Mining giant BHP Billiton has posted underlying earnings before interest and taxes (EBIT) of US$9.2 billion and underlying EBIT margin of 32% for the December 2014 half year, demonstrating the strength of its strategy and the resilience of its portfolio in weaker markets.
The company said in a media release that improved productivity and reduced capital expenditure achieved in the period allowed the company to generate US$4.1 billion of free cash flow and strengthen the balance sheet despite lower prices.
BHP Billiton Chief Executive Officer, Andrew Mackenzie, said the company was extending its productivity gains faster than anticipated, with US$2.4 billion achieved in the period. He said the company expected to record over US$4.0 billion of productivity gains by the end of the 2017 financial year.
“These results demonstrate the effectiveness of our strategy and the quality of our people, assets and processes. 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. We are confident that we can maintain our progressive dividend policy and continue to selectively invest in projects that offer compelling returns,” he said.
According to him, BHP”s cost competitiveness continues to improve across all its major operations, with unit cash costs reduced by 29% at Western Australia Iron Ore, 15% at Queensland Coal, 13% at Escondida and 8% at Onshore US.
“We started to prepare for a sustained period of lower prices almost three years ago by increasing our focus on efficiency and lowering our investment. Since then, we have achieved annualised productivity gains approaching US$10 billion and reduced capital spending by almost 40%,” Mr Mackenzie said.
“We have seen rapid improvement across all of our major businesses. For example, in the last six months alone we have cut unit costs at Western Australia Iron Ore by 29% to nearly US$20 per tonne, achieving an Underlying EBIT margin of 49% despite the structural shift in prices.”
The company has reduced capital and exploration expenditure by 23% to US$6.4 billion in the half year, and plans to invest a total of US$12.6 billion in 2015 and additional US$10.8 billion in 2016.
Despite the positive outlook, BHP plans to remain disciplined and move forward with its plans, with an expected average investment return greater than 20% for its portfolio of high-quality development options.
Mr Mackenzie added that BHP would not rebase its progressive dividend downwards if the proposed demerger of South32 is approved.
“Meanwhile, South32 will benefit from a dedicated management team who can tailor their strategy to suit their own distinct portfolio. Following the proposed demerger, BHP Billiton will maintain its progressive dividend policy and any dividends from South32 will represent additional cash returns to shareholders,” he said.
Mr Mackenzie also revealed that the company’s net debt fell to US$24.9 billion for a gearing ratio of 22.4%, placing the company on the right track for future prosperity and growth.
“We remain confident about the outlook for our Company. We have the best quality assets and operating capability, a deep understanding of global markets, a portfolio of very high-return growth projects, a strong balance sheet and offer outstanding cash returns to shareholders,” Mr Mackenzie concluded.
The Group’s interim dividend increased by 5% to 62 US cents per share, representing an underlying payout ratio of 62%.