Wrap Text
Results for the year ended 30 June 2017
South32 Limited
(ABN 84 093 732 597)
Registered in Australia
(Incorporated in Australia under the Corporations Act 2001)
Registered Office: Level 35, 108 St Georges Terrace
Perth Western Australia 6000 Australia
ISIN: AU000000S320
24 August 2017
RESULTS FOR ANNOUNCEMENT TO THE MARKET
This statement includes the consolidated results of the South32 Group for the year ended 30 June 2017
compared with the year ended 30 June 2016 on a statutory basis.
In accordance with the JSE Listing Requirements, Headline Earnings is presented below.
US$M FY17 FY16
Profit/(loss) attributable to ordinary equity holders of South32 Limited 1,231 (1,615)
Adjusted for
(Gain)/loss on disposal of property, plant and equipment (5) 2
Gain on disposal of investment - (1)
Impairment losses - 1,386
Re-measurements included in share of profit/(loss) of equity accounted investments - 212
Total tax benefit on the above items 1 (165)
Headline Earnings 1,227 (181)
Diluted Headline Earnings 1,227 (181)
Basic earnings per share denominator (millions) 5,307 5,324
Diluted earnings per share denominator (millions)(a) 5,367 5,324
Headline Earnings from continuing operations
Headline Earnings per share (US cents) 23.1 (3.4)
Diluted Headline Earnings per share (US cents) 22.9 (3.4)
Headline Earnings
Headline Earnings per share (US cents) 23.1 (3.4)
Diluted Headline Earnings per share (US cents) 22.9 (3.4)
(a) Diluted EPS calculation excludes 11,120,599 (30 June 2017: 74,710,141) rights which are considered anti-dilutive and are subject
to service and performance conditions.
FINANCIAL RESULTS AND OUTLOOK YEAR ENDED 30 JUNE 2017
South32 produces strong financial results and increases returns to shareholders
"The combination of our high operating leverage and stronger commodity prices delivered a substantial increase in financial
performance. Free cash flow more than tripled to US$1.9B and we finished the year with a net cash balance of US$1.6B.
"We announced a fully franked final dividend of US$334M, representing 50% of Underlying earnings in the second half and
increased our capital management program to US$750M, which is 6% of our market capitalisation.
"Our aluminium smelters and refineries operated at their maximum technical capability and Mozal achieved record
production. We adjusted production in our manganese business to take advantage of higher prices, consistent with our
focus on value over volume. A review of our operating systems and practices at Illawarra Metallurgical Coal is continuing
and we are working towards a staged and controlled ramp-up of operations at our Appin colliery, commencing in
September.
"Looking to the year ahead, we will continue to unlock value within our existing operations, embed future options where
we see value and stretch performance in a sustainable way."
Graham Kerr, South32 CEO
Financial highlights
US$M FY17 FY16 % Change
Revenue(1) 6,950 5,812 20%
Profit/(loss) 1,795 (1,441) N/A
Profit/(loss) after tax 1,231 (1,615) N/A
Basic earnings per share (US cents)(2) 23.2 (30.3) N/A
Ordinary dividends per share (US cents)(3) 10.0 1.0 900%
Other financial measures
Underlying EBITDA(4) 2,411 1,131 113%
Underlying EBITDA margin(5) 38.9% 21.5% 17.4%
Underlying EBIT(4) 1,648 356 363%
Underlying EBIT margin(6) 26.6% 6.7% 19.9%
Underlying earnings(4) 1,146 138 730%
Basic Underlying earnings per share (US cents)(2) 21.6 2.6 731%
ROIC(7) 11.4% 1.7% 9.7%
2017 FINANCIAL YEAR SUMMARY
SAFETY
It is deeply regrettable that we lost one of our colleagues during the year in a work-related incident. In November 2016, a
contractor was fatally injured during relining activities at the Oxygen Blown Converter at our Metalloys Manganese Smelter
in South Africa. Our immediate response was to ensure that family and colleagues were offered our full support. We
conducted a detailed investigation led by a member of our Executive Committee, which was reviewed by the Sustainability
Committee of the Board, the CEO, and the management team to ensure we learned from what happened.
Nothing is more important to us than creating an environment where everyone goes home safe and well every day. Through
our Care Strategy we are building an inclusive workplace with a strong culture of care and accountability, where work is
well-designed and we continuously improve and learn. This focus has delivered an improvement in our Total Recordable
Injury Frequency (TRIF) to 6.0 per million hours worked (FY16: 7.7).
PERFORMANCE HIGHLIGHTS
A broad recovery in commodity prices and our portfolio’s operating leverage combined to deliver a significant increase in return
on invested capital to 11.4% and a US$1.3B increase in free cash flow to US$1.9B, including equity accounted investments.
This strong improvement in financial performance and the disciplined application of our capital management framework allowed us
to invest in our operations, create future options and substantially increase returns to shareholders.
Specific performance highlights included:
- Strong performance across our aluminium supply chain, including record production at Mozal Aluminium;
- A 19% increase in South Africa Manganese ore production as we responded to favourable market conditions;
- A US$360M reduction in controllable costs for a cumulative saving of approximately US$700M over two years;
- The unlocking of additional value with first ore delivered from the higher grade La Esmeralda deposit at Cerro Matoso,
conclusion of the access agreement for the West Marradong bauxite mining area at Worsley Alumina and completion
of the US$265M Klipspruit Life Extension (KPSX) project feasibility study;
- A US$81M investment in Arizona Mining (TSX:AZ), owner of the high grade zinc, lead and silver Taylor deposit;
- The creation of options beyond our portfolio with finalisation of the Trilogy Metals (TSX:TMQ) and AusQuest
(ASX:AQD) greenfield exploration agreements, targeting base metals;
- A US$1.3B increase in our period end net cash balance to US$1.6B;
- A US$250M increase in our approved capital management program to US$750M, equating to 6% of our current market
capitalisation(8); and
- A fully franked final dividend of US$334M, representing 50% of Underlying earnings in the June 2017 half year.
EARNINGS
The Group's statutory profit after tax was US$1.2B in FY17. The corresponding period's loss of US$1.6B was impacted by
the recognition of impairment charges totalling US$1.7B (post-tax US$1.7B).
Consistent with our accounting policy, various items are excluded from the Group's statutory profit to derive Underlying
earnings including: exchange rate losses associated with the restatement of monetary items (US$37M pre-tax); fair value
gains on derivative instruments (US$194M pre-tax); exchange rate losses associated with the Group's non US dollar
denominated net debt (US$35M pre-tax); the tax expense for all pre-tax earnings adjustments (US$27M) and significant
items (nil). Further information on these earnings adjustments is included.
Profit/(loss) to Underlying EBITDA reconciliation
US$M FY17 FY16
Profit/(loss) 1,795 (1,441)
Earnings adjustments to derive Underlying EBIT (147) 1,797
Underlying EBIT 1,648 356
Depreciation and amortisation 763 775
Underlying EBITDA 2,411 1,131
Profit/(loss) after tax to Underlying earnings reconciliation
US$M FY17 FY16
Profit/(loss) after tax 1,231 (1,615)
Earnings adjustments to derive Underlying EBIT (147) 1,797
Earnings adjustments to derive Underlying net finance cost 35 (21)
Earnings adjustments to derive Underlying income tax expense 27 (23)
Underlying earnings 1,146 138
The Group generated Underlying EBITDA of US$2.4B in FY17. Higher prices for the majority of our commodities gave rise
to a US$1.1B increase in sales revenue, despite lower volumes, for an operating margin of 39%(5). Underlying EBIT
increased by US$1.3B (or 363%) to US$1.6B, further benefitting from a reduction in depreciation and amortisation following
the recognition of non-cash impairment charges in FY16. Underlying earnings subsequently increased by US$1.0B to
US$1.1B.
EARNINGS ANALYSIS
The following key factors influenced Underlying EBIT in FY17, relative to FY16.
The reconciliation of movements in Underlying EBIT table can be found within the National Storage Mechanism version of the release.
Earnings analysis US$M Commentary
FY16 Underlying EBIT 356
Change in sales price 1,890
Higher average realised prices for our commodities:
Metallurgical coal (+US$576M).
Manganese ore (+US$484M).
Net impact of price-linked costs (29)
Higher royalties (-US$67M).
Higher LME-linked electricity costs at South Africa Aluminium (-US$21M).
Higher raw material input costs (-US$8M), including caustic soda.
Lower treatment and refining charges for Cannington concentrates (+US$43M).
Change in exchange rates (139)
Stronger Australian dollar (-US$58M) and South African rand (-US$57M).
Change in inflation (144)
Broader inflation pressure, primarily in Southern Africa (-US$94M).
Change in sales volume (447)
Cannington (-US$175M).
South Africa Energy Coal (-US$158M).
Illawarra Metallurgical Coal (-US$85M).
Controllable costs 360
South Africa Energy Coal (+US$107M).
Worsley Alumina (+US$97M).
South Africa Manganese (+US$35M).
Other 13
Lower depreciation and amortisation (+US$53M).
Favourable movement in rehabilitation provisions (+US$11M).
The net effect of a reduction in power sales at Brazil Alumina (-US$58M).
Interest & tax (equity accounted
investments) (212)
Stronger profitability in our jointly controlled manganese operations.
FY17 Underlying EBIT 1,648
Net finance costs
The Group's Underlying net finance costs, excluding equity accounted investments, were US$136M in FY17 and largely
reflect the unwinding of the discount applied to our restoration and rehabilitation provisions (US$98M) and finance lease
interest (US$52M), primarily at Worsley Alumina.
Underlying net finance cost reconciliation
US$M FY17 FY16
Unwind of discount applied to closure and rehabilitation provisions (98) (96)
Finance lease interest (52) (37)
Other 14 8
Underlying net finance cost (136) (125)
Add back earnings adjustment for exchange rate variations on net debt (35) 30
Add back significant items - (9)
Net finance cost (171) (104)
Tax expense
The Group's underlying income tax expense, which excludes tax associated with equity accounted investments, was
US$366M for an Underlying effective tax rate(12) (ETR) of 30.7%. The tax expense for equity accounted investments was
US$221M, including royalty related tax of US$53M at GEMCO, for an ETR of 39.5%.
Underlying income tax expense reconciliation and Underlying ETR
US$M FY17 FY16
Underlying EBIT 1,648 356
Include: Underlying net finance cost (136) (125)
Remove: Share of profit/(loss) of equity accounted investments (320) 23
Underlying profit/(loss) before tax 1,192 254
Income tax expense 393 70
Tax effect of earnings adjustments to Underlying EBIT (42) 187
Tax effect of earnings adjustments to net finance cost 9 (9)
Exchange rate variations on tax balances 6 (124)
Tax on significant items - (31)
Underlying income tax expense 366 93
Underlying effective tax rate 30.7% 36.6%
CASH FLOW
A broad recovery in commodity prices and our portfolio's operating leverage combined to deliver a US$888M increase in
free cash flow from operations, excluding equity accounted investments, to US$1.5B. The deferral of activity at South Africa
Energy Coal and Illawarra Metallurgical Coal, following the impact of adverse weather and operational outages, contributed
to a US$67M reduction in capital expenditure to US$316M, excluding equity accounted investments. This included:
- Sustaining capital expenditure, comprising Stay-in-business, Minor discretionary and Deferred stripping (including
underground development) of US$300M; and
- Major project capital expenditure of US$16M.
The purchase of intangibles and the capitalisation of exploration accounted for a further US$3M of expenditure.
The KPSX project feasibility study is complete and a final investment decision is expected in H1 FY18 pending completion
of our internal approvals processes. With the associated deferral of land purchases, expenditure on Major projects was
lower than planned.
Capital expenditure associated with equity accounted investments of US$37M included the second phase of the Central
Block development project at the Wessels underground mine (South Africa Manganese). The successful commissioning
of this project in the March 2017 quarter enables mining activity to relocate closer to critical infrastructure, thereby reducing
cycle times.
Total capital expenditure(13), including equity accounted investments, was US$356M in FY17.
A US$63M reduction in provisions predominantly relating to our closure and rehabilitation obligations in South Africa and
a US$60M increase in inventory contributed to a build in working capital of US$105M. While a component of working capital
is expected to unwind in H1 FY18, this will be more than offset by the payment of shareholder dividends, taxes and our
ongoing capital management program.
Free cash flow of operations, excluding equity accounted investments
US$M FY17 FY16
Profit/(loss) 1,795 (1,441)
Non-cash items 585 2,190
(Profit)/loss from equity accounted investments (312) 330
Change in working capital (105) (11)
Cash generated 1,963 1,068
Total capital expenditure, excluding equity accounted investments, including intangibles and
(319) (400)
capitalised exploration
Operating cash flows before financing activities and tax, and after capital expenditure 1,644 668
Interest (paid)/received (32) (19)
Income tax (paid)/received (127) (52)
Free cash flow of operations 1,485 597
In addition to free cash flow from operations of US$1.5B, we received (net) distributions totalling US$446M from our manganese
equity accounted investments in FY17, comprising US$313M in dividends and US$133M from the repayment of a shareholder loan.
A further US$15M in dividends were received from other investments, including Mineração Rio do Norte S.A.
BALANCE SHEET & CAPITAL MANAGEMENT
The Group's net cash balance appreciated considerably during the year to finish the period at US$1.6B. The increase in
cash and cash equivalents to US$2.7B also reflects the cash management activities that the Group undertakes on behalf
of the manganese joint venture which are offset by a commensurate increase in other interest bearing liabilities. The US$11M
increase in finance leases is primarily associated with the stronger Australian dollar at the end of FY17.
Standard and Poor's and Moody's reaffirmed the Group's BBB+ and Baa1 credit ratings respectively, following their annual
reviews in FY17.
Net cash/(debt)
US$M FY17 FY16
Cash and cash equivalents 2,675 1,225
Finance leases (613) (602)
Other interest bearing liabilities (422) (311)
Net cash/(debt) 1,640 312
We continue to believe that a combination of high operating leverage and undue financial leverage delivers a sub-optimal
outcome for shareholders. Our simple capital management framework reflects this core principle whereby we prioritise
investment in our business to maintain the integrity of our operations and an investment grade credit rating. Our dividend
policy then intends to distribute a minimum 40% of Underlying earnings to shareholders in each six month period, franking
dividends to the maximum extent practicable. Once these core objectives are met, we consider how best to allocate any
excess capital to maximise shareholder value.
Our analysis indicates that a net debt position of approximately US$500M is our optimal capital structure, although we do
intend to hold additional cash on the balance sheet in the current environment, as it affords even greater flexibility. Having
exceeded our thresholds during H2 FY17, we announced a US$500M capital management program and commenced an
on-market share buy-back as it was determined to be the most efficient mechanism available to return cash to shareholders
at that time. This program has subsequently been increased to US$750M, with 105.8M shares purchased to date for a
cash consideration of US$211M (A$2.66 per share).
DIVIDENDS
Given the strength of the Group's net cash position and available franking credits, the Board resolved to pay a fully franked
final dividend of US 6.4 cents per share in respect of FY17, equating to 50% of Underlying earnings in the June 2017 half
year. The decision to temporarily increase the pay-out ratio distributes available franking credits in a timely manner.
Dividends announced
Period Dividend per
share (US cents) US$M Franking Pay-out ratio
H1 FY16 - - - -
H2 FY16 1.0 53 0% 47%
H1 FY17 3.6 192 0% 40%
H2 FY17 6.4 334 100% 50%
South32 Limited shareholders registered on the South African branch register will not be able to dematerialise or
rematerialise their shareholdings between 8 and 15 September 2017 (both dates inclusive), nor will transfers to/from the
South African branch register be permitted between 13 and 15 September 2017 (both dates inclusive).
Details of the currency exchange rates applicable for the dividend will be announced to the relevant stock exchanges.
Further dividend information is available on our website (www.south32.net).
South32 American Depositary Receipts (ADRs) each represent five fully paid ordinary shares in South32 and ADR holders
will receive dividends accordingly, subject to the terms of the Depositary Agreement.
Dividend timetable Date
Announce currency conversion into Rand 11 September 2017
Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE) 12 September 2017
Ex-dividend date on the JSE 13 September 2017
Payment date 12 October 2017
OUTLOOK
PRODUCTION
The Group's production guidance for FY18 is largely unchanged for the majority of our operations. Production at
Cannington and South Africa Energy Coal is, however, expected to decline in FY18 in accordance with prior market
disclosure. Following regulator intervention at Illawarra Metallurgical Coal we are reviewing our operating systems and
practices, with a specific emphasis on gas drainage and ventilation at the Appin colliery. A staged ramp-up of the Appin
707 longwall is expected to commence in early September. The reliability and predictability of its performance, and our
associated gas management activities, will inform our future plans and ability to ramp-up to historical rates of production.
We will provide a further update when we release our September quarterly results on 19 October 2017.
Production guidance (South32's share)(14)
FY17 FY18e(a) FY19e(a) Assumptions
Worsley Alumina
Alumina production (kt) 3,892 3,975 3,965 Refinery to achieve record production.
South Africa Aluminium
Restarted 22 pots in the December quarter 2016.
Aluminium production (kt) 714 720 720 Smelter to achieve record production.
Mozal Aluminium
Smelter to operate at benchmark levels of efficiency.
Aluminium production (kt) 271 269 269 AP3XLE energy efficiency project to add production from FY20.
Brazil Alumina
Production creep from De-bottlenecking Phase One project.
Alumina production (kt) 1,329 1,345 1,355 Refinery to achieve record production.
South Africa Energy Coal(15)
Total coal production (kt) 28,913 27,500 29,350
Production impacted by delayed development of new pits.
Domestic coal production (kt) 16,717 16,000 15,850 On-going capital investment to add export volume from FY19.
Export coal production (kt) 12,196 11,500 13,500
Australia Manganese
Manganese ore production Subject to PC02 circuit to operate at capacity.
(kwmt) 2,994 3,125 demand
South Africa Manganese
Manganese ore production Subject to Assumed reversion to optimal rate of ~2.9Mwmt pa(16).
(kwmt) 2,038 1,885 demand Production rate to be adjusted subject to market demand.
Cerro Matoso
Payable nickel production (kt) 36.5 41.6 38.8 Ramp up of activity at higher grade La Esmeralda deposit.
Cannington
Ore processed (kdmt) 3,036 2,600 2,950
Existing crusher chamber inoperable from September 2017.
Payable silver production (koz) 15,603 14,360 15,040 Replacement crusher on-track for completion in March 2018.
Trucking activity largely replaces shaft haulage in this period.
Payable lead production (kt) 132 115 125 Processing rates further constrained as stocks are re-built.
Processing rates recover in FY19 to 3.0Mt.
Payable zinc production (kt) 70 45 65
(a) The denotation (e) refers to an estimate or forecast year.
Detailed production commentary is included in the Operations Analysis section.
COSTS AND CAPITAL EXPENDITURE
Despite the impact of lower volumes and the appreciation of foreign exchange rates, we achieved FY17 unit cost guidance
at the majority of our operations and will seek to mitigate inflationary pressure again in FY18. Operating unit cost guidance
for Illawarra Metallurgical Coal will be provided when we have finalised our operating plans for FY18.
Corporate costs of US$80M are projected for FY18, with the US$10M increase largely accounted for by greenfield
exploration activity, which is expected to rise to by US$7M to US$20M. This investment will be directed towards base metals
exploration in North and South America, and Australia.
Depreciation and amortisation (excluding equity accounted investments) is expected to remain largely unchanged at
approximately US$760M. Depreciation and amortisation of US$85M is expected for our equity accounted investments.
The Group's Underlying ETR, which excludes tax associated with equity accounted investments, largely reflects the
geographic distribution of the Group's profit. The corporate tax rates applicable to the Group include: Australia 30%, South
Africa 28%, Colombia 39% and Brazil 34%. It should also be recognised that permanent differences have a
disproportionate effect on the Group's Underlying ETR when commodity prices and profit margins are compressed, while
the higher level of profitability in FY17 will feed through to higher tax payments in FY18.
Operating unit cost guidance(a)
Operating unit costs by upstream operation(17)
H1 FY17 H2 FY17 FY17 FY18e(a) Assumptions
Worsley Alumina
(US$/t) 200 205 203 211 Higher caustic soda prices.
South Africa Energy Coal(15)
(US$/t) 26 32 29 32 High fixed cost base with reduced export volumes.
Australia Manganese
Higher proportion of PC02 production.
(US$/dmtu)(b) 1.44 1.61 1.52 1.50 Stronger volumes overall.
South Africa Manganese
Ramp-up of Wessels Central Block.
(US$/dmtu)(b) 1.96 2.15 2.09 2.06 Reduction in high-cost trucking and logistics costs.
Cerro Matoso
(US$/lb) 3.81 3.73 3.77 3.53 Ramp-up of higher grade La Esmeralda deposit.
Cannington
(US$/t)(c) 131 136 133 142 Lower processing rates and temporary truck haulage.
(a) FY18e Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and is predicated on various
assumptions for FY18, including: an alumina price of US$299/t; a manganese ore price of US$4.50/dmtu for 44% manganese product; a nickel price
of US$4.27/lb; a thermal coal price of US$72/t (API4) for South Africa Energy Coal; a silver price of US$16.82/troy oz; a lead price of US$2,135/t; a
zinc price of US$2,555/t; an AUD:USD exchange rate of 0.74; a USD:ZAR exchange rate of 14.17 and a USD:COP exchange rate of 2,961; all of
which reflected forward markets as at May 2017 or our internal expectations.
(b) Manganese operating unit costs are FOB.
(c) US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact operating unit costs as related marketing costs
and treatment and refining charges may change.
Capital expenditure guidance
The deferral of approximately US$50M of expenditure at South Africa Energy Coal and Illawarra Metallurgical Coal from
FY17 into FY18 and a marginally higher rate of investment in our business is expected to result in Sustaining capital
expenditure, excluding equity accounted investments, of US$430M in FY18. Major project capital expenditure is expected
to rise to US$50M. This reflects planned investment in the South Africa Energy Coal KPSX project, pending its approval
in H1 FY18. Capital expenditure associated with equity accounted investments is also expected to increase to US$70M
and includes the construction of additional tailings storage capacity at Australia Manganese (GEMCO).
The higher rate of Sustaining capital expenditure includes: the construction of new mining areas at South Africa Energy
Coal's Wolvekrans-Middelburg Complex (WMC); additional underground development at Illawarra Metallurgical Coal to
access two new longwall panels at Dendrobium; the continuing development of the higher grade La Esmeralda deposit at
Cerro Matoso; and the commencement of the US$38M(16) AP3XLE energy efficiency project at Mozal Aluminium.
Sustaining capital expenditure (South32's share)
US$M FY17 FY18e(a)
Worsley Alumina 43 48
South Africa Aluminium 15 26
Mozal Aluminium 6 14
Brazil Alumina 20 18
South Africa Energy Coal(15) 56 112
Illawarra Metallurgical Coal(b) 104 150
Australia Manganese 28 47
South Africa Manganese 9 23
Cerro Matoso 14 20
Cannington 36 42
Group & Unallocated 6 N/A
Sustaining capital expenditure (including equity accounted investments) 337 500
Equity accounting adjustment(c) (37) (70)
Sustaining capital expenditure (excluding equity accounted investments) 300 430
(a) The denotation (e) refers to an estimate or forecast year.
(b) Sustaining capital expenditure guidance for Illawarra Metallurgical Coal, including underground development, remains subject to
the ongoing review of our systems and practices and will
be updated, if required, when this process has been completed.
(c) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the
manganese operations on an equity accounted basis.
OPERATIONS ANALYSIS
A summary of the Underlying performance of the Group's operations is presented below and more detailed analysis is
presented further on. Unless otherwise stated: all metrics reflect South32's share; Operating unit cost is Revenue
less Underlying EBITDA and excluding third party sales divided by sales volumes; and Operating cost is Revenue less
Underlying EBITDA and excluding third party sales.
Operations table
Revenue Underlying EBIT
US$M FY17 FY16 FY17 FY16
Worsley Alumina 1,106 1,011 159 42
South Africa Aluminium 1,324 1,161 219 82
Mozal Aluminium 521 431 76 -
Brazil Alumina 385 346 66 78
South Africa Energy Coal(15) 1,103 1,009 212 95
Illawarra Metallurgical Coal 1,133 642 358 (61)
Australia Manganese(a) 851 476 467 65
South Africa Manganese(a) 391 234 110 (47)
Cerro Matoso 377 333 (16) (88)
Cannington 768 786 308 274
Third party products(18) 792 587 12 6
Inter-segment / Group and Unallocated (557) (492) (70) (49)
Total 8,194 6,524 1,901 397
Equity accounting adjustment(b) (1,244) (712) (253) (41)
South32 Group 6,950 5,812 1,648 356
(a) Revenue and Underlying EBIT reflect South32's proportionally consolidated interest in the manganese joint venture operations.
(b) The equity accounting adjustment reconciles the proportional consolidation of the South32 manganese operations to the treatment of the manganese
operations on an equity accounted basis.
WORSLEY ALUMINA
(86% SHARE)
Volumes
Worsley Alumina saleable production decreased by 2%
(or 69kt) to 3.9Mt in FY17 as performance was impacted by
unplanned calciner maintenance in the March 2017 quarter.
The refinery finished the year on a strong note, operating at
its expanded capacity of 4.6Mtpa (100% basis) in the June
2017 quarter.
Production of approximately 4.0Mt is expected in each of
FY18 and FY19, with the refinery expected to sustain
record rates of production.
Operating costs
Operating unit costs decreased by 3% to US$203/t in FY17 as
we optimised the refinery's energy mix and achieved greater
energy efficiency. We also reduced maintenance expenditure
and contractor costs, offsetting the impact of a stronger
Australian dollar and higher caustic soda prices.
The refinery's Operating unit cost is expected to rise marginally
to US$211/t in FY18 as a result of an assumed 25% year-on-
year increase in caustic soda prices. Exchange rate and price
assumptions for FY18 unit cost guidance are detailed on page
12, footnote a.
Financial performance
The US$117M improvement in Underlying EBIT to US$159M
was primarily attributable to a 10% increase in average
realised alumina prices (+US$104M) and a significant
reduction in controllable costs (+US$97M). These benefits
were partially offset by higher caustic soda prices (-US$23M)
and a strengthening Australian dollar (-US$19M).
Capital expenditure
Sustaining capital expenditure of US$43M remained largely
unchanged in FY17 as we continued to invest in water
infrastructure. Our investment in bauxite residue disposal
capacity and boiler maintenance will result in a modest
increase in capital expenditure in FY18 to US$48M.
South32 share FY17 FY16
Alumina production (kt) 3,892 3,961
Alumina sales (kt) 3,847 3,874
Realised alumina sales price
(US$/t)(a) 287 261
Operating unit cost (US$/t)(b) 203 210
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales
volume.
South32 share (US$M) FY17 FY16
Revenue 1,106 1,011
Underlying EBITDA 326 199
Underlying EBIT 159 42
Net operating assets 3,043 3,208
Capital expenditure 43 44
Major projects (>US$100M) - -
All other capital expenditure 43 44
Exploration expenditure 1 -
Exploration expensed 1 -
SOUTH AFRICA ALUMINIUM
(100%)
Volumes
South Africa Aluminium saleable production increased by
2% (or 17kt) to 714kt in FY17 as the smelter continued to
achieve benchmark levels of current efficiency and pot line
performance, 22 pots were brought back online in the
December 2016 quarter and there were fewer
load-shedding events. Production is expected to increase
to a record 720kt in FY18 and FY19.
Operating costs
Operating unit costs were largely unchanged in FY17 at
US$1,454/t as higher electricity costs linked to the LME
aluminium price and the impact of a stronger South African
rand were largely offset by a reduction in pot relining costs. A
total of 75 pots were relined in FY17 at a cost of approximately
US$234k per pot (FY16: 183 pots at US$191k per pot). 139
pots are scheduled to be relined in FY18.
While additional productivity gains are being pursued, the cost
profile of the smelter will be more heavily influenced by power
and raw material inputs, given the operation's high variable
cost base. 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.
Financial performance
Underlying EBIT increased by US$137M in FY17 to
US$219M. The significant improvement in profitability was
underpinned by a 13% increase in the average realised price
of aluminium (+US$158M) and stronger sales volumes
(+US$6M). Higher LME aluminium price-linked electricity
costs reduced Underlying EBIT by US$21M.
Capital expenditure
Sustaining capital expenditure decreased by US$4M in FY17
following a deferral of activity into FY18. Sustaining capital
expenditure is expected to increase by US$11M in FY18 to
US$26M.
South32 share FY17 FY16
Aluminium production (kt) 714 697
Aluminium sales (kt)(a) 713 709
Realised sales price (US$/t)(a) 1,857 1,638
Operating unit cost (US$/t)(b) 1,454 1,430
(a) Volumes and prices do not include any third party trading that may be
undertaken independently of equity production. Realised sales price is
calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales
volume.
South32 share (US$M) FY17 FY16
Revenue 1,324 1,161
Underlying EBITDA 287 147
Underlying EBIT 219 82
Net operating assets 1,205 1,059
Capital expenditure 15 19
Major projects (>US$100M) - -
All other capital expenditure 15 19
Exploration expenditure - -
Exploration expensed - -
MOZAL ALUMINIUM
(47.1% SHARE)
Volumes
Mozal Aluminium achieved record performance in FY17,
increasing production by 2% (or 5kt) to 271kt as the smelter
maintained benchmark levels of current efficiency and pot
line performance, while benefitting from fewer
load-shedding events. Production is expected to remain
largely unchanged at 269kt in FY18 and FY19.
Operating costs
Operating unit costs decreased by 4% to US$1,495/t in FY17
as the benefit of stronger sales volumes was partially offset by
higher electricity input costs. A total of 94(16) pots were relined
in FY17 at a cost of approximately US$204k per pot (FY16:
109(16) pots at US$207k per pot). 82(16) pots are scheduled to
be relined in FY18.
While additional productivity gains are being pursued, the cost
profile of the smelter is heavily influenced by power and raw
material inputs, given the operation's high variable cost base.
Mozal Aluminium utilises hydroelectric power under a long-
term contract that is generated by Hidroeléctrica de 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).
Financial performance
Mozal Aluminium became profitable in FY17 as Underlying
EBIT increased to US$76M. Strong sales volumes
(+US$32M) and a 12% increase in the average realised price
of aluminium (+US$58M) were partially offset by higher
alumina costs (-US$12M).
Capital expenditure
While Sustaining capital expenditure decreased by 14% to
US$6M in FY17, the pending approval of the US$38M(16)
AP3XLE energy efficiency project is expected to result in a
modest increase in expenditure in FY18. This project is
expected to deliver a strong rate of return on incremental
investment by delivering a circa 5% (or 10kt pa) increase in
annual production with no associated increase in power
consumption. First production is anticipated in FY20, with the
full benefit realised in FY24.
South32 share FY17 FY16
Aluminium production (kt) 271 266
Aluminium sales (kt)(a) 273 254
Realised sales price (US$/t)(a) 1,908 1,697
Operating unit cost (US$/t)(b) 1,495 1,559
(a) Volumes and prices do not include any third party trading that may be
undertaken independently of equity production. Realised sales price is
calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales
volume.
South32 share (US$M) FY17 FY16
Revenue 521 431
Underlying EBITDA 113 35
Underlying EBIT 76 -
Net operating assets 534 565
Capital expenditure 6 7
Major projects (>US$100M) - -
All other capital expenditure 6 7
Exploration expenditure - -
Exploration expensed - -
BRAZIL ALUMINA
(ALUMINA 36% SHARE, ALUMINIUM
40% SHARE)
Volumes
Brazil Alumina saleable production of 1.3Mt in FY17
remained largely unchanged from the record rate achieved
in the prior period. Production is expected to increase to
1.35Mt in FY18 with the De-bottlenecking Phase One
project scheduled to ramp up during the December 2017
quarter.
Operating costs
Operating unit costs at the non-operated refinery increased by
4% to US$197/t in FY17 as a stronger Brazilian real and higher
caustic soda prices were partially offset by lower bauxite costs.
Financial performance
Alumina Underlying EBIT increased by US$33M in FY17 to
US$69M. A 15% increase in the average realised price of
alumina (+US$54M) was partially offset by general inflation
(-US$8M), a rise in caustic soda prices (-US$5M) and a
stronger Brazilian real (-US$16M). Aluminium Underlying
EBIT decreased by US$45M to a loss of US$3M as the
contribution of power sales declined.
Capital expenditure
Sustaining capital expenditure at the refinery increased by
67% to US$20M in FY17 as we invested in additional bauxite
residue disposal capacity. Sustaining capital expenditure of
US$18M in FY18 will reflect a continuation of this activity and
the completion of the De-bottlenecking Phase One project.
South32 share FY17 FY16
Alumina production (kt) 1,329 1,335
Alumina sales (kt) 1,316 1,359
Realised alumina sales price
(US$/t)(a) 293 255
Alumina operating unit cost
(US$/t)(b)(c) 197 189
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales
volume.
(c) Includes cost of acquiring bauxite mainly from Mineração Rio do Norte
S.A.
South32 share (US$M) FY17 FY16
Revenue 385 346
Alumina 385 346
Aluminium - -
Intra-segment elimination - -
Other income(a) 143 191
Underlying EBITDA 123 140
Alumina 126 89
Aluminium (3) 51
Underlying EBIT 66 78
Alumina 69 36
Aluminium (3) 42
Net operating assets/(liabilities) 691 707
Alumina 718 737
Aluminium (27) (30)
Capital expenditure 20 12
Major projects (>US$100M) - -
All other capital expenditure 20 12
Exploration expenditure - -
Exploration expensed - -
(a) Other income in FY17 includes revenue of US$120M from the sale of
surplus electricity (FY16: US$172M). This revenue was offset by electricity
purchases from Eletronorte and the unwind of the onerous contract
provision recorded in FY16.
SOUTH AFRICA ENERGY COAL
(92% SHARE)
Volumes
South Africa Energy Coal saleable production decreased
by 9% (or 2.8Mt) to 28.9Mt in FY17, despite an 11%
improvement in performance in the June 2017 quarter as
throughput increased at the WMC export plant. Despite the
improving trend, a 5% reduction in total coal production to
27.5Mt is anticipated in FY18 as the prior delay in
development activity at the WMC and depletion of the North
dump continue to weigh on performance. A 7%
improvement in total coal production is anticipated in FY19
to 29.3Mt with ongoing development.
Operating costs
Operating unit costs increased by 12% in FY17 to US$29/t as
the operation's high fixed cost base was absorbed by lower
sales volumes and the South African rand appreciated.
We expect Operating unit costs to increase to US$32/t in FY18
as a result of the further decline in production and general
inflation. Exchange rate and price assumptions for FY18 unit
cost guidance are detailed on page 12, footnote a.
Financial performance
Underlying EBIT increased by US$117M in FY17 to US$212M
as a higher average realised coal price (+US$230M) and a
favourable movement in working capital (+US$78M) more
than offset the impact of lower sales volumes (-US$158M) and
general inflation (-US$48M).
Capital expenditure
Sustaining capital expenditure decreased marginally to
US$56M in FY17. This was US$19M lower than planned as
adverse weather impacted the development schedule in the
WMC. Sustaining capital expenditure is expected to rise to
US$112M in FY18 as the rate of investment in the WMC
accelerates.
Major project capital expenditure is expected to increase to
US$50M in FY18. This reflects planned investment in the
KPSX project with a final investment decision expected in
H1 FY18, pending our internal approvals processes.
100 per cent terms(a) FY17 FY16
Energy coal production (kt) 28,913 31,681
Domestic sales (kt)(b) 16,922 17,169
Export sales (kt)(b) 11,797 15,157
Realised domestic sales price
(US$/t)(b) 21 18
Realised export sales price
(US$/t)(b) 64 46
Operating unit cost (US$/t)(c) 29 26
(a) South32's interest in South Africa Energy Coal is accounted at 100% until
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
volume.
100 per cent terms(a) (US$M) FY17 FY16
Revenue(b) 1,103 1,009
Underlying EBITDA 273 182
Underlying EBIT 212 95
Net operating liabilities (84) (99)
Capital expenditure 64 63
Major projects (>US$100M) 8 2
All other capital expenditure 56 61
Exploration expenditure - -
Exploration expensed - -
(a) South32's interest in South Africa Energy Coal is accounted at 100% until
B-BBEE vendor loans are repaid.
(b) Includes domestic and export sales revenue.
ILLAWARRA METALLURGICAL COAL
(100%)
Volumes
Illawarra Metallurgical Coal total saleable production
decreased by 15% (or 1.3Mt) to 7.1Mt in FY17, despite
record run-of-mine performance at Dendrobium, as
challenging ground conditions in the new Appin Area 901
longwall panel and two extended outages at the Appin
colliery significantly impacted performance. Metallurgical
coal sales were 4% (or 255kt) higher than production in
FY17.
We are continuing to review our operating systems and
practices at Illawarra Metallurgical Coal, with a specific
emphasis on gas drainage and ventilation at the Appin
colliery. A staged ramp-up of the Appin 707 longwall is
expected to commence in early September. The reliability
and predictability of its performance, and our associated
gas management activities, will inform our future plans and
ability to ramp-up to historical rates of production. We will
provide a further update when we release our September
quarterly results on 19 October 2017.
Operating costs
Operating unit costs increased by 31% to US$80/t in FY17 as
lower production significantly impacted productivity. Additional
cost pressure stemmed from higher price-linked royalties and
a stronger Australian dollar.
Operating unit cost guidance for Illawarra Metallurgical
Coal will be provided when we have finalised our operating
plans for FY18.
Financial performance
Underlying EBIT increased by US$419M to US$358M in FY17
as the benefit of higher average realised coal prices
(+US$576M) outweighed the impact of lower sales volumes
(-US$85M), higher royalties (-US$32M) and a stronger
Australian dollar (-US$16M). Our average realised price for
FY17 reflected a modest discount to the premium low-volatile
hard coking coal index on a volume weighted M-1 basis(19) as
our shipping schedule was affected by our prior declaration of
force majeure and the drawdown of finished goods inventory
in the second half.
Capital expenditure
Total capital expenditure decreased by 39% in FY17 to
US$112M, including underground development of
approximately US$63M.
Sustaining capital expenditure is expected to increase by
US$46M in FY18 to US$150M. This includes underground
development of US$80M, part of which will provide access to
two new longwall panels at Dendrobium.
South32 share FY17 FY16
Metallurgical coal production (kt) 5,697 7,059
Energy coal production (kt) 1,376 1,307
Metallurgical coal sales (kt) 5,952 6,984
Energy coal sales (kt) 1,344 1,333
Realised metallurgical coal sales
price (US$/t)(a) 175 84
Realised energy coal sales price
(US$/t)(a) 69 43
Operating unit cost (US$/t)(b) 80 61
(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
volume.
South32 share (US$M) FY17 FY16
Revenue(a) 1,133 642
Underlying EBITDA 548 132
Underlying EBIT 358 (61)
Net operating assets 1,406 1,516
Capital expenditure 112 185
Major projects (>US$100M) 8 30
All other capital expenditure 104 155
Exploration expenditure 5 4
Exploration expensed 5 4
(a) Includes metallurgical coal and energy coal sales revenue.
AUSTRALIA MANGANESE
(60% SHARE)
Volumes
Australia Manganese saleable ore production decreased by
3% (or 77kwmt) to 3.0Mwmt in FY17 as performance was
impacted by heavy rainfall and Tropical Cyclone Alfred in
the March 2017 quarter. The PC02 circuit operated at
approximately 90% of its 500kwmt (100% share) capacity
in the June 2017 quarter, contributing 6% of total production
across FY17 (FY16: 1%). Saleable manganese alloy
production increased by 11% (or 14kt) to 147kt in FY17 as
third party power supply to TEMCO was restored and all
four furnaces ramped-up to full capacity in the June 2017
quarter.
Ore production is expected to increase to 3.1Mwmt in FY18.
This assumes the low cost PC02 circuit operates at
nameplate capacity. Production in FY19 will be adjusted in response
to market demand, consistent with our focus on value over volume,
albeit we are positioned to deliver an increase in primary
concentrated availability.
Operating costs
FOB manganese ore Operating unit costs increased by 8% to
US$1.52/dmtu in FY17 as a result of a stronger Australian
dollar and higher price-linked royalties.
Operating unit costs are expected to decline to US$1.50/dmtu
in FY18 as the PC02 circuit operates at capacity and a general
improvement in productivity is achieved. Exchange rate and
price assumptions for FY18 unit cost guidance are detailed on
page 12, footnote a.
Financial performance
Underlying EBIT increased by US$402M in FY17 to
US$467M. A significant improvement in average ore and alloy
prices (+US$392M), and a reduction in depreciation and
amortisation (+US$35M) were only partially offset by higher
royalties (-US$8M) and a stronger Australian dollar (-US$8M).
Our average realised price for external sales of Australian
ore in FY17 reflected the high grade 44% manganese lump
ore index (CIF Tianjin, China) on a volume weighted M-1
basis(20), despite the contribution of 40% grade PC02
product to the sales mix.
Capital expenditure
Sustaining capital expenditure decreased by 59% to US$28M
in FY17 following the completion of the PC02 project, while
exploration drilling at GEMCO's Southern Areas commenced
in the December 2016 quarter. Sustaining capital expenditure
will rise to US$47M in FY18 as we invest in additional tailings
storage capacity at GEMCO. Our FY18 plan also includes
investment within our alloys business of US$5M.
South32 share FY17 FY16
Manganese ore production (kwmt) 2,994 3,071
Manganese alloy production (kt) 147 133
Manganese ore sales (kwmt)(a) 3,087 3,084
External customers 2,777 2,771
TEMCO 310 313
Manganese alloy sales (kt)(a) 155 150
Realised external manganese ore
sales price (US$/dmtu, FOB)(a)(b) 5.22 2.57
Realised manganese alloy sales
price (US$/t)(a) 1,174 860
Ore operating unit cost
(US$/dmtu)(b)(c) 1.52 1.41
Alloy operating unit cost (US$/t)(c) 755 833
(a) Volumes and realised prices do not include any third party trading that
may be undertaken independently of equity production. Realised ore
prices are calculated as external sales revenue less freight and marketing
costs, divided by external sales volume. Realised alloy prices are
calculated as sales revenue, including sinter revenue, divided by alloy
sales volume. Ore converted to sinter and alloy, and sold externally, is
eliminated as an intracompany transaction.
(b) FY17 average manganese content of ore sales was 46.2% on a dry basis
(FY16: 47.3%). 95% of FY17 external manganese ore sales (FY16: 94%)
were completed on a CIF basis. FY17 realised FOB ore prices and
operating unit costs have been adjusted for freight and marketing costs of
US$30M (FY16: US$24M), consistent with our FOB cost guidance.
(c) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight
and marketing costs, divided by ore sales volume. Alloy operating unit
costs is Revenue less Underlying EBITDA divided by alloy sales volumes
and includes costs associated with sinter sold externally.
South32 share (US$M) FY17 FY16
Revenue(a) 851 476
Manganese Ore 694 372
Manganese Alloy 182 129
Intra-segment elimination (25) (25)
Underlying EBITDA 521 154
Manganese Ore 456 150
Manganese Alloy 65 4
Underlying EBIT 467 65
Manganese Ore 406 67
Manganese Alloy 61 (2)
Net operating assets 319 341
Manganese Ore 313 338
Manganese Alloy 6 3
Capital expenditure 28 68
Major projects (>US$100M) - -
All other capital expenditure 28 68
Exploration expenditure 1 1
Exploration expensed - -
(a) Revenues of sales from GEMCO to TEMCO are eliminated as part of the
consolidation. Internal sales occur on a commercial basis.
SOUTH AFRICA MANGANESE
(ORE 44.4% SHARE, ALLOY 60% SHARE)
Volumes
South Africa Manganese saleable ore production increased
by 19% (or 327kwmt) to 2.0Mwmt in FY17 as we continued
to take advantage of stronger demand and pricing by
utilising higher cost trucking activity and opportunistically
selling fine grained Wessels concentrate. This low cost
product, which accounted for 9% of sales across FY17
(FY16: 4%), receives a substantial product discount when
referenced to index prices. Manganese alloy saleable
production decreased by 20% (or 18kt) to 73kt in FY17 as
a result of furnace instability. Metalloys continues to
operate one of its four furnaces.
In H1 FY16 we reconfigured the Hotazel mines to operate
at a rate of 2.9Mwmt pa, but with greater flexibility.
Production of 3.1Mwmt(16) is expected in FY18. Production
in FY19 will be adjusted in response to market demand,
consistent with our focus on value over volume.
Operating costs
FOB manganese ore Operating unit costs increased by 9% to
US$2.09/dmtu in FY17 as a result of a stronger South African
rand, general inflation and higher price-linked royalties. The
drawdown of low cost Wessels concentrate stockpiles largely offsets
higher costs associated with opportunistic trucking activity.
FOB manganese ore Operating unit costs are expected to
remain largely unchanged at US$2.06/dmtu in FY18, despite
a reduction in sales volumes, as the ramp-up of the Wessels
Central Block is expected to reduce cycle times and improve
productivity. Exchange rate and price assumptions for FY18
unit cost guidance are detailed on page 12, footnote a.
Financial performance
Underlying EBIT increased by US$157M in FY17 to US$110M
as a significant improvement in average ore and alloy prices
(+US$171M) and stronger ore sales volumes (+US$10M)
were only partially offset by higher royalties (-US$15M) and an
increase in trucking activity (-US$5M). Our average realised
manganese ore price for external sales reflected a 12%
discount to the medium grade 37% manganese lump ore
index (FOB Port Elizabeth, South Africa) on a volume
weighted M-1 basis(21) as a result of the larger discount
received for Wessels concentrate.
Capital expenditure
While Sustaining capital expenditure decreased by 18% to
US$9M in FY17, it is expected to rise to US$23M in FY18,
including US$4M for alloys. This rise in investment primarily
reflects a general increase in mine and equipment
maintenance.
South32 share FY17 FY16
Manganese ore production (kwmt) 2,038 1,711
Manganese alloy production (kt) 73 91
Manganese ore sales (kwmt)(a) 2,024 1,834
External customers 1,866 1,736
Metalloys 158 98
Manganese alloy sales (kt)(a) 74 110
Realised external manganese ore
sales price (US$/dmtu, FOB)(a)(b) 4.01 2.09
Realised manganese alloy sales
price (US$/t)(a) 1,027 682
Ore operating unit cost
(US$/dmtu)(b)(c) 2.09 1.91
Alloy operating unit cost (US$/t)(c) 1,000 882
(a) Volumes and prices do not include any third party trading that may be
undertaken independently of equity production. Realised ore prices are
calculated as external sales revenue less freight and marketing costs,
divided by external sales volume. Realised alloy prices are calculated as
sales revenue, divided by alloy sales volume. Ore converted to sinter and
alloy, and sold externally, is eliminated as an intracompany transaction.
Manganese ore sales are grossed-up to reflect a 60% accounting
effective interest.
(b) FY17 average manganese content of ore sales was 40.1% on a dry basis
(FY16: 39.9%). 63% of FY17 external manganese ore sales (FY16: 57%)
were completed on a CIF basis. FY17 realised FOB ore prices and
operating costs have been adjusted for freight and marketing costs of
US$24M (FY16: US$17M), consistent with our FOB cost guidance.
(c) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight
and marketing costs, divided by ore sales volume. Alloy operating unit
costs is Revenue less Underlying EBITDA divided by alloy sales volumes.
South32 share (US$M) FY17 FY16
Revenue(a) 391 234
Manganese Ore(b) 328 166
Manganese Alloy 76 75
Intra-segment elimination (13) (7)
Underlying EBITDA 140 (11)
Manganese Ore(b) 138 11
Manganese Alloy 2 (22)
Underlying EBIT 110 (47)
Manganese Ore(b) 120 (13)
Manganese Alloy (10) (34)
Net operating assets 307 342
Manganese Ore(b) 245 258
Manganese Alloy 62 84
Capital expenditure 9 11
Major projects (>US$100M) - -
All other capital expenditure 9 11
Exploration expenditure - -
Exploration expensed - -
(a) Revenues of sales from Hotazel mines to Metalloys are eliminated as part
of the consolidation. Internal sales occur on a commercial basis.
(b) Consistent with the presentation of South32's segment information, South
Africa Manganese ore production and sales have been reported at 60%.
The group's financial statements will continue to reflect a 54.6% interest
in South Africa Manganese ore.
CERRO MATOSO
(99.9% SHARE)
Volumes
Cerro Matoso payable nickel production remained largely
unchanged in FY17 as a reduction in furnace availability
was offset by the delivery of first ore from the higher grade
La Esmeralda deposit in March 2017. Payable nickel
production is expected to increase by 14% in FY18 to 41.6kt
as a higher proportion of ore feed is sourced from
La Esmeralda.
Operating costs
Operating unit costs decreased by 8% in FY17 to US$3.77/lb
as contractor activity was curtailed and higher grades and
lower throughput led to a modest reduction in variable costs.
The forecast 6% reduction in Operating unit costs to
US$3.53/lb in FY18 reflects the increasing contribution of
higher grade La Esmeralda ore and the associated increase in
payable nickel production. Exchange rate and price
assumptions for FY18 unit cost guidance are detailed on page
12, footnote a.
Financial performance
Underlying EBIT increased by US$72M in FY17 to a loss of
US$16M as the average realised price of nickel increased
by 14% (+US$45M) and cost efficiencies delivered a (+US$32M)
benefit.
Capital expenditure
In FY17, additional sustaining capital expenditure was
directed towards the accelerated development of
La Esmeralda. The rate of expenditure at Cerro Matoso will
rise to US$20M in FY18 as the permanent bridge that
connects La Esmeralda to our processing facilities is
completed.
South32 share FY17 FY16
Ore mined (kwmt) 4,447 6,009
Ore processed (kdmt) 2,561 2,699
Ore grade processed (%, Ni) 1.59 1.54
Payable nickel production (kt) 36.5 36.8
Payable nickel sales (kt) 36.6 36.8
Realised nickel sales price
(US$/lb)(a) 4.67 4.10
Operating unit cost (US$/lb)(b) 3.77 4.08
(a) Inclusive of by-products. Realised sales price is calculated as sales
revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by
Payable nickel sales volume.
South32 share (US$M) FY17 FY16
Revenue 377 333
Underlying EBITDA 74 2
Underlying EBIT (16) (88)
Net operating assets 611 683
Capital expenditure 14 18
Major projects (>US$100M) - -
All other capital expenditure 14 18
Exploration expenditure 5 5
Exploration expensed 4 2
CANNINGTON
(100% SHARE)
Volumes
Cannington silver, lead and zinc saleable production
decreased by 27%, 24% and 11%, respectively, in FY17 as
high grade stope 60L was only partially extracted and
run-of-mine stocks were consumed to support processing
rates following an underground fire in April 2017.
The existing crusher chamber is now expected to become
inoperable in September 2017. Commissioning of the
replacement crusher is anticipated in March 2018 with shaft
haulage to be replaced by additional trucking in the
intervening period. The stope sequence within the mine is
also being adjusted to re-establish above ground stocks.
Mill throughput for FY18 has been revised to 2.6Mt, with
payable metal production to decline accordingly. An
increase in payable metal production is expected in FY19
as crushing capacity is restored and mill throughput rises to
3.0Mt.
Operating costs
Operating unit costs decreased by 8% in FY17 to US$133/t as
treatment and refining charges declined. Operating unit costs
are expected to increase by 7% in FY18 to US$142/t as a
result of a temporary rise in trucking activity and lower mill
throughput. Exchange rate and price assumptions for FY18
unit cost guidance are detailed on page 12, footnote a.
Financial performance
Underlying EBIT increased by US$34M in FY17 to
US$308M. Higher average realised prices (+US$158M),
lower treatment and refining charges (+US$43M), and a
reduction in labour costs (+US$11M) were partially offset
by the reduction in sales volumes (-US$175M). Finalisation
adjustments and the provisional pricing of Cannington
concentrates increased Underlying EBIT by US$4.1M in
FY17 (-US$11M: FY16, US$0.5M: H1 FY17). Outstanding
concentrate sales (containing 2.4Moz of silver, 26.2kt of
lead and 4.6kt of zinc) were revalued at 30 June 2017. The
final price of these sales will be determined in H1 FY18.
Capital expenditure
Sustaining capital expenditure increased by US$9M in FY17
to US$36M. Ongoing development of the underground
crusher will result in a further rise in expenditure in FY18 to
US$42M.
South32 share FY17 FY16
Ore mined (kwmt) 2,909 3,289
Ore processed (kdmt) 3,036 3,149
Ore grade processed (g/t, Ag) 194 255
Ore grade processed (%, Pb) 5.4 6.6
Ore grade processed (%, Zn) 3.4 3.8
Payable silver production (koz) 15,603 21,393
Payable lead production (kt) 132.1 173.2
Payable zinc production (kt) 70.4 79.0
Payable silver sales (koz) 16,270 20,852
Payable lead sales (kt) 138.1 169.7
Payable zinc sales (kt) 67.4 82.6
Realised silver sales price
(US$/oz)(a) 17.6 16.2
Realised lead sales price
(US$/t)(a) 2,223 1,780
Realised zinc sales price
(US$/t)(a) 2,601 1,780
Operating unit cost (US$/t ore
processed)(b) 133 145
(a) Realised sales price is calculated as sales revenue divided by sales
volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by ore
processed. Periodic movements in finished product inventory may impact
operating unit costs as related marketing costs and treatment and refining
charges may change.
South32 share (US$M) FY17 FY16
Revenue 768 786
Underlying EBITDA 364 330
Underlying EBIT 308 274
Net operating assets 215 242
Capital expenditure 36 27
Major project (>US$100M) - -
All other capital expenditure 36 27
Exploration expenditure 2 3
Exploration expensed 2 3
NOTES
(1) Revenue includes revenue from third party products.
(2) FY17 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for FY17 (5,307 million). FY17
basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for FY17. FY16 basic
earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for FY16 (5,324 million). FY16 basic
Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for FY16.
(3) FY17 dividend per share is calculated as H1 FY17 total dividend announced (US$192M) divided by the number of shares on issue at 31 December 2016
(5,324 million) plus H2 FY17 total dividend announced (US$334M) divided by the number of shares on issue at 30 June 2017 (5,218 million).
(4) Underlying EBIT is profit before net finance costs, tax and any earnings adjustment items, including impairments. Underlying EBIT is reported inclusive
of South32's share of net finance costs and tax of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and
amortisation. Underlying earnings is Profit/(loss) after tax and earnings adjustment items. Underlying earnings is the key measure that South32 uses to
assess the performance of the South32 Group, make decisions on the allocation of resources and assess senior management's performance. In
addition, the performance of each of the South32 operations and operational management are assessed based on Underlying EBIT. In order to calculate
Underlying earnings, Underlying EBIT and Underlying EBITDA, the following items are adjusted as applicable each period, irrespective of materiality:
- Exchange rate gains/losses on restatement of monetary items;
- Impairment losses/reversals;
- Net 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 the Financial Information.
(5) Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue.
(6) Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product revenue.
(7) Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as Underlying EBIT less the discount
on rehabilitation provisions included in net finance cost, tax effected by the Group's Underlying effective tax rate (ETR), divided by the sum of fixed
assets (excluding any rehabilitation asset and impairments) and inventories. Manganese is included in the calculation on a proportional consolidation
basis.
(8) Market capitalisation as at 18 August 2017. Calculated as the number of shares on issue (5,218 million) and the South32 closing share price (A$2.95).
(9) Sales revenue reflects statutory numbers.
(10) Sales price variance reflects the revenue impact of changes in commodity prices, based on the current period's sales volume. Price-linked costs
variance reflects the change in royalties together with the change in input costs driven by changes in commodity prices or market traded consumables.
Foreign exchange reflects the impact of exchange rate movements on local currency denominated costs and sales. Volume variance reflects the
revenue impact of sales volume changes, based on the comparative period's sales prices. Controllable costs variance represents the impact from
changes in the Group's controllable local currency cost base, including the variable cost impact of production volume changes on expenditure, and
period-on-period movements in inventories. The controllable cost variance excludes earnings adjustments including significant items.
(11) Underlying net finance cost and Underlying tax expense are actual FY17 results, not year-on-year variances.
(12) Underlying effective tax rate (ETR) is Underlying income tax expense, excluding royalty related tax, divided by Underlying profit before tax; both the
numerator and denominator exclude equity accounted investments.
(13) Total capital expenditure comprises Capital expenditure, the purchase of intangibles and capitalised exploration expenditure. Capital expenditure
comprises Sustaining capital expenditure and Major projects capital expenditure. Sustaining capital expenditure comprises Stay-in-business (SIB),
Minor discretionary and Deferred stripping (including underground development) capital expenditure.
(14) South32's ownership share of operations are as follows: Worsley Alumina (86%), South Africa Aluminium (100%), Mozal Aluminium (47.1% share),
Brazil Alumina (Alumina 36% share, Aluminium 40% share), South Africa Energy Coal (92% share), Illawarra Metallurgical Coal (100%), Australia
Manganese (60% share), South Africa Manganese (60% share), Cerro Matoso (99.9% share), and Cannington (100%).
(15) South32's interest in South Africa Energy Coal is accounted at 100% until broad-based black economic empowerment (B-BBEE) vendor loans are
repaid.
(16) Presented on a 100% basis.
(17) Operating unit cost is Revenue less Underlying EBITDA and excluding third party sales divided by sales volumes. Operating cost is Revenue less
Underlying EBITDA and excluding third party sales. Additional manganese disclosures are included.
(18) Third party products sold comprise US$282 million for aluminium, US$133 million for alumina, US$169 million for coal, US$113 million for freight
services and US$93 million for aluminium raw materials. Underlying EBIT on third party products comprise US$13 million for aluminium, (US$4) million
for alumina, US$2 million for coal, nil for freight services and US$1 million for aluminium raw materials.
(19) The quarterly sales volume weighted average of the premium low-volatile hard coking coal Platts index (FOB Australia) on the basis of a one month
lag to published pricing (Month minus one or "M-1") was US$179/t in the 2017 financial year.
(20) The quarterly sales volume weighted average of the Metal Bulletin 44% manganese lump ore index (CIF Tianjin, China) on the basis of a one month
lag to published pricing (Month minus one or "M-1") was US$5.54/dmtu in the 2017 financial year.
(21) The quarterly sales volume weighted average of the Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, South Africa) on the basis of
a one month lag to published pricing (Month minus one or "M-1") was US$4.54/dmtu in the 2017 financial year.
(22) Figures in Italics indicate that an adjustment has been made since the figures were previously reported.
The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); financial year (FY); 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); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); thousand dry metric
tonnes (kdmt); dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); Johannesburg
Stock Exchange (JSE); and American Depositary Receipts (ADR).
SOUTH32 FINANCIAL INFORMATION
For the year ended 30 June 2017
BASIS OF PREPARATION
The financial information included in this document for the year ended 30 June 2017 is unaudited. The financial information
does not constitute the South32 Group's (the Group) full financial statements for the year ended 30 June 2017, which will
be approved by the Board, reported on by the auditors, and filed with the Australian Securities and Investments
Commission. The 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 financial information set out for the year ended 30 June 2017 has been prepared on the basis of
accounting policies and methods of computation consistent with those applied in the 30 June 2016 financial statements
contained within the Annual Report of the Group.
As required, and unless otherwise stated, comparative statutory financial information for the Group has been presented
for the 2016 financial year.
All amounts are expressed in US dollars unless otherwise stated. The 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 (US$M or US$ million).
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2017
US$M FY17 FY16
Revenue
Group production 6,160 5,227
Third party products 790 585
6,950 5,812
Other income 275 324
Expenses excluding net finance cost (5,742) (7,247)
Share of profit/(loss) of equity accounted investments 312 (330)
Profit/(loss) 1,795 (1,441)
Comprising:
Group production 1,783 (1,447)
Third party products 12 6
Profit/(loss) 1,795 (1,441)
Finance expenses (212) (132)
Finance income 41 28
Net finance cost (171) (104)
Profit/(loss) before tax 1,624 (1,545)
Income tax (expense)/benefit (393) (70)
Profit/(loss) after tax 1,231 (1,615)
Attributable to:
Equity holders of South32 Limited 1,231 (1,615)
Profit/(loss) for the year attributable to the equity holders of South32 Limited
Basic earnings per share (cents) 23.2 (30.3)
Diluted earnings per share (cents) 22.9 (30.3)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2017
US$M FY17 FY16
Profit/(loss) for the year 1,231 (1,615)
Other comprehensive income
Items that may be reclassified to the income statement:
Available for sale investments:
Net gain/(loss) taken to equity 19 (54)
Net (gain)/loss transferred to the income statement - 23
Tax benefit/(expense) recognised within other comprehensive income 1 9
Total items that may be reclassified to the income statement 20 (22)
Items not to be reclassified to the income statement:
Equity accounted investments - share of other comprehensive income/(loss) 1 1
Actuarial gain/(loss) on pension and medical schemes 8 3
Tax benefit/(expense) recognised within other comprehensive income (2) (1)
Total items not to be reclassified to the income statement 7 3
Total other comprehensive income/(loss) 27 (19)
Total comprehensive income/(loss) 1,258 (1,634)
Attributable to:
Equity holders of South32 Limited 1,258 (1,634)
CONSOLIDATED BALANCE SHEET
as at 30 June 2017
US$M FY17 FY16
ASSETS
Current assets
Cash and cash equivalents 2,675 1,225
Trade and other receivables 718 618
Other financial assets 103 32
Inventories 781 714
Current tax assets 27 61
Other 28 18
Total current assets 4,332 2,668
Non-current assets
Trade and other receivables 365 445
Other financial assets 465 260
Inventories 81 88
Property, plant and equipment 8,373 8,651
Intangible assets 252 288
Equity accounted investments 569 570
Deferred tax assets 276 382
Other 20 22
Total non-current assets 10,401 10,706
Total assets 14,733 13,374
LIABILITIES
Current liabilities
Trade and other payables 850 676
Interest bearing liabilities 391 282
Other financial liabilities - 1
Current tax payable 116 6
Provisions 383 408
Deferred income 4 4
Total current liabilities 1,744 1,377
Non-current liabilities
Trade and other payables 4 5
Interest bearing liabilities 644 631
Other financial liabilities - 16
Deferred tax liabilities 518 501
Provisions 1,577 1,410
Deferred income 11 12
Total non-current liabilities 2,754 2,575
Total liabilities 4,498 3,952
Net assets 10,235 9,422
EQUITY
Share capital 14,747 14,958
Treasury shares (26) (3)
Reserves (3,503) (3,555)
Retained earnings/(accumulated losses) (982) (1,977)
Total equity attributable to equity holders of South32 Limited 10,236 9,423
Non-controlling interests (1) (1)
Total equity 10,235 9,422
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2017
US$M FY17 FY16
Operating activities
Profit/(loss) before tax 1,624 (1,545)
Adjustments for:
Non-cash significant items - (27)
Depreciation and amortisation expense 763 775
Impairments of property, plant and equipment, financial assets, intangibles and equity accounted
- 1,386
investments
Employee share awards expense 37 23
Net finance cost 171 95
Share of (profit)/loss of equity accounted investments (312) 330
Fair value (gains)/losses on derivative instruments (194) 60
Other non-cash or non-operating items (21) (18)
Changes in assets and liabilities:
Trade and other receivables (119) 163
Inventories (60) 191
Trade and other payables 137 (244)
Provisions and other liabilities (63) (121)
Cash generated from operations 1,963 1,068
Interest received 41 27
Interest paid (73) (46)
Income tax (paid)/received (127) (52)
Dividends received 15 14
Dividends received from equity accounted investments 313 19
Net cash flows from operating activities 2,132 1,030
Investing activities
Purchases of property, plant and equipment (316) (383)
Exploration expenditure (27) (13)
Exploration expenditure expensed and included in operating cash flows 25 9
Purchase of intangibles (1) (13)
Investment in financial assets (331) (53)
Investment in equity accounted investments (21) (1)
Cash outflows from investing activities (671) (454)
Proceeds from sale of property, plant and equipment and intangibles 16 5
Proceeds from financial assets 344 107
Distribution from equity accounted investments 22 -
Net cash flows from investing activities (289) (342)
Financing activities
Proceeds from interest bearing liabilities 109 31
Repayment of interest bearing liabilities (20) (127)
Purchase of shares by Employee Share Ownership Plan (ESOP) Trusts (27) (3)
Share buy-back (211) -
Dividends paid (244) -
Net cash flows from financing activities (393) (99)
Net increase/(decrease) in cash and cash equivalents 1,450 589
Cash and cash equivalents, net of overdrafts, at the beginning of the financial year 1,225 644
Foreign currency exchange rate changes on cash and cash equivalents - (8)
Cash and cash equivalents, net of overdrafts, at the end of the financial year 2,675 1,225
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2017
Attributable to equity holders of South32 Limited
Retained
earnings/ Non-
Share Treasury (accumulated controlling Total
US$M capital shares Reserves losses) Total interests equity
Balance as at 1 July 2016 14,958 (3) (3,555) (1,977) 9,423 (1) 9,422
Profit/(loss) for the year - - - 1,231 1,231 - 1,231
Other comprehensive income/(loss) - - 20 7 27 - 27
Total comprehensive income/(loss) - - 20 1,238 1,258 - 1,258
Transactions with owners:
Accrued employee entitlement for
- - 37 - 37 - 37
unexercised awards
Dividends - - - (244) (244) - (244)
Purchase of shares by ESOP Trusts - (27) - - (27) - (27)
Employee share awards exercised - 4 (5) 1 - - -
Shares bought back and cancelled (211) - - - (211) - (211)
Balance as at 30 June 2017 14,747 (26) (3,503) (982) 10,236 (1) 10,235
Balance as at 1 July 2015 14,958 - (3,557) (365) 11,036 (1) 11,035
Profit/(loss) for the year - - - (1,615) (1,615) - (1,615)
Other comprehensive income/(loss) - - (22) 3 (19) - (19)
Total comprehensive income/(loss) - - (22) (1,612) (1,634) - (1,634)
Transactions with owners:
Accrued employee entitlement for
- - 24 - 24 - 24
unexercised awards
Purchase of shares by ESOP Trusts - (3) - - (3) - (3)
Balance as at 30 June 2016 14,958 (3) (3,555) (1,977) 9,423 (1) 9,422
SEGMENT INFORMATION
(a) Description of segments
The operating segments (also referred to as "operations") are organised and managed separately according to the nature
of products produced. 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 operations are presented on a proportional
consolidation basis, which is the measure used by the Group's management to assess their performance.
The principal activities of each operating segment as the Group is currently structured are summarised as follows:
Operating segment Principal activities
Worsley Alumina Integrated bauxite mine and alumina refinery in Western Australia, Australia.
South Africa Aluminium Aluminium smelter in Richards Bay, South Africa.
Brazil Alumina Alumina refinery 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.
Australia Manganese Integrated producer of manganese ore in the Northern Territory and manganese alloys in
Tasmania, Australia.
South Africa Manganese Integrated producer of manganese ore and alloy in South Africa.
Cerro Matoso Integrated laterite ferronickel mining and smelting complex in Colombia.
Cannington Silver, lead and zinc mine in Queensland, Australia.
All operations are operated, or jointly operated, by the Group except Alumar (which forms part of Brazil Alumina), 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 other earnings adjustment items including impairments. Underlying EBITDA is Underlying EBIT,
before depreciation and amortisation. A reconciliation of Underlying EBIT, Underlying EBITDA and the Group's
consolidated profit after tax from operations is set out below. Segment revenue is measured on the same basis as in the
Consolidated Income Statement.
Revenue is not reduced for royalties and other taxes payable from group production.
The Group separately discloses sales of group production from sales of third party products because of the significant
difference in profit margin earned on these sales.
It is the Group's policy that inter-segment transactions are made on a commercial basis.
Group and unallocated items/elimination represent group centre functions and consolidation adjustments. Group financing
(including finance expense and finance income) and income taxes are managed on a Group basis and are not allocated
to operating segments.
Total assets and liabilities for each operating segment represent operating assets and liabilities which predominantly
exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances. The
carrying amount of investments accounted for using the equity method represents the balance of the Group's investment
in equity accounted investments, with no adjustment for cash, interest bearing liabilities and tax balances of the equity
accounted investment.
FY17 SEGMENT INFORMATION
Year ended South Group and
30 June 2017 South Africa Illawarra unallocated
Worsley Africa Mozal Brazil Energy Metallurgical Australia South Africa Cerro items/ Statutory
US$M Alumina Aluminium Aluminium Alumina Coal Coal Manganese(a) Manganese(a) Matoso Cannington elimination adjustment(a) Group
Revenue
Group production 630 1,324 521 304 1,103 1,133 851 387 377 768 - (1,238) 6,160
Third party products(b) - - - - - - - - - - 792 (2) 790
Inter-segment revenue 476 - - 81 - - - 4 - - (557) (4) -
Total revenue 1,106 1,324 521 385 1,103 1,133 851 391 377 768 235 (1,244) 6,950
Underlying EBITDA 326 287 113 123 273 548 521 140 74 364 (21) (337) 2,411
Depreciation and amortisation (167) (68) (37) (57) (61) (190) (54) (30) (90) (56) (37) 84 (763)
Underlying EBIT 159 219 76 66 212 358 467 110 (16) 308 (58) (253) 1,648
Comprising:
Group production 159 219 76 66 216 358 467 110 (16) 308 (70) (577) 1,316
Third party products(b) - - - - - - - - - - 12 - 12
Share of profit/(loss) of equity accounted investments(c) - - - - (4) - - - - - - 324 320
Underlying EBIT 159 219 76 66 212 358 467 110 (16) 308 (58) (253) 1,648
Net finance cost (136)
Income tax (expense)/benefit (366)
Underlying earnings 1,146
Earnings adjustments(d) 85
Profit/(loss) after tax 1,231
Capital expenditure(e) 43 15 6 20 64 112 28 9 14 36 6 (37) 316
Equity accounted investments - - - - 10 - - - - - - 559 569
Total assets(f) 3,564 1,478 630 860 936 1,667 597 493 800 371 4,011 (674) 14,733
Total liabilities(f) 521 273 96 169 1,020 261 278 186 189 156 2,017 (668) 4,498
(a) The segment information reflects the Group's interest in the manganese operations and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance.
The manganese operations are equity accounted in the consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.
(b) Third party products sold comprise US$282 million for aluminium, US$133 million for alumina, US$169 million for coal, US$113 million for freight services and US$93 million for aluminium raw materials. Underlying
EBIT on third party products comprise US$13 million for aluminium, (US$4) million for alumina, US$2 million for coal, nil for freight services and US$1 million for aluminium raw materials.
(c) Share of profit/(loss) of equity accounted investments includes the impacts of earnings adjustments to Underlying EBIT.
(d) Refer to Earnings adjustments.
(e) Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(f) Total assets and liabilities for each operating segment represent operating assets and liabilities which predominately exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.
FY16 SEGMENT INFORMATION
Year ended South Group and
30 June 2016 South Africa Illawarra unallocated
Worsley Africa Mozal Brazil Energy Metallurgical Australia South Africa Cerro items/ Statutory
US$M Alumina Aluminium Aluminium Alumina Coal Coal Manganese(a) Manganese(a) Matoso Cannington elimination adjustment(a) Group
Revenue
Group production 542 1,161 431 323 1,009 642 476 230 333 786 - (706) 5,227
Third party products(b) - - - - - - - - - - 587 (2) 585
Inter-segment revenue 469 - - 23 - - - 4 - - (492) (4) -
Total revenue 1,011 1,161 431 346 1,009 642 476 234 333 786 95 (712) 5,812
Underlying EBITDA 199 147 35 140 182 132 154 (11) 2 330 (13) (166) 1,131
Depreciation and amortisation (157) (65) (35) (62) (87) (193) (89) (36) (90) (56) (30) 125 (775)
Underlying EBIT 42 82 - 78 95 (61) 65 (47) (88) 274 (43) (41) 356
Comprising:
Group production 42 82 - 78 94 (60) 65 (47) (88) 274 (49) (18) 373
Third party products(b) - - - - - - - - - - 6 - 6
Share of profit/(loss) of equity accounted investments(c) - - - - 1 (1) - - - - - (23) (23)
Underlying EBIT 42 82 - 78 95 (61) 65 (47) (88) 274 (43) (41) 356
Net finance cost (125)
Income tax (expense)/benefit (93)
Underlying earnings 138
Earnings adjustments(d) (1,753)
Profit/(loss) after tax (1,615)
Capital expenditure(e) 44 19 7 12 63 185 68 11 18 27 8 (79) 383
Equity accounted investments - - - - 13 - - - - - - 557 570
Total assets(f) 3,647 1,334 656 874 728 1,745 577 517 889 401 2,654 (648) 13,374
Total liabilities(f) 439 275 91 167 827 229 236 175 206 159 1,796 (648) 3,952
(a) The segment information reflects the Group's interest in the manganese operations and is presented on a proportional consolidation basis, which is the measure used by the Group's management to assess their performance.
The manganese operations are equity accounted in the consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.
(b) Third party product sold comprise US$264 million for aluminium, US$59 million for alumina, US$72 million for coal, US$90 million for freight services and US$100 million for aluminium raw materials. Underlying EBIT
on third party products comprise US$3 million for aluminium, (US$3) million for alumina, US$5 million for coal, US$1 million for freight services and nil for aluminium raw materials.
(c) Share of profit/(loss) of equity accounted investments includes the impacts of earnings adjustments to Underlying EBIT.
(d) Refer to Earnings adjustments.
(e) Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(f) Total assets and liabilities for each operating segment represent operating assets and liabilities which predominately exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities
and tax balances.
EARNINGS ADJUSTMENTS
The following table shows earnings adjustments in determining Underlying earnings:
Earnings adjustments
US$M FY17 FY16
Adjustments to Underlying EBIT
Significant items(a) - 24
Exchange rate (gains)/losses on restatement of monetary items(b) 37 (43)
Impairment losses(b)(c) - 1,386
Fair value (gains)/losses on derivative instruments(b) (194) 60
Major corporate restructures(b) 2 63
Impairment losses included in profit/(loss) of equity accounted investments(d) - 291
Earnings adjustments included in profit/(loss) of equity accounted investments(d) 8 16
Total adjustments to Underlying EBIT (147) 1,797
Adjustments to net finance cost
Significant items(a) - 9
Exchange rate variations on net debt 35 (30)
Total adjustments to net finance cost 35 (21)
Adjustments to income tax expense
Significant items(a) - 31
Tax effect of earnings adjustments to Underlying EBIT 42 (187)
Tax effect of earnings adjustments to net finance cost (9) 9
Exchange rate variations on tax balances (6) 124
Total adjustments to income tax expense 27 (23)
Total earnings adjustments (85) 1,753
(a) Refer to significant items.
(b) Recognised in expenses excluding net finance cost in the Consolidated Income Statement.
(c) US$1,310 million in FY16 relates to the impairment of non-financial assets. US$76 million in FY16 relates to impairment of available for sale
investments.
(d) Recognised in share of profit/(loss) of equity accounted investments in the Consolidated Income Statement.
SIGNIFICANT ITEMS
Significant items are those items, not separately identified in earnings adjustments, where their nature and amount is
considered material to the consolidated financial statements. There were no such items included within the Group's
(income)/expense for the year ended 30 June 2017.
Year ended 30 June 2016
US$M Gross Tax Net
Set-up costs(a) 60 (17) 43
Adjustment to Australian tax balances post-demerger including reset of tax assets - (85) (85)
Derecognition of deferred tax assets - 126 126
Brazil Aluminium Smelter impairment 32 (11) 21
Brazil Alumina tax accounting adjustments - 20 20
Change in discount rate(b) 9 (1) 8
Closure and rehabilitation provisions(a) (68) (1) (69)
Total significant items 33 31 64
(a) Recognised in expenses excluding net finance cost in the Consolidated Income Statement.
(b) Recognised in net finance cost in the Consolidated Income Statement.
Set-up costs
Set-up costs related to the ongoing establishment of the Group's corporate and regional offices following the demerger.
The costs primarily relate to transitionary contractor and consultant support, information technology infrastructure and
system support. The amount recognised is inclusive of US$30 million paid to BHP under an agreement for information
technology services. Those costs related to all operating segments. All remaining set-up costs relate to group and
unallocated items.
Adjustment to Australian tax balances post-demerger including reset of tax assets
The tax basis of the Group's wholly owned Australian operations was reset on demerger from BHP. The net
increase/(decrease) to tax assets is charged/(credited) to income tax expense in the Consolidated Income Statement.
Derecognition of deferred tax assets
As a result of the significant and continued weakening of commodity markets, certain deferred tax assets associated with
provisions for closure and rehabilitation were derecognised as utilisation is no longer probable.
Brazil Aluminium Smelter impairment
The Group recognised an impairment of assets of US$97 million to reflect the probability of restarting its Brazil Aluminium
Smelter. US$32 million of this is considered a significant item as it related to smelter consumables and indirect taxes.
Brazil Alumina tax accounting adjustments
The Group'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 and the reassessment of future tax losses as a result of revised interpretation of the applicability of local tax laws.
Closure and rehabilitation provisions and Change in discount rate
Following a review of cash flow assumptions and discount rates, the Group recognised a net decrease in closure and
rehabilitation provisions of US$59 million. Where this related to closed sites, US$68 million was recognised as a benefit in
expenses and US$9 million as a charge in net finance cost in the Consolidated Income Statement. The benefit recognised
in expenses included US$18 million related to South Africa Energy Coal and US$50 million related to the closed Bayside
operation, formerly part of South Africa Aluminium.
NET FINANCE COST
US$M FY17 FY16
Finance expenses
Interest on borrowings (21) (10)
Finance lease interest (52) (37)
Discounting on provisions and other liabilities (98) (96)
Change in discount rate on closure and rehabilitation provisions 6 (9)
Net interest expense on post-retirement employee benefits (9) (7)
Fair value change on financial asset (3) (3)
Exchange rate variations on net debt (35) 30
(212) (132)
Finance income
Interest income 41 28
Net finance cost (171) (104)
INCOME TAX EXPENSE
US$M FY17 FY16
Current tax (expense)/benefit (269) (115)
Deferred tax (expense)/benefit (124) 45
Total tax (expense)/benefit (393) (70)
Australia (220) 54
Southern Africa (129) (99)
Rest of world (44) (25)
Total tax (expense)/benefit attributed to geographical jurisdiction (393) (70)
EQUITY ACCOUNTED INVESTMENTS
The Group's interests in equity accounted investments with the most significant contribution to the Group's net profit/(loss)
or net assets are as follows:
Country of
incorporation
/ principal Ownership interest
Significant joint place of Reporting Acquisition FY17 FY16
ventures business Principal activity date date % %
Australia Manganese(a)(b) Australia Integrated producer of 30 Jun 2017 8 May 2015 60 60
manganese ore and alloy
South Africa South Africa Integrated producer of 30 Jun 2017 3 Feb 2015 60 60
Manganese(a)(c) manganese ore and alloy
(a) Whilst the Group holds a greater than 50 per cent interest in the joint ventures, joint control is contractually
achieved as joint venture parties unanimously consent on decisions over the joint venture's relevant activities.
(b) Australia Manganese consists of an investment in Groote Eylandt Mining Company Pty Limited.
(c) South Africa Manganese consists of an investment in Samancor Holdings (Proprietary) Limited.
The following table summarises the financial information of the Group's significant equity accounted investments:
Share of profit/(loss) of equity accounted investments
US$M FY17 FY16
Australia Manganese and South Africa Manganese 287 (339)
Individually immaterial(a) 25 9
Total 312 (330)
(a) Individually immaterial consists of investments in Samancor AG (60 per cent), Samancor Marketing Pte Ltd
(60 per cent), Richards Bay Coal Terminal Proprietary Limited (21.1 per cent) and Port Kembla Coal Terminal Limited
(16.7 per cent).
INTERESTS IN JOINT OPERATIONS
Significant joint operations of the Group, which are those with the most significant contributions to the Group's net
profit/(loss) or net assets, are as follows:
Country of Effective interest
operations Acquisition FY17 FY16
Significant joint operation Principal activity date % %
Brazil Alumina Brazil Alumina refining 3 Jul 2014 36 36
Aluminium smelting 3 Jul 2014 40 40
Mozal Aluminium(a) Mozambique Aluminium smelting 27 Mar 2015 47.1 47.1
Worsley Alumina(b) Australia Bauxite mining and alumina
refining 8 May 2015 86 86
(a) This joint arrangement is an incorporated entity. It is classified as a joint operation as the participants are
entitled to receive output, not dividends, from the arrangement.
(b) Whilst the Group holds a greater than 50 per cent interest in Worsley, participants jointly approve the operating
and capital budgets. The Group therefore has joint control over the relevant activities of Worsley.
DISCLAIMER
FORWARD LOOKING STATEMENTS
This release contains forward-looking statements, including statements about trends in commodity prices and currency
exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital
costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions and
contingent liabilities. These forward-looking statements reflect expectations at the date of this release, however they are
not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other
factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed
in the statements contained in this release. Readers are cautioned not to put undue reliance on forward-looking statements.
Except as required by applicable laws or regulations, the South32 Group does not undertake to publicly update or review
any forward looking statements, whether as a result of new information or future events. Past performance cannot be relied
on as a guide to future performance.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and Underlying
EBITDA, 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 our business, make decisions on the allocation of our resources
and assess operational management. Non-IFRS measures have not been subject to audit or review and should not be
considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.
NO OFFER OF SECURITIES
Nothing in this release should be read or understood as an offer or recommendation to buy or sell South32 securities, or
be treated or relied upon as a recommendation or advice by South32.
NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA
South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial
Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice.
Alex Volante Rob Ward
T +61 8 9324 9029 T +61 8 9324 9340
M +61 403 328 408 M +61 431 596 831
E Alex.Volante@south32.net E Robert.Ward@south32.net
MEDIA RELATIONS
Hayley Cardy James Clothier
T +61 8 9324 9008 T +61 8 9324 9697
M +61 409 448 288 M +61 413 319 031
E Hayley.Cardy@south32.net E James.Clothier@south32.net
Further information on South32 can be found at www.south32.net.
JSE Sponsor: UBS South Africa (Pty) Ltd
24 August 2017
Date: 24/08/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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