REG - South32 Limited - Financial Results & Outlook Half Year 31 Dec 2015 <Origin Href="QuoteRef">S32.AX</Origin> - Part 2
25/02/2016 07:12
- Part 2: For the preceding part double click ID:nRSY0824Qa
production increased by 6% (or 90kt) to a record 1,589kt in H1 FY16. FY16 saleable
production guidance of 5.1Mt (100% basis) remains unchanged.
The mining and processing plans at Australia Manganese (GEMCO) are being adjusted to ensure the operation retains its
leading, low-cost position in the industry. This includes a revised ramp-up profile for the PC02 project and a 0.2Mt (100%
basis) or 4% reduction in FY17 saleable ore production guidance to 5.2Mt (100% basis).
Saleable manganese alloy production increased by 2% (or 2kt) to 85kt in H1 FY16. In response to market conditions, TEMCO
has suspended production at one of its four furnaces for a minimum of three months. While production will be impacted in H2
FY16, customer commitments will be met from inventory.
Costs
Manganese ore operating unit costs declined by 19% to US$1.58/dmtu, despite a planned 20% increase in the waste to ore
strip ratio (from 3.0 to 3.6).
A double digit improvement in labour productivity and a substantial reduction in procurement costs are expected to more
than offset a 27% increase in the strip ratio (from 3.0 to 3.8) between FY15 and FY17. Consequently, operating unit costs,
including sustaining capital expenditure are expected to decline by 43% to approximately US$1.56/dmtu in FY17. Specific
measures being taken to reposition GEMCO include:
· The reduction of approximately 82 employees and contractors before the end of FY16, equivalent to 8% of the employee
and contractor headcount at the end of FY15, and the decision not to recruit 55 roles planned as largely related to the
PC02 project;
· A targeted 6% increase in the productivity of the mining fleet;
· The continued aggregation of our procurement activities to the region, which is expected to deliver a circa US$10M
saving in FY17; and
· A 56% reduction in Sustaining capital expenditure to approximately US$40M in FY17.
Redundancy costs are not anticipated at GEMCO, despite the meaningful reduction in employees and contractors.
Financial performance
Underlying EBIT declined by US$85M in H1 FY16 to US$10M. Lower manganese ore and alloy prices reduced Underlying EBIT by
US$113M, net of price-linked costs, while a stronger US dollar increased Underlying EBIT by US$27M.
Capital expenditure increased by US$7M to US$41M. This included a US$20M investment in the PC02 project.
South32 share H1 FY16 H1 FY15
Manganese ore production (kt) 1,589 1,499
Manganese alloy production (kt) 85 83
Manganese ore sales (kt)(a) 1,499 1,459
External customers 1,328 1,295
TEMCO 171 164
Manganese alloy sales (kt)(a) 76 77
Realised manganese ore sales price (US$/dmtu)(a)(b) 2.65 4.03
Realised manganese alloy sales price (US$/t)(a) 737 1,143
Ore operating unit cost (US$/dmtu)(b)(c) 1.58 1.96
Alloy operating unit cost (US$/t)(b)(c) 763 979
(a) Volumes and prices do not include any third party trading that may be undertaken independently of equity production.
Realised sales price is calculated as sales revenue divided by sales volume.
(b) H1 FY16 average manganese content of ore sales was 46% Mn
(H1 FY15: 46% Mn).
(c) Operating unit cost is Revenue less Underlying EBITDA divided by sales.
(d) Includes the cost of manganese ore acquired by TEMCO from GEMCO at market prices.
South32 share (US$M) H1 FY16 H1 FY15
Sales revenue(a) 226 339
Manganese Ore 183 270
Manganese Alloy 56 88
Intra-segment elimination (13) (19)
Underlying EBITDA 72 151
Manganese Ore 74 138
Manganese Alloy (2) 13
Underlying EBIT 10 95
Manganese Ore 16 86
Manganese Alloy (6) 9
Net operating assets(b) 376 1,384
Manganese Ore 357 1,365
Manganese Alloy 19 19
Capital expenditure 41 34
Major projects (>US$100M) - 5
All other capital expenditure 41 29
Exploration expenditure 1 2
Exploration expensed - 2
(a) Revenues referring to sales from GEMCO to TEMCO are eliminated as part of the consolidation.
(b) H1 FY15 Net operating assets reflects balance as at 30 June 2015.
South Africa Manganese
(ORE 44.4% SHARE, ALLOY 60% SHARE)
Volumes
South Africa Manganese saleable ore production decreased by 39% (or 477kt) to 757kt in H1 FY16 following the suspension of
operations at the Hotazel mines in November 2015.
Following the completion of the Samancor Manganese Joint Venture's strategic review, the Hotazel mines will operate at a
reduced production rate and with greater flexibility. Subject to market conditions, saleable production will ramp-up to
2.9Mtpa (100% basis), taking approximately 900ktpa (or 23% of FY15 production) out of the market for the foreseeable
future.
Saleable manganese alloy production decreased by 67% (or 94kt) to 46kt in H1 FY16 following the suspension of three of the
four furnaces at Metalloys in May 2015 in response to challenging market conditions. This resulted in a substantial
reduction in ore and alloy inventories.
Costs
Manganese ore operating unit costs increased by 27% to US$2.48/dmtu as the significant reduction in production created
diseconomies of scale.
A series of restructuring initiatives are expected to reduce manganese operating unit costs, including Sustaining capital
expenditure, by 24% to US$1.90/dmtu in FY17. Specific initiatives include:
· The reduction of approximately 620 employees across the joint venture, equivalent to 37% of the employee headcount at
the end of FY15;
· The acceleration of the second phase of the Central Block development project at Wessels (US$19M budget), which will
enable mining activity to relocate closer to critical infrastructure and reduce cycle times;
· The continued operation of only one of four furnaces at the Metalloys smelter, which is now generating free cash
flow; and
· A circa 80% reduction in annual Sustaining capital expenditure at the Hotazel mines to US$7M in FY17.
Financial performance
Underlying EBIT declined by US$64M to a loss of US$51M as lower realised manganese ore and alloy prices reduced Underlying
EBIT by US$47M, net of price-linked costs. The reduction in sales volumes impacted unit costs, although this was partially
offset by a US$22M benefit associated with the stronger US dollar.
Capital expenditure of US$7M was significantly lower than the prior period.
Pre-tax restructuring costs, including redundancies, of approximately US$10M are anticipated in H2 FY16.
South32 share H1 FY16 H1 FY15
Manganese ore production (kt) 757 1,234
Manganese alloy production (kt) 46 140
Manganese ore sales (kt)(a) 879 1,189
External customers 862 887
Metalloys 17 302
Manganese alloy sales (kt)(a) 50 134
Realised manganese ore sales price (US$/dmtu)(a)(b) 2.23 2.84
Realised manganese alloy sales price (US$/t)(a) 748 910
Ore operating unit cost (US$/dmtu)(b)(c) 2.48 1.95
Alloy operating unit cost (US$/t)(b)(c) 1,126 930
(a) Volumes and prices do not include any third party trading that may be undertaken independently of equity production.
Realised sales price is calculated as sales revenue divided by sales volume (Manganese Ore sales gross-up to reflect 60%
accounting effective interest).
(b) H1 FY16 average manganese content of ore sales was 40% Mn
(H1 FY15: 41% Mn).
(c) Operating unit cost is Revenue less Underlying EBITDA divided by sales.
(d) Includes the cost of the manganese ore acquired by Metalloys from Hotazel mines at market prices.
South32 share (US$M) H1 FY16 H1 FY15
Revenue(a) 114 231
Manganese Ore(b) 78 139
Manganese Alloy 37 122
Intra-segment elimination (1) (30)
Underlying EBITDA (28) 40
Manganese Ore(b) (9) 43
Manganese Alloy (19) (3)
Underlying EBIT (51) 13
Manganese Ore(b) (25) 25
Manganese Alloy (26) (12)
Net operating assets(c) 355 530
Manganese Ore(b) 102 384
Manganese Alloy 253 146
Capital expenditure 7 22
Major projects (>US$100M) - 2
All other capital expenditure 7 20
Exploration expenditure - 1
Exploration expensed - 1
(a) Revenues referring to sales from Hotazel mines to Metalloys are eliminated as part of the consolidation.
(b) Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales
have been reported at 60%. The group's financial statement will continue to reflect a 54.6% interest in South Africa
Manganese ore.
(c) H1 FY15 Net operating assets reflects balance as at 30 June 2015.
Cerro Matoso
(99.9% SHARE)
Volumes
Cerro Matoso payable nickel production declined by 17% (or 3.7kt) to 17.5kt in H1 FY16 as the average ore grade decreased,
consistent with the mine plan. Payable nickel production guidance remains unchanged at approximately 36.5kt for FY16, with
a similar rate of production anticipated in FY17.
The higher grade La Esmeralda deposit has the potential to deliver an uplift in the average ore grade between 2018 and
2022. A new social and environmental licence to allow access to the ore body was granted in December 2015.
Costs
Operating unit costs declined by 11% to US$4.43/lb, largely as a result of the stronger US dollar and various cost savings
initiatives.
To ensure Cerro Matoso remains competitive amidst declining ore grades and an increasing reliance on stockpiled ore, the
operation must significantly increase labour productivity and reduce costs. In this regard, a series of restructuring
initiatives are expected to deliver a 30% reduction in operating unit costs, including Sustaining capital expenditure, to
approximately US$3.90/lb in FY17. Specific initiatives include:
· The reduction of at least 350 employees and contractors before the end of FY16, equivalent to 18% of the employee
and contractor headcount at the end of FY15;
· The continued aggregation of our procurement activities to the region, which is expected to deliver a circa US$37M
saving in FY17; and
· A 56% reduction in Sustaining capital expenditure to approximately US$16M in FY17.
Financial performance
Underlying EBIT declined by US$136M to a loss of US$48M. Weaker realised prices (-US$129M, net of price-linked costs) and
the grade related decline in sales volumes (-US$52M) was only partly offset by the benefit associated with a stronger US
dollar (US$51M).
Capital expenditure declined by 33% from the prior period to US$12M.
Pre-tax restructuring costs, including redundancies, of approximately US$2M are anticipated at Cerro Matoso in H2 FY16.
These charges will be excluded from the Group's Underlying earnings measures.
South32 share H1 FY16 H1 FY15
Ore mined (kwmt) 3,017 3,339
Ore processed (kdmt) 1,312 1,335
Ore grade processed (%, Ni) 1.5 1.7
Payable nickel production (kt) 17.5 21.2
Payable nickel sales (kt) 17.5 20.6
Realised nickel sales price (US$/lb)(a) 4.30 7.49
Operating unit cost (US$/lb)(b) 4.43 4.95
(a) Inclusive of by-products. Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by Payable nickel sales.
South32 share (US$M) H1 FY16 H1 FY15
Sales revenue 166 340
Underlying EBITDA (5) 115
Underlying EBIT (48) 88
Net operating assets(a) 749 763
Capital expenditure 12 18
Major projects (>US$100M) - -
All other capital expenditure 12 18
Exploration expenditure 3 5
Exploration expensed 1 1
(a) H1 FY15 Net operating assets reflects balance as at 30 June 2015.
Cannington
(100% SHARE)
Volumes
Cannington payable silver production decreased by a modest 3% (or 357koz) to 11.9Moz in H1 FY16 as the average silver ore
grade remained largely unchanged. Conversely, a significant increase in the average zinc ore grade and recovery underpinned
a 13% increase in zinc production to a record 41.8kt. FY16 production guidance remains unchanged (payable silver 21.65Moz,
payable lead 175kt, payable zinc 80kt) as the mine plan delivers an increase in the ratio of zinc to lead concentrate over
the remainder of the year.
Costs
Operating unit costs declined by 15% to US$153/t. This largely reflected a favourable movement in foreign exchange rate
markets and a reduction in labour costs and contractor spend. By the end of FY17, the employee and contractor headcount
will have decreased by approximately 17% relative to the average employee and contractor headcount in FY15.
Further initiatives to increase labour productivity and operational efficiencies are being pursued, including a renewed
focus on procurement, which is expected to deliver a US$20M saving in FY17.
Financial performance
Underlying EBIT declined by US$17M to US$141M. Lower average realised prices, net of price-linked costs, and sales volumes
reduced Underlying EBIT by US$58M. This was largely offset by a favourable movement in exchange rate markets (+US$33M).
Finalisation adjustments and the provisional pricing of Cannington concentrates reduced Underlying EBIT by US$19M in H1
FY16 (-US$43M in FY15; -US$40M in H1 FY15). Outstanding concentrate sales (containing 5.2Moz of silver, 45.7kt of lead and
16.0kt of zinc) were revalued at 31 December 2015. The final price of these sales will be determined in H2 FY16.
Capital expenditure was largely unchanged at US$15M.
South32 share H1 FY16 H1 FY15
Ore mined (kt) 1,743 1,748
Ore processed (kt) 1,657 1,669
Ore grade processed (g/t, Ag) 266 272
Ore grade processed (%, Pb) 7.0 7.0
Ore grade processed (%, Zn) 3.7 3.5
Payable Silver production (koz) 11,878 12,235
Payable Lead production (kt) 98 99
Payable Zinc production (kt) 42 37
Payable Silver sales (koz) 11,898 12,715
Payable Lead sales (kt) 95 100
Payable Zinc sales (kt) 41 33
Realised Silver sales price (US$/oz)(a) 15.3 17.1
Realised Lead sales price (US$/t)(a) 1,828 1,938
Realised Zinc sales price (US$/t)(a) 1,640 2,252
Operating unit cost (US$/t ore processed)(b) 153 179
(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Operating unit cost is Revenue less Underlying EBITDA divided by ore processed.
South32 share (US$M) H1 FY16 H1 FY15
Revenue 423 486
Underlying EBITDA 169 187
Underlying EBIT 141 158
Net operating assets(a) 238 280
Capital expenditure 15 14
Major project (>US$100M) - -
All other capital expenditure 15 14
Exploration expenditure 2 3
Exploration expensed 2 3
(a) H1 FY15 Net operating assets reflects balance as at 30 June 2015.
PRO FORMA RECONCILIATIONS
BACKGROUND
Effective 15 May 2015, BHP Billiton shares ceased trading with an entitlement to South32 shares. On 18 May 2015, South32
Limited was listed as a separate standalone entity on the Australian Securities Exchange on a deferred settlement basis, on
the London Stock Exchange on a when-issued basis and on the Johannesburg Stock Exchange on a normal settlement basis.
Economic separation and distribution of South32 shares to shareholders became effective from 25 May 2015.
Prior to the demerger, the South32 Group and the BHP Billiton Group were required to undertake a number of internal share
and asset transfers in connection with the corporate restructure (Internal Restructure).
STATUTORY FINANCIAL INFORMATION
As required, statutory financial information for the South32 Group has been presented for the financial half year ended 31
December 2015 (H1 FY16) and the financial half year ended 31 December 2014 (H1 FY15). The South32 Group's H1 FY15 statutory
financial information only includes the results of the current South32 Group operations (also referred to as "operations")
from their date of acquisition during the half year as part of the Internal Restructure(17) (being Brazil Alumina). The
exception is Illawarra Metallurgical Coal, which was part of the South32 Group at 1 July 2013. The South32 Group's H1 FY15
statutory financial information also includes:
· The results of New Mexico Coal for the period 1 July 2014 to 27 October 2014, being the date that it ceased to be
part of the South32 Group as a result of the Internal Restructure; and
· Finance charges on internal borrowings from the BHP Billiton Group in the period.
Accordingly, as a result of the Internal Restructure, the statutory financial information for H1 FY15 does not reflect the
performance of the South32 Group as it is currently structured.
PRO FORMA FINANCIAL INFORMATION
To assist shareholders in their understanding of the South32 Group, pro forma financial information for H1 FY15 has been
prepared to reflect the business as it is now structured and as though it was in effect for the period 1 July 2014 to 31
December 2014. The pro forma financial information is not prepared in accordance with IFRS.
The following pro forma adjustments, including the associated tax effect, have been made on a basis consistent with those
contemplated in the South32 Listing Documents:
· Equity accounting of the South32 manganese assets (comprising South Africa Manganese, Australia Manganese and
Samancor AG) from 1 July 2013 (refer note 4(c) of the Group's 2015 financial statements); and
· Excluding net finance costs charged by the BHP Billiton Group.
Additional pro forma adjustments, including the associated tax effect, have also been made in the presentation of pro forma
financial information. These include:
· Reflecting changes in corporate costs associated with South32 Limited becoming a stand-alone group as if those costs
had been incurred from 1 July 2014;
· Excluding demerger related major corporate restructuring costs; and
· Including certain significant tax expense items such as the Brazil Alumina tax accounting adjustments.
A reconciliation between the pro forma financial information and the statutory financial information is included. The
statutory financial information, reconciliations and pro forma financial information have not been audited or reviewed by
the Group's external auditor.
The following tables reconcile pro forma and statutory earnings for H1 FY15.
H1 FY15 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 cost (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 cost (24) 29 5
Taxation expense (153) (299) (452)
Profit/(loss) after taxation from continuing operations (90) 429 339
Profit/(loss) from discontinued operations, net of taxation 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 H1 FY15.
H1 FY15 South32 statutory Demerger related pro forma adjustments(a) South32 pro forma consolidated financial information
consolidated
cash flow statement
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 Alumina tax accounting
adjustments of US$16M.
Segment information
The segment reporting information for the South32 operations for H1 FY16 and pro forma H1 FY15 is set out below. The
segment information reflects South32's interest in its manganese assets on a proportional consolidation basis, which is the
measure that is used by South32 management to assess the performance of the manganese assets. The statutory adjustment
column reconciles the proportional consolidation of the manganese assets to the treatment of the manganese assets on an
equity accounted basis.
H1 FY16 sEGMENT information
H1 FY16 Worsley Alumina South Africa Aluminium Mozal Aluminium Brazil South Africa Energy Coal Illawarra Metallurgical Coal Australia Manganese South Africa Manganese Cerro Matoso Cannington Group and unallocated items/ elimination Statutory adjustment Total
Alumina South32
US$M
Revenue
Group production 286 596 208 186 542 284 226 110 166 423 - (336) 2,691
Third party products(a) - - - - - - - - - - 291 (1) 290
Inter-segment revenue 254 - - - - - - 4 - - (254) (4) -
Total revenue 540 596 208 186 542 284 226 114 166 423 37 (341) 2,981
Underlying EBITDA 108 53 8 110 116 50 72 (28) (5) 169 (7) (104) 542
Depreciation and amortisation (75) (32) (18) (36) (70) (87) (62) (23) (43) (28) (12) 85 (401)
Underlying EBIT 33 21 (10) 74 46 (37) 10 (51) (48) 141 (19) (19) 141
Comprising:
Group production 33 21 (10) 74 44 (37) 10 (51) (48) 141 (19) 41 199
Third party products(a) - - - - - - - - - - - - -
Share of profit/(loss) of equity accounted investments(b) - - - - 2 - - - - - - (60) (58)
Underlying EBIT 33 21 (10) 74 46 (37) 10 (51) (48) 141 (19) (19) 141
Net finance costs (71)
Income tax expense (44)
Underlying earnings 26
Earnings adjustments (1,775)
Profit/(loss) after taxation (1,749)
Capital expenditure 22 8 5 9 42 111 41 7 12 15 13 (48) 237
Investments accounted for using the equity method (c) - - - - 15 - - - - - - 528 543
Total assets(c) 3,627 1,347 687 890 697 1,751 631 537 921 391 2,163 (686) 12,956
Total liabilities(c) 334 285 94 101 735 211 255 182 172 153 1,817 (686) 3,653
(a) Third party product sold comprises US$138 million for aluminium, US$50 million for freight services, US$28 million
for coal, US$11 million for alumina and US$63 million for other.
(b) Share of profit/(loss) of equity accounted investments includes the impacts of earnings adjustments to Underlying
EBIT.
(c) Total segment assets and liabilities represent operating assets and liabilities which predominately exclude the
carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.
H1 FY15 pro forma SEGMENT information
H1 FY15 Worsley Alumina South Africa Aluminium Mozal Aluminium Brazil Alumina South Africa Energy Coal Illawarra Metallurgical Coal Australia Manganese South Africa Manganese Cerro Matoso Cannington Group and unallocated items/ elimination Statutory adjustment Total South32
US$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/(loss) 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 cost(c) (88)
Income tax expense (162)
Underlying earnings 460
Earnings adjustments (121)
Profit/(loss) after taxation 339
Capital expenditure 27 10 5 5 58 180 34 22 18 14 - (56) 317
(a) Third party product sold comprises US$358 million for aluminium, US$46 million for coal and US$ nil for other.
Underlying EBIT on third party products comprises US$17 million for aluminium, US$13 million for coal and US$ nil for
other.
(b) Share of profit/(loss) 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.
NOTES
(1) Controllable costs are measured on a cash basis (including equity accounted investments) and exclude significant
items, inter-segment sales, foreign exchange rate movements, country specific inflation, price-linked costs and
discontinued/suspended operations. Any controllable cost movement is defined in absolute terms compared to H1 FY15 and is
not a measure of unit cost performance.
(2) 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.
(3) Redundancy and restructuring charges are pre-tax. These charges will be excluded from the Group's Underlying
earnings measures.
(4) The pro forma and statutory financial information reflects continuing operations and therefore excludes the
contribution of the New Mexico Coal asset.
(5) Percentage change has not been disclosed for statutory results on the basis that the variances between H1 FY16 and
H1 FY15 are substantially different due to the impact of the Internal Restructure prior to demerger. Information in respect
of the demerger is detailed in note 3 to the Financial Information.
(6) Revenue includes revenue from third party products.
(7) Pro forma H1 FY15 basic earnings per share is calculated as pro forma Profit/(loss) after taxation from continuing
operations divided by the number of shares on issue at 31 December 2014. Pro forma H1 FY15 basic Underlying earnings per
share is calculated as pro forma Underlying earnings divided by the number of shares on issue at 31 December 2015.
(8) 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/(loss) 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 operations and operational management are
assessed based on Underlying EBIT. In order to calculate Underlying earnings, Underlying EBIT and Underlying EBITDA, the
following items are adjusted as applicable each period, irrespective of materiality:
· Exchange rate gains/losses on restatement of monetary items;
· Impairment losses/reversals;
· Net gain/loss on disposal and consolidation of interests in businesses;
· Fair value gain/loss on derivative instruments;
· Major corporate restructures; and
· The income tax impact of the above items.
In addition, items that do not reflect the underlying operations of South32, and are individually significant to the
financial statements, are excluded to determine Underlying earnings. Significant items are detailed in note 4(iii) to the
Financial Information.
(9) Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product
revenue.
(10) Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product
revenue.
(11) Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as
annualised Underlying EBIT (annualised pro forma Underlying EBIT for H1 FY15) less the discount on rehabilitation
provisions included in net finance cost, tax effected by the Group's Underlying ETR, divided by the sum of fixed assets
(excluding any rehabilitation asset and other non-cash adjustments) and inventories. Manganese is included in the
calculation on a proportional consolidation basis.
(12) Underlying effective tax rate (ETR) is the Underlying income tax expense (pro forma Underlying income tax expense
for H1 FY15) excluding royalty related taxation divided by Underlying profit before tax (pro forma Underlying profit before
tax for H1 FY15); both the numerator and denominator exclude equity accounted investments.
(13) South32's interest in South Africa Energy Coal is accounted at 100% until employee share ownership plan (ESOP) and
broad-based black economic empowerment (B-BBEE) vendor loans are repaid.
(14) Projected operating unit costs, including Sustaining capital expenditure, and Sustaining capital expenditure for
FY17 include royalties (where appropriate) and the influence of exchange rate assumptions, and are predicated on: an
alumina price of US$255/t; an average blended coal price of US$65/t for Illawarra Metallurgical Coal; a manganese ore price
of US$2.00/dmtu for 44% manganese product; a nickel price of US$3.75/lb; an AUD:USD exchange rate of 0.68; a USD:ZAR
exchange rate of 14.12; and a USD:COP exchange rate of 3,170; all of which reflect forward markets at the end of the period
or our internal expectations.
(15) Underlying net finance cost and Underlying taxation expense are actual H1 FY16 results, not year-on-year variances.
(16) Third party product sold comprises US$138M for aluminium (H1 FY15: US$358M), US$50M for freight services (H1 FY15:
nil), US$28M for coal (H1 FY15: US$46M), US$11M for alumina (H1 FY15: nil) and US$63M for others (H1 FY15: nil). Underlying
EBIT on third party products for H1 FY16 was nil. H1 FY15 Underlying EBIT on third party products comprised US$17M for
aluminium, US$13M for coal and nil for other.
(17) The South32 Group acquired each of the following operations on the respective dates in parentheses: Worsley Alumina
(8 May 2015), South Africa Aluminium (2 February 2015), Mozal Aluminium (27 March 2015), Brazil Alumina (3 July 2014),
South Africa Energy Coal (2 February 2015), Australia Manganese (8 May 2015), South Africa Manganese (3 February 2015),
Cerro Matoso (2 February 2015), and Cannington (31 January 2015).
(18) The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); half year
(H1), for example first half of 2015 financial year is abbreviated to H1 FY15; financial year (FY), grams per tonne (g/t);
tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa);
thousand ounces (koz); million ounces (Moz); dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian Securities
Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE).
disclaimer
FORWARD LOOKING STATEMENTS
Certain statements in this document relate to the future, and may include forward looking statements relating to South32's
financial position; strategy; dividends; trends in commodity prices and currency exchange rates; demand for commodities;
closure or divestment of certain operations or facilities (including associated costs); anticipated production or
construction commencement dates; capital costs and scheduling; operating costs and shortages of materials and skilled
employees; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; tax and
regulatory developments.
Forward looking statements can be identified by the use of terminology such as 'intend', 'aim', 'project', 'anticipate',
'estimate', 'plan', 'believe', 'expect', 'may', 'should', 'could', 'will', 'continue' or other similar words. These forward
looking statements are not guarantees or predictions of future performance, and involve known and unknown risks,
uncertainties and other factors, many of which are beyond South32's control, and which may cause the actual results to
differ materially from those expressed in the statements contained in this document. Readers are cautioned not to put undue
reliance on forward looking statements.
Other than as required by law, none of South32, its officers or advisers or any other person gives any representation,
assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statement in this
document will actually occur, in part or in whole.
Except as required by law, South32 disclaims any obligation or undertaking to publicly update or revise any forward looking
statement in this document, whether as a result of new information or future events.
NON-IFRS FINANCIAL INFORMATION
This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and Underlying
EBITDA, Underlying basic earnings per share, Underlying effective tax rate, Underlying EBIT margin, Underlying EBITDA
margin, Underlying return on capital, Free cash flow, net debt, net operating assets and ROIC. These measures are used
internally by management to assess the performance of South32's business, make decisions on the allocation of its resources
and assess operational management. Non-IFRS measures have not been subject to audit or review and should not be considered
as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.
NO OFFER OF SECURITIES
Nothing in this release should be construed as either an offer to sell or a solicitation of an offer to buy or sell South32
securities, or be treated or relied upon as a recommendation or advice by South32.
NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA
South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial
Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice.
FURTHER INFORMATION
INVESTOR RELATIONS
Leng LauT +61 8 9324 9008M +61 (0) 408 202 698E Leng.Lau@south32.net Alex VolanteT +61 8 9324 9029M +61 (0) 403 328 408E Alex.Volante@south32.net Rob WardT +61 8 9324 9340M +61 (0) 431 596 831E Robert.Ward@south32.net
MEDIA RELATIONS
Jill Thomas T +61 8 9324 9191M +61 (0) 423 259 190E Jill.Thomas@south32.net Tony Johnson
T +61 8 9324 9190M +61 (0) 439 500 799E Tony.Johnson@south32.net
Further information on South32 can be found at www.south32.net.
JSE Sponsor: UBS South Africa (Pty) Ltd
25 February 2016
South32 Limited (ABN 84 093 732 597)
Registered in Australia
Registered Office: Level 35, 108 St Georges Terrace
Perth Western Australia 6000 Australia
SOUTH32 FINANCIAL INFORMATION
For the half year ended 31 December 2015
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2015
US$M Note H1 FY16 H1 FY15
Continuing operations
Revenue
Group production 2,691 641
Third party products 290 8
2,981 649
Other income 122 114
Expenses excluding net finance cost (4,334) (676)
Share of profit/(loss) of equity accounted investments (356) -
Profit/(loss) from continuing operations (1,587) 87
Comprising:
Group production (1,587) 88
Third party products - (1)
Profit/(loss) from continuing operations (1,587) 87
Finance expenses (57) (34)
Finance income 12 10
Net finance cost 7 (45) (24)
Profit/(loss) before taxation (1,632) 63
Income tax (expense)/benefit (117) (57)
Royalty-related taxation (net of income tax) - (96)
Total tax (expense)/benefit 5 (117) (153)
Profit/(loss) after taxation from continuing operations (1,749) (90)
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