3rd Qrtr Rslts, etc - Pt.1..
Broken Hill Proprietary Co Ld
4 May 2000
Part 1
-1-
BHP Third Quarter Profit Report
March 2000
Quarter Ended
Results Summary March February Change
2000 1999 %
Operating revenue ($ million)
- Sales revenue 5 123 4 479 +14.4
- Other revenue 302 1 323 -77.2
5 425 5 802 -6.5
Operating profit attributable
to BHP shareholders ($ million)
- Excluding abnormal items 558 46 +1113.0
- Including abnormal items (46) 418
Basic earnings per share (cents)
- Excluding abnormal items 31.4 2.6 +1107.7
- Including abnormal items (2.6) 24.0
Significant Features
- a record quarterly profit excluding abnormals;
- significantly higher prices for oil and copper;
- benefits from closure of loss-making businesses;
- profits from the new Laminaria/Corallina and Buffalo oil fields (North West
Australia);
- lower exploration expenditure; and
- write-off of HBI plant (Western Australia) and abnormal tax benefit arising
from funding arrangements.
-2-
Group Results
Change of financial year
Directors announced on 17 December 1999 that the financial year end for the BHP
Group would change from 31 May to 30 June with effect from 30 June 2000.
The third quarter profit report includes analysis of results for the quarter
ended 31 March 2000 compared with the quarter ended 28 February 1999. In this
report all references to the corresponding period are to the quarter ended 28
February 1999. The results for the month of December 1999 are discussed as part
of the year to date result below.
Results for the four months ended 31 March 2000 and 31 March 1999 have been
included as supplementary data on pages 20 and 21.
Quarter Result
Excluding abnormal items, the operating profit after income tax attributable to
BHP shareholders was $558 million, an increase of $512 million compared with the
corresponding period. This is the highest quarterly profit, excluding abnormal
items, in the Company's history.
Including abnormal items, the operating result after income tax attributable to
BHP shareholders was a loss of $46 million, a decrease of $464 million compared
with the corresponding period. The result included a net abnormal loss of $604
million comprising a loss of $794 million (after tax) from the write-off of the
HBI plant and an associated tax benefit of $190 million arising from funding
arrangements.
The result for the corresponding period included a net abnormal profit of $372
million. This comprised a profit of $353 million (after tax) from the sale of
BHP's principal manganese assets and a profit of $173 million (after tax) from
the sale of the BHP Power business. These were partly offset by a loss of $154
million (after tax) from the write-off of the Beenup mineral sands assets and
provision for closure costs and site rehabilitation costs.
The HBI plant has been written off as a consequence of operational difficulties,
a longer commissioning period and uncertainty regarding ultimate plant capacity.
In an effort to determine the technical viability of this facility, Directors
have approved a plan to spend approximately $46 million to explore several
alternatives to resolve the process and operational difficulties. The Company
expects that by the end of the calendar year a decision will be made regarding
the continued operation of the facility. If a decision is made to cease
operations, additional take-or-pay and other liabilities with a present value of
up to approximately $1,100 million before tax may be charged to profit at that
time. It is expected that such liabilities would be reduced through negotiation
and contractual offsets.
Basic earnings per share were 31.4 cents excluding abnormal items and (2.6)
cents including abnormal items. Comparative earnings per share for the quarter
ended 28 February 1999 were 2.6 cents excluding abnormal items and 24.0 cents
including abnormal items.
-3-
Major factors affecting operating profit 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 March 2000 compared with the corresponding period:
Prices
Significantly higher prices after commodity hedging for oil and copper, and
higher international steel and LNG prices increased profit by approximately $250
million compared with the corresponding period. These increases were partly
offset by lower prices for coal and iron ore which decreased profit by
approximately $70 million compared with the corresponding period.
Ceased, Sold and Discontinuing operations
Decisions to close or cease operations including North America copper and the
Hartley platinum mine (Zimbabwe) had a favourable effect on results of
approximately $80 million compared with the corresponding period. Results from
discontinuing Steel operations improved by approximately $40 million compared
with the corresponding period.
New operations
Profits from the recently commissioned Laminaria/Corallina and Buffalo oil
fields contributed approximately $70 million for the quarter. Profits from
diamond sales at the EKATI (TM)diamond mine (Canada) were approximately $35
million higher than the corresponding period. These were partly offset by
increased operating losses of approximately $35 million from HBI Western
Australia.
Exploration expenditure
Exploration expenditure charged to profit decreased by approximately $65 million
compared with the corresponding period mainly reflecting a reduction in Minerals
worldwide exploration.
Volumes
Higher sales volumes, mainly from Petroleum and Steel, have increased profit by
approximately $70 million compared with the corresponding period. These were
partly offset by lower shipments at Iron Ore (Western Australia) due mainly to
cyclonic weather conditions which had an unfavourable effect of approximately
$20 million.
Costs
Lower costs of approximately $70 million ($45 million after tax) were achieved
during the quarter compared with the corresponding period. These mainly
reflected lower borrowing costs due to reduced debt levels.
Exchange rates
Foreign currency fluctuations net of hedging had a favourable effect of
approximately $25 million compared with the corresponding period.
Asset sales
Profits from sale of assets were approximately $15 million lower than in the
corresponding period.
-4-
Year to Date Result
Excluding abnormal items, the operating profit after income tax attributable to
BHP shareholders for the ten months ended 31 March 2000 was a profit of $1,462
million, an increase of $957 million or 189.5% compared with the ten months
ended 31 March 1999.
Including abnormal items, the result was a profit of $1,210 million, an increase
of $333 million compared with the ten months ended 31 March 1999. The year to
date result included a net abnormal loss of $252 million comprising:
- a net loss of $604 million (after tax) as reported for the quarter ended 31
March 2000; partly offset by
- a tax benefit of $160 million arising from the restatement of deferred tax
balances as a consequence of the Australian company income tax rate change to
34% applicable from 1 July 2000, and then to 30% applicable from 1 July 2001;
- a tax benefit of $112 million arising from finalisation of funding
arrangements in August 1999 related to the Beenup mineral sands operation;
and
- a profit of $80 million (no tax effect) from the sale of PNG petroleum assets
in December 1999.
The result for the ten months ended 31 March 1999 included a net abnormal
profit of $372 million.
The year to date result included the previously unreported result for the month
of December 1999. The operating profit after income tax for December 1999 was
$95 million, excluding the abnormal profit on sale of PNG petroleum assets.
This result reflected the continuing year to date trend of higher prices for oil
and copper. It also included a profit from the sale of the Group's remaining
shareholding in Orbital Engine Corporation Limited. The month was unfavourably
affected by the impact of cyclonic weather conditions at Iron Ore and HBI in
Western Australia and lower scheduled diamond sales at Ekati.
Basic earnings per share for the ten months to 31 March 2000 were 82.8 cents
excluding abnormal items and 68.5 cents including abnormal items. Earnings per
share for the ten months to 31 March 1999 were 29.2 cents excluding abnormal
items and 50.7 cents including abnormal items.
Dividend
The Board will be considering a dividend at its next meeting on 26 May 2000.
Any such dividend would be paid in early July 2000.
-5-
Business Results (after income tax)
Quarter ended (1)
Excluding abnormals Including abnormals
March February March February
2000 1999 Change 2000 1999 Change
$ Million $ Million % $ Million $ Million %
Mineral 298 101 +195.0 (496) 294
Steel 127 47 +170.2 127 47 +170.2
Petroleum 335 85 +294.1 335 85 +294.1
Services (2) 13 (2) 186
net unallocated
interest (112) (127) (112) (127)
Group and
unallocated items (91) (88) 99 (82)
Operating profit
before outside equity
interests 555 31 +1690.3 (49) 403
Outside equity
interests 3 15 3 15
Operating profit
attributable to
members of the
BHP Entity 558 46 +1113.0 (46) 418
(1) Comparative figures have been restated to reflect the transfer of internal
currency hedging results from Mineral, Steel and Petroleum to Group and
unallocated items, following a decision to cease new internal hedging effective
1 June 1999. The results of internal currency hedging activities eliminate
within Group and unallocated items.
-6-
Minerals
Minerals' result for the quarter, excluding abnormal items, was a profit of $298
million, an increase of $197 million or 195.0% compared with the corresponding
period.
Including abnormal items, the result for the quarter was a loss of $496 million
compared with a profit of $294 million for the corresponding period. The result
included an abnormal loss of $794 million (after tax) following the write-off of
the HBI plant. The corresponding period included a profit of $347 million
(after tax) from the sale of BHP's principal manganese assets, partly offset by
a loss of $154 million (after tax) from the write-off of the Beenup mineral
sands assets, and provision for closure costs and site rehabilitation.
Major factors which contributed to the result, excluding abnormal items, were:
- losses in the corresponding period from closed or ceased operations at North
America copper and the Hartley platinum mine;
- higher average copper prices, net of hedging;
- lower exploration expenditure charged to profit, reflecting a significant
reduction in worldwide exploration;
- lower unit costs at coal operations in Queensland;
- increased profits from diamond sales at the EKATI(TM) diamond mine which
commenced sales in January 1999;
- tax benefiting of certain overseas exploration expenditure; and
- a profit from the sale of rolling stock at iron ore operations in Western
Australia.
These were partly offset by:
- significantly lower average US dollar coal prices for Bowen Basin (Queensland)
and Illawarra (New South Wales);
- operating losses from HBI Western Australia;
- lower average US dollar iron ore prices; and
- lower iron ore shipments mainly due to cyclonic weather conditions.
Sales revenue was $1,957 million, 10.4% lower than in the corresponding period,
mainly due to lower prices and volumes for iron ore, and lower prices for coal,
partly offset by higher prices for copper.
The average price booked for copper shipments for the quarter, after hedging and
finalisation adjustments, was US$0.80 per pound (February 1999 quarter -
US$0.65). Finalisation adjustments after tax, representing adjustments on prior
period shipments settled in the current quarter, were $0.3 million unfavourable
(February 1999 quarter - $22 million unfavourable).
-7-
Unhedged copper shipments not finalised at 31 March 2000 which are expected to
be finalised before 30 June 2000 have been brought to account at US$0.80 per
pound; shipments to be finalised after 30 June 2000 have been brought to account
at US$0.83 per pound. The LME copper spot price on Friday 31 March 2000 was
US$0.78 per pound.
As at 31 March 2000, for the three months ending 30 June 2000, 50.5 million
pounds of anticipated copper shipments are covered by forward contracts at an
average price of US$0.81 per pound. In addition, 71.9 million pounds of
anticipated shipments are covered by collar options with a minimum price of
US$0.74 per pound and maximum price of US$0.90 per pound, together with 71.9
million pounds of purchased call options at an average price of US$0.90 per
pound.
Exploration expenditure was $26 million for the quarter (February 1999 quarter -
$66 million), reflecting a reduction in worldwide exploration. The charge
against profit was $24 million (February 1999 quarter - $79 million).
Significant developments during the quarter included:
- agreement with Nippon Steel on iron ore prices for the year which commenced 1
April 2000, resulting in a 4.35% increase for fine ore and a 5.77% increase
for lump ore; and
- conclusion of annual price negotiations with each of the Japanese steel mills
for deliveries of hard coking coal for the year which commenced 1 April 2000,
resulting in an average 5% reduction in prices.
Steel
Steel's results for the quarter was a profit of $127 million, an increase of $80
million or 170.2% compared with the corresponding period. There were no
abnormal items in either period.
Major factors which contributed to the result were:
- improved performance from domestic and overseas discontinuing operations;
- higher Australasian export steel prices;
- increased domestic despatches, reflecting strong domestic demand from the
construction sector; and
- improved performance from the Asian businesses.
These were partly offset by:
- lower profits from asset sales.
Total steel despatches from all operations for the March 2000 quarter were 1.872
million tonnes, 3.8% below the corresponding period:
- Australian domestic despatches were 0.991 million tonnes, up 8.3%;
- Australian export despatches were 0.540 million tonnes, down 30.4%;
- New Zealand steel despatches were 0.143 million tonnes, up 17.2%; and
- despatches from overseas plants were 0.198 million tonnes, up 48.9%.
Significant developments during the quarter included:
-8-
- announcement of the proposed spin out of the Long Products business in the
second half of calendar 2000; and
- formation of a joint venture with Nucor Corporation to complete technical
development and to licence strip casting technology.
Petroleum
Petroleum's result for the quarter was a profit of $335 million, an increase of
$250 million or 294.1% 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 prices before commodity hedging of A$41.86 per
barrel (February 1999 quarter - A$18.07 per barrel), reflecting higher US
dollar prices (March 2000 quarter - US$26.37 per barrel; February 1999
quarter - US$11.42 per barrel);
- profits from the new Laminaria/Corallina oil fields and the Buffalo oil field
which commenced production in November 1999 and December 1999 respectively;
- higher oil and gas sales volumes; and
- lower exploration expenditure charged to profit.
These were partly offset by:
- a net loss of $52 million for the current quarter from commodity hedging
activities. This compares to a net gain of $10 million for the corresponding
period on significantly lower volumes. The average realised oil price after
commodity hedging was A$38.38 per barrel (February 1999 quarter - A$18.99 per
barrel). US dollar realised prices after commodity hedging for the current
quarter were US$24.18 per barrel (February 1999 quarter - US$12.01 per
barrel); and
- lower profits from the sale of assets.
As at 31 March 2000, for the three months ending 30 June 2000, 4.4 million
barrels of potential sales after secondary taxes have been hedged at an average
price of US$20.67 per barrel, and 2.6 million barrels are covered by zero cost
collar options with a downside average of US$17.75 per barrel and an upside
average of US$23.56 per barrel, together with 2.4 million barrels of purchased
call options at an average price of US$27.52 per barrel.
Oil and condensate production was 33.9% higher than the corresponding period due
to higher production at Bass Strait, the recently commissioned
Laminaria/Corallina and Buffalo oil fields and higher production in the North
West Shelf due to repairs and maintenance to the Cossack Pioneer in the
corresponding period. These were partly offset by the sale of
Elang/Kakatua/Kakatua North producing fields (North West Australia), and Kutubu,
Gobe and Moran producing fields (Papua New Guinea). In addition there was lower
production at Griffin (Western Australia) due to natural field decline and poor
weather conditions.
Natural gas production was 6.5% higher. This was largely due to higher
production from increased capacity at offshore US facilities, increased demand
for Bass Strait gas, and higher nominations for gas from the Bruce field in the
UK. These were partly offset by lower gas production in the UK due to the sale
of Southern North Sea assets.
-9-
Exploration expenditure for the quarter ended 31 March 2000 was $44 million
(February 1999 quarter - $81 million) and the charge against profit was $39
million (February 1999 quarter - $62 million) reflecting lower exploration
activity in the Gulf of Mexico (USA), Algeria (Africa) and West Africa.
Significant developments during the quarter included:
- approval by the UK Department of Industry and Trade to develop the Keith oil
field located in the North Sea;
- approval for the Typhoon oil and gas development in the Gulf of Mexico, with
first oil expected in the third quarter of calendar 2001;
- favourable exploration results were recorded on the Mad Dog discovery located
in the Atwater Foldbelt in the ultra deep water of the Gulf of Mexico. The
appraisal well, located in Green Canyon Block 782 in 4,420 feet of water,
reached a total depth of 20,268 feet and encountered 265 net feet of oil pay;
- following approval by the US District court and the expiration of the appeal
period, the settlement of the complaint brought against BHP by the State of
Hawaii has now been completed. The completion of the settlement, which was
originally announced on 23 November 1999, has resulted in the dismissal of
BHP from the antitrust law suit; and
- BHP entered into a Joint Venture Agreement with Total Exploration Production
USA, Inc. (Total) covering 21 leases owned by BHP in the Walker Ridge Area of
the Gulf of Mexico. Under the terms of this agreement, Total will earn a 30
per cent interest in the Chinook and Klondike Prospects with an option to
earn a 30 per cent interest in the Cascade Prospect.
Services
Services' result for the quarter, excluding abnormal items, was a loss of $2
million, a decrease of $15 million compared with the corresponding period due
mainly to higher insurance claims in the March 2000 quarter.
The corresponding period included an abnormal profit of $173 million (after tax)
from the sale of the BHP Power business. There were no abnormal items in the
current period.
A significant event during the quarter was the sale of the bulk carrier Iron
Spencer.
-10-
Net Unallocated Interest
Net Unallocated Interest expense was $112 million for the quarter compared with
$127 million for the corresponding period. This decrease was mainly due to
lower debt levels in the current quarter and overseas interest expense in the
corresponding period for which no tax deduction was available. These were
partly offset by lower interest income, lower capitalised interest, and higher
interest rates in the US and Australia.
Group and unallocated items
Excluding abnormal items, the result for Group and unallocated items was a loss
of $91 million for the quarter compared with a loss of $88 million for the
corresponding period.
Including abnormal items, the result for the quarter was a profit of $99 million
compared with a loss of $82 million for the corresponding period. The current
quarter included a $190 million tax benefit arising from funding arrangements
related to HBI Western Australia. The corresponding period included a $6
million (after tax) profit on early close out of internal hedge transactions
following the sale of the manganese assets.
Outside equity interests
Outside equity interests' share of operating profit increased due mainly to
improved results from the Asian steel businesses and Ok Tedi copper.
MORE TO FOLLOW
QRTUUUAGAUPUGWC
Latest directors dealings
- 16 hours ago Savannah Energy
- 17 hours ago Buccaneer Energy PLC
- 17 hours ago Savannah Energy
- 17 hours ago Carclo
- 17 hours ago Schroder Japan Growth Fund