As the largest mining company in the world, BHP Billiton is essentially a one-stop commodity shop.
BLT makes over half of its profits from mining commodities - particularly iron ore, coal and copper so it is extremely exposed to demand connected to manufacturing and infrastructure e.g. airports, railways and housing, particularly in emerging-market economies such as China.
Despite slowing global demand for base metals, particularly China, and the ongoing crisis in the euro zone, BHP Billiton remains one of the world's most powerful companies.
The interim results announced today showed underlying profit increased 31% from $5.9bn for the same period last year to $7.8bn, which beat analyst expectations of $6.9bn.(link via Investegate)
Iron ore is BHP’s most lucrative commodity and production increased by 19% for the half-year. Full-year production guidance remains unchanged at 192m tonnes and the group is on track to meet this target.
BHPs net debt has been reduced by $422m to $27bn and the company expect to reduce this by a further $2bn by the end of June.
The interim dividend is 59c - an increase of 3.5% on the previous year. The GB£ has strengthened against the US$ in recent months so I don’t expect any increase in the sterling payment when converted. .Dividend cover is currently 2.6x diluted earnings. Over the past 10 years, dividends have increased from 26 cents to 116 cents - a CAGR of 16%.
Commenting on margins and returns, the CEO Andrew Mackenzie said:
"The commitment we made 18 months ago to deliver more tonnes and more barrels from our existing infrastructure at a lower unit cost is delivering tangible results," he said.
"Annualised productivity led volume and cost efficiencies totalling US$4.9 billion are now embedded and this is expected to increase to US$5.5 billion by the end of the 2014 financial year.
"This sustainable increase in productivity supported a 9 per cent increase in the Group's Underlying EBIT margin to 38 per cent and a strong improvement in the Group's Underlying return on capital to 22 per cent."
BLT is a long-standing member of my ISA shares portfolio and, although the share price can be volatile, I am happy to continue holding for the income. The results have been well received by the market and the share price is up nearly 2% at 1945p.
More on this following the full year results.
As ever, please DYOR.