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Article Excerpt
PARTICIPANTS
. Marius Kloppers, BHP Billiton Plc, Chief Executive, Group President Non-Ferrous Materials . Alex Vanselow, BHP Billiton Plc, CFO . Robert Clifford, Deutsche Bank, Analyst . Sam Catalano, Macquarie, Analyst . Tobias Woerner, MF Global Securities, Analyst . Jason Fairclough, Merrill Lynch, Analyst . Sylvain Brunet, Exane BNP Paribas, Analyst . Charles Kernot, Evolution, Analyst . Mike Bedford, BJM, Analyst . Kieran Daly, Investec Securities, Analyst . Damien Hackett, Canaccord Adams, Analyst . Amos Fletcher, Cazenove, Analyst . Luke Pearce, Otto Securities, Analyst
OVERVIEW
BHP reported half-year ended 12/31/08 EPS of $1.101.
FINANCIAL DATA
A. Key Data From Call 1. Half-year ended 12/31/08 EPS = $1.101. 2. Half-year ended 12/31/08 CapEx = approx. $6b.
PRESENTATION SUMMARY
S1. Overview (M.K.) 1. Safety: 1. Over the period, maintained good safety performance as measured by lagging indicators, most notably a Total Recordable Injury Frequency Rate. 2. Still had four fatalities in the period. 3. Continues to be committed towards getting to zero harm and ensuring that a safety culture is embedded across entire group. 2. Results: 1. Solid results demonstrates that Co.'s core strategy unchanged over the better part of decade are being focused on tier 1 assets and diversification across markets, geographies, and so on. 2. Underlying EBITDA, up 25% to $13.9b. 3. Underlying EBIT, up 24% to $11.9b. 4. Attributable profits for year (before exceptional items), $6.1b, up 2%. 1. In Dec. quarterly production report released on 01/21/09, announced a number of actions and as a result attributable profit post exceptional items. 1. Demand conditions are weak. 2. Got assets that are either in a position where they cannot sell the output or were they are cash negative and set to remain so for sometime. 3. Has and will continue to take action. 2. Cash Flow: 1. They are quite in a period of high volatility with IFRS, there is a lot of non-cash items in income. 2. Cash flow from this diversified portfolio remains robust. 1. Increased 74% to $13.1b. 3. Strength of balance sheet is illustrated by net gearing level of below 10% at this stage. 4. EPS, up 3% to $1.101 per share before exceptionals. 1. Given the outlook, which is uncertain in the short and medium term outlook, announced on 02/04/09 that Co. is maintaining dividend for this period at same level as last period at $0.41 a share. 1. Dividend decision consistent with outlook. 2. A significant 41% increase on comparable period last year. 5. During half year, continued successful track record on project execution. 1. Consistent with commitment to invest throughout the cycle, sanctioned four projects. 1. Major one in Western Australian iron ore. 2. Three in oil and gas. 6. Even in these changed conditions, strategy remains unchanged. 1. Wants to continue to invest in value-adding growth in a prudent and disciplined manner. 2. To an even greater extent than before, wants to focus on tier one assets and brownfield expansions, principally in backyard. 7. In short run, wants to continue to maximize cash generation from existing assets.
S2. Financial Review (A.V.) 1. Six Months to 12/31/08 Results: 1. Delivered solid results under challenging and rapidly changing economic conditions. 2. Underlying EBITDA and EBIT increased reflecting strong performance from diversified portfolio of low-cost, long-life, and high-quality assets. 3. Key Highlights: 1. Strength of balance sheet. 2. Outstanding cash flow. 4. Net operating cash flow, record $13.1b. 1. Resulted in net gearing of just 9.5%. 2. Achieved through consistent execution of strategy, which has enabled to continue to invest in value-creating growth in prudent and disciplined manner, at the same time delivering outstanding returns to shareholders. 2. Actions Taken: 1. As global economy continues to deteriorate, experiencing softening demand for all the products. 2. Took a number of hard but prudent actions with a focus on preserving and enhancing long-term shareholder value. 1. Actions included: 1. The Board's decision not to proceed with Rio Tinto offer. 2. Production adjustments in line with weaker demand. 3. Deferrals (indiscernible) low-priority projects. 4. Suspension of cash negative operations. 2. These have been appropriate actions, taken at right time and in phase of a swift and severe downturn in the market. 3. Will continue to take further actions if necessary. 4. All operations are continually under review. 5. Accounting impact of this actions to-date are reported in exceptional items and as a post-tax exceptional loss of $3.5b, which resulted in attributable profit of $2.6b. 1. Includes charges in relation to: 1. Ravensthorpe. 2. Yabulu. 3. Pinto Valley. 4. Project impairments and deferrals. 5. Increased remediation of provision for Newcastle steelworks. 6. Costs associated with Rio Tinto offer. 6. Extreme range of economic conditions, lack of (indiscernible) decisions materially impacted at an operating level, positive and negative. 3. Underlying EBIT by Customer Sector Group: 1. Changes underlying EBIT for most CSGs were affected in a material way. 1. 500% of metallurgical coal, was positive. 2. Stainless steel material, 200% negative. 2. Results highlight strength and quality of BHP portfolio, with underlying EBIT margin for period averaging 46%. 3. Petroleum CSG delivered $2.7b underlying EBIT, up 36%, driven by: 1. Strong volume growth from a series of successful projects. 2. Stable operating cash costs. 3. Higher realized price. 4. EBIT for aluminum, base metals, and stainless steel material CSGs, LME CSG were all down significantly. 1. In these three CSGs, unprecedented flow in LME prices alone decreased underlying EBIT by $4b. 2. For these CSGs, volume and cost efficiencies were impacted by: 1. Great declines in production interruptions at Escondida. 2. Furnace rebuild at Kalgoorlie Nickel Smelter. 3. Mandatory reduction in power consumption in South African aluminum smelters. 5. Steelmaking commodities contributed $8.5b to underlying EBIT. 1. Benefited from: 1. Higher realized prices. 2. Record iron-ore shipments. 3. Favorable exchange rates. 6. Has been impacted by weak steel market, especially in last qtr. of 2008, when Co. announced production adjustments at: 1. Samancor. 2. Samarco. 7. Weaker conditions will have more pronounced impact in 2H of this financial year. 8. Underlying EBIT for Energy Coal business, up 287%, mainly due to higher realized prices. 9. Significant price volatility had a material and immediate effect in revenue line. 4. Input Costs: 1. Input costs have been volatile with delayed impact on COGS. 2. In last results presentation, Co. indicated that costs pressures in industry had accelerated in 2H08 financial year. 1. This has continued into FY09. 2. During this half, cash cost increased by $1.6b vs. corresponding period. 1. About 13% of this increase is structural. 2. Remaining 87% is either costs that were deliberately incurred to maximize production, one-off incidents, or costs that were caused by the hidden market earlier in half year. 3. Has $298m in one-off costs relating to: 1. Queensland coal flood recovery. 2. Kalgoorlie Nickel furnace rebuild. 4. Has $592m of higher costs for fuel, energy, and input materials such as: 1. Coke. 2. Pitch. 3. Explosives. 5. Benefits of falling input prices will have a lagged effect on reducing costs. 1. Starting to see some signs of easing input in material prices. 6. Labor and contractor costs increased by...
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