Financial Results & Outlook Half Year 31 Dec 2016

RNS Number : 0230X
South32 Limited
16 February 2017
 

16 February 2017                                                                                                                              

 

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

South32 delivers strong financial results and announces first interim dividend

"The disciplined application of our strategy and stronger commodity prices underpinned a significant improvement in financial performance. We generated free cash flow of US$626M for a net cash position of US$859M as we further optimised our operations and benefitted from our operating leverage.

"We continue to unlock value through the accelerated development of La Esmeralda, the progression of the Klipspruit Life Extension project towards a final investment decision, the completion of the West Marradong mining access agreement and the commencement of exploration in the Southern Areas at GEMCO.

"The proposed US$200M acquisition of the Metropolitan Colliery is expected to create additional value and realise unique synergies with Illawarra Metallurgical Coal.

"Our strong balance sheet and simple capital management framework is designed to reward shareholders as financial performance improves. We have declared our first interim dividend of US$192M and will continue to manage our financial position to ensure we retain the right balance of flexibility and efficiency."

Graham Kerr, South32 CEO

 

 

 

 

Financial highlights

 

 

 

US$M

H1 FY17

H1 FY16

% Change

Revenue(1)

3,221

2,981

8%

Profit/(loss) from continuing operations

857

(1,587)

N/A

Profit/(loss) after taxation

620

(1,749)

N/A

Basic earnings per share (US cents)(2)

11.7

(32.9)

N/A

Ordinary dividend per share (US cents)(3)

3.6

-

N/A

Other financial measures

 

 

 

Underlying EBITDA(4)

1,064

542

96%

Underlying EBITDA margin(5)

36.7%

20.1%

83%

Underlying EBIT(4)

691

141

390%

Underlying EBIT margin(6)

23.7%

5.2%

356%

Underlying earnings(4)

479

26

1,742%

Basic Underlying earnings per share (US cents)(2)

9.0

0.5

1,699%

ROIC(7)

9.2%

1.4%

557%

 

 

Worsley Alumina
(86% SHARE)

Volumes

Worsley Alumina saleable production decreased by 3% (or 53kt) to 1.9Mt in H1 FY17. Hydrate production remained at an annualised rate of 4.5Mt (100% basis) and FY17 saleable alumina production guidance remains unchanged at 4.0Mt.

FY18 saleable alumina production guidance is unchanged with the refinery expected to produce at its nameplate capacity of 4.6Mt (100% basis).

Costs

Operating unit costs decreased by 12% to US$200/t in H1 FY17 despite a stronger Australian dollar. Reduced employee and contractor numbers and procurement savings, including lower energy costs and contractor rates, contributed to the improvement in unit costs.

We have restated FY17 Operating unit costs, including Sustaining capital expenditure guidance to US$218/t in FY17 (FY16: US$221/t) to reflect updated exchange rate and price-linked royalty assumptions and a minor increase in costs. This includes Sustaining capital expenditure of US$59M as additional investment is directed towards water infrastructure in H2 FY17. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14.

Financial performance

Underlying EBIT declined by US$7M in H1 FY17 to US$26M. Lower average realised alumina prices (-US$32M, net of price-linked costs), a stronger Australian dollar (-US$10M) and a US$44M reduction in controllable costs had the most significant influence on financial performance.

Capital expenditure decreased by 14% to US$19M in H1 FY17.

 

South32 share

H1 FY17

H1 FY16

Alumina production (kt)

1,940

1,993

Alumina sales (kt)

1,909

1,898

Realised alumina sales price (US$/t)(a)

258

285

Operating unit cost (US$/t)(b)

200

228

(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 FY17

H1 FY16

Revenue

492

540

Underlying EBITDA

110

108

Underlying EBIT

26

33

Net operating assets/(liabilities)(a)

3,186

3,208

Capital expenditure

19

22

Major projects (>US$100M)

-

-

All other capital expenditure

19

22

Exploration expenditure

-

-

Exploration expensed

-

-

(a)    H1 FY16 reflects balance as at 30 June 2016.


 

 

South Africa Aluminium
(100%)

Volumes

South Africa Aluminium saleable production increased by 1% (or 4kt) to 356kt in H1 FY17 as the smelter continued to operate at benchmark levels of current efficiency, with fewer load-shedding events. Strong performance also reflected the recommencement of production in the 22 pots that were suspended in the September 2015 quarter.

Costs

Operating unit costs decreased by 8% to US$1,380/t in H1 FY17. The combination of lower raw material prices and a weaker South African rand offset higher aluminium price-linked power costs and the impact of lower sales. A total of 50 pots were relined across H1 FY17 at a cost of approximately US$211k per pot (H1 FY16: 66 pots at US$204k per pot). 72 pots are scheduled to be relined in FY17.

While additional productivity gains are being pursued, the cost profile of the smelter will be more heavily influenced by power and raw material inputs, given the operation's high variable cost base. Hillside sources power from Eskom under long-term contracts. The price of electricity supplied to potlines 1 and 2 is linked to the LME aluminium price and the South African rand/US dollar exchange rate. The price of electricity supplied to potline 3 is South African rand based and linked to South African and United States producer price indices.

Financial performance

Underlying EBIT increased by US$69M in H1 FY17 to US$90M. The combination of higher average realised aluminium prices and premia and lower raw material costs increased Underlying EBIT by US$80M, net of other price-linked costs. The impact of lower sales volumes (-US$28M) was offset by inventory movements that contributed to a total controllable cost reduction of US$19M.

Capital expenditure decreased by 25% to US$6M in H1 FY17.

 

South32 share

H1 FY17

H1 FY16

Aluminium production (kt)

356

352

Aluminium sales (kt)(a)

347

363

Realised sales price (US$/t)(a)

1,732

1,642

Operating unit cost (US$/t)(b)

1,380

1,496

(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 FY17

H1 FY16

Revenue

601

596

Underlying EBITDA

122

53

Underlying EBIT

90

21

Net operating assets/(liabilities)(a)

1,243

1,059

Capital expenditure

6

8

Major projects (>US$100M)

-

-

All other capital expenditure

6

8

Exploration expenditure

-

-

Exploration expensed

-

-

(a)    H1 FY16 reflects balance as at 30 June 2016.

 

 

 

Mozal ALUMINIUM
(47.1% SHARE)

Volumes

Mozal Aluminium saleable production increased by 2% (or 3kt) to 136kt in H1 FY17 as current efficiency continued to improve and the operation experienced fewer load-shedding events. The 11% increase in sales reflects the timing of shipments between periods.

Costs

Operating unit costs decreased by 12% to US$1,448/t in H1 FY17 reflecting stronger sales and lower raw materials prices. A total of 39 pots were relined across H1 FY17 at a cost of approximately US$193k per pot (H1 FY16: 69 pots at US$212k per pot). 106 pots are now scheduled to be relined in FY17.

While additional productivity gains are being pursued, the cost profile of the smelter will be more heavily influenced by power and raw material inputs, given the operation's high variable cost base. Mozal Aluminium utilises hydroelectric power under a long-term contract that is generated by Hidroeléctrica de Cahora Bassa (HCB). HCB delivers power into the South African grid to Eskom and Mozal Aluminium sources the power via the Mozambique Transmission Company (Motraco).

Financial performance

Underlying EBIT increased by US$35M in H1 FY17 to US$25M. The combination of higher average realised aluminium prices and premia and lower raw material costs increased Underlying EBIT by US$23M, net of other price-linked costs. The benefit of higher sales volumes (+US$21M) was partially offset by an unfavourable year-on-year movement in inventory that contributed to a net controllable cost increase of US$12M. A favourable exchange rate impact (+US$8M) was offset by inflation (-US$6M).

Capital expenditure decreased by 40% to US$3M in H1 FY17.

 

South32 share

H1 FY17

H1 FY16

Aluminium production (kt)

136

133

Aluminium sales (kt)(a)

134

121

Realised sales price (US$/t)(a)

1,776

1,719

Operating unit cost (US$/t)(b)

1,448

1,653

(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 FY17

H1 FY16

Revenue

238

208

Underlying EBITDA

44

8

Underlying EBIT

25

(10)

Net operating assets/(liabilities)(a)

561

565

Capital expenditure

3

5

Major projects (>US$100M)

-

-

All other capital expenditure

3

5

Exploration expenditure

-

-

Exploration expensed

-

-

(a)    H1 FY16 reflects balance as at 30 June 2016.

 

 

Brazil ALUMINA
(ALUMINA 36% SHARE, ALUMINIUM
40% SHARE)

Volumes

Brazil Alumina saleable production remained unchanged in H1 FY17 at 673kt as planned maintenance at the refinery and port in the September 2016 quarter was offset by record production in the December 2016 quarter. FY17 saleable alumina production guidance remains unchanged at 1.32Mt, with a small increase in production anticipated in FY18.

Costs

Alumina operating unit costs at the non-operated refinery increased by 5% to US$194/t in H1 FY17 as the Brazilian real strengthened and sales volumes declined.

Financial performance

Underlying EBIT decreased by US$64M in H1 FY17 to US$10M as the contribution of power sales declined by US$57M in the period.

In H1 FY16 we terminated the power supply contract with Eletronorte and in H2 FY16 recorded an onerous contract provision to reflect anticipated future losses associated with the remaining power supply commitments across FY17 and FY18.

Within the alumina supply chain, Underlying EBIT decreased by US$24M to US$12M. Lower average realised alumina prices (-US$7M, net of price-linked costs), weaker sales volumes (-US$6M) and the stronger Brazilian real (-US$6M) led to the decline in profitability.

Capital expenditure at the refinery increased by 44% to US$13M in H1 FY17.

 

South32 share

H1 FY17

H1 FY16

Alumina production (kt)

673

673

Alumina sales (kt)

638

661

Realised alumina sales price (US$/t)(a)

257

281

Alumina operating unit cost (US$/t)(b)(c)

194

185

(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 from Mineração Rio do Norte S.A.

 

South32 share (US$M)

H1 FY17

H1 FY16

Revenue

164

186

Alumina

164

186

Aluminium

-

-

Intra-segment elimination

-

-

Other income(a)

86

105

Underlying EBITDA

38

110

Alumina

40

64

Aluminium

(2)

46

Underlying EBIT

10

74

Alumina

12

36

Aluminium

(2)

38

Net operating assets/(liabilities)(b)

662

707

Alumina

722

737

Aluminium

(60)

(30)

Capital expenditure

13

9

Major projects (>US$100M)

-

-

All other capital expenditure

13

9

Exploration expenditure

-

-

Exploration expensed

-

-

(a)    Other income in H1 FY17 includes revenue of US$84M from the sale of surplus electricity (H1 FY16: US$99M). This revenue was offset by electricity purchases from Eletronorte and the unwind of the onerous contract provision recorded in FY16.

(b)    H1 FY16 reflects balance as at 30 June 2016.

 

South Africa Energy Coal
(92% SHARE)

Volumes

South Africa Energy Coal saleable production decreased by 9% (or 1.6Mt) to 14.8Mt in H1 FY17. The decline in production reflects the prior suspension of the North Plant at the Wolvekrans Middelburg Complex (WMC), scheduled maintenance and the repositioning of draglines. Export sales were also impacted by Transnet's annual rail maintenance cycle.

Total coal production guidance for FY17 and FY18 is unchanged and will benefit from additional capital investment at the Wolvekrans Middelburg Complex that will open up new mining areas. FY17 saleable coal production guidance is 30.9Mt (domestic coal 17.0Mt, export coal 13.9Mt).

Costs

Operating unit costs increased by 4% to US$26/t in H1 FY17 largely as a result of lower sales volumes for both domestic and export coal. This impact was partially offset by a favourable movement in inventory and a weaker South African rand.

We have restated FY17 Operating unit costs, including Sustaining capital expenditure guidance to US$30/t in FY17 (FY16: US$27/t) to reflect updated exchange rate and price-linked royalty assumptions. This includes Sustaining capital expenditure of US$75M as additional investment is directed towards the Wolvekrans Middelburg Complex in H2 FY17. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14. 

Financial performance

Underlying EBIT increased by US$82M in H1 FY17 to US$128M. Higher average realised coal prices increased Underlying EBIT by US$100M, net of price-linked costs, but were partially offset by lower sales volumes (net -US$73M). Non-cash charges declined by US$46M as depreciation and amortisation was rebased following the prior recognition of impairments.

Sustaining capital expenditure decreased by 40% to US$25M in H1 FY17 following the purchase of mobile equipment in the prior period. We expect Major project capital expenditure of approximately US$30M in FY17 to fund study costs and the acquisition of land in preparation for our Klipspruit Life Extension project. A final investment decision is scheduled for the June 2017 quarter. Major project capital expenditure is excluded from our unit cost guidance.

 

 

100 per cent terms(a)

H1 FY17

H1 FY16

Energy coal production (kt)

14,825

16,379

Domestic sales (kt)(b)

8,918

9,080

Export sales (kt)(b)

5,856

8,021

Realised domestic sales price (US$/t)(b)

19

19

Realised export sales price (US$/t)(b)

63

46

Operating unit cost (US$/t)(c)

26

25

(c)    South32's interest in South Africa Energy Coal is accounted at 100% until B-BBEE vendor loans are repaid.

(d)    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.

(e)    Operating unit cost is Revenue less Underlying EBITDA divided by sales volume.

 

100 per cent terms(a) (US$M)

H1 FY17

H1 FY16

Revenue(b)

539

542

Underlying EBITDA

152

116

Underlying EBIT

128

46

Net operating assets/(liabilities)(c)

(81)

(99)

Capital expenditure

27

42

Major projects (>US$100M)

2

-

All other capital expenditure

25

42

Exploration expenditure

-

-

Exploration expensed

-

-

(a)    South32's interest in South Africa Energy Coal is accounted at 100% until B-BBEE vendor loans are repaid.

(b)    Includes domestic and export sales revenue.

(c)    H1 FY16 reflects balance as at 30 June 2016

 

Illawarra Metallurgical Coal
(100%)

Volumes

Illawarra Metallurgical Coal saleable production decreased by 6% (or 243kt) to 3.7Mt in H1 FY17. The decline in production primarily reflected challenging ground conditions at Appin Area 9 and a moderation of mining rates at Appin Area 7 that ensured gas concentrations were maintained at safe levels. These impacts were partially offset by strong operating performance at Dendrobium. Consistent with our recent update, Illawarra Metallurgical Coal sales of 8.1Mt are expected in FY17 as Appin Area 7 has returned to full capacity and Appin Area 9 has recommenced production, as planned.

With the completion of the 901 panel and associated release of ground stresses, longwall availability and cutting rates are anticipated to improve in subsequent longwall panels. The lower production rate in FY17 has, however, impacted the timing of longwall panel extraction and production guidance for FY18 has been revised accordingly.

Restated FY17 production guidance incorporates a longwall move for each of the March and June 2017 quarters.

Costs

Operating unit costs increased by 19% to US$75/t in H1 FY17 as a result of lower sales and the operation's high proportion of fixed costs. Additional cost pressure stemmed from a stronger Australian dollar, inflation and higher price-linked royalties.

We have restated Operating unit costs, including Sustaining capital expenditure guidance to US$90/t (FY16: US$80/t) to reflect updated exchange rate and price-linked royalty assumptions. This includes Sustaining capital expenditure of US$129M, encompassing underground mine development of US$69M. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14.

Financial performance

Underlying EBIT increased by US$146M in H1 FY17 to US$109M. The benefit of higher average realised coal prices (+US$193M, net of price-linked costs) was partially offset by a decline in sales volumes (-US$20M) and a stronger Australian dollar (-US$10M). Our average realised price for H1 FY17 was impacted by a carry over shipment in December 2016 that was associated with our prior declaration of force majeure. Another carry over shipment is scheduled for H2 FY17.

Capital expenditure decreased by 51% to US$54M in H1 FY17 following the completion of the Appin Area 9 project in the March 2016 quarter. Capital expenditure included underground development of approximately US$29M.

 

South32 share

H1 FY17

H1 FY16

Metallurgical coal production (kt)

2,829

3,298

Energy coal production (kt)

884

658

Metallurgical coal sales (kt)

2,788

3,132

Energy coal sales (kt)

817

609

Realised metallurgical coal sales price (US$/t)(a)

151

82

Realised energy coal sales price (US$/t)(a)

62

43

Operating unit cost (US$/t)(b)

75

63

(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 FY17

H1 FY16

Revenue(a)

471

284

Underlying EBITDA

202

50

Underlying EBIT

109

(37)

Net operating assets/(liabilities)(b)

1,514

1,516

Capital expenditure

54

111

Major projects (>US$100M)

6

26

All other capital expenditure

48

85

Exploration expenditure

2

1

Exploration expensed

2

1

(a)    Includes metallurgical coal and energy coal sales revenue.

(b)    H1 FY16 reflects balance as at 30 June 2016.

 

Australia Manganese
(60% SHARE)

Volumes

Australia Manganese saleable ore production in H1 FY17 decreased by 6% (or 90kwmt) from the prior period's record rate to 1.5Mwmt as lower yields and reduced plant availability resulted in lower production from the primary high grade circuit. This impact was partially offset by the opportunistic ramp-up of the Premium Concentrate ore (PC02) circuit to its annualised capacity of 500kwmt in the December 2016 quarter.

FY17 production guidance of 3.1Mwmt remains unchanged, albeit with a greater proportion of PC02 product. The share of PC02 product in H1 FY17 production was 5% (H1 FY16: Nil). Our PC02 fines product has a manganese content of approximately 40% which leads to both grade and product-type discounts when referenced to the high grade 44% manganese lump ore index.

Saleable manganese alloy production decreased by 8% (or 7kt) to 78kt in H1 FY17 as furnace instability impacted performance. All four furnaces are expected to operate at full capacity once scheduled maintenance is completed in the March 2017 quarter.

Costs

FOB manganese ore operating unit costs increased by 10% to US$1.44/dmtu in H1 FY17 as a result of a stronger Australian dollar and higher price-linked royalties.

We have restated FY17 Operating unit costs, including Sustaining capital expenditure guidance to US$1.72/dmtu (FY16: US$1.88/dmtu FOB) to reflect updated exchange rate and price-linked royalty assumptions and the greater proportion of lower cost PC02 product. The strip ratio is now expected to increase to 3.5 from 3.3 in FY16. Cost guidance includes Sustaining capital expenditure of US$31M. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14.

Financial performance

Underlying EBIT increased by US$197M in H1 FY17 to US$207M. Higher average realised manganese ore and alloy prices increased Underlying EBIT by US$159M, net of price-linked costs. The impacts of a stronger Australian dollar and inflation decreased Underlying EBIT by US$6M. Non-cash charges declined by US$36M as depreciation and amortisation was rebased following the prior recognition of impairments. Our average realised price for external ore sales reflected a modest premium to the high grade 44% manganese lump ore index on an M-1 basis, despite the greater proportion of PC02 product.

Capital expenditure decreased by US$26M to US$15M in H1 FY17 following the completion of the PC02 project. Exploration drilling at GEMCO's Southern Areas commenced in the December 2016 quarter.

 

South32 share

H1 FY17

H1 FY16

Manganese ore production (kwmt)

1,499

1,589

Manganese alloy production (kwmt)

78

85

Manganese ore sales (kwmt)(a)

1,500

1,457

External customers

1,362

1,286

TEMCO

138

171

Manganese alloy sales (kt)(a)

82

76

Realised external manganese ore sales price (US$/dmtu, FOB)(a)(b)

4.91

2.51

Realised manganese alloy sales price (US$/t)(a)

988

868

Ore operating unit cost (US$/dmtu)(b)(c)

1.44

1.31

Alloy operating unit cost (US$/t)(b)(c)

720

882

(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 FY17 average manganese content of ore sales was 46.4% on a dry basis (H1 FY16: 47.6%). 95% of H1 FY17 external manganese ore sales (H1 FY16: 91%) were completed on a CIF basis. H1 FY17 realised FOB ore prices and operating unit costs have been adjusted for freight and marketing costs of US$13M (H1 FY16: 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 costs is Revenue less Underlying EBITDA divided by alloy sales volumes and includes costs associated with sinter sold externally.

 

South32 share (US$M)

H1 FY17

H1 FY16

Revenue(a)

390

226

Manganese Ore

320

173

Manganese Alloy

81

66

Intra-segment elimination

(11)

(13)

Underlying EBITDA

233

72

Manganese Ore

211

73

Manganese Alloy

22

(1)

Underlying EBIT

207

10

Manganese Ore

187

15

Manganese Alloy

20

(5)

Net operating assets/(liabilities)(b)

357

341

Manganese Ore

369

338

Manganese Alloy

(12)

3

Capital expenditure

15

41

Major projects (>US$100M)

-

-

All other capital expenditure

15

41

Exploration expenditure

1

-

Exploration expensed

-

-

(a)    Revenues of sales from GEMCO to TEMCO are eliminated as part of the consolidation. Internal sales occur on a commercial basis.

(b)    H1 FY16 reflects balance as at 30 June 2016.

 

South Africa Manganese
(ORE 44.4% SHARE, ALLOY 60% SHARE)

Volumes

South Africa Manganese saleable ore production increased by 23% (or 177kwmt) to 934kwmt in H1 FY17 as market conditions supported a drawdown of Wessels concentrate stockpiles and the use of higher cost trucking to access export opportunities. Wessels concentrate accounted for 15% of H1 FY17 external sales (H1 FY16: 4%). South Africa Manganese ore production will remain configured for an optimised rate of 2.9Mwmt pa (100% basis), although we will continue to act opportunistically when market fundamentals are supportive.

Manganese alloy saleable production decreased by 20% (or 9kt) to 37kt in H1 FY17 as a result of furnace instability. Metalloys continues to operate one of its four furnaces.

Costs

FOB manganese ore operating unit costs decreased by 13% to US$1.96/dmtu in H1 FY17. The benefit of a weaker South African rand was partially offset by higher price-linked royalties and the impact of inflation. The drawdown of low cost Wessels concentrate stockpiles offset the costs absorbed to opportunistically increase trucking of ore to port.

We have restated FOB Operating unit costs, including Sustaining capital expenditure guidance to US$2.20/dmtu in FY17 (FY16: US$2.01/dmtu FOB) to reflect updated exchange rate and price-linked royalty assumptions. This includes Sustaining capital expenditure of US$9M. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14.

Financial performance

Underlying EBIT increased by US$97M in H1 FY17 to US$46M as higher average realised manganese ore and alloy prices increased Underlying EBIT by US$66M, net of price-linked costs. Our average realised price for external sales reflects a 12% discount to the medium grade 37% manganese lump ore index on an M-1 basis as our Wessels concentrate is a fine grained product. Non-cash charges declined by US$8M as depreciation and amortisation was rebased following the prior recognition of impairments.

Capital expenditure decreased to US$4M in H1 FY17. The Wessels Central Block project remains on track to be completed in the March 2017 quarter.

 

South32 share

H1 FY17

H1 FY16

Manganese ore production (kwmt)

934

757

Manganese alloy production (kwmt)

37

46

Manganese ore sales (kwmt)(a)

928

879

External customers

859

862

Metalloys

69

17

Manganese alloy sales (kt)(a)

40

50

Realised external manganese ore sales price (US$/dmtu, FOB)(a)(b)

3.87

2.00

Realised manganese alloy sales price (US$/t)(a)

875

740

Ore operating unit cost (US$/dmtu)(b)(c)

1.96

2.24

Alloy operating unit cost (US$/t)(b)(c)

925

1,120

(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 FY17 average manganese content of ore sales was 40.3% on a dry basis (H1 FY16: 40.1%). 61% of H1 FY17 external manganese ore sales (H1 FY16: 54%) were completed on a CIF basis. H1 FY17 realised FOB ore prices and operating costs have been adjusted for freight and marketing costs of US$10M (H1 FY16: US$9M), consistent with our FOB cost guidance.

(c)    FOB ore operating unit cost is Revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. Alloy operating unit costs is Revenue less Underlying EBITDA divided by alloy sales volumes.

 

South32 share (US$M)

H1 FY17

H1 FY16

Revenue(a)

175

114

Manganese Ore(b)

145

78

Manganese Alloy

35

37

Intra-segment elimination

(5)

(1)

Underlying EBITDA

61

(28)

Manganese Ore(b)

63

(9)

Manganese Alloy

(2)

(19)

Underlying EBIT

46

(51)

Manganese Ore(b)

54

(25)

Manganese Alloy

(8)

(26)

Net operating assets/(liabilities)(c)

337

342

Manganese Ore(b)

263

258

Manganese Alloy

74

84

Capital expenditure

4

7

Major projects (>US$100M)

-

-

All other capital expenditure

4

7

Exploration expenditure

-

-

Exploration expensed

-

-

(a)    Revenues of sales from Hotazel mines to Metalloys are eliminated as part of the consolidation. Internal sales occur on a commercial basis.

(b)    Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. The group's financial statement will continue to reflect a 54.6% interest in South Africa Manganese ore.

(c)    H1 FY16 reflects balance as at 30 June 2016.

 

Cerro Matoso
(99.9% SHARE)

Volumes

Cerro Matoso payable nickel production remained largely unchanged at 17.7kt in H1 FY17 as plant performance was further optimised and higher recoveries were achieved.

Payable nickel production guidance for Cerro Matoso remains unchanged at approximately 36kt for FY17. Accelerated development of the higher grade La Esmeralda Mineral Resource will increase production by 16% in FY18 to approximately 42kt. Production from La Esmeralda is now expected to commence in the June 2017 quarter.

Costs

Operating unit costs decreased by 14% to US$3.81/lb in H1 FY17. Modest inflationary pressure was more than offset by lower electricity costs, a reduction in contract services and lower raw material consumption rates.

We have restated FY17 Operating unit costs, including Sustaining capital expenditure guidance to US$3.98/lb
(FY16: US$4.30/lb) to reflect updated exchange rate and price-linked royalty assumptions. This includes Sustaining capital expenditure of US$16M. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14.

Financial performance

Underlying EBIT increased by US$44M in H1 FY17 to a loss of US$4M as higher average realised prices (+US$21M, net of price-linked costs) and embedded cost saving initiatives (+US$22M) underpinned an improvement in financial performance.

Capital expenditure of US$4M was 67% lower than the prior period.

 

South32 share

H1 FY17

H1 FY16

Ore mined (kwmt)

2,347

3,017

Ore processed (kdmt)

1,289

1,312

Ore grade processed (%, Ni)

1.5

1.5

Payable nickel production (kt)

17.7

17.5

Payable nickel sales (kt)

17.6

17.5

Realised nickel sales price (US$/lb)(a)

4.85

4.30

Operating unit cost (US$/lb)(b)

3.81

4.43

(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 FY17

H1 FY16

Revenue

188

166

Underlying EBITDA

40

(5)

Underlying EBIT

(4)

(48)

Net operating assets/(liabilities)(a)

647

683

Capital expenditure

4

12

Major projects (>US$100M)

-

-

All other capital expenditure

4

12

Exploration expenditure

2

3

Exploration expensed

2

1

(a)    H1 FY16 reflects balance as at 30 June 2016.

 

Cannington
(100% SHARE)

Volumes

Payable zinc production increased by 1% (or 0.3kt) to 42.1kt in H1 FY17, while payable silver and lead production decreased by 27% and 24%, respectively. Lower silver and lead ore grades were the primary contributors to the reduction in metal production.

 

The optimised longer term mine plan at Cannington seeks to maximise total silver, lead and zinc extraction across the remaining years of the underground operation and reduce geotechnical risk. FY17 production guidance (silver 19.05Moz, lead 163kt, zinc 80kt) remains predicated on the extraction of the higher grade (silver/lead) 60L stope that is in close proximity to the existing underground crusher chamber, while the development of the replacement underground crusher is expected to be commissioned in the March 2018 quarter. Guidance will be revised should geotechnical conditions dictate a change to the current stope sequence and the extraction of the 60L stope be deferred, albeit with no net loss of metal production in the forward plan.

Costs

Operating unit costs declined by 10% to US$131/t of ore processed in H1 FY17 as the impact of a stronger Australian dollar was more than offset by lower labour and contractor costs and a decline in haulage rates.

We have restated Operating unit costs, including Sustaining capital expenditure guidance to US$141/t of ore processed (FY16: US$153/t) to reflect updated exchange rate and price-linked royalty assumptions and incremental cost savings. This includes Sustaining capital expenditure of US$39M. Revised exchange rate and price assumptions for our FY17 unit cost targets are detailed on page 27, footnote 14.

Financial performance

Underlying EBIT increased by US$12M in H1 FY17 to US$165M. Higher average realised prices increased Underlying EBIT by US$105M, net of price-linked costs, although this impact was offset by a US$104M reduction in sales volumes, as lower grades impacted payable metal production. Controllable cost savings (+US$26M), which benefitted from a favourable movement in inventory, more than offset the impact of a stronger Australian dollar (-US$6M).

Finalisation adjustments and the provisional pricing of Cannington concentrates increased Underlying EBIT by US$0.5M in H1 FY17 (-US$11M in FY16; -US$19M in H1 FY16). Outstanding concentrate sales (containing 2Moz of silver, 25kt of lead and 12kt of zinc) were revalued at 31 December 2016. The final price of these sales will be determined in H2 FY17.

Capital expenditure of US$18M was 20% higher than the prior period.

South32 share

H1 FY17

H1 FY16

Ore mined (kt)

1,639

1,743

Ore processed (kt)

1,669

1,657

Ore grade processed (g/t, Ag)

198

266

Ore grade processed (%, Pb)

5.5

7.0

Ore grade processed (%, Zn)

3.7

3.7

Payable silver production (koz)

8,729

11,878

Payable lead production (kt)

73.9

97.5

Payable zinc production (kt)

42.1

41.8

Payable silver sales (koz)

8,860

11,898

Payable lead sales (kt)

73.3

95.5

Payable zinc sales (kt)

40.8

41.2

Realised silver sales price (US$/oz)(a)

17.4

15.3

Realised lead sales price (US$/t)(a)

2,128

1,817

Realised zinc sales price (US$/t)(a)

2,475

1,641

Operating unit cost (US$/t ore processed)(b)

131

146

(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 FY17

H1 FY16

Revenue

412

423

Underlying EBITDA

194

181

Underlying EBIT

165

153

Net operating assets/(liabilities)(a)

227

242

Capital expenditure

18

15

Major project (>US$100M)

-

-

All other capital expenditure

18

15

Exploration expenditure

1

2

Exploration expensed

1

2

(a)    H1 FY16 reflects balance as at 30 June 2016.

 

NOTES

(1)    Revenue includes revenue from third party products.

(2)    H1 FY17 basic earnings per share is calculated as Profit/(loss) after taxation from continuing operations 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. H1 FY16 basic earnings per share is calculated as Profit/(loss) after taxation from continuing operations divided by the weighted average number of shares for H1 FY16 (5,324 million). H1 FY16 basic Underlying earnings per share is calculated as Underlying earnings divided by the weighted average number of shares for H1 FY16.

(3)    H1 FY17 dividend per share is calculated as total dividend (US$192M) divided by the number of shares on issue at 31 December 2016 (5,324 million).

(4)    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 the Financial Information.

(5)    Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue.

(6)    Comprises Underlying EBIT excluding third party product EBIT, divided by revenue excluding third party product revenue.

(7)    Return on invested capital (ROIC) is a key measure that South32 uses to assess performance. ROIC is calculated as 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.

(8)    Refer to exchange release dated 3 November 2016.

(9)    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.

(10)   South32's ownership share of operations are as follows: Worsley Alumina (86%), South Africa Aluminium (100%), Mozal Aluminium (47.1% share), Brazil Alumina (Alumina 36% share, Aluminium 40% share), South Africa Energy Coal (92% share), Illawarra Metallurgical Coal (100%), Australia Manganese (60% share), South Africa Manganese (60% share), Cerro Matoso (99.9% share), and Cannington (100%).

(11)   South32's interest in South Africa Energy Coal is accounted at 100% broad-based black economic empowerment (B-BBEE) vendor loans are repaid.

(12)   Operating unit cost, including Sustaining capital expenditure is operating cost plus Sustaining capital expenditure (excludes Major Project capital expenditure) divided by sales. Operating cost is Revenue less Underlying EBITDA. Additional manganese disclosures are included on pages 23 and 24.

(13)   Prior FY17 Operating unit cost guidance, including Sustaining capital expenditure, and Sustaining capital expenditure guidance, include royalties (where appropriate) and the influence of exchange rate assumptions, and were predicated on: an alumina price of US$259/t; an average blended coal price of US$83/t for Illawarra Metallurgical Coal; a manganese ore price of US$3.23/dmtu for 44% manganese product; a nickel price of US$3.95/lb; a thermal coal price of US$54/t (API4) for South Africa Energy Coal; a silver price of US$17.50/troy oz; a lead price of US$1,723/t; a zinc price of US$1,907/t; an AUD:USD exchange rate of 0.72; a USD:ZAR exchange rate of 16.57; and a USD:COP exchange rate of 3,025; all of which reflected forward markets as at May 2016 or our internal expectations.

(14)   New FY17 Operating unit cost guidance, including Sustaining capital expenditure, and Sustaining capital expenditure guidance, include royalties (where appropriate) and the influence of exchange rates, and are predicated on various assumptions for H2 FY17, including: an alumina price of US$316/t; an average blended coal price of US$146/t for Illawarra Metallurgical Coal; a manganese ore price of US$6.79/dmtu for 44% manganese product; a nickel price of US$4.65/lb; a thermal coal price of US$84/t (API4) for South Africa Energy Coal; a silver price of US$17.04/troy oz; a lead price of US$2,267/t; a zinc price of US$2,746/t; an AUD:USD exchange rate of 0.75; a USD:ZAR exchange rate of 14.20; and a USD:COP exchange rate of 2,943; all of which reflected forward markets as at January 2017 or our internal expectations.

(15)   FY17 Capital expenditure guidance is predicated on forward markets as at January 2017, or our internal expectations, for H2 FY17, including: an AUD:USD exchange rate of 0.75; a USD:ZAR exchange rate of 14.20; and a USD:COP exchange rate of 2,943.

(16)   Underlying effective tax rate (ETR) is Underlying income tax expense excluding royalty related taxation divided by Underlying profit before tax; both the numerator and denominator exclude equity accounted investments.

(17)   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. 

(18)   Underlying net finance cost and Underlying taxation expense are actual H1 FY17 results, not year-on-year variances.

(19)   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.

 

The following abbreviations may be used throughout this report: US$ million (US$M); US$ billion (US$B); December half year is abbreviated to H1 FY17, grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); thousand troy ounces (koz); million troy ounces (Moz); thousand wet metric tonnes (kwmt); thousand dry metric tonnes (kdmt) dry metric tonne unit (dmtu); pound (lb); megawatt (MW); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE)

.
 

CONSOLIDATED INCOME STATEMENT

for the half year ended 31 December 2016

 

US$M

 

Note

 

H1 FY17

 

H1 FY16

Continuing operations

 

 

 

Revenue

 

 

 

   Group production

 

2,873

2,691

   Third party products

 

348

290

 

 

3,221

2,981

Other income

 

142

167

Expenses excluding net finance cost

 

(2,670)

(4,379)

Share of profit/(loss) of equity accounted investments

 

164

(356)

Profit/(loss) from continuing operations

 

857

(1,587)

Comprising:

 

 

 

   Group production

 

846

(1,587)

   Third party products

 

11

 -

Profit/(loss) from continuing operations

 

857

(1,587)

Finance expenses

 

(77)

(57)

Finance income

 

17

12

Net finance cost

6

(60)

(45)

Profit/(loss) before tax

 

797

(1,632)

Income tax (expense)/benefit

 

(177)

(117)

Profit/(loss) after tax from continuing operations

 

620

(1,749)

 

 

 

 

Attributable to:

 

 

 

Equity holders of South32 Limited

 

620

(1,749)

 

 

 

 

Profit/(loss) from continuing operations attributable to the equity holders of South32 Limited

 

 

 

Basic earnings per share (US cents)

5

11.7

(32.9)

Diluted earnings per share (US cents)

5

11.5

(32.9)

 

The accompanying notes form part of the half year financial statements. 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 31 December 2016

 

US$M

 

 

 

H1 FY17

 

H1 FY16

Profit/(loss) for the period

 

620

(1,749)

Other comprehensive income

 

 

 

Items that may be reclassified to the income statement:

 

 

 

Available for sale investments:

 

 

 

   Net gain/(loss) taken to equity

 

(1)

(28)

   Net (gain)/loss transferred to the income statement

 

 -

23

   Tax benefit/(expense) recognised within other comprehensive income

 

2

5

Total items that may be reclassified to the income statement

 

1

-

Items not to be reclassified to the income statement:

 

 

 

Equity accounted investments - share of other comprehensive income/(loss)

 

 -

1

Actuarial gain/(loss) on pension and medical schemes

 

2

6

Tax benefit/(expense) recognised within other comprehensive income

 

(1)

(2)

Total items not to be reclassified to the income statement

 

1

5

Total other comprehensive income/(loss)

 

2

5

Total comprehensive income/(loss)

 

622

(1,744)

 

 

 

 

Attributable to:

 

 

 

Equity holders of South32 Limited

 

622

(1,744)

 

The accompanying notes form part of the half year financial statements.

 

 

CONSOLIDATED BALANCE SHEET

as at 31 December 2016

 

US$M

 

Note

 

H1 FY17

 

FY16

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

7

1,901

1,225

Trade and other receivables

7

980

618

Other financial assets

7

73

32

Inventories

 

770

747

Current tax assets

 

22

61

Other

 

17

18

Total current assets

 

3,763

2,701

Non-current assets

 

 

 

Trade and other receivables

7

165

445

Other financial assets

7

394

260

Inventories

 

55

55

Property, plant and equipment

 

8,431

8,651

Intangible assets

 

271

288

Equity accounted investments

 

714

570

Deferred tax assets

 

309

382

Other

 

21

22

Total non-current assets

 

10,360

10,673

Total assets

 

14,123

13,374

LIABILITIES

 

 

 

Current liabilities

 

 

 

Trade and other payables

7

683

676

Interest bearing liabilities

7

430

282

Other financial liabilities

7

6

1

Current tax payable

 

17

6

Provisions

 

390

408

Deferred income

 

3

4

Total current liabilities

 

1,529

1,377

Non-current liabilities

 

 

 

Trade and other payables

7

4

5

Interest bearing liabilities

7

612

631

Other financial liabilities

7

-

16

Deferred tax liabilities

 

511

501

Provisions

 

1,455

1,410

Deferred income

 

11

12

Total non-current liabilities

 

2,593

2,575

Total liabilities

 

4,122

3,952

Net assets

 

10,001

9,422

EQUITY

 

 

 

Share capital

 

14,958

14,958

Treasury shares

 

(10)

(3)

Reserves

 

(3,537)

(3,555)

Retained earnings/(accumulated losses)

 

(1,409)

(1,977)

Total equity attributable to equity holders of South32 Limited

 

10,002

9,423

Non-controlling interests

 

(1)

(1)

Total equity

 

10,001

9,422

 

The accompanying notes form part of the half year financial statements.

 

 

 

CONSOLIDATED CASH FLOW STATEMENT

for the half year ended 31 December 2016

 

US$M

 

H1 FY17

 

H1 FY16

Operating activities

 

 

Profit/(loss) before tax from continuing operations

797

(1,632)

Adjustments for:

 

 

Non-cash significant items

 -

37

Depreciation and amortisation expense

373

401

Impairments of property, plant and equipment, financial assets, intangibles and equity accounted investments

4

1,384

Employee share awards expense

22

12

Net finance cost

60

45

Share of (profit)/loss of equity accounted investments

(164)

356

Fair value (gains)/losses on derivative instruments

(189)

36

Other non-cash or non-operating items

(3)

(2)

Changes in assets and liabilities:

 

 

Trade and other receivables

(164)

162

Inventories

(23)

119

Trade and other payables

24

(296)

Provisions and other liabilities

(40)

(196)

Cash generated from continuing operations

697

426

Interest received

17

12

Interest paid

(34)

(30)

Income tax (paid)/received

(39)

37

Dividends received

 -

1

Dividends received from equity accounted investments

41

19

Net cash flows from continuing operating activities

682

465

Investing activities

 

 

Purchases of property, plant and equipment

(150)

(237)

Exploration expenditure

(7)

(7)

Exploration expenditure expensed and included in operating cash flows

6

5

Purchase of intangibles

(1)

(14)

Investment in financial assets

(28)

(80)

Investment in equity accounted investments

(21)

 -

Cash outflows from investing activities

(201)

(333)

Proceeds from sale of property, plant and equipment and intangibles

15

1

Proceeds from financial assets

105

112

Net cash flows from continuing investing activities

(81)

(220)

Financing activities

 

 

Proceeds from interest bearing liabilities

147

2

Repayment of interest bearing liabilities

(9)

(190)

Purchase of shares by Employee Share Ownership Plan (ESOP) Trusts

(12)

 -

Dividends paid

(53)

 -

Net cash flows from continuing financing activities

73

(188)

Net increase/(decrease) in cash and cash equivalents

674

57

Cash and cash equivalents, net of overdrafts, at the beginning of the period

1,225

644

Foreign currency exchange rate changes on cash and cash equivalents

2

(8)

Cash and cash equivalents, net of overdrafts, at the end of the period

1,901

693

 

The accompanying notes form part of the half year financial statements.

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the half year ended 31 December 2016

Attributable to equity holders of South32 Limited

US$M

Share capital

Treasury shares

Reserves

Retained earnings/ (accumulated losses)

Total

Non- controlling interests

Total equity

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 shares 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

Balance as at 1 July 2015

14,958

- 

(3,557)

(365)

11,036

(1)

11,035

Profit/(loss) for the period

 -

 -

 -

(1,749)

(1,749)

 -

(1,749)

Other comprehensive income/(loss)

 -

 -

 -

5

5

 -

5

Total comprehensive income/(loss)

 -

 -

 -

(1,744)

(1,744)

 -

(1,744)

Transactions with owners:

 

 

 

 

 

 

 

Accrued employee entitlements for unexercised awards

 -

 -

12

 -

12

 -

12

Balance as at 31 December 2015

14,958

- 

(3,545)

(2,109)

9,304

(1)

9,303

 

The accompanying notes form part of the half year financial statements.
 

 

NOTES TO 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 "South32 Group") for the half year ended 31 December 2016 were authorised for issue in accordance with a resolution of the Directors on 16 February 2017

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, 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 South32 Group are described in note 3 Segment information.

2.    Basis of preparation

The half year 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 2001;

·      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 Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial / Directors' Reports) Instrument 2016/191;

·      Present reclassified comparative information where required for consistency with the current period's presentation; and

·      Have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the 30 June 2016 annual financial statements.

In preparing these half year 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 2016.

For a full understanding of the financial performance and financial position of the South32 Group it is recommended that the half year financial statements be read in conjunction with the annual financial statements for the year ended 30 June 2016. Consideration should also be given to any public announcements made by the Company during the half year ended 31 December 2016 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 financial statements.

 

Average for the half year ended

31 December 2016

Average for the half year ended

31 December 2015

 

As at

 31 December 2016

 

As at

30 June

2016

 

As at

 31 December 2015

Australian dollar(1)

0.75

0.72

0.72

0.74

0.73

Brazilian real

3.27

3.69

3.26

3.24

3.90

Colombian peso

2,983

2,999

3,001

2,916

3,149

South African rand

14.00

13.60

13.60

14.85

15.56

(1)    Displayed as US$ to A$ based on common convention.

 

 

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    Segment information

(i)     Description of segments

The operating segments (also referred to as "operations") are organised and managed separately according to the nature of products produced.

The members of the executive management team (the "chief operating decision maker") and the Board of Directors monitor the segment results regularly for the purpose of making decisions about resource allocation and performance assessment.

The segment information for the manganese operations are presented on a proportional consolidation basis, which is the measure used by South32's management to assess their performance.

The principal activities of each reporting segment, as the South32 Group is currently structured, are summarised as follows:

Operating segment

Principal activities

Worsley Alumina

Integrated bauxite mine and alumina refinery in Western Australia

South Africa Aluminium

Aluminium smelter in Richards Bay

Brazil Alumina

Alumina refinery in Brazil

Mozal Aluminium

Aluminium smelter in Mozambique

South Africa Energy Coal

Open-cut and underground energy coal mines and processing operations in South Africa

Illawarra Metallurgical Coal

Underground metallurgical coal mines in New South Wales

Australia Manganese

Integrated producer of manganese ore in the Northern Territory and alloys in Tasmania

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

 

All operations are operated or jointly operated by the South32 Group except Alumar (which forms part of Brazil Alumina), which is operated by Alcoa.

The South32 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 South32 Group's policy that inter-segment transactions are made on commercial terms.

Group and unallocated items/eliminations represent group centre functions and consolidation adjustments. Group financing (including finance cost and finance income) and income taxes are managed on a South32 Group basis and are not allocated to operating segments

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    Segment information (continued)

Half year ended

31 December 2016

 

US$M

Worsley Alumina

South Africa Aluminium

Mozal Aluminium

Brazil Alumina

South Africa Energy Coal

Illawarra Metallurgical Coal

Australia Manganese(1)

South Africa Manganese(1)

Cerro Matoso

Cannington

Group and unallocated items/ elimination

Statutory adjustment(1)

Group

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Group production

291

601

238

133

539

471

390

175

188

412

 -

(565)

2,873

Third party products(2)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

349

(1)

348

Inter-segment revenue

201

 -

 -

31

 -

 -

 -

 -

 -

 -

(232)

 -

 -

Total revenue

492

601

238

164

539

471

390

175

188

412

117

(566)

3,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying EBITDA

110

122

44

38

152

202

233

61

40

194

 -

(132)

Depreciation and amortisation

(84)

(32)

(19)

(28)

(24)

(93)

(26)

(15)

(44)

(29)

(20)

41

(373)

Underlying EBIT

26

90

25

10

128

109

207

46

(4)

165

(20)

(91)

691

Comprising:

 

 

 

 

 

 

 

 

 

 

 

 

 

Group Production

26

90

25

10

129

109

207

46

(4)

165

(31)

(253)

519

Third party products(2)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 -

11

 -

11

Share of profit/(loss) of equity accounted investments(3)

 -

 -

 -

 -

(1)

 -

 -

 -

 -

 -

 -

162

161

Underlying EBIT

26

90

25

10

128

109

207

46

(4)

165

(20)

(91)

691

Net finance cost

 

 

 

 

 

 

 

 

 

 

 

 

(71)

Income tax (expense)/benefit

 

 

 

 

 

 

 

 

 

 

 

 

(141)

Underlying earnings from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

479

Earnings adjustments(4)

 

 

 

 

 

 

 

 

 

 

 

 

141

Profit/(loss) after tax

 

 

 

 

 

 

 

 

 

 

 

 

620

Capital expenditure(5)

19

6

3

13

27

54

15

4

4

18

6

(19)

150

Equity accounted investments(6)

 -

 -

 -

 -

12

 -

 -

 -

 -

 -

 -

702

714

Total assets(6)

3,613

1,495

651

855

810

1,728

601

551

831

381

3,257

(650)

14,123

Total liabilities(6)

427

252

90

193

891

214

244

214

184

154

1,907

(648)

4,122

(1)   The segment information reflects South32's interest in the manganese operations and is presented on a proportional consolidation basis, which is the measure used by South32's management to assess their performance. The manganese operations are equity accounted in the consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.

(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 impacts of earnings adjustments to Underlying EBIT.

(4)   Refer to note 3(ii) Earnings adjustments.

(5)   Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.

 

 

(6)   Total segment assets and liabilities for each operating segment represent operating assets and liabilities which predominately exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    Segment information (continued)

Half year ended

31 December 2015

 

US$M

Worsley Alumina

South Africa Aluminium

Mozal Aluminium

Brazil Alumina

South Africa Energy Coal

Illawarra Metallurgical Coal

Australia Manganese(1)

South Africa Manganese(1)

Cerro Matoso

Cannington

Group and unallocated items/ elimination

Statutory adjustment(1)

Group

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Group production

286

596

208

186

542

284

226

110

166

423

-

(336)

2,691

Third party products(2)

-

-

-

-

-

-

-

-

-

-

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)

181

(19)

(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)

153

(31)

(19)

141

Comprising:

 

 

 

 

 

 

 

 

 

 

 

 

 

Group Production

33

21

(10)

74

44

(37)

10

(51)

(48)

153

(31)

41

199

Third party products(2)

-

-

-

-

-

-

-

-

-

-

-

-

-

Share of profit/(loss) of equity accounted investments(3)

-

-

-

-

2

-

-

-

-

-

-

(60)

(58)

Underlying EBIT

33

21

(10)

74

46

(37)

10

(51)

(48)

153

(31)

(19)

141

Net finance cost

 

 

 

 

 

 

 

 

 

 

 

 

(71)

Income tax (expense)/benefit

 

 

 

 

 

 

 

 

 

 

 

 

(44)

Underlying earnings from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

26

Earnings adjustments(4)

 

 

 

 

 

 

 

 

 

 

 

 

(1,775)

Profit/(loss) after tax

 

 

 

 

 

 

 

 

 

 

 

 

(1,749)

Capital expenditure(5)

22

8

5

9

42

111

41

7

12

15

13

(48)

237

Equity accounted investments(6)

-

-

-

-

13

-

-

-

-

-

-

557

570

Total assets(6)

3,647

1,334

656

874

728

1,745

577

517

889

401

2,654

(648)

13,374

Total liabilities(6)

439

275

91

167

827

229

236

175

206

159

1,796

(648)

3,952

(1)   The segment information reflects South32's interest in the manganese operations and is presented on a proportional consolidation basis, which is the measure used by South32's management to assess their performance. The manganese operations are equity accounted in the consolidated financial statements. The statutory adjustment column reconciles the proportional consolidation to the equity accounting position.

(2)   Third party products sold comprise US$138 million for aluminium, US$11 million for alumina, US$28 million for coal, US$50 million for freight services and US$63 million for aluminium raw materials. Underlying EBIT on third party products comprise (US$1) million for aluminium, (US$1) million for alumina, US$1 million 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 impacts of earnings adjustments to Underlying EBIT.

(4)   Refer to note 3(ii) Earnings adjustments.

(5)   Capital expenditure excludes the purchase of intangibles and capitalised exploration expenditure.

(6)   Total segment assets and liabilities for each reporting segment are as at 30 June 2016 and represent operating assets and liabilities which predominately exclude the carrying amount of equity accounted investments, cash, interest bearing liabilities and tax balances.

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

3.    Segment information (continued)

(ii)    Earnings adjustments

The following table shows earnings adjustments in determining Underlying earnings:

US$M

H1 FY17

H1 FY16

Adjustments to Underlying EBIT

 

 

Significant items

 -

92

Exchange rate (gains)/losses on restatement of monetary items(1)

20

(87)

Impairment losses(1)(2)

4

1,384

Fair value (gains)/losses on derivative instruments(1)

(189)

36

Major corporate restructures(1)

2

5

Impairment losses included in profit/(loss) of equity accounted investments(3)

 -

287

Earnings adjustments included in profit/(loss) of equity accounted investments(3)

(3)

11

Total adjustments to Underlying EBIT

(166)

1,728

Adjustments to net finance cost

 

 

Exchange rate variations on net debt

(11)

(26)

Total adjustments to net finance cost

(11)

(26)

Adjustments to income tax expense

 

 

Significant items

 -

39

Tax effect of earnings adjustments to Underlying EBIT

45

(152)

Tax effect of earnings adjustments to net finance cost

4

8

Exchange rate variations on tax balances

(13)

178

Total adjustments to income tax expense

36

73

Total earnings adjustments

(141)

1,775

(1)   Recognised in expenses excluding net finance cost in the consolidated income statement.

(2)   In the half year ended 31 December 2015, the South32 Group recognised impairments as a result of significant and continuing weakening of commodity markets. For detailed disclosure of the impairments refer to the financial statements released for the period ending 31 December 2015.

(3)   Recognised in share of profit/(loss) of equity accounted investments in the consolidated income statement.

 

 

 

NOTES TO FINANCIAL STATEMENTS - RESULTS FOR THE PERIOD

4.    Dividends

US$M

 

H1 FY17

H1 FY16

Final unfranked dividend(1)

 

53

-

Total dividends declared and paid during the period

 

53

-

(1)   On 25 August 2016, the Directors resolved to pay an unfranked final dividend of US 1 cent per share in respect of the 2016 financial year. The dividend was paid on 6 October 2016.

 

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 FY17

H1 FY16

Profit/(loss) attributable to equity holders of South32 Limited (basic)

 

620

(1,749)

Profit/(loss) attributable to equity holders of South32 Limited (diluted)

 

620

(1,749)

 

 

 

 

Weighted average number of shares

 

 

 

Million

 

H1 FY17

H1 FY16

Basic earnings per share denominator(1)

 

5,319

5,324

Shares and options contingently issuable under employee share ownership plans(2)(3)

 

55

-

Diluted earnings per share denominator

 

5,374

5,324

(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 during the period.

(2)   Included in the calculation of diluted EPS are shares contingently issuable under employee share ownership plans.

(3)   Diluted EPS calculation excludes 15,371,165 (31 December 2015: 78,949,327) rights which are considered anti-dilutive and are subject to service and performance conditions.

 

Earnings per share

 

 

 

US cents

 

H1 FY17

H1 FY16

Earnings per share - continuing operations

 

 

 

Basic earnings per share

 

11.7

(32.9)

Diluted earnings per share

 

11.5

(32.9)
 

 

NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING

6.    Net finance cost

US$M

H1 FY17

H1 FY16

Finance expenses

 

 

Interest on borrowings

8

5

Finance lease interest

26

25

Discounting on provisions and other liabilities

48

49

Net interest expense on post-retirement employee benefits

5

4

Fair value change on financial asset

1

-

Exchange rate variations on net debt

(11)

 (26)

 

77

57

Finance income

 

 

Interest income

17

12

Net finance cost

60

45

 

7.    Financial assets and financial liabilities

The following table presents the South32 Group's financial assets and liabilities by class at their carrying amounts which approximates their fair value:

 

 

31 December 2016

US$M

 

 

Loans and receivables

 

Available for sale securities

Held at fair value through profit or loss

Other financial assets and liabilities at amortised cost

 

 

 

Total

Financial assets

 

 

 

 

 

Cash and cash equivalents

1,901

-

-

-

1,901

Trade and other receivables(1)

663

-

47

-

710

Derivative contracts

-

-

206

-

206

Loans to equity accounted investments

266

-

-

-

266

Interest bearing loans receivable

43

-

-

-

43

Other investments

-

261

-

-

261

Total

2,873

261

253

-

3,387

Financial liabilities

 

 

 

 

 

Trade and other payables(2)

-

-

8

639

647

Derivative contracts

-

-

6

-

6

Finance leases

-

-

-

581

581

Unsecured other

-

-

-

461

461

Total

-

-

14

1,681

1,695

(1)   Excludes input taxes of US$126 million included in trade and other receivables.

(2)   Excludes input taxes of US$40 million included in trade and other payables.

 

 

 

NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING

7.    Financial assets and financial liabilities (continued)

 

 

30 June 2016

US$M

 

 

Loans and receivables

 

Available for sale securities

 

Held at fair value through profit or loss

Other financial assets and liabilities at amortised cost

 

 

 

Total

Financial assets

 

 

 

 

 

Cash and cash equivalents

1,225

-

-

-

1,225

Trade and other receivables(1)


493

-

58

-

551

Derivative contracts

-

-

33

-

33

Loans to equity accounted investments

352

-

-

-

352

Interest bearing loans receivable

41

-

-

-

41

Other investments

-

259

-

-

259

Total

2,111

259

91

-

2,461

Financial liabilities

 

 

 

 

 

Trade and other payables(2)

-

-

6

642

648

Derivative contracts

-

-

17

-

17

Finance leases

-

-

-

602

602

Unsecured other

-

-

-

311

311

Total

-

-

23

1,555

1,578

(1)   Excludes input taxes of US$119 million included in trade and other receivables.

(2)   Excludes input taxes of US$33 million included in trade and other payables.

 

Measurement of fair value

The following table shows the South32 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 is based on 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 2016

US$M

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets and liabilities

 

 

 

 

Trade and other receivables

-

47

-

47

Trade and other payables

-

(8)

-

(8)

Derivative contracts

-

(6)

206

200

Investments - available for sale

-

126

135

261

Total

-

159

341

500
 

 

NOTES TO FINANCIAL STATEMENTS - CAPITAL STRUCTURE AND FINANCING

7.    Financial assets and financial liabilities (continued)

Level 3 financial assets and liabilities

The following table shows the movements in the South32 Group's Level 3 financial assets and liabilities:

US$M

H1 FY17

H1 FY16

As at the beginning of the period

161

296

Unrealised gains/(losses) recognised in the consolidated income statement(1)

189

(65)

Unrealised gains/(losses) recognised in consolidated other comprehensive income(2)

(9)

(16)

At the end of the period

341

215

(1)   Unrealised gains and losses recognised in the consolidated income statement are recorded in expenses excluding net finance cost.

(2)   Unrealised gains and losses recognised in consolidated other 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 valuation models, including discounted cash flow modelling, with significant inputs as listed below. The potential effect of using reasonably possible alternative assumptions in these models, based on a change in the most significant inputs by 10 per cent while holding all other variables constant, is shown in the following table.

31 December 2016

 

 

Profit before tax

Equity

 

 

US$M

Carrying amount

Significant inputs

10% increase in input

10% decrease in input

10% increase in input

10% decrease in input

Financial assets and liabilities

 

 

 

 

 

 

Derivative contracts(1)

206

Aluminium price(2)

Foreign exchange rate(2)

Electricity price(3)

(187)

176

(135)

127

Investments - available for sale(1)(4)

135

Aluminium price(2)

Foreign exchange rate(2)

-

-

48

(52)

Total

341

 

(187)

176

(87)

75

(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.

 

 

NOTES TO FINANCIAL STATEMENTS - OTHER NOTES

8.    Subsequent events

On 3 November 2016 the South32 Group announced that it had entered into a binding agreement to acquire the Metropolitan Colliery and its associated 16.67% interest in the Port Kembla Coal Terminal from an Australian subsidiary of Peabody Energy Corporation. The offer includes a cash consideration of US$200 million plus a contingent consideration whereby both companies share commodity price upside in the first year of production or on a minimum of 1.3Mt, should metallurgical coal prices exceed an agreed forward curve. The agreement is subject to approval by the Australian Competition and Consumer Commission.

On 16 February 2017, the Directors resolved to pay an unfranked interim dividend of US 3.6 cents per share (US$192 million) in respect of the 2017 half year. The dividend will be paid on 6 April 2017. The dividend has not been provided for in the half year financial statements and will be recognised in the financial statements for the 2017 financial year.

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 South32 Group in subsequent accounting periods.

 

DIRECTORS' DECLARATION

In accordance with a resolution of the directors of South32 Limited, we state that:

In the opinion of the directors:

(a)   The consolidated financial statements and notes that are set out on pages 29 to 45 for the half year ended 31 December 2016 are in accordance with the Corporations Act 2001, including:

(i)      Giving a true and fair view of South32 Limited's financial position as at 31 December 2016 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 South32 Limited 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

Dated 16 February 2017

 

DIRECTORS' REPORT

The directors of South32 Limited present the consolidated financial report for the half year ended 31 December 2016 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

Graham Kerr

Frank Cooper AO

Peter Kukielski

Xolani Mkhwanazi

Ntombifuthi (Futhi) Mtoba

Wayne Osborn

Keith Rumble

The company secretaries of the Company during or since the end of the half year are:

Nicole Duncan

Melanie Williams (appointed 9 August 2016)

 

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 on pages 3 to 28.

 

Principal risks and uncertainties

Due to the international scope of South32'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 South32's results and operations for the remaining six months of the financial year.

Significant external, operational, sustainability and financial risks that could impact South32's performance include:

·      Fluctuations in commodity prices, exchange rates, interest rates and global economy;

·      Actions by governments, political events or tax authorities;

·      Cost inflation and labour disputes could impact operating margins and expansion plans;

·      Access to water and power;

·      We may be subject to regulations in relation to dividend payments or capital returns;

·      Regulatory risks of climate change;

·      Risk to commodity portfolio from climate change;

·      Access to infrastructure;

·      Failure to maintain, realise or enhance existing reserves;

·      Support of the local communities in which businesses are located;

·      Health and safety impacts in respect of our activities;

·      Environmental risks in respect of activities including water and waste water management;

·      Deterioration in liquidity and cash flow;

·      Unexpected operational or natural catastrophes;

·      Commercial counterparties that we transact with may not meet their obligations;

·      Risks of fraud and corruption;

·      Breaches of information technology security processes; and

·      Failure to retain and attract employees.

Further information on these risks and how they are managed can be found on pages 37 to 42 of the Annual Report for the year ended 30 June 2016, a copy of which is available on South32's website at www.south32.net.

 

DIRECTORS' REPORT

 

Events subsequent to the balance date

On 3 November 2016 the South32 Group announced that it had entered into a binding agreement to acquire the Metropolitan Colliery and its associated 16.67% interest in the Port Kembla Coal Terminal from an Australian subsidiary of Peabody Energy Corporation. The offer includes a cash consideration of US$200 million plus a contingent consideration whereby both companies share commodity price upside in the first year of production or on a minimum of 1.3Mt, should metallurgical coal prices exceed an agreed forward curve. The agreement is subject to approval by the Australian Competition and Consumer Commission.

On 16 February 2017, the Directors resolved to pay an unfranked interim dividend of US 3.6 cents per share (US$192 million) in respect of the 2017 half year. The dividend will be paid on 6 April 2017. The dividend has not been provided for in the half year financial statements and will be recognised in the financial statements for the 2017 financial year.

The Directors are not aware of any other matters or circumstance that have arisen since the end of the half year that have significantly affected, or may significantly affect, the operations, the results of operations or state of affairs of the South32 Group in subsequent accounting periods.

 

UK responsibility statements

The Directors state that to the best of their knowledge:

·      The Financial Results and Outlook on pages 3 to 28, includes a fair review of important events during the first six months of the current financial year and their impact on the half year 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 South32 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 2001 is set out on page 49.

 

Rounding

The amounts shown in this report and in the financial statements have been rounded to the nearest million dollars (US$M or US$ million) unless otherwise stated, in accordance with Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial / Directors' Reports) Instrument 2016/191.

 

Signed in accordance with a resolution of the Board of Directors.

 

David Crawford AO

Chairman

Graham Kerr

Chief Executive Officer and Managing Director

Dated 16 February 2017

 

 

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 for the half-year ended 31 December 2016 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

16 February 2017

 

Independent Auditor's Review Report

To the shareholders of South32 Limited:

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the Half-year Financial Statements of South32 Limited is not in accordance with the Corporations Act 2001, including:

i)    giving a true and fair view of the Group's financial position as at 31 December 2016 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 the Corporations Regulations 2001.

We have reviewed the accompanying Half-year Financial Statements of South32 Limited.

The Half-year Financial Statements comprises:

·   the consolidated balance sheet as at 31 December 2016

·   consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the half-year ended on that date

·   notes 1 to 8 comprising a summary of significant accounting policies and other explanatory information

·   the Directors' Declaration.

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 gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; and

·    for 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 2016 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.

 

 

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

KPMG

 

Denise McComish

Partner

 

Perth

 

16 February 2017

 

 

disclaimer

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements, including statements about trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; capital costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; and provisions and contingent liabilities. These forward-looking statements reflect expectations at the date of this release, however they are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. Readers are cautioned not to put undue reliance on forward-looking statements. Except as required by applicable laws or regulations, the South32 Group does not undertake to publicly update or review any forward looking statements, whether as a result of new information or future events. Past performance cannot be relied on as a guide to future performance.

NON-IFRS FINANCIAL INFORMATION

This release includes certain non-IFRS financial measures, including Underlying earnings, Underlying EBIT and Underlying EBITDA, Underlying basic earnings per share, Underlying effective tax rate, Underlying EBIT margin, Underlying EBITDA margin, Underlying return on capital, Free cash flow, net debt, net operating assets and ROIC. These measures are used internally by management to assess the performance of our business, make decisions on the allocation of our resources and assess operational management. Non-IFRS measures have not been subject to audit or review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity.

NO OFFER OF SECURITIES

Nothing in this release should be read or understood as an offer or recommendation to buy or sell South32 securities, or be treated or relied upon as a recommendation or advice by South32.

NO FINANCIAL OR INVESTMENT ADVICE - SOUTH AFRICA

South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice.

 

 

 

FURTHER INFORMATION

 

INVESTOR RELATIONS

Alex Volante

T     +61 8 9324 9029

M    +61 403 328 408

E     Alex.Volante@south32.net

Rob Ward

T     +61 8 9324 9340

M    +61 431 596 831

E Robert.Ward@south32.net

 

 

MEDIA RELATIONS

Diana Wearing Smith
T     +61 8 9324 9198

M    +61 436 482 290

E     Diana.Smith@south32.net

James Clothier
T     +61 8 9324 9697

M    +61 413 319 031

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
16 February 2017

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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