Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Presentation (November 2001)
31 slides from Bhp's investor presentation, November 2001
Slide 1: Financial Risk Management Strategy Briefing – November 2001
Financial Risk Management Strategy Briefing – November 2001 Charles Goodyear Chief Development Officer Rowen Bainbridge Vice President Market Risk Management
Slide 2: Agenda
Agenda • Introduction • BHP Billiton Portfolio Model • Financial Risk Management • Strategy in Practice • Future Direction • Questions and Discussion
Slide 3: Introduction
Introduction Financial Strength • Credit Rating • Liquidity profile • Interest cover • Gearing BHP Billiton Financial Risk Management Financial Markets Strategy Business Strategy • Commodities • Financial targets • Currencies • Growth aspirations • Capital Markets • Capital Investments - Debt • Acqu
Slide 4: Agenda
Agenda • Introduction • BHP Billiton Portfolio Model • Financial Risk Management • Strategy in Practice • Future Direction • Questions and Discussion
Slide 5: BHP Billiton Portfolio Model
BHP Billiton Portfolio Model • Financial Market impacts are measured in a portfolio risk model Financial Markets • Commodities • Currencies • Capital Markets - Debt - Equity
Slide 6: BHP Billiton Portfolio Model
BHP Billiton Portfolio Model Consolidated Asset 3 Return Portfolio Asset 2 Asset 1 Risk
Slide 7: BHP Billiton Portfolio Model
BHP Billiton Portfolio Model • BHP Billiton portfolio risk less than the “parts” BHP Billiton Billiton BHP Ratio of Cashflow at Risk 19% 26% 25% to Cashflow Analysis from the time of the Merger
Slide 8: BHP Billiton Portfolio Model Summary
BHP Billiton Portfolio Model Summary • BHP Billiton portfolio diversification reduces risk. • Oil, Aluminium, Copper, Coal and Currency exposures dominate. • New combined portfolio stronger than the “parts”. • Steel spin-out improves portfolio risk profile – but small • Petroleum’s diversification v
Slide 9: Agenda
Agenda • Introduction • BHP Billiton Portfolio Model • Financial Risk Management • Strategy in Practice • Future Direction • Questions and Discussion
Slide 10: Financial Markets and Business Strategy
Financial Markets and Business Strategy Financial Strength • Company risk profile is a function of business strategy and market • Interest cover • Liquidity profile environment • Credit Rating • Gearing Financial Markets Business Strategy • Commodities • Financial targets • Currencies • Growth aspir
Slide 11: Portfolio return and risk
Financial Risk Management Consolidated Asset 3 Return Portfolio Asset 2 Asset 1 Risk
Slide 12: Too much financial risk can threaten corporate objectives
Too much Financial risk can threaten corporate objectives CASHFLOW v's USES OF CASH Illustrative Uses of cash Cash in-flow Cashflow high Cashflow low 2002 2003 2004 2005 FINANCIAL YEAR
Slide 13: Financial Strength completes the picture
Financial Strength completes the picture Financial Strength • Credit Rating • Liquidity profile • Interest cover • Gearing Financial Markets Business Strategy • Commodities • Financial targets • Currencies • Growth aspirations • Capital Markets • Capital Investments - Debt • Acquisitions - Equity •
Slide 14: Financial Risk and Management Levers
Financial Risk and Management Levers Gearing distribution FY03 due to Market Risk Prob. With whole of (Key ratio > 51.4%) company MEDIAN risk UPPER QUARTILE 51.4 39.2 30.3 LOWER QUARTILE Base case 2% 5% After management Single ‘A’ Rating action < 1% 3% Possible Management Actions • Discretionary CAP
Slide 15: Whole of Company Risk for the new group
Financial Risk Management “Whole of Company Risk” for the new group: Market risk US$ 0.81 billion Country risk event US$ 0.25 billion
Slide 16: BHP Billiton has a diversified portfolio of country risk
BHP Billiton has a diversified portfolio of country risk Share of EBITDA by Major Credit Rating FY 2002 AAA CCC 12% 2% B 1% AA 54% BB 5% BBB 20% A 6%
Slide 17: Whole of Company Risk for the new group: Total US$1.3 billion
Financial Risk Management “Whole of Company Risk” for the new group: Market risk US$ 0.81 billion Country risk event US$ 0.25 billion Operational risk event US$ 0.25 billion Breakdown in correlations US$ 0.2 billion Total US$ 1.3 billion Cashflow at Risk - “worst expected loss relative to projected
Slide 18: Financial Risk Management Summary
Financial Risk Management Summary • Integrated approach to Financial Risk Management Financial Strength • Credit Rating • Liquidity profile • Interest cover • Gearing • We have a well diversified portfolio of countries and commodities BHP Billiton Financial Risk • Powerful combination of diversity,
Slide 19: Agenda
Agenda • Introduction • BHP Billiton Portfolio Model • Financial Risk Management • Strategy in Practice • Future Direction • Questions and Discussion
Slide 20: Capital Approval Process
Capital Approval Process • Return on a project or opportunity • Distribution of returns on the project or opportunity • Corporate impact (balance sheet / cashflow statement) • Portfolio Risk Analysis
Slide 21: Capital Approval Process
Capital Approval Process Consolidated Asset 3 Return Portfolio Asset 2 Asset 1 Risk
Slide 22: Market Risk Strategy - Update
Market Risk Strategy - Update • To manage risk through the strength, flexibility and natural diversification in the BHP Billiton Portfolio. • As a general principle to only hedge when the residual risk in the portfolio may compromise the delivery of corporate objectives. Referred to as “Risk Mitigat
Slide 23: Market Risk Strategy in Practice
Market Risk Strategy in Practice Consolidated Asset 3 Return Portfolio Asset 2 Asset 1 Risk
Slide 24: Portfolio risk managed within Board approved limits
Portfolio Risk managed within Board approved limits and performance measured and reported Risk limits for the portfolio - Cashflow at Risk limit; - The risk that BHP gearing will exceed target gearing - Ratio of Cashflow at Risk to projected Cashflow - Risk limits for strategic financial transaction
Slide 25: Financial Risk Management Committee (FRMC)
Financial Risk Management Committee (FRMC) • Executive Committee (ExCo), Treasurer and Vice President Corporate Finance & Vice President Market Risk Management • Monitor Financial Risk • Owns Financial Risk Policy and Limit Framework • Decision making efficient - Quorum of 3 members • Covers Financi
Slide 26: Strategy in practice summary
Strategy in practice summary • Portfolio risk management part of capital allocation disciplines • “Self insurance” model for commodity price risk retained • Constant market monitoring and portfolio evaluation process • Commitment to communication remains
Slide 27: Agenda
Agenda • Introduction • BHP Billiton Portfolio Model • Financial Risk Management • Strategy in Practice • Future Direction • Questions and Discussion
Slide 28: Moving Forward - Vision
Moving Forward - Vision Migration from cash flows to valuations: Current Future Cash Flow Value Risk Risk • Cash flow based • Longer term market impacts • Medium term market impacts • Value assessment • Risk assessment
Slide 29: Conclusions
Conclusions • An integrated approach to Financial Risk Management • Portfolio tool has evolved from commodity price risk assessment to a financial risk management approach • Analysis demonstrates the diversity, strength and flexibility in the BHP Billiton portfolio
Slide 30: Agenda
Agenda • Introduction • BHP Billiton Portfolio Model • Financial Risk Management • Strategy in Practice • Future Direction • Questions and Discussion
Slide 31: Obhpbilliton
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