Global mining giant BHP Billiton on Tuesday said its first-half net profit almost halved to US$4.26 billion on the back of collapsing commodity prices as it reiterated a plan to spin off non-core assets.
The 47.4 percent slump in the six months to December 31 compared to US$8.1 billion in the previous corresponding period, with revenues dropping 11.9 percent to US$29.9 billion.
Underlying earnings — which exclude one-off writedowns — were down 31 percent to US$5.35 billion, slightly better than analyst expectations which helped the share price rise more than two percent to Aus$32.94 in early afternoon trade.
The world’s biggest miner has been hard hit by falling prices for its two main commodities, iron ore and oil, with a 23 percent reduction in capital and exploration expenditure helping offset some of the damage.
Despite this, the company boosted its interim dividend by 5.1 percent to 62 cents with chief executive Andrew Mackenzie saying the firm had prepared for sliding prices by reining in spending and scaling back investments in recent years.
“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,” he said, adding that net debt had been reduced to US$24.9 billion.
“We started to prepare for a sustained period of lower prices almost three years ago by increasing our focus on efficiency and lowering our investment.
“Since then, we have achieved annualised productivity gains approaching US$10 billion and reduced capital spending by almost 40 percent.”
– Simplify the business –
The company said there had been stellar performances across its diversified portfolio with records achieved for eight operations, but this was partially offset by prices tumbling as demand was outpaced by a supply surge for some commodities.
Iron ore — the steel-making ingredient — is BHP’s most lucrative product and production from its key Western Australian operations jumped 15 percent in the half year to 124 million tonnes.
But the boost came with the economy of major customer China slowing and demand dropping due to weakness in its property sector.
Mackenzie said BHP was positioning itself to weather the iron ore weakness, with the price crashing nearly 50 percent over the past year.
“We’re quickly advancing towards our objective of becoming the lowest all-in cost supplier to China,” he said, referring to the price once freight and royalties are factored in.
Petroleum production increased nine percent and metallurgical coal output jumped 21 percent, but copper fell by two percent and aluminium, manganese and nickel were broadly unchanged.
In August, BHP announced plans to demerge parts of its business, including aluminium, manganese, silver and selected coal and nickel operations, into a company called South32.
This will allow it to focus exclusively on its core long-life operations — iron ore, copper, petroleum, coal and potash, with the new entity to be listed in Sydney, London, and Johannesburg with its headquarters in Perth, Australia.
Mackenzie reiterated that the spin-off was crucial to simplify the business and cut costs.
“This push for productivity must continue and our proposed demerger will be a catalyst for further progress,” he said.
“Simplification will ensure BHP Billiton’s organisation, systems and processes are dedicated to its core assets, allowing us to further improve their productivity.
“Meanwhile, South32 will benefit from a dedicated management team who can tailor their strategy to suit their own distinct portfolio.”
The company said the spin-off remains on track to be completed in the first half of 2015 with a shareholder vote in May.
“The demerger will allow us to continue the process of building an organisation that is truly unique in our sector, and one that is well positioned for success in the face of ever increasing volatility,” added Mackenzie.