BHP First Half Profit Falls 58%

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The share price of mining giant BHP Billiton (LSE:BLT) has traveled an upward trajectory since May 2012, from 1,681 on 23 May to 2,236 at 19 February 2013.  Although the stock remained above its 90 day moving average from 25 July onward, the price hit a number of pitfalls along the way.  Today was one of those pitfall days.

BHP share price was down 48.5 pence to 2,187.5 by early afternoon after the company released its results for the first six months ending 31 December 2012 and, simultaneously, the resignation of CEO Marius Kloppers.

If Kloppers’ resignation was directly tied to the 58% drop in corporate profits year on year, the company announcement surely didn’t frame it that way.  Instead of the usual maudlin comments and brevity common in resignation announcements, this one,  both Jacques Nasser, company chairman, and Andrew MacKenzie, Kloppers anointed successor, framed Kloppers’ resignation within the corporate succession plan.  This, of course, is intended to paint a picture within that frame that is rosier that it may really be.

Nasser said, “Marius was appointed Chief Executive just prior to the global financial crisis. Despite an exceptionally difficult economic environment during his tenure, Marius and his team have delivered for shareholders, significantly outperforming our peers in terms of total shareholder returns. He drove new investments into next generation opportunities including US onshore gas and liquids and created one of the most valuable companies in the world.  He leaves BHP Billiton a safer and stronger company.”  Still, a 58% decline in profit is a black eye that is hard to hide.

During the first six months of their fiscal year, BHP revenue was down 14.1% from $37,480 million to $32,204 million.  Underlying EBITDA fell 29.3% from $18,743 million to $13,244 million.  Operational profit declined 55.8% from $15,853 million to $7,005 million.  Net cash flow dropped 47.9% from $12,280 million to $6,402 million.  The aforementioned 58% decline in profitability represented a fall from $10,045 million to $4,238 million.

The board culled together an adequate explanation of the difficult economic time saying, “The start of the 2013 financial year was characterised by slowing global growth and a heightened level of economic uncertainty. International trade had contracted and China, the most significant driver of recent global economic growth, had implemented measures aimed at re-balancing its economy. China was also preparing for a transition in leadership, the United States was heading towards its Presidential elections, and there were significant concerns about the level of sovereign indebtedness, most notably in Europe.

BHP is anticipating the global economy to improve and is expecting supply and demand to be such that it will favor the suppliers of commodities.

The company continues to pursue its course of divestment strategy.  The company either announced or completed the sale of $4.3 billion in assets during the six-month reporting period.  This strategy speaks to the company’s need for cash and it’s need “to simplify the portfolio over time.”  More than likely the prudent approach for BHP, and its partners and competitors as well, we should be able to discern whether it is true or not that “One man’s trash is another man’s treasure.”

It will be interesting to see how BHP fares during the second half of the year.  Regardless, the results will continue to be the burden of Marius Kloppers as his resignation is not effective until 10 May 2013, just six weeks shy of the fiscal year end.

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