RNS Number:1072P
BHP Billiton PLC
28 August 2003
Date 28 August 2003
Number 30/03
BHP BILLITON RESULTS FOR THE YEAR ENDED 30 JUNE 2003
* EBITDA up 9.2% to US$5,129 million and EBIT up 12.2% to US$3,481 million,
both from continuing operations.
* Attributable profit of US$1,920 million and earnings per share of 30.9 US
cents (both from continuing operations) impacted by adverse movements in
exchange rates compared with the corresponding period.
* Total merger benefits and cost savings of US$595 million since the merger,
against a target of US$770 million by 30 June 2005.
* Production for all major minerals commodities higher or in line with last
year:
* Record Western Australian iron ore production and shipments, in
response to strong demand in all Asian markets, particularly China.
* Record nickel production and record plant throughput at EkatiTM
diamonds, reflecting benefits of Operating Excellence programs.
* Available cash flow (after interest and tax) remains strong at US$3,590
million.
* Five projects commissioned since 1 July 2002 - all on or below budget and
on or ahead of schedule. Three major projects approved.
* 14 major projects in development; 13 currently tracking on or ahead of
cost and commissioning targets.
* Dividends of 14.5 US cents per share declared during the year, an increase
of 11.5%.
FROM CONTINUING OPERATIONS AND 2003 2002 Change %
EXCLUDING EXCEPTIONAL ITEMS US$M US$M
Year ended 30 June
Turnover (1) (2) 17 506 15 228 15.0%
EBITDA (1) (2) (3) (4) 5 129 4 697 9.2%
EBIT (1) (2) (3) (4) 3 481 3 102 12.2%
Attributable profit (1) (2) (3) 1 920 1 866 2.9%
Available cash flow (1) (5) 3 590 3 600 (0.3)%
Basic earnings per share (US cents) (1) (2) (3) 30.9 31.0 (0.3)%
EBITDA interest coverage (times) (1) (2) (3) (4) (6) 12.7 10.9 16.5%
Dividends per share (US cents) 14.5 13.0 11.5%
(1) From continuing operations, excluding the results of the Group's Steel
business, which was demerged in July 2002. Refer pages 16, 17 and 19.
(2) Including the Group's share of joint ventures and associates.
(3) Excluding exceptional items.
(4) EBIT is earnings before interest and tax. EBITDA is EBIT before
depreciation and amortisation of Group companies of US$1,648 million and
US$1,595 million for the years ended 30 June 2003 and 2002 respectively. We
believe that EBIT and EBITDA provide useful information, but should not be
considered as an indication of, or alternative to, attributable profit as an
indicator of operating performance or as an alternative to cash flow as a
measure of liquidity.
(5) Available cash flow is operating cash flow including dividends from joint
ventures and associates and after net interest and tax.
(6) For this purpose, net interest includes capitalised interest and excludes
the effect of discounting on provisions and exchange differences arising from
net debt.
The above financial results are prepared in accordance with UK generally
accepted accounting principles (GAAP) and are unaudited. Financial results in
accordance with Australian GAAP are provided on page 26. All references to the
corresponding period are to the year ended 30 June 2002.
RESULTS FOR THE YEAR ENDED 30 JUNE 2003
Commentary on the Group Results
Introduction
Global economic conditions remained weak during the year ended 30 June 2003. In
what has been a challenging climate, BHP Billiton's operating and financial
results clearly demonstrate our ability to consistently generate stable cash
flows, improve underlying profitability and increase returns to shareholders
whilst still continuing our investment in value accretive growth projects.
Attributable profit from continuing operations and excluding exceptional items
was US$1,920 million, 2.9% above last year's result of US$1,866 million.
Compared with the corresponding period, the financial results reflect an
unfavourable non-cash exchange impact of approximately US$560 million arising
mainly from the translation of non US dollar denominated net monetary
liabilities. Excluding this non-cash impact, attributable profit was 36.4%
higher than the corresponding period reflecting generally higher prices and
sales volumes and the benefits from our cost savings program.
Production of all major minerals commodities was higher than, or in line with,
the prior period and a number of production records were achieved during the
year. Record Western Australian iron ore production of 76.5 million tonnes (100
per cent terms) and shipments of 80.3 million tonnes (100 per cent terms)
reflect strong demand in all Asian markets, particularly China. Record nickel
production at both QNI Yabulu refinery (Australia) and Cerro Matoso (Colombia),
and record plant throughput at Ekati TM (Canada) all reflect the benefits of
Operating Excellence programs. Fourth quarter production of all petroleum and
major minerals commodities was higher than, or in line with, the third quarter.
It is significant to note that a general improvement in our safety results
accompanied the solid production performance.
Our diversified asset base generated US$3,590 million in available cash flow
(after interest and tax) during the year, which allowed us to progress
investment in sanctioned growth projects. Following the recent commissioning of
Zamzama (Pakistan) and Mozal 2 (Mozambique), there are now 14 major capital
projects under development. 13 of these are either on or under budget and are
currently tracking on or ahead of schedule. Three projects, representing
US$1,657 million of capital expenditure (BHP Billiton share) were sanctioned
during the year. Our ability to deliver projects on or ahead of budgeted
parameters is illustrated by the five projects commissioned since 1 July 2002,
all on or under budget, and on or ahead of schedule. The projects commissioned
since 1 July 2002 involved capital expenditures amounting to US$1,073 million.
At the time of the merger, a target was set to capture US$270 million of merger
benefits by 30 June 2003. US$285 million of on-going annual benefits had been
achieved by 31 December 2002, six months ahead of schedule. Cost saving
initiatives continued, with total annual savings (including merger benefits) of
US$375 million being achieved in the current year. Of this total, US$65 million
were merger benefits achieved in the first half of the current year and US$310
million represents steady progress towards our cost savings target of US$500
million by 30 June 2005.
The confidence of the Board of Directors in the stable cash generating ability
of the business allowed an increase in dividends declared to shareholders for
the full year from 13.0 US cents per share last year to 14.5 US cents per share
in the full year ended 30 June 2003, an increase of 11.5%.
The Income Statement
During the period, the Group's Steel business was demerged. In order to provide
meaningful comparison the discussion in this section is based on the Group's
continuing operations, excluding exceptional items and the Group's Steel
business.
Turnover (including turnover from third party products) rose by 15.0% to
US$17,506 million, mainly due to higher sales volumes of iron ore, energy coal,
copper, aluminium, diamonds and manganese and higher prices for petroleum
products, nickel, ferrochrome, copper, hot briquetted iron and manganese alloy.
These factors were partly offset by lower sales volumes of petroleum products
and lower prices for export energy coal and iron ore.
Earnings before interest, tax, depreciation and amortisation (EBITDA) increased
by 9.2% to US$5,129 million from US$4,697 million in the corresponding period.
Earnings before interest and tax (EBIT) were US$3,481 million compared with
US$3,102 million in the corresponding period, an increase of 12.2%. This
increase was due to generally higher commodity prices, increased sales volumes,
cost savings, lower exploration expense and increased profits from new and
acquired operations. Offsetting factors were inflationary pressures, principally
in South Africa, exchange rate impacts, increased price linked costs, lower
profits from ceased and sold operations and profits from asset sales recorded in
the corresponding period. Please refer to pages 9 and 10 for further analysis of
the factors affecting turnover and EBIT.
Net interest on borrowings and cash fell from US$432 million to US$403 million,
principally driven by lower market interest rates, lower average debt levels and
management of the Group's debt portfolio.
Exchange losses on net debt were US$140 million compared with gains of US$180
million in the corresponding period, mainly in relation to the translation of
rand denominated debt of companies which account in US dollars as their
functional currency. The rand appreciated by 27% during the current period
compared with depreciation of 27% in the corresponding period.
The tax charge was US$984 million, representing an effective rate of 33.4%.
Excluding the impacts on tax of non tax-effected foreign currency adjustments,
translation of tax balances and other functional currency translation
adjustments, the effective rate was 26.3%. The Group recognises tax losses to
the extent that it can reasonably foresee future profits which can absorb those
losses. Following promising progress in the Group's Gulf of Mexico (US)
projects, previously unrecognised tax losses in the US have been recouped and
have been recognised this year resulting in a reduction in the effective tax
rate of approximately 3%. If and when the projects reach appropriate milestones
that provide greater certainty over projected future profits, further benefits
in respect of past losses may be recognised.
Basic earnings per share was 30.9 US cents per share against 31.0 US cents per
share in the corresponding period, reflecting the increased number of shares on
issue (including the equalisation issue associated with the BHP Steel demerger).
Discontinued Operations / Exceptional Items
The demerger of the Group's Steel business became unconditional on 1 July 2002.
The contribution of the Group's Steel business in the corresponding period has
been disclosed as discontinued operations. The 6% interest in BHP Steel retained
by BHP Billiton was sold in July 2002 for US$75 million and the loss of US$19
million associated with this sale has been recognised in the current year and is
disclosed as an exceptional item in relation to discontinued operations. The
demerger was effected through a Court approved capital reduction of A$0.69 per
BHP Billiton Limited share totalling approximately US$1.5 billion (A$2.6
billion) via the transfer of BHP Steel Limited shares to BHP Billiton Limited
shareholders. Consequently, BHP Billiton Plc shareholders received approximately
149 million BHP Billiton Plc equalisation shares.
After including discontinued operations and exceptional items, the attributable
profit for the period was US$1,901 million, US$211 million higher than the
US$1,690 million for the corresponding period, which included profits from
discontinued operations of US$68 million, together with exceptional losses of
US$244 million. Basic earnings per share, including discontinued operations and
exceptional items, was 30.6 US cents per share, 9.3% higher than the 28.0 US
cents per share of the corresponding period.
Cash Flows
Available cash flow (after interest and tax) remained strong at US$3,590
million.
Expenditure on growth projects and investments amounted to US$1,995 million,
including US$814 million on petroleum projects and US$1,181 million on minerals
and other corporate projects. Maintenance capital expenditure was US$671 million
and exploration expenditure was US$348 million, whilst disposals of fixed
assets, sale of investments and associates and repayments of loans by joint
ventures generated US$792 million.
Additionally, a net cash inflow of US$272 million was derived from the proceeds
on demerger of the Group's Steel business. Whilst not reflected in cash flows,
Group debt further declined by US$232 million which was retained by BHP Steel
upon demerger.
Net cash inflow before dividend payments was US$1,640 million. After dividend
payments of US$830 million (up from US$811 million in the prior year), net cash
inflow (before management of liquid resources and financing) amounted to US$810
million.
Net debt of US$5,772 million at 30 June 2003 was 15.4% (US$1,050 million) lower
than last year and represents 31.9% of net debt plus net assets. Net debt
comprises US$7,324 million of total debt offset by US$1,552 million of cash,
including money market deposits.
Dividends
An interim dividend of 7.0 US cents per fully paid ordinary share was paid in
December 2002 and a final dividend of 7.5 US cents per fully paid ordinary share
was paid in July 2003, bringing the declared total for the year to 14.5 US
cents. This compares to total dividends declared in the corresponding period of
13.0 US cents per share. The BHP Billiton Limited dividends were fully franked
for Australian taxation purposes.
Dividends for the BHP Billiton Group are determined and declared in US dollars.
However, BHP Billiton Limited dividends are mainly paid in Australian dollars
and BHP Billiton Plc dividends are mainly paid in pounds sterling to
shareholders on the UK section of the register and South African rand to
shareholders on the South African section of the register.
Portfolio Management
During the year, a number of portfolio management activities were finalised.
Proceeds of US$345 million were received from the sale of our indirect 2.1%
interest in Companhia Vale do Rio Doce (CVRD), during March 2003. Our interests
in the Agua Rica prospect and Alumbrera mine in Argentina were also sold during
the year, which generated US$136 million in cash proceeds, with an additional
US$63 million deferred for receipt until June 2005.
Capital Management
Moody's Investor Services upgraded our long-term credit rating to A2 from A3 and
our short-term rating to P-1 from P-2 during the year ended 30 June 2003. This
was as a result of the successful integration of the Group's operations
following the merger, the benefits of our substantially diversified portfolio
and our focus on maintaining disciplined financial policies.
The Group's stronger credit profile enabled further diversification of funding
sources, resulting in the issuance of our inaugural Euro750 million Eurobond under
the US$1.5 billion Euro Medium Term Note program and issuance of our inaugural
US$850 million Global Bond with a 10 year maturity.
In February 2003, a US$2 billion commercial paper program was established and
issuance from this program commenced during June 2003. This provides additional
diversification of our short term funding programs and enhances flexibility.
Merger Benefits and Cost Savings
At the time of the merger, a target was set to capture US$270 million of merger
benefits by 30 June 2003. US$285 million of on-going annual benefits had been
achieved by 31 December 2002, six months ahead of schedule.
A further target, to achieve additional cost savings and efficiency gains of
US$500 million by 30 June 2005, was set in our Strategic Framework in April
2002. This target is to be measured by comparing commodity-based unit costs
against base year costs for the year ended 30 June 2001. During the current
year, US$310 million of annual cost savings and efficiency gains were achieved,
which is additional to the US$285 million of merger benefits captured as
detailed above. These additional savings have been largely driven through the
continuation of our Operating Excellence program and resulting productivity
improvements across most divisions, and ongoing strategic sourcing and marketing
initiatives.
Outlook
For the third consecutive year global economic growth has been anaemic. The
fragile economic recovery felt the impact of a number of adverse developments
including the conflict in Iraq, Severe Acute Respiratory Syndrome (SARS), a
weakening US dollar and the ongoing threat of deflation. Across the industrial
economies, a combination of lower interest rates and expansionary fiscal
policies was insufficient to raise consumer and business confidence and
expectations were consistently revised downwards during the year as the forward
momentum faltered. In contrast, despite a feared SARS induced slowdown, Asian
economies have demonstrated growth, driven in particular by strong demand for
commodities in China.
In spite of the generally weak economic environment, commodity markets made some
notable gains. Nickel and aluminium prices rose and stock levels for copper and
nickel fell, average West Texas Intermediate (WTI) oil prices were just under
US$30 per barrel for the year and prices for steel making raw materials were
generally stronger, reflecting record global steel production.
China appears set for another year of strong growth. The outlook for other key
commodity markets remains fragile, although there are some promising early signs
that the more expansionary fiscal policies in some markets are starting to
create increased demand for our products. The diversity of our portfolio, and in
particular the exposure we have to the stronger Asian economies, places us well
to benefit from any global economic upturn. In the meantime, the strength of our
cash flows allows us to respond to opportunities as and when they arise and to
build on the progress we have made over the last two years.
Annual General Meetings
The Annual General Meeting of BHP Billiton Plc will be held at the Queen
Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London, on Friday
24 October 2003 commencing at 10:30 am. The Annual General Meeting of BHP
Billiton Limited will be held at the Melbourne Concert Hall, St Kilda Road,
Melbourne, on Thursday 13 November 2003 commencing at 11:00 am. The Annual
Report and details of the business to be conducted at the meetings will be
mailed to shareholders in early October 2003.
Corporate Governance
Dr John Buchanan and Mr Miklos (Mike) Salamon were appointed as Directors during
the year. Shareholders will be asked to approve these appointments at the Annual
General Meetings. Mr Charles Goodyear was appointed Chief Executive Officer on 5
January 2003 following the resignation of Mr Brian Gilbertson.
Growth Projects
Of the 14 projects currently in development, 13 are on or under budget and are
currently tracking on or ahead of schedule.
Since 1 July 2002, five projects reached commissioning stage, all either on or
under budget and on or ahead of schedule. With costing yet to be finalised on
two projects, total capital expenditure throughout the development stage is
assessed at approximately US$1,073 million, which is US$168 million or 13.5%
below budget.
Completed Projects
Customer Sector Project Production (1) Capital expenditure Date of initial
Group
(US$ million) (1) production (2)
Budget Actual Target Actual
Petroleum Zamzama 123 million cubic feet
(Pakistan) of gas per day 40