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Arrangements For Bhp Steel
BHP Billiton Plc
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.
Pro forma Pro forma Forecas
Forecast statements of historica forecast( t
financial performance l(1) 2)
$ million Year Year Year
ended ending ending
30 June 30 June 30 June
2001 2002 2003
Revenue(3) 4,941 4,489 4,913
EBITDA 568 421 611
Depreciation and 263 254 268
amortisation
EBIT 305 167 343
Net interest expense 27
Profit from ordinary 316
activities before
taxation
Income tax attributable 46
to profit from ordinary
activities
Net Profit 270
Profit Attributable to 16
outside equity Interests
Profit Attributable to 254
Shareholders
(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 se
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 rel
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
Pro forma Pro forma Forecas
Forecast statements of Historica forecast( t
cash flows l(1) 2)
$ million Year Year Year
ended ending ending
30 June 30 June 30 June
2001 2002 2003
Net operating cash flows 631 364 543
before borrowing costs
and income tax
Net investing cash flows (111) (168) (198)
Payment of income tax (6)
Net financing cash (158)
flows(3)
Net increase in cash 181
held
(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.
6.3.1 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.
Impact on
Hot rolled coil price sensitivity forecast EBIT
analysis for the year
ending
$ million 30 June 2003
Assumption
+/- US$25/tonne movement in average hot 104
rolled coil price(1)
(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
Impact on
Other significant sensitivities forecast EBIT
$ million for the year
ending
Assumption 30 June 2003
+/- US$10/tonne movement in North Star BHP 16
Steel scrap to hot rolled coil price
spread
+/- 2% movement in slab production in 14
Australia and New Zealand
+/- 1c movement in Australian dollar/US 10
dollar exchange rate(1)
+/- US$1/tonne movement in coking coal 7
costs
+/- 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.
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.
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 BILLITON DETAILS DRAFT FORECAST FINANCIAL STATEMENTS
AND DEMERGER ARRANGEMENTS FOR BHP STEEL
NEWS RELEASE
Date24 April 2002
Number 21/02
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 &
Tel: + 61 3 9609 3540 Media Relations
Mobile: + 61 419 587 456 Tel: +27 11 376 3360
email: Mobile: +27 82 458 2587
Robert.Porter@bhpbilliton.com email:
Michael.J.Campbell@bhpbilliton
Michael Buzzard, Media .com
Relations
Tel: +61 3 9609 3709 Ariane Gentil, Manager
Mobile: +61 417 914 103 Communications
email: Tel: +44 20 7747 3977
Michael.Buzzard@bhpbilliton.c Mobile: +44 7881 518 715
om 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@bhpbilli
ton.com
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