South32 | Balance sheet breather
S32 released better than expected FY '18 results. Earnings benefitted from higher commodity prices which offset lower volumes and inflationary pressures. S32 believes that inflationary pressures will remain prevalent in FY ‘19f. However, we estimate that Group production should increase by 5% y/y in FY ‘19f offering some relief.We expect the Group to be cash flow negative in FY ‘19f. Thus, we believe that S32 will aim to consolidate its balance sheet before returning excess capital to shareholders. Elsewhere, S32 plans to continue growing its greenfield exploration programme in an effort to extend the life of its portfolio. S32's strategy to exit SA Energy coal is progressing according to plan.
South32 is engaged in mining and metal production from a portfolio of assets for the commodities of alumina, aluminium, bauxite, energy and metallurgical coal, manganese ore, manganese alloy, nickel, silver, lead and zinc. As of June 30 2016, Co. operated 10 segments, which were comprised of: Worsley Alumina, South Africa Aluminium, Brazil Alumina, Mozal Aluminium, South Africa Energy Coal, Illawarra Metallurgical Coal, Australia Manganese, South Africa Manganese, Cerro Matoso, and Cannington.
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