BHP Billiton boosts profit, paves way for buyback
Credit: Reuters/David Gray
A promotional sign adorns a stage at a BHP Billiton function in central Sydney August 20, 2013.
After achieving annualized cost savings of $4.9 billion, slashing capital spending and reducing debt, the world's biggest miner pointed to strong cash flows and said it would consider a dividend hike and may be ready for a share buyback come August.
Analysts welcomed improvements in BHP's coal business and its previously struggling aluminium, manganese and nickel arm, and said uncertain global conditions were likely staying the company's hand on any share buyback.
'You've got to have that optionality rather than committing to something that may be unwise if financial markets or commodity prices change,' said Tim Schroeders, a portfolio manager at Pengana Capital. 'They've got the option to instigate capital management initiatives if they get favorable tail winds on a sustainable basis.'
Big miners have been shelving projects, cutting costs and selling assets over the past 18 months to satisfy shareholders wanting a bigger share of spoils from the mining boom. That led BHP rival Rio Tinto (RIO.AX)(RIO.L) to surprise investors with a 15 percent dividend hike at its full year results last week.
BHP said it expected to generate strong free cash flow which would help it pare net debt to around $25 billion by June 2014, a level at which Chief Executive Andrew Mackenzie has said the company would be willing to look at a capital return for shareholders.
'If we deliver that level of indebtedness towards the end of this financial year, I'll come back to you at the full year with the authority of our board to talk about future capital management that may be possible in that instance,' Mackenzie told reporters.
BHP shares rose 1.7 percent to A$38.65, outpacing a 0.2 percent rise in the broader market.
BHP gave a cautious outlook, saying Chinese steel production was off to a slow start this year at 730 million tonnes on an annualized basis and said there is more new iron ore supply from the likes of BHP and Rio than there is demand growth in China and other markets.
'Towards the end of the calendar year, the very strong growth in supply is more than enough to create a bit of an excess and therefore to drive price lower,' Mackenzie, who took over as CEO in May last year, told analysts.
However, he forecast continued cost savings.
'We're just getting started and I think there's a lot more to come,' he said, without specifying any figures.
PROFIT BOOST
Underlying attributable profit rose to $7.76 billion for the six months to December, up from $5.94 billion a year earlier. Analysts had been expecting a profit of $6.925 billion on the same basis.
'The dividend was slightly below what I was expecting, which was around 60 cents,' Morningstar analyst Mark Taylor said on a first look at the results.
Net debt fell to $27.1 billion, down $422 million from June 30, 2013.
Profit from iron ore, its biggest business, rose 60 percent on the back of mine expansions, while petroleum earnings fell 16 percent, which analysts said was disappointing. Copper rose just 0.4 percent.
Its coal business posted a profit of $510 million, up from break even a year earlier. Mackenzie declined to comment on speculation that the company was considering exiting its thermal coal business or wanted to sell its South African coal mines.
BHP raised its interim dividend by 3.5 percent to $0.59 a share, slightly below consensus but in line with its normal practice of paying an interim dividend at the same level as the final dividend from the year before.
(Reporting by Sonali Paul; Editing by Richard Pullin)
Post a Comment for "BHP Billiton boosts profit, paves way for buyback"