BHP Billiton posts its biggest loss on record
The mining giant has delivered one of the largest losses in Australian corporate history.
BHP Billiton has topped market expectations despite detailing the biggest loss in its history, as it was hit by heavy writedowns at its US onshore gas business and Samarco iron ore operation in Brazil.
For the year to June 30, the mining giant swung to a $US6.39 billion loss, from a $US1.91bn profit in the year prior.
It serves as one of the largest losses in Australian corporate history and an exclamation point on a tumultuous period for the local resources sector after a decade-long boom.
The market welcomed the result and accompanying commentary, however, with BHP’s London-listed shares lifting more than 3 per cent, to £10.775, by 9.45am local time (6.45pm AEST).
BHP said its adjusted net income – which strips out one-off events – tumbled 81 per cent to $US1.22bn, but it still beat the average of analysts’ forecast of $US1.06bn, according to Bloomberg data.
Analysts were uncertain heading into the result, however, with a wide spread of $US548 million to $US1.79bn seen in expectations.
“The last 12 months have been challenging for both BHP Billiton and the resources industry. “Nevertheless, our results demonstrate the resilience of our portfolio and the diverse ways in which we can create value for shareholders despite low commodity prices,” BHP chief executive Andrew Mackenzie said.
The miner’s underlying pre-tax earnings (EBITDA) slid 44 per cent to $US12.3bn, ahead of analyst projections for $US11.8bn, while revenue dipped 31 per cent to $US30.91bn, broadly in line with expectations.
BHP has been grappling with slumping commodity prices over the past couple of years, with the weakness through fiscal 2016 seen wiping $US10.7bn from its pre-tax profits.
The ASX-listed behemoth was cautious on the outlook for commodities in the near-term, but expressed confidence its more streamlined portfolio in the wake of the South32 demerger would see it capitalise on an eventual upturn in the cycle.
“Over the past five years we have actively reshaped our portfolio, and we are confident we have the right mix of commodities, assets and opportunities to create substantial value over time,” Mr Mackenzie said.
“While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper.”
On a sector-by-sector basis, BHP recorded a 35 per cent drop in pre-tax iron ore profit to $US5.6bn, a 49 per cent dive in pre-tax earnings at its coal operations to $US635m, a 50 per cent slump in pre-tax copper earnings to $US2.62bn and a 49 per cent tumble in pre-tax petroleum profits to $US3.66bn.
The miner reaffirmed its outlook for iron ore production of 265 to 275 million tonnes at its WA operations, on a 100 per cent basis, and a lift to 290 million tonnes by 2019.
Cost cuts at the iron ore operations in WA are set to continue their retreat, although the pace of recent reductions is seen impossible to maintain.
“Unit cash costs declined by 19 per cent to $US15 per tonne, underpinned by reductions in labour and contractor costs, increased equipment productivity, lower diesel prices and consumption and a stronger US dollar,” BHP said.
“In the 2017 financial year, unit costs are expected to decline a further 7 per cent to $US14 per tonne.”
BHP added its net debt rose 7 per cent over the year to $US26.1bn, above projections for a $US25.2bn reading.
Its free cash flow was reported at $US3.4bn, below expectations of $US4.8bn, although the group anticipates this to double in fiscal 2017.
“Next year, we expect another $US1.8bn of productivity gains as our new operating model helps sustain momentum, delivering more than $US7bn of free cash flow based on current spot prices and a forecast reduction in net debt,” Mr Mackenzie said.
BHP has been paring back its capital expenditure to account for the downturn in prices, with a decline of 42 per cent to $US6.4bn seen in fiscal 2016. This is expected to be further trimmed to $US5bn in the upcoming year.
Meanwhile, the broad loss was driven by $US4.88bn in after-tax write-offs at its US shale business and $US2.2bn in post-tax impairments and expenses relating to its Samarco joint venture after last year’s tragic tailings dam collapse.
Legal cases are still pending on the Samarco disaster, with BHP noting today that findings from an external investigation into the collapse would be available in the “next few weeks”.
The miner announced a final dividend of US14c a share, sharply below a US62c payout last year. Analysts had been expecting a US16c payout.
Ahead of the update BHP shares closed up 0.6 per cent at $20.28 on the local bourse, with its shares up 13.5 per cent on the year-to-date.
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