Markets

BHP Billiton Targets New Acquisitions

BHP Billiton has the right amount in its coffers to aim for another acqusition, CEO Marius Kloppers announced in a briefing in London.

"The balance sheet has got capacity" for sizable M&A, Kloppers, 48, told reporters at a briefing in London. "Opportunity has always been the limiting factor, not ability to fund, and I don't think that that has changed."

He noted that although there are no clear indications of possible acquisitions from a regulatory perspective in iron ore and coking coal, there is growth coming from the "base metals, copper, or petroleum, oil and gas, or potentially in potash."

Aireview reports that all year-round the company generated earnings almost similar to the good margins posted in 2010 calendar year.

The company, has reported a record 2010-11 as underlying earnings before interest, tax, depreciation and amortisation (EBITDA), up 51% to US$37.1 billion, underlying earnings before interest and tax (EBIT) up 62% to US$32.0 billion and attributable profit (excluding exceptional items) up 74% to US$21.7 billion.

The company earned $US10.5 billion in attributable profits in the first half and around $US11.67 billion in the second half.

Including exceptional items, profit was $US23.6 billion ($A22.5 billion), which topped most analyst estimates, thus breaking the previous record, set by it in 2010.

Revenue increased 35.9% to $US71.73 billion (up 39% at the half way mark at $US34.166 billion).

Profit would have been substantially higher, as BHP said the devaluation of the US dollar and inflation in costs and charges reduced underlying EBIT by a US$3.2 billion.

And there were also the costs of the floods and heavy rain on the company's huge Queensland coal businesses, with millions of tonnes of output and sales worth hundreds of millions of dollars.

But the floods and also push up prices which benefitted the company.

The shares traded lower and higher during the day ahead of the results' release just after the end of trading. The shares closed steady on $38.21.

And the world's biggest miner said that despite signs of a slowdown in some developed economies and the worries in the eurozone, it sees ''robust demand'' for key commodities in the short and medium term.

BHP said in its profit statement that its strong margins and returns were illustrated by an increase in Underlying EBIT margin to 47% (47c in every dollar profit) and Underlying return on capital to 39% (a return of 39c of profit for every $1 invested in the business).

As reported last month, the company saw record production across four commodities and ten operations in 2010-11.

Cash flow hit a record US$30.1 billion and (debt) gearing of 9% "confirms (the) capacity to comfortably fund the Group's US$15.1 billion acquisition of Petrohawk Energy Corporation and extensive organic growth program."

During the year the company completed an expanded US$10 billion buyback six months ahead of schedule, and invested US$12.4 billion across its tier 1 portfolio of minerals and energy assets.

And the final dividend was lifted to 55 USc (a rise of 22%) to $US1.01 a share.

The standout performers for BHP were:

Iron ore:

Underlying EBIT increased by 122 per cent to US$13.3 billion for the 2011 financial year driven by record production and a significant improvement in iron ore prices. For the period, average realised iron ore prices increased Underlying EBIT by US$8.5 billion following the important transition to shorter term, landed, market based pricing.

Base metals:

Underlying EBIT for the 2011 financial year increased by US$2.2 billion or 47 per cent, to US$6.8 billion. Higher average realised prices for all of our core products favourably impacted Underlying EBIT by US$3.3 billion (net of price linked costs).

Petroleum:

Underlying EBIT of US$6.3 billion represented an increase of US$1.8 billion or 38 per cent when compared with the prior period. Higher average realised prices were a major contributor to the increase in Underlying EBIT (US$1.5 billion, net of price linked costs) and reflected a 28 per cent increase in oil prices to US$93.29 per barrel, a 22 per cent increase in realised liquefied natural gas prices to US$11.03 per thousand standard cubic feet, and a 17 per cent increase in natural gas prices to US$4.00 per thousand standard cubic feet.

Coking Coal:

Underlying EBIT was US$2.7 billion, an increase of US$617 million or 30 per cent from the corresponding period. The increase was mainly attributable to the 48 per cent and 45 per cent improvement in average realised prices for hard coking coal and weak coking coal, respectively. In total, stronger prices increased Underlying EBIT by US$2.1 billion, net of price linked costs.

Thermal coal:

Underlying EBIT increased by 55 per cent to US$1.1 billion in the 2011 financial year. The 31 per cent rise in average realised prices, which increased Underlying EBIT by US$917 million for the period, reflected a higher proportion of export sales.

"BHP Billiton's strategic focus on large, low cost and expandable assets once again delivered record financial performance and returns," directors said.

"An ongoing commitment to invest through all points of the economic cycle delivered record annual production across four commodities and ten operations.

"Our decision to invest in our Western Australia Iron Ore business during the depths of the global financial crisis facilitated an eleventh consecutive annual increase in iron ore production, as prices continued to test new highs.

"Three major projects delivered first production in the 2011 financial year including the New South Wales Energy Coal MAC20 Project (Australia), which was completed ahead of schedule.

"Robust demand, industry wide cost pressures and persistent supply side constraints continued to support the fundamentals for the majority of BHP Billiton's core commodities.

"In that context, another strong year of growth in Chinese crude steel production ensured steelmaking material prices were the major contributing factor to the US$17.2 billion price related increase in Underlying EBIT."

But it was not all superlatives. BHP's profit statement carried a more detailed statement of concern about cost pressures.

"BHP Billiton has regularly highlighted its belief that costs tend to lag the commodity price cycle as consumable, labour and contractor costs are broadly correlated with the mining industry's level of activity.

"In the current environment, tight labour and raw material markets are presenting a challenge for all operators, and BHP Billiton is not immune from that trend.''

Overall, though, BHP is still confident, saying said it expected robust demand for commodities in the short and medium term, driven by emerging economies.

It also remained positive on the longer term outlook for the global economy, with recent economic data suggesting monetary policy tightening in China and India was "having the intended effect".

This outcome followed a slow down in global economic growth during the second half of 2010/11 as tightened monetary policy in emerging markets, the tsunami in Japan and fiscal austerity measures dented commodities demand.

"Global imbalances and high levels of sovereign debt continue to create uncertainty and a protracted recovery remains our base case assumption for the developed world.

"However, a coordinated policy response has the potential to engender confidence and ease the volatility that has been the dominant theme of recent years.

"Despite these near term challenges, we remain positive on the longer term outlook for the global economy.

"Over the past decade, emerging economies have contributed more to global growth than the developed world and we expect their share to expand as the process of urbanisation and industrialisation continues," director said. With reports from Aireview

Copyright Australasian Investment Review.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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