BHP looking for upturn in first half of 2013

Weakness in commodity markets and industry wide cost pressure resulted in earnings declining at mining giant BHP Billiton.

While revenue in the year to the end of June edged up to $72,226m from $71,739m the year before, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) declined 9% to $33,746m from $37,093m the previous year. Underlying EBIT tumbled 14.8% to $27,238m from $31,980m.

Exceptional charges of $1.7bn took a large bite out of the bottom line, with attributable profit plunging by 34.8% to $15,417m from $24,648m the previous year, leading to a fall in basic earnings per share (EPS) to 289.6 cents from 429.1 cents a year earlier. Excluding the exceptional items EPS fell 18.3% to 321.6 cents from 393.5 cents the year before.

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Net operating cash flow of $24.4bn declined by 19% while underlying return on capital was 23%. Net debt, comprising interest bearing liabilities less cash, was $23.6bn at the end of the reporting period, which was an increase of $17.8bn compared to the net debt position at 30th June 2011.

"Our positive longer-term view is unchanged as urbanisation and industrialisation across the developing world is expected to remain the primary driver of global economic growth. While the rate of expansion within China has adjusted to a more sustainable level as its economy has matured, economic growth in this decade is expected to rise substantially in absolute terms given the higher starting base," the group said.

BHP Billiton is expecting commodity markets to remain volatile in the short term as temporary weakness in the manufacturing and construction sectors across all key markets is set to weigh on market sentiment. "However, in the medium term we expect supportive economic policy and a broad growth bias, particularly in China, to lead to measured improvement in the external environment beginning in the first half of the 2013 financial year," the group added.

In summary, the global macroeconomic environment is expected to stabilise before improving in the first half of the 2013 financial year.

The full-year dividend has been lifted by 10.9% to 112 cents from 101 cents in the year to June 30th 2011.

In a separate announcement, BHP Billiton said it would investigate a less capital-intensive alternative design of the Olympic Dam open pit expansion in Australia. As a result it will not be ready to approve an expansion of Olympic Dam before the indenture agreement deadline of 15th December 2012. The company will discuss the implications of this decision for the indenture agreement with the South Australian government in the coming months.

BHP Billiton Chief Executive Officer, Marius Kloppers, said current market conditions, including subdued commodity prices and higher capital costs, had led to the decision.

JH