Earnings down, dividend higher, another complex earnings result from the world’s biggest mining company, BHP Billiton.
By one measure, net profit was down 61%, but that was after accounting for the odd problem, such as the Ravensthorpe nickel mining project and associated processing infrastructure in north Queensland.
By another, the result was down 25%, which isn’t as serious as the falls of around 30%-40% that some forecasters were thinking of in the lead up to yesterday’s earnings report for 2008-09.
But it was the first fall in profit for seven years, which was to be expected given the enormity of the credit crunch and global slump in 2009.
Net profit for the year ended June 30 was $US5.877 billion ($A7.09 billion), down from $US15.39 billion ($A18.56 billion) in the previous financial year, after what the company said were "very challenging market conditions".
BHP shares ended up 39 cents at $37.99.
BHP said earnings before interest and tax (EBIT) were $US18.21 billion ($A21.96 billion), down 25% from 2008.
At the half way mark the company said underlying EBIT increased 23.7% over the corresponding period to US$11.9 billion, with a healthy Underlying EBIT margin of 45.6%.
That was driven by record prices for oil and gas, coal and iron ore. Second half earnings slumped sharply on lower prices and demand.
"Attributable profit and profit from operations fell 56.5 per cent and 23.8 per cent respectively, as a result of a number of exceptional items, the majority of which are non-cash.
“These items include the indefinite suspension of Ravensthorpe (Australia), costs relating to the Rio Tinto offers, impairment of assets and increased rehabilitation provisions for Newcastle steelworks (Australia)," the company said.
"In the long term we continue to expect strong growth in demand for our commodities," the company said yesterday in its ASX statement.
"As we have consistently stated, long term prices will continue to be driven by the long-run marginal cost of supply.
"With reduced capital investment over the past year, supply may struggle to keep pace with demand in the medium term when growth recovers," it said.
In January, BHP Billiton said in response to the worldwide economic slowdown it was cutting its workforce by about 6,000, down from 100,000.
It has since announced other job cuts at various projects around the world.
The company will pay a fully franked final dividend of 41 US cents, taking the total for the year to 82 US cents. The final was steady on the interim and on the final for 2008.
For the 2009 year the payout is 82 US cents a share, up from the 70 US cents for 2008.
That’s perhaps the best indicator of the way the company looked at the 2009 outcome and the 20201 outlook: cautious, but still willing to give shareholders a higher payout.
In its 2009 report directors said BHP’s latest 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."
Directors said the profit was after:
Lower sales volumes (predominantly in Base Metals and Manganese) reduced Underlying EBIT by US$2,523 million.
Copper sales volumes were impacted by lower ore grade and reduced output
