BHP Billiton
BHP Billiton
“Fairy Tales for Investors”
Brian Gilbertson: CEO - elect
JP Morgan CEO Conference 2002 Lake Como, Italy April 2002 Enter the knight in shining armour…
Page 2 Share price has outperformed peers and the markets since the merger announcement in March 2001 130 Indexed 1 March 2001 = 100 120 BHP BILLITON +17% 110 RIO TINTO +13% ANGLO AMERICAN +3% ASX200 +2% 100 ALCOA -1%
90 FTSE100 -11% 80 70
March60 2001 April 2002
Page 3 Industry Consolidation
Gold Fields-Driefontein MINERALS M&A Barrick-Homestake merger * Combined Mk Billiton IPO restructure Placer Dome- Cap. of BHPB Getchell (Deals above US$1B) Newmont acquires Rio acquires North Ltd. Billiton increases stake Santa Fe Anglo acquires Shell in Worsley 86% coal assets BHP merges Valepar acquires CVRD (42%) Alcoa merger with Reynolds Alcan merger with Billiton* with Alcoa Acquires Alumax Phelps Dodge acquires Cyprus Amax Alusuisse Billiton acquires Anglo acquires Rio Algom Minorco Grupo Mexico acquires Asarco
1997 1998 1999 2000 2001
Repsol& YPF Chevron Phillips & ARCO’s & Agip & Phillips & BP & Amoco BP & Arco Tosco D/S Alaskan interests Texaco LASMO Conoco & (from BP/Amoco) Gulf Canada Total FINA Total SA & ELF Anadarko & Union Pacific Resources & FINA Exxon & Mobil PETROLEUM M&A (Deals above US$5B)
M&A Deals in 1997-2001: Oil & Gas ~US$600 billion Mining and Metals ~US$100 billion
Page 4 Source: John S Herold M&A Database (Petroleum), Goldman Sachs (Minerals) , RMG Database, Bloomberg 1990 – Industry Structure In 1990 the top five companies accounted for less than 25% of total resource equity market value
12 Market value of minerals industry US$150B Value of Top Five US$36B
10 BHP Rio Tinto Anglo Am. 8
6 De Beers Gencor Alcoa Newmont Alcan Amplats
4 Placer Dome Reynolds Driefontein WMC Barrick GFSA Noranda Minorco Inco Pechiney MIM 2 Market Cap. at end of 1990 (US$B) 0
Page 5 2002 – Industry Structure Top five companies account for almost 50% of resource equity market value – double their share of 10 years ago.
40 BHPB 35 ALCOA Rio Tinto 30
25 Anglo 20 15 Alcan Newmont Mining CVRD 10 Barrick Gold WMC Anglogold Pechiney Market Cap. On 02/04/02 (US$B) Placer Dome Impala Platinum INCO 5 Phelps Dodge Noranda Freeport-McMoran Lonmin Falconbridge New Teck Cominco Grupo Mexico 0
Page 6 Oil and Gas: “less” consolidated but OPEC is vital
Oil and gas sector has a Supermajors 15% market value of about Exxon Mobil BP Shell US$1,400 billion, Chevron - Texaco TFE excluding the national oil International companies. OPEC Integrateds 6% Super 43% Independents 2% The five “super-majors” other smaller BHPB account for just over Integrateds, 0.3% Independents & US$900 billion in market NOC’s cap. 34%
2000 crude oil production 68 million bbls/day Source: BHPB Petroleum
Page 7 3 Year Mining Industry Return Analysis Consolidation driving better share growth return for Top Four
100%
80% Top Four share movement
60%
40%
20%
0% World Mining Index 02/04/99 02/07/99 02/10/99 02/01/00 02/04/00 02/07/00 02/10/00 02/01/01 02/04/01 02/07/01 02/10/01 02/01/02 02/04/02
Rapid consolidation activity begins
Source: Datastream Page 8 BHP Billiton has delivered superior shareholder returns (from a Billiton perspective) since listing in London
Total Shareholder Returns – 1997-2002 200 180 160 140 120 BHP Billiton Rio Tinto 100 Anglo 80 FTSE100 S&P Industrials 60 Dow Jones Industrials 40 Source: Datastream 20 0 01/08/1997 01/11/1997 01/02/1998 01/05/1998 01/08/1998 01/11/1998 01/02/1999 01/05/1999 01/08/1999 01/11/1999 01/02/2000 01/05/2000 01/08/2000 01/11/2000 01/02/2001 01/05/2001 01/08/2001 01/11/2001 01/02/2002
Page 9 BHP Billiton’s historical market (PE) multiples are behind those of the major industrials Price-Earnings Ratios – 1997-2002 60
50
40 BHP Billiton Rio Tinto 30 Anglo FTSE100 20 S&P Industrials Dow Jones Industrials 10 Source: Datastream
0 01/08/1997 01/11/1997 01/02/1998 01/05/1998 01/08/1998 01/11/1998 01/02/1999 01/05/1999 01/08/1999 01/11/1999 01/02/2000 01/05/2000 01/08/2000 01/11/2000 01/02/2001 01/05/2001 01/08/2001 01/11/2001 01/02/2002
Page 10 Value Drivers - What distinguishes us from the rest
I. Stability From Outstanding Assets
II. Stability From The Portfolio Effect
III. Stability & Growth From Customer-Centric Marketing
IV. Growth From Deep Inventory of Projects
V. Growth From Petroleum
VI. Growth Through Innovation
Page 11 Value Driver - I
I. Stability From Outstanding Assets
Page 12 Escondida Copper Mine - Chile
Page 13 Worsley Alumina Refinery - Australia
Page 14 Mozal Aluminium Smelter - Mozambique
Page 15 BHP Billiton Mitsubishi Alliance (BMA) - Australia
Page 16 Ingwe Coal – South Africa
Page 17 EkatiTM Diamond Mine - Canada
Page 18 Bass Strait – Australia
Page 19 North West Shelf Project - Australia
Page 20 Value Driver - I
I. Stability From Outstanding Assets
Strategic Imperatives Performance Measures (What we have to get right) (How the market should judge us)
• Operating excellence • Cut operating costs by 2% p.a. on BHP Billiton Way average for 3 years. (US$500M FY03-05) Improved EBIT and FCF. EBIT SVA.
• Return on Capital >15% by FY2006
Page 21 The Customer Sector Groups
Petroleum Oil Gas LNG Carbon Steel Energy Coal Operations in Sth Materials Africa, Australia, US, Iron Ore Colombia Coking Coal Manganese Operating Excellence Base Metals and Technical Copper Aluminium Copper Capability Alumina Zinc Aluminium Lead Aluminium Stainless Steel Materials Nickel Chrome
Page 22 Value Driver - II
II. Stability from the Portfolio Effect
Page 23 Outstanding Diversification By Commodity By Geography By Shareholder Customer Sector Group EBIT: Net Operating Assets: Holding: Petroleum 35% Australia 37% Australia 37% Carbon Steel Materials 22% South America 35% UK & Europe 30% Aluminium 13% Southern Africa 20% North America 17% Base Metals 12% Europe 3% S. Africa 8% Energy Coal 9% Rest of World 5% Asia 6% Steel 7% Other 2% Stainless Steel Materials 2%
By Market Data for FY2001 or at 30 June 2001 Sales: Shareholder data for 31 December 2001 Asia/Oceania 47% Europe 24% Sales data includes Steel North America 18% Rest of World 11%
Page 24 Cash Flow at Risk BHP Billiton EBITDA (Indicative) th 5 Percentile Mean ~$4 billion ~$5 billion
~ US$1 billion CFAR Frequency
2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 EBITDA (US$billion)
Page 25 Value Driver - II
II. Stability from the Portfolio Effect
Strategic Imperatives Performance Measures (What we have to get right) (How the market should judge us)
• Portfolio management • Credit rating of ‘A’ or better. • Funding and capital Positive Cash Flow each year. management EBITDA/Interest coverage > 8x. (gearing 35%-40%)
Page 26 Value Driver -III
III. Stability & Growth From Customer-Centric Marketing
Strategic Imperatives Performance Measures (What we have to get right) (How the market should judge us)
• Serving customers best • Preferred supplier status. Global marketing and trading.
Page 27 Marketing – A Key Component of the Organisational Structure
Strategy, Corporate Governance Portfolio composition, M&A Corporate
Centralised Marketing Function Marketing The Singapore Hague
CUSTOMER SECTOR GROUPS – the business units Carbon Stainless BaseBase Carbon Stainless EnergyEnergy AluminiumAluminium SteelSteel SteelSteel PetroleumPetroleum CSGs MetalsMetals MaterialsMaterials MaterialsMaterials CoalCoal
Page 28 Value Driver - IV
IV. Growth From Deep Inventory of Projects
Strategic Imperatives Performance Measures (What we have to get right) (How the market should judge us)
• Investment judgement. • Decide/implement projects (potential US$10B by FY2006) Project management skills.
Page 29 Sample of new look
B R O W N F I E L D Mozal 2 Yabulu Bream Gas R’thorpe Mount Pipeline Intercor Arthur North Esc’da Zamzama FFD CdC Norte Escondida Exp’n Dendrobium Phase IV Hillside 3 Mining GoM Tintaya San Juan Area C Infrastr. Sth BW Oxide NWS 4th Train
CY 2002 2003 2004 2005
Mad ROD Dog Spence Minerva
Kipper Ohanet ROD Angostura G R E E N F I E L D Note: Size of bubble indicates $US proposed capital expenditure 250m Coal Aluminium Copper Page 30 Nickel Iron Ore Oil and Gas Pursuit of high value growth …US$10 billion in growth projects 40 Investment by Business (% of group total in 2002-06) 30
20 35-40
10 15-20 15 10 10 10 0 Petroleum Base Metals Aluminium Energy Coal Carbon Stainless Steel Steel & Materials Other * Indicative data only Page 31 Value Driver - V
V. Growth From Petroleum
Strategic Imperatives Performance Measures (What we have to get right) (How the market should judge us)
• Value adding growth • Low discovery costs. Growing reserves and production.
Page 32 Petroleum’s Industry Ranking
Production (Mmboe) Oil & Gas and Energy - Market Value (US$M) ExxonMobil Shell ExxonMobil BP Shell Chevron Texaco TotalFina Elf BP Repsol-Ypf Phillips TotalFinaElf Conoco ChevronTexaco Unocal Occidental ENI Talisman Energy E.ON 9th in terms of Marathon 15th in terms of market size Burlington production Enel Amerada Hess BHP Billiton BHP Billiton Devon Schlumberger Canadian Nat. Res. Anadarko Petrochina Kerr-McGee Suez PanCanadian BG Duke Energy Enterprise Oil Alberta Energy Tokyo Elec. Apache Corp. Petrobras Nexen 0 500 1000 1500 2000 0 100 200 300
Source: BHPB Petroleum. Excludes oil companies with state ownership Page 33 Value Driver - VI
VI. Growth Through Innovation
Page 34 Our vision…
We seek to earn superior returns for our shareholders as the world’s premier supplier of natural resources and related products and services
WeWe aspireaspire toto bebe oneone ofof thethe world’sworld’s premierpremier companiescompanies
Page 35
VALUE DRIVERS STRATEGIC IMPERATIVES PERFORMANCE MEASURES (What distinguishes us from (What we have to get right) (How the market should judge us) others)
I Stability From • Operating excellence. • Cut operating costs by 2% p.a. on average for 3 yrs. Outstanding Assets (US$500M FY03-05) Improved EBIT and FCF. EBIT SVA. • Return on Capital >15% by FY2006.
II Stability From The • Portfolio management. • Credit rating of ‘A’ or better. Portfolio Effect • Funding and capital Positive Cash Flow each year. management. EBITDA/Interest coverage > 8x (gearing 35% -40%) III Stability & Growth • Serving customers best. • Preferred supplier status. From Customer-centric Global marketing and trading. Marketing IV Growth From Deep • Investment judgement. • Decide/implement projects Inventory of Projects Project management (potential US$10B by FY2006) skills. V Growth From Petroleum • Value adding growth. • Low discovery costs. Growing reserves and production. VI Growth Through • Creative thinking. • New initiative's as opportunities arise. Innovation Commercial judgement. Transaction execution.