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12 August
MELBOURNE,
Press Release
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Today BHP Billiton released its financial results for the year ended 30 June 2009. - A strong financial result, despite very challenging market conditions. BHP Billiton’s 2009 financial year results demonstrate the success of our strategy in delivering a consistently strong performance throughout the cycle. Our portfolio of long-life, low-cost and diversified assets continued to yield strong margins and cash flows, despite the pressures of the current economic environment. Our low financial and operational leverage and a strong balance sheet enabled us to continue to invest in future growth. The past year encompassed both record commodity prices in many products and a collapse in demand, exacerbated by dramatic movements in inventory levels. While the impact of weaker commodity prices and While Underlying EBIT decreased by 25.0 per cent to US$18,214 million, we generated record net operating cash flows (up six per cent to US$18,863 million). The outstanding cash flow result has allowed us to reduce our net debt to US$5,586 million and continue to invest strongly in our capital and exploration programs (US$10,735 million). The Group’s financial strength has been a clear competitive advantage during the severe economic downturn. It leaves us well positioned to invest in growth and participate in opportunistic mergers and acquisitions. The Western Australia iron ore production joint venture with Rio Tinto is an example of our focused pursuit of capacity growth in Tier One assets. More importantly for our shareholders, our balance sheet strength has allowed us to maintain our progressive dividend policy, increasing our full year dividend by 17.1 per cent to US 82 cents per share. Nevertheless, we were not insulated from the swift and dramatic economic downturn and took decisive actions in response to changing market conditions. This included the decision not to proceed with the Rio Tinto takeover offers, production adjustments to match decreased demand, the suspension and sale of cash negative operations, and deferral of lower priority capital expenditures. Commodities Outlook The 2009 financial year was a year of two distinct periods. The first period was typified by steep falls in prices, essentially across all commodity markets in which BHP Billiton operates. Spot prices for our commodities fell between 50 to 90 per cent over this period as an aggressive de-stocking occurred in all regions. Lower prices led to supply-side cuts of five to 25 per cent year on year across the commodity suite. While demand in developed markets remains constrained, a brighter outlook has emerged recently from some of the developing markets. China and India demand returned earlier than many expected, as those economies began to re-stock. In China in particular, re-stocking coupled with stimulus package spending, fuelled strong real demand in key commodity-intensive industries such as infrastructure, construction and real estate. In the second half of the financial year, spot prices for our commodities increased by up to 90 per cent from the December 2008 lows. However, despite the recent price rally, commodity prices at the end of the 2009 financial year were generally 20 to 60 per cent lower than at the start of the year. The commodity re-stocking in China now appears largely complete with substantial inventory build in specific commodities over the last three months at end-user level and in strategic stockpiles. Chinese demand has been exceptionally strong in cases in which imports have replaced higher cost domestic production (such as in iron ore) or where commodities have substituted unavailable products (such as copper cathode for copper scrap). We expect Chinese demand to more accurately reflect real end-user purchasing in the near term. After intensive destocking, there is emerging evidence of demand improving in North America, Europe and Japan. It is too early to tell whether this improvement is driven only by a re-stocking or a combination of re-stocking and real demand. Real demand following the stimulus spending will be the key to a sustainable price recovery. However, further improvements in commodity prices in the short term should be viewed in the context of the likely supply responses from latent capacity across the industry. In the long term we continue to expect strong growth in demand for our commodities. As we have consistently stated, long term prices will continue to be driven by the long-run marginal cost of supply. With reduced capital investment over the past year, supply may struggle to keep pace with demand in the medium term when growth recovers. Growth Projects During the period, we completed six major projects (one manganese and five oil and gas projects). In addition, the Alumar Refinery Expansion (alumina) delivered first production on 9 July 2009. Highlighting our commitment to long term growth, we sanctioned a total of US$5,850 million of investments in one iron ore and three oil and gas projects. Subsequent to the financial year end on 24 July 2009, we announced the approval of the MAC 20 (energy coal) project at Hunter Valley Coal (Australia) operations. Aluminium Underlying EBIT was US$192 million, a decrease of US$1,273 million or 86.9 per cent from the corresponding period. Lower LME prices and premiums for aluminium had an unfavourable impact of US$1,293 million. This was partially offset by a US$131 million positive impact of price-linked costs. The average LME aluminium price decreased to US$1,862 per tonne (compared with US$2,668 per tonne). Higher operating costs also had an adverse impact. This was due to higher charges for raw materials, mainly as a result of increased coke and caustic prices and higher energy costs. Underlying EBIT was also adversely impacted by the closure of the B and C potlines at Bayside Aluminium. However, the benefit of a stronger US dollar and a strong focus on business improvement initiatives reduced the full impact of cost increases. Favourable embedded derivatives revaluation increased Underlying EBIT by US$170 million. | |||