BHP beats expectations

ACCELERATED productivity gains have led BHP Billiton to a better-than-expected half-year profit and CEO Andrew Mackenzie has flagged further gains once the demerger of South32 is complete.

Kristie Batten

BHP’s underlying attributable profit of $US5.3 billion ($A6.8 billion) beat analysts’ consensus of around $5 billion.

However, the result was 31% on the same period of 2013 due to lower commodity prices.

Underlying earnings before interest and tax of $9.2 billion was down 25.5% with an EBIT margin of 32%, while earnings before interest, tax, depreciation and amortisation dropped 12.3% to $14.5 billion.

The company recognised a $290 million impairment on the Nickel West business, as well as a taxation expense of $809 million related to the defunct minerals resource rent tax.

Free cashflow for the December half was $4.1 billion.

“Our company is in great shape,” Mackenzie told analysts this morning.

BHP achieved $2.4 billion of productivity gains during the period and expects to realise $4 billion by the end of the 2017 financial year.

Iron ore was the major driver, with cash costs down 29% to $US20.35 per tonne, compared to $25.89/t in the June 2014 half.

Mackenzie said the company was quickly moving towards its objective of being the lowest-cost iron ore producer.

Iron ore EBIT was $4.3 billion, beating RBC Capital Markets’ estimate of $3.7 billion.

Capital and exploration expenditure was reduced by 23% to $6.4 billion, with capex guidance revised down by 15% to $12.6 billion.

Capex will drop further to $10.8 billion in FY16.

“We still see potential to get capex as low as $8.5 billion in FY16,” RBC said.

Net debt dropped to $24.9 billion with gearing sitting at 22.4%.

The company declared an interim dividend of 62c, in line with consensus.

Mackenzie stressed that BHP would not be rebasing its dividend downwards following the South32 demerger.

“This implies a higher payout ratio than 62%,” he said.

BHP remains committed to the demerger and will send the full documentation to shareholders next month, ahead of a vote in May and listing before the end of June.

“It’s absolutely on track,” Mackenzie said.

“It is the key enabler and differentiator, among many, that makes us a rather special company.”

Shares in BHP jumped 2.2% to $A32.84.