BBL » Topics » Commentary on the Group Results

This excerpt taken from the BBL 6-K filed Feb 10, 2010.

Commentary on the Group Results

BHP Billiton delivered a sound financial result, despite significant volatility and continued uncertainty in the global economy. Strong sales volume growth on the back of demand recovery, particularly in the steelmaking raw materials (Iron Ore, Metallurgical Coal and Manganese) and good cost control across the business helped to partially offset the negative impacts of lower prices and stronger producers’ currencies.

Commodity prices recovered during the December 2009 half-year, however realised prices for most of our products were lower than the prices achieved during the December 2008 half-year. The strength of operating currencies against a weak US dollar also negatively impacted costs. In comparison to the prior period, Underlying EBIT and attributable profit excluding exceptional items decreased by 28.5 per cent and 7.0 per cent respectively, mainly due to these two factors. However, Underlying EBIT margin remained at a healthy 37.9 per cent and Underlying return on capital was 24.0 per cent, despite new not yet productive capital from continued investment.

Attributable profit increased by 134.4 per cent to US$6.1 billion due to the reversal of impairment charge for Ravensthorpe as well as a number of exceptional items reported in the prior period. Exceptional items reported in the prior period include costs associated with portfolio rationalisation, impairment of assets and increased rehabilitation provisions for Newcastle steelworks (Australia). We undertook further portfolio rationalisation during the period, with the announced sales of both the Ravensthorpe and Yabulu nickel operations (both Australia) and the divestment of Suriname alumina operations. The restructuring of the nickel portfolio is now complete, leaving us with a stronger and simpler nickel business.

The ongoing investment program continued to deliver volume growth, which contributed to half-year production records in Iron Ore and Petroleum. We delivered first production in three major projects during the period (iron ore, alumina and energy coal) and announced the approval of the Hunter Valley Energy Coal (Australia) MAC20 project. Subsequent to the period end we also announced the approval of US$2.2 billion pre-commitment capital expenditure for projects in iron ore, metallurgical coal and potash and the approval of the Antamina expansion in Peru. On 5 December 2009, BHP Billiton and Rio Tinto announced they had concluded definitive agreements to establish the Western Australia Iron Ore Production Joint Venture. These agreements are another milestone in delivering significant additional value to both sets of shareholders and our joint venture partners in the Pilbara.

Current period net operating cash flow was impacted by increased working capital on the back of recovering demand and prices, and together with the large capital expenditure program, resulted in net gearing climbing slightly to 15.1 per cent. Our strong balance sheet continues to give us significant flexibility to progressively grow production capacity, return to shareholders and opportunistically consider acquisitions.

This excerpt taken from the BBL 6-K filed Aug 13, 2009.

Commentary on the Group Results

BHP Billiton’s 2009 financial year results demonstrate the success of our strategy in delivering a consistently strong performance throughout the cycle. Our portfolio of long-life, low-cost and diversified assets continued to yield strong margins and cash flows, despite the pressures of the current economic environment. Our low financial and operational leverage and a strong balance sheet enabled us to continue to invest in future growth.

The past year encompassed both record commodity prices in many products and a collapse in demand, exacerbated by dramatic movements in inventory levels. While the impact of weaker commodity prices and collapsing demand presented a major challenge to many companies, our Underlying EBIT margin and return on capital remained very healthy at 40.1 per cent and 24.6 per cent respectively.

While Underlying EBIT decreased by 25.0 per cent to US$18,214 million, we generated record net operating cash flows (up six per cent to US$18,863 million). The outstanding cash flow result has allowed us to reduce our net debt to US$5,586 million and continue to invest strongly in our capital and exploration programs (US$10,735 million).

The Group’s financial strength has been a clear competitive advantage during the severe economic downturn. It leaves us well positioned to invest in growth and participate in opportunistic mergers and acquisitions. The Western Australia iron ore production joint venture with Rio Tinto is an example of our focused pursuit of capacity growth in Tier One assets. More importantly for our shareholders, our balance sheet strength has allowed us to maintain our progressive dividend policy, increasing our full year dividend by 17.1 per cent to US 82 cents per share.

Nevertheless, we were not insulated from the swift and dramatic economic downturn and took decisive actions in response to changing market conditions. This included the decision not to proceed with the Rio Tinto takeover offers, production adjustments to match decreased demand, the suspension and sale of cash negative operations, and deferral of lower priority capital expenditures.

This excerpt taken from the BBL 6-K filed Mar 18, 2009.

Commentary on the Group Results

Attributable profit fell 56.5 per cent from US$6.0 billion for the half-year ended 31 December 2007 to US$2.6 billion for the half-year ended 31 December 2008. Profit from operations (EBIT) fell 23.8 per cent, from US$9.5 billion for the half-year ended 31 December 2007 to US$7.2 billion for the half-year ended 31 December 2008. Both measures were affected by a number of exceptional items, the majority of which are non-cash. These items include impairment charges and provisions resulting from the indefinite suspension of Ravensthorpe (Australia), costs relating to the lapsed Rio Tinto offers, impairment of assets and increased rehabilitation provisions for Newcastle steelworks (Australia). The total adverse impact of exceptional items for the half-year ended 31 December 2008 was US$4.7 billion before tax and US$3.5 billion after tax. The strength of the US dollar against our main operating currencies positively impacted EBIT for the first half by US$1.5 billion.

Revenue was US$29.8 billion, up 16.6 per cent from US$25.5 billion in the corresponding period. Net operating cash flow increased by 73.9 per cent to US$13.1 billion. The strong cash flow performance has reduced our net debt to US$4.2 billion, with a net gearing of 9.5 per cent. The strong balance sheet is a competitive advantage and leaves us resilient in these challenging times. It also means that we are well positioned to take full advantage of an eventual recovery in the market.

During the six months to December 2008, we have witnessed an unprecedented fall in commodity prices, with market prices falling in the order of 50 per cent during this period. As the global economy continues to deteriorate, we are witnessing further demand contraction for our products. We believe it is likely that uncertainty will extend into the medium term. As a consequence of the macro economic environment we have taken a number of actions consistent with our focus to maximise long term shareholder value. These actions include the decision not to proceed with the Rio Tinto offers, adjustments in production where physical demand decreased, suspending cash negative operations and deferrals of low priority capital expenditures. We believe the financial and operating strength of the Group means that we are able to continue to take a long term view, not compromising long term value as a result of short term pressures.

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