DECEMBER 2014 HY PRO FORMA FINANCIAL INFORMATION

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     [phone] M    [phone] E     [e-mail]	Susie Bath T     [phone] M    [phone] E     [e-mail]	Paul Formosa T     [phone] M    [phone] E     [e-mail]
MEDIA RELATIONS
Jill Thomas          T      [phone] M     [phone] E     [e-mail]

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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