BHP Shatters Profit Records

BHP Billiton (ASX:BHP) left competitors in the dust as it delivered the biggest record profit in Australia's history and the seventh biggest in the world's. BHP's net earnings soared by a whopping 85.9 percent to $22.5 billion as major price gains in iron ore and coking coal erased the effects of rising costs and tiny volume drops.

Underlying profit was slightly below analyst expectations at US$21.7 billion, a 74 percent increase. Commodity price gains added US$17.2 billion to the year's underlying earnings before interest and tax of US$32.98 billion but increased costs and exchange rates cut profit by US$4 billion. Another US$500 million was lost due to a drop in volumes.

Investors and some analysts were disappointed, however, as no buyback or special dividend was declared. Chief executive Marius Kloppers cited a 27 percent rise in gearing after the US$12.1 billion PetroHawk shale gas acquisition and the weak economy for not giving shareholders a special dividend or buyback.

"Given the somewhat volatile forward outlook, where everybody is uncertain, that level of gearing and our commitment to a strong single-A (credit rating) outlook, that probably drove our decision," said Kloppers. He added that another factor was the company's raising of its final dividend by 22 percent to US55 cents, fully franked.

The company's West Australian iron ore business proved to be the biggest earner, adding 122 percent in EBIT to US$13.33 billion at a profit margin of 65 percent. Base metals came next, up 47 percent to US$6.79 billion, followed by petroleum, adding 38 percent to US$6.33 billion.

BHP said the strength of fundamentals will continue due to a gap in supply and rising costs, even though iron ore and coking coal demand from China may prove unsustainable.

"Progressively, higher-cost sources of new supply will be required, supporting long-run commodity prices and operating margins for the low-cost producers," said BHP.

Analysts, however, cast doubt on whether the the record results may be enough to raise BHP's share price.