Wrap Text
Consolidated results of the South32 Group for the
half year ended 31 December 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
ASX / LSE / JSE Share Code: S32 ADR: SOUHY
ISIN: AU000000S320
15 FEBRUARY 2018
RESULTS FOR ANNOUNCEMENT TO THE MARKET
This statement includes the consolidated results of the South32 Group for the
half year ended 31 December 2017 compared with the half year ended 31 December 2016 on a statutory basis.
In accordance with the JSE Listing Requirements, Headline Earnings is presented below.
US$M H1 FY18 H1 FY17
Profit attributable to ordinary equity holders of South32 Limited 543 620
Adjusted for
Loss/(gain) on disposal of property, plant and equipment 2 (6)
Gain on disposal of investment (31) -
Impairment losses - 4
Total tax benefit on the above items (1) 1
Headline Earnings 513 619
Diluted Headline Earnings 513 619
Basic earnings per share denominator (millions) 5,191 5,319
Diluted earnings per share denominator (millions)(a) 5,262 5,374
Headline Earnings from continuing operations
Headline Earnings per share (US cents) 9.9 11.6
Diluted Headline Earnings per share (US cents) 9.8 11.5
Headline Earnings
Headline Earnings per share (US cents) 9.9 11.6
Diluted Headline Earnings per share (US cents) 9.8 11.5
(a) Diluted EPS calculation excludes 6,932,916 (31 December 2016: 15,371,165) rights which are considered anti-dilutive and are
subject to service and performance conditions.
Restructuring our portfolio and delivering strong shareholder returns
"After a challenging start to the 2018 financial year, production for the majority of our operations is tracking on or ahead
of schedule. We achieved record production at Australia Manganese and Mozal Aluminium, increased production
guidance at South Africa Manganese in response to favourable market conditions, and delivered a 23 per cent increase
in payable nickel production at Cerro Matoso as ore grades improved.
"We also announced a 4.3B South African rand investment in the Klipspruit colliery, which will extend its life by
approximately 20 years, and our decision to manage South Africa Energy Coal as a stand-alone business to sustainably
improve its financial performance. This major strategic initiative will also allow us to transform the ownership of South
Africa Energy Coal, consolidate our functions and further reduce duplication.
"We continue to deliver strong returns by maintaining a disciplined and flexible approach to capital management. We
resolved to pay US$378M in shareholder dividends, directed US$93M to our buy-back program and announced a further
US$250M increase to our capital management program to US$1B, leaving US$540M outstanding.
"With a net cash balance of US$1.4B, working capital expected to partially unwind and Group volumes expected to
increase marginally in the second half, we are well positioned despite a reduction in future Cannington processing rates and
metal production."
Graham Kerr, South32 CEO
Financial highlights
US$M H1 FY18 H1 FY17 % Change
Revenue(1) 3,494 3,221 8%
Profit/(loss) 673 857 (21)%
Profit/(loss) after tax 543 620 (12)%
Basic earnings per share (US cents)(2) 10.5 11.7 (10)%
Ordinary dividends per share (US cents)(3) 4.3 3.6 19%
Special dividends per share (US cents)(4) 3.0 - N/A
Other financial measures
Underlying EBITDA(5) 1,087 1,064 2%
Underlying EBITDA margin(6) 35.7% 36.7% (1.0)%
Underlying EBIT(5) 724 691 5%
Underlying EBIT margin(7) 23.7% 23.7% 0%
Underlying earnings(5) 544 479 14%
Basic Underlying earnings per share (US cents)(2) 10.5 9.0 17%
ROIC(8) 11.0% 9.2% 1.8%
DECEMBER 2017 HALF YEAR SUMMARY
SAFETY
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. Our Total Recordable Injury Frequency (TRIF(9)(10))
declined from 6.0 to 4.9 per million hours worked in H1 FY18.
PERFORMANCE HIGHLIGHTS
In H1 FY18 we delivered a statutory profit after tax of US$543M as stronger commodity prices more than offset lower
volumes and broader inflationary pressure, most notably in our aluminium supply chain. Production guidance is
unchanged for the majority of our operations and Group volumes are expected to increase marginally in H2 FY18. With a
net cash balance of US$1.4B and working capital expected to partially unwind, we are well positioned despite a
reduction in future Cannington processing rates and metal production.
Specific performance highlights included:
- Delivering record ore production at Australia Manganese and increasing production guidance at South Africa
Manganese in response to favourable market conditions;
- Achieving another production record at Mozal Aluminium and a 23% increase in nickel production at Cerro Matoso;
- Approving the 4.3B South African rand investment to extend the life of the Klipspruit colliery by at least 20 years and
increasing our exposure to Arizona Mining (TSX:AZ) by way of a prepayment designed to take our interest up to
19.9%;
- Exercising the second year of our Trilogy Metals (TSX:TMQ) option, in order to fully test the high grade copper
extension at Bornite in Alaska and further increasing our exploration expenditure on greenfield base metal
opportunities in Australia and South America;
- Resolving to pay a fully franked interim dividend of US$223M, representing 41% of Underlying earnings in the
December 2017 half year;
- Showing the discipline and flexibility of our capital management program by returning an additional US$248M to
shareholders by way of a partially franked (to 81%) special dividend (US$155M) and through the continuation of our
on-market share buy-back (US$93M); and
- Increasing our approved capital management program by US$250M to US$1B, leaving US$540M to be returned
before April 2019.
SOUTH AFRICA ENERGY COAL SEPARATION UPDATE
On 27 November 2017, we announced that we would manage South Africa Energy Coal as a stand-alone business in
order to sustainably improve its financial performance and that we would simplify the way we manage the remainder of
our global portfolio. We are well advanced in our planning of this important strategic initiative and propose to implement
this new way of working during H2 FY18, unlocking additional value for shareholders.
With the management of South Africa Energy Coal as a stand-alone entity, we propose to consolidate our functions
across the Group. Removing our regional structures will allow us to have more direct lines of communication, streamline
our processes and further reduce duplication.
This new way of working will also include:
- Reallocation of Chief Operating Officer accountabilities enabling us to fully capture value across our supply chain;
- Aggregation of supply and marketing under the Chief Marketing Officer enabling us to leverage commercial
expertise and optimise working capital management; and
- Retention of a centralised marketing team and low cost service delivery centre.
We are currently finalising plans and will be commencing consultation with employees and key stakeholders. A further
update will be provided during H2 FY18.
EARNINGS
The Group's statutory profit after tax decreased by US$77M (or 12%) to US$543M in H1 FY18. The corresponding
period's profit benefitted from the recognition of a fair value gain on non-trading derivative instruments of US$189M.
Consistent with our accounting policies, 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$17M pre-tax); fair value
losses on non-trading derivative instruments (US$65M pre-tax); exchange rate losses associated with the Group's non
US dollar denominated debt (US$11M pre-tax); the tax expense for all pre-tax earnings adjustments and exchange rate
variations on tax balances (-US$61M) and significant items (-US$31M). Further information on these earnings
adjustments is included further on.
Underlying EBITDA increased by US$23M (or 2%) to US$1.1B for an operating margin of 35.7% in H1 FY18
(H1 FY17: 36.7%). Higher realised prices for most of our commodities during the period gave rise to a US$273M
increase in sales revenue, despite a significant reduction in coal and metal production at Illawarra Metallurgical Coal and
Cannington, respectively. The Group's cost base was primarily impacted by external inflationary pressures such as a
stronger Australian dollar and South African rand, higher price-linked royalties and rising raw material input costs. The
latter pressure was most notable in our aluminium supply chain as higher caustic soda, energy, coke, pitch and alumina
prices reflected more buoyant commodity markets. Our operating leverage and long alumina position ensures we are a
net beneficiary of this dynamic.
Underlying EBIT increased 5% to US$724M, benefitting from a reduction in depreciation and amortisation. Underlying
earnings increased 14% to US$544M.
Profit/(loss) to Underlying EBITDA reconciliation
US$M H1 FY18 H1 FY17
Profit/(loss) 673 857
Earnings adjustments to derive Underlying EBIT 51 (166)
Underlying EBIT 724 691
Depreciation and amortisation 363 373
Underlying EBITDA 1,087 1,064
Profit/(loss) after tax to Underlying earnings reconciliation
US$M H1 FY18 H1 FY17
Profit/(loss) after tax 543 620
Earnings adjustments to derive Underlying EBIT 51 (166)
Earnings adjustments to derive Underlying net finance cost 11 (11)
Earnings adjustments to derive Underlying income tax expense (61) 36
Underlying earnings 544 479
EARNINGS ANALYSIS
The following key factors influenced Underlying EBIT in H1 FY18, relative to H1 FY17.
The reconciliation of movements in Underlying EBIT table can be found within the National Storage Mechanism version of the release.
Earnings analysis US$M Commentary
H1 FY17 Underlying EBIT 691
Change in sales price 702
Higher average realised prices for our commodities:
Aluminium and Alumina (+US$362M).
Manganese ore and alloy (+US$155M).
Energy coal (+US$110M).
Net impact of price-linked
costs (91)
Higher price-linked royalties more than offset by the impact of lower sales volumes
(+US$10M).
Higher caustic soda prices at Worsley Alumina and Brazil Alumina (-US$44M).
Higher smelter raw material costs (-US$28M), including pitch and coke.
Higher LME-linked electricity costs at South Africa Aluminium (-US$18M).
Higher freight rates (-US$15M).
Lower treatment and refining charges for Cannington concentrates (+US$27M).
Change in exchange rates (61)
Stronger Australian dollar (-US$28M) and South African rand (-US$28M).
Change in inflation (68)
Broader inflationary pressure in Southern Africa (-US$44M) and Australia (-US$17M).
Change in sales volume (373)
Illawarra Metallurgical Coal (-US$258M).
Cannington (-US$148M).
Cerro Matoso (+US$40M).
Controllable costs (19)
Greenfield exploration (-US$11M).
South Africa Energy Coal (-US$44M).
Illawarra Metallurgical Coal (+US$19M).
South Africa Aluminium (+US$17M).
Other 5
Lower depreciation and amortisation (+US$8M).
Recognition of provision for transmission charges at Brazil Alumina (-US$12M).
Interest & tax (equity
(62)
accounted investments)
Stronger profitability in our jointly controlled manganese operations.
H1 FY18 Underlying EBIT 724
Net finance cost
The Group's Underlying net finance cost, excluding equity accounted investments, was US$59M in H1 FY18 and largely
reflects the unwinding of the discount applied to our closure and rehabilitation provisions (US$52M) and finance lease
interest (US$27M), primarily at Worsley Alumina.
Underlying net finance cost reconciliation
US$M H1 FY18 H1 FY17
Unwind of discount applied to closure and rehabilitation provisions (52) (48)
Finance lease interest (27) (26)
Other 20 3
Underlying net finance cost (59) (71)
Add back earnings adjustment for exchange rate variations on net debt (11) 11
Net finance cost (70) (60)
Tax expense
The Group's Underlying income tax expense, which excludes tax associated with equity accounted investments, was
US$121M for an Underlying effective tax rate(14) (ETR) of 28.0%. The Group's Underlying ETR 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 40%, Mozambique 0%(15) and Brazil 34%.
The tax expense for equity accounted investments was US$137M, including royalty related taxation of US$31M at
GEMCO, for an ETR of 36.2%.
Underlying income tax expense reconciliation and Underlying ETR
US$M H1 FY18 H1 FY17
Underlying EBIT 724 691
Include: Underlying net finance cost (59) (71)
Remove: Share of profit/(loss) of equity accounted investments (232) (161)
Underlying profit/(loss) before tax 433 459
Income tax expense 60 177
Tax effect of earnings adjustments to Underlying EBIT 23 (45)
Tax effect of earnings adjustments to net finance cost 4 (4)
Exchange rate variations on tax balances 34 13
Underlying income tax expense 121 141
Underlying effective tax rate 28.0% 30.7%
CASH FLOW
The Group's free cash flow from operations, excluding equity accounted investments, was US$52M in H1 FY18.
Stronger prices for our commodities and higher raw material inputs contributed to a build in working capital (+US$421M),
while the lagged effect of higher profitability in FY17 fed through to a significant increase in income tax payments
(+US$142M to US$181M, net, excluding tax paid within equity accounted investments).
Working capital movement reconciliation
US$M Movement
Trade and other receivables (223)
Inventories (172)
Trade and other payables 38
Provisions and other liabilities (64)
Working capital movement (421)
Trade and other receivables increased by US$223M as days debtors temporarily rose to 25 days at 31 December 2017
(18 days as at 30 June 2017). This receivables balance is expected to partially unwind with days debtors projected to
decline towards the typical 20 days as there has been no change to customer payment terms. The temporary increase in
days debtors at period end primarily related to high value aluminium sales being concluded at the end of December.
The US$172M increase in the value of inventory held (primarily aluminium and metallurgical coal) reflects higher raw
material input costs in our aluminium supply chain and a temporary increase in finished goods at some operations.
The prior weather related deferral of activity at South Africa Energy Coal contributed to a US$50M increase in total
capital expenditure(16), excluding equity accounted investments, to US$202M. This included:
- Sustaining capital expenditure, comprising Stay-in-business, Minor discretionary and Deferred stripping
(including underground development) of US$195M; and
- Major project capital expenditure of US$4M relating to the Klipspruit Life Extension (KPSX) project.
The purchase of intangibles and the capitalisation of exploration accounted for a further US$3M of expenditure.
Total capital expenditure associated with equity accounted investments increased by US$10M to US$29M during
H1 FY18 as we invested in additional tailings storage capacity at Australia Manganese.
Total capital expenditure, including equity accounted investments, was US$231M in H1 FY18.
Free cash flow from operations, excluding equity accounted investments
US$M H1 FY18 H1 FY17
Profit/(loss) 673 857
Non-cash items 418 207
(Profit)/loss from equity accounted investments (232) (164)
Change in working capital (421) (203)
Cash generated 438 697
Total capital expenditure, excluding equity accounted investments, including intangibles and
capitalised exploration (202) (152)
Operating cash flows before financing activities and tax, and after capital expenditure 236 545
Interest (paid)/received (3) (17)
Income tax (paid)/received (181) (39)
Free cash flow from operations 52 489
We received (net) distributions totalling US$238M from our manganese equity accounted investments in H1 FY18,
comprising US$70M in dividends and US$168M from the repayment of a shareholder loan. A further US$9M in dividends
was received from our other investments, including Mineração Rio do Norte S.A (MRN).
BALANCE SHEET, DIVIDENDS & CAPITAL MANAGEMENT
As at 31 December 2017, the Group's net cash balance was US$1.4B, following the payment of our US$333M final
dividend in respect of FY17 and the purchase of a further 37M shares for a cash consideration of US$93M during
H1 FY18.
With our focus on value rather than execution speed we slowed the rate of our on-market buy-back during H1 FY18.
To 31 December 2017 we have purchased 143M shares at an average price of A$2.80 per share for a cash
consideration of US$305M.
Demonstrating the disciplined and flexible approach we are taking with our capital management program and our
confidence in our financial position, our Board has resolved to pay a fully franked interim dividend of US$223M,
representing 41% of Underlying earnings in H1 FY18 and a partially franked (to 81%) special dividend of US$155M.
Notwithstanding this 97% increase in dividend distributions, we have also increased our approved capital management
program by a further US$250M to US$1B, leaving US$540M to be returned before the end of April 2019.
Net cash/(debt)
US$M H1 FY18 FY17
Cash and cash equivalents 2,495 2,675
Finance leases (616) (613)
Other interest bearing liabilities (448) (422)
Net cash/(debt) 1,431 1,640
Consistent with our commitment to maintain a strong investment grade credit rating, Standard and Poor's and Moody's
reaffirmed their respective BBB+ and Baa1 credit ratings for the Group having completed their annual reviews in
H1 FY18.
Dividends announced
Dividend per
Period share (US cents) US$M Franking Pay-out ratio
H1 FY17 3.6 192 0% 40%
H2 FY17 6.4 334 100% 50%
H1 FY18 4.3 223 100% 41%
Special dividend announced 15 February 2018 3.0 155 81% n/a
South32 Limited shareholders registered on the South African branch register will not be able to dematerialise or
rematerialise their shareholdings between 7 and 9 March 2018 (both dates inclusive), nor will transfers to/from the
South African branch register be permitted between 1 and 9 March 2018 (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.
Ordinary and special dividend timetable Date
Announce currency conversion into Rand 2 March 2018
Last day to trade cum dividend on the Johannesburg Stock Exchange (JSE) 6 March 2018
Ex-dividend date on the JSE 7 March 2018
Ex-dividend date on the ASX and London Stock Exchange (LSE) 8 March 2018
Record date (including currency election date for ASX) 9 March 2018
Payment date 5 April 2018
OUTLOOK
PRODUCTION
FY18 production guidance is unchanged for the majority of our operations with Group volumes expected to increase
marginally in H2 FY18. Production at South Africa Manganese is expected to be 8% higher than our initial estimate as
market conditions for manganese remain strong. At Cannington, the stress regime is evolving as the orebody is being
depleted and we are moving to more challenging areas within the mine plan. In order to deliver greater predictability and
stability in the underground mine as the level of activity increases (80 stopes to be extracted in FY19, average of 50:
FY12-16), we are lowering the mining rate to 2.45 Mt per annum which is expected to translate to mill throughput of
2.3Mt and 2.4Mt in FY18 and FY19, respectively. FY18 production guidance and our forward plan for Illawarra
Metallurgical Coal remains unchanged. We will run a single longwall at Appin for the remainder of FY18 as part of a
staged ramp-up of activities, before targeting a return to a twin longwall configuration in the December 2018 quarter. We
will provide FY19 production guidance for Illawarra Metallurgical Coal with our FY18 results to reflect the completion of
our annual planning cycle.
Production guidance (South32's share)(13)
FY17 FY18e FY19e Assumptions
Worsley Alumina Unchanged.
Alumina production (kt) 3,892 3,975 3,965 Refinery's input circuit operating at a rate of 4.5Mtpa (100% basis).
Calciner maintenance scheduled for the March 2018 quarter.
South Africa Aluminium Unchanged.
Aluminium production (kt) 714 720 720 On track to increase in FY18 despite recent electric arc incident.
Mozal Aluminium Unchanged.
Aluminium production (kt) 271 269 269 Smelter operating at benchmark levels of efficiency.
Brazil Alumina Unchanged.
Alumina production (kt) 1,329 1,345 1,355 Refinery on track to achieve record production.
South Africa Energy Coal(17) Unchanged (subject to domestic market demand).
Total coal production (kt) 28,913 27,500 29,350
Domestic coal production (kt) 16,717 16,000 15,850 Development of new mining areas at the Wolvekrans Middleburg
Complex (WMC) progressing to plan.
Export coal production (kt) 12,196 11,500 13,500
Illawarra Metallurgical Coal Unchanged.
Total coal production (kt) 7,073 4,500 Single longwall configuration at Appin for remainder of FY18.
Metallurgical coal production 5,697 3,350 Not Move from Appin 707 longwall to Appin 902 longwall scheduled for
(kt) provided the June 2018 quarter.
Energy coal production (kt) 1,376 1,150 Longwall move now scheduled for Dendrobium in June 2018
quarter.
Australia Manganese Unchanged (subject to market demand).
Manganese ore production 2,994 3,125 Subject to Wet season likely to impact production across H2 FY18.
(kwmt) demand PC02 circuit expected to operate at capacity.
South Africa Manganese Guidance increased by 8% in FY18 (subject to market demand).
Manganese ore production 2,038 UP 2,040 Subject to Continuation of trucking activity.
(kwmt) demand
Cerro Matoso Unchanged.
Payable nickel production (kt) 36.5 41.6 38.8 Furnace maintenance scheduled for March 2018 quarter.
Cannington Ore processed guidance reduced by 12% and 19% in FY18 and
FY19 respectively.
Ore processed (kdmt) 3,036 DOWN 2,300 DOWN 2,400
Payable silver production (koz) 15,603 DOWN 12,200 DOWN 11,750
Payable lead production (kt) 132 DOWN 102 DOWN 98 Mining rates to increase marginally in H2 FY18 as above ground
Payable zinc production (kt) 70 DOWN 39 DOWN 51 stocks established.
Ore processed flat in H2 FY18.
The denotation (e) refers to an estimate or forecast year.
COSTS AND CAPITAL EXPENDITURE
Industry cost curves steepened during H1 FY18 as a result of US dollar weakness, rising commodity prices and the
environmental policy response in China. Despite a strong focus on controllable costs, all of our operations are being
affected by these external factors to some degree with the pressure being most notable in our smelters and refineries
(caustic soda, alumina, price-linked power, pitch and coke).
Operating unit costs
Operating unit costs by upstream operation(18)
H1 FY18 FY18 Prior
H1 FY17 H1 FY18 adjusted(a) guidance(b) Commentary
Worsley Alumina
Substantial increase in average caustic soda
(US$/t) 200 224 216 211 price and temporary increase in usage rates.
South Africa Energy Coal(17)
Production weighted to H2 FY18. Greater
contribution of higher margin export tonnes to
(US$/t) 26 36 34 32 sales mix with associated logistics costs and a
US$8M net realisable value write-down related
to an area of in-pit inventory at the WMC.
Illawarra Metallurgical Coal
Higher H1 FY18 costs reflect the expected skew
(US$/t) 75 149 140 130 in production to H2 FY18.
Australia Manganese ore (FOB)
Stronger Australian dollar and higher price-
(US$/dmtu) 1.44 1.55 1.45 1.50 linked royalties.
South Africa Manganese ore (FOB)
Continuation of trucking activity and higher
(US$/dmtu) 1.96 2.31 2.04 2.06 price-linked royalties.
Cerro Matoso
Stronger volumes with the ramp-up of
(US$/lb) 3.81 3.41 3.40 3.53 La Esmeralda ore.
Cannington
(US$/t)(c) 131 170 163 142 Adverse movement in finished goods inventory (US$12/t).
(a) Adjusted H1 FY18 Operating unit costs are restated to reflect price and foreign exchange rate assumptions used for Prior FY18 guidance
(refer to footnote 19).
(b) Prior FY18 Operating unit cost guidance includes commodity price and foreign exchange rate forward curves or our internal expectations
(refer to footnote 19).
(c) US dollar per tonne of ore processed. Periodic movements in finished product inventory may impact operating unit costs as related
marketing costs and treatment and refining charges may change.
Operating unit cost guidance
We have updated our FY18 operating unit cost guidance by operation to primarily reflect the movement in underlying
exchange rate and price assumptions.
Operating unit costs guidance by upstream operation(18)
FY18 FY18 FY18
Prior guidance(a) Adjusted guidance(b) New guidance(c) Commentary
Worsley Alumina
Stronger Australian dollar and 17% increase
(US$/t) 211 229 235 to our prior caustic soda price assumption,
offset by lower consumption rates.
South Africa Energy Coal(17)
(US$/t) 32 34 34 Stronger South African rand.
Illawarra Metallurgical Coal
Stronger Australian dollar and higher
(US$/t) 130 134 135 price-linked royalties.
Australia Manganese ore (FOB)
Stronger Australian dollar and higher
(US$/dmtu) 1.50 1.61 1.63 price-linked royalties.
South Africa Manganese ore (FOB)
Continuation of trucking activity, higher
(US$/dmtu) 2.06 2.40 2.41 price-linked royalties and stronger South
African rand.
Cerro Matoso
(US$/lb) 3.53 3.64 3.61 Higher royalties.
Cannington
Lower mining and processing rates,
(US$/t)(d) 142 144 159 stronger Australian dollar and adverse movement in
finished goods inventory (US$3/t).
(a) Prior FY18 Operating unit cost guidance includes commodity price and foreign exchange rate forward curves or our internal expectations (refer to
footnote 19).
(b) Adjusted FY18 Operating unit cost guidance is Prior FY18 Operating unit cost guidance, restated to reflect price and foreign exchange rate
assumptions used for New FY18 Operating unit cost guidance (refer to footnote 20).
(c) New FY18 Operating unit cost guidance includes commodity price and foreign exchange rate forward curves or our internal expectations for the
remainder of FY18, as at January 2018 (refer to footnote 20).
(d) 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.
Other expenditure guidance
Corporate costs of US$105M are now expected in FY18, an increase of US$25M relative to prior guidance to reflect a
greater rate of investment in technology in support of our operations and a rise in greenfield exploration activity (+US$5M
to US$25M).
Depreciation and amortisation (excluding equity accounted investments) of US$730M is now expected in FY18. The
US$30M reduction in guidance primarily relates to Illawarra Metallurgical Coal, where extraction and development rates
have been reset as a result of the extended outage at the Appin mine. Depreciation and amortisation guidance for our
equity accounted investments of US$85M is unchanged.
Capital expenditure guidance
We have lowered FY18 guidance for Sustaining capital expenditure, including equity accounted investments, by US$5M
to US$465M. This minor adjustment reflects a further reduction in expenditure at Illawarra Metallurgical Coal (-US$15M
to US$105M) and incrementally lower expenditure across the portfolio, which is partially offset by a higher rate of
investment at South Africa Energy Coal (+US$20M to US$132M) and revised exchange rate assumptions. This guidance
excludes Major project capital expenditure for the 4.3B rand South Africa Energy Coal KPSX project, which was
approved in November 2017. Major project capital expenditure guidance for FY18 has been increased by US$10M to
US$60M to reflect the timing of a number of long lead time items and revised exchange rate assumptions.
Capital expenditure
US$M H1 FY18 FY18e
Sustaining capital expenditure (excluding equity accounted investments) 195 395
Equity accounted investments 29 70
Sustaining capital expenditure (including equity accounted investments) 224 465
Major capital expenditure 4 60
Capital expenditure (including equity accounted investments) 228 525
The denotation (e) refers to an estimate or forecast year.
OPERATIONS ANALYSIS
A summary of the underlying performance of the Group's operations is presented below and more detailed analysis is
presented further on. Unless otherwise stated: all metrics reflect South32's share; Operating unit cost is Revenue
less Underlying EBITDA excluding third party sales divided by sales volumes; and Operating cost is Revenue less
Underlying EBITDA excluding third party sales.
Operations table
Revenue Underlying EBIT
US$M H1 FY18 H1 FY17 H1 FY18 H1 FY17
Worsley Alumina 668 492 164 26
South Africa Aluminium 734 601 120 90
Mozal Aluminium 326 238 60 25
Brazil Alumina 240 164 47 10
South Africa Energy Coal(17) 622 539 115 128
Illawarra Metallurgical Coal 243 471 (84) 109
Australia Manganese(a) 516 390 299 207
South Africa Manganese(a) 228 175 86 46
Cerro Matoso 244 188 41 (4)
Cannington 296 412 72 165
Third party products(21) 463 349 5 11
Inter-segment / Group and Unallocated (342) (232) (48) (31)
Total 4,238 3,787 877 782
Equity accounting adjustment(b) (744) (566) (153) (91)
South32 Group 3,494 3,221 724 691
(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 hydrate production was largely unchanged at 1.95Mt in H1 FY18 as the refinery's input circuit continued to operate at a rate of 4.5Mtpa
(100% basis). In contrast, calcined alumina production declined by 4% (or 75kt) to 1.87Mt in H1 FY18 as scheduled maintenance was undertaken and a
substantial hydrate inventory position was established.
FY18 production guidance remains unchanged at 4.0Mt with additional calciner maintenance scheduled for the March 2018 quarter.
Operating costs
Operating unit costs increased by 12% to US$224/t in H1 FY18 as the price of caustic soda increased, consumption rates rose temporarily and the
Australian dollar strengthened.
We have updated FY18 unit cost guidance to US$235/t to reflect revised exchange rate and price assumptions, and a
significantly higher price of caustic soda, albeit caustic consumption is expected to decline in H2 FY18 with the introduction of bauxite feed from
West Marradong. Exchange rate and price assumptions for FY18 unit cost guidance are detailed in footnote 20.
Financial performance
Underlying EBIT increased by 531% (or US$138M) in H1 FY18 to US$164M as a 37% rise in the average realised price of alumina (+US$184M) was partially
offset by an increase in the price of caustic soda and caustic consumption rates (-US$39M), and a stronger Australian dollar (-US$8M).
Capital expenditure
Sustaining capital expenditure increased to US$22M in H1 FY18. Expenditure in H2 FY18 will be primarily directed towards bauxite residue disposal
capacity and boiler maintenance.
South32 share H1 FY18 H1 FY17
Alumina production (kt) 1,865 1,940
Alumina sales (kt) 1,886 1,909
Realised alumina sales price
(US$/t)(a) 354 258
Operating unit cost (US$/t)(b) 224 200
(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
South32 share (US$M) H1 FY18 H1 FY17
Revenue 668 492
Underlying EBITDA 246 110
Underlying EBIT 164 26
Net operating assets(a) 3,034 3,043
Capital expenditure 22 19
Major projects (>US$100M) - -
All other capital expenditure 22 19
(a) H1 FY17 reflects balance as at 30 June 2017.
SOUTH AFRICA ALUMINIUM
(100%)
Volumes
South Africa Aluminium saleable production increased by 1% (or 2kt) to 358kt in H1 FY18 and remains on track to increase in
FY18 despite an electric arc incident on 30 November 2017 which impacted 39 pots. These pots are being progressively returned to
service during the March 2018 quarter. A temporary increase in finished goods inventory related to our shipping schedule is expected to
unwind in H2 FY18.
FY18 production guidance remains unchanged at 720kt.
Operating costs
Operating unit costs increased by 22% to US$1,680/t in H1 FY18 as higher raw material input costs for alumina, coke and pitch, and
higher aluminium price-linked electricity costs for the smelter were absorbed. This rise in raw material costs and the stronger
aluminium price contributed to a significant increase in the value of inventory.
A total of 44 pots were relined across H1 FY18 at a cost of US$196k per pot (H1 FY17: 50 pots at US$211k per pot). 145 pots are
scheduled to be relined in FY18.
While operating unit cost guidance is not provided, the cost profile of the smelter will continue to be 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 with the price of electricity supplied to potlines 1 and 2 linked to the LME aluminium price and the
South African rand/US dollar exchange rate. The price of electricity supplied to potline 3 is South African rand based.
Financial performance
Underlying EBIT increased by 33% (or US$30M) in H1 FY18 to US$120M as a 23% increase in the average
realised price of aluminium (+US$138M) was largely offset by an increase in raw material input costs (-US$81M) and
aluminium price-linked electricity costs (-US$18M).
Capital expenditure
Sustaining capital expenditure increased to US$13M in H1 FY18 following a deferral of activity in FY17.
South32 share H1 FY18 H1 FY17
Aluminium production (kt) 358 356
Aluminium sales (kt)(a) 344 347
Realised sales price (US$/t)(a) 2,134 1,732
Operating unit cost (US$/t)(b) 1,680 1,380
(a) Volumes and prices do not include any third party trading that may be undertaken independently of equity production. Realised
sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
South32 share (US$M) H1 FY18 H1 FY17
Revenue 734 601
Underlying EBITDA 156 122
Underlying EBIT 120 90
Net operating assets(a) 1,265 1,205
Capital expenditure 13 6
Major projects (>US$100M) - -
All other capital expenditure 13 6
(a) H1 FY17 reflects balance as at 30 June 2017.
MOZAL ALUMINIUM
(47.1% SHARE)
Volumes
Mozal Aluminium saleable production increased by 1% (or 1kt) to a record 137kt in H1 FY18 as the smelter
continued to operate at its maximum technical capability. Aluminium sales increased by 10% as our inventory
position returned to more normal levels, however the timing of those sales fed through to our receivables
balance and an increase in average days debtors for the Group.
FY18 production guidance remains unchanged at 269kt.
Operating costs
Operating unit costs increased by 17% to US$1,694/t in H1 FY18 as the cost of raw material inputs (alumina, coke
and pitch) increased.
A total of 34(22) pots were relined in H1 FY18 at a cost of US$191k per pot (H1 FY17: 39(22) pots at US$193k per pot).
82(22) pots are scheduled to be relined in FY18.
While operating unit cost guidance is not provided, the cost profile of the smelter will continue to be heavily
influenced by power and raw material inputs, given the operation's high variable cost base. Mozal Aluminium utilises
hydroelectric power that is generated by Hidroeléctrica de Cahora Bassa (HCB). HCB delivers power into the South African
grid to Eskom and Mozal Aluminium sources electricity via the Mozambique Transmission Company (Motraco) under a long term
contract. The price of electricity supplied is South African rand based with the rate of escalation linked to a South Africa
domestic production price index plus margin.
Financial performance
Underlying EBIT increased by 140% (or US$35M) in H1 FY18 to US$60M as a 25% increase in the average
realised price of aluminium (+US$65M) and higher sales volumes (+US$23M) were partially offset by higher alumina,
pitch and coke input costs (-US$20M).
Capital expenditure
Sustaining capital expenditure increased to US$8M in H1 FY18. The US$18M AP3XLE energy efficiency project,
which was approved in August 2017, remains on schedule with first incremental production anticipated in FY20 and the
full benefit to be realised by FY24. The project will deliver a circa 5% (or 10kt pa) increase in annual production with no
associated increase in power consumption.
South32 share H1 FY18 H1 FY17
Aluminium production (kt) 137 136
Aluminium sales (kt)(a) 147 134
Realised sales price (US$/t)(a) 2,218 1,776
Operating unit cost (US$/t)(b) 1,694 1,448
(a) Volumes and prices do not include any third party trading that may be undertaken independently of equity production.
Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
South32 share (US$M) H1 FY18 H1 FY17
Revenue 326 238
Underlying EBITDA 77 44
Underlying EBIT 60 25
Net operating assets(a) 540 534
Capital expenditure 8 3
Major projects (>US$100M) - -
All other capital expenditure 8 3
(a) H1 FY17 reflects balance as at 30 June 2017.
BRAZIL ALUMINA
(ALUMINA 36% SHARE, ALUMINIUM 40% SHARE)
Volumes
Brazil Alumina saleable production increased by 3kt to 676kt in H1 FY18 as the refinery continued to operate at capacity.
FY18 production guidance remains unchanged at 1.3Mt with Phase I of the refinery de-bottlenecking project nearing completion.
Operating costs
Operating unit costs at the non-operated refinery increased by 21% to US$234/t in H1 FY18 as the price of caustic soda
increased and consumption rates rose temporarily as lower quality bauxite feed was introduced following a weather
related disruption to supply from MRN.
Financial performance
Alumina Underlying EBIT increased by 392% (or US$47M) in H1 FY18 to US$59M as a 44% increase in the average
realised price of alumina (+US$73M) was partially offset by higher caustic soda (-US$9M) and fuel oil (-US$12M) costs.
Aluminium Underlying EBIT decreased by US$10M to a loss of US$12M as our obligation to purchase electricity from
Eletronorte was fulfilled during the period, following termination of the contract in December 2015. The sale of
surplus electricity generated other income of US$36M, although this was more than offset by the utilisation of the
associated onerous contract provision and the recognition of a US$12M provision to reflect transmission charges that will
no longer be offset by ongoing electricity purchases.
Capital expenditure
Sustaining capital expenditure decreased to US$10M in H1 FY18 with the de-bottlenecking Phase I project nearing completion.
South32 share H1 FY18 H1 FY17
Alumina production (kt) 676 673
Alumina sales (kt) 649 638
Realised alumina sales price
(US$/t)(a) 370 257
Alumina operating unit cost
(US$/t)(b)(c) 234 194
(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.
(c) Includes cost of acquiring bauxite mainly from MRN.
South32 share (US$M) H1 FY18 H1 FY17
Revenue 240 164
Alumina 240 164
Aluminium - -
Other income 41 86
Underlying EBITDA 76 38
Alumina 88 40
Aluminium (12) (2)
Underlying EBIT 47 10
Alumina 59 12
Aluminium (12) (2)
Net operating assets/(liabilities)(a) 675 691
Alumina 687 718
Aluminium (12) (27)
Capital expenditure 10 13
Major projects (>US$100M) - -
All other capital expenditure 10 13
(a) H1 FY17 reflects balance as at 30 June 2017.
SOUTH AFRICA ENERGY COAL
(92% SHARE)
Volumes
South Africa Energy Coal saleable production decreased by 9% (or 1.4Mt) to 13.4Mt in H1 FY18. Export coal
production exceeded expectations as productivity lifted at both the Klipspruit mine and the export oriented areas of
the WMC. In contrast, domestic production was impacted by a reduction in demand from the Duvha power station
and scheduled maintenance in the domestically focused areas of the WMC. The continued build of inventory
across H1 FY18 reflects ongoing constraint in the supply chain and weather related delays at the
Richards Bay Coal Terminal.
FY18 production guidance remains unchanged at 27.5Mt (11.5Mt export; 16.0Mt domestic).
Operating costs
Operating unit costs increased by 38% to US$36/t in H1 FY18 as the South African rand strengthened, the
proportion of higher margin export tonnes (with associated washing and logistics costs) increased and an area of in-pit
inventory at the WMC was written down to net realisable value.
We have updated FY18 unit cost guidance to US$34/t to reflect revised exchange rate and price assumptions.
Exchange rate and price assumptions for FY18 unit cost guidance are detailed in footnote 20.
Financial performance
Underlying EBIT decreased by 10% (or US$13M) in H1 FY18 to US$115M. Higher average export (+US$77M)
and domestic (+US$28M) realised prices were more than offset by lower sales volumes (-US$30M), an increase in
planned maintenance and labour costs (-US$48M), inflation (-US$22M) and a stronger South African rand (-US$21M).
The operation's costs were also impacted by the net realisable value write-down of an area of in-pit inventory at
the WMC (-US$8M).
Capital expenditure
Sustaining capital expenditure increased to US$68M in H1 FY18 as activity previously deferred as a result of adverse
weather was completed. Sustaining capital expenditure will continue to be directed towards the WMC in H2 FY18 given
the requirement to open-up new mining areas. FY18 guidance for Sustaining capital expenditure has been
increased by US$20M to US$132M.
We also invested US$4M in H1 FY18 to progress the 4.3B South African rand KPSX project, which was approved by the
Board in November 2017. The 8Mtpa brownfield project will extend the life of the Klipspruit colliery by more than 20 years.
100 per cent terms(a) H1 FY18 H1 FY17
Energy coal production (kt) 13,423 14,825
Domestic sales (kt)(b) 7,334 8,918
Export sales (kt)(b) 5,865 5,856
Realised domestic sales price
(US$/t)(b) 24 19
Realised export sales price
(US$/t)(b) 76 63
Operating unit cost (US$/t)(c) 36 26
(a) South32's interest in South Africa Energy Coal is accounted at 100% until Broad-Based Black Economic
Empowerment (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) H1 FY18 H1 FY17
Revenue(b) 622 539
Underlying EBITDA 149 152
Underlying EBIT 115 128
Net operating liabilities(c) (21) (84)
Capital expenditure 72 27
Major projects (>US$100M) 4 2
All other capital expenditure 68 25
(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.
(c) H1 FY17 reflects balance as at 30 June 2017.
ILLAWARRA METALLURGICAL COAL
(100%)
Volumes
Illawarra Metallurgical Coal saleable production decreased by 50% (or 1.9Mt) to 1.9Mt in H1 FY18 as the Appin
colliery recovered from an extended outage and the Dendrobium longwall progressed through a faulted zone.
FY18 production guidance of 4.5Mt remains unchanged with a longwall move now scheduled for Dendrobium in
the June 2018 quarter.
Operating costs
Operating unit costs increased by 99% to US$149/t in H1 FY18, commensurate with the significant reduction in coal sales.
We have updated FY18 unit cost guidance to US$135/t to reflect revised exchange rate and price assumptions.
Exchange rate and price assumptions for FY18 unit cost guidance are detailed in footnote 20.
Financial performance
Underlying EBIT decreased by US$193M in H1 FY18 to a loss of US$84M as lower sales volumes (-US$258M) more
than offset higher average realised coal prices (+US$36M), lower price-linked royalties (+US$15M) and a volume related
reduction in depreciation (+US$14M).
Capital expenditure
Sustaining capital expenditure decreased by 17% to US$40M in H1 FY18 as underground development was impacted by
the extended outage. FY18 guidance for Sustaining capital expenditure has been reduced by a further US$15M to
US$105M to reflect a lower level of underground activity.
South32 share H1 FY18 H1 FY17
Metallurgical coal production (kt) 1,282 2,829
Energy coal production (kt) 578 884
Metallurgical coal sales (kt) 1,057 2,788
Energy coal sales (kt) 603 817
Realised metallurgical coal sales
price (US$/t)(a) 189 151
Realised energy coal sales price
(US$/t)(a) 71 62
Operating unit cost (US$/t)(b) 149 75
(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) H1 FY18 H1 FY17
Revenue(a) 243 471
Underlying EBITDA (5) 202
Underlying EBIT (84) 109
Net operating assets(b) 1,442 1,406
Capital expenditure 40 54
Major projects (>US$100M) - 6
All other capital expenditure 40 48
Exploration expenditure 4 2
Exploration expensed 4 2
(a) Includes metallurgical coal and energy coal sales revenue.
(b) H1 FY17 reflects balance as at 30 June 2017.
AUSTRALIA MANGANESE
(60% SHARE)
Volumes
Australia Manganese saleable ore production increased by 13% (or 202kwmt) to a record 1.7Mwmt in H1 FY18.
Lower than expected rainfall in the December 2017 quarter underpinned higher throughput in the primary
circuit while favourable market conditions allowed the PC02 circuit to operate at full capacity. The PC02 circuit
contributed 8% of total manganese ore production in H1 FY18 (5% H1 FY17; 6% FY17).
Saleable Manganese alloy production increased by 5% (or 4kt) to 82kt in H1 FY18.
FY18 ore production guidance remains unchanged at 3.1Mwmt with the wet season expected to impact
production across H2 FY18.
Operating costs
FOB manganese ore operating unit costs increased by 8% to US$1.55/dmtu in H1 FY18 as a result of a rise in planned
maintenance expenditure, a stronger Australian dollar and higher price-linked royalties.
We have updated FY18 unit cost guidance to US$1.63/dmtu to reflect revised exchange rate and price assumptions.
Exchange rate and price assumptions for FY18 unit cost guidance are detailed in footnote 20.
Financial performance
Underlying EBIT increased by 44% (or US$92M) in H1 FY18 to US$299M. A significant improvement in average
realised ore and alloys prices (+US$106M) and an increase in sales volumes (+US$20M) were only partially offset by a
rise in planned maintenance expenditure (-US$8M), the impact of a stronger Australian dollar and higher price-linked
royalties (-US$7M).
Our average realised price for external ore sales in H1 FY18 reflected the high grade 44% manganese lump
ore index (CIF China) on a volume weighted M-1 basis(23), despite the higher contribution of 40% grade PC02
product to the sales mix.
Capital expenditure
Sustaining capital expenditure increased to US$21M in H1 FY18 as we invested in additional tailings storage
capacity at GEMCO.
South32 share H1 FY18 H1 FY17
Manganese ore production (kwmt) 1,701 1,499
Manganese alloy production (kt) 82 78
Manganese ore sales (kwmt)(a) 1,612 1,500
External customers 1,441 1,362
TEMCO 171 138
Manganese alloy sales (kt)(a) 78 82
Realised external manganese ore
sales price (US$/dmtu, FOB)(a)(b) 5.96 4.91
Realised manganese alloy sales
price (US$/t)(a) 1,526 988
Ore operating unit cost
(US$/dmtu)(b)(c) 1.55 1.44
Alloy operating unit cost (US$/t)(c) 910 720
(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) H1 FY18 average manganese content of ore sales was 46.1% on a dry basis (H1 FY17: 46.4%). 94% of H1 FY18 external manganese ore
sales (H1 FY17: 95%) were completed on a CIF basis. H1 FY18 realised FOB ore prices and operating unit costs have been adjusted for
freight and marketing costs of US$21M (H1 FY17: US$13M), consistent
with our FOB cost guidance.
(c) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit
cost is Revenue less Underlying EBITDA divided by alloy sales volumes and includes costs associated with sinter sold externally.
South32 share (US$M) H1 FY18 H1 FY17
Revenue(a) 516 390
Manganese Ore 411 320
Manganese Alloy 119 81
Intra-segment elimination (14) (11)
Underlying EBITDA 328 233
Manganese Ore 280 211
Manganese Alloy 48 22
Underlying EBIT 299 207
Manganese Ore 253 187
Manganese Alloy 46 20
Net operating assets/(liabilities)(b) 312 319
Manganese Ore 318 313
Manganese Alloy (6) 6
Capital expenditure 21 15
Major projects (>US$100M) - -
All other capital expenditure 21 15
Exploration expenditure 1 1
Exploration expensed 1 -
(a) Revenues associated with sales from GEMCO to TEMCO are eliminated as part of the consolidation. Internal sales
occur on a commercial basis.
(b) H1 FY17 reflects balance as at 30 June 2017.
SOUTH AFRICA MANGANESE
(ORE 44.4% SHARE, ALLOY 60% SHARE)
Volumes
South Africa Manganese ore production increased by 21% (or 195kwmt) to 1.1Mwmt in H1 FY18 as the continuation
of higher cost trucking and the sale of lower quality fines products enabled us to take advantage of favourable
market conditions. FY18 ore production guidance has been increased by 8% to 2,040kwmt, but remains subject
to market demand.
Manganese alloy saleable production decreased by 3% (or 1kt) to 36kt in H1 FY18 as Metalloys continued to
operate one of its four furnaces.
Operating costs
FOB manganese ore operating unit costs increased by 18% to US$2.31/dmtu in H1 FY18 as a result of a stronger South
African rand and higher price-linked royalties. The drawdown of low cost Wessels concentrate and other fines material
stockpiles offset the cost of opportunistically trucking ore to port.
We have updated FY18 unit cost guidance to US$2.41/dmtu to reflect revised exchange rate and price assumptions, and a
continuation of higher cost trucking activity. Exchange rate and price assumptions for FY18 unit cost guidance are
detailed in footnote 20.
Financial performance
Underlying EBIT increased by 87% (or US$40M) in H1 FY18 to US$86M as a significant improvement in ore and
alloy prices (+US$49M) was only partially offset by a stronger South African rand (-US$5M), higher price-linked royalties
(-US$4M) and an increase in trucking costs (-US$6M).
Our average realised price for external ore sales in H1 FY18 reflected the medium grade 37% manganese
lump ore index(24) on a volume weighted M-1 basis. Wessels concentrate and other fines products receive a
substantial discount when referenced to index prices. Favourable negotiated price outcomes for our primary
products and a temporary increase in the proportion of sales priced in the month of shipping (i.e. M, as opposed
to M-1) offset the impact of these discounts.
Capital expenditure
Sustaining capital expenditure increased to US$8M in H1 FY18.
South32 share H1 FY18 H1 FY17
Manganese ore production (kwmt) 1,129 934
Manganese alloy production (kt) 36 37
Manganese ore sales (kwmt)(a) 1,067 928
External customers 985 859
Metalloys 82 69
Manganese alloy sales (kt)(a) 28 40
Realised external manganese ore
sales price (US$/dmtu, FOB)(a)(b) 4.57 3.87
Realised manganese alloy sales
price (US$/t)(a) 1,321 875
Ore operating unit cost
(US$/dmtu)(b)(c) 2.31 1.96
Alloy operating unit cost (US$/t)(c) 821 925
(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) H1 FY18 average manganese content of ore sales was 40.3% on a dry basis (H1 FY17: 40.3%). 68% of H1 FY18 external manganese ore sales
(H1 FY17: 61%) were completed on a CIF basis. H1 FY18 realised FOB ore prices and operating costs have been adjusted for freight and
marketing costs of US$16M (H1 FY17: US$10M), consistent with our FOB cost guidance.
(c) FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit
cost is Revenue less Underlying EBITDA divided by alloy sales volumes.
South32 share (US$M) H1 FY18 H1 FY17
Revenue(a) 228 175
Manganese Ore(b) 200 145
Manganese Alloy 37 35
Intra-segment elimination (9) (5)
Underlying EBITDA 100 61
Manganese Ore(b) 86 63
Manganese Alloy 14 (2)
Underlying EBIT 86 46
Manganese Ore(b) 77 54
Manganese Alloy 9 (8)
Net operating assets(c) 301 307
Manganese Ore(b) 235 245
Manganese Alloy 66 62
Capital expenditure 8 4
Major projects (>US$100M) - -
All other capital expenditure 8 4
(a) Revenues associated with sales from Hotazel Manganese Mines (HMM) to Metalloys are eliminated as part of the consolidation. Internal sales
occur on a commercial basis.
(b) Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported
at 60%. South32 has a 44.4% ownership interest in HMM. 26% of HMM is owned by a B-BBEE consortium comprising Ntsimbintle Mining (9%),
NCAB Resources (7%), Iziko Mining (5%) and HMM Education Trust (5%). The interests owned by NCAB Resources, Iziko Mining and HMM
Education Trust were acquired using vendor finance with the loans repayable via distributions attributable to these parties, pro rata to their
share in HMM. Until these loans are repaid, South32's interest in HMM is accounted at 54.6%.
(c) H1 FY17 reflects balance as at 30 June 2017.
CERRO MATOSO
(99.9% SHARE)
Volumes
Cerro Matoso payable nickel production increased by 23% (or 4.1kt) to 21.8kt in H1 FY18 as ore grades
improved with the ramp-up of production at the higher grade La Esmeralda deposit.
FY18 production guidance remains unchanged at 41.6kt with additional maintenance planned for the furnace in the
March 2018 quarter.
Operating costs
Operating unit costs decreased by 10% to US$3.41/lb in H1 FY18 as the operation benefitted from a substantial
increase in sales volumes.
We have updated FY18 unit cost guidance to US$3.61/lb to reflect revised exchange rate and price assumptions.
Exchange rate and price assumptions for FY18 unit cost guidance are detailed in footnote 20.
Financial performance
Underlying EBIT increased by US$45M in H1 FY18 to US$41M as the rise in sales volumes (+US$40M) and a
higher average realised nickel price (+US$16M) were partially offset by higher royalties (-US$5M) and an
increase in exploration activity (-US$3M).
Capital expenditure
Sustaining capital expenditure increased to US$11M in H1 FY18 as La Esmeralda was brought online and the
project's permanent access bridge was completed.
South32 share H1 FY18 H1 FY17
Ore mined (kwmt) 2,087 2,347
Ore processed (kdmt) 1,340 1,289
Ore grade processed (%, Ni) 1.83 1.53
Payable nickel production (kt) 21.8 17.7
Payable nickel sales (kt) 21.3 17.6
Realised nickel sales price
(US$/lb)(a) 5.20 4.85
Operating unit cost (US$/lb)(b) 3.41 3.81
(a) Inclusive of by-products. Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by Payable nickel sales volume.
South32 share (US$M) H1 FY18 H1 FY17
Revenue 244 188
Underlying EBITDA 84 40
Underlying EBIT 41 (4)
Net operating assets(a) 587 611
Capital expenditure 11 4
Major projects (>US$100M) - -
All other capital expenditure 11 4
Exploration expenditure 5 2
Exploration expensed 4 2
(a) H1 FY17 reflects balance as at 30 June 2017.
CANNINGTON
(100% SHARE)
Volumes
Cannington silver, lead and zinc payable production decreased by 41%, 33% and 52% respectively in H1 FY18
as lower ore grades and a reduction in mill throughput impacted performance.
The stress regime within the orebody is evolving with depletion and we are moving to more challenging
areas within the mine plan. In order to deliver greater predictability and stability in the underground mine as the
level of activity increases (80 stopes to be extracted in FY19, average of 50: FY12-16), we are lowering the
mining rate to 2.45 Mt per annum which is expected to translate to mill throughput of 2.3Mt and 2.4Mt in FY18
and FY19, respectively.
Operating costs
Operating unit costs increased by 30% to US$170/t in H1 FY18 as a result of the reduction in throughput and an
adverse movement in finished goods inventory.
We have updated FY18 unit cost guidance to US$159/t to reflect revised exchange rate and price assumptions. Exchange rate and price
assumptions for FY18 unit cost guidance are detailed on page 25, footnote 20.
Financial performance
Underlying EBIT decreased by 56% (or US$93M) in H1 FY18 to US$72M as lower sales volumes
(-US$148M) were partially offset by higher average realised prices (+US$32M) and lower treatment and
refining charges (+US$27M). The ramp-up of underground trucking activity successfully replaced shaft haulage in the
period for a modest US$2M increase in costs. Finalisation adjustments and the provisional pricing of Cannington
concentrates increased Underlying EBIT by US$5.5M in H1 FY18 (US$4.1M FY17; US$0.5M H1 FY17).
Outstanding concentrate sales (containing 1.8Moz of silver, 21.1kt of lead and 3.9kt of zinc) were revalued at
31 December 2017. The final price of these sales will be determined in H2 FY18.
Capital expenditure
Sustaining capital expenditure increased to US$23M in H1 FY18. The underground crusher is now expected to be
commissioned in February 2018, ahead of schedule.
South32 share H1 FY18 H1 FY17
Ore mined (kwmt) 1,209 1,639
Ore processed (kdmt) 1,168 1,669
Ore grade processed (g/t, Ag) 165 198
Ore grade processed (%, Pb) 5.1 5.5
Ore grade processed (%, Zn) 2.6 3.7
Payable silver production (koz) 5,175 8,729
Payable lead production (kt) 49.4 73.9
Payable zinc production (kt) 20.2 42.1
Payable silver sales (koz) 5,429 8,860
Payable lead sales (kt) 48.6 73.3
Payable zinc sales (kt) 25.7 40.8
Realised silver sales price
(US$/oz)(a) 16.8 17.4
Realised lead sales price
(US$/t)(a) 2,517 2,128
Realised zinc sales price
(US$/t)(a) 3,192 2,475
Operating unit cost (US$/t ore
processed)(b) 170 131
(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by ore processed. Periodic movements in finished product inventory may
impact operating unit costs as related marketing costs and treatment and refining charges may change.
South32 share (US$M) H1 FY18 H1 FY17
Revenue 296 412
Underlying EBITDA 97 194
Underlying EBIT 72 165
Net operating assets(a) 187 215
Capital expenditure 23 18
Major project (>US$100M) - -
All other capital expenditure 23 18
Exploration expenditure 2 1
Exploration expensed 2 1
(a) H1 FY17 reflects balance as at 30 June 2017.
NOTES
(1) Revenue includes revenue from third party products.
(2) H1 FY18 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for H1 FY18 (5,191
million). H1 FY18 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for
H1 FY18.
H1 FY17 basic earnings per share is calculated as Profit/(loss) after tax divided by the weighted average number of shares for H1 FY17 (5,319
million). H1 FY17 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for
H1 FY17.
(3) H1 FY18 ordinary dividend per share is calculated as H1 FY18 interim dividend announced (US$223M) divided by the number of shares on issue at
31 December 2017 (5,181 million).
(4) H1 FY18 special dividend per share is calculated as H1 FY18 special dividend announced (US$155M) divided by the number of shares on issue at
31 December 2017 (5,181 million).
(5) Underlying EBIT is profit before net finance costs, tax and any earnings adjustment items, including impairments. Underlying EBIT is reported
inclusive of South32's share of net finance costs and tax of equity accounted investments. Underlying EBITDA is Underlying EBIT, before
depreciation and amortisation. Underlying earnings is Profit/(loss) after tax and earnings adjustment items. Underlying earnings is the key measure
that South32 uses to assess the performance of the South32 Group, make decisions on the allocation of resources and assess senior management's
performance. In addition, the performance of each of the South32 operations and operational management are assessed based on Underlying EBIT.
In order to calculate Underlying earnings, Underlying EBIT and Underlying EBITDA, the following items are adjusted as applicable each period,
irrespective of materiality:
- Exchange rate gains/losses on restatement of monetary items;
- Impairment losses/reversals;
- Net gain/loss on disposal and consolidation of interests in businesses;
- Fair value gain/loss on non-trading 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.
(6) Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue.
(7) Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product revenue.
(8) Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as annualised Underlying EBIT
less the discount on rehabilitation provisions included in net finance cost, tax effected by the Group's Underlying effective tax rate (ETR),
divided by the sum of fixed assets (excluding any rehabilitation asset and impairments) and inventories. Manganese is included in the calculation
on a proportional consolidation basis.
(9) To ensure that incident classification definitions are applied uniformly across our workforce, we have adopted the United States Government
Occupational Safety and Health Assessment (OSHA) guidelines for the recording and reporting of occupational injuries and illnesses.
(10) Total Recordable Injury Frequency (TRIF): The sum of (fatalities + lost-time cases + restricted work cases + medical treatment cases) x 1,000,000
÷ actual hours worked, for employees and contractors. Stated in units of per million hours worked.
(11) 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.
(12) Underlying net finance cost and Underlying tax expense are actual H1 FY18 results, not half-on-half variances.
(13) South32's ownership share of operations are presented 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%).
(14) 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.
(15) The Mozambique operations are subject to a royalty on revenues instead of income tax.
(16) 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.
(17) South32's interest in South Africa Energy Coal is accounted at 100% until Broad-Based Black Economic Empowerment (B-BBEE) vendor loans are
repaid.
(18) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes. Operating cost is Revenue less
Underlying EBITDA excluding third party sales. Additional manganese disclosures are included.
(19) Prior FY18 Operating unit cost guidance included royalties (where appropriate) and the influence of exchange rate assumptions, and were predicated
on various assumptions for FY18, including: an alumina price of US$299/t; an average blended coal price of US$119/t for Illawarra Metallurgical
Coal; 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; a USD:COP exchange rate of 2,961; and a reference price for caustic soda; all of which reflected forward
markets as at May 2017 or our internal expectations.
(20) New FY18 Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various
assumptions for FY18, including: an alumina price of US$388/t; an average blended coal price of US$168/t for Illawarra Metallurgical Coal; a
manganese ore price of US$6.30/dmtu for 44% manganese product; a nickel price of US$5.39/lb; a thermal coal price of US$90/t (API4) for South
Africa Energy Coal; a silver price of US$16.96/troy oz; a lead price of US$2,475/t; a zinc price of US$3,246t; an AUD:USD exchange rate of 0.78; a
USD:ZAR exchange rate of 12.98; a USD:COP exchange rate of 2,920; and a 17% increase in the reference price for caustic soda relative to prior
guidance; all of which reflected forward markets as at January 2018 or our internal expectations.
(21) Third party products sold comprise US$148M for aluminium, US$48M for alumina, US$128M for coal, US$85M for freight services and US$54M for
aluminium raw materials. Underlying EBIT on third party products comprise US$6M for aluminium, nil for alumina, nil for coal, (US$1)M for freight
services and nil for aluminium raw materials.
(22) Presented on a 100% basis.
(23) Metal Bulletin 44% manganese lump ore index (CIF Tianjin, China).
(24) Metal Bulletin 37% manganese lump ore index (FOB Port Elizabeth, South Africa).
(25) Figures in Italics indicate that an adjustment has been made since the figures were previously reported.
The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); December half year (H1 FY18); grams per tonne
(g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); thousand ounces (koz);
million ounces (Moz); thousand wet metric tonnes (kwmt); million wet metric tonnes (Mwmt); million wet metric tonnes per annum (Mwmt pa); thousand dry
metric tonnes (kdmt); dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE);
Johannesburg Stock Exchange (JSE); and American Depositary Receipts (ADR).
SOUTH32 FINANCIAL INFORMATION
For the half year ended 31 December 2017
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2017
US$M Note H1 FY18 H1 FY17
Revenue
Group production 3,031 2,873
Third party products 463 348
3,494 3,221
Other income 130 142
Expenses excluding net finance cost (3,183) (2,670)
Share of profit/(loss) of equity accounted investments 232 164
Profit/(loss) 673 857
Comprising:
Group production 668 846
Third party products 5 11
Profit/(loss) 673 857
Finance expenses (100) (77)
Finance income 30 17
Net finance cost 6 (70) (60)
Profit/(loss) before tax 603 797
Income tax (expense)/benefit (60) (177)
Profit/(loss) after tax 543 620
Attributable to:
Equity holders of South32 Limited 543 620
Profit/(loss) for the period attributable to the equity holders of South32 Limited
Basic earnings per share (cents) 5 10.5 11.7
Diluted earnings per share (cents) 5 10.3 11.5
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2017
US$M H1 FY18 H1 FY17
Profit/(loss) for the period 543 620
Other Comprehensive Income
Items that may be reclassified to the Consolidated Income Statement:
Available for sale investments:
Net gains/(losses) taken to equity 76 (1)
Net (gains)/losses transferred to the Consolidated Income Statement (31) -
Tax benefit/(expense) recognised within Other Comprehensive Income (5) 2
Total items that may be reclassified to the Consolidated Income Statement 40 1
Items not to be reclassified to the Consolidated Income Statement:
Actuarial gains/(losses) on pension and medical schemes (1) 2
Tax benefit/(expense) recognised within Other Comprehensive Income - (1)
Total items not to be reclassified to the Consolidated Income Statement (1) 1
Total Other Comprehensive Income/(loss) 39 2
Total Comprehensive Income/(loss) 582 622
Attributable to:
Equity holders of South32 Limited 582 622
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2017
US$M H1 FY18 FY17
ASSETS
Current assets
Cash and cash equivalents 2,495 2,675
Trade and other receivables 861 718
Other financial assets 123 103
Inventories 953 781
Current tax assets 11 27
Other 50 28
Total current assets 4,493 4,332
Non-current assets
Trade and other receivables 214 365
Other financial assets 476 465
Inventories 81 81
Property, plant and equipment 8,225 8,373
Intangible assets 237 252
Equity accounted investments 731 569
Deferred tax assets 265 276
Other 64 20
Total non-current assets 10,293 10,401
Total assets 14,786 14,733
LIABILITIES
Current liabilities
Trade and other payables 844 850
Interest bearing liabilities 429 391
Current tax payables 20 116
Provisions 345 383
Deferred income 5 4
Total current liabilities 1,643 1,744
Non-current liabilities
Trade and other payables 5 4
Interest bearing liabilities 635 644
Deferred tax liabilities 463 518
Provisions 1,651 1,577
Deferred income 10 11
Total non-current liabilities 2,764 2,754
Total liabilities 4,407 4,498
Net assets 10,379 10,235
EQUITY
Share capital 14,654 14,747
Treasury shares (38) (26)
Reserves (3,452) (3,503)
Retained earnings/(accumulated losses) (784) (982)
Total equity attributable to equity holders of South32 Limited 10,380 10,236
Non-controlling interests (1) (1)
Total equity 10,379 10,235
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED CASH FLOW STATEMENT
for the half year ended 31 December 2017
US$M H1 FY18 H1 FY17
Operating activities
Profit/(loss) before tax 603 797
Adjustments for:
Non-cash significant items (31) -
Depreciation and amortisation expense 363 373
Impairments of property, plant and equipment, financial assets, intangibles and equity accounted
investments - 4
Employee share awards expense 24 22
Net finance cost 70 60
Share of (profit)/loss of equity accounted investments (232) (164)
Fair value (gains)/losses on derivative instruments 62 (189)
Other non-cash or non-operating items - (3)
Changes in assets and liabilities:
Trade and other receivables (223) (164)
Inventories (172) (23)
Trade and other payables 38 24
Provisions and other liabilities (64) (40)
Cash generated from operations 438 697
Interest received 30 17
Interest paid (33) (34)
Income tax (paid)/received (181) (39)
Dividends received 9 -
Dividends received from equity accounted investments 70 41
Net cash flows from operating activities 333 682
Investing activities
Purchases of property, plant and equipment (199) (150)
Exploration expenditure (23) (7)
Exploration expenditure expensed and included in operating cash flows 22 6
Purchase of intangibles (2) (1)
Investment in financial assets (63) (28)
Investment in equity accounted investments - (21)
Cash outflows from investing activities (265) (201)
Proceeds from sale of property, plant and equipment and intangibles - 15
Proceeds from financial assets 196 105
Net cash flows from investing activities (69) (81)
Financing activities
Proceeds from interest bearing liabilities 27 147
Repayment of interest bearing liabilities (10) (9)
Purchase of shares by South32 Limited Employee Incentive Plans Trusts (ESOP Trusts) (36) (12)
Share buy-back (93) -
Dividends paid (333) (53)
Net cash flows from financing activities (445) 73
Net increase/(decrease) in cash and cash equivalents (181) 674
Cash and cash equivalents, net of overdrafts, at the beginning of the period 2,675 1,225
Foreign currency exchange rate changes on cash and cash equivalents 1 2
Cash and cash equivalents, net of overdrafts, at the end of the period 2,495 1,901
The accompanying notes form part of the half year consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 December 2017
Attributable to equity holders of South32 Limited
Retained
earnings/ Non-
Share Treasury (accumulated controlling
US$M capital shares Reserves losses) Total interests Total equity
Balance as at 1 July 2017 14,747 (26) (3,503) (982) 10,236 (1) 10,235
Profit/(loss) for the period - - - 543 543 - 543
Other Comprehensive
Income/(loss) - - 40 (1) 39 - 39
Total Comprehensive
Income/(loss) - - 40 542 582 - 582
Transactions with owners:
Accrued employee entitlements
for unexercised awards - - 24 - 24 - 24
Dividends - - - (333) (333) - (333)
Purchase of shares by ESOP
Trusts - (36) - - (36) - (36)
Employee share awards
exercised - 24 (13) (11) - - -
Shares bought back and
cancelled(1) (93) - - - (93) - (93)
Balance as at 31 December 2017 14,654 (38) (3,452) (784) 10,380 (1) 10,379
Balance as at 1 July 2016 14,958 (3) (3,555) (1,977) 9,423 (1) 9,422
Profit/(loss) for the period - - - 620 620 - 620
Other Comprehensive
Income/(loss) - - 1 1 2 - 2
Total Comprehensive
Income/(loss) - - 1 621 622 - 622
Transactions with owners:
Accrued employee entitlements
for unexercised awards - - 22 - 22 - 22
Dividends - - - (53) (53) - (53)
Purchase of share by ESOP
Trusts - (12) - - (12) - (12)
Employee share awards
exercised - 5 (5) - - - -
Balance as at 31 December 2016 14,958 (10) (3,537) (1,409) 10,002 (1) 10,001
(1) Represents 37,168,657 shares permanently cancelled through the on-market share buy-back during the period.
The accompanying notes form part of the half year consolidated financial statements.
NOTES TO FINANCIAL STATEMENTS - BASIS OF PREPARATION
The consolidated financial statements of South32 Limited (referred to as the Company) and its subsidiaries and joint
arrangements (collectively, the Group) for the half year ended 31 December 2017 were authorised for issue in
accordance with a resolution of the Directors on 15 February 2018.
1. Reporting entity
South32 Limited is a for-profit company limited by shares incorporated in Australia with a primary listing on the Australian
Securities Exchange (ASX), a standard listing on the London Stock Exchange and a secondary listing on the
Johannesburg Stock Exchange. The nature of the operations and principal activities of the Group are described in note 3
Segment information.
2. Basis of preparation
The half year consolidated financial statements are a general purpose condensed financial report which:
- Have been prepared in accordance with AASB 134 Interim Financial Reporting, IAS 34 Interim Financial Reporting
and the Corporations Act
- Have been prepared on a historical cost basis, except for derivative financial instruments and certain other financial
assets and liabilities which are required to be measured at fair value
- Are presented in US dollars, which is the functional currency of the majority of the Group's operations, and all values
are rounded to the nearest million dollars (US$M or US$ million) unless otherwise stated, in accordance with ASIC
Corporations Instrument 2016/191
- Present reclassified comparative information where required for consistency with the current period's presentation
- Have been prepared on the basis of accounting policies and methods of computation consistent with those applied
in the 30 June 2017 annual consolidated financial statements
In preparing these half year consolidated financial statements, management has made judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. The significant judgements made by management in
applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that
applied to the consolidated financial statements as at and for the year ended 30 June 2017.
For a full understanding of the financial performance and financial position of the Group it is recommended that the half
year consolidated financial statements be read in conjunction with the annual consolidated financial statements for the
year ended 30 June 2017. Consideration should also be given to any public announcements made by the Company in
accordance with the continuous disclosure obligations of the ASX Listing Rules.
The following exchange rates relative to the US dollar have been applied in the half year consolidated financial
statements.
Average for the Average for the
half year ended half year ended As at As at As at
31 December 31 December 31 December 30 June 31 December
2017 2016 2017 2017 2016
Australian dollar(1) 0.78 0.75 0.78 0.77 0.72
Brazilian real 3.21 3.27 3.31 3.30 3.26
Colombian peso 2,982 2,983 2,984 3,038 3,001
South African rand 13.41 14.00 12.40 13.00 13.60
(1) Displayed as US$ to A$ based on common convention.
3. 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 Lead Team (the chief operating decision makers) and the Board of Directors monitor the segment
results regularly for the purpose of making decisions about resource allocation and performance assessment. The
segment information for the manganese operations are presented on a proportional consolidation basis, which is the
measure used by the Group's management to assess their performance.
The principal activities of each operating segment as the Group is currently structured are summarised as follows:
Operating segment Principal activities
Worsley Alumina Integrated bauxite mine and alumina refinery in Western Australia, Australia
South Africa Aluminium Aluminium smelter in Richards Bay, South Africa
Mozal Aluminium Aluminium smelter in Mozambique
Brazil Alumina Alumina refinery in Brazil
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 Brazil Alumina, which is operated by Alcoa.
(b) Segment results
The Group separately discloses sales of group production from sales of third party products because of the significant
difference in profit margin earned on these sales.
It is the Group's policy that inter-segment transactions are made on a commercial basis.
Group and unallocated items/eliminations represent group centre functions and consolidation adjustments. Group
financing (including finance expense and finance income) and income taxes are managed on a Group basis and are not
allocated to operating segments.
Half year ended
31 December 2017 South Illawarra
Worsley Africa Mozal Brazil South Africa Metallurgical Australia
US$M Alumina Aluminium Aluminium Alumina Energy Coal Coal Manganese(1)
Revenue
Group production 326 734 326 240 622 243 516
Third party products(2) - - - - - - -
Inter-segment revenue 342 - - - - - -
Total revenue 668 734 326 240 622 243 516
Underlying EBITDA 246 156 77 76 149 (5) 328
Depreciation and amortisation (82) (36) (17) (29) (34) (79) (29)
Underlying EBIT 164 120 60 47 115 (84) 299
Comprising:
Group production 164 120 60 47 115 (84) 299
Third party products(2) - - - - - - -
Share of profit/(loss) of equity
accounted investments(3) - - - - - - -
Underlying EBIT 164 120 60 47 115 (84) 299
Net finance cost
Income tax (expense)/benefit
Underlying earnings
Earnings adjustments(4)
Profit/(loss) after tax
Capital expenditure(5) 22 13 8 10 72 40 21
Equity accounted
investments - - - - 10 - -
Total assets(6) 3,543 1,537 649 805 1,037 1,672 604
Total liabilities(6) 509 272 109 130 1,058 230 292
Half year ended Group and
31 December 2017 unallocated
South Africa Cerro items/ Statutory
US$M Manganese(1) Matoso Cannington elimination adjustment(1) Group
Revenue
Group production 221 244 296 - (737) 3,031
Third party products(2) - - - 463 - 463
Inter-segment revenue 7 - - (342) (7) -
Total revenue 228 244 296 121 (744) 3,494
Underlying EBITDA 100 84 97 (25) (196) 1,087
Depreciation and amortisation (14) (43) (25) (18) 43 (363)
Underlying EBIT 86 41 72 (43) (153) 724
Comprising:
Group production 86 41 72 (48) (385) 487
Third party products(2) - - - 5 - 5
Share of profit/(loss) of equity
accounted investments(3) - - - - 232 232
Underlying EBIT 86 41 72 (43) (153) 724
Net finance cost (59)
Income tax (expense)/benefit (121)
Underlying earnings 544
Earnings adjustments(4) (1)
Profit/(loss) after tax 543
Capital expenditure(5) 8 11 23 - (29) 199
Equity accounted
investments - - - - 721 731
Total assets(6) 511 786 348 3,848 (554) 14,786
Total liabilities(6) 210 199 161 1,780 (543) 4,407
(1) The segment information reflects the Group's interest in the manganese operations and is presented on a proportional consolidation basis, which is
the measure used by the Group's management to assess their performance. The manganese operations are equity accounted in the half year consolidated
financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.
(2) Third party products sold comprise US$148 million for aluminium, US$48 million for alumina, US$128 million for coal, US$85 million for freight
services and US$54 million for aluminium raw materials. Underlying EBIT on third party products comprise US$6 million for aluminium, nil for alumina,
nil for coal, (US$1) million for freight services and nil for aluminium raw materials.
(3) Share of profit/(loss) of equity accounted investments includes the impact of earnings adjustments to Underlying EBIT.
(4) Refer to note 3(b)(i) Earnings adjustments.
(5) Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(6) Total assets and liabilities for each operating segment represent operating assets and liabilities which predominantly exclude the carrying amount of
equity accounted investments, cash, interest bearing liabilities and tax balances.
Half year ended
31 December 2016 South Illawarra
Worsley Africa Mozal Brazil South Africa Metallurgical Australia
US$M Alumina Aluminium Aluminium Alumina Energy Coal Coal Manganese(1)
Revenue
Group production 291 601 238 133 539 471 390
Third party products(2) - - - - - - -
Inter-segment revenue 201 - - 31 - - -
Total revenue 492 601 238 164 539 471 390
Underlying EBITDA 110 122 44 38 152 202 233
Depreciation and amortisation (84) (32) (19) (28) (24) (93) (26)
Underlying EBIT 26 90 25 10 128 109 207
Comprising:
Group production 26 90 25 10 129 109 207
Third party products(2) - - - - - - -
Share of profit/(loss) of equity
accounted investments(3) - - - - (1) - -
Underlying EBIT 26 90 25 10 128 109 207
Net finance cost
Income tax (expense)/benefit
Underlying earnings
Earnings adjustments(4)
Profit/(loss) after tax
Capital expenditure(5) 19 6 3 13 27 54 15
Equity accounted
investments(6) - - - - 10 - -
Total assets(6) 3,564 1,478 630 860 936 1,667 597
Total liabilities(6) 521 273 96 169 1,020 261 278
Half year ended Group and
31 December 2016 unallocated
South Africa Cerro items/ Statutory
US$M Manganese(1) Matoso Cannington elimination adjustment(1) Group
Revenue
Group production 175 188 412 - (565) 2,873
Third party products(2) - - - 349 (1) 348
Inter-segment revenue - - - (232) - -
Total revenue 175 188 412 117 (566) 3,221
Underlying EBITDA 61 40 194 - (132) 1,064
Depreciation and amortisation (15) (44) (29) (20) 41 (373)
Underlying EBIT 46 (4) 165 (20) (91) 691
Comprising:
Group production 46 (4) 165 (31) (253) 519
Third party products(2) - - - 11 - 11
Share of profit/(loss) of equity
accounted investments(3) - - - - 162 161
Underlying EBIT 46 (4) 165 (20) (91) 691
Net finance cost (71)
Income tax (expense)/benefit (141)
Underlying earnings 479
Earnings adjustments(4) 141
Profit/(loss) after tax 620
Capital expenditure(5) 4 4 18 6 (19) 150
Equity accounted
investments(6) - - - - 559 569
Total assets(6) 493 800 371 4,011 (674) 14,733
Total liabilities(6) 186 189 156 2,017 (668) 4,498
(1) The segment information reflects the Group's interest in the manganese operations and is presented on a proportional consolidation basis, which is
the measure used by the Group's management to assess their performance. The manganese operations are equity accounted in the half year consolidated
financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.
(2) Third party products sold comprise US$135 million for aluminium, US$56 million for alumina, US$73 million for coal, US$47 million for freight services
and US$37 million for aluminium raw materials. Underlying EBIT on third party
products comprise US$6 million for aluminium, (US$4) million for alumina, US$9 million for coal, nil for freight services and nil for aluminium
raw materials.
(3) Share of profit/(loss) of equity accounted investments includes the impact of earnings adjustments to Underlying EBIT.
(4) Refer to note 3(b)(i) Earnings adjustments.
(5) Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.
(6) Total assets and liabilities for each operating segment are as at 30 June 2017 and represent operating assets and liabilities which predominantly
exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.
(i) Earnings adjustments
The following table shows earnings adjustments in determining Underlying earnings:
US$M H1 FY18 H1 FY17
Adjustments to Underlying EBIT
Significant items(1) (31) -
Exchange rate (gains)/losses on restatement of monetary items(2) 17 20
Impairment losses(2) - 4
Fair value (gains)/losses on non-trading derivative instruments(2) 65 (189)
Major corporate restructures(2) - 2
Earnings adjustments included in profit/(loss) of equity accounted investments(3) - (3)
Total adjustments to Underlying EBIT 51 (166)
Adjustments to net finance cost
Exchange rate variations on net debt 11 (11)
Total adjustments to net finance cost 11 (11)
Adjustments to income tax expense
Tax effect of earnings adjustments to Underlying EBIT (23) 45
Tax effect of earnings adjustments to net finance cost (4) 4
Exchange rate variations on tax balances (34) (13)
Total adjustments to income tax expense (61) 36
Total earnings adjustments 1 (141)
(1) Refer to note 3(b)(ii) Significant items.
(2) Recognised in expenses excluding net finance cost in the Consolidated Income Statement.
(3) Recognised in share of profit/(loss) of equity accounted investments in the Consolidated Income Statement.
(ii) Significant items
31 December 2017
US$M Gross Tax Net
Unwind of the investment in Dreamvision(1) (31) - (31)
Total significant items (31) - (31)
(1) The Group's investment in Dreamvision Investments 15 (RF) (Pty) Ltd ("Dreamvision") originated in 2006 through the formation of a Broad-Based
Black Economic Empowerment ("B-BBEE") transaction. The transaction contained a lock-in period which expired in November 2016 and the process
to unwind the investment was triggered. Consequently, the Group elected to receive shares in Exxaro Resources Limited in exchange for its
shareholding in Dreamvision. The net valuation gain on the available for sale investment in Dreamvision has been transferred from the Financial
assets reserve and recognised in the Consolidated Income Statement.
4. Dividends
US$M H1 FY18 H1 FY17
Prior year final dividend(1) 333 53
Total dividends declared and paid during the period 333 53
(1) On 24 August 2017, the Directors resolved to pay a fully franked final dividend of US6.4 cents per share (US$334 million) in respect of the 2017
financial year. The dividend was paid on 12 October 2017. The South32 Employee Incentive Plans Trust waived its right to receive dividends from
South32 Limited, therefore reducing the dividends paid by US$1 million.
5. Earnings per share
Basic earnings per share (EPS) amounts are calculated based on profit attributable to equity holders of South32 Limited
and the weighted average number of shares outstanding during the period.
Dilutive EPS amounts are calculated based on profit attributable to equity holders of South32 Limited and the weighted
average number of shares outstanding after adjustment for the effects of all dilutive potential shares.
The following reflects the profit/(loss) and share data used in the basic and diluted EPS computations:
Profit/(loss) attributable to equity holders
US$M H1 FY18 H1 FY17
Profit/(loss) attributable to equity holders of South32 Limited (basic) 543 620
Profit/(loss) attributable to equity holders of South32 Limited (diluted) 543 620
Weighted average number of shares
Million H1 FY18 H1 FY17
Basic earnings per share denominator(1) 5,191 5,319
Shares and options contingently issuable under employee share ownership plans(2) 71 55
Diluted earnings per share denominator 5,262 5,374
(1) The basic EPS denominator is the aggregate of the weighted average number of shares after deduction of the weighted average number of Treasury
shares outstanding and shares permanently cancelled through the on-market share buy-back during the period.
(2) Diluted EPS calculation excludes 6,932,916 (31 December 2016: 15,371,165) rights which are considered anti-dilutive and are subject to service and
performance conditions.
Earnings per share
US cents H1 FY18 H1 FY17
Basic earnings per share 10.5 11.7
Diluted earnings per share 10.3 11.5
6. Net finance cost
US$M H1 FY18 H1 FY17
Finance expenses
Interest on borrowings 6 8
Finance lease interest 27 26
Discounting on provisions and other liabilities 52 48
Net interest expense on post-retirement employee benefits 3 5
Fair value change on financial asset 1 1
Exchange rate variations on net debt 11 (11)
100 77
Finance income
Interest income 30 17
Net finance cost 70 60
7. Financial assets and financial liabilities
The following table presents the Group's financial assets and liabilities by class at their carrying amounts which
approximates their fair value.
31 December 2017 Other financial
Available for Held at fair assets and
Loans and sale value through liabilities at
US$M receivables securities profit or loss amortised cost Total
Financial assets
Cash and cash equivalents 2,495 - - - 2,495
Trade and other receivables(1) 698 - 65 - 763
Derivative contracts - - 144 - 144
Loans to equity accounted investments 103 - - - 103
Interest bearing loans receivable 42 - - - 42
Other investments - 455 - - 455
Total 3,338 455 209 - 4,002
Financial liabilities
Trade and other payables(2) - - - 830 830
Finance leases - - - 616 616
Unsecured other - - - 448 448
Total - - - 1,894 1,894
(1) Excludes input taxes of US$167 million included in trade and other receivables.
(2) Excludes input taxes of US$19 million included in trade and other payables.
30 June 2017 Other financial
Available for Held at fair assets and
Loans and sale value through liabilities at
US$M receivables securities profit or loss amortised cost Total
Financial assets
Cash and cash equivalents 2,675 - - - 2,675
Trade and other receivables(1) 540 - 76 - 616
Derivative contracts - - 202 - 202
Loans to equity accounted investments 251 - - - 251
Interest bearing loans receivable 42 - - - 42
Other investments - 366 - - 366
Total 3,508 366 278 - 4,152
Financial liabilities
Trade and other payables(2) - - 3 800 803
Finance leases - - - 613 613
Unsecured other - - - 422 422
Total - - 3 1,835 1,838
(1) Excludes input taxes of US$174 million included in other receivables.
(2) Excludes input taxes of US$51 million included in other payables.
Measurement of fair value
The following table shows the Group's financial assets and liabilities carried at fair value with reference to the nature of
valuation inputs used:
Level 1 - Valuation is based on unadjusted quoted prices in active markets for identical financial assets and liabilities.
Level 2 - Valuation includes inputs (other than quoted prices included in Level 1) that are observable for the financial
asset or liability, either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).
Level 3 - Valuation is based on inputs that are not based on observable market data.
31 December 2017
US$M Level 1 Level 2 Level 3 Total
Financial assets and liabilities
Trade and other receivables - 65 - 65
Derivative contracts - 1 143 144
Investments - available for sale 198 150 107 455
Total 198 216 250 664
Level 3 financial assets and liabilities
The following table shows the movements in the Group's Level 3 financial assets and liabilities:
US$M H1 FY18 H1 FY17
As at the beginning of the period 334 161
Disposals recognised in the Consolidated Income Statement(1) (31) -
Realised gains/(losses) recognised in the Consolidated Income Statement(2) (47) -
Unrealised gains/(losses) recognised in the Consolidated Income Statement (3) (11) 189
Unrealised gains/(losses) recognised in the Consolidated Statement of Comprehensive
Income(4) 5 (9)
At the end of the period 250 341
(1) Refer to note 3(b)(ii) Significant items.
(2) Realised gains and losses recognised in the Consolidated Income Statement are recorded in expenses excluding net finance cost.
(3) Unrealised gains and losses recognised in the Consolidated Income Statement are recorded in expenses excluding net finance cost.
(4) Unrealised gains and losses recognised in the Consolidated Statement of Comprehensive Income are recorded in the financial assets reserve.
Sensitivity analysis
The carrying amount of financial assets and liabilities that are valued using inputs other than observable market data are
calculated using appropriate valuation models, including discounted cash flow modelling, with inputs such as commodity
prices, foreign exchange rates and inflation. The potential effect of using reasonably possible alternative assumptions in
these models, based on changes in the most significant inputs by 10 per cent while holding all other variables constant,
is shown in the following table.
Other Comprehensive
31 December 2017 Profit before tax Income, net of tax
10% 10% 10% 10%
Carrying increase in decrease in increase in decrease in
US$M amount Significant inputs input input input input
Financial assets and liabilities
Aluminium price(2)
Foreign exchange
Derivative contracts(1) 143 rate(2) (177) 167 - -
Electricity price(3)
Aluminium price(2)
Investments - available for 107 Foreign exchange - - 46 (54)
sale(1)(4) rate(2)
Total 250 (177) 167 46 (54)
(1) Sensitivity analysis is performed assuming all inputs are directionally moving unfavourably and favourably.
(2) Aluminium prices are comparable to market consensus forecast and foreign exchange rates are aligned with forward market rates.
(3) Electricity prices are determined as a market equivalent price based on inputs from published data.
(4) When a decrease in fair value recognised in equity reflects an impairment, such amounts are recognised in profit before tax.
8. Subsequent events
On 15 February 2018, the Directors resolved to pay a fully franked interim dividend of US4.3 cents per share (US$223
million) in respect of the 2018 half year and a partially franked (to 81%) special dividend of US3 cents per share (US$155
million). The dividends will be paid on 5 April 2018. The dividends have not been provided for in the half year
consolidated financial statements and will be recognised in the 2018 financial year.
On 15 February 2018, the Group announced an extension of the existing capital management program, announced on
27 March 2017, by US$250 million to a total of US$1 billion. This program has US$540 million remaining with 143 million
shares having been purchased to 31 December 2017 for a cash consideration of US$305 million and the special
dividend of US$155 million.
No other matters or circumstances have arisen since the end of the half year that have significantly affected, or may
significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.
DIRECTORS' DECLARATION
In accordance with a resolution of the Directors of the Group, we state that:
In the opinion of the Directors:
(a) The consolidated financial statements and notes that are set out on pages 27 to 43 for the half year ended
31 December 2017 are in accordance with the Corporations Act, including:
(i) Giving a true and fair view of the Group's financial position as at 31 December 2017 and of its
performance for the half year ended on that date; and
(ii) Complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and
Corporations Regulations 2001.
(b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when they
become due and payable.
Signed in accordance with a resolution of the Board of Directors.
David Crawford AO
Chairman
Graham Kerr
Chief Executive Officer and Managing Director
Date: 15 February 2018
DIRECTORS' REPORT
The Directors of the Group present the Consolidated Financial Report for the half year ended 31 December 2017 and the
auditor's review report thereon.
Directors
The Directors of the Company during or since the end of the half year are:
David Crawford AO
Frank Cooper AO
Graham Kerr
Xiaoling Liu Appointed 1 November 2017
Xolani Mkhwanazi
Ntombifuthi (Futhi) Mtoba
Wayne Osborn
Keith Rumble
Karen Wood Appointed 1 November 2017
The company secretaries of the Company during or since the end of the half year are:
Nicole Duncan
Melanie Williams
Review and results of operations
A review of the operations of the consolidated entity during the period and of the results of those operations is contained.
Principal risks and uncertainties
Due to the international scope of the Group's operations and the industries in which it is engaged, there are a number of
risk factors and uncertainties which could have an effect on the Group's results and operations over the next six months.
The following information outlines the most significant strategic, external and operational risks identified across the
Group. The list is not exhaustive, nor listed in any particular order:
- Fluctuations in commodity prices, exchange rates, interest rates and global economy
- Political events, actions by governments, or tax authorities
- Cost inflation and labour disputes could impact operating margins and expansion opportunities
- Climate change
- Failure to maintain, realise or enhance existing reserves
- Deterioration in liquidity and cash flow
- Health and safety risks in respect of our activities
- Access to water and power
- Water and waste water management, and environmental risks
- Unexpected operational or natural catastrophes
- Counterparties that we transact with may not meet their obligations
- Risks of fraud and corruption
- Breaches of information technology security
- Failure to retain and attract key employees
Further information on these risks and how they are managed can be found on pages 19 to 22 of the Annual Report for
the year ended 30 June 2017, a copy of which is available on the Group's website at www.south32.net.
Events subsequent to the balance date
On 15 February 2018, the Directors resolved to pay a fully franked interim dividend of US4.3 cents per share (US$223
million) in respect of the 2018 half year and a partially franked (to 81%) special dividend of US3 cents per share (US$155
million). The dividends will be paid on 5 April 2018. The dividends have not been provided for in the half year
consolidated financial statements and will be recognised in the 2018 financial year.
On 15 February 2018, the Group announced an extension of the existing capital management program, announced on
27 March 2017, by US$250 million to a total of US$1 billion. This program has US$540 million remaining with 143 million
shares having been purchased to 31 December 2017 for a cash consideration of US$305 million and the special
dividend of US$155 million.
No other matters or circumstances have arisen since the end of the half year that have significantly affected, or may
significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods.
UK responsibility statements
The Directors state that to the best of their knowledge:
- The Financial Results and Outlook, includes a fair review of important events during the first
six months of the current financial year and their impact on the half year consolidated financial statements, and
a description of the principal risks and uncertainties for the remaining six months of the year; and
- That disclosure has been made for related party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial position or performance of the Group during
that period, and any changes in the related party transactions described in the last annual report that could
have such a material effect.
Lead auditor's independence declaration
A copy of the lead auditor's independence declaration as required under Section 307C of the Corporations Act is set out
ealier.
Rounding of amounts
The Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial/Directors' Reports)
Instrument 2016/191 applies to the Group and amounts in the half year consolidated financial statements and this
Directors' Report have been rounded in accordance with this instrument to the nearest million US dollars, unless stated
otherwise.
This Directors' Report is made in accordance with a resolution of the Board.
David Crawford AO
Chairman
Graham Kerr
Chief Executive Officer and Managing Director
Date: 15 February 2018
KPMG
Lead Auditor's Independence Declaration under Section 307C of the
Corporations Act 2001
To the Directors of South32 Limited
I declare that, to the best of my knowledge and belief, in relation to the review of South32 Limited for the half-year ended
31 December 2017 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in
relation to the review; and
(ii) no contraventions of any applicable code of professional conduct in relation to the review.
KPMG
Denise McComish
Partner
Perth
15 February 2018
Independent Auditor's Review Report
To the shareholders of South32 Limited
Conclusion
We have reviewed the accompanying Half-year The Half-year Financial Statements comprise:
Financial Statements of South32 Limited.
- Consolidated Balance Sheet as at 31 December
Based on our review, which is not an audit, we have 2017
not become aware of any matter that makes us
believe that the Half-year Financial Statements of - Consolidated Income Statement, Consolidated
South32 Limited are not in accordance with the Statement of Comprehensive Income,
Corporations Act 2001, including: Consolidated Statement of Changes in Equity and
Consolidated Cash Flow Statement for the half-
- giving a true and fair view of the Group's financial year ended on that date
position as at 31 December 2017 and of its
performance for the half-year ended on that - Notes 1 to 8 comprising a summary of significant
date; and accounting policies and other explanatory
information
- complying with Australian Accounting Standard
AASB 134 Interim Financial Reporting and the - The Directors' Declaration.
Corporations Regulations 2001.
The Group comprises South32 Limited (the Company)
and the entities it controlled at the half-year's end or
from time to time during the half-year.
Responsibilities of the Directors for the Half-year Financial Statements
The Directors of the Company are responsible for:
- the preparation of the Half-year Financial Statements that give a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001
- such internal control as the Directors determine is necessary to enable the preparation of the Half-year
Financial Statements that is free from material misstatement, whether due to fraud or error.
Auditor's responsibility for the review of the Half-year Financial Statements
Our responsibility is to express a conclusion on the Half-year Financial Statements based on our review. We
conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a
Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of
the procedures described, we have become aware of any matter that makes us believe that the Half-year
Financial Statements are not in accordance with the Corporations Act 2001 including: giving a true and fair
view of the Group's financial position as at 31 December 2017 and its performance for the half-year ended on
that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the
Corporations Regulations 2001. As auditor of South32 Limited, ASRE 2410 requires that we comply with the
ethical requirements relevant to the audit of the annual Financial Report.
A review of Half-year Financial Statements consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and
consequently does not enable us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit opinion.
In conducting our review, we have complied with the independence requirements of the Corporations Act
2001.
KPMG
Denise McComish
Partner
Perth
15 February 2018
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative Liability limited by a scheme approved under
("KPMG International"), a Swiss entity. Professional Standards Legislation.
DISCLAIMER
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements, including statements about trends in commodity prices and currency
exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital
costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions and
contingent liabilities. These forward-looking statements reflect expectations at the date of this release, however they are
not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other
factors, many of which are beyond our control, and which may cause actual results to differ materially from those
expressed in the statements contained in this release. Readers are cautioned not to put undue reliance on forward-
looking statements. Except as required by applicable laws or regulations, the South32 Group does not undertake to
publicly update or review any forward-looking statements, whether as a result of new information or future events. Past
performance cannot be relied on as a guide to future performance.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and
Underlying EBITDA, Basic Underlying earnings per share, Underlying effective tax rate, Underlying EBIT margin,
Underlying EBITDA margin, Underlying return on capital, Free cash flow, net debt, net operating assets and ROIC.
These measures are used internally by management to assess the performance of our business, make decisions on the
allocation of our resources and assess operational management. Non-IFRS measures have not been subject to audit or
review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial
performance or liquidity.
NO OFFER OF SECURITIES
Nothing in this release should be read or understood as an offer or recommendation to buy or sell South32 securities, or
be treated or relied upon as a recommendation or advice by South32.
NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA
South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial
Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice.
FURTHER INFORMATION
INVESTOR RELATIONS
Alex Volante Rob Ward
T +44 20 7798 1778 T +61 8 9324 9340
M +44 7468 353 005 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.
South32 Limited (ABN 84 093 732 597)
Registered in Australia
(Incorporated in Australia under the Corporations Act 2001)
Registered Office: Level 35, 108 St Georges Terrace
Perth Western Australia 6000 Australia
ISIN: AU000000S320
JSE Sponsor: UBS South Africa (Pty) Ltd
15 February 2018
Date: 15/02/2018 08:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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