There was something for both the bulls and the bears in mining titan BHP Billiton's interim results, with underlying pre-tax earnings ahead of expectations while the bottom line number was shy of what the market had been anticipating.
The market had been expecting underlying earnings before interest and tax (EBIT) of $15.5bn for the six months to the end of 2011, but BHP Billiton topped that with $15.69bn, a 5.8% increase on the $14.83bn achieved the year before.
"Underlying EBIT margin remained in excess of 40% despite significant volatility across many of our core markets while underlying return on capital was 28%," the group noted.
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Underlying attributable profit, however, which is the money left over to add to the company's coffers after the tax man has taken his share, was down 5.5% to $9.84bn from $10.52bn the year before, and was below the net profit after tax figure of $10bn pencilled in by the market. It was also the first decline in the bottom line since 2009.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 8.3% to $18.74bn from $17.30bn the year before, which meant underlying EBITDA interest coverage came down to 60.5 from 77.6 the year before.
Gearing increased to 25% following the acquisition of Petrohawk Energy.
Basic earnings per share eased 1.3% to $186.8m from $189.2m at the interim stage the year before. The interim dividend has been whacked up 19.6% to 55 cents from 46 cents the year before, a good rise on the face of it, but just a bit lower than the 56 cents pay-out the market had been expecting.
Revenue rose 9.7% to $37.48bn from $34.17bn despite the group experiencing a number of setbacks at its mining operations. For instance, production at its Escondida copper mine in Chile was temporarily reduced as a result of lower grades and industrial action, while flooding negatively affected its leading Queensland coal business.
The firm also witnessed lower prices in base metals and stainless steel materials which reduced profits at the latter two units by $857m.
Industrial action cut copper production from Escondida by 16% during the period in question.
The group said it faced several challenges in the first half of its financial year, including the well-publicised debt crisis in Europe, which affected confidence, plus the slow-down in economic growth of economic powerhouses China and India.
On the bright side, the USA and Japan both saw an upturn in activity, and both of these developed economies are likely to see modest growth in the coming quarters as the challenging global economic environment and generally weak consumer confidence is expected to weigh on underlying activity, the group opined.
"Our base case is a protracted recovery for the developed world with the disorderly unwinding of European government debt remaining one of the key downside risks," BHP Billiton said.
As for China, it is expected that the authorities will pursue targeted measures to support balanced growth in its economy, while in India, BHP Billiton notes that inflation is coming off the boil, which could give the country's government the opportunity to relax monetary policy.
As for the commodity markets, the company expects volatility in commodity markets as fears persist over the European sovereign debt crisis; general weakness in the manufacturing and construction sectors across key markets are also expected to weigh on customer behaviour and sentiment.
However, the group still expects underlying demand growth rates to remain robust, so long as the macroeconomic policy setting of the developing world retains a growth bias.
"Of the commodities, copper and iron ore are expected to remain supported by their compelling supply-demand fundamentals while the structural shift in Chinese demand for metallurgical coal remains well entrenched. Geopolitical factors are once again likely to influence crude oil pricing. In contrast, the outlook for the aluminium, nickel and manganese alloy industries remains challenging and has led to significant margin compression for most producers, almost irrespective of their position on the various global cost curves," the group said.
The shares barely moved on the announcement, falling a halfpenny to 2,179.5p in the first half hour of trading in London.
AB/JH
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