Mining heavyweight BHP Billiton Limited (ASX: BHP) released its full year results after the market closed on Tuesday, unveiling a massive US$13.83 billion net profit and confirming a planned demerger of a basket of its non-core assets.
Surprisingly, no share buyback was announced which could impact how the market reacts to BHP's results. Shares in the FTSE-listed BHP Billiton plc (LON: BHP) were down more than 4% overnight.
The Demerger
Reports of a demerger of a series of non-core assets have been the hot topic surrounding BHP Billiton over the last week after it confirmed it was looking to accelerate simplification of its portfolio. The company issued a sensitive announcement on Monday afternoon which highlighted its plans to "unlock shareholder value" by spinning off high-quality aluminium, coal, manganese, nickel and silver assets.
Doing so would allow the company to focus on its major operations, specifically those in its iron ore, copper, petroleum and potash divisions. This would allow for improvements in costs and productivity while a superior return on investment is also expected.
BHP's Nickel West business will not be spun-off into the new entity, although a sale of the assets will continue with a number of parties said to be interested.
The new company to be created will be known as, 'NewCo', and shareholders in BHP's dual-listed entities in Australia and the UK will be entitled to 100% of the shares, which will be listed on the ASX. BHP Billiton's current chief financial officer, Graham Kerr, would be its first chief executive.
The process is expected to be completed sometime in the first half of 2015.
The result
BHP Billiton Limited defied tumbling iron ore and copper prices to record underlying earnings of US$13.4 billion, which were slightly below consensus of US$13.58 billion according to Bloomberg. Regardless, it was a 14% improvement compared to last year's result, driven largely by a strong boost in exports and significant cost reductions.
Here are some of the other highlights from the miner's full-year result.
- Full-year net profit up 23% to US$13.8 billion compared to 2012/13
- Earnings up 11.5% to US$23.4 billion
- Diluted Earnings Per Share (EPS) up 23.3% to US259.1 cents per share
- Net debt remains at US$25.8 billion
- Final dividend of US62 cents per share up from last year's US59 cent dividend, thus giving BHP Billiton a full-year dividend of US$1.21 per share
Performance breakdown
The biggest improvements in earnings came from BHP's iron ore division, as well as aluminium, manganese and nickel. A massive increase in iron ore production (225 million tonnes for the year) saw earnings from the commodity rise 17.5% to US$12.1 billion. Here are some of the other highlights.
- Aluminium, manganese and nickel divisions earned US$307 million, up from a US$3.77 billion loss
- Copper earnings dropped 6.5% to US$5.6 billion
- Coal earnings dropped from US$516 million to US$386 million
- Petroleum and potash earnings of US$5.3 billion, down from US$6.9 billion
In my opinion, BHP Billiton is a good buy for long-term investors who want to solidify their portfolio. Its high level of diversification makes it a relatively safe bet while further improvements to productivity and cost reductions will only help drive earnings higher in the long run.
However, given the sheer size of BHP Billiton, any capital gains may be more limited than those from smaller entities over the coming years. That's why our top analyst Scott Phillips embarked on a search for the best of the best small-cap resources stocks that could reward investors in the future.
