BHP Billiton posts annual net profit of $US5.89 billion
BHP Billiton will try to exit its US shale assets, as it swung back to a $US5.9bn net profit but missed expectations.
BHP Billiton has declared it will try to exit its problematic US shale assets, as it announced it swung to a full-year net profit of $US5.89 billion on higher iron ore and coal prices, up from a $US6.34bn loss the previous year.
Underlying net profit rose 454 per cent to $US6.732 billion, missing analyst expectations of $US7.05bn. Analysts forecasts for headline net profit had ranged from $US6.6bn to $US7.5bn.
The company declared a US43 cents per share final dividend, up from US14c a the previous year, and just missing expectations of US44c. This pushed the full-year dividend to US84c.
Revenue for the year climbed 24 per cent to US$38.29 billion from US$30.91 billion.
“We have determined that our onshore US assets are non-core and we are actively pursuing options to exit these assets for value,” said BHP, which has spent about $US17bn developing the assets for little return.
“In the meantime, we will complete well trials, acreage swaps and assess midstream solutions to increase the value, profitability and marketability of our acreage.”
The US shale acquisition, the value of which slumped with oil and US gas prices since it was made, has been widely condemned by analysts and investors and has a been a focal point of activist fund Elliott’s call for restructuring.
The big 2016-17 statutory loss was largely due to impairments on US shale.
Speaking later to investors, chief executive Andrew Mackenzie said a spin-off of US shale, as requested by Elliott, would not be the preferred option.
“Or preference will be to sell the business through a relatively small number of trade sales,” he said.
Mr Mackenzie has previously said the spread of US assets will have different values to different buyers, meaning more value is likely to be extracted by multiple sales, rather than selling it as a whole.
He said BHP had not ruled out spinning off the business.
Earlier, Mr Mackenzie said: “We had a very strong financial year.
“Free cash flow was $US12.6bn, our second highest on record. We used this cash to reduce net debt by nearly $US10bn and return $US4.4bn to shareholders.
“Productivity gains across our simpler portfolio of tier one assets increased our return on capital to 10 per cent.”
Mr Mackenzie said of the outlook: “This strong momentum will be carried into the 2018 financial year, with volume growth of seven per cent and further productivity gains expected.
“Our relentless focus on cash flow, capital discipline and value creation should allow us to significantly increase our return on capital by the 2022 financial year.”
Today’s result follows a $US6.39bn net loss in 2015-16, because of a $US4.9bn impairment of US shale and the $US2.2bn financial impact of the Samarco dam failure in Brazil that killed 19 people.
BHP said it had delivered $US1.3bn of productivity gains in 2016-17, which was down on original guidance of $US1.8bn as Queensland floods and Escondida strikes in Chile cut output.
“Productivity gains were lower than guidance largely as a result of volumes at the lower end of guidance ranges and increased exploration expenditure, including the successful bid for Trion in Mexico,” BHP said.
“We expect to deliver a further $US2bn of productivity gains over the two years to the end of the 2019 financial year, with gains weighted to the second year.”
The gains and high commodity prices led the company to cut net debt by $US9.8bn to $US16.3bn, as the company took a conservative approach to shareholder returns by not issuing any buybacks or special dividends
“The market is expected to like the strong cash flow and debt reduction, together with decision to exit US shale,” said UBS analyst Glyn Lawcock.
BHP revealed it had quickly stepped back from plans to put a $US4.7bn Jansen potash development to the board this financial year, in the wake of questions from activist investor Elliott and analysts. Mr Mackenzie in May said a decision on the mine could go to the board in 2017-18 with a view to 2023 production.
The decision, if approved, would have been the biggest capital spend ever approved in one hit by the BHP board.
Today, chief financial officer Peter Bevan declared the project would not be going to the board in calendar 2018, and that potash demand was not expected to outstrip supply until the mid 2020s, when it would be better to bring Jansen on.
“There is no rush,” Mr Bevan said.
The big miner said 2017 global growth was likely to be at the top of the expected 3 to 3.5 per cent growth range.
“A modest lift in international trade has occurred this year despite ongoing political uncertainty,” the company said.
BHP said the US outlook has not been as strong as hoped.
“The medium term outlook for the US economy is uncertain,” BHP said.
“Progress on growth enhancing infrastructure spending and tax reform has been slow and monetary conditions are expected to tighten further.”
China is expected to slow modestly in 2017-18 while remaining in the target range of 6.5 and 7 per cent.
“We expect to see a cooling of growth rates in the housing and automobile markets in combination with a continuation of strength in infrastructure.”
BHP’s 2016-17 earnings before interest, tax depreciation and amortisation of $US20.3bn was up 64 per cent from the previous year and in line with expectations.
“We expect no significant impact on consensus estimates following today’s result as guidance were on expected lines,” Citi analysts said.
“The decision to exit US onshore will generally be viewed positively, although it looks like shareholders will have to wait a while longer before capital management, ex dividends, kicks off in earnest.”
Shares in BHP closed up 1.09 per cent at $25.98.
