Overview: BHP's FY14 earnings and demerger outline (Part 2 of 11)
BHP’s FY14 results
BHP Billiton’s (BHP) results were broadly in-line with market expectations. BHP’s underlying net profit after tax (or NPAT) of $13.45 billion is in-line with the $13.6 billion consensus expectation. It’s 10% year-over-year (or YoY) growth was driven primarily by cost efficiencies and volume growth.
Underlying earnings before interest, taxes, depreciation, and amortization (or EBITDA) of $32.4 billion was also almost in-line with the $31.6 billion consensus.
Better iron ore and coal offset petroleum’s weaker contribution. Earnings before interest and taxes (or EBIT) was at $22.9 billion against the $23 billion consensus expectation.
BHP’s capital expenditure (or capex) for fiscal year 2014 (or FY14) was $16 billion—down 28% YoY. The company also indicated that capex and exploration expenditure will decline to $14.8 billion in FY15. It will be below $14 billion when the demerger goes through. This should be positive for the free cash flow.
Focus on productivity measures
Productivity is a core driver for BHP’s value creation. The company stated that the cost savings are ~$2.9 billion. This also impacted cash flows positively. Operating cash flow came in at $25.4 billion—up 26% YoY. Free cash flow (or FCF) was $9.4 billion—an $8.1 billion increase in FY14. The growth was strong considering the weaker commodity prices. A $1.2 billion reduction in working capital contributed to the FCF growth.
The company also declared a final dividend of $0.62 per share versus the consensus expectation of $0.63 per share. It implies a payout ratio of 48%. BHP has said that the dividend will remain competitive despite the demerger.
BHP’s results are better than its peers like Rio Tinto (RIO), Vale SA (VALE), and Cliffs Natural Resources (CLF). Its peers released their results a few weeks ago. It’s also important to note that an exchange-traded fund (or ETF) like SPDR S&P Metals & Mining ETF (XME) is a good way to gain exposure to the metals and mining sector without picking individual companies.
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