BHP Billiton profit dives to 10-year low on commodities rout
BHP Billiton (BHP.AX)(BLT.L) reported its worst underlying profit in a decade on Tuesday, gutted by plunging iron ore, copper, coal and oil prices, and said it would cut spending more deeply to shore up dividends.
BHP and its peers have been hit after they hiked output of iron ore, copper and coal just as demand growth slowed in China, the top global metals consumer, and have been slashing costs over the past three years to cope. The world's biggest miner reiterated its pledge to never cut its dividend, and lowered its target for capital spending for the year to June 2016 to $8.5 billion from $9 billion previously to help meet the promise.
"Our commitment to our progressive dividend is resolute," Chief Executive Andrew Mackenzie told reporters. "It has withstood many previous cycles and is a key differentiator relative to our peers." BHP shares jumped 6 percent in early London trade, partly reversing a 9 percent fall in the previous session when commodity stocks globally fell on fears of a hard landing for the Chinese economy.
The market welcomed the sharp cost cuts and the company's lower debt, which will help make the progressive dividend more affordable, three analysts said. But some investors questioned the wisdom of the dividend policy for a company in a cyclical business. "We're currently at the point where their earnings are too low for the kind of dividends they're wanting to pay," said Brenton Saunders, an analyst at BT Investment Management.
"Unless commodity prices went up, it looks like they would have to use debt to fund their dividend in this coming year." BHP, the last of the big five global miners to report results, said its underlying attributable profit fell to $6.42 billion for the year to June from $13.26 billion a year earlier. The result was below analysts' forecasts around $7.73 billion.
Net profit dropped 86 percent, as BHP took $ 2.9 billion in post- tax charges that it flagged previously, mainly on its U.S. shale and Nickel West businesses.