BHP Billiton has recorded a 5.9% increase in revenue and a massive 82.9% spike in profit for 2013.
In its latest results, the global miner announced an increase in its year on year revenue to US$ 33.95 billion, and an enormous leap in profits for the year of US$ 8.1 billion compared to the previous period, although it was still a drop from in net profit from its June 2013 US$ 10.9 billion results.
In a similar result to fellow international miner Rio Tinto, which last week announced a jump in profits to US$ 3.67 billion, BHP recorded across the board revenue increases as it slashed costs
This is no surprise result for BHP, after it brought in new CEO Andrew Mackenzie to generate these results.
Following his appointment Mackenzie promised that “substantial cuts” would be made in an effort to see the miner through a global resources downturn.
In January last year Mackenzie said the miner would reduce capital and exploration expenditure to US$ 18 billion for the next financial year, down from US$ 22 billion the previous year.
“A substantial improvement in productivity and additional volume from our low risk, largely brownfield investment program contributed to a significant increase in profitability in the December 2013 half year,” the miner said in a company statement.
In its report for the 31 December 2013 half year BHP saw a 62.3% positive change in its profits from operations (EBIT), rising from US$ 7.9 billion in 2012 to US$ 12.93 billion last year.
BHP recorded a similar rise in net operating cash flow, rising 65.3% year on year from US$ 7.17 billion in 2012 to US$ 11.86 billion in 2013.
Part of this was attributable to a massive slashing of capital and exploration expenditure, reducing costs by nearly a third from US$ 11 billion to US$ 7.95 billion, with an eye to further drive this figure down.
“The group’s capital and exploration expenditure is expected to decline by 25 per cent in the 2014 financial year,” it said.
It singled out the reduction of exploration combined with operational efficiencies as a major cause for this.
“There is no better example of the renewed discipline that we are applying at an operational level than Queensland Coal, where our focus on contractor and maintenance costs significantly improved the profitability of the operation.
“In this regard, BHP Billiton Mitsubishi Alliance unit cash costs declined by a substantial 25 per cent during the period,” it stated.
BHP went on to state that “by maintaining strict financial discipline and increasing international competition for capital we intend to further differentiate ourselves by creating a more capital efficient organisation”.
The combination of this 65% increase in its net cash flow and the 25% reduction in cash outflows from investing had led to a US$ 7.8 billion increase in free cash flow, BHP said.
The miner paid taxes globally of US$ 3.518 billion, US$ 2.265 billion of which was paid in Australia.
However, in term of the Mineral Resources Rent Tax BHP has flipped the paradigm.
In the half year ended 31 December 2012 it paid US$ 78 million for the MRRT, however it actually came out ahead by US$ 462 million in the half year ended 31 December 2013 thanks to a series of offsets
“The Group expensed US$ 29 million of MRRT in the period (31 December 2012: benefit of US$ 62 million; 30 June 2013: expense of US$ 114 million). This was offset by the remeasurement of deferred tax assets associated with the MRRT, which reduced taxation expense by US$ 491 million (31 December 2012: increase of US$ 140 million; 30 June 2013: increase of US$ 207 million),” BHP explained.
It is understood that this is in part due to concessions which allow miners to deduct the market value of existing assets over many years instead of subtracting the book value over five years.
This means large investments the miner made in operations at a time when commodity prices were at their peak can be used to offset their liabilities.
Added to this is also around $1.7 billion in tax credits that both Rio Tinto and BHP accrued this time last year, which allowed them to offset the mining tax, although they do not affect the levels of company tax they pay.
In terms of productivity on the ground, BHP reported a 10% increase in production for the December 2013 half year “with records achieved across three commodities and ten operations”.
“Western Australia Iron Ore (WAIO) achieved record production of 108 million tonnes as the operation benefited from the early delivery of first production from the Jimblebar mine.
“Queensland Coal also achieved record production for the half year as productivity initiatives increased annualised production to 68 million tonnes in the December 2013 quarter. Petroleum liquids production increased by nine per cent to 50 million barrels of oil equivalent, underpinned by a 72% increase at Onshore US, while copper production increased by six per cent to 843 000 tonnes.”
BHP stated that “iron ore and metallurgical coal are well positioned to achieved full year production guidance, although the current wet seasons in northern Australia represents a key risk”.
“The Group’s strong momentum is expected to be maintained with production growth of 16% anticipated over the two years to the end of the 2015 financial year.”