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Article Excerpt
MARIUS KLOPPERS, CEO, BHP BILLITON: Ladies and gentlemen, welcome to today's presentation of the BHP Billiton interim results for the period to December 31, 2008. My name is Marius Kloppers, Chief Executive Officer of BHP Billiton. I'm talking to you today here from Sydney. Alex Vanselow, our CFO, will be presenting from London. And, to my left, I've got Marcus Randolph, who is the chief executive for our ferrous materials group.
Before I begin today, I'd like to point you to the disclaimer and remind you that reading this disclaimer is important in relation to today's presentation.
I'd like to start off today by giving you a brief overview of our results before handing over to Alex, and Alex will take us through the more detailed aspects of our financial performance. Then I'll give you some perspectives on the macro environment and how this is impacting, firstly, the industry and, also, how it's impacting on us. And then Alex and I will be very happy to take some questions.
If we go to our highlights, let me, as usual, begin with safety. Over the period in question, we've maintained a good safety performance as measured by what we call our lagging indicators; most notably, our total recordable injury frequency rate. However, we've still had four fatalities in the period. That means four families left without loved ones. And it goes without saying that any fatality is an unacceptable outcome. We continue to be committed towards getting to zero harm and ensuring that a safety culture is embedded across the entire group.
Let me turn to results. There's no doubt that the last half year has been an interesting period and a challenging period for our industry. The very solid result, of which you will get a very clear view today during this presentation, demonstrates that our core strategy, unchanged over the better part of a decade, of being focused on tier-one assets and diversification across markets, geographies, and so on, is a very sustainable one.
Our underlying EBITDA was up 25% to $13.9 billion. Underlying EBIT was up 24% to $11.9 billion. Attributable profit for the year, before exceptional items, was $6.1 billion, up 2%. And, as I say that, I should stress that Alex is going to take us through foreign exchange that has had a major noncash impact on the tax line. And we'll give some clarity on that.
You will also recall that in our December quarterly production report, which we released on, I think, January 21, we announced a number of actions. And, as a result, our attributable profit, post exceptional items, Alex will talk about in more detail. But perhaps to reinforce at this early stage, we've said that where demand conditions are weak and we've got assets that are either in a position where they can't sell the output or where they are cash negative and said to remain so for some time, we have and we will continue to take action.
In particular today, I'd like to point you to cash flow because we've already noted that they are quite in a period of high volatility. With IFRS, there's a lot of noncash items in our income. Therefore, I'd like to point us particularly today at cash flow. Cash flow from this diversified portfolio remains extremely robust, increasing 74% to $13.1 billion.
More significantly than even this excellent result and given today's market conditions, our balance sheet continues to place us in an absolutely unique position in this industry. And the strength of our balance sheet is illustrated by a net gearing level of below 10% at this stage.
Earnings per share was up 3% to $1.101 per share before exceptionals. And, importantly, given our outlook, on which we will talk a little bit more during the course of this presentation, which is uncertain in the short- and medium-term outlook, we've announced today that we are maintaining our dividend for this period at the same level as the last period, at $0.41. So that's a dividend decision consistent with our outlook. But I want to note that this is a very significant 41% increase on the comparable period last year. Obviously, for those shareholders, which form a large portion of our shareholder base, in London and in Australia that have seen those currencies weaken against the US dollar in their local, domestic currencies, that will be an even higher uplift.
During the half year, we continued our successful track record on project execution. We, consistent with our commitment to invest throughout the cycle, sanctioned four projects during the half year - a very major one in western Australia in iron ore and three in oil and gas. I want to emphasize that, even in these changed conditions, our strategy remains unchanged. We want to continue to invest in value-adding growth, in a prudent and disciplined manner.
Perhaps the only change is that, to an even greater extent than before, we want to focus on tier-one assets and brownfield expansions, principally in our back yard. In the short run, we also want to continue to maximize cash generation from our existing assets, and, later on in this presentation, I will give you some more detail on our initiatives to do so.
We emphasize up front we are extremely strongly positioned at this point in the cycle, well differentiated from others in our sector.
And, on that note, perhaps let me hand over to Alex to take you through the details of our financial results. And then I'll say a few words again at the completion of that.
ALEX VANSELOW, CFO, BHP BILLITON: Thanks, Marius, and good morning to everyone from a very cold night in London. I'll now cover a number of key areas relating to our interim results. And I'll start with the top-line financials, which Marius has just briefly touched on, and then move into some of the exceptional items. I'll also give a brief overview of some of the actions we are taking to further strengthen our financial position.
For the six months through December 31, 2008, we delivered a solid set of results under very challenging and rapidly changing economic conditions. Both underlying EBITDA and EBIT increased, reflecting our strong performance from our diversified portfolio of low-cost, long-life, and high-quality assets.
The key highlight is undoubtedly the strength of our balance sheet and outstanding cash flow, both of which placed us in a unique position in our industry.
Net operating cash flow was a record of $13.1 billion, resulting in net gearing of just 9.5%. This was achieved through the consistent execution of our strategy, which has enabled us to continue to invest in value-creating growth in a prudent and disciplined manner. We've, at the same time, delivered outstanding returns to our shareholders.
Marius will talk about our views on the market outlook a little later, but it is worth stressing a couple of points about the current market conditions. As the global economy continues to deteriorate, we are experiencing softening demand for all our products. Accordingly, we have taken a number of hard but prudent actions with a focus on preserving and enhancing long-term shareholder value. These actions have included the board's decision not to proceed with the Rio Tinto offer, production adjustments in line with weaker demand, deferrals and withdrawal of low priority projects, and the suspension of cash-negative operations, as Marius referred to. These have been the appropriate actions taken at the right time and in the face of a swift and severe downturn in the market. Of course we will continue to take further actions if necessary. We have always said that all our operations are continually under review. And this remains the case.
The accounting impact of these actions to date are reported under exceptional items and as a post-tax, exceptional loss of $3.5 billion, which resulted in an attributable profit of $2.6 billion. They include charges in relation to Ravensthorpe, Yabulu, Pinto Valley, project impairments and deferrals, and increased remediation for the Newcastle Steelworks, and costs associated with the Rio Tinto offer.
The extreme range of economic conditions that led to these decisions also materially impacted at an operating level. And that's both positive and negative. As you can see on this slide, the changes to underlying EBIT for most CSGs were affected in a material way. Some example is the 500% of metallurgical coal, which was positive. And, on the other hand, you have stainless steel materials that are 200% negative.
The results, again, highlight the strength and quality of the BHP Billiton portfolio, with underlying EBIT margin for the period averaging 46%.
Our petroleum CSG delivered $2.7 billion underlying EBIT, an increase of 36%. This was driven by strong volume growth from a series of successful projects but also stable operating cash costs and a higher realized price.
However, EBIT for aluminum, base metals, and stainless steel material CSGs - the LME CSGs - were all down significantly. In these three CSGs the unprecedented fall in LME prices alone decreased underlying EBIT by $4 billion. And for these CSGs, volume and cost efficiencies were impacted by great declines in production interruptions at Esondida, the furnace rebuilt at the Kalgoorlie Nickel Smelter, and the mandatory reduction in power consumption in South African aluminum smelters.
Our steel-making commodities contributed $8.5 billion to underlying EBIT. We benefited from higher realized prices, record iron ore shipments, and a favorable exchange rate. We have, however, been impacted by the weak steel market, especially in the last quarter of 2008 when we announced production adjustment both at Samancor and at Samarco. These weaker conditions will have a more pronounced impact in the second half of this financial year.
Underlying EBIT for our energy coal business was up 287%. And this was due mainly to higher realized prices.
Significant price volatility...
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