BHP Billiton
BHP Billiton (ASX:BHP) is a global leader in the resources industry.
Formed from a merger between BHP and Billiton, the company is a leader in the extraction and sales of most natural resources, and is particularily strong in Iron Ore, Coking and Thermal Coal, Copper, Zinc, Oil & Gas, Diamonds and most materials key to the production of steel.
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BHP Billiton profit rises 57%, dividend up 41%
BHP Billiton (ASX:BHP) has announced its results for the half year ended 31 December 2009. The results released today "represent a robust operating and financial performance achieved in an environment that deteriorated significantly during the period, particularly over the last quarter." BHP's results benefited from strong volume additions in Petroleum and Iron Ore, as the growth projects in these two CSGs continued to ramp up.
Underlying EBIT increased by 23.7 per cent over the corresponding period to US$11.9 billion, with a strong Underlying EBIT margin of 45.6 per cent. BHP continues to focus on cost performance and BHP expects to see the benefits of falling input prices, albeit with some lag. The strength of the US dollar against BHP's main operating currencies positively impacted the Underlying EBIT for the first half by US$1.5 billion.
Higlights of the six months were:
- A robust financial performance in the context of a rapid deterioration in market conditions.
- Underlying EBITDA up 25% to US$13.9 billion and Underlying EBIT up 24% to US$11.9 billion.
- Strong Underlying EBIT margin of 46% despite significant pressures from lower prices and a lagged effect of input costs benefit.
- Record net operating cash flow of US$13.1 billion, up 74%, which is an excellent result given market conditions and our strong growth pipeline.
- Attributable profit up 2% to US$6.1 billion and EPS up 3% to 110.1 US cents (both measures excluding exceptional items).
- Strong balance sheet with net debt decreased by 51% to US$4.2 billion. Gearing of 9.5% and Underlying EBITDA interest cover of 86.6 times.
- Interim dividend of 41.0 US cents per share, an increase of 41% on last year’s interim dividend.
- A disciplined and value-accretive commitment to invest through the cycle, with one iron ore and three oil and gas projects sanctioned during the half-year.
Commentary on the Group Results - BHP
The results released today represent a robust operating and financial performance achieved in an environment that deteriorated significantly during the period, particularly over the last quarter. Our results benefited from strong volume additions in Petroleum and Iron Ore, as the growth projects in these two CSGs continued to ramp up.
Underlying EBIT increased by 23.7 per cent over the corresponding period to US$11.9 billion, with a healthy Underlying EBIT margin of 45.6 per cent. We continue to focus on our cost performance and expect to see the benefits of falling input prices, albeit with some lag. The strength of the US dollar against our main operating currencies positively impacted the Underlying EBIT for the first half by US$1.5 billion.
Volumes
Copper sales volumes were lower mainly due to declining ore grade and electrical motor reliability issues at the Laguna Seca SAG mill at Escondida (Chile). Manganese sales volumes were impacted as the global economy continues to deteriorate and demand contracted.
In Western Australia Iron Ore and our metallurgical coal operations, we have received requests for deferrals from some long term contract customers. However, this has not impacted iron ore or metallurgical coal production in the half-year ended December 2008. We have sold the deferred long term iron ore tonnages into the spot market. However, it is likely that we will opportunistically adjust our metallurgical coal production in line with the weaker demand, during the second half of the 2009 financial year (as already announced in our Production Report released on 21 January 2009).
As announced in our Production Report, Western Australia Iron Ore is expected to produce 130 million
tonnes (100 per cent basis) in the 2009 financial year.
At the end of November 2008, in response to weak demand Samarco (Brazil) announced the temporary suspension of two of its three pellet plants to mid-January 2009. Following a subsequent reassessment of the market conditions, the suspension will continue until the end of March 2009, at which time Samarco management will reassess the situation.
Prices
Net changes in prices increased Underlying EBIT by US$2,960 million (excluding the impact of newly commissioned projects).
Higher realised prices for metallurgical coal, iron ore, manganese, energy coal, oil and gas increased Underlying EBIT by US$7,629 million. However, this was offset by a negative impact of US$4,126 million due to lower realised prices for copper, nickel and aluminium.
Higher price-linked costs reduced Underlying EBIT by US$543 million primarily due to higher royalties. This was offset by decreased charges for third party nickel ore and more favourable rates for copper treatment and refining charges (TCRCs).
Costs
Costs increased by US$1,872 million compared to the corresponding period. This includes the impact of higher non-cash costs of US$262 million.
While we continue to focus on our cost performance, the benefits of falling input prices will have a lagged effect on reducing costs. Approximately US$592 million of the increase was due to higher costs for fuel and energy, and raw materials such as coke, sulphuric acid, pitch and explosives. In addition, labour and contractor costs have increased by US$368 million. A portion of the increase in costs was deliberately incurred to maximise production to take advantage of the high prices.
Unexpected events such as the severe weather interruptions in Queensland and the furnace rebuild at the Kalgoorlie Nickel Smelter (Australia) had an adverse cost impact of US$298 million.
Exchange rates
The strength of the US dollar positively impacted Underlying EBIT for the first half by US$1,457 million. All Australian operations were positively impacted by the weaker Australian dollar, which increased Underlying EBIT by US$1,207 million. The depreciation of the South African rand also positively impacted Underlying EBIT by US$165 million.
Exploration and business development
With our outstanding operating cash flow and strong balance sheet, we continued to focus on finding new long term growth options, with a highly disciplined and value-focused approach.
Exploration expense for the half-year was US$496 million, an increase of US$64 million. We increased exploration expenses at Escondida, Cerro Colorado and Spence (all Chile), manganese targets in Gabon, and nickel targets in Western Australia. The main expenditure for the Petroleum CSG was on targets in the Gulf of Mexico (USA), Colombia, Australia, Philippines and Western India.
Expenditure on business development was US$49 million higher than last year. This was mainly due to earlier stage development activities in the Base Metals, Stainless Steel Materials and Iron Ore CSGs.
CEO Comments
"We've decided not to lift the dividend further from where it was in the last half, consistent with our outlook that was uncertain,'' chief executive Marius Kloppers said in a conference call. "The further outlook is continuing to be weak, uncertain and volatile. Demand for our products has softened globally.''
"Six months ago we said the economic activity on a worldwide basis was moderating. It is fair to say we like most other people did not see the speed or the dramatic nature of the downturn that has occurred, which is certainly unlike anything I have seen before,'' Mr Kloppers said.
Analysts comments
Analysts expect BHP's earnings to fall for the first time in 10 years this full year as oil and metals prices have slumped and demand for metals has dwindled as manufacturers slash production worldwide.
The company has already flagged it would cut 6% of its workforce and shut its Ravensthorpe nickel operation, taking a $US3.3 billion writedown on the project and warning it may have to close more mines.
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2009-04-23
