The high Australian dollar and weak nickel and alumina prices caused the company to recognise a $1.2 billion impairment at Nickel West and a $1.6 billion impairment on the Worsley assets.

Other after-tax impairments comprised $237 million on the sale of the diamonds business, $167 million on the performance of certain evaluation wells in the Permian Basin and $715 million after a capital project review.

The review related mainly to the revision of the development sequence across the Western Australian iron ore operations.

Underlying profit of $11.8 billion missed analyst targets of around $12.6-12.7 billion.

BHP said the figure was negatively impacted by a temporary increase in its effective tax rate to 39.3% and financing charges of $280 million incurred managing interest rate exposure on recently issued debt securities.

Royalty-related taxation, including the Minerals Resource Rent Tax, represented an effective tax rate of 6%.

The company expensed $454 million of MRRT in the 2013 financial year, which was partially offset by $133 million for the recognition of deferred tax assets related to the MRRT.

The company said record production and improved productivity had offset weaker commodity prices in what it described as a challenging environment.

Revenue fell 8.7% to nearly $66 billion.

Iron ore remained the company’s largest division, contributing $20.2 billion of revenue, down by 10.6%, followed by petroleum and potash ($13.2 billion), copper ($11.9 billion), coal ($10.7 billion) and aluminium, manganese and nickel ($9.2 billion).

Underlying earnings before interest, tax, depreciation and amortisation dropped 16% to $28.4 billion, with the company’s underlying EBIT margin of 33% helped by a $2.7 billion reduction in controllable cash costs.

Net operating cash flow dropped 25.1% to $18.2 billion.

BHP said it expected increased supply to exert downwards pressure on commodity prices in the short term, though lower investment across the industry would lead to more balanced supply and demand.

Overcapacity in the nickel and aluminium industries was expected to continue, while the outlook was better for copper and US domestic gas.

The company has 18 growth projects with a combined budget of $21.2 billion, with most scheduled for first production by the end of next year.

BHP shares closed 1.4% down to $A36.52.