The Rising Influence of Rising Affluence

[DewDiligence]

BHP Posts Record FY2011 Profit

[BHP reported its FY2011 production in mid July (#msg-65432652), so the earnings numbers reported this week were somewhat anticlimactic despite the record results.

I think BHP/BBL is a fine company, but I recently sold BBL (#msg-66381289) because I thought CLF and VALE represented better values. BHP’s own PR on the FY2011 results is at
http://www.bhpbilliton.com/home/investors/reports/Documents/110824_BHP%20Billiton%20Preliminary%20Results%20for%20the%20full%20year%20ended%2030%20June%202011.pdf . CC slides are at:
http://www.bhpbilliton.com/home/investors/reports/Documents/110824_BHP%20Billiton%20Preliminary%20Results%20for%20the%20full%20year%20ended%2030%20June%202011_Presentation.pdf .]

http://online.wsj.com/article/SB10001424053111904787404576527633474460572.html

›AUGUST 24, 2011, 5:10 P.M. ET
By ROBB M. STEWART

MELBOURNE—Benefiting from strong prices for iron ore and other commodities, BHP Billiton posted a jump to a record full-year profit but cautioned it faces rising costs even as demand for its products is expected to remain strong.

The world's largest mining company continues to invest heavily in expanding its minerals and petroleum operations and said an increased dividend reflects its confidence in the long-term outlook for its core commodity markets, but higher prices for minerals now will mean rising costs later.

BHP's net profit rose 86% to US$23.65 billion in the year ended June 30, a record for an Australian company, compared with a net profit of $12.72 billion a year earlier. Revenue rose 36% to $71.74 billion. [This excludes the HK acquisition, which has not yet closed.]

Stripping out one-time items, underlying earnings before interest and tax in the latest year totaled $31.98 billion, up 62% and slightly ahead of analysts' consensus expectations. The devaluation of the U.S. dollar and inflation reduced underlying earnings by $3.2 billion, BHP said.

"There will be cost pressures going forward," Chief Executive Marius Kloppers told reporters during a conference call.

"We know that given our pattern of purchases that [an increase in raw-commodity prices] takes a couple of quarters to work its way through the cost line because we purchase many of these commodities that we produce. For example, we sell iron ore, we buy steel; we sell crude oil, we buy refined products and lubricants," Mr. Kloppers said.

Melbourne-based BHP said global imbalances and high levels of sovereign debt in the U.S. and Europe were continuing to create uncertainty, but commodities demand was expected to remain strong despite China's efforts to cool its economy. Fixed-asset investment in China, which has been the engine of global growth since the financial crisis, has yet to fully reflect Beijing's moves to tighten monetary policy and rein in excessive lending, BHP said.

"Despite these near-term challenges, we remain positive on the longer-term outlook for the global economy," BHP said in a written statement.

Rio Tinto PLC Chief Executive Tom Albanese early this month flagged risks to commodity markets from monetary-policy tightening in developing countries and the possibility of a financial crisis arising from U.S. and European sovereign-debt problems. The caution tempered an otherwise confident outlook for commodities after the mining company posted a 30% rise in first-half earnings and said it plans to increase its share buyback to $7 billion, from $5 billion. Rio Tinto plans to complete the buyback program by the end of March.

BHP completed a $10 billion repurchase program in June, six months ahead of schedule. Mr. Kloppers said the company is holding back on further buybacks to protect its credit rating in the wake of this month's $12.1 billion acquisition of shale-gas company Petrohawk Energy Corp. [#msg-65211152].

Mr. Kloppers added that BHP prioritizes dividend payouts. The final dividend was raised 22% to 55 cents a share, for a payout of $1.01 for the year.

BHP—the world's biggest producer of coking coal by volume and a top producer of copper, iron ore, nickel and silver—in February committed to spending $80 billion by 2015 on large ore deposits such as potash in Canada, the Escondida copper mine in Chile and iron ore from Australia's Pilbara region. Mr. Kloppers said $20 billion will likely be invested on projects and exploration this year, up sharply from $12.8 billion in 2010-11.‹