REG - South32 Limited - DECEMBER 2014 HY PRO FORMA FINANCIAL INFORMATION <Origin Href="QuoteRef">S32.AX</Origin>

South32Announcement

03/03/2016 12:02

RNS Number : 4616I
South32 Limited
09 December 2015
9 DECEMBER 2015
South32 Limited
(Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX / LSE / JSE Share Code: S32
ISIN: AU000000S320
South32 Limited
DECEMBER 2014 HALF YEAR PRO FORMA FINANCIAL INFORMATION
South32 Limited (ASX, LSE, JSE: S32) ("South32") will release its financial results for the December 2015 half year (H1 FY16) on 25 February 2016. This will be the Company's first half year financial result following the demerger from BHP Billiton in May 2015. 
To assist shareholders to prepare in advance of its H1 FY16 results, South32 is providing unaudited pro forma financial information for the December 2014 half year (H1 FY15). This information has been prepared in a consistent manner to the 2015 financial year (FY15) pro forma financial information that was published on 24 August 2015. 
The Company's pro forma financial information reflects the business as it was structured at
30 June 2015 and must be read in conjunction with the notes on page 3. Unaudited statutory financial information for the December 2014 half year does not reflect the complete six months of performance of the operations that now form the South32 Group.
INVESTOR RELATIONS
Leng Lau
T +61 8 9324 9008
M +61 (0) 408 202 698
E Leng.Lau@south32.net
Susie Bath
T  +61 8 9324 9647
M  +61 (0) 418 933 792
E Susie.Bath@south32.net
Paul Formosa
T +61 8 9324 9376
M +61 (0) 431 152 742
E  Paul.Formosa@south32.net
MEDIA RELATIONS
Jill Thomas 
T +61 8 9324 9191
M +61 (0) 423 259 190
E Jill.Thomas@south32.net


Further information on South32 can be found at www.south32.net. 
31 DECEMBER 2014 PRO FORMA FINANCIAL INFORMATION
The demerger ASX Information Memorandum was published in March 2015 and included South32 pro forma financial information for FY14 and H1 FY15. To assist shareholders in their understanding of the South32 Group, pro forma financial information (non-IFRS financial information) was prepared to illustrate financial information of the South32 Group (Group) as it was expected to be structured at 30 June 2015, and as though the Internal Restructure (refer below) had occurred as at 1 July 2013.
For the Group's FY15 pro forma financial information, additional adjustments were made to the Basis of Preparation to include information that was not known when the ASX Information Memorandum was prepared. These adjustments were disclosed in the South32 FY15 Annual Report. 
The impact of the relevant adjustments, including the associated tax effect, has been incorporated into the previously published H1 FY15 pro forma financial information on a consistent basis with FY15 and presented in this document. 
Internal Restructure
South32 shares were transferred to eligible BHP Billiton Limited and BHP Billiton plc shareholders on
24 May 2015 and 25 May 2015, respectively. Economic separation and distribution of South32 shares to shareholders became effective from 25 May 2015. Prior to the demerger, the Group and
BHP Billiton Group were required to undertake a number of internal share and asset transfers in connection with the corporate restructure (Internal Restructure). As a result of the Internal Restructure, several entities, assets and liabilities were transferred to the Group and entities and assets and liabilities relating to the BHP Billiton Group were transferred out of the Group during FY15. 
Basis of preparation 
The Group's pro forma financial information has been derived from the statutory information of the Group and material adjustments have been made to include the results of the current Group operations prior to the Internal Restructure and other pro forma adjustments. The Directors are responsible for the preparation of the pro forma financial information and believe that the basis of preparation fairly presents the Group's pro forma financial information for H1 FY15, including the pro forma consolidated income statement, pro forma consolidated cash flow statement before financing activities and tax and after capital expenditure, and pro forma segment information.
The Group's pro forma financial information is intended for illustrative purposes only and does not purport to reflect the actual financial performance that the Group would have obtained if the Group had operated as a stand-alone entity for the period presented.
The Group's pro forma financial information has been prepared in accordance with the Group's accounting policies, including the basis of preparation of the South32 Limited Financial Statements, as set out in the Notes to the Financial Statements of the Group's 2015 Annual Report, including the recognition and measurement principles prescribed in IFRS and the election to account for the acquisition of entities and net assets as common control transactions; except that IFRS does not provide for:
 The preparation of Group financial information where the Group did not constitute a separate legal group during the relevant period; and
 The amendment of financial information for pro forma adjustments.
Reconciliations between the pro forma financial information and the unaudited statutory financial information are included. The reconciliations and pro forma financial information are unaudited. 
31 December 2014 pro forma financial information and reconciliations
Pro forma income statement


US$M

HY15
Revenue

4,089
Other income

150
Expenses excluding net finance costs

(3,513)
Share of profit of equity accounted investments

60
Profit from operations

786
Net finance cost

5
Taxation expense

(452)
Profit after taxation 

339
Basic earnings per share (US cents) (1)

6.37



Other financial information


Profit from operations

786
Earnings adjustments to derive Underlying EBIT

(76)
Underlying EBIT(2)

710
Depreciation and amortisation 

417
Underlying EBITDA(2)

1,127
Profit after taxation

339
Earnings adjustments after taxation 

121
Underlying earnings(2)

460
Basic Underlying earnings per share (US cents) (1)

8.64
Pro forma operating cash flow before financing activities and tax, and after capital expenditure
US$M

HY15
Profit from continuing operations

786
Non-cash items

445
Profit from equity accounted investments

(60)
Change in working capital

(205)
Cash generated from continuing operations

966
Dividends received (including equity accounted investments)

131
Capital expenditure

(317)
Operating cash flows from continuing operations before financing activities and tax, and after capital expenditure

780
The following table notes the relevant significant items excluded from the Group's Underlying measures.
Pro forma earnings adjustments


US$M 


HY15
Earnings adjustments to Underlying EBIT



Exchange rate (gains)/losses on restatement of monetary items 


(64)
Fair value (gains)/losses on derivative instruments


(6)
Earnings adjustment included in operating loss of equity accounted investments


(6)
Total earnings adjustments to Underlying EBIT 


(76)




Earnings adjustments to net finance costs



Exchange rate variations on net debt 


(93)
Total earnings adjustments to net finance costs


(93)




Earnings adjustments to income tax expense



Tax effect of earnings adjustments to Underlying EBIT 


22
Tax effect of earnings adjustments to net finance costs 


28
Exchange rate variations on tax balances 


144
Other:



Repeal of Minerals Resource Rent Tax legislation


96
Total earnings adjustments to income tax expense 


290
Total earnings adjustments after taxation


121

Pro forma segment note


HY15
Worsley Alumina
South Africa Aluminium
Mozal Aluminium
Brazil Aluminium
South Africa Energy Coal
Illawarra Metallurgical Coal
Australia Manganese
(d)
South Africa Manganese
(d)
Cerro Matoso
Cannington
Group and unallocated items/ elimination
Equity accounting adjustment
Total South32
US$M 
Revenue













Group production
319
823
340
268
683
425
339
231
340
486

(569)
3,685
Third party products(a)










404

404
Inter-segment revenue 
332









(332)

-
Total revenue
651
823
340
268
683
425
339
231
340
486
72
(569)
4,089
Underlying EBITDA
155
203
94
140
93
122
151
40
115
187
(33)
(140)
1,127
Depreciation and amortisation
(76)
(34)
(18)
(39)
(92)
(100)
(56)
(27)
(27)
(29)
(2)
83
(417)
Underlying EBIT
79
169
76
101
1
22
95
13
88
158
(35)
(57)
710
Comprising:













Group production
79
169
76
101
(2)
22
95
13
88
158
(65)
(108)
626
Third party products(a)










30

30
Share of profit of equity accounted investments(b)




3






51
54
Underlying EBIT
79
169
76
101
1
22
95
13
88
158
(35)
(57)
710
Net finance costs(c)












(88)
Income tax expense












(162)
Underlying Earnings












460
Earnings adjustments












(121)
Profit after taxation












339
Capital expenditure
27
10
5
5
58
180
34
22
18
14
-
(56)
317
(a) Third party product sold comprises US$358M for aluminium, US$46M for coal and US$ nil for other. Underlying EBIT on third party products comprises US$17M for aluminium, US$13M for coal and US$ nil for other.
(b) Share of profit of equity accounted investments includes the impacts of earnings adjustments to Underlying EBIT.
(c) Excludes interest income and interest expense on borrowings with BHP Billiton.
(d) The segment information reflects South32's interest in its manganese assets on a proportional consolidation basis, which is the measure that is used by South32's management to assess the performance of its manganese assets. The equity accounting adjustment is shown to reconcile to the treatment of its manganese assets on an equity accounted basis per the statutory financial information.

The following tables reconcile pro forma and statutory earnings for the December 2014 half year (H1 FY15).
HY15
Unaudited statutory consolidated income statement
Demerger related pro forma adjustments(a)
Pro forma consolidated financial information
US$M
Revenue
649
3,440
4,089
Other income
114
36
150
Expenses excluding net finance costs
(676)
(2,837)
(3,513)
Share of profit/(loss) of equity accounted investments
-
60
60
Profit/(loss) from continuing operations 
87
699
786
Net finance costs
(24)
29
5
Taxation expense
(153)
(299)
(452)
Profit/(loss) after taxation from continuing operations
(90)
429
339
Profit from discontinued operations, net of tax
7
(7)
-
Profit/(loss) after taxation
(83)
422
339




Other financial information



Profit/(loss) from continuing operations
87
699
786
Earnings adjustments
4
(80)
(76)
Underlying EBIT from continuing operations
91
619
710
Depreciation and amortisation 
133
284
417
Underlying EBITDA from continuing operations
224
903
1,127
Profit/ (loss) after taxation from continuing operations
(90)
429
339
Earnings adjustments after taxation
147
(26)
121
Underlying earnings from continuing operations
57
403
460
The following tables reconcile pro forma and statutory operating cash flows before financing activities and tax, and after capital expenditure for the December 2014 half year (H1 FY15).
HY15
Unaudited statutory
consolidated
cash flow statement
Demerger related pro forma adjustments(a)
Pro forma consolidated financial information
US$M

Profit/(loss) from continuing operations
87
699
786
Non-cash items
138
307
445
(Profit)/loss from equity accounted investments
-
(60)
(60)
Change in working capital
(67)
(138)
(205)
Cash generated from continuing operations
158
808
966
Dividends received (including equity accounted investments)
4
127
131
Capital expenditure
(184)
(133)
(317)
Operating cash flows from continuing operations before financing activities and tax and after capital expenditure
(22)
802
780
(a) The significant items contained in the demerger related pro forma adjustments comprise: 
 The results of the current South32 Group operations between 1 July 2014 and their date of acquisition during the December 2014 half year as part of the Internal Restructure; 
 Exclusion of the results of New Mexico Coal for the period 1 July 2014 to 27 October 2014 being the date that it ceased to be part of the South32 Group as a result of the Internal Restructure;
 Presenting South32 manganese assets (comprising South Africa Manganese, Australia Manganese and Samancor AG) on an equity accounted basis from 1 July 2013 including associated depreciation; 
 Additional corporate costs associated with South32 Limited becoming a stand-alone group of US$38M;
 Exclusion of net finance costs charged by the BHP Billiton Group of US$39M;
 Exclusion of demerger related major corporate restructuring costs of US$13M;
 The tax effect of the above items; and 
 Including certain significant tax expense items such as the impact of the Brazil Aluminium tax accounting adjustments of US$16M. 
NOTES
(1) Pro forma December 2014 half year (H1 FY15) basic earnings per share is calculated as pro forma profit after taxation from continuing operations divided by the number of shares on issue at 30 June 2015. Pro forma December 2014 half year (H1 FY15) basic Underlying earnings per share is calculated as pro forma Underlying earnings divided by the number of shares on issue at 30 June 2015.
(2) Underlying EBIT is profit from continuing operations before net finance costs, taxation and any earnings adjustment items, including impairments. Underlying EBIT is reported inclusive of South32's share of net finance costs and taxation of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation. Underlying earnings is Profit after taxation and earnings adjustment items. Underlying earnings is the key measure that South32 uses to assess the performance of the South32 Group, make decisions on the allocation of resources and assess senior management's performance. In addition, the performance of each of the South32 assets and operational management are assessed based on Underlying EBIT. In order to calculate Underlying earnings, Underlying EBIT and Underlying EBITDA, the following items are adjusted as applicable each period, irrespective of materiality:
 Exchange rate gains/losses on restatement of monetary items;
 Impairment losses/reversals;
 Net gain/loss on disposal and consolidation of interests in businesses;
 Fair value gain/loss on derivative instruments;
 Major corporate restructures; and
 The income tax impact of the above items.
In addition, items that do not reflect the underlying operations of South32, and are individually significant to the financial statements, are excluded to determine Underlying earnings. 
(3) The following abbreviations may be used throughout this report: US$ million (US$M); financial year (FY): Six months ending 31 December (H1), for example six months ended 31 December 2014 is abbreviated to H1 FY15.
JSE Sponsor: UBS South Africa (Pty) Ltd
9 December 2015

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