Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — H1 FY2006 Earnings Presentation
49 slides from Bhp's earnings presentation, Feb 16, 2006
Slide 1: Interim Results – 31 December 2005
Interim Results – 31 December 2005 15 February 2006 Chip Goodyear Chief Executive Officer Chris Lynch Chief Financial Officer
Slide 2: Disclaimer
Disclaimer The views expressed here contain information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. Any forward looking information in this presentation ha
Slide 3: Interim Results – 31 December 2005
Interim Results – 31 December 2005 Chip Goodyear Chief Executive Officer
Slide 4: Highlights – six months ended December 2005
Highlights – six months ended December 2005 • HSEC – 12 month rolling Classified Injury Frequency Rate of 4.4 • Record half year earnings – Underlying EBITDA up 42% to US$8.0 billion – Underlying EBIT up 43% to US$6.7 billion – Attributable profit of US$4.4 billion and earnings per share of 72 US ce
Slide 5: Interim Results - 31 December 2005
Interim Results - 31 December 2005 Chris Lynch Chief Financial Officer
Slide 6: Highlights
Highlights Half year ended December (US$M) 2005 2004 % Change Revenue (with JV share of revenue) 18,172 15,207 +20 Underlying EBITDA 7,971 5,619 +42 Underlying EBIT 6,671 4,665 +43 EBIT – Profit from operations 6,259 4,369 +43 Attributable profit 4,364 2,953 +48 Net operating cash flow 4,308 3,197 +
Slide 7: Underlying EBIT by Customer Sector Group
Underlying EBIT by Customer Sector Group Half year ended December (US$M) 2005 2004 %%Change Change Petroleum 1,436 1,265 +14 Aluminium 406 449 -10 Base Metals 1,893 1,040 +82 Carbon Steel Materials 2,275 991 +130 Diamonds & Specialty Products 261 406 -36 Energy Coal 205 296 -31 Stainless Steel Mater
Slide 8: Impact of major volume changes on underlying EBIT
Impact of major volume changes on underlying EBIT Half year ended Dec 05 vs half year ended Dec 04 Total volume variance US$370 million(1) (includes new business (2) ) US$M Copper Organic Growth Acquisitions 250 235 200 150 Nickel 114 100 Energy Other 50 Iron Ore Coal 40 27 25 0 Diamonds (10) Mangan
Slide 9: Underlying EBIT analysis
Underlying EBIT analysis Half year ended Dec 05 vs half year ended Dec 04 US$M 8000 2915 335 105 7000 (275) (130) 30 6671 (795) (35) (90) (54) 6000 5000 4665 4000 Net Price Impact US$2,640M 3000 2000 1000 0 Half Year Price Price Exchange Inflatio n Existing & Costs Ceased & Asset Sales Explo ratio n
Slide 10: Cost impact on underlying EBIT
Cost impact on underlying EBIT Half year ended Dec 05 vs half year ended Dec 04 US$M Total cost variance - US$(795) million 0 -20 -40 Distribution & Business Demurrage -60 Develop (35) (40) Other -80 (60) Mining/ -100 Maintenance Grade (95) (85) -120 -140 Labour & -160 Non Cash Contractors (155) (15
Slide 11: WMC integration complete
WMC integration complete • Integration of assets and functions successfully completed • 430 people have departed the organisation, expect close to 500 in total • Record half year production at Nickel West and Southern Cross Fertiliser • Final annualised cost efficiencies expected to exceed A$180 mil
Slide 12: Net finance costs, taxation and attributable profit
Net finance costs, taxation and attributable profit Half year ended December (US$M) 2005 2004 Underlying EBIT 6,671 4,665 JV net finance costs (59) (76) JV tax expense (353) (220) EBIT - Profit from operations 6,259 4,369 Net finance costs (215) (192) Profit before tax 6,044 4,177 Tax expense (1,616
Slide 13: Interim Results – 31 December 2005
Interim Results – 31 December 2005 Chip Goodyear Chief Executive Officer
Slide 14: Industry cost and capacity pressures
Industry cost and capacity pressures “Show us the money: workers cash in on skills crisis” “No relief in site for miners – project delays and cost pressures unlikely to “Australia….has $420 billion worth ease in the short term” of projects in the pipeline” “Developing new “Skills shortage and poor m
Slide 15: Deep inventory of growth projects
Deep inventory of growth projects Zamzama Phase 2 Atlantis North BROW NFIELD Douglas As at 15 February 2006 BMA Phase 2 Douglas –– Koala Koala UG UG Middelburg Middelburg Size of bubble in dicates proposed $$US US NWS NWS T5 T5 capital expenditure; bold outer 200M 200M border sig nifie s sanctioned
Slide 16: Chinese copper, nickel, aluminium and iron ore demand
Chinese copper, nickel, aluminium and iron ore demand and its % share of world demand ‘000 tonnes ‘000 tonnes 4,000 25% 250 18% 3,500 16% Chinese refi ned copper Chi nese primary ni ckel 20% 200 14% consumption consumpti on 3,000 % share of world refi ned copper % share of world primary ni ckel 12%
Slide 17: Demand growth continues
Demand growth continues • China – GDP growth 9.9% for CY2005 – All major commodities showing 2,946 consumption growth BHP Billiton Sales to China (US$m) – Government macro controls to stay in 2,407 place • US 1,588 – Economic outlook remains robust 1,357 1,075 – Advanced Energy Initiative announced
Slide 18: Cash flow priorities lead to further capital management initiatives
Cash flow priorities lead to further capital management initiatives US cps Dividends • Demand remains strong 18 16 • Positive demand outlook 14 • Supply response lagging 12 10 • Projects being prioritised and 8 modularised or delayed 6 • High relative prices 4 2 • Cash flow remains strong 0 Nov May
Slide 19: Capital management details
Capital management details • Increase interim dividend by 3 US cents per share to 17.5 US cents per share • Continue with progressive dividend policy • Capital return of US$2 billion in share buy-backs – A$1.5 billion off-market buy-back in Limited commencing immediately – On-market buy-back for bal
Slide 20: Strategic drivers
Strategic drivers “Our core purpose is to create long-term value through the discovery, development Growth and conversion of natural resources, and Options the provision of innovative customer and market-focused solutions.” Project Pipeline Financial Strength and Discipline The BHP Billiton Way (Val
Slide 21: Summary
Summary • Record half year results • Margins continue to expand • WMC integration complete and savings ahead of forecast • Execution and replenishment of project pipeline continues • Interim dividend increased 30% to 17.5 US cents per share, consistent with outlook and higher earnings and cash flow
Slide 22: Appendix
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Slide 23: Cash flow
Cash flow Half year ended December (US$M) 2005 2004 Operating cash flow and JV dividends (1) 6,257 4,263 Net interest paid (149) (86) Tax paid (2) (1,800) (980) Available cash flow 4,308 3,197 Capital expenditure (2,317) (1,358) Exploration expenditure (348) (199) Purchases of fixed assets & investm
Slide 24: Outstanding assets: increasing margins and return on capital
Outstanding assets Increasing margins and return on capital Return on Capital 45% Underlying EBIT Margin (1) 42% 39% 40% 35% 31% 30% 29% 30% 24% 25% 21% 20% 20% 15% 13% 11% 10% 5% 0% 2002 2003 2004 2005 H1 2006 (1) 2005 and H1 2006 are shown on the basis of Underlying EBIT. Refer to slide 41 for det
Slide 25: Outstanding assets: EBIT margin by Customer Sector Group
Outstanding assets EBIT margin(1) by Customer Sector Group 2004 2005 H1 2006 70% 60% 50% 40% 30% 20% 10% 0% Petroleum Aluminium Base Metals Carbon Steel Diamonds & Energy Coal Stainless Materials Specialty Steel Products Materials (1) 2005 and H1 2006 margins are calculated on the basis of Underlyin
Slide 26: EBIT growth since July 2001
EBIT(1) growth since July 2001 US$bn 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 H1 H2 H1 H2 H1 H2 H1 H2 H1 FY2002 FY2003 FY2004 FY2005 FY2006 Interim Results (1) FY2005 and H1 FY2006 data is calculated on the basis of Underlying EBIT. Slide 26 15 February 2006 Prior periods are calculated under UKGAAP.
Slide 27: Impact of major commodity price changes on underlying EBIT
Impact of major commodity price changes on underlying EBIT Half year ended Dec 05 vs half year ended Dec 04 Total price variance US$2,915 million 1000 Met Coal Iron ore 916 896 Copper 800 767 600 Petroleum 400 376 Other 200 Aluminium Base 122 Metals 82 Other 7 0 Thermal Coal Diamonds (17) (92) Manga
Slide 28: Capital expenditure
Capital expenditure (1) US$ Billion 2002 2003 2004 2005 2006F Growth 1.9 2.0 1.8 2.6 4.0 (2) 2006 forecast is US$450m Sustaining 0.9 0.7 0.8 1.2 1.4 Petroleum and US$160m Minerals Exploration (2) 0.4 0.3 0.5 0.5 0.6 (3) Does not include WMC acquisition Total 3.2 3.0 3.1 4.3 (3) 6.0 (3) US$bn 6.0 Exp
Slide 29: Asset disposals since July 2001
Asset disposals since July 2001 Proceeds from sale of assets (US$M) H1 FY2006 193 FY2005 1,035 FY2004 277 FY2003(1) 2,472 FY2002 845 Total proceeds 4,822 (1) Includes BHP Steel demerger and BHP Steel loans (net of cash disposed and costs) Interim Results Slide 29 15 February 2006
Slide 30: China
China • Sales into China increasing but diversification remains • Currently 16.2% of total company revenues, up from 12.6% in FY05 US$M 2,946 3,000 ROW 2,750 Australia Europe 2,500 2,407 2,250 China 2,000 Japan 1,750 Nth America Other Asia 1,588 1,500 1,357 1,250 1,075 1,000 785 750 500 371 431 250
Slide 31: Financial flexibility: % gearing
Financial flexibility 40 60 Target gearing range 35 52 30 44 25 36 % gearing 20 28 15 10 20 5 12 0 4 2001 2002 2003 2004 2005 H1 2006 Gearing (LHS) Average borrowing cost (%) (RHS) EBITDA interest cover (times) (RHS) Moody’s Investment A3 A2 A1 A1 Services Standard & Poor’s A- A A+ A+ Av erage borro
Slide 32: Growth projects delivered since July 2001
Growth projects delivered since July 2001 Aluminium Ekati*/Panda Typhoon, Mad Dog Zamzama Base M etals & Pipelines Carbon Steel Energy Coal Diamonds Ohanet Petroleum & ROD Angostura PACE San Juan Cerrejon* BMA Phase 1 NWS T4 Antamina Mt Arthur Mozal II Tintaya Oxide Area C North Escondida* Hillside
Slide 33: Sanctioned development projects (US$8.85 bn)
Sanctioned development projects (US$8.85 bn) Share of Initial Minerals Projects Commodity Approved Production Production Capacity Progress Capex Target Date (100%) US$M Worsley development capital On time and (Australia) – 86% Alumina 165 Q1 CY06 250,000 tpa budget Alumar Refinery Expansion Alumina
Slide 34: Sanctioned development projects (US$8.85 bn) cont.
Sanctioned development projects (US$8.85 bn) cont. Share of Initial Minerals Projects Approved Production Capacity Commodity Production Progress cont. Capex (100%) Target Date US$M New coal handling and Six months Blackwater Coal preparation plant M et Coal 100. (1) M id CY06 processing facility to
Slide 35: Sanctioned development projects (US$8.85 bn) cont.
Sanctioned development projects (US$8.85 bn) cont. Share of Initial Approved Production Capacity Petroleum Projects Commodity Production Progress Capex (100%) Target Date US$M 200,000 barrels per day Schedule under Under and 180 million cubic feet Atlantis South (US) – 44% Oil/gas 1,115 (1) review.
Slide 36: Development projects in feasibility
Development projects in feasibility Minerals Projects Estimated Share Forecast Initial Project Capacity Commodity of Capex* (US$3.10 bn) US$M Production* (100%) Douglas-M iddleburg Optimisation – Optimisation of existing reserve Energy Coal <400 H2 CY07 84% base Koala Underground (Canada) – 3,000 to
Slide 37: Development projects commissioned since July 2001
Development projects commissioned since July 2001 Our Share of Capex Initial Production Date Project Budget Actual Budget Actual US$M US$M Antamina (Peru) – 33.75% 775 752 Q2 CY01 Q2 CY01 Typhoon (US) – 50% 128 114 Q3 CY01 Q3 CY01 Tintaya Oxide (Peru) – 99.9% 138 120 Q2 CY02 Q2 CY02 Escondida Phase
Slide 38: Development projects commissioned since July 2001
Development projects commissioned since July 2001 Our Share of Capex Initial Production Date Project Budget Actual Budget Actual US$M US$M WA Iron Ore accelerated expansion (Australia) – 85% 83 80 Q2 CY04 Q2 CY04 NWS Train 4 (Australia) – 16.7% 247 252 M id CY04 M id CY04 ROD (Algeria) – 36% 192 192
Slide 39: Key net profit sensitivities
Key net profit sensitivities Approximate impact (1) on FY06 net profit after tax of changes of: (US$M) US$1/t on iron ore price 60 US$1/bbl on oil price 40 US$1/t on metallurgical coal price 20 USc1/lb on aluminium price 20 USc1/lb on copper price 20 US$1/t on energy coal price 20 USc1/lb on nickel
Slide 40: Non IFRS and GAAP measures used within this presentation
Non IFRS and GAAP measures used within this presentation EBITD A EBITD A is earnings before in terest and tax, from contin uin g operatio ns (except 2001 which includes Steel), before deprecia tion, amortisation and impairments of Group companie s and join tly controlled entities and associa tes, as
Slide 41: Non IFRS and GAAP measures used within this presentation
Non IFRS and GAAP measures used within this presentation EBIT margin by Customer Sector Group exclu din g third party product activities Slide 26 refers to Customer Sector Group EBIT margins, excludin g third party product activities, as detailed belo w. Underlying EBIT is earnings before net financ
Slide 42: Capital Management Programme
Capital Management Programme 15 February 2006
Slide 43: Disclaimer
Disclaimer Important notice This presentation does not constitute, or form part of, any offer or invitation to sell, or any solicitation of any offer to purchase any securities in any jurisdiction, nor shall it or the fact of its distribution be relied on in connection with any contract therefore. N
Slide 44: Off-market buy-back overview
Off-market buy-back overview • A$1.5bn (c. US$1.1bn) Target size • Represents 1.9% of BHP Billiton Ltd issued share capital (1.2% of DLC)1 • Flexibility to vary size depending on shareholder demand and the Buy-Back Price • Shareholders may tender their shares at 7 specified discounts from 8% to 14%
Slide 45: Off-market buy-back overview (continued)
Off-market buy-back overview (continued) • 3 week tender period opens 13 March 2006 and closes at 7pm, 31 March 2006 • Shares acquired on or before 16 February 2006 will generally comply with the 45- Timetable & tax day rule (qualify for the benefit of dividend franking) implications • Shareholders
Slide 46: Tender rules
Tender rules • Shares acquired before the Buy-Back ex-date (Monday, 20 February 2006) will confer an entitlement to participate in the Buy-Back Eligibility • Ineligible shareholders - US and Canadian shareholders, other Excluded Foreign Persons • ADRs and Restricted Employee Shares are not eligible
Slide 47: Key dates for off-market buy-back
Key dates for off-market buy-back Event Date (2006) Cut-off date for franking credit entitlement under Thursday, 16 February 45-day rule 1 Ex-date for Buy-Back entitlement2 Monday, 20 February Buy-Back Record Date Friday, 24 February Mail-out of Buy-Back booklet and tender forms completed by Wednesd
Slide 48: Worked Australian tax examples
Worked Australian tax examples 1 Superfund Australian resident individuals $6,001- $21,601- $63,001- Income $0-$6,000 $21,600 $63,000 $95,000 $95,000+ Marginal t ax rat e 15.00% 0.00% 16.50% 31.50% 43.50% 48.50% Income tax consequences (dividend) 2 Assumed Buy-Back Price $21.50 $21.50 $21.50 $21.50
Slide 49: Appendix: Footnotes to worked Australian tax examples
Appendix: Footnotes to worked Australian tax examples (1) The marginal tax rate includes the Medicare Levy of 1.5%. The Medicare Levy will depend on an individual’s own circumstances. (2) The Buy-Back Price of A$21.50 is an example only based on an assumed Market Price of A$25.00 and a Buy-Back Disc