BHP posts smaller profit amid volatile market

A LOT can happen in a year – that’s what mining giant BHP Billiton has found out, recording underlying earnings of $US27.2 billion ($A26 billion) for the 2012 financial year, a drop of about 15%.
BHP posts smaller profit amid volatile market BHP posts smaller profit amid volatile market BHP posts smaller profit amid volatile market BHP posts smaller profit amid volatile market BHP posts smaller profit amid volatile market

Image courtesy, BHP Billiton

Lauren Barrett

The company’s much-anticipated results were mostly in line with economists’ predictions, with BHP admitting a weakness in the commodity prices and industry-wide cost pressures had been the main reason for the 14.8% decline in earnings.

The iron ore heavyweight today posted an attributable profit excluding exceptional items of $17.1 billion, a 21% drop from the $21.7 billion profit recorded in FY2011.

Revenue was only marginally up by 0.7% to $72.2 billion, compared to last year’s result of $71.7 billion.

Meanwhile, operating cash flow for the year tipped in at $24.2 billion, versus $30.1 billion in the previous year.

The company declared a final dividend of 57c, roughly in line with the 55c fully franked dividend recorded last year.

While the financial results provide a strong indicator as to the impact Europe’s financial woes are having on the world’s mining giants such as BHP, the company had a glass half-full attitude, saying it gave a “robust performance in a challenging environment”

“Disciplined investment throughout the economic cycle has established strong momentum in our major businesses, demonstrated by a twelfth consecutive annual production record at Western Australia Iron Ore and record annual production at another nine operations,” BHP said today.

“The group has been quick to respond to the change in the operating environment and has acted decisively by closing energy-intensive silico manganese alloy production capacity in South Africa and by temporarily closing capacity at TEMCO.”

The FY12 drop in earnings on the back of a difficult economic climate is in stark contrast to this time last year when the producer cited robust demand as one of the fundamentals driving its business.

Investors hoping to get a final outcome on the fate of its ailing Nickel West operations in WA will undoubtedly be disappointed with the miner giving no clues as to what its next steps will be.

“The viability of other high-cost operations is being assessed and additional measures are being implemented that will substantially reduce operating costs and non-essential expenditure across the business,” BHP said.

With about 20 major projects currently in execution with a combined budget of $22.8 billion, BHP said it remained largely committed to FY2013 – although no major project approvals are expected during this time.

BHP also provided an insight into concerns surrounding the stability of the eurozone and dismissed growth concerns in China.

“The successful containment of inflation, looser monetary policy and evidence of a recovery in infrastructure investment should be positive for commodities demand in the short to medium term,” it said.

“Similarly, there are encouraging signs that the United States housing market may have stabilised which should translate into upside for the world’s largest economy if it leads to an improvement in consumer and business confidence.”

On the commodities front, BHP expects prices to remain subdued due to the temporary weakness in the manufacturing and construction sectors which is expected to impact on market sentiment.

In the medium term, however, the company believes supportive economic policies will translate into improvements in the external environment beginning in the first half of FY13.

Shares in BHP were last trading down 0.2% or A7c at $33.20.

This article first appeared in ILN's sister publication

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