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Original Source: FD (FAIR DISCLOSURE) WIRE
. Chip Goodyear, BHP Billiton plc, CEO . Alex Vanselow, BHP Billiton plc, CFO . Marius Kloppers, BHP Billiton plc, CEO Non-Ferrous, CEO Designate . Mike Yeager, BHP Billiton plc, CEO Petroleum . Neil Goodwill, Goldman Sachs JBWere, Analyst . Craig Campbell, Morgan Stanley, Analyst . Vicki Binns, Merrill Lynch, Analyst . Jason Fairclough, Merrill Lynch, Analyst . Heath Jansen, Citigroup, Analyst
. Sylvain Brunet, Exane BNP Paribas, Analyst . Ross Gardiner, JP Morgan, Analyst . Kieran Daly, Investec, Analyst . Lawrence Crick, Macquarie Bank, Analyst . Tim Gerard, AllStocks.com, Analyst . Eddie Meyer, Channel 10 News, Media . John McGinty, Deutsche Bank, Analyst . Sam Catalano, Macquarie Bank, Analyst . Jeremy Gray, Credit Suisse, Analyst . Tobias Woerner, MF Global Securities, Analyst
BHP reported FY07 revenue of $47.5b and EPS of $2.34.
A. Key Data From Call 1. FY07 revenue = $47.5b. 2. FY07 EPS = $2.34.
3. Past 12 months share repurchase = 305m shares.
S1. FY07 Introductory Comments (C.G.) 1. Safety: 1. BHP saw 17% decrease in the injury frequency rate. 2. Saw an improvement in all but one of Co.'s business units. 1. Had some outstanding performances in petroleum, aluminum, stainless steel materials, and diamonds and specialty products. 3. Had eight fatalities in Co.'s business. 1. Co. found that where there were safety issues in a business, those businesses also had the most difficulty in meeting
their operating objectives. 4. In 2008, expects to focus more intently on the implementation of the fatal risk control protocols, and continuing to push down the injury frequency and injury frequency rate. 2. Financial Overview: 1. Produced record results in eight of Co.'s commodities and 17 of its assets across the business. 2. EBITDA, up 27% to $23b. 3. Underlying EBIT, up to $20.1b, up 31%. 4. Attributable profit, $13.7b, up 35%.
1. This was seven times what Co.'s number was five years ago. 5. EPS came in at 39% increase or $2.34. 1. This grew faster than attributable profit due to share buyback program. 6. Despite cost pressures in the industry, Co. continued to see excellent flow through of revenue to the bottom line. 7. EBIT margin and return on capital employed set records. 1. This is the sixth consecutive year both of these statistics have set records. 8. Continued to improve new projects in line with market demand. 1. Project pipeline now stands at 33 projects, almost $21b of growth.
2. Seen strong growth in volumes over the last six years.
3. Saw a number of important steps. 4. Saw the startup of Spence. 5. Saw the continued ramp up of Escondida Sulphide.
6. 2008 looks to be a spectacular year in terms of volume growth. 1. Will see this across petroleum, stainless steel materials, iron ore, and base metals. 9. Continued to look for new options to grow, and last year: 1. Acquired interest in the Genghis Khan oilfield in the Gulf of Mexico, which is adjacent to Shenzi.
2. Also acquired the Guinea Alumina project in Guinea. 10. Outlook remains strong in the businesses. 1. Continued to see developing economies urbanize and industrialize. 11. Continued to invest strongly in growth in those businesses that Co. knows and understands.
1. Producing more cash than BHP can effectively put to use in
its business. 2. In line with this strategy, returned surplus cash to shareholders. 3. This year, announced about $13b of share buybacks. 1. Expects to complete this by Aug. 2008. 12. Announced a rebasing of the dividend. 1. Moved the final dividend to $0.27 per share. 2. This final payment is up 46% from BHP's final payment in 2006, and 35% ahead of the interim dividend declared earlier this year. 3. Believes that this rebasing of the dividend reflects BHP's confidence in the outlook for the business in the years ahead. 3. Profits Over Last Six Years: 1. Volume growth has been a major contributor to earnings. 1. Over the last six years, seen 55% increase in the volume growth. 2. Portfolio management has allowed Co. to improve the quality of its assets and focus on what it does well, which has led BHP to increasing the margins and enhancing the focus on those assets which it considers best in class. 3. Cost and efficiency, critical in BHP's business.
1. Through business excellence, supplier relationships, economies of scale, knowledge sharing, customer relationships, Co. has effectively managed cost in the challenging environment. 4. Strategy: 1. Delivery of BHP's strategy has been a critical driver to the performance of this business. 2. Co. focuses on large, low-cost, long reserve life, expandable assets, diversified by products, geography, and markets. 1. Believes that this gives BHP sustainable growth in earnings and cash flow and generates a relatively stable cash flow that allows it to reinvest in its business. 3. Performance (taking the last six years and dividing it by reporting periods):
1. Although the underlying commodities are volatile, the right
portfolio, well managed, executing value-added growth opportunities can create a new investment proposition in a natural resource business.
2. Over the last seven years, this is what Co. has done. 5. Outlook: 1. Believes that the industrialization and urbanization that has driven China's growth will continue for several decades as billions of people strive for a better quality of life.
1. This growth is resource-intensive, and it represents a step
change in resource demand. 2. India has a number of fundamental drivers that are similar to China. 1. Co. sees India as being 10-15 years behind China. 2. India has begun its journey.
3. This growth in demand is happening in an environment where the
industry and those that service the industry have underinvested for the last 30 years. 1. This will not change overnight.
2. Has created shortages in just about all the commodities that
Co. produces. 3. Combined with increased demand and appropriate regulatory scrutiny, this supply/demand issues and the shortages are illustrated by this lengthening time period in which it takes new projects to be developed. 4. Believes that those items will lead not only to a multi period of time when Co. expects to see the avg. price of raw materials to be higher than what Co. has seen historically,
but will come with increased volatility. 5. As inventories fall, volatility in the markets can increase dramatically. 4. While the US market remains important, it's not as important to commodity markets as Co. saw ten or 20 years ago. 1. Growth seen in India and China dwarfs the incremental movements in commodity demand in the US. 6. Survey of Customer Base: 1. BHP talked to a huge number of people around the world, across all markets, to try to assess how recent credit issues in US and Europe have impacted their business opportunity going forward. 1. People in the US have seen a moderation of growth that's gone back as the housing market has come off over the last year-and-a-half or two years. 2. People in China and India are focused on strong demand growth, shortage of raw materials, and domestic markets.
2. The above is based on a survey over the last five or six days.
S2. FY07 Financial Performance (A.V.) 1. Highlights: 1. Achieved record production from continuing operations for natural gas, aluminum, alumina, copper, nickel, iron ore, manganese ore, and metallurgical coal. 2. Financial Results: 1. Generated $47.5b in revenue, up 21%. 2. Underlying EBIT was $20.1b, up 31%, resulting in attributable profit of $13.7b. 3. Net operating cash flows of $15.6b was an increase of 49%. 4. Balance sheet is strong, with underlying gearing of 25%. 1. This, despite record capital investments, increased share buybacks and a progressive dividend policy. 2. This provides with enormous flexibility to continue to invest in growth and return funds to shareholders. 5. EBIT margin was 48%. 6. Return on capital employed was 38%. 3. Key Performance Drivers: 1. Great assets, which are high in quality, large and low on the cost curve. 2. Superior resource position that allows Co. to grow production in a high-margin, low-risk way. 3. Exceptional commodity mix in terms of diversification and
scale. 4. High margin oil and gas business that will deliver significant high value near and long-term growth. 5. Marketing structure and a global [freight desk], which lowers risk and adds value to customers. 6. Focus on business excellence and operational efficiency that ensures Co. operates assets consistently and predictably. 7. Investing in expanding port and rail capacity, providing a significant infrastructure advantage. 8. Continuingly reviewing the portfolio and divesting the operations that are not aligned with BHP's strategic drivers. 4. Petroleum: 1. Had record EBIT. 2. Despite no major project startups, achieved flat production. 3. Offset the impact of natural fuel decline with improved
operating performance. 4. Near-term production growth is strong, with Genghis Khan, Atlantis, Neptune, Stybarrow, and Zamzama Phase 2 all scheduled to commission in the coming six months. 5. Proved reserves replacement of production, excluding
divestments, was 103%, with proved and probable reserves now
standing above 2b BOE. 6. Review of the Atlantis and Neptune project has finalized, with no change to delivery schedules and increasing budgets. 5. Aluminum: 1. Delivered record EBIT of $1.9b, up 56%. 2. EBIT margins improved significantly to 40% from 30% last year, despite higher costs. 1. This reflects an intensive focus on cost containment …