Alumina, nickel hit BHP profit
BHP's aluminium and nickel division recorded a widening loss of $US285 million in underlying earnings before interest and tax in the half - down from a $US66 million loss a year earlier - the worst performance of any division.
Further, impairments of $US1.5 billion after tax against the Worsley alumina refinery, and $US865 million against BHP's Nickel West assets, both in Western Australia, contributed substantially to the 58 per cent fall in attributable profit for the first half of 2012-13, to $US4.2 billion.
BHP declared a US57¢-a-share dividend (up 4 per cent from US55¢ a year ago) and its shares fell 0.9 per cent, or 35¢, in local trade to $38.65.
Mr Kerr, briefing investors from London, was followed by outgoing chief executive Marius Kloppers who said BHP would not be pressured into selling off assets fast, saying "assets sold in haste . . . you repent at your leisure".
In the December half, BHP completed assets sales (or announced sales that it will complete this half) totalling $US4.3 billion, including the $US1.9 billion sale to Rio Tinto of its 37 per cent stake in Richards Bay Minerals in South Africa, the $US1.6 billion sale to Shell of its 10 per cent interest in the Woodside-led Browse gas project in WA, and the $US420 million sale to Cameco of the Yeelirrie uranium deposit, also in the state. The prices achieved in these transactions were at a substantial premium, Mr Kloppers said.
The impact of lower commodity prices saw BHP's revenues fall 14 per cent to $US32 billion during the half, down from $US37.5 billion a year earlier, while underlying earnings before interest and tax (EBIT) fell 38 per cent to $US9.8 billion. This was slightly above the consensus analysts' estimate of $US9.5 billion.
BHP said lower commodity prices - particularly a 28 per cent reduction in realised iron ore prices - were responsible for $US5.4 billion or most of the fall in underlying EBIT.
BHP's powerhouse WA iron ore division generated $US4.6 billion or 49 per cent of BHP's EBIT, down 39 per cent on the previous corresponding half despite record sales volumes from Pilbara operations.
BHP said its earnings were reduced by $US164 million spent on expanding capacity, which would help it increase production.
But the company wrote off $US618 million spent on the proposed $20 billion expansion of the outer harbour at Port Hedland. Mr Kloppers said BHP looked forward to approving one of its most capital cost-effective expansions of the inner harbour instead.
Petroleum contributed another $US3.2 billion or 33 per cent of underlying EBIT, down by $US939 million due partly to a 4 per cent drop in realised oil prices to $US105 a barrel, and a 6 per cent drop in gas prices to $US3.63 per thousand cubic feet.
Underlying EBIT from copper rose by $US326 million, or 19 per cent year on year, to $2 billion, while the metallurgical coal business lost $US101 million in the half, hit by a 37-39 per cent drop in hard and soft coking coal prices.
Underlying EBIT from thermal coal fell by more than two-thirds, from $US787 million to $US246 million.
MARIUS KLOPPERS THE SCORE ON THE BOARD
Oct 1, 2007
Marius Kloppers appointed
SHARE PRICE $44.50
Feb 6, 2008
Launches $100 billion-plus bid for Rio Tinto
Nov 25, 2008
Abandons Rio bid
June 5, 2009
Launches iron ore joint venture with Rio
Aug 18, 2010
Launches $40 billion bid for Canada’s Potash
Oct 8, 2010
Abandons JV with Rio
Nov 15, 2010
Abandons Potash bid
Feb 22, 2011
Buys stake in Chesapeake Energy’s US shale gas fields
Oct 12, 2011
Signs $28.6 billion Olympic Dam expansion
Aug 22, 2012
Shelves Olympic Dam expansion
Sep 6, 2012
Iron ore prices hit three-year low
Nov 6, 2012
Search for new CEO reportedly begins
Feb 20, 2013
Kloppers flags retirement
SHARE PRICE $38.65
SOURCE: BLOOMBERG
Frequently Asked Questions about this Article…
BHP's attributable profit fell 58% to US$4.2 billion in the half largely because of lower commodity prices and large one-off impairments. The company reported that lower realised commodity prices (notably a 28% fall in iron ore prices) accounted for about US$5.4 billion of the drop in underlying EBIT, and it took impairments of US$1.5 billion (after tax) on the Worsley alumina refinery and US$865 million on Nickel West.
BHP's aluminium and nickel division recorded the group's worst performance, with an underlying EBIT loss widening to US$285 million (from a US$66 million loss a year earlier). The division was hit by a changing alumina market and substantial impairments (including Worsley), so investors should watch alumina prices, Nickel West performance, and any further write-downs or management commentary on those businesses.
Yes. BHP declared a US57¢-a-share dividend, up 4% from US55¢ a year earlier. Despite the dividend increase, the share price fell about 0.9% (35¢) in local trade to $38.65, reflecting investor concern over earnings and impairment hits.
In the December half BHP completed or announced asset sales totalling about US$4.3 billion. Key transactions included a US$1.9 billion sale of its 37% stake in Richards Bay Minerals to Rio Tinto, a US$1.6 billion sale of a 10% interest in the Woodside-led Browse gas project to Shell, and a US$420 million sale of the Yeelirrie uranium deposit to Cameco.
Revenues fell 14% to US$32 billion (from US$37.5 billion a year earlier) and underlying EBIT fell 38% to US$9.8 billion (slightly above analyst consensus of US$9.5 billion). The main driver was lower commodity prices—especially iron ore—which accounted for most of the decline in underlying EBIT.
BHP's Western Australia iron ore division still generated US$4.6 billion (49% of underlying EBIT) but earnings were down 39% year‑on‑year despite record Pilbara sales volumes. The company spent US$164 million on capacity expansion (which reduced current earnings but should boost future production) and wrote off US$618 million on a proposed outer harbour expansion at Port Hedland while favouring a more cost‑effective inner harbour expansion instead.
Petroleum contributed about US$3.2 billion (33% of underlying EBIT) but was down US$939 million, partly because realised oil fell to US$105/barrel and gas to US$3.63/thousand cubic feet. Copper underlying EBIT rose US$326 million to US$2 billion. Metallurgical (coking) coal lost US$101 million amid a 37–39% drop in coking coal prices, and thermal coal EBIT fell from US$787 million to US$246 million.
Outgoing CEO Marius Kloppers told investors BHP would not be rushed into selling assets, warning that 'assets sold in haste ... you repent at your leisure.' CFO Graham Kerr also admitted they would have liked to spot the change in the alumina market earlier. The company timeline in the report notes Kloppers flagged his retirement and a reported search for a new CEO, which investors often watch because leadership changes can influence strategic decisions like asset sales and capital allocation.
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