必和必拓 (BHP) 2021 Q2 法說會逐字稿

Hello. Thank you for joining us to hear about BHP's December 2020 half year results. Today, I have with me David Lamont, our new Chief Financial Officer. It's great to have him on board. David, we have tried to make your first results announcement with us a bit easier by delivering a great set of numbers.

Today, we're going to talk with you about 3 things: our strong set of operational and financial results; the compelling outlook for our commodities given the recovery underway and continued growth in the global economy as well as the energy transition; finally, how that positive outlook, coupled with our agenda of driving operational excellence, creating value for all stakeholders and increasing our exposure to future-facing commodities, will enable us to continue to deliver excellent value and returns to shareholders.

We're delivering on this agenda. In the past 12 months, the worst pandemic the world has seen in over a century has brought human tragedy and economic disruption globally. In one way or another, COVID-19 has touched every person and every part of BHP and our supply chain. However, against this backdrop of unprecedented challenge, we have achieved almost unprecedented performance. The best of BHP has truly shown through. The pandemic has reinforced the importance of everything that we have been so focused on in terms of people, culture, the contribution we make to society and of course, operational and financial excellence.

Thank you to BHP employees and contractors for their resilience and unwavering resolve in the face of the pandemic and to communities, suppliers, customers, governments and traditional owners for their continued support. Our collective efforts and commitment have made this strong set of results possible. Our company is safer, more reliable, more productive and is delivering exceptional returns to shareholders.

I'd like to reflect on a few highlights from the half. First and foremost, safety has improved. Not only have we reduced our total recordable injury frequency by 16%, but even more importantly, we have remained fatality free. We're not complacent, however. Far from it. Having now achieved 2 years fatality free only sees us redoubling our focus on continuing to improve safety across the company.

We've continued to deliver reliable operational performance. We're doing what we said we would do. We are enabling this performance through a systematic focus on improving maintenance, engineering and asset integrity. During the half, we achieved record production at Western Australia Iron Ore, record concentrator throughput at Escondida and in terms of production, the best half at Olympic Dam in 5 years.

In spite of the challenges faced across the industry related to COVID, an inflationary environment and other factors, we've continued to reliably progress our major development projects. Atlanta's Phase 3 in the Gulf of Mexico delivered first production in July, ahead of schedule. And the Spence Growth Option in Chile delivered first production in December as planned, a great achievement given the restrictions in place. South Flank in Western Australia will see its first production within the next 6 months, also on schedule and on budget. Finally, we've advanced and added to our options in future-facing commodities.

Notwithstanding the market disruption and low prices for some commodities, our continued focus on operational reliability and cost discipline coupled with the resilience provided by our portfolio diversification has supported very strong financial performance. Margins rose to 59%, our second highest half in the past 20 years. Return on capital employed increased to 24%, the highest in the past 9 years. The resultant strong operating cash flow and our investment discipline ensured net debt remained at the bottom of our target range. And today, we announced a record half year dividend of $1.01 per share, returning more than $5 billion to our shareholders.

Now in tandem with our commitment to delivering strong value to shareholders, we are every bit as committed to growing value for all the others who depend on and support BHP. We believe that this focus and the capability we bring to it will be a long-term source of competitive advantage.

Our commodities play an essential role in underpinning the economy globally. And through our ongoing business, we make a very significant contribution to the societies we operate in, and David will talk further about this shortly. In addition, we're proud of the way we've been able to engage others around this and the further support we've been able to provide to help them navigate through the ongoing pandemic. This has included temporary and permanent employment, direct contributions towards local social and health programs, research funding and financial support for business partners.

In addition to our focus on working with others locally to create shared value, we are also committed to continuing to demonstrate leadership on environmental sustainability, including on climate change. We announced during the half a related new set of ambitious targets and goals. In keeping with our commitment to reduce operational emissions by 30% by 2030 and to be net 0 by 2050, we established renewable power contracts for our coal operations in Queensland and nickel operations in Western Australia. This follows on from our other recent decision to move to fully renewable electricity supply at our Escondida and Spence operations in Chile.

In working with others to decarbonize other parts of the value chain, we pioneered the world's very first LNG-fueled bulk carrier shipping contracts to support greener freight. And we partnered with China Baowu and even more recently, JFE Steel in Japan, to advance lower emissions steel production. We continued our drive to ensure we have teams that are capable of peak performance, and this included further progress towards gender balance. Female participation in our workforce increased to over 27%. We already have a gender balanced executive leadership team. And we boosted our indigenous participation to 6.7% in both Australia and Chile.

With that short introduction, it's my pleasure now to introduce David. David's track record of financial management in multinational organizations, depth of experience across a diverse range of industries including mining and ability to deliver strong results to shareholders make him a wonderful addition to our team. Welcome, David. Over to you.

Thanks, Mike. To begin with, I must say it's great to be back at BHP after more than 15 years.

Before I discuss the results, I thought I would share some of my initial impressions. The culture and the capability of the organization clearly comes through in the performance over the last 6 months. BHP is in great shape financially and operationally. I feel very honored to be joining such a strong leadership team.

However, there is always more to do. Throughout my corporate career, I have worked for companies with strong research, science and technology skills embedded in their DNA. BHP indeed has these attributes, and I firmly believe that by applying this in an innovative and focused manner, we can extract more from our existing resource base. We need to move faster in a number of areas, be more agile whilst holding on to the right rigor, especially as we take further steps to increase our portfolio of future-facing commodities and continue our leadership on social value, which is not only the right thing to do, it also makes sound financial sense. I'm personally committed to ensuring consistent and robust returns to shareholders, helping the organization continue on the path to decarbonization and continue to improve efficiencies across the business.

And with that, I'd like to now turn to the half year financial results. This was a strong first half result despite a number of headwinds, most notably COVID-19. Our outstanding operating performance, when combined with higher iron ore and copper prices, drove underlying EBITDA up 21% to $14.7 billion at a margin of 59%.

Underlying attributable profit increased by 16% to $6 billion. The effective tax rate was just over 34%, which increases to 42% with the inclusion of royalties and the PRRT payments. Net exceptional items were $2.2 billion primarily due to a $1.6 billion impairment of our energy coal assets. Dividend for the half was a record USD 1.01 per share and represents an 85% payout ratio.

As mentioned, our financial results were supported by strong underlying performance across the business. Western Australia Iron Ore contributed over $10 billion of EBITDA at a margin of 73%. Capitalizing on the highest prices since 2013, we achieved a record production for the half and lowered our C1 unit costs by 2% despite a strengthening Australian dollar, an outstanding achievement that also resulted in sales of 290 million tonnes for the calendar year. Importantly, Samarco restarted operations in December. The ramp-up of operations will continue to support the local communities with jobs and the delivery of Renova's programs in the region.

In copper, EBITDA increased by 59% to $3.7 billion. Record concentrator throughput at Escondida more than offset the impact of grade decline and disruptions due to COVID-19. Unit costs were better than full year guidance driven by excellent cost management and higher by-product credits. Our petroleum business achieved an EBITDA of $800 million at a margin of 49%. Unit costs were better than guidance of $11 to $12 a barrel, reflecting lower discretionary maintenance activity.

And finally, our met coal business had a challenging half, impacted by lower prices, reduced volumes due to adverse weather conditions, higher maintenance activity and unfavorable FX movements. With all major maintenance for the year now behind us, a strong second half is expected. Unit cost and production guidance for met coal remains unchanged. However, volumes are expected to be in the lower half of the range. This, of course, will be subject to any potential impacts on volumes from restrictions on coal imports into China and any further significant wet weather during the remainder of the year.

On this note, we are continuing to sell everything we produce successfully, redirecting coals that would have otherwise gone to China. While we can't be sure of how the situation will evolve, we remain of the view that ultimately, Chinese steel mills will continue to require high-quality steelmaking coals to meet their efficiency and environmental objectives. Across all our business, we are performing well in controlling costs. Building on our first half performance, we remain on track to achieve full year unit cost guidance despite uncontrollable costs, such as diesel, acid and explosives, which are expected to see some cost inflation in the second half.

Excluding 2016, when we saw a dramatic fall in commodity prices, we have generated net operating cash flow of at least $15 billion every year over the past decade. This demonstrates the consistency of returns and low volatility that our portfolio provides. We continued this strong performance with $9.4 billion this half.

A combination of strong operational performance, disciplined capital investment and our marketing team's ability to negotiate competitive commercial terms for our products enabled strong cash flow generation and high returns to shareholders. From the chart on the right, you can see since FY '19, more than 75% of free cash flow, after dividends to our minority partners, has been returned to shareholders whilst maintaining a strong balance sheet.

Throughout my career across a range of industries and geographies, the use of capital has also been one of my key priorities. Indeed, prior to joining BHP, as a shareholder, I closely followed the application of the Capital Allocation Framework and the manner in which it transparently directs cash to its value-maximizing use. Indeed, it is something similar to the approach I took at CSL. It makes complete sense to me, and I hope to continue to evolve and further embed the approach at BHP.

We will continue to apply the same level of rigor. This slide shows how we've applied the CAF this half. The $3.6 billion investment in maintenance, growth projects and exploration was in line with our plans. CapEx guidance has increased for the full year to $7.3 billion due to a stronger Australian dollar.

Our balance sheet is robust with net debt at $11.8 billion, at the bottom end of our target range. Strong free cash flow generation more than offset $900 million of lease additions mainly related to the Spence Growth Options and $400 million in premiums paid on the value-accretive hybrid repurchasing programs. Off the back of the strong results today, we announced a record interim dividend of USD 1.01 per share, which equates to $5.1 billion. Including the dividend announced today, over the past 3 years, we have returned more than $30 billion to shareholders.

Over the half, our return on capital employed increased to 24%. Return on capital for this period is almost 6x higher than at the end of FY '16. The Western Australia Iron Ore return on capital of 70% is an outstanding result, helped by higher prices but also the record production achieved for the calendar year, while our copper assets are showing the benefits of recent capital investment and higher prices.

Our focus remains on improving returns in the other parts of the business. Based on the consistent performance of the last 5 years and despite the cyclical nature of our industry, earnings and returns are reflective of a high quality, stable business. And these results demonstrate the resilience of our diversified portfolio.

We remain confident in the positive underlying fundamentals of our commodities. There are a number of near-term uncertainties, including obviously COVID-19, and we continue to watch the recovery carefully and monitor for impacts on our business. To date, the organization has done a great job of managing the challenges we have witnessed across the world.

Thank you, and I'll now hand back over to Mike.

Thank you, David. As you've just heard, we've delivered a strong set of results this half. Let me now take you through what lies ahead.

We're confident in the outlook. While the world is a more volatile and uncertain place today, the global economy is rebounding strongly despite the ongoing effects of COVID-19. Recent trade tensions have impacted our coal business. However, our diversified portfolio and strong relationships with customers and suppliers have served us well. Government stimulus and pro-growth agendas, which are expected to remain in place for an extended period, are anticipated to provide considerable support for recovery and lead to robust growth, a lift in inflation and solid demand for mineral resources and oil and gas.

In steel, for example, we expect continuing strong end-use demand to underpin production of more than 1 billion tonnes in China for a third consecutive year. More broadly, the welcome drive to decarbonize the globe will also accelerate demand for many of the commodities we produce. The determination of key economies like China, Japan, South Korea and the U.S. to tackle climate change with greater ambition will require substantial investment in decarbonization infrastructure and the technologies that will leverage them.

In a Paris-aligned 1.5 degree scenario, we expect that investment in such things as copper-intensive solar generation, nickel-intensive batteries and steel-intensive wind turbines will contribute to a more than doubling of the amount of primary copper and a quadrupling of the amount of primary nickel demand over the next 30 years as was produced over the last 30. Demand for steel will almost double on this basis, and potash will be a -- will be vital for more efficient agricultural practices.

And as the shift to cleaner energy sources occurs, the world will still need oil and gas on its pathway to decarbonization. This is occurring at a time when the industry's capital discipline and decline in exploration success over a number of years means that there's fewer high-quality growth projects in the global pipeline. And yet demand, of course, will not wait.

Tighter market balances will lead to price support for many of our commodities. Add population growth and further rises in living standards to this equation and the conditions are very promising. Our products are enablers of both traditional economic growth and the energy transition. Resources are fundamental to the way we live now and the way we will live in the future.

So how will BHP benefit from this? How will we grow value? First and foremost, by being better at what we do every day. We are systematically unlocking greater performance across the business by making better use of our equipment and enabling our people to work smarter, be it in the way that we apply the BHP operating system or our technical centers of excellence or through an inclusive and diverse workforce. We're starting with the bottlenecks. But if there's a gain to be made on safety, productivity or reliability, you can bet we're working on it bit by bit. Our agenda is delivering results, something our recent performance makes clear.

Along with delivering operational improvements, we are strengthening our portfolio to protect and grow value over the long term. This means advancing our projects, creating and securing more options particularly in future-facing commodities and exiting assets where value can be maximized under different ownership. While trends like decarbonization will affect the attractiveness of each commodity differently, our resources, their size, quality, optionality and the technologies available to extract them, will be as influential on how we grow.

We start in a strong position. In iron ore and metallurgical coal, our focus is on growing value through lowering costs and driving incremental growth by lifting productivity, something we've been incredibly successful at doing in recent times. Should market dynamics warrant additional volumes, the scale and quality of our resources provides capital-efficient expansion options, and we have very clear line of sight on how we would deliver these.

We're progressing with our plans to divest BMC in our energy coal assets. This will focus our coal portfolio on higher-quality coking coals, which are both necessary and attractive for steelmakers in a decarbonizing world. In petroleum, recognizing the opportunity to grow value in the coming years, we will progress our well-defined project pipeline, which includes the short life cycle projects deferred from last year as well as some attractive larger ones. We will pursue targeted divestments of later-life assets, and we will also explore potential countercyclical acquisitions.

The timely purchase of an additional 28% stake in Shenzi, completed in the last half, is a good example of this. Shenzi is a field that we, as the operator, know well. The additional volumes will help keep our overall petroleum division production broadly flat in the medium term, and recent drilling results have added to our confidence in the resource.

We're also creating and securing more options in future-facing commodities. In copper and nickel, our world-class resource bases in Chile and Australia contain significant potential. While their medium term development pathways are well understood, we are working on technical innovations to enable the economic extraction of more of these resources in the longer term.

We will also add options through exploration, early stage entry and again, potentially, value-enhancing acquisitions. We've demonstrated this over the past 6 months through greenfield exploration and our option agreement with Encounter covering the Elliott Copper Project in the Northern Territory.

Lastly, in potash, Jansen is an opportunity in a commodity we like. Potash is well placed to benefit from the world's population growth and changing diets. Our significant resource base provides many options and Jansen stage 1, the first of these, remains on track for final investment decision in the middle of this calendar year.

A lot more supply of commodities is going to be required in order for the world to continue to grow and to make the transition to cleaner energy. There's an obvious tension between the very need to increase production of commodities to make the world more sustainable on the one hand, with the pressures to reduce the negative sustainability footprint associated with resources production on the other. The more alignment we can create between resources companies like BHP, investors and society in how we navigate this tension and manage the trade-offs, the more likely it is that the transition can be achieved sustainably, quickly and cost effectively.

Conversely, a lack of alignment will result in poor sustainability outcomes and slower and more costly progress on the energy transition. We're committed to continuing to deliver excellent returns for shareholders and other stakeholders, doing so with an ever-reducing direct sustainability footprint and demonstrating leadership through investments in the technological solutions and policy advocacy required to actually decarbonize the supply chain. Investors have a role to play in ensuring markets function such as to stimulate these behaviors, including differentiating between those that choose to take responsibility and those that don't.

Strong commitment to sustainability is important to us all. Not only is it the right thing to do, it preserves and grows long-term value for shareholders and society. We have an extensive history of leadership on this. We've been focused on reducing our operational emissions for more than 2 decades. Most of our assets are already at the lower end of their respective emissions intensity curves, and we are lowering them further through widespread take-up of renewable power and through diesel displacement, a more complex task. I mentioned earlier some of the steps we've taken to support decarbonization of our value chain, including the maritime and steel industries.

Water sustainability is also a priority for the world and for BHP. We've invested more than $4 billion over the past 15 years to move to 100% desalinated water at Escondida. We've ensured our new concentrator at Spence operates with desalinated water, too. And recognizing that many of our operations are tied to indigenous communities, we continue to invest in the relationships of trust we have shared with traditional owners over many years.

In September 2020, we further strengthened our 20-year partnership with the Banjima people through the establishment of the South Flank Heritage Advisory Council, and this will ensure ongoing high-level dialogue between us on important cultural heritage and other matters. These are but a few examples of why we believe we can help to meet the world's growing demand for commodities sustainably for the benefit of all.

So to conclude, we took some big steps forward in the past 6 months. Our people and our strong foundation have seen us navigate the challenges of the pandemic with courage and conviction. Our focus on operational excellence and financial discipline meant we captured the benefit of higher prices and delivered a strong set of results and returns to shareholders.

To help meet the world's growing demand for commodities sustainably, we made clear our commitment to addressing climate change and have taken action within our operations and throughout our value chain. With our proven agenda and compelling outlook for our commodities, we are well placed to grow value and returns for decades to come. Thank you.