1st Quarter Results Part 1
BROKEN HILL PROPERTY CO LIMITED
17 September 1999
BHP First Quarter Profit Report
August 1999
Part 1
Page 1
Quarter ended
31 August
Results Summary 1999 1998 Change
Operating revenue ($ million)
- Sales revenue 4 725 5 162 -8.5%
- Other revenue 440 441 -0.2%
5 165 5 603 -7.8%
Operating profit attributable
to BHP shareholders ($ million)
- Excluding abnormal items 354 351 +0.9%
- Including abnormal items 466 351 +32.8%
Basic earnings per share (cents)
- Excluding abnormal items 20.1 20.4 -1.5%
- Including abnormal items 26.5 20.4 +29.9%
Significant Features
- reduced operating costs primarily in the Minerals and Steel businesses;
- lower prices for steel, coal, iron ore and copper partly offset by higher
average realised oil prices;
- lower profits from asset sales;
- half yearly unfranked dividend of 25.0 cents per share;
- an abnormal item arising from finalisation of funding arrangements related to
the Beenup mineral sands project (Western Australia).
Page 2
Group Results and Dividend
Quarter Result
The operating profit after income tax excluding abnormal items attributable to
BHP shareholders for the quarter ended 31 August 1999 was $354 million, an
increase of $3 million or 0.9% compared with the corresponding period.
Including abnormal items, the profit was $466 million, an increase of $115
million compared with the corresponding period. The result included an abnormal
item of $112 million which is a tax benefit arising from finalisation of funding
arrangements in August 1999 related to the Beenup mineral sands project.
There were no abnormal items in the corresponding period.
Basic earnings per share were 20.1 cents excluding abnormal items and 26.5 cents
including abnormal items. Comparative earnings per share for the quarter ended
31 August 1998 were 20.4 cents.
Dividend
Directors announced that an unfranked dividend of 25 cents per share will be
paid on 24 November 1999.
In addition, the Directors announced that the Dividend Investment Plan will be
suspended following payment of the November 1999 half yearly dividend. Since the
dividend is unfranked the Bonus Share Plan (BSP) has been immediately suspended
in accordance with the Company's Constitution and Rule 8 of the BSP.
Further details of the half yearly dividend are included on page 11.
Page 3
Operating result excluding abnormal items
The following major factors affected operating profit after income tax,
excluding abnormal items, attributable to BHP shareholders for the quarter ended
31 August 1999 compared with the corresponding period:
Costs
Benefits from cost reduction initiatives continue to be reflected in lower
production and overhead costs throughout BHP, with significant reductions being
achieved within the Minerals and Steel businesses. In addition, lower borrowing
costs resulted from a reduction in funding levels. Lower costs of approximately
$290 million ($180 million after tax) were achieved during the quarter compared
with the corresponding period.
Exchange rates
Foreign currency fluctuations net of hedging had a favourable effect of
approximately $20 million compared with the corresponding period.
Prices
Most of BHP's major products (including steel, coal, iron ore and copper)
continued to be affected by lower commodity prices, which has reduced profit by
approximately $230 million compared with the corresponding period. These
reductions were partly offset by an increase of approximately $50 million in
average realised oil prices after commodity hedging compared with the
corresponding period.
Asset sales
Profits from sale of major assets were approximately $40 million lower than in
the corresponding period.
Volumes
Lower sales volumes have reduced profit by approximately $35 million compared
with the corresponding period.
Other
Recent decisions to close or cease operations at the Hartley platinum mine
(Zimbabwe), Beenup mineral sands operation and North America copper, had a
favourable effect on results of approximately $45 million compared with the
corresponding period. Profits from diamond sales at the EKATI(TM) diamond mine
(Canada) were approximately $30 million for the quarter. Exploration expenditure
charged to profit decreased by approximately $25 million compared with the
corresponding period mainly reflecting a reduction in the Minerals worldwide
exploration program. These improvements were partly offset by operating losses
of approximately $35 million following the start up of the HBI operation
(Western Australia).
Page 4
Business Results (after income tax)
Quarter ended 31 August(1)
Excluding abnormals Including abnormals
1999 1998 Change 1999 1998 Change
$ Million $ Million % $ Million $ Million %
--------- --------- ------ --------- --------- ------
Minerals 275 361 -23.8 275 361 -23.8
Steel 63 120 -47.5 63 120 -47.5
Petroleum 170 137 +24.1 170 137 +24.1
Services 23 64 -64.1 23 64 -64.1
Net unallocated
interest (114) (107) (114) (107)
Group and
unallocated
items (73) (210) 39 (210)
------ ------ ------ ------
Operating profit
before outside
equity interests 344 365 -5.8 456 365 +24.9
Ouside equity
interests 10 (14) 10 (14)
------ ------ ------ ------
Operating profit
attributable to
members of the
BHP Entity 354 351 +0.9 466 351 +32.8
====== ====== ====== ======
(1) Comparative figures have been restated to reflect the transfer of internal
currency hedging results from Minerals, Steel and Petroleum to Group and
unallocated items, following a decision to cease new internal hedging effective
1 June 1999. The results of existing internal currency hedging activities now
eliminate within Group and unallocated items.
Page 5
Minerals
Minerals' result for the quarter was a profit of $275 million, a decrease of $86
million or 23.8% compared with the corresponding period. There were no abnormal
items in either period.
Major factors which contributed to the result were:
* significantly lower average US dollar coal prices for Bowen Basin
(Queensland), Illawarra (New South Wales) and Kalimantan (Indonesia);
* unfavourable effect of the higher A$/US$ exchange rate;
* lower average US dollar iron ore prices and volumes;
* operating losses resulting from start up of the HBI operation which was
commissioned in January 1999;
* lower profit from the sale of assets;
* lower average copper prices, partly offset by the favourable effect of
commodity hedging activities and finalisation adjustments on prior period
shipments; and
* lower operating profits due to the sale of principal manganese assets in
December 1998.
These were partly offset by:
* lower unit costs at coal operations in the Bowen Basin, Illawarra and
Kalimantan, iron ore operations at Mt Newman (Western Australia) and copper
operations in South America and at Ok Tedi (Papua New Guinea);
* losses in the corresponding period from recently closed or ceased operations
at the Hartley platinum mine, Beenup mineral sands operation and North America
copper;
* lower exploration expenditure charged to profit, reflecting a significant
reduction in the worldwide exploration program;
* profits from diamond sales at the EKATI diamond mine which commenced sales in
January 1999; and
* inclusion of profits from BHP's investment in the Samarco iron ore operations
(Brazil), following adoption of the revised accounting standard AASB 1016:
Equity Accounting.
Sales revenue was $1,999 million, 19.5% lower than in the corresponding period,
mainly due to lower prices for iron ore, coal and copper and lower volumes for
iron ore.
The average price booked for copper shipments, after hedging and finalisation
adjustments, for the quarter was US$0.75 per pound (1998 - US$0.81).
Finalisation adjustments after tax, representing adjustments on prior period
shipments settled in the current quarter were $40 million favourable (1998 - $6
million unfavourable).
Unhedged copper shipments not finalised at 31 August 1999 have been brought to
account at US$0.75 per pound. The LME copper spot price on Tuesday 31 August
1999 was US$0.75 per pound. For the balance of this financial year anticipated
shipments are 15% covered by forward contracts at an average price of US$0.77
per pound, 1.0% covered by call options at an average price of US$0.84 per
pound, and 2.1% covered by collar options with a minimum price of US$0.74 per
pound and maximum price of US$0.90 per pound.
Exploration expenditure was $19 million for the quarter (1998 - $60 million) and
the charge against profit was $17 million (1998 - $51 million), reflecting a
reduction in the worldwide exploration program.
Page 6
Significant developments during the quarter included:
* scientific reports were released by Ok Tedi Mining Limited (OTML), confirming
that the environmental impact of the Ok Tedi mine and the area of land affected
would be significantly greater than indicated by previous studies. The reports
show that none of the options considered by OTML offer a clear solution to these
environmental impacts. BHP will undertake an open consultation with all
stakeholders of the operation - the PNG Government, the Provincial Government,
the communities surrounding the mine and along the Ok Tedi and Fly River as well
as shareholders. A balance between social, environmental and economic objectives
must be determined;
* closure of North America copper operations on 25 June 1999; and
* sale of the Moura (Queensland) coal mine on 20 August 1999.
Steel
Steel's result for the quarter was a profit of $63 million, a decrease of $57
million or 47.5% compared with the corresponding period. There were no abnormal
items in either period.
Major factors which contributed to the result were:
* a decline of approximately 20% in US dollar prices for major export products;
* lower prices from overseas operations in the USA and Asia;
* lower export despatches; and
* lower domestic prices; partly offset by
* improved cost and operating performance from overseas coating operations and
North Star BHP Steel.
Total steel despatches from all operations were 1.975 million tonnes, 4.2% below
the corresponding period:
- Australian domestic despatches were 1.049 million tonnes, in line with the
corresponding period;
- Australian export despatches were 0.590 million tonnes, down 19.4%;
- New Zealand steel despatches were 0.153 million tonnes, up 10.1%; and
- despatches from overseas plants were 0.183 million tonnes, up 33.6%.
Petroleum
Petroleum's result for the quarter was a profit of $170 million, an increase of
$33 million or 24.1% compared with the corresponding period. There were no
abnormal items in either period.
Major factors which contributed to the result were:
higher average realised oil price before commodity hedging of A$29.03 per barrel
(1998 - A$21.66 per barrel), reflecting higher US dollar prices (1999 - US$18.94
per barrel; 1998 - US$13.10 per barrel), partly offset by the effect of the
higher A$/US$ exchange rate. A loss of $29 million (after tax) resulted from
commodity hedging activities compared with a gain of $1 million in the
corresponding period. The average realised oil price after commodity hedging was
US$17.23 per barrel (1998 - US$13.14 per barrel); and
Page 7
* higher profit of $18 million (after tax) from the sale of assets. The current
period included a $31 million profit (after tax) following finalisation of the
sale of exploration and producing assets in the UK Southern North Sea to the UK
based Eastern Group plc. The corresponding period included a $13 million profit
(after tax) on sale of the Timor Sea (North West Australia) producing facilities
of Jabiru and Challis and the abandoned Skua field; partly offset by
* lower sales volumes.
For the remainder of the year ending 31 May 2000, 16% of BHP's share of
potential oil and condensate sales (after third party entitlements) have been
hedged at US$16.49 per barrel, and 17% are covered by zero cost collar options
with a downside average of US$15.51 per barrel and an upside average of US$21.63
per barrel.
Oil and condensate production was 11% lower than the corresponding period due to
lower production following repairs and maintenance of the Cossack Pioneer (North
West Shelf - Western Australia), lower production from Griffin (Western
Australia), lower production from Bass Strait (Victoria) reflecting natural
decline, the sale of producing assets in the Timor Sea and the sale of
Elang/Kakatua/Kakatua North producing fields (Australian/Indonesian Zone of Co-
operation). North West Shelf LNG production was 5% lower. Natural gas production
was 3% lower mainly due to lower demand for Bass Strait gas, lower Griffin
production and sale of the UK Southern North Sea assets. This has been partly
offset by higher production from the offshore US producing properties due to
increased facility capacity.
Exploration expenditure for the quarter was $54 million (1998 - $81 million).
Exploration expenditure charged to profit was $46 million (1998 - $38 million).
Services
Services' result for the quarter was a profit of $23 million, a decrease of $41
million or 64.1% compared with the corresponding period. There were no abnormal
items in either period.
The major factor which contributed to the variation was a $46 million profit (no
tax effect) on the partial sale of BHP's investment in Orbital Engine
Corporation Limited in the corresponding period.
A significant development during the current quarter was the completion of the
sale of Hunter Towage Services Pty Ltd.
Net unallocated interest
Net Unallocated Interest expense was $114 million for the quarter compared with
$107 million for the corresponding period. This increase was mainly due to lower
capitalised interest in the current quarter for HBI, Escondida (Chile) and
Laminaria (North West Australia), and an over provision of income tax in the
corresponding period, partly offset by lower US dollar funding levels and the
effect of the higher value of the Australian dollar relative to the US dollar.
Page 8
Group and unallocated items
The result for Group and unallocated items was a loss of $73 million for the
quarter compared with a loss of $210 million for the corresponding period. The
improvement was mainly due to lower losses from external foreign currency
hedging. (August 1999 quarter - $34 million; August 1998 quarter - $126
million).
Including abnormal items the result for the quarter was a profit of $39 million.
The result included an abnormal item of $112 million which is a tax benefit
arising from finalisation of funding arrangements in August 1999 related to the
Beenup mineral sands project. There were no abnormal items in the corresponding
period.
Outside equity interests
Outside equity interests' share of operating profit decreased mainly due to
adjustments attributable to minority shareholders of the Moura coal mine
following completion of the sale in August 1999, and lower profits at Ok Tedi
during the current quarter.
Page 9
Consolidated Financial Results
Quarter ended 31 August
1999 1998 Change
$ Million $ Million %
Operating revenue
Sales 4 725 5 162 -8.5
Interest revenue 27 49 -44.9
Other revenue 413 392 +5.4
5 165 5 603 -7.8
Operating profit including abnormal items, before
depreciation, amortisation and borrowings costs 1 207 1 358 -11.1
Deduct: Depreciation and amortisation 484 535 -9.5
Borrowing costs (1) 168 210 -20.0
*Operating profit before income tax (a) 555 613
Deduct: **Income tax expense attributable to
operating profit (a) 99 248 -60.1
Operating profit after income tax 456 365 +24.9
Outside equity interests in operating
profit after income tax 10 (14)
Operating profit after income tax,
attributable to members to the BHP Entity 466 351 +32.8
(a) The operaring profit after income tax, attributable
to members of the BHP Entity comprises:
* Operating profit before abnormal items
and income tax 555 613 -9.5
** Income tax expense attributable to
operating profit before abnormal items (211) (248)
Operating profit after income tax before
abnormal items 344 365 -5.8
Outside equity interests in operating profit after
income tax before abnormal items 10 (14)
Operating profit after income tax, before
abnormal items, attributable to members of
the BHP Entity 354 351 +0.9
* Abnormal items included in operating
profit before income tax - -
** Abnormal income tax benefit 112 -
Abnormal items after income tax 112 -
Operating profit after income tax,
attributable to members of the BHP Entity 466 351 +32.8
Average A$/US$ hedge settlement rate 65c 60c
(1) Excludes capitalised interest of $10m $60m
Page 10
Consolidated Financial Results
Revenue
Sales revenue of $4,725 million decreased by $437 million or 8.5% compared with
the corresponding period. Other revenue, including interest income, decreased by
$1 million. Total operating revenue decreased by $438 million to $5,165 million.
Depreciation and Amortisation
Depreciation and amortisation charges decreased by $51 million to $484 million.
This was mainly due to depreciation in the corresponding period on businesses
now closed, ceased operating or sold, the favourable effect of exchange rate
variations and lower depreciation following the write-down of certain assets at
31 May 1999. These decreases were partly offset by higher depreciation following
commissioning of the EKATI diamond mine and the HBI plant.
Borrowing costs
Borrowing costs decreased by $42 million to $168 million, mainly due to lower US
dollar funding levels and the effect of the higher value of the Australian
dollar relative to the US dollar, partly offset by lower capitalised interest.
Income Tax Expense
Excluding abnormal items, income tax expense of $211 million was $37 million
lower than for the corresponding period. The charge for the quarter represented
an effective tax rate of 38.0% (1998 - 40.5%) which exceeded the nominal
Australian tax rate of 36% primarily due to non-deductible interest expense on
preference shares and non-deductible accounting depreciation and amortisation,
partly offset by prior year over provisions.
Page 11
Statutory Information
Quarter ended
31 August
1999 1998
Basic earnings per share (cents) (1)
- Excluding abnormal items 20.1 20.4
- Including abnormal items 26.5 20.4
Earnings per American Depositary Share (US cents) (2)
- Excluding abnormal items 26.0 23.3
- Including abnormal items 34.3 23.3
(1) Based on operating profit after income tax attributable to members of the
BHP Entity divided by the weighted average number of fully paid ordinary shares.
The weighted average number of shares was 1,756,879,594 (1998 - 1,721,721,816
excluding 338,066,630 BHP shares held by the Beswick Group which were bought
back and cancelled in March 1999).
Diluted earnings per share is not reported as it is not materially different
from basic earnings per share.
(2) Each American Depositary Share (ADS) represents two fully paid ordinary
shares. Translated at the noon buying rate on Tuesday 31 august 1999 as
certified by the Federal Reserve Bank of New York A$1-US$0.6467 (1998
A$1-US$0.5720).
Financial Data
The financial data upon which this report has been based complies with the
requirements of the Corporations Law, with all applicable Australian Accounting
Standards and Urgent Issues Group Consensus Views, and gives a true and fair
view of the matters disclosed. The results are unaudited. The Company has a
formally constituted Audit Committee of the Board of Directors.
This report is made in accordance with a resolution of the Board of Directors.
Half Yearly Dividend
Directors announced that a half yearly unfranked dividend of 25.0 cents per
fully paid ordinary share will be paid on 24 November 1999, the same amount as
the dividend in the corresponding period. The dividend will be paid entirely
from the foreign dividend account and will therefore not be subject to non-
resident dividend withholding tax.
Directors also announced that the Dividend Investment Plan will be suspended
following payment of the November 1999 half yearly dividend.
Since the dividend is unfranked the Bonus Share Plan (BSP) has been immediately
suspended in accordance with the Company's Constitution and Rule 8 of the BSP.
A revised dividend declaration and payment schedule was announced for future
dividends. Commencing with the final dividend for the fiscal 2000 year, interim
and final dividends will be declared in November and May for payment in December
and June or July respectively.
Page 12
The record date for payment of the half yearly dividend announced today will be
5 November 1999. Shareholders will be able to elect to participate in the
Company's Dividend Investment Plan for this dividend by lodging a completed
Notice of Election or Variation up to and including the record date indicated
above.
American Depositary Shares (ADSs) each represent two fully paid ordinary shares
and receive dividends accordingly. The record date for ADSs is 4 November 1999.
Transfer documents will be accepted for registration at the Company's share
registers (and in the case of ADSs the US Depositary) at the following
addresses:
Australia 40th Floor
BHP Tower - Bourke Place
600 Bourke Street
Melbourne Victoria 3000
UK Computershare Services plc
Caxton House
Redcliffe Way
Bristol BS99 7NH
USA Morgan Guaranty Trust Company of New York
ADR Department
36th Floor
60 Wall Street
New York NY 10260-0060
RJ Flew
Company Secretary
The Broken Hill Proprietary
For information contact:
Media Relations: Mandy Frostick:
(BH) (61 3) 9609 4157
(AH): (61 3) 9687 6651
Mobile: (61) 0419 546 245
Email: frostick.mandy.mj@bhp.com.au
Investor Relations: Rick Thiele:
(BH) (61 3) 9609 3885
Email: thiele.rick.r@bhp.com.au
Pierre Hirsch:
(BH) (1 415) 774 2030
Email: hirsch.pierre.pl@bhp.com.au
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