BHP Billiton earnings halve, cost cuts loom

Plunging commodity prices have sliced BHP earnings in half and the giant miner plans to cut its spending in response.

Plunging commodity prices have sliced BHP Billiton’s earnings in half, and the giant plans to cut its spending in response.

The company, the world’s biggest miner by market value, today reported a net profit of $US1.91 billion for the year through June, down from $US13.83 billion in the 12 months earlier.

Underlying earnings were down 52 per cent at $US6.42 billion.

Net profit was weighed down by higher non-cash charges that reduced earnings by $USS1.3 billion and included writedowns against some oil fields and an exceptional item related to the South32 spin off.

The group forecast reduced capital spending of $US8.5bn in fiscal 2016, down from its previous target of $US9bn.

The company also said it delivered productivity gains of $US4.1bn, two years ahead of target, and expected further cost reductions in the 2016 financial year across all businesses.

“The continued weakening of BHP’s core operating currencies are providing a strong tailwind to BHP’s cost reduction programs,” Macquarie Wealth said in a research note ahead of the results.

Total revenue for the year, including continuing and discontinued operations dropped by 22 per cent, to $US52.27bn.

Still, the company said it would give shareholders a final payout of US62c a share, increasing its full-year payout by 2 per cent to $US1.24.

Meanwhile, a 41 per cent price decline in iron ore prices hit the group’s underlying earnings to the tune of $US9.5bn.

Price falls in petroleum, copper and coal hit the result by $US4.2bn, $US1.6bn and $US1.1bn respectively, the group said.

The miner has lowered its forecast of peak Chinese steel demand to between 935 million tonnes and 985 million tonnes in the mid-2020s.

“Athough China’s steel exports are at an all-time high, we expect subdued crude steel production growth over the remainder of the 2015 calendar year, with some upside potential should the construction sector recover,” BHP said.

“In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility,” the miner added.

BHP’s main commodities have been king-hit by tumbling prices over the year. Over the weekend, US oil prices dipped below $US40 a barrel for the first time in six years, amid concerns over China’s weakening economy.

Iron ore prices for Tianjin delivery hit a 10-year low of $US44.10 a tonne in July and are struggling to break above the mid-$US50 range, while metallurgical coal and copper, also core BHP products, are languishing at multi-year lows.

With Business Spectator