Forecast/Demerger BHP Steel
BHP Billiton Limited
24 April 2002
BHP Billiton Limited is issuing this announcement to fulfil disclosure
obligations arising from its secondary listing on the London Stock Exchange.
The text of this release is identical to that issued by BHP Billiton Plc
earlier.
24 April 2002
Number: 21/02
BHP BILLITON DETAILS DRAFT FORECAST FINANCIAL STATEMENTS
AND DEMERGER ARRANGEMENTS FOR BHP STEEL
BHP Billiton today announced additional details of the planned demerger
arrangements for BHP Steel and provided draft financial forecasts for BHP Steel
for the years ending 30 June 2002 and 30 June 2003.
The additional information is provided in accordance with continuous disclosure
requirements and market practice in Australia. A copy of the announcement to the
stock exchange is attached.
Further BHP Billiton information can be found on our Internet site: http://www.bhpbilliton.com
Australia United Kingdom/South Africa
Dr. Robert Porter, Investor Relations Michael Campbell, Investor & Media Relations
Tel: + 61 3 9609 3540 Mobile: +61 419 587 456 Tel: +27 11 376 3360 Mobile: +27 82 458 2587
email: Robert.Porter@bhpbilliton.com email: Michael.J.Campbell@bhpbilliton.com
Michael Buzzard, Media Relations Ariane Gentil, Manager Communications
Tel: +61 3 9609 3709 Mobile: +61 417 914 103 Tel: +44 20 7747 3977 Mobile: + 44 7881 518 715
email: Michael.Buzzard@bhpbilliton.com email: Ariane.Gentil@bhpbilliton.com
United States
Francis McAllister, Investor Relations
Tel: +1 713 961 8625 Mobile: +1 713 480 3699
email: Francis.R.McAllister@bhpbilliton.com
The Manager
Company Announcements
Australian Stock Exchange Limited
Sydney NSW 2000
Dear Sir
Demerger of BHP Steel
At the time of the announcement of the creation of the DLC between BHP Limited
and Billiton Plc, BHP Limited disclosed its intention to demerge BHP Steel and
separately list it on the Australian Stock Exchange.
Over recent months, BHP Billiton has informed the market that the listing is on
track for mid 2002 and of certain other relevant matters, including the proposed
directors of BHP Steel.
The demerger will be implemented by way of a capital reduction and distribution
of 94% of BHP Steel shares to eligible BHP Billiton Limited shareholders on an
expected basis of one share in BHP Steel for every five shares held in BHP
Billiton Limited. To create a minimum level of supply, BHP Billiton will hold 6%
of the total number of BHP Steel shares on issue, which it will offer for sale
under a sale facility in connection with the demerger of BHP Steel. BHP Billiton
Limited shareholders will also have the option to offer to sell under the sale
facility some or all of their BHP Steel shares prior to the listing of BHP Steel
on the Australian Stock Exchange.
As foreshadowed at the time of the creation of the DLC, BHP Billiton Plc
shareholders will not receive BHP Steel shares. Instead, to ensure equality in
the economic treatment of BHP Billiton Plc shareholders, such shareholders will
receive a bonus issue of BHP Billiton Plc shares to reflect the market value of
the BHP Steel shares being distributed to BHP Billiton Limited shareholders. The
size of the bonus issue will be based on the volume weighted average price of
BHP Steel shares sold under the sale facility and traded during the first 5
trading days on ASX and BHP Billiton Plc shares traded on the same 5 trading
days on the London Stock Exchange.
The demerger of BHP Steel and the issue of bonus shares will be subject to the
approval of both sets of shareholders. BHP Billiton Limited proposes to announce
details in mid-May, 2002. At that time, all relevant documents, including a
scheme booklet in connection with the proposed reduction of capital and scheme
of arrangement, and prospectuses in connection with the offering of shares in
BHP Steel, will be released.
These documents will include a forecast for BHP Steel for the years ending 30
June 2002 and 30 June 2003. A copy of the latest draft of the forecast is
attached to this announcement.
BHP Billiton reserves the right to change the forecast. No person should take
any action based on this forecast, including, but not limited to, selling,
buying or continuing to hold shares in BHP Billiton. Any person who wants to
acquire shares in BHP Steel sold under the sale facility will need to complete
an application form that will accompany the disclosure documents.
Yours faithfully,
Karen J Wood
Company Secretary
Warning
The attached forecast for BHP Steel has been prepared in connection with the
demerger of BHP Steel from BHP Billiton Limited ('Steel Demerger'). It is
proposed that a forecast will be included in documents sent to the shareholders
of BHP Billiton in connection with the Steel Demerger and to other potential
investors in BHP Steel ('Disclosure Documents').
The provision of the attached forecast should not be considered as a
recommendation in relation to holding, purchasing or selling shares in BHP
Billiton Limited, BHP Billiton Plc, BHP Steel or any other company, or to take
or not to take any action.
Due care and attention has been used in the preparation of this forecast
financial information. However, the usual processes and checks that are
undertaken in connection with such information prior to its release in
disclosure documents have not yet been completed. Consequently, the information
contained in this forecast may be different when included in the Disclosure
Documents.
In addition, any forecast financial information is likely to vary from actual
results and any variation may be materially positive or negative because the
assumptions, and therefore the forecast financial information, by its very
nature is subject to significant uncertainties and contingencies, many of which
will be outside the control of BHP Steel and not predictable on a reliable
basis.
The final forecast will be included in documents which will contain information
which, among other things, will assist shareholders of BHP Billiton in deciding
whether or not to approve the Steel Demerger and to provide all such information
that investors and their professional advisers would reasonably require to make
an informed assessment of the assets and liabilities, financial position and
performance, profits and losses and prospects of BHP Steel. The attached
forecast is not sufficient to make those decisions. Before any decisions are
made, all the information contained in the Disclosure Documents should be
considered. Any person who wants to acquire shares in BHP Steel will need to
complete an application form that will accompany a Disclosure Document.
None of BHP Billiton, BHP Steel, nor their directors or officers, nor the
prospective directors of BHP Steel take any responsibility and disclaim all
liability to any person who, notwithstanding the warnings contained in this
statement not to do so, takes any action based on the attached forecast.
Except where required by law, BHP Billiton has no intention to update this
information.
BHP Steel
Warning: No action should be taken based on this forecast.
Subject to change.
Unless otherwise indicated, all references to $ or dollars are to
Australian Dollars.
1. Forecast financial information
In accordance with market practice in Australia, forecast financial
information for the years ending 30 June 2002 and 30 June 2003 has been
prepared in accordance with Australian GAAP. This information was
prepared by the management of BHP Billiton and the management of BHP
Steel for use in the Scheme Booklet. Subject to the continuous
disclosure requirements imposed upon publicly listed companies, BHP
Billiton and BHP Steel do not intend to update this information or to
publish forecast financial information in the future.
The forecast financial information provided for BHP Steel includes:
• pro forma forecast statement of financial performance for the year
ending 30 June 2002 and the forecast statement of financial performance
for the year ending 30 June 2003; and
• pro forma forecast statement of cash flows for the year ending 30 June
2002 and the forecast statement of cash flows for the year ending 30
June 2003.
The pro forma forecast financial information for the year ending 30 June
2002 comprises pro forma historical financial information for the six
months ended 31 December 2001 plus the forecast financial information
for the six months ending 30 June 2002.
The forecast financial information was prepared based on an assessment
of present economic and operating conditions, and on a number of
assumptions regarding future events and actions which, as at the date of
the Scheme Booklet, are expected to take place, including the key
assumptions set out in Part 1.1.1. The forecast financial information
was not prepared with a view toward complying with the guidelines
established by the American Institute of Certified Public Accountants
with respect to forecast financial information, but reflects the best
currently available estimates, including BHP Billiton's and BHP Steel's
best estimates as to steel prices, exchange rates, volumes and costs
during the remainder of 2002 and during 2003. BHP Billiton and the
managements of BHP Billiton and BHP Steel have used due care and
attention in the preparation of this forecast financial information and
consider the assumptions to be reasonable when viewed as a whole.
However, this information is not fact and you are cautioned not to place
undue reliance on the forecast financial information.
The forecast financial information is likely to vary from actual results
and any variation may be materially positive or negative because the
assumptions, and therefore the forecast financial information, are by
their very nature subject to significant uncertainties and
contingencies, many of which will be outside the control of BHP Steel
and are not predictable on a reliable basis. Accordingly, none of BHP
Billiton, BHP Steel, nor any other person can give any assurance that
the forecast financial information will be achieved. Events and outcomes
might differ in quantum and timing from the assumptions, with material
consequential impact on the forecast financial information. The
sensitivity analysis in Part 1.1.2 is a summary of the sensitivity of
the forecast EBIT for the year ending 30 June 2003 to changes in certain
key variables. In particular, BHP Steel's forecast EBIT is highly
sensitive to assumptions relating to hot rolled coil prices.
The forecast financial information, together with comparative historical
financial information for the year ended 30 June 2001, is set out in the
tables below. It should be read together with the key assumptions and
sensitivity analysis, the risk factors to be described in the Scheme
Booklet and other information to be contained in the Scheme Booklet.
Forecast statements of financial performance Pro forma Pro forma forecast(2) Forecast
historical(1)
$ million Year ended Year ending Year ending 30 June
30 June 2001 30 June 2002 2003
Revenue(3) 4,941 4,489 4,913
EBITDA 568 421 611
Depreciation and amortisation 263 254 268
EBIT 305 167 343
Net interest expense 27
Profit from ordinary activities before taxation 316
Income tax attributable to profit from ordinary 46
activities
Net Profit 270
Profit Attributable to outside equity Interests 16
Profit Attributable to Shareholders 254
1. Pro forma historical financial information is after normalisation
adjustments to be set out in the Scheme Booklet.
2. Forecast financial information is after normalisation adjustments in 2002
including those listed for the six months to December 2001 to be set out
in the Scheme Booklet as well as a further $32 million of favourable
adjustments in the second half of 2002. The $32 million relates to the
normalisation of a $14 million loss on the close out of foreign exchange
hedges prior to the Steel Demerger, $13 million of corporate charges
related to one-off transaction costs, and $5 million product warranty
payments related to discontinued operations.
3. Revenue includes external trading activity totalling $253 million in 2001
declining to $94 million and $35 million in 2002 and 2003
Forecast statements of cash flows Pro forma Pro forma forecast(2) Forecast
Historical(1)
$ million Year ended Year ending Year ending 30 June
30 June 2001 30 June 2002 2003
Net operating cash flows before borrowing costs and 631 364 543
income tax
Net investing cash flows (111) (168) (198)
Payment of income tax (6)
Net financing cash flows(3) (158)
Net increase in cash held 181
1. Pro forma historical financial information is after normalisation adjustments
to be set out in the Scheme Booklet.
2. Forecast financial information is after normalisation adjustments in 2002
including those listed for the six months to December 2001 to be set out in
the Scheme Booklet as well as a further $34 million of favourable
adjustments in the second half of 2002. The $34 million relates to the
normalisation of a $14 million loss on the close out of foreign exchange
hedges prior to Demerger, $15 million of corporate charges related to
one-off transaction costs including fees related to the establishment of BHP
Steel's new debt facilities, and $5 million product warranty payments
related to discontinued operations.
3. Net financing cash flows include interest and other financing costs
1.1.1 Key assumptions
The forecast financial information is based on the following key
assumptions:
(a) Revenue assumptions
Revenue is forecast to decrease by 9% in the year ending 30 June 2002 to
$4,489 million from $4,941 million in the year ended 30 June 2001 and
then increase by 9% in the year ending 30 June 2003 to $4,913 million.
The key assumptions in respect of revenue are:
• Average FOB price for hot rolled coil exported by BHP Steel decreases
by 12% from US$230 per tonne in the year ended 30 June 2001 to US$203
per tonne in the year ending 30 June 2002 and then increases by 14% to
US$232 per tonne in the year ending 30 June 2003. The price of hot
rolled coil varies between different geographic markets and customer
specifications. The forecast average prices reflect the expected mix of
hot rolled coil markets and customers.
BHP Steel's forecast net profit is very sensitive to assumptions
relating to hot rolled coil prices. The assumption of an increase in the
hot rolled coil prices in the forecast for the year ending 30 June 2003
takes into account a number of factors. During the current trough in the
steel price cycle, the price of European exported hot rolled coil has
been US$195 per tonne as recently as February 2002, which is close to
the lowest price for this product at any time in the last 15 years. The
historical long term trend for hot rolled coil prices is downwards,
however, current prices are below this trend and recent market activity
has seen an increase in prices.
• Forecast slab exports to the US of 350,000 tonnes will not be subject
to the 30% tariff introduced by the US government in March 2002 due to
the agreement by the US Government not to impose a tariff on Australian
exports below 354,000 tonnes per annum.
• Forecast hot rolled coil exports of 250,000 tonnes to BHP Steel's US
based customer, Steelscape, will not be subject to the 30% tariff
introduced by the US government in March 2002 due to an exemption on
those products that has been agreed to by the US Government.
• Average domestic selling prices for metallic coated and painted steel
products in Australia and New Zealand remain stable in the years ending
30 June 2002 and 2003 and at the same level as the year ended 30 June
2001.
• Total domestic sales volume in Australia and New Zealand decreases by
2% from 2.63 million tonnes in the year ended 30 June 2001 to 2.59
million tonnes in the year ending 30 June 2002 and then decreases 3% in
the year ending 30 June 2003 to 2.52 million tonnes.
• Total export sales from Australia and New Zealand decrease by 12% from
2.66 million tonnes in the year ended 30 June 2001 to 2.34 million
tonnes in the year ending 30 June 2002 and then increases by 21% in the
year ending 30 June 2003 to 2.84 million tonnes.
• Total sales from Coated Products Asia's three coating facilities
decrease by 17% from 0.36 million tonnes in the year ended 30 June 2001
to 0.30 million tonnes in the year ending 30 June 2002 and then
increases by 17% in the year ending 30 June 2003 to 0.35 million tonnes.
The aggregate volume sold by Coated Steel Asia in its domestic markets
as a percentage of total Asian sales volume remains above 60% in both
the year ending 30 June 2002 and 30 June 2003.
(b) EBITDA Assumptions
EBITDA is forecast to decrease by 26% in the year ending 30 June 2002 to
$421 million from $568 million in the year ended 30 June 2001, and
increase by 45% in the year ending 30 June 2003 to $611 million. In
addition to the revenue assumptions outlined, the key assumptions in
respect of EBITDA are:
• Iron ore and coking coal prices are respectively 2% and 8% higher in
the year ending 30 June 2002 compared to the year ended 30 June 2001.
Prices for iron ore in the year ending 30 June 2003 are assumed to be in
line with those in the year ending 30 June 2002, but coking coal prices
increase by 14%.
• Total slab production in Australia and New Zealand decreases by 3%
from 5.43 million tonnes in the year ending 30 June 2001 to 5.25 million
tonnes in the year ending 30 June 2002 and then increases by 8% in the
year ending 30 June 2003 to 5.66 million tonnes. Changes in slab
production affect unit costs and hence EBITDA margin.
• Minimal level of industrial strikes or other industrial disturbances
for the remainder of the year ending 30 June 2002 and in the year ending
30 June 2003.
• Average scrap to hot rolled coil margin spread in North Star BHP Steel
increases to US$162 per tonne in the year ending 30 June 2003 from an
average spread of $134 in the year ended 30 June 2002 and US$143 in the
year ended 30 June 2001. The benefit which North Star BHP Steel is
assumed to derive from stronger US domestic prices is forecast to be
partially offset by higher scrap prices.
(c) Net interest assumptions
Net interest expense includes borrowing costs and interest income.
Borrowing costs which represent debt interest costs at an average rate
of 5.6% per annum.
(d) Taxation assumptions
Taxation assumptions reflect a forecast effective tax rate of 15% in the
year ending 30 June 2003. This is lower than the rate of corporation tax
within most jurisdictions in which BHP Steel operates primarily due to
the utilisation of prior year income tax losses that have not previously
been tax effected for statutory accounting purposes.
As at 30 June 2001, BHP Steel had estimated tax losses of $554 million
in its New Zealand subsidiaries, $146 million in its Asian subsidiaries
and $195 million in the US subsidiary through which it holds its
interest in North Star BHP Steel. These tax losses are available to
offset against future years' taxable income within these entities if the
group continues to comply with the conditions for deductibility imposed
by law.
A Tax Bill was introduced in to the New Zealand Parliament in December
2001 to amend the tax legislation concerning the maintenance of the
existing level of shareholder continuity required for recoupment of
carry forward tax losses in the situation of a demerger. The amendment
is in line with the underlying policy intent of the existing provisions.
Royal Assent is anticipated in June 2002. The legislation is to be made
effective from 1 March 2002. Once the Bill receives Royal Assent, BHP
Steel will be able to utilise existing carry forward income losses in
New Zealand against future years' taxable income in New Zealand. After
the Steel Demerger, significant changes in the shareholders of BHP
Steel could affect the carry forward of tax losses in New Zealand. BHP
Billiton's understanding is that the ability to carry forward losses
should not be affected unless either a single shareholder acquires or
two or more large shareholders acquire more than 51% of the shares in
BHP Steel.
(e) Capital expenditure assumptions
Capital expenditure is forecast to increase to $170 million in the year
ending 30 June 2002 from $105 million in the year ended 30 June 2001 and
then increase to $198 million in the year ending 30 June 2003. The
increased expenditure is primarily attributable to reducing emissions at
Port Kembla Steelworks' sinter plant, an upgrade of Port Kembla
Steelworks' hot strip mill and the expansion of BHP Steel's roll-forming
capacity in Asia.
(f) General
The following general assumptions are relevant to the forecast financial
information:
• Average Australian dollar/US dollar exchange rate of A$1/US$0.51 in
the year ending 30 June 2002 and A$1/US$0.52 in the year ending 30 June
2003.
• No significant change in the economic conditions prevailing in
Australia and the markets in which BHP Steel operates, other than those
changes reflected in the key revenue assumptions.
• No significant change in the legislative regimes and regulatory
environments in the jurisdictions in which BHP Steel or its key
customers or suppliers operate, other than the trade sanctions noted in
the key revenue assumptions.
• No change in applicable accounting standards that would have a
material impact on BHP Steel's financial reporting or disclosure.
• No change in the taxation legislation that would have a material
impact on BHP Steel's forecast financial position.
• No material environmental losses or material legal claims.
• No material adverse change in the competitive environment in the
Australian steel industry.
• No material acquisitions or disposals.
1.1.2 Sensitivity analysis
The forecast financial information is based on certain economic and
business assumptions about future events. Set out below is a summary of
the sensitivity of the forecast EBIT to variations in a number of key
variables. The sensitivity analysis is specific to the steel prices,
exchange rates, volumes and costs forecast for the year ending 30 June
2003. The changes in the key variables set out in the sensitivity
analysis are not intended to be indicative of the complete range of
variations that may be experienced.
Care should be taken in interpreting these sensitivities. The estimated
impact of changes in each of the variables has been calculated in
isolation from changes in other variables over the full year. In
practice, changes in variables may offset each other or may be additive,
and it is likely that BHP Steel's management would respond to any
adverse change in one variable by taking action to minimise the net
effect on BHP Steel's earnings.
(a) Hot rolled coil price sensitivity
BHP Steel's forecast EBIT is very sensitive to assumptions relating to
hot rolled coil prices. The assumption of an increase in the hot rolled
coil prices in the forecast for the year ending 30 June 2003 takes into
account a number of factors. During the current trough in the steel
price cycle, the price of European exported hot rolled coil has been
US$195 per tonne as recently as February 2002, which is close to the
lowest price for this product at any time in the last 15 years. The
historical long term trend for hot rolled coil prices is downwards,
however, current prices are below this trend and recent market activity
has seen an increase in prices.
International steel prices are volatile and difficult to forecast. For
example, in the last five years, the European exported hot rolled coil
price has sometimes varied by as much as US$140 per tonne in a 12 month
period. During this period, the average European exported hot rolled
coil price was around US$270 per tonne and the standard deviation was
US$52. The assumed increase in the year ending 30 June 2003 may
therefore not occur in that period or may not be as large or as
sustained as forecast. The business risks associated with the volatility
of international steel prices and the difficulties in forecasting them
are to be set out in the Scheme Booklet.
Hot rolled coil price sensitivity analysis Impact on forecast EBIT
for the year ending
$ million 30 June 2003
Assumption
+/- US$25/tonne movement in average hot rolled coil price(1) 104
(1) The sensitivity analysis assumes a US$25 per tonne equivalent impact
on the price of export cold rolled coil and plate, and a US$19 per tonne
impact on the price of export slab. Prices of export metallic coated and
painted steel products as well as Australian domestic pipe and tube
products are assumed to change by less than US$25 per tonne due to the
existence of other market factors. The sensitivity excludes the impact
on North Star BHP Steel which is separately considered in the
sensitivity in Part 1.2.2(b) below.
(b) Other significant sensitivities
Other significant sensitivities Impact on forecast EBIT
for the year ending
$ million 30 June 2003
Assumption
+/- US$10/tonne movement in North Star BHP Steel scrap to hot rolled coil price 16
spread
+/- 2% movement in slab production in Australia and New Zealand 14
+/- 1c movement in Australian dollar/US dollar exchange rate(1) 10
+/- US$1/tonne movement in coking coal costs 7
+/- US$1/tonne movement in iron ore costs 14
(1) The movement in the Australian dollar/US dollar exchange rate
includes a restatement of US dollar denominated receivables and
payables.
BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209
Registered in Australia Registered in England and Wales
Registered Office: 600 Bourke Street Melbourne Victoria Registered Office: 1-3 Strand London WC2N 5HA United Kingdom
3000 Telephone +44 20 7747 3800 Facsimile +44 20 7747 3900
Telephone +61 3 9609 3333 Facsimile +61 3 9609 3015
The BHP Billiton Group is headquartered in Australia
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