24th Feb 2015 10:48
LONDON (Alliance News) - The world's largest miner, BHP Billiton PLC, Tuesday said its net profit almost halved in the first half of its financial year as lower commodity prices more than offset substantial productivity gains across the company's portfolio.
The company joined peers in the sector in slashing its capital and exploration expenditure, but also declared a 5% increase in its interim dividend.
The Australian-based mining giant reported net profit of USD4.27 billion or USD0.80 per share for the six months to end-December, 47.4% lower than USD8.11 billion or USD1.52 per share reported in the same period last year.
Excluding exceptional items, underlying profit for the first-half was USD5.35 billion or USD1.01 per basic share, compared with USD7.76 billion or USD1.46 per basic share in the prior-year period. Pretax profit was USD8.59 billio, down from USD12.41 billion last year, while its closely-watched underlying earnings before interest and tax declined 25.5% to to USD9.23 billion, with a margin of 32%.
"Despite significant falls in the prices of our main commodities over the last six months, group margins remain healthy, free cash flow has increased and we have strengthened our balance sheet," said Chief executive Andrew Mackenzie.
As a result, the company declared a 5% higher interim dividend for the first half of 62.0 cents per share.
"We are confident that we can maintain our progressive dividend policy and continue to selectively invest in projects that offer compelling returns," said Mackenzie.
BHP Billiton's revenue for the first half declined 11.9% to USD29.90 billion, from USD33.95 billion in the same period last year. Revenue from group production was USD28.87 billion, lower than USD32.21 billion recorded in the previous year.
However, group production for the first half improved by 9%, with records achieved for eight operations and five commodities, amid a ramp up of major projects, it said.
The company said it remains on track to deliver group production growth of 16% over the two years to the end of the 2015 financial year.
"Demand for our products remained solid, despite growth moderating as anticipated. However, strong supply growth, most notably in iron ore and petroleum, contributed to weaker prices in the December 2014 half year," said BHP.
The company said that its cost competitiveness continues to improve across all its major businesses, with unit cash costs reducing 29% at Western Australia Iron Ore, 15% at Queensland Coal, 13% at Escondida and 8% at Onshore US.
The company said it is extending its productivity gains faster than initially anticipated with USD2.4 billion achieved in the first half. It remains on track to deliver at least USD4.0 billion of productivity gains from the core portfolio by the end of the 2017 financial year.
Mackenzie said that since the company began preparing for lower commodity prices three years ago, it has "achieved annualised productivity gains approaching USD10 billion and reduced capital spending by almost 40%."
BHP reduced capital and exploration expenditure by 23% to USD6.4 billion in the first half and plans to invest a total of USD12.6 billion in the 2015 financial year, 15% lower than the original guidance amid the continued improvement in the group's capital productivity. It also projects a lower capital and exploration expenditure of USD10.8 billion in the 2016 financial year.
BHP Billiton announced in December a plan for a proposed demerger that will create a new company called South32 containing its less profitable assets such as aluminium, coal, manganese and silver. A final board decision on the proposed demerger will be made once all necessary third party approvals are secured on satisfactory terms. The proposed demerger remains on track to be completed in the first half of the 2015 calendar year, it said.
"Simplification will ensure BHP Billiton's organisation, systems and processes are dedicated to its core assets, allowing us to further improve their productivity," said Mackenzie. "Following the proposed demerger, BHP will maintain its progressive dividend policy and any dividends from South32 will represent additional cash returns to shareholders."
At the end of the December 2014 half year, BHP Billiton said it had seven major projects under development with a combined budget of USD13.5 billion.
Looking ahead, BHP Billiton said the proposed demerger will allow it to continue the process of building an organization that will be truly unique in its sector, and one that is well positioned for success in the face of ever increasing commodity volatility.
The company said some commodity prices will "remain relatively volatile" in the short-term and said an "oversupply in many of our markets will continue to moderate prices." In the medium term, BHP said the structural requirement to induce new supply to meet demand should be supportive for prices in some of its core commodities, most notably in copper and oil.
"Our diversification, competitive cost position, strong balance sheet and the success of our ongoing productivity initiatives are competitive advantages and provide us with unrivalled flexibility in the face of ever-increasing volatility," said the company in a statement.
BHP shares were up 3.9% to 1,607.00 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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