BHP 1.16% $45.31 bhp group limited

Ready to roll...

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    BHP Billiton ready to play in first grade
    By Jane Counsel
    May 2 2002

    Shipshape ... BHP is travelling well to regain its mooring among the nation's biggest earners despite an ordinary third quarter. Photo: Kirk Gilmour

    BHP Billiton is set to rejoin the ranks of Australia's most profitable companies, despite reporting a disappointing third quarter net profit of $US406 million ($756 million).

    The result for the three months to March 31 was down 22 per cent and at the lower end of market expectations.

    With the nine-month result $US1.6 billion ($3 billion) BHP Billiton on is on track for a record 12-month result of at least $3.5 billion which, on last year's numbers, is second only to Telstra.

    Although investors reacted negatively to the result by marking down shares in the UK-listed BHP Billiton plc in early trading last night, the company's chief executive, Paul Anderson, was more upbeat.

    "This is a sound result in the face of difficult market conditions," Mr Anderson said.

    But BHP Billiton set the scene for a flat fourth quarter by warning that it had still to see evidence of a sustained economic recovery in its earnings stream.

    "Although there have been some signs of a modest improvement in the global economic environment, concerns remain about the strength and sustainability of the recovery," deputy chief executive Brian Gilbertson said.

    "Industry stock levels for a number of our major commodities remain high and we see little evidence of an increase in demand by the ultimate customers of many of our products."

    He added that the situation would limit price increases for the company's commodities in the short-term which, combined with a weakening in the US dollar, would continue to have an impact on earnings.

    Excluding exceptional items, earnings before interest and tax fell from $US970 million to $US761 million for the period.

    The fall largely reflected the impact of weaker commodity prices, particularly for petroleum, which caused BHP Billiton's turnover to fall by $US260 million.

    Petroleum's contribution to the overall result sank 40 per cent on the previous corresponding period with earnings before interest and tax (EBIT) of $US251 million.

    A large part of that fall came from the fact that the company's average realised oil price fell to $US20.92 a barrel from $US26.81 barrel 12 months ago. Reduced crude oil volumes and a significantly lower average LPG price also affected the result.

    The soon-to-be-spun-off steel division was an even bigger disappointment with its earnings before interest and tax (EBIT) contribution slumping 76.7 per cent to just $US10 million.

    The weaker result reflected lower international steel prices and reduced profits from the restructured Transport & Logistics business.

    BHP Billiton's iron ore and coking coal division was one of the few highlights, with EBIT increasing 10 per cent to $US266 million.

    The increase was largely driven by higher coking coal prices and higher coal sales following the integration of the QCT operations in Queensland.

    The company's hot briquetted iron (HBI) plant however, remains a concern.

    The plant, which at present is shut down as the company rectifies a problem with its gas furnaces, had its losses blow out to $US32 million during the period.

    That's an increase on the $US29 million loss reported for the same period 12 months ago.

    Securities analysts said the number would continue to pressure BHP Billiton's decision to keep the plant operating in the face of a weak international steel market.

    Behind iron ore and coking coal, the aluminium division was the next highest earnings generator, reporting a flat EBIT of $US133 million.

    A 12 per cent fall in the average LME price was a major factor in the division's 1.5 per cent earnings fall although it was partially offset by lower costs and higher profits from the core Worsley alumina refinery.

    Despite its massive asset base, a low copper price triggered a 55.6 per cent fall in returns from the base metals division, which returned EBIT of just $US52 million.

    BHP Billiton has announced a final dividend of US6.3c fully franked.

    BHP Billiton shares closed 5c firmer at $10.85 but are expected to come under pressure when trading resumes this morning as analysts move to roll back their full-year earnings forecasts.

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