BHP Billiton to pay healthy dividend despite profit crash

BHP Billiton has posted a 48 per cent decline in profit due to the falling price of iron ore and oil.

The miner recorded a first-half profit of $US4.27 billion, down from the $US8.1 billion it posted a year ago.

BHP’s pre-tax and pre-interest earnings (EBIT) were also down 32 per cent to $US8.8 billion.

While the company’s underlying profit, excluding one-off costs and gains, was 31 per cent lower at $US5.35 billion.

BHP said while demand for its products remained strong, lower average realised prices reduced underlying EBIT by $US6.6 billion in the December 2014 half year.

A 38 per cent decline in the average realised price of iron ore was the major contributor and reduced underlying EBIT by $US4.6 billion.

A 17 per cent reduction in average realised oil prices reduced underlying EBIT by $US802 million, while weaker coal prices, both thermal and coking, reduced underling EBIT by a further $US775 million.

BHP CEO Andrew Mackenzie said the company could see the commodity price crash coming three years ago, and started to prepare by focusing on efficiency and lowering investment.

“Since then, we have achieved annualised productivity gains approaching $US10 billion and reduced capital spending by almost 40 per cent,” Mackenzie explained.

“For example, in the last six months alone we have cut unit costs at Western Australia Iron Ore by 29 per cent to nearly $US20 per tonne, achieving an Underlying EBIT margin of 49 per cent despite the structural shift in prices.”

But the company is targeting more savings with capital expenditure expected to come in at $US12.6bn for 2015, down 15 per cent from previous guidance. In 2016 BHP will cut this even further to $US10.8bn.

BHP said the proposed demerger of South32 will complete the company’s simplification process.

South32 is set to house BHP’s aluminium, coal, manganese, nickel and silver assets and it will take the proposed plan to a shareholder vote in May.

“If completed, the proposed demerger has the potential to unlock shareholder value by significantly simplifying the Group and dividing it into two distinct portfolios, each reflecting the common characteristics of their assets,” the company explained.

“Once simplified, BHP Billiton will be almost exclusively focused on its exceptionally large, long life iron ore, copper, coal, petroleum and potash basins, retaining full exposure to the early, middle and late stages of the economic development cycle. With fewer assets and a greater upstream focus, BHP Billiton will be able to reduce costs and further improve the productivity of its largest businesses.”

BHP declared an interim dividend of 62c, payable on March 31.

"We are confident that we can maintain our progressive dividend policy and continue to selectively invest in projects that offer compelling returns," Mackenzie said.

“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.”

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