Mining giant BHP Billiton (ASX: BHP) has reported US$3.7 billion full-year year net profits, down 37 per cent on 2017, due to US$5.2 billion of impairments and charges.

However, management also announced a record dividend of 63 US cents a share fully-franked, 20 US cents up on fiscal 2017's previous record of 84 cents.

"Our relentless focus on safety and productivity has released additional volumes across our supply chain, with eight per cent volume growth for the year," says chief executive Andrew Mackenzie.

"Our balance sheet is strong, with net debt now at the lower end of our target range, and our investment plans on track across iron ore, copper, coal and petroleum."

mining copper

Elevated commodity prices helped BHP's full-year performance

Excluding the significant items, underlying profit for the company rose 33 per cent to US$8.93 billion, missing analyst expectations for profit of around US$9.1 billion.

Revenue for the year rose 21 per cent to US$43.6 billion, helped by higher production and stronger copper, coal and oil prices.

The adjusted net profits result, however, fell well short of last year's US$6.7 billion, as heavy write-downs on its US shale assets took effect. These are currently being divested to British oil major BP and US group Merit Energy.

Following BHP's latest production forecast, Morningstar senior equity analyst Mat Hodge last month said management's anticipated US$10.7 billion sale of its shale assets was "in line with our estimate of their value".

"With the balance sheet in excellent shape and net debt towards the lower end of the US$10 to US$15 billion target range, BHP intends to return the proceeds to shareholders," he said at the time.

We have mixed feelings about the sale but on balance feel the price is fair," Hodge said, citing the high cost it paid for the assets, which mean it "generated poor returns and earnings before tax losses on shale".

On the other hand, he said retention of thes would have offered BHP an alternatie investment option, "and in general, we think greater investment choices bring a mild benefit".

Hodge also increased his earnings forecasts for fiscal 2019 and 2020 last last month, revising these up 5 per cent and 6 per cent, respectively, to US$1.69 and US$1.40 a share.

BHP's full-year iron ore production was three per cent higher at 275 million tonnes, while copper output jumped 32 per cent. However, the petroleum division posted an eight per cent fall in production.

The company recorded a loss of US$650 million related to the 2015 Samarco dam failure in Brazil.

BHP's share price was trading at US$32.69 at time of publication, a more than 30 per cent premium to Morningstar's most recent US$24.50 fair value estimate.

BHP misses profit estimates

  • Net profit down 37pct to US$3.7b
  • Revenue up 21pct to US$43.6b
  • Underlying profit up 33pct to US$9.6b
  • Fully-franked final dividend 63 US cents/sh vs 43 US cents year ago

 

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Glenn Freeman is senior editor, Morningstar Australia

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