Slide 1: Response to Elliott Proposals
For personal use only Response to Elliott Proposals 12 April 2017
Slide 2: Disclaimer
Disclaimer For personal use only Forward-looking statements This presentation contains forward-looking statements, which may include (without limitation) statements regarding: trends in commodity prices and currency exchange rates; demand for commodities; plans, strategies and objectives of manageme
Slide 3: We are well placed to create value
We are well placed to create value For personal use only BHP Billiton makes decisions to optimise value in the long-term interests of all shareholders Simplification • Simplification journey well advanced: productivity, organisation structure and portfolio rationalisation • Meaningful progress in su
Slide 4: Elliott’s proposals – our assessment
Elliott’s proposals – our assessment For personal use only Elliott Proposal BHP Billiton Conclusions Unification • UK incorporated NewCo (Australian tax resident) to • Costs significantly outweigh savings, no other material benefits own 100% of both Limited and Plc • Wastage of franking credits • Pr
Slide 5: Our journey
Our journey For personal use only We have built a stronger, more resilient company with a simpler portfolio that is positioned well for future economic cycles Simplified portfolio Simplified operating model Productivity improvements Additional low-cost capacity Enhanced capital allocation
Slide 6: Productivity focus has delivered results
Productivity focus has delivered results For personal use only • Over US$11 billion of productivity gains delivered over past Productivity improvements driving margins four years (Underlying EBITDA margin, %) 60 • Productivity improvements and streamlined portfolio have improved margins • Onshore US
Slide 7: Disciplined, rigorous approach to capital allocation
Disciplined, rigorous approach to capital allocation For personal use only Operating productivity Capital productivity Net operating cash flow Maintenance capital Strong balance sheet Minimum 50% payout ratio dividend Excess cash Additional Acquisitions/ Debt reduction Buybacks Organic Growth Divide
Slide 8: We have strengthened the balance sheet
We have strengthened the balance sheet For personal use only • Net debt of US$20.1 billion at H1 FY17, down US$6 billion since Net debt has decreased and gearing has improved FY16 year end (Net debt, US$ billion) (Gearing, %) • ‘A’ credit rating maintained through the cycle, recently raised to 25.8
Slide 9: 1. Our assessment of Elliott’s proposals
For personal use only 1. Our assessment of Elliott’s proposals
Slide 10: Unification; US Petroleum demerger; Buybacks
For personal use only i. Unification ii. US Petroleum demerger iii. Buybacks
Slide 11: The DLC is not an impediment and has some advantages
The DLC is not an impediment and has some advantages For personal use only • Our corporate structure has not impeded our ability to manage the business effectively or return capital to shareholders • The DLC involves modest incremental costs and is more complex than a single-headed structure • Howev
Slide 12: Unification proposal would be costly
Unification proposal would be costly For personal use only • We regularly review the DLC and have considered unification Costs of proposal1 Benefits of proposal2 before US$3.0 billion US$32 million • Costs of unification outweigh the savings (US$0.56 per share) (<US$0.01 per share) – net costs1 of b
Slide 13: Proposal would result in wastage of franking credits
Proposal would result in wastage of franking credits For personal use only • All dividends would be fully franked under Elliott’s unification proposal, including to existing Plc shareholders − most of whom cannot use them If BHP Billiton were a single-headed company, US$7.3 billion of franking Under
Slide 14: Unification is not required for off-market buybacks
Unification is not required for off-market buybacks For personal use only • Since the DLC merger in 2001, the Group has returned ~50% of its underlying earnings to shareholders in the form of dividends and buybacks – ~US$56bn in dividends – ~US$23bn in buybacks (~US$13bn in off-market Limited buybac
Slide 15: Proposal would make off-market buybacks less attractive
Proposal would make off-market buybacks less attractive • Elliott’s unification proposal could result in materially greater share capital and non-distributable profits that could not be distributed as For personal use only franked dividends in off-market buybacks1 • This could significantly reduce t
Slide 16: Proposal unlikely to appeal to Limited shareholders
Proposal unlikely to appeal to Limited shareholders For personal use only • Even if NewCo trades at a blended Plc/Limited share price (as Share price assumed by Elliott) (US$) Indicative value loss for Limited shareholders becoming holders in UK incorporated NewCo1 – UK incorporated NewCo would trad
Slide 17: Proposal has regulatory uncertainty
Proposal has regulatory uncertainty For personal use only • Under Elliott’s unification proposal, both Limited and Plc would become subsidiaries of a UK incorporated NewCo – would require a number of approvals, including approval by the Foreign Investment Review Board (“FIRB”) • Elliott’s unificatio
Slide 18: Unification; US Petroleum demerger; Buybacks
For personal use only i. Unification ii. US Petroleum demerger iii. Buybacks
Slide 19: Petroleum is core to our strategy
Petroleum is core to our strategy For personal use only • Aligned with our strategy of owning the best commodities, assets Petroleum is a high-margin business and capabilities (Average underlying EBITDA margin over last 5 years2, %) 80 • Petroleum growth portfolio expected IRR > 25%1 • Large, qualit
Slide 20: Petroleum benefits from being a part of BHP Billiton
Petroleum benefits from being a part of BHP Billiton For personal use only • BHP Billiton’s scale and financial strength a key competitive Our major commodities experience largely weak or negative correlation advantage for Petroleum (Correlation frequency, %) Brent Henry Hub – successful Trion bid i
Slide 21: Onshore US – Free Cash Flow positive and positioned for growth
Onshore US – Free Cash Flow positive and positioned for growth For personal use only • Operating and capital productivity improvements continue to Black Hawk well performance relative to peers2, 3, 4 unlock value (cumulative production, gross condensate Mbbls) 200 – increased investable inventory to
Slide 22: Demerger proposal has limited upside, significant downside risk
Demerger proposal has limited upside, significant downside risk For personal use only • Demergers can create value, but not in this case: – our operating capabilities and capital allocation approach are competitive with any in the industry – demerger would not materially simplify BHP Billiton (unlik
Slide 23: Unification; US Petroleum demerger; Buybacks
For personal use only i. Unification ii. US Petroleum demerger iii. Buybacks
Slide 24: Returns to shareholders are central to our capital allocation framework
Returns to shareholders are central to our capital allocation framework For personal use only • We have returned almost the equivalent of our market capitalisation in dividends and buybacks1 • BHP Billiton continues to generate material cash flow as a result of our simplification efforts, which prov
Slide 25: Proposal would undo recent strengthening of balance sheet
Proposal would undo recent strengthening of balance sheet For personal use only Buyback would return net debt to historical levels... …and negatively impact credit metrics and gearing (Net debt, US$ billion) (Net debt / CY16 underlying EBITDA) (Net Gearing, %) 26.1 26.1 1.6x 25.8 24.4 20.1 1.2x 32%
Slide 26: A mechanistic approach to balance sheet management is inappropriate
A mechanistic approach to balance sheet management is inappropriate For personal use only Buybacks based on targeted 1.3x net debt / EBITDA • Elliott’s suggestion that BHP Billiton should target 1.3x Pro-forma net debt (US$ billion) net debt/EBITDA (or similar) – and conduct regular 43.9 55.5 49.6 4
Slide 27: 3. Conclusion
For personal use only 3. Conclusion
Slide 28: We are on the right path
We are on the right path For personal use only BHP Billiton is now a stronger, simpler, more resilient company, well-positioned for the future We have been on a value-driven simplification journey for many years and this will continue in the years ahead We are well-positioned to deliver additi
Slide 29: For personal use only
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