BHP Billiton has delivered robust financial results in the half year to 31 December 2014, a period characterized by volatile commodity markets. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 12% to US$14.5 billion as lower average realised prices more than offset the substantial productivity gains that continue to be achieved across the portfolio.
Group production increased by 9% during the December 2014 half year with records achieved for eight operations and five commodities. The company remains on track to deliver production growth of 16% over the two years to the end of the 2015 financial year.
The Group extended its track record of delivering sustainable performance improvement with US$2.4 billion of productivity gains achieved during the period. BHP Billiton remains on track to deliver at least US$4.0 billion of productivity gains from its core portfolio by the end of the 2017 financial year. Volume growth from the ramp up of high-return development projects increased underlying EBIT by a further US$1.3 billion. However, lower average realised prices reduced underlying EBIT by US$6.1 billion, net of price-linked costs, and were the major contributor to the 25% decline in underlying EBIT to US$9.2 billion. Underlying attributable profit declined by 31% to US$5.4 billion.
By further improving productivity and reducing the rate of investment the company delivered a substantial US$4.1 billion of free cash flow during the period, despite weaker commodity prices. BHP Billiton’s share of capital and exploration expenditure declined by 23% during the period to US$6.4 billion. Continued improvement in the Group’s capital productivity is expected to support a reduction in forecast capital and exploration expenditure for the 2015 financial year to US$12.6 billion, 15% below original guidance. The company expects capital and exploration expenditure will further reduce to US$10.8 billion in the 2016 financial year.
BHP Billiton Chief Executive Officer, Andrew Mackenzie, commented: “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”.
Metallurgical coal production increased by 21% in the December 2014 half year, to a record 26 million t. Queensland Coal delivered record production and sales volumes primarily as a result of increased equipment utilisation and the successful ramp-up of the Caval Ridge mine. Illawarra Coal also achieved record production of 4.7 million t in the December 2014 half year as maintenance efficiencies supported higher equipment utilisation rates.
Energy coal production decreased by 3% in the December 2014 half year to 36 million t. As anticipated, drought conditions constrained production volumes at Carrejon given the need to manage dust emissions, while Narajevo Coal production declined following lower customer demand arising from the closure of three of the five power units at the Four Corners Power Plant. New South Wales Energy Coal production also declined as a result of processing lower yield coal during the period and an additional planned wash-plant outage. At South Africa Energy Coal , higher wash-plant utilisation contributed to a 10% increase from the December 2013 half year which was affected by industrial action.
Metallurgical coal production guidance for the 2015 financial year remains unchanged at 47 million t ahead of the wet season and planned longwall moves at the Crinum, Dendrobium and West Cliff underground mines. Energy coal production guidance for the 2015 financial year remains unchanged at 73 million t.
Underlying EBIT for the December 2014 half year declined by US$332 million to US$178 million. Lower average realised prices reduced underlying EBIT by US$715 million, net of price-linked costs, although this was partially offset by a stronger US dollar which increased underlying EBIT by US$16 million.
A reduction in controllable cash costs increased underlying EBIT by US$252 million during the period. At Queensland Coal, unit cash costs declined by 15% to US$70.75/t as the operation benefitted from increased equipment and wash-plant utilisation rates and a continued focus on labour, contractor and maintenance productivity.
Moody’s Investors Service has said that BHP Billiton’s results for the first half of FY15 (July – December 2014) is withinexpectation and, as such, have no immediate impact on the ratings of the BHP Billiton entities including the A1 issuer ratings and P-1 short term rating ofBHP Billiton Limited and BHP Billiton Plc. The outlook on all rating is stable.
Matthew Moore, a Moody’s Vice President – Senior Analyst, commented: “While earnings and cash flow from operations in the period were negatively impacted, primarily by lower commodity prices, we still expect BHP Billiton’s credit metrics to remain within tolerance levels for the rating.” Moody’s expect earnings to trend lower in the second half of FY15 as the full impact of the commodity price declines in recent months flow through. “However, the company’s ongoing focus on cost and capital reductions combined with productivity led gains should continue to preserve cash flow and credit metricsat appropriate, albeit more weakly positioned, levels for the rating”.
Adapted from a press release by Emma McAleavey.
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