australind (all Australia). As the next phase of the regional model is
implemented we expect a further reduction in functional support and fewer layers of operational management.
Significant savings are also being achieved in procurement and logistics following the aggregation and elevation of these
commercial activities.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 9
We are seeking to reduce controllable costs by at least US$350M per annum (including equity accounted investment)
over the three years to the end of FY18. This represents approximately 7.5% of our controllable cost base and excludes
the influence of foreign exchange rate movements, inflation, price-linked costs, non-recurring set-up related activities and
cost variances associated with discontinued or suspended operations. If the current environment persists, these factors
would provide a significant additional net benefit to costs.
At an asset level, the mines and refineries offer the greatest potential. Critical enablers include:
- A reduction in contractor usage and rates;
- The optimisation of energy fuels (particularly at Worsley Alumina) and broader consumables usage;
- Equipment and labour productivity; and
- Numerous procurement initiatives.
Greenfield exploration opportunities are currently being assessed and a modest investment in this category is
incorporated in our plans. Exploration activity focussed on our existing assets of approximately US$20M is anticipated in
FY16 (FY15 US$21M; including US$13M exploration expense).
Non-recurring set up costs associated with the establishment of South32 (pre-funded by BHP Billiton) of approximately
US$130M are expected in FY16. These costs, primarily related to the establishment of the Group's IT infrastructure and
broader restructuring activities, will be excluded from our Underlying measures.
Capital expenditure
Capital expenditure continues to be scrutinised in every location as we seek to sustainably de-capitalise the business
and grow ROIC.
Sustaining capital expenditure, comprising Stay-in-business (SIB), Minor discretionary and Deferred stripping capital
expenditure, accounts for a significant component of South32 cash flow. In FY16, this category of expenditure is
expected to decline by 9% (or US$67M) to US$650M (including equity accounted investments). While rarely linear from
year to year, this rate of expenditure is expected to be sustainable, on average, across our planning horizon in real
terms, barring any significant movement in exchange rates or the closure of operations.
Capital expenditure associated with the Premium Concentrate (PC02) project at GEMCO (Australia Manganese) and the
Central Block project at Wessels (South Africa Manganese) is included in the Group's share of capital expenditure
associated with equity accounted investments. This category, which is included in the sustaining capital expenditure
guidance noted above, is expected to account for approximately US$100M of capital expenditure in FY16
(FY15 US$139M).
Total capital expenditure (including equity accounted investments) of approximately US$700M is anticipated in FY16,
including approximately US$50M for Major projects. The Appin Area 9 project (Illawarra Metallurgical Coal) is the
Group's sole Major project in the execution phase. It is expected to be commissioned ahead of schedule in the second
half of FY16, approximately 20% below the original budget of US$845M. Major project capital expenditure guidance
includes approximately US$10M for feasibility studies, primarily associated with the Klipspruit Life Extension project
(South Africa Energy Coal).
Depreciation and amortisation
Group depreciation and amortisation for FY16 is forecast to remain broadly unchanged. Additional depreciation
associated with our annual capital expenditure program is expected to be largely offset by lower depreciation at South
Africa Energy Coal following the impairment of the Wolvekrans Middelburg Complex at 30 June 2015.
Tax expense
The South32 Underlying ETR for FY16 will again reflect the geographic distribution of the Group's profits. The corporate
tax rates applicable to South32 include: Australia 30%; South Africa 28%; Colombia 39%; and Brazil 34%. Should
current conditions prevail, the Group's Underlying ETR would likely exceed 30%.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 10
SOUTH32 PRO FORMA FINANCIAL
RESULTS HIGHLIGHTS AND
OVERVIEW SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 11
For the year ended 30 June 2015
PRO FORMA FINANCIAL RESULTS HIGHLIGHTS
For the release with graphs and schematics, please refer to the company`s website hosted
at www.south32.net
Underlying EBITDA (US$M)
FY14 1 465
FY15 1 849
US$282M of productivity-led cost
efficiencies were the major contributor to
a 26% increase in Underlying EBITDA.
Underlying EBIT (US$M)
FY14 642
FY15 1 001
Our large and low-cost Worsley Alumina
refinery led the way, delivering a
US$150M increase in Underlying EBIT.
Underlying earnings (US$M)
FY14 407
FY15 575
Despite volatile commodity markets, our
high-quality portfolio generated a 41%
increase in Underlying earnings.
Basic Underlying EPS
(US cents)
FY14 7.6
FY15 10.8
We have bold aspirations, including the
pursuit of sector leading TSR by focusing
on per share financial performance.
Free cash flow before interest and
tax (US$M)
FY14 974
FY15 1 681
Our strong balance sheet and cash
generating capacity is a powerful
combination.
Return on invested capital
(ROIC) (%)
FY14 4.0
FY15 6.2
Every investment decision will be closely
scrutinised as we seek to grow ROIC to
an acceptable level.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 12
FINANCIAL OVERVIEW
PRO FORMA EARNINGS ANALYSIS
For the release with graphs and schematics, please refer to the company`s website hosted at www.south32.net
Prices, foreign exchange rates and inflation
FY15 was characterised by volatile commodity markets and a sharp contraction in prices towards the end of the period.
Weaker commodity prices and inflationary pressures were, however, largely offset by a stronger US dollar.
Lower metallurgical and energy coal prices reduced Underlying EBIT by US$273M, while significantly weaker manganese
alloy and ore prices reduce Underlying EBIT by US$166M. In contrast, stronger average realise prices for alumina and
aluminium, and elevated aluminium premiums, increased Underlying EBIT by US$278M. In aggregate, lower average
realised prices reduced Underlying EBIT by US$238M, while price-linked costs reduced Underlying EBIT by a further
US$30M.
Inflation reduced Underlying EBIT by US$$197M in FY1 5. This was most pronounced at Brazil Alluminium and in our African
operations, which collective accounted for approximately 70% of the total impact.
The resurgence of the US dollar against a basket of producer currencies, including the Australian dollar, South African rand,
Colombian peso and Brazilian real, increased Underlying EBIT by US$435M in the period.
Volume efficiencies
During FY15, annual production records were achieved for alumina at Brazil Aluminium, coal at Illawarra Metallurgical Coal,
alloy at Australia Manganese and ore at South Africa Manganese. Despite robust operating performance, sales volumes
declined overall as manganese stockpiles were replenished and ore grades decline at Cannington and Cerro Matoso. In
aggregate, lower sales volumes reduced Underlying EBIT by US$62M.
Cost efficiencies
The implementation of the Group's regional operating model and several initiatives designed to improve the competitiveness
of our assets delivered another significant reduction in operating cost This included a broad based approach focused on
labour productivity, contractor usage and rates, maintenance planning and the more efficient use of various consumables,
including fuel and energy. In total, productivity-led cost efficiencies increased Underlying EBIT by US$282M in FY15. We
are seeking to reduce controllable costs by at least US$350M per annum (including equity accounted investment) over the
three years to the end of FY18.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 13
Non-cash costs
A modest reduction in non-cash charges increased Underlying EBIT by US$18M in the period. This reflected a reduction in
other non-cash charges, which was only partially offset by an increase in depreciation and amortisation expense associated
with continued investment in the business.
Other items
Other items increased Underlying EBIT by a net US$29M as the last of three potlines at Brazil Aluminium was temporarily
suspended and contracted power was preferentially sold into the grid. The combination of higher realised power prices and
volumes increased Underlying EBIT by US$53M.
Ceased and sold operations
Ceased and sold operations increased Underlying EBIT by US$20M in the period. This variance reflects the closure of the
higher-cost Bayside smelter in FY14.
Interest and tax (equity accounted investments)
The Group's manganese assets are jointly controlled by South32 and Anglo American. The Underlying interest and
taxation expense associated with these equity accounted investments declined by US$102M in FY15 as profitability
declined with lower prices.
Net finance costs
Pro forma Underlying net finance costs totalled US$194M (excluding equity accounted investments) in FY15. The
unwinding of the discount applied to the Group's restoration and rehabilitation provisions accounted for US$120M of the
annual charge, while finance lease charges accounted for a further US$60M. Pro forma net interest associated with equity
accounted investments was US$28M in the period.
The following table reconciles the pro forma FY15 Underlying net finance costs to pro forma net finance costs.
Pro forma Underlying net finance costs reconciliation
US$M FY15
Unwind of discount applied to restoration and rehabilitation provisions 120
Finance lease charges 60
Other 14
Pro forma Underlying net finance costs 194
Add back earnings adjustment for exchange rate variations on net debt (134)
Pro forma net finance costs 60
Taxation expense
Pro forma Underlying income tax expense was US$232M (excluding equity accounted investments) in FY15. The Group's
Underlying ETR (excluding equity accounted investments) was 28.7%. The pro forma tax expense for the Group's equity
accounted investments was US$47M. This excluded royalty related taxation at GEMCO (Australia Manganese) which
totalled US$30M in the period.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 14
The following table reconciles the Group's pro forma Underlying income tax expense and Underlying ETR for FY15.
Pro forma Underlying income tax expense reconciliation and Underlying ETR
US$M FY15
Underlying EBIT 1,001
Include: Underlying net finance revenue/(costs) (194)
Remove: Share of loss of equity accounted investments -
Underlying profit/(loss) before taxation 807
Pro forma income tax expense 431
Tax effect of earnings adjustments to Underlying EBIT 134
Tax effect of earnings adjustments to net finance costs (40)
Exchange rate movements (197)
Repeal of Minerals Resource Rent Tax (MRRT) legislation (96)
Underlying income tax expense 232
Underlying effective tax rate (ETR) 28.7%
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 15
ASSET ANALYSIS
A pro forma summary of the Underlying performance of the South32 assets for FY15 and FY14 is presented below.
Pro forma asset tables
Revenue Underlying EBIT
US$M FY15 FY14 FY15 FY14
Worsley Alumina 1,291 1,229 174 24
South Africa Aluminium 1,541 1,614 250 132
Mozal Aluminium 630 574 112 29
Brazil Aluminium 497 529 181 44
South Africa Energy Coal 1,315 1,247 94 31
Illawarra Metallurgical Coal 814 878 (30) (28)
Australia Manganese(a) 595 785 123 276
South Africa Manganese(a) 420 473 (20) 29
Cerro Matoso 593 595 58 5
Cannington 902 1,079 287 418
Third party products 795 1,260 28 30
Inter-segment (635) (659) (151) (141)
Total 8,758 9,604 1,106 849
Equity accounting adjustment(b) (1,015) (1,260) (105) (207)
South32 Group 7,743 8,344 1,001 642
(a) Revenue and Underlying EBIT reflect South32's proportionally consolidated interest in the manganese assets.
(b) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese assets to the treatment of the
manganese assets on an equity accounted basis.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 16
WORSLEY ALUMINA
(86% SHARE)
Volumes
Worsley Alumina saleable production declined by 2% (or 97kt)
to 3.8 Mt in FY15 as planned maintenance reduced
calciner availability. Record quarterly alumina hydrate
production was, however, achieved in the June 2015 quarter
as the input circuit operated at expanded capacity of 4.6
Mtpa (100% basis).
Saleable production is expected to increase by 3% to 3.95
Mt in FY16, with a further lift to 3.96 Mt anticipated in FY17.
An increase in calciner availability and flow rates, and
broader efficiency gains, are expected to deliver the
incremental production growth.
Costs
Operating unit costs declined by 9% to US$250/t as labour
productivity improved and the US dollar strengthened.
Energy costs are expected to decline in FY16 as coal
progressively replaces gas in the cogeneration fuel mix and
the closure of the Australind office reduces overhead costs.
Additional insourcing of contractor related maintenance
activity is also planned.
Financial performance
Underlying EBIT increased by US$150M in FY15 to
US$174M. Higher average realised alumina prices
(+US$91M, net of price-linked costs) and a favourable
movement in foreign exchange rate markets (+US$61M) had
the most significant influence on financial performance.
Productivity-led cost efficiencies increased Underlying EBIT
by US$19M.
Capital expenditure of US$62M was broadly unchanged from
the prior period.
South32 share FY15 FY14
Alumina production (kt) 3,819 3,916
Alumina sales (kt) 3,857 3,864
Realised alumina sales price
(US$/t)(a) 335 318
Operating unit cost (US$/t)(b) 250 276
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
sales.
South32 share (US$M) FY15 FY14
Revenue 1,291 1,229
Underlying EBITDA 325 162
Underlying EBIT 174 24
Net operating assets 3,361 N/A
Capital expenditure 62 56
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 62 56
Exploration expenditure - -
Exploration expensed - -
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 17
SOUTH AFRICA ALUMINIUM
(100% SHARE)
Volumes
South Africa Aluminium saleable production declined by 13%
(or 105 kt) to 699 kt in FY15. The closure of the higher-cost
Bayside smelter in June 2014 accounted for the majority
(89 kt) of the decline. Efficiency gains underpinned largely
unchanged annual production at Hillside (-2%) despite a
104% increase in load-shedding events and an increase in
pot relining activity (136 pots FY15 versus 58 FY14).
Saleable production is expected to remain broadly
unchanged across FY16 and FY17. The ability to maintain
production will be contingent upon the frequency and
intensity of electricity load-shedding events. South Africa
Aluminium retains a strong working relationship with
Eskom and load-shedding has remained within the
allowable limits defined in our electricity supply contracts.
Costs
Operating unit costs remained largely unchanged at
US$1,761/t. A favourable movement in foreign exchange
rate markets and the closure of the higher-cost Bayside
smelter was largely offset by higher costs associated with an
increase in pot relining activity and general cost inflation.
Controllable costs are expected to be impacted by another
increase in pot relining activity in FY16 that forms part of the
natural relining cycle. Hillside sources power 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
and linked to South African and United States producer price
indices. A separate and fully utilised 75 MW power supply
arrangement not covered by a long-term contract is priced at
the same tariff as other South African industrial power users.
Financial performance
Underlying EBIT increased by US$118M in FY15 to
US$250M. The major contributors to the increase in
profitability were higher average realised aluminium prices
and premiums (+US$90M, net of price-linked costs), and a
favourable movement in foreign exchange rate markets
(+US$34M). The transfer of ownership of the Bayside
aluminium cast house to Isizinda Aluminium occurred on 30 June 2015.
Capital expenditure of US$35M was broadly unchanged from
the prior period.
South32 share FY15 FY14
Aluminium production (kt) 699 804
Aluminium sales (kt)(a) 695 804
Realised sales price (US$/t)(a) 2,217 2,007
Operating unit cost (US$/t)(b) 1,761 1,757
(a) Volumes and prices do not include any third party trading that may
be undertaken independently of equity production. Realised sales
price is calculated as sales revenue divided by sales volume.
(b) Total cost per tonne of aluminium sold. Operating unit cost is
Revenue less Underlying EBITDA divided by sales.
South32 share (US$M) FY15 FY14
Revenue 1,541 1,614
Underlying EBITDA 317 201
Underlying EBIT 250 132
Net operating assets 1,151 N/A
Capital expenditure 35 28
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 35 28
Exploration expenditure - -
Exploration expensed - -
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 18
MOZAL ALUMINIUM
(47.1% SHARE)
Volumes
Mozal Aluminium saleable production was effectively
unchanged at 265 kt in FY15, despite a 50% increase in
load-shedding events reported during the period. This
included a strong finish to the year (June 2015 quarterly
production unchanged at 65 kt) even though load-shedding
was skewed to the fourth quarter.
Saleable production is expected to remain broadly
unchanged across FY16 and FY17. The ability to maintain
production levels will be contingent upon the frequency and
intensity of electricity load shedding events. Load-shedding
has remained within the allowable limits defined in Mozal
Aluminium's electricity supply contracts. The smelter utilises
hydroelectric power under long-term contract that is
generated by Hidroeléctric Cahora Bassa (HCB). HCB
delivers power into the South African grid to Eskom and
Mozal Aluminium sources the power via the Mozambique
Transmission Company (Motraco).
Costs
Operating unit costs declined by 4% to US$1,762/t. Lower
coke and pitch prices, higher labour productivity, a reduction
in the level of pot relining activity and a favourable movement
in foreign exchange rate markets all contributed.
Cost reduction and efficiency initiatives are expected to be
broadly offset by an increase in pot relining activity in
FY16 that forms part of the natural relining cycle.
Financial performance
Underlying EBIT increased by US$83M in FY15 to
US$112M. Higher realised aluminium prices and premiums
increased Underlying EBIT by US$48M (net of price-linked
costs). Productivity-led cost efficiencies, including lower input
and contractor costs, increased Underlying EBIT by
US$21M. A favourable movement in foreign exchange rate
markets increased Underlying EBIT by a further US$20M.
Capital expenditure of US$14M was broadly unchanged from
the prior period.
South32 share FY15 FY14
Aluminium production (kt) 265 266
Aluminium sales (kt)(a) 273 276
Realised sales price (US$/t)(a) 2,308 2,080
Operating unit cost (US$/t)(b) 1,762 1,844
(a) Volumes and prices do not include any third party trading that may
be undertaken independently of the equity production. Realised
sales price is calculated as sales revenue divided by sales volume.
(b) Total cost per tonne of aluminium sold. Operating unit cost is
Revenue less Underlying EBITDA divided by sales.
South32 share (US$M) FY15 FY14
Revenue 630 574
Underlying EBITDA 149 65
Underlying EBIT 112 29
Net operating assets 626 N/A
Capital expenditure 14 8
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 14 8
Exploration expenditure - -
Exploration expensed - -
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 19
BRAZIL ALUMINIUM
(ALUMINA 36% SHARE, ALUMINIUM
40% SHARE)
Volumes
Brazil Aluminium saleable alumina production increased by
5% (or 66 kt) to a record 1.3 Mt in FY15 as the refinery
exceeded nameplate capacity. Conversely, saleable
aluminium production declined by 62% (or 64 kt) to 40 kt
following the decision to suspend production in the last of
three potlines from April 2015.
Saleable alumina production is expected to be broadly
unchanged across FY16 and FY17. All three potlines at the
smelter remain temporarily suspended and contracted
electricity has been forward sold until the end of the
December 2016 half year. This temporary curtailment of
smelting capacity will be the subject of ongoing review.
Costs
Alumina operating unit costs declined by 16% to US$215/t as
incremental production growth delivered additional
economies of scale. Greater stability in the refinery also led
to a reduction in maintenance costs, while the US dollar
strengthened against the Brazilian real.
Financial performance
Underlying EBIT increased by US$137M in FY15 to
US$181M. The major contributors to the significant increase
in profitability were higher realised alumina and aluminium
prices, and premiums (+US$49M, net of price-linked costs),
and a favourable movement in foreign exchange rate
markets (+US$64M). The combination of higher realised
power prices and an increase in the volume of contracted
power sales increased Underlying EBIT by US$53M.
Conversely, inflationary pressures in Brazil reduced
Underlying EBIT by US$25M.
While the volume of contracted power forward sold in FY16
will increase, the average margin achieved is expected to be
significantly lower than that achieved in FY15. Underlying
EBIT generated from the unhedged forward sale of power
will be approximately BRL255M in FY16
(FY15 BRL300M).
Capital expenditure of US$8M was broadly unchanged from
the prior period.
South32 share FY15 FY14
Alumina production (kt) 1,328 1,262
Aluminium production (kt) 40 104
Alumina sales (kt) 1,309 1,248
Aluminium sales (kt) 41 104
Realised alumina sales price
(US$/t)(a) 323 300
Realised aluminium sales price
(US$/t)(a) 2,366 2,000
Alumina operating unit cost
(US$/t)(b)(c) 215 256
Aluminium operating unit cost
(US$/t)(b)(d) 2,366 1,923
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
sales.
(c) Includes cost of acquiring bauxite from MRN.
(d) Includes cost of alumina transferred from the Alumar refinery to the
Alumar smelter at the alumina contract sales price. Excludes
EBITDA from the sale of power.
South32 share (US$M) FY15 FY14
Revenue 497 529
Alumina 423 374
Aluminium 97 208
Intra-segment elimination (23) (53)
Other income(a) 229 121
Underlying EBITDA 259 127
Alumina 141 54
Aluminium 118 73
Underlying EBIT 181 44
Alumina 83 (10)
Aluminium 98 54
Net operating assets 928 N/A
Alumina 744 N/A
Aluminium 184 N/A
Capital expenditure 8 9
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 8 9
Exploration expenditure - -
Exploration expensed - -
(a) Other income primarily comprises revenue generated from the sale
of surplus electricity into the transmission grid.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 20
SOUTH AFRICA ENERGY COAL
(90% SHARE)
Volumes
South Africa Energy Coal saleable production increased by
13% (or 3.9 Mt) to 34.3 Mt in FY15. The continued
optimisation of equipment availability and mine planning also
underpinned a 23% and 13% increase in export and
domestic sales, respectively. Saleable coal production in the
June 2015 quarter declined by 8% (or 728 kt) following the
curtailment of mining activity at the Khutala open cut mine.
The Khutala open cut mine contributed 1.4 Mt of domestic
coal production in FY15.
Saleable coal production is expected to decline to
approximately 32.0 Mt in FY16 and 31.0 Mt in FY17 largely
as a result of the curtailment of mining activity at the Khutala
open cut mine and the sequencing of pits in the Wolvekrans
Middelburg Complex. The majority of the impact will be
reflected in domestic coal sales, which are forecast to be
approximately 1.5 Mt lower in FY16.
Costs
Operating unit costs declined by 14% to US$30/t as
additional economies of scale were realised with stronger
volumes, the US dollar strengthened against the rand and
the strip ratio fell.
The insourcing of key activities currently performed by
contractors, associated labour productivity and the
renegotiation of contracts on more favourable terms is
expected to deliver another reduction in controllable costs in
FY16.
Financial performance
Underlying EBIT increased by US$63M in FY15 to US$94M.
Productivity-led cost efficiencies increased Underlying EBIT
by US$84M while lower depreciation associated with prior
impairments increased Underlying EBIT by another
US$39M. The combination of lower product prices
(-US$78M, net of price-linked costs) and inflation (-US$63M)
more than offset the benefit associated with a stronger US
dollar (+US$65M).
A US$33M increase in capital expenditure to US$98M
reflected an increase in dewatering activities and the
purchase of mobile equipment as we continued to insource
contractor activities.
100 per cent terms(a) FY15 FY14
Energy coal production (kt) 34,277 30,384
Domestic sales (kt)(b) 18,416 16,330
Export sales (kt)(b) 16,390 13,298
Realised domestic sales price
(US$/t)(b) 21 22
Realised export sales price
(US$/t)(b) 56 66
Operating unit cost (US$/t)(c) 30 35
(a) South32's interest in South Africa Energy Coal is accounted at
100 per cent until ESOP and B-BBEE vendor loans are repaid.
(b) 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.
(c) Operating unit cost is Revenue less Underlying EBITDA divided by
sales.
100 per cent terms(a) (US$M) FY15 FY14
Revenue(b) 1,315 1,247
Underlying EBITDA 276 224
Underlying EBIT 94 31
Net operating assets 395 N/A
Capital expenditure 98 65
Major projects (>US$100M) - -
Deferred stripping 13 8
All other capital expenditure 85 57
Exploration expenditure - -
Exploration expensed - -
(a) South32's interest in South Africa Energy Coal is accounted at
100 per cent until ESOP and B-BBEE vendor loans are repaid.
(b) Includes domestic and export sales revenue.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 21
ILLAWARRA METALLURGICAL COAL
(100% SHARE)
Volumes
Illawarra Metallurgical Coal saleable production increased by
19% (or 1.4 Mt) to a record 8.9 Mt in FY15. An improvement
in longwall availability and utilisation, and a 22% increase in
washed tonnes from the West Cliff coal processing plant,
underpinned record metallurgical coal production.
Total saleable coal production is expected to be broadly
unchanged at approximately 8.9 Mt in FY16, although three
longwall moves are planned (compared to two in FY15),
including one in the December 2015 half year. The ramp-up
of the Appin Area 9 project from FY16 is expected to see
Illawarra volumes maintained at capacity of approximately
9.0 Mt as the West Cliff operation is depleted.
The product mix at Illawarra is set to change in FY16 as the
mine plan moves through seams that will alter average
product yields. In this regard, marginally lower metallurgical
coal production is expected to be offset by a modest increase
in energy coal output. This trend reverses in FY17, when the
mine plan favours metallurgical coal production.
Costs
Operating unit costs declined by 24% in FY15 to US$74/t.
This significant reduction in costs was driven by a favourable
movement in foreign exchange rate markets and broader
cost savings initiatives. For example, a significant reduction
in contractor rates has been achieved and is reflected in our
forward plans.
The continual improvement in the planning and execution of
maintenance activity, and a broader increase in labour
productivity is expected to contribute to a reduction in
controllable operating costs in FY16. Illawarra Metallurgical
Coal is currently negotiating the Dendrobium mine Enterprise
Agreement.
Financial performance
Underlying EBIT decreased by US$2M in FY15 to a loss of
US$30M. Lower realised coal prices
(-US$164M) were offset by an equivalent improvement in
cost related efficiencies (+US$165M).
Capital expenditure was unchanged from the prior period.
The Appin Area 9 project is 86% complete and is now
expected to be commissioned ahead of schedule in the
second half of FY16, approximately 20% below the original
budget of US$845M. Total capital expenditure for FY15 was
US$308M.
South32 share FY15 FY14
Metallurgical coal production (kt) 7,455 5,974
Energy coal production (kt) 1,471 1,539
Metallurgical coal sales (kt) 7,324 5,921
Energy coal sales (kt) 1,378 1,623
Realised metallurgical coal sales
price (US$/t)(a) 101 130
Realised energy coal sales price
(US$/t)(a) 54 67
Operating unit cost (US$/t)(b) 74 98
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
sales.
South32 share (US$M) FY15 FY14
Revenue(a) 814 878
Underlying EBITDA 167 142
Underlying EBIT (30) (28)
Net operating assets 1,518 N/A
Capital expenditure 308 309
Major projects (>US$100M) 51 93
Deferred stripping(b) 119 137
All other capital expenditure 138 79
Exploration expenditure 5 5
Exploration expensed 5 5
(a) Includes metallurgical coal and energy coal sales revenue.
(b) Includes capitalised underground development expenditure.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 22
AUSTRALIA MANGANESE
(60% SHARE)
Volumes
Australia Manganese saleable ore production increased by
3% (or 76 kt) to 2.9 Mt in FY15 as plant throughput and
concentrator yields improved. Near record production at
GEMCO was supported by an increase in total material
movement as the waste-to-ore strip ratio increased to
3.0:1 (2.6:1 FY14). An increase in ore inventories was recorded
over the course of the year as stockpiles returned to
normalised levels. Record annual alloy production was
achieved at TEMCO.
Manganese ore production is expected to increase to
approximately 3.05 Mt in FY16 as mining rates are increased
to match plant capacity. Another rise in ore production to
3.25 Mt is expected in FY17 as the Premium Concentrate
Ore (PC02) project is completed. TEMCO manganese alloy
production is expected to remain broadly unchanged, subject
to market conditions.
Costs
Manganese ore operating unit costs declined by 3% to
US$94/t. The waste to ore strip ratio is expected to increase
to 3.2:1 and then 3.7:1 in FY16 and FY17, respectively. A
rise in labour productivity and broader cost saving initiatives
are expected to largely offset this impact.
Financial performance
Underlying EBIT declined by US$153M in FY15 to
US$123M. Lower manganese ore and alloy prices reduced
Underlying EBIT by US$105M (net of price-linked costs),
while a decline in sales volumes reduced Underlying EBIT by
a further US$30M. In contrast, a favourable movement in
foreign exchange rate markets increased Underlying EBIT by
US$28M. A rise in non-cash charges reduced Underlying
EBIT by US$36M, largely reflecting the ramp-up of the
Groote Eylandt Expansion Project (GEEP) 2.
Capital expenditure increased by US$33M to US$98M. This
included a US$41M investment in the Premium Concentrate
Ore (PC02) project. The PC02 project increases manganese
ore production capacity by 0.5 Mt. The project is 48%
complete and remains on schedule for completion in the
second half of FY16. The original budget of US$139M
(100% basis) remains unchanged.
South32 share FY15 FY14
Manganese ore production (kt) 2,942 2,866
Manganese alloy production (kt) 167 161
Manganese ore sales (kt)(a) 2,845 3,038
External customers 2,540 2,755
TEMCO 305 283
Manganese alloy sales (kt)(a) 139 166
Realised manganese ore sales
price (US$/t)(a) 174 219
Realised manganese alloy sales
price (US$/t)(a) 964 1,024
Ore operating unit cost (US$/t)(b) 94 97
Alloy operating unit cost
(US$/t)(b)(c) 849 946
(a) Volumes and prices do not include any third party trading that may
be undertaken independently of equity production. Realised sales
price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
sales.
(c) Includes the cost of manganese ore acquired by TEMCO from
GEMCO at market prices.
South32 share (US$M) FY15 FY14
Revenue(a) 595 785
Manganese Ore 494 664
Manganese Alloy 134 170
Intra-segment elimination (33) (49)
Underlying EBITDA 243 383
Manganese Ore 227 370
Manganese Alloy 16 13
Underlying EBIT 123 276
Manganese Ore 115 270
Manganese Alloy 8 6
Net operating assets 1,384 N/A
Manganese Ore 1,365 N/A
Manganese Alloy 19 N/A
Capital expenditure 98 65
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 98 65
Exploration expenditure 2 3
Exploration expensed 2 3
(a) Revenues referring to sales from GEMCO to TEMCO are eliminated
as part of the consolidation.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 23
SOUTH AFRICA MANGANESE
(ORE 44.4% SHARE, ALLOY 60% SHARE)
Volumes
South Africa Manganese saleable ore production increased
by 7% (or 116 kt) to a record of 1.7 Mt in FY15 as equipment
availability and recoveries continued to improve. Manganese
alloy production increased by 9% (or 20 kt) to 246 kt in FY15.
Metalloys production declined substantially in the June 2015
quarter as a fatality led to the initial suspension of operations,
before a decision was taken to restart only one of the four
furnaces in response to challenging market conditions.
Subject to market demand and the continuing review of our
manganese assets, saleable ore production is expected to
decline marginally to approximately 1.65 Mt for both FY16
and FY17. Only one of the four furnaces at Metalloys is
currently in operation.
Costs
Manganese ore operating unit costs increased by 13% to
US$90/t as broader inflationary pressure more than offset
the benefit associated with a stronger US dollar.
Conversely, alloy operating unit costs declined by 13% to
US$948/t, despite the temporary suspension of
production in three of the four furnaces at Metalloys
towards the end of the period.
Financial performance
Underlying EBIT declined by US$49M to a loss of US$20M.
Lower realised manganese ore and alloy prices reduced
Underlying EBIT by US$61M (net of price-linked costs),
although this was partially offset by a favourable movement
in foreign exchange rate markets (+US$17M) and
productivity-led cost efficiencies (+US$20M).
Capital expenditure of US$41M was broadly unchanged from
the prior period and included a US$9M investment in the
second phase of the Central Block project at Wessels. This
project increases ROM production capacity at Wessels to 1.5
Mtpa (100% basis). The US$31M (100% basis) project is
44% complete and remains on schedule and budget with first
production expected in the first quarter of FY17.
South32 share FY15 FY14
Manganese ore production (kt) 1,682 1,566
Manganese alloy production (kt) 246 226
Manganese ore sales (kt)(a) 1,636 1,545
External customers 1,208 1,185
Metalloys 428 360
Manganese alloy sales (kt)(a) 251 240
Realised manganese ore sales
price (US$/t)(a) 112 130
Realised manganese alloy sales
price (US$/t)(a) 876 992
Ore operating unit cost (US$/t)(b) 90 80
Alloy operating unit cost
(US$/t)(b)(c) 948 1,096
(a) Volumes and prices do not include any third party trading that may
be undertaken independently of equity production. Realised sales
price is calculated as sales revenue divided by sales volume
(Manganese Ore sales gross-up to reflect 60% accounting effective
interest).
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
sales (Manganese Ore sales gross-up to reflect 60% accounting
effective interest).
(c) Includes the cost of the manganese ore acquired by Metalloys from
Hotazel mines at market prices.
South32 share (US$M) FY15 FY14
Revenue(a) 420 473
Manganese Ore(b) 249 273
Manganese Alloy 220 238
Intra-segment elimination (49) (38)
Underlying EBITDA 32 82
Manganese Ore(b) 50 107
Manganese Alloy (18) (25)
Underlying EBIT (20) 29
Manganese Ore(b) 12 68
Manganese Alloy (32) (39)
Net operating assets 530 N/A
Manganese Ore(b) 384 N/A
Manganese Alloy 146 N/A
Capital expenditure 41 42
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 41 42
Exploration expenditure - -
Exploration expensed - -
(a) Revenues referring to sales from Hotazel mines to Metalloys are
eliminated as part of the consolidation.
(b) For accounting purposes South32 reported a 60% effective interest
in Manganese Ore until the B-BBEE vendor loans are repaid.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 24
CERRO MATOSO (99.9% SHARE)
Volumes
Cerro Matoso payable nickel production declined by 9%
(or 3.9 kt) to 40 kt in FY15 as a result of an 11% reduction in
the average ore grade and a 17 day strike in April 2015.
Payable nickel production is expected to decline to
approximately 36.5 kt in FY16, with a similar rate of
production anticipated in FY17. The associated reduction in
ore grades is consistent with the life-of-mine plan.
If developed, the higher grade La Esmeralda deposit has the
potential to deliver an uplift in ore grades between FY18 and
FY22. The application process for a new Social and
Environmental licence to allow access to La Esmeralda has
commenced.
Costs
Operating unit costs declined by 13% to US$175/t, largely as
a result of the stronger US dollar. Various cost savings
initiatives, including the rebasing of contractor usage and
rates, are expected to deliver a significant reduction in
controllable costs in FY16.
Financial performance
Underlying EBIT increased by US$53M in FY15 to US$58M.
The strength of the US dollar was the major contributor
(+US$63M), although this was partially offset by inflationary
pressures (-US$16M) and weaker realised prices (-US$8M,
net of price-linked costs). While underlying costs benefitted
from an increase in labour productivity and an improvement
in maintenance planning, this was offset by the impact of the
April 2015 strike. A reduction in non-cash charges increased
Underlying EBIT by US$28M.
Capital expenditure declined considerably in FY15 to
US$36M.
South32 share FY15 FY14
Ore mined (kwmt) 6,321 8,490
Ore processed (kdmt) 2,629 2,493
Ore grade processed (per cent,
Ni) 1.7 1.9
Payable nickel production (kt) 40.4 44.3
Payable nickel sales (kt) 40.6 45.1
Realised nickel sales price
(US$/t)(a) 14,606 13,193
Operating unit cost (US$/t
processed)(b) 175 201
(a) Inclusive of by-products. Realised sales price is calculated as sales
revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
ore processed.
South32 share (US$M) FY15 FY14
Revenue 593 595
Underlying EBITDA 133 93
Underlying EBIT 58 5
Net operating assets 763 N/A
Capital expenditure 36 56
Major projects (>US$100M) - -
Deferred stripping - -
All other capital expenditure 36 56
Exploration expenditure 9 8
Exploration expensed 1 2
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 25
CANNINGTON (100% SHARE)
Volumes
Payable silver production declined by 10% (or 2.6 Moz) to
22.6 Moz in FY15 as an increase in milling rates mitigated
the impact of a 13% decline in the average silver ore grade.
With declining ore grades the paste plant will play a critical
role in increasing mining rates. Annual paste fill production
increased by 3% during the period.
Payable lead production declined by a lesser 2% (or 4 kt) in
FY15, while a significant increase in the average zinc ore
grade and processing recoveries led to a 24% (or 14 kt)
increase in payable zinc production.
Silver and lead production is expected to decline over the
next two years as ore grades decline, although this will be
partially offset by an increase in zinc ore grades and
production.
Costs
Operating unit costs declined by 11% in FY15 to US$170/t.
This largely reflected a favourable movement in foreign
exchange rate markets and a reduction in both the cost and
volume of consumables used and reduction in labour costs.
Another reduction in controllable costs is anticipated in FY16.
This is expected to be achieved by further improving
maintenance planning and reducing contractor and
consumable costs.
Financial performance
Underlying EBIT declined by US$131M in FY15 to
US$287M. Lower average realised prices reduced
Underlying EBIT by US$114M (net of price-linked costs).
Finalisation adjustments and the provisional pricing of
Cannington concentrates reduced Underlying EBIT by
US$43M (+US$29M 2014 financial year; -US$40M
December 2014 half year).
The outstanding concentrate sales (containing 8.6 Moz of
silver, 7.0 kt of lead and 1.5 kt of zinc) were revalued at
30 June 2015. The final price of these sales will be determined
in FY16. The impact of lower sales volumes (-US$59M) was
offset by productivity-led cost efficiencies (+US$29M) and a
favourable movement in foreign exchange rate markets
(+US$35M).
Capital expenditure declined by 35% to US$39M.
South32 share FY15 FY14
Ore mined (kt) 3,418 3,446
Ore processed (kt) 3,289 3,202
Ore grade processed (g/t, Ag) 257 296
Ore grade processed (%, Pb) 6.7% 7.1%
Ore grade processed (%, Zn) 3.4% 3.0%
Payable Silver production (koz) 22,601 25,161
Payable Lead production (kt) 183 187
Payable Zinc production (kt) 72 58
Payable Silver sales (koz) 23,831 26,160
Payable Lead sales (kt) 189 189
Payable Zinc sales (kt) 66 62
Realised Silver sales price
(US$/oz)(a) 17 20
Realised Lead sales price
(US$/t)(a) 1,889 2,344
Realised Zinc sales price
(US$/t)(a) 2,197 2,000
Operating unit cost (US$/t ore
processed)(b) 170 192
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
ore processed.
South32 share (US$M) FY15 FY14
Revenue 902 1,079
Underlying EBITDA 342 465
Underlying EBIT 287 418
Net operating assets 280 N/A
Capital expenditure 39 60
Major project (>US$100M) - -
Deferred stripping - -
All other capital expenditure 39 60
Exploration expenditure 5 5
Exploration expensed 5 5
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 26
PRO FORMA RECONCILIATIONS
The following tables reconcile pro forma and statutory earnings for FY15 and FY14.
FY15 Pro forma
Statutory Demerger related consolidated
US$M consolidated pro forma financial
income statement adjustments(a) information
Revenue 3,843 3,900 7,743
Other income 1,143 (882) 261
Expenses excluding net finance costs (5,247) (2,232) (7,479)
Share of profit/(loss) of equity accounted investments (70) 64 (6)
Profit/(loss) from continuing operations (331) 850 519
Net finance costs (67) 7 (60)
Taxation expense (528) 97 (431)
Profit/(loss) after taxation from continuing operations (926) 954 28
Profit from discontinued operations, net of tax 7 (7) -
Profit/(loss) after taxation (919) 947 28
Other financial information
Profit/(loss) from continuing operations (331) 850 519
Earnings adjustments 676 (194) 482
Underlying EBIT from continuing operations 345 656 1,001
Depreciation and amortisation 475 373 848
Underlying EBITDA from continuing operations 820 1,029 1,849
Profit/ (loss) after taxation from continuing operations (926) 954 28
Earnings adjustments after taxation 1,005 (458) 547
Underlying earnings from continuing operations 79 496 575
(a) The significant items contained in the demerger related pro forma adjustments comprise:
- The results of the current South32 Group operations between 1 July 2013 and their date of acquisition during the financial year as
part of the Internal Restructure;
- Exclusion of the results of New Mexico Coal for the period 1 July 2013 to 27 October 2014 being the date that it ceased to be part of
the South32 Group as a result of the Internal Restructure (refer note 1(b) of the notes to the Financial Information).
- Presenting South32 manganese assets (comprising South Africa Manganese, Australia Manganese and Samancor AG) on an equity
accounted basis from 1 July 2013 including associated depreciation (refer note 1(c) of the notes to the Financial Information);
- Additional corporate costs associated with South32 Limited becoming a stand-alone group US$46M (FY14 US$53M);
- Exclusion of net finance costs charged by the BHP Billiton Group of US$69M (FY14 US$84M);
- Exclusion of demerger related set up costs, stamp duty on the acquisition of assets, and major corporate restructuring costs of
US$269M (FY14 US$ nil);
- Exclusion of the gain that arises on recording South Africa Manganese and Samancor AG at fair value on adoption of equity
accounting of US$921M (FY14 US$ nil) and their subsequent impairment of US$770M (FY14 US$ nil);
- The tax effect of the above items; and
- Excluding certain significant tax expense items such as the impact of the reset of Australian tax balances post demerger and the
Brazil Aluminium tax accounting adjustments of US$481M (FY14 US$44M).
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 27
FY14 Pro forma
Statutory Demerger related consolidated
US$M consolidated pro forma financial
income statement adjustments(a) information
Revenue 853 7,491 8,344
Other income 30 239 269
Expenses excluding net finance costs (942) (7,457) (8,399)
Share of profit/(loss) of equity accounted investments - 105 105
Profit/(loss) from continuing operations (59) 378 319
Net finance costs (15) (172) (187)
Taxation benefit/ (expense) 74 (142) (68)
Profit/(loss) after taxation from continuing operations - 64 64
Profit from discontinued operations, net of tax 46 (46) -
Profit/(loss) after taxation 46 18 64
Other financial information
Profit/(loss) from continuing operations (59) 378 319
Earnings adjustments 3 320 323
Underlying EBIT from continuing operations (56) 698 642
Depreciation and amortisation 170 653 823
Underlying EBITDA from continuing operations 114 1,351 1,465
Profit/ (loss) after taxation from continuing operations - 64 64
Earnings adjustments after taxation 4 339 343
Underlying earnings from continuing operations 4 403 407
(a) Refer to footnote (a) on page 26.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 28
The following tables reconcile pro forma and statutory operating cash flows before financing activities and tax, and after
capital expenditure for FY15 and FY14.
FY15 South32 statutory South32 pro forma
US$M consolidated Demerger related pro forma consolidated financial
cash flow statement adjustments(a) information
Profit/(loss) from continuing (331) 850 519
operations
Non-cash items 1,036 391 1,427
(Profit)/loss from equity
accounted investments 70 (64) 6
Change in working capital (110) (4) (114)
Cash generated from
continuing operations 665 1,173 1,838
Dividends received (including
equity accounted 0 472 472
investments)
Capital expenditure (454) (175) (629)
Operating cash flows from
continuing operations before
financing activities and tax
and after capital expenditure 211 1,470 1,681
FY14 South32 statutory South32 pro forma
consolidated cash flow Demerger related pro forma consolidated financial
US$M statement adjustments(a) information
Profit/(loss) from continuing
operations (59) 378 319
Non-cash items 175 954 1,129
(Profit)/loss from equity
accounted investments - (105) (105)
Change in working capital 12 3 15
Cash generated from
continuing operations 128 1,230 1,358
Dividends received (including
equity accounted - 206 206
investments)
Capital expenditure (309) (281) (590)
Operating cash flows from
continuing operations before
financing activities and tax
and after capital expenditure (181) 1,155 974
(a) The significant items contained in the demerger related pro forma adjustments comprise:
- The results of the current South32 Group operations between 1 July 2013 and their date of acquisition during the financial year as part
of the Internal Restructure;
- Exclusion of the results of New Mexico Coal for the period 1 July 2013 to 27 October 2014 being the date that it ceased to be part of
the South32 Group as a result of the Internal Restructure (refer note 1(b) of the notes to the Financial Information).
- Presenting South32 manganese assets (comprising South Africa Manganese, Australia Manganese and Samancor AG) on an equity
accounted basis from 1 July 2013 including associated depreciation (refer note 1(c) of the notes to the Financial Information);
- Additional corporate costs associated with South32 Limited becoming a stand-alone group US$46M (FY14 US$53M); and
- Exclusion of demerger related set up costs, stamp duty on the acquisition of assets, and major corporate restructuring costs of
US$269M (FY14 US$ nil).
The pro forma segment reporting information for the South32 assets for FY15 and FY14 is set out below. The segment
information reflects South32's interest in its manganese assets on a proportional consolidation basis, which is the measure
that is used by South32 management to assess the performance of the manganese assets. The equity accounting
adjustment column reconciles the proportional consolidation of the manganese assets to the treatment of the manganese
assets on an equity accounted basis.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 29
FY15 PRO FORMA SEGMENT INFORMATION
South Group and
FY15 South Africa Illawarra South unallocated Equity
Worsley Africa Mozal Brazil Energy Metallurgical Australia Africa Cerro items/ accounting Total
US$M Alumina Aluminium Aluminium Aluminium Coal Coal Manganese Manganese Matoso Cannington elimination adjustment South32
Revenue
Group production 656 1,541 630 497 1,315 814 595 410 593 902 - (1,005) 6,948
Third party products(a) - - - - - - - - - - 795 795
Inter-segment revenue 635 - - - - - - 10 - - (635) - -
Total revenue 1,291 1,541 630 497 1,315 814 595 420 593 902 160 (1,015) 7,743
Underlying EBITDA 325 317 149 259 276 167 243 32 133 342 (117) (277) 1,849
Depreciation and amortisation (151) (67) (37) (78) (182) (197) (120) (52) (75) (55) (6) 172 (848)
Underlying EBIT 174 250 112 181 94 (30) 123 (20) 58 287 (123) (105) 1,001
Comprising:
Group production 174 250 112 181 93 (31) 123 (20) 58 287 (151) (103) 973
Third party products(a) - - - - - - - - - - 28 - 28
Share of profit of equity
accounted investments(b) - - - - 1 1 - - - - - (2) -
Underlying EBIT 174 250 112 181 94 (30) 123 (20) 58 287 (123) (105) 1,001
Net finance costs (194)
Income tax expense (232)
Underlying Earnings 575
Earnings adjustments (547)
Profit after taxation 28
Capital expenditure 62 35 14 8 98 308 98 41 36 39 29 (139) 629
Investments accounted for using
the equity method - - - - 12 - - - - - - 1,695 1,707
Total assets(c) 3,720 1,475 730 1,039 1,414 1,782 1,649 748 997 453 2,271 (789) 15,489
Total liabilities(c) 359 324 104 111 1,019 264 265 218 234 173 2,202 (819) 4,454
(a) Third party product sold comprises US$667M for aluminium (FY14: US$802M), US$88M for coal (FY14: US$456M) and US$40M for others (FY14: US$2M). Underlying EBIT on third party products comprises US$27M for
aluminium (FY14: US$14M), US$1M for coal (FY14: US$18M) and US$ nil for others (FY14: -US$2M).
(b) Share of profit of equity accounted investments includes the impacts of earnings adjustments to Underlying EBIT.
(c) Total segment assets and liabilities represent operating assets and liabilities which predominately exclude the carrying amount of cash, interest bearing liabilities and tax balances.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 30
FY14 PRO FORMA SEGMENT INFORMATION
South Group and
FY15 South Africa Illawarra South unallocated Equity
Worsley Africa Mozal Brazil Energy Metallurgical Australia Africa Cerro items/ accounting Total
US$M Alumina Aluminium Aluminium Aluminium Coal Coal Manganese Manganese Matoso Cannington elimination adjustment South32
Revenue
Group production 570 1,614 574 529 1,247 878 785 473 595 1,079 - (1,258) 7,086
Third party products(a) - - - - - - - - - - 1,260 (2) 1,258
Inter-segment revenue 659 - - - - - - - - - (659) -
Total revenue 1,229 1,614 574 529 1,247 878 785 473 595 1,079 601 (1,260) 8,344
Underlying EBITDA 162 201 65 127 224 142 383 82 93 465 (112) (367) 1,465
Depreciation and amortisation (138) (69) (36) (83) (193) (170) (107) (53) (88) (47) 1 160 (823)
Underlying EBIT 24 132 29 44 31 (28) 276 29 5 418 (111) (207) 642
Comprising:
Group production 24 132 29 44 21 (28) 276 29 5 418 (141) (305) 504
Third party products(a) - - - - - - - - - - 30 2 32
Share of profit of equity
accounted investments(b) - - - - 10 - - - - - - 96 106
Underlying EBIT 24 132 29 44 31 (28) 276 29 5 418 (111) (207) 642
Net finance costs (147)
Income tax expense (88)
Underlying Earnings 407
Earnings adjustments (343)
Profit after taxation 64
Capital expenditure 56 28 8 9 65 309 65 42 56 60 (1) (107) 590
(a) Third party product sold comprises US$667M for aluminium (FY14: US$802M), US$101M for coal (FY14: US$456M) and US$40M for others (FY14: US$2M). Underlying EBIT on third party products comprises US$27M
for aluminium (FY14: US$14M), US$1M for coal (FY14: US$18M) and US$ nil for others (FY14: -US$2M).
(b) Share of profit of equity accounted investments includes the impacts of earnings adjustments to Underlying EBIT.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 31
NOTES
(1) Free cash flow before interest and tax represents operating cash flows from continuing operations including dividends received from equity
accounted investments, before financing activities and tax, and after capital expenditure.
(2) Productivity-led and other cost efficiencies refer to the reduction in costs, excluding price-linked costs, exchange rate
movements, inflation, non-cash costs, one-off items, ceased and sold operations, and other items.
(3) Controllable costs are measured on a cash basis (including equity accounted investments) and exclude significant items, inter-segment sales, foreign
exchange rate movements, country specific inflation, price-linked costs and discontinued/suspended operations. Any controllable cost movement is
defined in absolute terms and is not a measure of unit cost performance.
(4) Sustaining capital expenditure comprises Stay-in-business (SIB), Minor discretionary and Deferred stripping (including underground development)
capital expenditure. It equates to total capital expenditure (including equity accounted investments) excluding Major projects capital expenditure.
(5) The pro forma and statutory financial information reflects continuing operations and therefore excludes the contribution of the New Mexico Coal asset.
(6) Percentage change has not been disclosed for statutory results on the basis that the variances between FY15 and FY14 are substantially different
due to the impact of the Internal Restructure prior to demerger. Information in respect of the demerger is detailed in note 1 to the Financial
Information.
(7) Revenue includes revenue from third party products.
(8) Pro forma FY15 and FY14 basic earnings per share is calculated as pro forma profit after taxation from continuing operations divided by the number
of shares on issue at 30 June 2015. Pro forma FY15 and FY14 basic Underlying earnings per share is calculated as pro forma Underlying earnings
divided by the number of shares on issue at 30 June 2015
(9) Underlying EBIT is profit from continuing operations before net finance costs, taxation and any earnings adjustment items, including impairments.
Underlying EBIT is reported inclusive of South32's share of net finance costs and taxation of equity accounted investments. Underlying EBITDA is
Underlying EBIT, before depreciation and amortisation. Underlying earnings is Profit after taxation 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 assets 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 gain/loss on disposal and consolidation of interests in businesses;
- Fair value gain/loss on derivative instruments;
- Major corporate restructures; and
- The income tax impact of the above items.
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 note 2(b)(ii) to the Financial Information.
(10) Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue.
(11) Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product revenue.
(12) Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as pro forma Underlying EBIT less
the discount on rehabilitation provisions included in net finance costs, tax effected by the Group's Underlying ETR, divided by the sum of fixed
assets (excluding any rehabilitation asset and other non-cash adjustments) and inventories. Manganese is included in the calculation on a
proportional consolidation basis.
(13) The South32 Group acquired each of the following assets on the respective dates in parentheses: Worsley Alumina (8 May 2015), South Africa
Aluminium (2 February 2015), Mozal Aluminium (27 March 2015), Brazil Aluminium (3 July 2014), South Africa Energy Coal (2 February 2015),
Australia Manganese (8 May 2015), South Africa Manganese (3 February 2015), Cerro Matoso (2 February 2015), and Cannington (31 January
2015).
(14) The segment information reflects South32's interest in its manganese assets on a proportional consolidation basis, which is the measure that is used
by South32's management to assess the performance of its manganese assets. The equity accounting adjustment is shown to reconcile to the
treatment of its manganese assets on an equity accounted basis per the statutory financial information.
(15) Net assets is equal to total segment assets minus total segment liabilities. Total segment assets and liabilities represent operating assets and
liabilities which predominately exclude the carrying amount of cash, interest bearing liabilities and tax balances.
(16) Third party product sold comprises US$667M for aluminium (FY14: US$802M), US$88M for coal (FY14: US$456M) and US$40M for others (FY14:
US$2M). Underlying EBIT on third party products comprises US$27M for aluminium (FY14: US$14M), US$1M for coal (FY14: US$18M) and US$ nil
for others (2014: -US$2M).
(17) Underlying effective tax rate (ETR) is the pro forma Underlying income tax expense excluding royalty related taxation divided by pro forma Underlying
profit before tax; both the numerator and denominator exclude equity accounted investments.
(18) South32's interest in South Africa Energy Coal is accounted at 100 per cent until employee share ownership plan (ESOP) and broad-based black
economic empowerment (B-BBEE) vendor loans are repaid.
(19) Underlying net finance costs and Underlying taxation expense are actual FY15 results, not year-on-year variances.
(20) The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); financial year (FY), for example financial
year 2015 is abbreviated to FY15; grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt);
million tonnes per annum (Mtpa); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); thousand dry metric tonnes
(kdmt); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE).
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 32
DISCLAIMER
FORWARD LOOKING STATEMENTS
Certain statement in this document relate to the future, and may include forward looking statements relating to
South32’s financial position; strategy; dividends; trends in commodity prices and currency exchange rates; demand for
commodities; closure or divestment of certain operations or facilities (including associated costs); anticipated production
or construction commencement dates; capital costs and scheduling; operating costs and shortages of materials and
skilled employees; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; tax
and regulatory developments.
Forward looking statements can be identified by the use of terminology such as 'intend', 'aim', 'project', 'anticipate',
'estimate', 'plan', 'believe', 'expect', 'may', 'should', 'will', 'continue' or other similar words. These forward looking
statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties
and other factors, many of which are beyond South32's control, and which may cause the actual results to differ
materially from those expressed in the statements contained in this document. Readers are cautioned not to put undue
reliance on forward looking statements.
Other than as required by law, none of South32, its officers or advisers or any other person gives any representation,
assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statement in this
document will actually occur, in part or in whole.
Except as required by law, South32 disclaims any obligation or undertaking to publicly update or revise any forward
looking statement in this document, whether as a result of new information or future events.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and
Underlying EBITDA, Underlying basic 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 South32's business, make decisions
on the allocation of its 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 construed as either an offer to sell or a solicitation of an offer 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.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 33
FURTHER INFORMATION
INVESTOR RELATIONS MEDIA RELATIONS
Peter Harris Jill Thomas
T +61 8 9324 9046 T +61 8 9324 9181
M +61 (0) 476 559 190 M +61 (0) 423 259 190
E Peter.Harris@south32.net E Jill.Thomas@south32.net
Susie Bath
T +61 8 9324 9647
M +61 (0) 418 933 792
E Susie.Bath@south32.net
Paul Formosa
T +61 8 9324 9376
M +61 (0) 431 152 742
E Paul.Formosa@south32.net
JSE SPONSOR:
UBS South Africa (Pty) Ltd
24 August 2015
REGISTERED OFFICE DETAILS
South32 Limited (ABN 84 093 732 597)
Registered in Australia
Registered Office: Level 35, 108 St Georges Terrace
Perth Western Australia 6000 Australia
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 34
SOUTH32 FINANCIAL INFORMATION
For the year ended 30 June 2015 SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 35
The financial information included in this document for the year ended 30 June 2015 is unaudited. The financial
information does not constitute the South32 Group's full financial statements for the year ended 30 June 2015, which will
be approved by the Board, reported on by the auditors, and filed with the Australian Securities and Investments
Commission. The South32 Group's full financial statements will be prepared in accordance with the requirements of the
Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian
Accounting Standards Board. The comparative figures for the financial year ended 30 June 2014 are from the accounts
of BHP Coal Holdings Pty Ltd which became South32 Limited upon demerger from the BHP Billiton Group.
Effective 15 May 2015, BHP Billiton shares ceased trading with an entitlement to South32 shares. Economic separation
and distribution of South32 shares to shareholders became effective from 25 May 2015. Prior to the demerger, the
South32 Group and the BHP Billiton Group were required to undertake a number of internal share and asset transfers in
connection with the corporate restructure (Internal Restructure). As required, statutory financial information for the
South32 Group has been presented for the 2015 financial year (FY15) and 2014 financial year (FY14). The South32
Group's statutory financial information only includes the results of the current South32 Group operations (also referred to
as "assets") from their date of acquisition during the financial year as part of the Internal Restructure. The exception is
Illawarra Metallurgical Coal, which was part of the South32 Group at 1 July 2013 and the results of New Mexico Coal for
the period 1 July 2013 to 27 October 2014, being the date that it ceased to be part of the South32 Group as a result of
the Internal Restructure.
Accordingly, as a result of the Internal Restructure, the statutory financial information for FY15 and FY14 does not reflect
the performance of the South32 Group as it is currently structured.
The impact of new accounting standards and interpretations which became effective from 1 July 2014 and the effects of
other voluntary changes in accounting policy are described in note 9 New standards and interpretations to the financial
information.
All amounts are expressed in US dollars unless otherwise stated. The South32 Group's presentation currency and the
functional currency of the majority of its operations is US dollars as this is the principal currency of the economic
environment in which it operates.
Comparative figures have been prepared on the same basis as the current period figures. Amounts in this financial
information have, unless otherwise indicated, been rounded to the nearest million dollars ($M).
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 36
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2015
US$M Notes 2015 2014
Continuing operations
Revenue
Group production 3,480 853
Third party products 363 –
3,843 853
Other income 1,143 30
Expenses excluding net finance cost (5,247) (942)
Share of profit/(loss) of equity accounted investments (70) –
Profit/(loss) from continuing operations (331) (59)
Comprising:
Group production (338) (59)
Third party products 7 –
(331) (59)
Finance expenses (89) (15)
Finance income 22 –
Net finance cost 3 (67) (15)
Profit/(loss) before taxation (398) (74)
Income tax (expense)/benefit (432) 34
Royalty-related taxation (net of income tax) (96) 40
Total tax (expense)/benefit 4 (528) 74
Profit/(loss) after taxation from continuing operations (926) –
Discontinued operations
Profit/(loss) from discontinued operations, net of tax 7 46
Profit/(loss) for the year (919) 46
Attributable to:
Equity holders of South32 Limited (919) 46
Non-controlling interests – –
Profit/(loss) from continuing operations attributable to the ordinary equity holders of South32 Limited
Basic earnings per ordinary share (cents) 5 (26.9) –
Diluted earnings per ordinary share (cents) 5 (26.9) –
Profit/(loss) for the year attributable to the ordinary equity holders of South32 Limited
Basic earnings per ordinary share (cents) 5 (26.7) 1.4
Diluted earnings per ordinary share (cents) 5 (26.7) 1.4
The accompanying notes form part of this financial information.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 37
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2015
US$M 2015 2014
Profit/(loss) for the year (919) 46
Other comprehensive income/(loss)
Items that may be reclassified subsequently to the income statement:
Equity accounted investments – share of other comprehensive income/(loss) – –
Available for sale investments:
Net gain/(loss) taken to equity 65 –
Tax benefit/(expense) recognised within other comprehensive income (33) –
Total items that may be reclassified subsequently to the income statement 32 –
Items not to be reclassified to the income statement:
Equity accounted investments – share of other comprehensive income/(loss) – –
Actuarial gain/(loss) on pension and medical schemes 3 6
Tax benefit/(expense) recognised within other comprehensive income (1) (2)
Total items not to be reclassified to the income statement 2 4
Total other comprehensive income/(loss) 34 4
Total comprehensive income/(loss) (885) 50
Attributable to:
Equity holders of South32 Limited (885) 50
Non-controlling interests – –
The accompanying notes form part of this financial information.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 38
CONSOLIDATED BALANCE SHEET
as at 30 June 2015
US$M 2015 2014
ASSETS
Current assets
Cash and cash equivalents 644 145
Trade and other receivables 1,162 208
Other financial assets 14 –
Inventories 953 135
Current tax assets 77 156
Other 18 6
Total current assets 2,868 650
Non-current assets
Trade and other receivables 185 160
Other financial assets 417 –
Inventories 60 –
Property, plant and equipment 9,550 1,941
Intangible assets 306 –
Investments accounted for using the equity method 1,707 –
Deferred tax assets 376 185
Other 20 5
Total non-current assets 12,621 2,291
Total assets 15,489 2,941
LIABILITIES
Current liabilities
Trade and other payables 921 316
Interest bearing liabilities 364 832
Other financial liabilities 4 –
Current tax payable 11 15
Provisions 398 102
Deferred income 6 7
Total current liabilities 1,704 1,272
Non-current liabilities
Trade and other payables 30 23
Interest bearing liabilities 682 1
Deferred tax liabilities 554 153
Provisions 1,479 367
Deferred income 5 12
Total non-current liabilities 2,750 556
Total liabilities 4,454 1,828
Net assets 11,035 1,113
EQUITY
Share capital 14,958 561
Reserves (3,557) –
Retained earnings/(accumulated losses) (365) 552
Total equity attributable to:
Equity holders of South32 Limited 11,036 1,113
Non-controlling interests (1) –
Total equity 11,035 1,113
The accompanying notes form part of this financial information.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 39
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2015
US$M 2015 2014
Operating activities
Profit/(loss) before taxation from continuing operations (398) (74)
Adjustments for:
Non-cash significant items (921) –
Depreciation and amortisation expense 477 170
Net loss/(gain) on sale of non-current assets 10 (4)
Impairments of property, plant and equipment, financial assets and intangibles 1,389 –
Employee share awards expense 1 –
Net finance cost 67 15
Share of (profit)/loss of equity accounted investments 70 –
Other non-cash or non-operating items 80 9
Changes in assets and liabilities:
Trade and other receivables (327) (7)
Inventories 85 1
Trade and other payables 161 15
Provisions and other liabilities (29) 3
Cash generated from continuing operations 665 128
Interest received 23 –
Interest paid (42) (27)
Income tax received 1 34
Net cash flows from continuing operating activities 647 135
Net cash flows from discontinued operating activities 23 25
Net cash flows from operating activities 670 160
Investing activities
Purchases of property, plant and equipment (454) (309)
Exploration expenditure (10) (5)
Exploration expenditure expensed and included in operating cash flows 7 5
Purchase of intangibles (9) –
Investment in financial assets (400) (10)
Investment in subsidiaries, operations and joint operations, net of their cash, as part of the (12,734) –
Internal Restructure
Investment in equity accounted investments (1,565) –
Cash outflows from investing activities (15,165) (319)
Proceeds from sale of property, plant and equipment 2 4
Proceeds from sale of financial assets 1 –
Proceeds from sale of intangible assets 5 –
Proceeds from divestment of subsidiaries, operations and joint operations, net of their cash, 171 –
as part of the Internal Restructure
Net cash flows from continuing investing activities (14,986) (315)
Net cash flows from discontinued investing activities (9) (26)
Net cash flows from investing activities (14,995) (341)
Financing activities
Proceeds from interest bearing liabilities 338 180
Repayment of interest bearing liabilities (272) –
Proceeds from amounts received from BHP Billiton 1,224 –
Repayment of amounts owing to BHP Billiton (831) –
Proceeds from ordinary shares 14,397 –
Net cash flows from continuing financing activities 14,856 180
Net cash flows from discontinued financing activities – –
Net cash flows from financing activities 14,856 180
Net increase/(decrease) in cash and cash equivalents 531 (1)
Cash and cash equivalents, net of overdrafts, at the beginning of the financial year 145 146
Foreign currency exchange rate changes on cash and cash equivalents (9) –
Change in cash and cash equivalents on commencement of equity accounting (23) –
Cash and cash equivalents, net of overdrafts, at the end of the financial year 644 145
The accompanying notes form part of this financial information.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 40
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2015
Attributable to equity holders of South32 Limited
Retained
earnings/ Non-
Share (accumulated controlling Total
US$M Capital Reserves losses) Total interests equity
Balance as at 1 July 2014 561 – 552 1,113 – 1,113
Profit/(loss) for the year – – (919) (919) – (919)
Other comprehensive income/(loss) – 32 2 34 – 34
Total comprehensive income – 32 (917) (885) – (885)
Transactions with owners:
Proceeds from issue of shares 14,397 – – 14,397 – 14,397
Accrued employee entitlement for unexercised
awards – 1 – 1 – 1
Acquisition and divestment of subsidiaries and
operations – (3,569) – (3,569) 453 (3,116)
Disposal on change from control to joint control of
South Africa Manganese and Samancor AG - - - - (454) (454)
Other movements – (21) – (21) – (21)
Balance as at 30 June 2015 14,958 (3,557) (365) 11,036 (1) 11,035
Balance as at 1 July 2013 561 – 502 1,063 – 1,063
Profit for the year – – 46 46 – 46
Other comprehensive income/(loss) – – 4 4 – 4
Total comprehensive income – – 50 50 – 50
Balance as at 30 June 2014 561 – 552 1,113 – 1,113
The accompanying notes form part of this financial information.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 41
NOTES TO THE FINANCIAL INFORMATION
1. South32 Limited demerger
Effective 15 May 2015, BHP Billiton shares ceased
trading with an entitlement to South32 shares. On
18 May 2015 South32 Limited was listed as a separate
standalone entity on the Australian Securities Exchange
on a deferred settlement basis, on the London Stock
Exchange on a when-issued basis and on the
Johannesburg Stock Exchange on a normal settlement
basis. The demerger resulted in economic separation at
the close of business London time on 22 May 2015
(being 23 May 2015 Melbourne time) with the
settlement of intercompany balances between the
South32 Group and the BHP Billiton Group. South32
shares were transferred to eligible BHP Billiton Limited
and BHP Billiton Plc shareholders on 24 May 2015 and
25 May 2015, respectively. Economic separation and
distribution of South32 shares to shareholders became
effective from 25 May 2015.
Prior to the demerger, the South32 Group and the BHP
Billiton Group were required to undertake a number of
internal share and asset transfers in connection with the
corporate restructure (Internal Restructure). As a result
of the Internal Restructure, several entities, assets and
liabilities were transferred to the South32 Group and
entities and assets and liabilities relating to the BHP
Billiton Group were transferred out of the South32
Group during the year ended 30 June 2015. Under the
Internal Restructure, the acquisition of the entities and
net assets was for cash, which was funded through a
share issue to BHP Billiton Limited.
The South32 Group has elected to account for the
acquisition of the entities and net assets as common
control transactions. As a consequence no acquisition
accounting in the form of a purchase price allocation
was undertaken and therefore the assets and liabilities
have not been remeasured to fair value nor has any
goodwill arisen. All the assets and liabilities acquired by
the South32 Group as a result of the Internal
Restructure were recognised at values consistent with
the carrying value of those assets and liabilities in the
BHP Billiton Group accounts immediately prior to the
Internal Restructure. Certain deferred tax balances
have been subsequently adjusted in respect of those
assets and liabilities acquired. The difference between
the deemed consideration established under the
Internal Restructure and the adjusted carrying value of
the assets and liabilities acquired totalling US$3,569M
has been recognised in the Common Control
Transaction Reserve.
As required for statutory reporting purposes, the
statutory financial information for the South32 Group
has been presented for the financial year ended
30 June 2015 and for the comparative financial year ended
30 June 2014. In this regard, the South32 Group
statutory financial information only includes the results
of the current South32 Group operations (also referred
to as "assets") from the date of acquisition during the
financial year under the Internal Restructure. The
exception is Illawarra Metallurgical Coal which was part
of the South32 Group at 1 July 2013. The South32
Group statutory financial information also includes:
- The results of New Mexico Coal for the period from
1 July 2013 to 27 October 2014, being the date
that it ceased to be part of the South32 Group as a
result of the Internal Restructure; and
- Finance charges on internal borrowings from the
BHP Billiton Group in the period from 1 July 2013
and up to immediately prior to the demerger, that
were settled as part of the demerger.
In addition, the South32 Group statutory financial
results reflect certain corporate costs associated with
the South32 Group becoming a standalone entity.
Accordingly, as a result of the Internal Restructure, the
statutory financial information for the years ended
30 June 2015 and 30 June 2014 does not reflect the
performance of the South32 Group as it is currently
structured.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 42
(a) Businesses acquired
As part of the Internal Restructure undertaken by the
South32 Group pursuant to the Separation Deed with
the BHP Billiton Group, several entities, assets and
liabilities have been acquired and divested by the
South32 Group. Details of the businesses acquired and
disposed are included in note 6 Subsidiaries, note 7
Investments accounted for using the equity method,
and note 8 Interests in joint operations.
The total carrying value of the assets and liabilities that
were acquired by the South32 Group as part of the
Internal Restructure that occurred prior to the demerger
were as follows:
Carrying value of net assets acquired
US$M 2015
Cash and cash equivalents 269
Trade and other receivables 1,851
Other financial assets 522
Inventories 1,229
Current tax assets 52
Other 33
Property, plant and equipment 9,535
Intangible assets 404
Investments accounted for using the equity
method 1,005
Deferred tax assets 707
Total assets 15,607
Trade and other payables 671
Interest bearing liabilities 961
Other financial liabilities 18
Current tax payable 32
Deferred tax liabilities 488
Provisions 2,011
Other liabilities 12
Total liabilities 4,193
Net assets acquired 11,414
Less net assets attributable to non-controlling
interests 454
Net assets attributable to equity holders of
South32 Limited 10,960
(b) Businesses disposed
The business disposed of under the Internal
Restructure, which occurred prior to the demerger,
have been treated as a discontinued operation within
this financial report. As a result of the Internal
Restructure the New Mexico Coal asset was transferred
to the BHP Billiton Group and resulted in the
recognition of a loss on sale of US$42M (tax impact:
US$ nil) which was recorded directly in the Common
Control Transaction Reserve.
Results of New Mexico Coal
US$M 2015 2014
Revenue - Group production 133 520
Other income 5 17
Expenses excluding net finance cost (128) (486)
Profit from operations 10 51
Finance expenses – (10)
Finance income 2 15
Net finance cost 2 5
Profit before taxation 12 56
Income tax expense (5) (10)
Total tax expense (5) (10)
Profit after taxation from discontinued
operations attributable to equity 7 46
holders of South32 Limited
Profit per share from discontinued
operations attributable to the ordinary
equity holders of South32 Limited
Basic earnings per ordinary share (US
cents) 0.2 1.4
Diluted earnings per ordinary share (US
cents) 0.2 1.4
Cash flows from/(used) by New
Mexico Coal
US$M 2015 2014
Operating 23 25
Investing (9) (26)
Financing – –
Net cash inflow/(outflow) 14 (1)
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 43
Carrying value of net assets derecognised
US$M 2015
Cash and cash equivalents 29
Trade and other receivables 268
Inventories 69
Current tax assets 1
Property, plant and equipment 323
Deferred tax assets 72
Other assets 9
Trade and other payables (98)
Interest bearing liabilities (1)
Deferred tax liabilities (63)
Provisions (351)
Deferred income (16)
Net assets derecognised 242
Consideration received, satisfied in cash 200
Cash and cash equivalents disposed of (29)
Net cash inflow 171
(c) Manganese assets
In contemplation of the demerger, BHP Billiton and
Anglo American agreed to make certain changes to the
agreement that governed their interests in the
manganese assets (including South Africa Manganese,
Australia Manganese and Samancor AG). The last of
the approvals required for the new agreement was
received on 2 March 2015. From that date BHP Billiton
moved from control to joint control of the manganese
assets. BHP Billiton discontinued consolidation of the
manganese assets and accounted for its interest as an
equity accounted joint venture.
The manganese assets were acquired by South32 in
two stages. South Africa Manganese and Samancor
AG were acquired by South32 on 3 February 2015.
Australia Manganese was acquired on 8 May 2015. For
accounting purposes South32 commenced equity
accounting of South Africa Manganese and Samancor
AG from 2 March 2015. South32 derecognised the
carrying amounts of all assets, liabilities and the non-
controlling interest attributed to Anglo American and
initially recorded its retained 60 per cent interest at fair
value. At the date of acquisition of Australia
Manganese, the Group's investment was recorded at
carrying value.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 44
2. Segment information
(a) Description of segments
The operating segments (also referred to as "assets"), are organised and managed separately according to the nature of
products produced. The members of the executive management team (the "chief operating decision maker") 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 assets are presented on a proportional
consolidation basis, which is the measure used by South32's management to assess the performance of the manganese
assets.
The principal activities of each reporting segment as the South32 Group is currently structured are summarised as
follows:
Operating segment Principal activities
Worsley Alumina Integrated bauxite mine and alumina refinery in Western Australia
South Africa Aluminium Aluminium smelter in Richards Bay
Brazil Aluminium Alumina refinery and aluminium smelter in Brazil
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 Manganese Producer of manganese ore in the Northern Territory and manganese alloys in
Tasmania
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 located in Queensland
All assets are operated or jointly operated by South32 except Alumar (which forms part of Brazil Aluminium), which is
operated by Alcoa.
(b) Segment results
Segment performance is measured on Underlying EBIT
and Underlying EBITDA. Underlying EBIT is profit
before net finance cost, tax and any earnings
adjustment items, including impairments. Underlying
EBITDA is Underlying EBIT, before depreciation and
amortisation. A reconciliation of Underlying EBIT,
Underlying EBITDA and the South32 Group's
consolidated profit before taxation from continuing
operations is set out below. Segment revenue is
measured on the same basis as in the income
statement.
Revenue from the sale of goods and the disposal of
other assets is recognised when persuasive evidence
(usually in the form of an executed sales agreement) of
an arrangement exists; and:
- There has been a transfer of risks and rewards to
the customer;
- No further work or processing is required by the
South32 Group;
- The quantity and quality of the goods has been
determined with reasonable accuracy;
- The price is fixed or determinable; and,
- Collectability is reasonably assured.
Revenue is therefore generally recognised when title
passes. In the majority of sales for most commodities,
sales agreements specify that title passes on the bill of
lading date, which is the date the commodity is
delivered to the shipping agent. For these sales,
revenue is recognised on the bill of lading date. For
certain sales (principally coal sales to adjoining power
stations), title passes and revenue is recognised when
the goods have been delivered.
In cases where the terms of the executed sales
agreement allow for an adjustment to the sales price
based on a survey of the goods by the customer (for
instance an assay for mineral content), recognition of
the sales revenue is based on the most recently
determined estimate of product specifications.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 45
For certain commodities, the sales price is determined
on a provisional basis at the date of sale and
adjustments to the sales price subsequently occurs
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
typically between 60 and 120 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 character of a commodity
derivative. Accordingly, the fair value of the final sales
price adjustment is re-estimated continuously and
changes in fair value are recognised as an adjustment
to revenue. In all cases, fair value is estimated by
reference to forward market prices.
Revenue is not reduced for royalties and other taxes
payable from the group production.
The South32 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 South32 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 costs and finance
income) and income taxes are managed on a Group
basis and are not allocated to operating segments.
Total segment assets and liabilities represent operating
assets and liabilities which predominately 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 South32
Group's investment in equity accounted investments,
with no adjustment for cash, interest bearing liabilities
and tax balances of the equity accounted investment.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 46
Year ended 30 June 2015 South Group and
South Africa Illawarra South New Mexico unallocated Statutory
Worsley Africa Mozal Brazil Energy Metallurgical Australia Africa Cerro Coal(a) items/ adjustment
US$M Alumina Aluminium Aluminium Aluminium Coal Coal Manganese Manganese Matoso Cannington (discontinued) elimination (b) Group
Revenue
Group production 292 610 250 459 523 803 278 256 197 346 133 – (534) 3,613
Third party products(c) – – – – – – – – – – – 363 – 363
Inter-segment revenue 239 – – – – – – – – – – (239) – –
Total revenue 531 610 250 459 523 803 278 256 197 346 133 124 (534) 3,976
Underlying EBITDA 67 91 21 240 165 156 60 (11) 17 137 22 (37) (86) 842
Depreciation and
amortisation (26) (27) (10) (72) (76) (197) (27) (33) (40) (22) (12) (5) 60 (487)
Underlying EBIT 41 64 11 168 89 (41) 33 (44) (23) 115 10 (42) (26) 355
Comprising:
Group production 41 64 11 168 89 (41) 33 (44) (23) 115 10 (49) 5 379
Third party products – – – – – – – – – – – 7 – 7
Share of loss of equity
accounted investments(d) – – – – – – – – – – – – (31) (31)
Underlying EBIT 41 64 11 168 89 (41) 33 (44) (23) 115 10 (42) (26) 355
Underlying EBIT from
discontinued operations (10)
Underlying EBIT from
continuing operations 345
Net finance cost (74)
Income tax expense (192)
Underlying earnings from
continuing operations 79
Earnings adjustments(e) (1,005)
Profit/(loss) after taxation
from continuing operations (926)
Capital expenditure 15 23 6 7 29 308 22 17 13 23 9 30 (39) 463
Investments accounted for
using the equity method – – – – 12 – – – – – – – 1,695 1,707
Total assets(f) 3,720 1,475 730 1,039 1,414 1,782 1,649 748 997 453 – 2,271 (789) 15,489
Total liabilities(f) 359 324 104 111 1,019 264 265 218 234 173 – 2,202 (819) 4,454
(a) The New Mexico Coal segment was transferred from the South32 Group to the BHP Billiton Group as part of the demerger process. Refer to note 1 South32 Limited demerger for more details.
(b) The segment information reflects South32's interest in the manganese assets and is presented on a proportional consolidation basis, which is the measure used by South32's management to assess the performance of the
manganese assets. The manganese assets are equity accounted in the consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to equity accounting position.
(c) Third party product sold comprises US$286M for aluminium, US$37M for coal and US$40M for other. Underlying EBIT on third party products comprise US$3M for aluminium, US$4M for coal and US$ nil for other.
(d) Share of profit/(loss) of equity accounted investments includes the impacts of earnings adjustments to Underlying EBIT.
(e) Refer to note 2(b)(i) Earnings adjustments.
(f) Total segment assets and liabilities represent operating assets and liabilities which predominately exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 47
Year ended 30 June 2014 South Group and
South Africa Illawarra New unallocated
Worsley Africa Brazil Mozal Energy Metallurgical Australia South Africa Cerro Mexico items /
US$M Alumina Aluminium Aluminium Aluminium Coal Coal Manganese Manganese Matoso Cannington Coal(a) elimination Group
Revenue
Group production – – – – – 853 – – – – 520 – 1,373
Third party products – – – – – – – – – – – – –
Inter-segment revenue – – – – – – – – – – – – –
Total revenue – – – – – 853 – – – – 520 – 1,373
Underlying EBITDA – – – – – 114 – – – – 98 – 212
Depreciation and amortisation – – – – – (170) – – – – (47) – (217)
Underlying EBIT – – – – – (56) – – – – 51 – (5)
Comprising:
Group production – – – – – (56) – – – – 51 – (5)
Third party products – – – – – – – – – – – – –
Share of profit of equity
accounted investments – – – – – – – – – – – – –
Underlying EBIT – – – – – (56) – – – – 51 – (5)
Underlying EBIT from
discontinued operations (51)
Underlying EBIT from
continuing operations (56)
Net finance cost (21)
Income tax (expense)/benefit 81
Underlying earnings from
continuing operations 4
Earnings adjustments(b) (4)
Profit/(loss) after taxation from
continuing operations –
Capital expenditure – – – – – 309 – – – – 26 – 335
Investments accounted for
using the equity method – – – – – – – – – – – – –
Total assets(c) – – – – – 1,722 – – – – 646 573 2,941
Total liabilities(c) – – – – – 384 – – – – 444 1,000 1,828
(a) The New Mexico Coal segment was transferred from the South32 Group to the BHP Billiton Group as part of the demerger process. Refer to note 1 South32 Limited demerger for more details.
(b) Refer to note 2(b)(i) Earnings adjustments.
(c) Total segment assets and liabilities represent operating assets and liabilities which predominately exclude the carrying amount of cash, interest bearing liabilities and tax balances
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 48
(i) Earnings adjustments
The following table shows earnings adjustments in
arriving at Underlying earnings:
Underlying earnings
US$M 2015 2014
Adjustments to Underlying EBIT
Significant items(a) (770) –
Exchange rate (gain)/loss on
restatement of monetary items(c) (18) 3
Impairment losses(b)(c) 1,389 –
Fair value gain on derivative
instruments(c) (12) –
Major corporate restructures(c) 46 –
Earnings adjustment included in loss of
equity accounted investments(d) 41 –
Total adjustments to Underlying EBIT 676 3
Adjustments to net finance cost
Exchange rate variations on net debt (7) (6)
Total adjustments to net finance cost (7) (6)
Adjustments to income tax expense
Significant items(a) 419 –
Tax effect of earnings adjustments to
Underlying EBIT (179) (1)
Tax effect of earnings adjustments to net
finance cost 2 2
Exchange rate variations on tax
balances 94 6
Total adjustments to income tax
expense 336 7
Total earnings adjustments 1,005 4
(a) Refer to note 2(b)(ii) Significant items.
(b) Impairment losses primarily relate to the impairment of South
Africa Manganese of US$740M and Wolvekrans Middelburg
Complex cash generating unit as part of South Africa Energy Coal
of US$551M.
(c) The amount was recognised in "expenses excluding net finance
cost" in the consolidated income statement.
(d) The amount was recognised in "share of loss of equity accounted
investments" in the consolidated income statement.
(ii) Significant items
Significant items are those items, not separately
identified in note 2(b)(i) Earnings adjustments, where
their nature and amount is considered material to the
consolidated financial statements. Such items included
within the South32 Group's (income)/expense for the
year are detailed below.
Year ended 30 June 2015
US$M Gross Tax Net
Repeal of Minerals Resource Rent
Tax Legislation – 96 96
Fair value uplift on equity
accounted investments(a) (921) – (921)
Set up costs(b) 59 (17) 42
Reset of Australian tax balances
post demerger – 221 221
Brazil Aluminium tax accounting
adjustments – 103 103
Demerger related dividend
withholding tax paid – 16 16
Demerger related stamp duty
paid(b) 92 – 92
Total significant items (770) 419 (351)
(a) The amount was recognised in "other income" in the consolidated
income statement.
(b) The amount was recognised in "expenses excluding net finance
cost" in the consolidated income statement.
Repeal of Minerals Resource Rent Tax Legislation
On 2 September 2014, legislation to repeal the Mineral
Resource Rent Tax (MRRT) in Australia received the
support of both Houses of Parliament. The repeal took
effect on 30 September 2014 and as a result, the
South32 Group derecognised a MRRT deferred tax
asset in relation to Illawarra Metallurgical Coal. The
impact of this derecognition and all other MRRT related
amounts resulted in an income tax expense of
US$96M.
Fair value uplift on equity accounted investments
South Africa Manganese and Samancor AG were
acquired by South32 on 3 February 2015. As a result
of the renegotiation of the agreement between BHP
Billiton and Anglo American on 2 March 2015, BHP
Billiton Group moved from control to joint control of the
manganese assets. South32 derecognised the carrying
amounts of all assets, liabilities and non-controlling
interest attributed to Anglo American and recorded its
retained 60 per cent interest at fair value. The uplift in
fair value on the commencement of equity accounting
was US$749M for South Africa Manganese and
US$172M for Samancor AG (refer to note 1(c)
Manganese assets).
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 49
Set up costs
Set up costs relate to the set up of South32's corporate
office in Australia including information technology and
relocation costs. Set up costs are included in group and
unallocated items within the segment note.
Reset of Australian tax balances post demerger
The tax base of South32 wholly owned Australian
operations was reset on demerger from BHP Billiton.
The net reduction to tax assets is charged to income
tax expense.
Brazil Aluminium tax accounting adjustments
South32's cash and profit repatriation practices result in
a probable expectation that tax deferrals will ultimately
unwind. This has resulted in the recognition of
associated deferred tax balances at a rate closely
aligned to the country statutory rate.
Demerger related dividend withholding tax paid
Dividend withholding tax incurred on repatriation of pre
demerger profits.
Demerger related stamp duty paid
Stamp duty paid by the South32 Group on the
acquisition of Australia Manganese from the BHP
Billiton Group as part of the demerger (refer note 1
South32 Limited demerger).
(c) Geographical information
The geographical information below analyses the
South32 Group revenue and non-current assets by
country. Revenue is presented by the geographical
location of customers and non-current assets are
presented by the geographical location of the assets.
Revenue from external customers
US$M 2015 2014
Australia 379 351
Belgium 204 –
China 241 76
India 321 138
Japan 312 47
Middle East 298 –
Netherlands 184 –
North America 268 520
Other Asia 137 77
Rest of Europe 257 24
Singapore 352 32
South America 97 –
South Korea 140 22
Southern Africa 394 –
Switzerland 392 86
Discontinued operations (133) (520)
Total revenue 3,843 853
Non-current assets
US$M 2015 2014
Australia 6,596 1,616
Southern Africa 3,313 –
North America – 490
South America 1,682 –
Rest of world 237 –
Unallocated assets(a) 793 185
Total non-current assets 12,621 2,291
(a) Unallocated assets primarily comprise deferred tax assets and
other financial assets.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 50
3. Net finance cost
Net finance cost
US$M 2015 2014
Finance expenses
Interest on bank loans and overdrafts (3) –
Interest on all other borrowings (29) (20)
Finance lease interest (10) –
Discounting on provisions and other
liabilities (47) (1)
Net interest expense on post-retirement
employee benefits (5) –
Fair value change on loans to equity
accounted investments (2) –
Exchange rate variations on net debt 7 6
(89) (15)
Finance income
Interest income 22 –
Net finance cost (67) (15)
4. Taxation
Taxation
US$M 2015 2014
Current tax (expense)/benefit (156) 40
Deferred tax (expense)/benefit (372) 34
Total tax (expense)/benefit
attributable to continuing operations (528) 74
Total tax (expense)/benefit attributed to
geographical jurisdiction:
Australia (338) 73
Southern Africa 89 –
Rest of world (279) 1
(528) 74
5. Earnings per share
Basic earnings per share ("EPS") amounts are
calculated based on profit attributable to ordinary equity
holders of South32 Limited and the weighted average
number of ordinary shares outstanding during the year.
Dilutive EPS amounts are calculated based on profit
attributable to ordinary equity holders of South32
Limited and the weighted average number of ordinary
shares outstanding after adjustment for the effects of all
dilutive potential ordinary shares.
The following reflects the income and share data used
in the basic and diluted EPS computations:
Profit/(loss) attributable to ordinary
shareholders
US$M 2015 2014
Profit/(loss) attributable to ordinary
shareholders of South32 Limited:
Continuing operations (926) –
Discontinued operations 7 46
Profit/(loss) attributable to ordinary
shareholders of South32 Limited (919) 46
(basic)
Profit/(loss) attributable to ordinary
shareholders of South32 Limited (919) 46
(diluted)
Weighted average number of shares
Million 2015 2014(c)
Basic earnings per ordinary share
denominator(a) 3,437 3,212
Shares and options contingently issuable
under employee share ownership plans(b) – –
Diluted earnings per ordinary share
denominator 3,437 3,212
(a) The calculation of the number of ordinary shares used in the
computation of basic earnings per share is the aggregate of the
weighted average number of ordinary shares of South32 Limited
outstanding during the period.
(b) Included in the calculation of fully diluted earnings per share are
shares contingently issuable under Employee Share Ownership
Plans.
(c) Due to the share split in the current financial year, the number of
ordinary shares outstanding during the year ended 30 June 2014
was retrospectively adjusted.
Earnings per share
US cents 2015 2014
Earnings per share – Continuing
operations
Basic earnings per ordinary share (26.9) –
Diluted earnings per ordinary share (26.9) –
Earnings per share – attributable to
ordinary equity holders of South32
Limited
Basic earnings per ordinary share (26.7) 1.4
Diluted earnings per ordinary share (26.7) 1.4
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 51
6. Subsidiaries
Significant subsidiaries of the South32 Group, which are those with the most significant contribution to the South32
Group's net profit/loss or net assets, are as follows:
Effective interest
Country of Acquisition 2015 2014
Significant subsidiaries incorporation Principal activity date % %
Cerro Matoso SA(a) Colombia Nickel mining and 2 Feb 2015 99.9 –
ferronickel smelting
Dendrobium Coal Pty Ltd Australia Coal mining Not applicable(d) 100 100
Endeavour Coal Pty Ltd Australia Coal mining Not applicable(d) 100 100
Hillside Aluminium Proprietary Limited(a) South Africa Aluminium smelting 28 Jan 2015 100 –
Illawarra Coal Holdings Pty Ltd Australia Investment holding Not applicable(d) 100 100
company
Illawarra Services Pty Ltd Australia Coal preparation plant Not applicable(d) 100 100
South32 Aluminium (Holdings) Pty Ltd Australia Holding company Not applicable(d) 100 100
South32 Aluminium (RAA) Pty Ltd(a) Australia Bauxite mining and 8 May 2015 100 –
alumina refining
South32 Aluminium (Worsley) Pty Ltd(a) Australia Bauxite mining and 8 May 2015 100 –
alumina refining
South32 (BMSA) Pty Ltd (formerly BHP Australia Investment holding Not applicable(d) 100 100
Billiton Energy Coal Operations Pty Ltd) company
South32 Cannington Pty Ltd (formerly Australia Silver, lead and zinc Not applicable(d) 100 100
BHP Billiton Energy Coal Investment Pty mining
Ltd)
South32 Group Operations Pty Ltd Australia Administrative Not applicable(e) 100 –
services
South32 International Investment Australia Holding company Not applicable(f) 100 -
Holdings Pty Ltd
South32 International Investment Pty Ltd Australia Holding company Not applicable(g) 100 –
South32 Jersey Limited(a) Jersey Holding company 2 Feb 2015 100 –
South32 Marketing Pte Ltd Singapore Commodity marketing Not applicable(h) 100 -
and trading
South32 Metais SA(a) Brazil Alumina refining and 3 Jul 2014 100 –
aluminium smelting
South32 SA Coal Holdings Proprietary South Africa Coal mining 2 Feb 2015 100 -
Limited(a)(b)
South32 SA Holdings Limited(a) South Africa Holding company 2 Feb 2015 100 –
South32 SA Investments Limited(a) United Kingdom Investment holding 2 Feb 2015 100 -
company
South32 SA Limited(a) South Africa Service company 2 Feb 2015 100 –
South32 Treasury Limited Australia Financing company Not applicable(i) 100 –
BHP Billiton New Mexico Coal Inc(c) US Holding company Not applicable(c) – 100
San Juan Coal Company(c) US Coal mining Not applicable(c) – 100
(a) The subsidiaries were acquired under the Internal Restructure. Refer to note 1 South32 Limited demerger.
(b) The South32 Group's effective interest in South32 SA Coal Holdings Proprietary Limited will reduce to 90 per cent pursuant to Broad-Based Black
Economic Empowerment transactions in South Africa.
(c) The South32 Group's interest in BHP Billiton New Mexico Coal Inc and San Juan Coal Company were disposed of as part of the Internal Restructure
within BHP Billiton prior to demerger. Refer to note 1 South32 Limited demerger.
(d) The entities were subsidiaries of South32 Limited (formerly BHP Billiton Coal Holdings Pty Ltd) as at 30 June 2014.
(e) South32 Group Operations Pty Ltd was incorporated on 20 August 2014.
(f) South32 International Investment Holdings Pty Ltd was incorporated on 26 August 2014.
(g) South32 International Investment Pty Ltd was incorporated on 26 August 2014.
(h) South32 Marketing Pte Ltd was incorporated on 27 August 2014.
(i) South32 Treasury Limited was incorporated on 20 August 2014.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 52
7. Investments accounted for using the equity method
The South32 Group's interests in equity accounted investments with a significant contribution to the South32 Group's net
profit/(loss) or net assets are listed below:
Country of
incorporation/ Ownership
principal interest
place of Reporting Acquisition 2015 2014
Significant joint ventures business Principal activity date date % %
Australia Manganese(a)(b) Australia Producer of manganese ore and 30 Jun 2015 8 May 2015(d) 60 -
alloy
South Africa Manganese(a)(c) South Africa Producer of manganese ore and 30 Jun 2015 3 Feb 2015(d) 60 -
alloy
(a) The joint ventures were acquired under the Internal Restructure. Refer to note 1 South32 Limited demerger.
(b) Australia Manganese consists of an investment in Groote Eylandt Mining Company Pty Limited.
(c) South Africa Manganese consists of an investment in Samancor Holdings (Proprietary) Limited.
(d) Refer to note 1(c) Manganese assets.
Reconciliation of equity accounted investment
US$M 2015
At the beginning of the financial year –
Acquisitions 1,626
Fair value uplift on change to joint control(e) 921
Share of profit/(loss) (70)
Share of other comprehensive income –
Impairments (770)
At the end of the financial year 1,707
(e) Refer to note 2(b)(ii) Significant items.
The following table summarises the financial information relating to each of the South32 Group's significant equity
accounted investments.
Joint ventures
Australia South Africa Individually
US$M Manganese Manganese immaterial(f) Total
Year ended 30 June 2015
Share of profit/(loss) of equity accounted investments (4) (68) 2 (70)
(f) Individually immaterial consists of investments in Samancor AG, Richards Bay Coal Terminal Proprietary Limited and Port Kembla Coal Terminal
Limited.
The South32 Group's equity accounted investments as at 30 June 2014 consisted of its investment in Port Kembla Coal
Terminal Limited.
8. Interest in joint operations
Significant joint operations of the South32 Group, which are those with the most significant contributions to the South32
Group's net profit/(loss) or net assets, are as follows:
Effective interest
Country of Acquisition 2015 2014
Significant joint operations operation Principal activity date % %
Alumar(a) Brazil Alumina refining 3 Jul 2014 36 –
Aluminium smelting 3 Jul 2014 40 –
Mozal SARL(a)(b) Mozambique Aluminium smelting 27 Mar 2015 47.1 –
Worsley(a)(c) Australia Bauxite mining and alumina refining 8 May 2015 86 –
(a) These joint operations were acquired under the Internal Restructure. Refer to note 1 South32 Limited demerger.
(b) This joint arrangement is an incorporated entity. However it is classified as a joint operation as the participants to the arrangement are entitled to
receive output, not dividends, from the arrangement.
(c) Whilst the South32 Group holds a greater than 50 per cent interest in Worsley, all the participants approve the operating and capital budgets and
therefore the South32 Group has joint control over the relevant activities of Worsley.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 53
9. New standards and interpretations
(a) New accounting standards and interpretations
effective from 1 July 2014
The South32 Group has changed some of its
accounting policies as the result of new or revised
accounting standards which became effective for the
annual reporting period commencing on 1 July 2014.
The affected policies and standards are:
- AASB Interpretation 21 Levies
- AASB 2012-3 Amendments to Australian
Accounting Standards – Offsetting Financial Assets
and Financial Liabilities
- AASB 2014-1 Amendments to Australian
Accounting Standards – Part B: Defined Benefit
Plans - Employee Contributions (Amendments to
AASB 119 Employee Benefits)
- AASB 2013-3 Amendments to AASB 136 –
Recoverable Amount Disclosures for Non-Financial
Assets
- AASB 2014-1 Amendments to Australian
Accounting Standards – Part A: Annual
Improvements 2010-2012 and 2011-2013 Cycles
Interpretation 21 Levies
This interpretation clarifies when to recognise a liability
to pay a levy. The adoption of this interpretation did not
have an impact on the South32 Group.
AASB 2012-3 Amendments to Australian Accounting
Standards - Offsetting Financial Assets and Financial
Liabilities
This revised standard includes application guidance to
address inconsistencies identified in applying some of
the criteria for offsetting financial assets and financial
liabilities in the balance sheet. The adoption of the
revised standard did not have a material impact on the
South32 Group.
AASB 2014-1 Amendments to Australian Accounting
Standards - Part B: Defined Benefit Plans - Employee
Contributions (Amendments to AASB 119 Employee
Benefits)
The amendments clarify the accounting for defined
benefit plans that require employees or third parties to
contribute towards the cost of the benefits. The
adoption of the standard did not have a material impact
on the South32 Group.
AASB 2013-3 Amendments to AASB 136 - Recoverable
Amount Disclosures for Non-Financial Assets
The changes to this standard relate only to disclosure,
including the requirement to disclose additional
information about the fair value measurement when the
recoverable amount of impaired assets is based on fair
value less costs of disposal. The adoption of the
standard did not have a material impact on the South32
Group.
AASB 2014-1 Amendments to Australian Accounting
Standards – Part A: Annual Improvements 2010-2012
and 2011-2013 Cycles
The standard makes amendments to existing
accounting standards, particularly in relation to:
- Clarifying share-based payment vesting and non-
vesting conditions
- Operating segment asset disclosures
· Clarification of key management personnel when
an entity has a management entity/responsible
entity (such as a trustee)
· Exemptions for joint ventures from business
combination requirements
- Clarification of the scope exception for measuring
the fair value of financial assets and liabilities on a
portfolio basis
The adoption of the standard did not have a material
impact on the South32 Group.
(b) Early adoption of AASB 2015-2 Amendments to
Australian Accounting Standards – Disclosure
Initiative: Amendments to AASB 101
The South32 Group has early adopted AASB 2015-2
which is effective for annual reporting periods beginning
on or after 1 January 2016. The Standard makes
amendments to AASB 101 Presentation of Financial
Statements arising from the International Accounting
Standards Board's Disclosure Initiative project. The
amendments are designed to facilitate improved
reporting, including an emphasis on only including
material disclosures, clarity on the aggregation and
disaggregation of line items, the presentation of
subtotals, the ordering of notes and the identification of
significant accounting policies. The adoption of the
Standard affects the presentation of the South32
Group's financial statements.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 54
Certain new accounting standards and interpretations
have been published that are not mandatory for the 30
June 2015 reporting period. The South32 Group's
assessment of the impact of those new standards and
interpretations considered relevant to the South32
Group is set out below. The South32 Group does not
intend to early adopt any of the new standards or
interpretations.
AASB 9 Financial Instruments (effective from 1 January
2018)
AASB 9 Financial Instruments includes revised
guidance on the classification and measurement of
financial assets, including a new expected credit loss
model for calculating impairment, and supplements the
new general hedge accounting requirements. The
South32 Group has not yet determined the extent of the
impact of this standard.
AASB 15 Revenue from Contracts with Customers
(effective from 1 July 2018)
AASB 15 establishes a single model that applies to
contracts with customers and two approaches to
recognising revenue: at a point in time or over time.
The model features a contract-based five step analysis
of transactions to determine whether, how much and
when revenue is recognised. The South32 Group has
not yet determined the extent of the impact of this
standard.
10. Subsequent events
No matters or circumstances have arisen since the end
of the financial year that have significantly affected, or
may significantly affect, the operations, results of
operations or state of affairs of the South32 Group in
subsequent accounting periods.
SOUTH32 RESULTS FOR ANNOUNCEMENT TO THE MARKET 55
Date: 24/08/2015 07:42:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
