Bhp Billiton Finals

A diversified natural resources company and among the world’s largest producers of major commodities, including aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and has substantial interests in oil and gas.  I have a holding in my income portfolio (epic code: BLT).

Bhp Billiton announced their results for the year ended 30 June 2013 today.  As expected the results were dominated by the substantial effect of falling commodity prices.  The largest contributor was iron ore prices that reduced operating profits by $4.1bn, from a total operating profit decline due to selling prices of $8.9bn.

These weaker prices were partially off-set by increased production improving operating profit by $1.8bn.  The most notable were - iron ore shipments from WAIO up 10%, copper production from Escondida up 28%, Queensland coal production up 19% and petroleum production up 6%.

Results were at the bottom end of market expectations with revenue at $65,968m down 8.7%, operating profit down 19% to $19,225m and earnings and EPS down 29.5% and 29.4% to $10,876m and $2.037 respectively.  Operating profits included $1,902m of net exceptional costs and earnings $922m of post-tax net exceptional costs, underlying Earnings and EPS are therefore $11,798m and $2.209 respectively.  

A final dividend of $0.59 was declared, an increase of 3.5% making $1.16 for the full year up by 3.6%.  The dividend is covered 1.76 times by earnings, but uncovered by a free cash outflow of $1,687m.  Free cash flow (FCF) showed a substantial decline from the $5.1bn last year, which in itself was down on the very strong $18.5bn from 2011.  It is no surprise then that capital expenditure & exploration costs will be reduced more than the expected $18bn this year to $16.2bn from $21.7bn in 2013, although that is still 31% up on 2011's level.

A decision was taken to complete the Jansen potash project in Canada, but over an extended period, spreading the $2.6bn of capital expenditure needed over the next 4 years.    The decision to complete this project is controversial, given weak potash prices and increasing production output from the Russian mines, that can only drive prices down further.  It is clear they have taken this into account in their delayed completion date and the statement that they may seek one or two partners.  On completion of the project BLT will have a mine capable of an initial production of 10 million tonnes pa, which is over 20% of current world production, they say they expect demand for potash to increase by 2-3% pa. for the next 17 years, so not enough by the time they start production to soak up their output.


For the Group they expect growth in production of 8% pa over the next two years and given the lower production costs for their mines and reduced capital expenditure, profits and FCF should return to respectable levels, unless we see commodity prices fall further.  If dividends are increased next year by another 4%, then the prospective yield is 4.1%, so still an interesting buy for an income portfolio despite their 16% climb from the year's lows, but of course with a commodity and currency risk attached.  It is worth bearing in mind that a 10% decline in the price of iron ore will have the effect of reducing operating profits by ~$1.4bn.