BHP Record Dividend Despite 40% Profits Drop

Mining giant BHP Billiton has announced a record dividend to shareholders funded by the sale of shale assets

Glenn Freeman 21 August, 2018 | 9:28AM
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Mining giant BHP Billiton (BLT) has reported $3.7 billion full-year year post-tax profits, down 37% on 2017, due to an impairment charge related to US onshore oil and gas assets and losses related to the Samarco dam disaster.

However, despute the drop in net profits, management also announced a record dividend to 63 cents a share, up more than 40%.

"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."

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

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

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

Following BHP's latest production forecast, Morningstar senior equity analyst Mat Hodge last month said management's anticipated $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 $10 to $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% and 6%, respectively, to $1.69 and $1.40 a share.

BHP's full-year iron ore production was 3% higher at 275 million tonnes, while copper output jumped 32%. However, the petroleum division posted an 8% fall in production.

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

BHP's share price was trading at £16.15 at time of publication, a more than 30% premium to Morningstar's most recent £13.80 fair value estimate.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Glenn Freeman  is Senior Editor for Morningstar Australia