BHP Billiton slumps to record $6.4 billion annual loss

16 Aug 2016

Australian-British mining giant BHP Billiton has reported its worst performance since it was formed in 2001, pulled down by low commodity prices, declining production and a costly dam disaster in Brazil.

BHP registered an annual loss of $6.38 billion (Aus $8.3 billion), on the back of a long list of impairments, charges and exceptional items. The company reported an underlying attributable profit of $1.21 billion (Aus $1.6 billion) for the 2016 financial year ended 30 June 2016 against the previous year's underlying profit of $6.4 billion.

The worst losses came from the write downs on the carrying value of the US shale division and costs associated with the Samarco dam disaster in Brazil, which killed at least 19 people in November.

Total dividends for the year fell to 30 cents a share against last year's $1.24 return to shareholders. BHP's new dividend policy states that at least 50 per cent of underlying profits will be paid to shareholders every six months.

BHP Billiton delivered underlying EBITDA of $12.3 billion and an underlying EBITDA margin of 41 per cent in the 2016 financial year, despite significantly weaker prices across all our major commodities which had a negative impact of $10.7 billion.

The major losses came from a $4.9 billion fall in the value of its US shale oil and gas assets, $2.2 billion cost of the Samarco iron ore disaster in Brazil and $570 million set aside for global taxation reassessments.

Even excluding those write-downs, BHP Billiton's underlying net profit crashed 81 per cent to $1.22 billion.

The group achieved $437 million of productivity gains, or $2.0 billion, excluding the impact of grade decline at Escondida. Further improvements continue to be realised across the portfolio and we remain on track to deliver $2.2 billion of gains, or $3.8 billion, excluding the impact of grade decline at Escondida, over the two years to the end of the 2017 financial year.

BHP's production was lower year-on-year in all commodity groups except coking coal during the 2016 financial year, with output of the latter commodity rising by just 1 per cent.

During the period, conventional petroleum, Western Australia Iron Ore (WAIO), and Queensland Coal unit cash costs declined by 30 per cent, 19 per cent and 15 per cent respectively. Escondida unit costs increased by 11 per cent but excluding the impact of grade decline, unit costs decreased by 22 per cent.

The company has forecast that production of iron ore, copper, coking coal and nickel will rise in the 2017 financial year, but petroleum volumes are forecast to decline by 15 per cent year-on-year.

BHP measures its production across the group using a standardised formula that converts all commodities into "copper equivalent" production.

BHP's controversial US onshore petroleum business, where rigs can be moved and installed quickly, is particularly capable of responding quickly to commodity price movements.

But, commodity prices continued to work against the company, with average prices for its seven major commodities sliding year-on-year between fiscal 2015 and fiscal 2016.

Average iron ore prices declined 28 per cent year-on-year, while prices for copper and West Texas Intermediate crude oil were down 24 per cent and 36 per cent year on year.

Prices for benchmark Australian coking and thermal coals declined 22 per cent and 15 per cent, respectively.

BHP Billiton's slump in profit was largely driven by a 31 per cent dive in revenue due to plunging commodity prices.

The company said weaker commodity prices wiped $10.7 billion off its pre-tax earnings.

Chief executive Andrew Mackenzie said there were positives in the result, including reduced production costs and increased efficiency.

"We are clearly very disappointed with this result, however, the underlying performance of our business because of this focus on safety and productivity remains and is getting stronger," he told a media briefing.

''The last 12 months have been challenging for both BHP Billiton and the resources industry. Nevertheless, our results demonstrate the resilience of our portfolio and the diverse ways in which we can create value for shareholders despite low commodity prices. Unit cash costs across the Group declined 16 per cent and with increased capital efficiency, supported free cash flow generation of $3.4 billion despite weaker commodity prices. ''Next year, we expect another $1.8 billion of productivity gains as our new operating model helps sustain momentum, delivering more than $7 billion of free cash flow based on current spot prices and a forecast reduction in net debt,'' he said.

In relation to Samarco, he added, ''All of us at BHP Billiton remain deeply saddened by the Samarco tragedy. The company is fully committed to the Framework Agreement and its programs to remediate and compensate for the impacts of the Samarco dam failure. Good progress is being made on community resettlement, community health and environment restoration.''

Approximately two-thirds of the houses and buildings in the Mariana and Barra Longa region, outside of the communities to be resettled, have been completely rebuilt or restored. Samarco has been active in addressing the environmental impact of the dam failure. Samarco is building a series of dykes downstream of Fundão to capture sediment and reduce turbidity. A compensation programme has been developed under the Framework Agreement to ensure affected people receive fair and reasonable compensation. Preliminary compensation has already been paid to those most severely impacted.

''We remain committed to supporting Samarco with the recovery of the communities and environment …Responding to the tragedy following the failure of the Fundão tailings dam at Samarco on 5 November 2015 remains a priority for BHP Billiton. Sadly, authorities have confirmed 19 fatalities, of which five were members of the community and 14 were people who were working on the dams at the time of the dam failure.

The BHP board today decided to pay a final dividend of 14 US cents per share. The final dividend to be paid by BHP Billiton Limited will be fully franked for Australian taxation purposes, it added.

The company has set the record date (including currency conversion and currency election dates for ASX and LSE) at 2 September 2016. Payments will be made on 20 September 2016.

BHP Billiton Plc shareholders registered on the South African section of the register will not be able to dematerialise or rematerialise their shareholdings between the dates of 31 August and 2 September 2016 (inclusive), nor will transfers between the UK register and the South African register be permitted between the dates of 26 August and 2 September 2016 (inclusive).

American Depositary Shares (ADSs) each represent two fully paid ordinary shares and receive dividends accordingly.