Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Day (November 2018)
63 slides from Bhp's investor day presentation, Nov 21, 2018
Slide 1: BHP Capital allocation briefing
BHP Capital allocation briefing Peter Beaven 21 November 2018 Port Hedland
Slide 2: Disclaimer
Disclaimer Forward-looking statements This presentation contains forward-looking statements, including statements regarding: trends in commodity prices and currency exchange rates; demand for commodities; plans, strategies and objectives of management; closure or divestment of certain operations or
Slide 3: Key messages
Key messages Capital allocation is a key enabler of our purpose to grow long-term shareholder value and returns Lessons learned Capital allocation Managing cyclicality Balancing risk / reward Value and returns The mining industry is capital intensive but investments have at times been poor We have i
Slide 4: The importance of capital allocation
The importance of capital allocation Over the long term, capital allocation is a key driver and differentiator of company performance Value vs Returns – CY97-CY181,2,3 (TSR CAGR, %) 30 BHP 15 0 0 10 20 (15) Note: Bubble size represents Enterprise Vale (US$bn) (30) ROACE, % Value vs Returns – CY151,2
Slide 5: Where did the industry go wrong?
Where did the industry go wrong? Pro-cyclical investing has destroyed value and eroded returns Top 40 industry1 and BHP cumulative metrics (CY08 – CY17) (US$ billion) 1,000 800 600 400 200 0 Investment Shareholder Impairments returns BHP Top 40 industry Capital and exploration expenditure and commod
Slide 6: Our strategic framework
Our strategic framework Strategy is integral to capital allocation Capital prioritised for safe operations and value-add technologies Robust assessment of option suite to maximise returns for commensurate risk Leading culture and capabilities World-class assets Value and Highly attractive commoditie
Slide 7: Improving capital allocation
Improving capital allocation Enhanced capital allocation processes to better manage cyclicality and improve capital productivity Strategy Capital Allocation Framework Evaluation Organisation structure Strategy provides long-term context to today’s capital allocation decisions • Informs capital alloc
Slide 8: Our framework promotes discipline in all capital decisions
Our framework promotes discipline in all capital decisions Transparent capital allocation hierarchy Maximise cash flow through lower costs, productivity, technology and culture Dividend policy linked to the performance of our business Operating Capital productivity productivity Net operating cash fl
Slide 9: Holistic and objective end-to-end capital allocation process
Holistic and objective end-to-end capital allocation process More integrated approach to capital allocation across assets, finance and commercial functions Capital structure and shareholder returns Investment Strategy evaluation Market Capital and prioritisation scenario analysis Capital Allocation
Slide 10: Increased rigour in our evaluation approach
Increased rigour in our evaluation approach Scenario and range analysis underpins robust assessment of investment decisions Shareholder considerations • Share price • Additional dividend amounts • Share buy-backs • Licence to invest Project considerations • Risk considerations • Industry cost-curve
Slide 11: Broad suite of attractive opportunities
Broad suite of attractive opportunities Comprehensive approach to evaluate and rank opportunities based on returns, risk and optionality Optionality In execution Orphan Basin exploration (Petroleum) Ecuador exploration (Copper) Trion appraisal (Petroleum) Olympic Dam open pit expansion (Copper) WAIO
Slide 12: Changes are embedded, sustainable and delivering
Changes are embedded, sustainable and delivering Rebuilding trust takes time and we will be judged on delivery, but changes are embedded and working well Returns to shareholders and capital and exploration expenditure1 (US$ billion) 16 8 0 (8) (16) (24) South32 demerger3 FY13 FY14 FY15 FY16 FY17 FY1
Slide 13: Changes are embedded, sustainable and delivering
Changes are embedded, sustainable and delivering Outcomes since the implementation of the Capital Allocation Framework at the beginning of 2016 Additional Organic Acquisitions/ Debt Buy-backs dividends development divestments Over US$15 billion of US$9 billion of US$5.2 billion US$15 billion investe
Slide 14: Our plans are delivering
Our plans are delivering Rebuilding trust takes time and we will be judged on delivery, but changes are embedded and working well Returns Base value2 (ROCE1, nominal %) (Index, FY16=100) 20 150 15 125 10 100 5 75 0 50 FY16 FY17 FY18 FY19e FY16 plan FY17 plan FY18 plan FY17 average realised prices Ac
Slide 15: We have the assets, capability, discipline and options
We have the assets, capability, discipline and options Our plans show ROCE to 20% by FY22 (at FY17 prices) and improvement in base value Additional Organic Acquisitions/ Debt Buy-backs dividends development divestments Net debt range of US$10 Committed to cash Compete with <US$8 billion capex per Ne
Slide 16: Key messages
Key messages Capital allocation is a key enabler of our purpose to grow long-term shareholder value and returns Lessons The mining industry is capital intensive but investments have at times been poor learned We have improved our capital allocation approach to support better decisions Capital Our Ca
Slide 17: BHP
BHP
Slide 18: Capital allocation briefing: deep dive
Capital allocation briefing: deep dive Capital structure and shareholder returns Investment Strategy evaluation Market Capital and prioritisation scenario analysis Capital Allocation Framework Maximise value and returns Capital allocation briefing 21 November 2018 18
Slide 19: Capital allocation process
Capital allocation process LICENCE TO INVEST Continuous improvement GOVERNANCE Strategy Corporate strategy Macro-economics Commodity Price Protocols Planning Opportunity Life of Capital 5-year 2-year Board assessment Asset plans prioritisation plan budget Minor and sustaining, Execution Tollgates Ap
Slide 20: Market and scenario analysis: Key messages
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Market and scenario analysis: Key messages Market and scenario analysis narrows the range of future uncertainty, supporting better inve
Slide 21: Our portfolio and structure provide unique perspective
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Our portfolio and structure provide unique perspective A holistic view of the global landscape, enabled by our portfolio diversity and
Slide 22: Improving capital allocation
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation More stable long-term views and internal consistency drive a level playing field in the competition for ca
Slide 23: This is the tip of the iceberg – what's beneath the surface?
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia This is the tip of the iceberg – what’s beneath the surface? Our forecasts are built on rigourous foundations; and are routinely challe
Slide 24: Deep understanding of the operating context
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Deep understanding of the operating context Synthesizing macro, sectoral, technological and ‘geo’ factors with commodity specific dynam
Slide 25: Tracking demand dynamics on all time horizons
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Tracking demand dynamics on all time horizons Short-term shocks Medium-term shifts Long-term risks & opportunities Sino-US trade tensio
Slide 26: Strategy: Key messages
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategy: Key messages Our strategy creates long-term value for shareholders Scenario Long-term scenarios to test portfolio resilience
Slide 27: Improving capital allocation
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation We have invested in strategic capabilities in the last three years Strategic thinking Strategic framework
Slide 28: Strategic framework
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategic framework Leverage our values, capabilities and resources to meet the evolving needs of markets Culture and capabilities that
Slide 29: Strategic drivers
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategic drivers We aspire to have industry-leading capabilities applied to a portfolio of world-class assets in the most attractive c
Slide 30: Strategic process
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strategic process Continually assessing our competitive advantages and future fitness of portfolio Present Future portfolio portfolio E
Slide 31: Capital structure and shareholder returns: Key messages
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital structure and shareholder returns: Key messages Strong balance sheet and payout ratio dividend underpin financial flexibility C
Slide 32: Improving capital allocation
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Through the Capital Allocation Framework, Treasury is embedded in investment and capital returns decisions
Slide 33: Strong balance sheet
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Strong balance sheet A strong balance sheet provides stability, flexibility and optionality through the cycle Balance sheet tested unde
Slide 34: Minimum 50% payout ratio dividend and additional returns
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Minimum 50% payout ratio dividend and additional returns Rewarding our shareholders whilst maintaining flexibility Payout ratio dividen
Slide 35: Share buy-back analysis
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Share buy-back analysis The Capital Allocation Framework underpins the form of returns of the shale proceeds Materiality thresholds for
Slide 36: Investment evaluation: Key messages
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Investment evaluation: Key messages Thorough approach to investment evaluation to optimise our decisions Broad suite of attractive oppo
Slide 37: Improving capital allocation
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Structural changes to our investment evaluation processes to improve objective opportunity assessment Stra
Slide 38: Project risk-return assessment
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Project risk-return assessment A broad range of metrics used to assess risk-returns across project, portfolio and shareholder level Met
Slide 39: Focused on risk-adjusted returns
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Focused on risk-adjusted returns Simple hurdle rates may prevent us from making optimal decisions • Investment into Tier-1 assets have
Slide 40: Holistic approach to project risk
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Holistic approach to project risk Improved understanding of risk is driving better investment decisions Quantitative risk Qualitative r
Slide 41: Broad suite of attractive opportunities
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Broad suite of attractive opportunities Comprehensive approach to evaluate and rank opportunities based on returns, risk and optionalit
Slide 42: Capital prioritisation: Key messages
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital prioritisation: Key messages Improved capital prioritisation is encouraging purer competition for capital and driving improved
Slide 43: Improving capital allocation
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Fundamental changes to our capital prioritisation processes to enable objective portfolio assessment Holis
Slide 44: Capital prioritisation is integral to our planning process
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital prioritisation is integral to our planning process Capital prioritisation bridges planning across all time horizons to ensure a
Slide 45: Structured approach to assess options
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Structured approach to assess options Information generated by the assets Centrally assessed in corporate office with Healthy competiti
Slide 46: Bottom-up build during Life of Asset planning process
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Bottom-up build during Life of Asset planning process Assets identify different options to grow value of the business and include these
Slide 47: Portfolio optionality assessed by centralised planning
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Portfolio optionality assessed by centralised planning Options assessed from a portfolio perspective against a number of metrics The as
Slide 48: Value is optimised for a considered level of risk
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Value is optimised for a considered level of risk An optimised portfolio plan represents the most valuable risk-adjusted growth portfol
Slide 49: Portfolio considerations
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Portfolio considerations A strong portfolio gives us stability and flexibility through the cycle Optimised Opportunities are assessed a
Slide 50: Value maximised through our Global Investment Process
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Value maximised through our Global Investment Process Fundamental process underpinning all major decisions before commitment of project
Slide 51: Capital stewardship in Minerals Australia: Key messages
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Capital stewardship in Minerals Australia: Key messages Embedding the culture, capability and processes to drive better capital decisio
Slide 52: Improving capital allocation
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Improving capital allocation Significant improvement in major project performance (externally benchmarked); permeated into all projects
Slide 53: Disciplined approach to choose only the right projects
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Disciplined approach to choose only the right projects Front-line has to justify capital demand and understand trade-offs Prioritisatio
Slide 54: More value captured through high-quality studies
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia More value captured through high-quality studies Study specialists work hand-in-hand with the operation to fully evaluate possibilities
Slide 55: Significant improvement in project efficiency
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia Significant improvement in project efficiency We are leveraging the scale of Minerals Australia Projects to drive efficiency and contin
Slide 56: South Flank: Getting the most out of every dollar
Market and scenario analysis Strategy Capital structure and shareholder returns Investment evaluation Capital prioritisation Capital stewardship: Minerals Australia South Flank: Getting the most out of every dollar Investment returns were compelling, but we actively analysed every element to improve
Slide 57: BHP
BHP
Slide 58: Appendix
BHP Appendix
Slide 59: Debt maturity profile
Debt maturity profile Debt balances1 (US$ billion) 8 6 4 2 0 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 Post FY29 US$ Euro Sterling A$ C$ Bonds34 Bonds34 Bonds34 Bonds Bonds Subsidiaries % of portfolio 38% 34% 12% 3% 3% 10% Capital markets 90% Asset financing 10% 1. As at 30 June 2018. C
Slide 60: Latent capacity – attractive returns, limited risk
Latent capacity – attractive returns, limited risk Continuous replenishment of our suite of capital efficient, low risk, high return options supports the next wave of latent capacity Options IRR1 Risk1 Timing1 Capex Description (%) (1-5) (US$m) WAIO Supply chain debottlenecking initiatives at the po
Slide 61: Future options – worked for value, timed for returns
Future options – worked for value, timed for returns Investment decisions made in accordance with our capital allocation framework and fully consider the broader market impact Options Description Potential Capex GIP IRR1 Risk1 Investment considerations execution (US$m) tollgate1 (1-5) timing ̶ Resi
Slide 62: Exploration – extending our conventional reserve life
Exploration – extending our conventional reserve life Investment decisions made in accordance with our Capital Allocation Framework and fully consider the broader market impact Options Location Ownership Maturity Earliest first Description Planned future activity production Wildling 80+% Large oil r
Slide 63: BHP
BHP SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BHP Billiton Limited and BHP Billiton Plc Date: November 21, 2018 By: /s/ Rachel Agnew Name: Rachel